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Exhibit 10.10
XXXXXXXX.XXX INCORPORATED
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is made as of this 30th day of September,
1999 (this "AGREEMENT"), by and between XXXXXXXX.XXX INCORPORATED, a New York
corporation (the "COMPANY"), and PNC INVESTMENT CORP., a Delaware corporation
(the "INVESTOR").
The Parties Hereby Agree as Follows:
1. PURCHASE AND SALE.
1.1 SALE AND ISSUANCE OF SERIES C NON-VOTING CONVERTIBLE PREFERRED STOCK.
Subject to the terms and conditions of this Agreement, the Investor agrees
to purchase at the Closing, and the Company agrees to sell and issue to the
Investor at the Closing, against cash payment, one million (1,000,000) shares of
Series C Non-Voting Convertible Preferred Stock (the "Series C Preferred
Shares") of the Company each at a purchase price of $4.00 per share. The
Designation of Rights and Preferences of the Series C Preferred Shares, which
will be adopted by the Company's Board of Directors and filed with the New York
Secretary of State, pursuant to Section 8.3 hereof, is attached hereto as
Exhibit 1.
1.2 CLOSING.
The purchase and sale of the Preferred Shares being purchased by the
Investor shall take place on September 30, 1999, or at such other time and at
such place as the Company and the Investor mutually agree upon (the consummation
of such purchase and sale at such time and place is designated the "Closing").
At the Closing, the Company shall deliver to the Investor certificates
representing the number of Series C Preferred Shares which the Investor is
purchasing against delivery to the Company by the Investor of cash or a
certified bank cashier's or other check reasonably acceptable to the Company, or
by wire transfer to the Company's account, in the amount of four million United
States Dollars ($4,000,000)
1.3 USE OF PROCEEDS.
The Company agrees to use the proceeds from the sale of the Preferred
Shares for working capital purposes, for the repayment of outstanding
obligations and for the reduction of trade debt.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Investor that, except as
disclosed by the Company to the Investor in a letter of even date herewith:
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2.1 INCORPORATION.
The Company and its two subsidiaries, Xxxxxxxxxxx.xxx Incorporated and
Citation Corporation (the "Subsidiaries") is each a corporation, duly organized,
validly existing and in good standing under the laws of the state or place of
its incorporation. The Company and the Subsidiaries each has the full power and
authority to own and operate its properties and to carry on its business as now
conducted and as proposed to be conducted. The Company does not have any direct
or indirect subsidiaries other than the Subsidiaries. [
2.2 CAPITALIZATION.
The authorized capital of the Company consists of one hundred million
(100,000,000) shares of Common Stock, $.001 par value per share ("Common
Stock"), of which at Closing not more than nine million eight hundred forty-six
thousand three hundred fourty (9,846,340) shares will be issued and outstanding,
and ten million (10,000,000) shares of preferred stock, of which (i) two million
five hundred thousand (2,500,000) shares have been designated Series A Preferred
Shares, of which eight hundred ninety thousand (890,000) are issued and
outstanding as of the date hereof; (ii) three hundred thousand (300,000) shares
have been designated as Series B Preferred Stock, of which two hundred seventy
nine thousand seven hundred seventy one (279,771) are issued and outstanding as
of the date hereof and (iii) one million (1,000,000) shares have been designated
as Series C Preferred Shares, of which none are issued and outstanding as of the
date hereof. Immediately prior to the Closing, one million two hundred fifty
thousand (1,250,000) shares of Common Stock will be reserved for issuance upon
the conversion of the Series C Preferred Shares. Schedule 2.2 sets forth a
complete list of all issuances of capital stock made by the Company other than
those resulting from the reverse merger of the Company effective as of March 5,
1999.
2.3 AUTHORIZATION.
All corporate action on the part of the Company, its officers, directors
and shareholders necessary for the authorization, execution, delivery and
performance of all obligations of the Company under this Agreement and for the
authorization, issuance and delivery of the Preferred Shares being sold
hereunder has been or shall be taken prior to the Closing, and this Agreement,
when executed and delivered, shall constitute a valid and legally binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application. Issuance of the Preferred
Shares is not, and issuance of the Common Stock issuable upon conversion of the
Preferred Shares will not, be subject to preemptive rights or other preferential
rights of any present or future stockholders in the Company.
2.4 VALIDITY OF SECURITIES.
The Preferred Shares to be purchased and sold pursuant to this Agreement,
when issued, sold and delivered in accordance with its terms for the
consideration expressed herein, shall be
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duly and validly issued fully paid and nonassessable. The Common Stock issuable
upon conversion of the Preferred Shares has been duly and validly reserved and
upon issuance will be duly and validly issued, fully paid and nonassessable.
2.5 GOVERNMENTAL CONSENTS.
All consents, approvals, orders, authorizations or registration,
qualification, designation and declaration or filing with any federal or state
governmental authority on the part of the Company required in connection with
the consummation of the transactions contemplated herein shall have been
obtained prior to, and be effective as of, the Closing or will be timely filed
thereafter.
2.6 COMPLIANCE WITH OTHER INSTRUMENTS.
Neither the Company nor either of its Subsidiaries is in violation of any
provisions of its respective Articles of Incorporation or Bylaws, any material
mortgage, indenture, lease, agreement or other instrument to which the Company
or either of its Subsidiaries is a party, or of any provision of any federal or
state judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company or its Subsidiaries or by or which any property or
assets of the Company or its Subsidiaries is bound or affected. The execution,
delivery and performance of this Agreement will not result in any such violation
or be in conflict with or constitute a default under any such provision.
2.7 SEC DOCUMENTS.
The Common Stock of the Company is registered pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act') and the
Company is in full compliance with and has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Securities
and Exchange Commission ("SEC") pursuant to the reporting requirements of the
Exchange Act, including material filed pursuant to Section 13(a) or 15(d), (all
of the foregoing including all filings, exhibits, financial statements,
schedules and documents incorporated by reference therein being referred to
herein as the "SEC Documents"). As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the SEC promulgated thereunder and other federal,
state and local laws, rules and regulations applicable to such SEC Documents and
none of the SEC Documents 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. The SEC Documents contain all material
information concerning the Company, and no event or circumstance has occurred
which would require the Company to disclose such event or circumstance in order
to make the statements in the SEC Documents not misleading on the date hereof or
on the Closing Date but which has not been so disclosed.
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2.8 LITIGATION.
There are no actions, proceedings, investigations or claims pending against
the Company or either of its Subsidiaries, or to the knowledge of the Company
threatened, which question the validity of this Agreement or which might result,
either individually or in the aggregate, in any material adverse change in the
financial condition, assets, operations, business or prospects of the Company,
nor, to the knowledge of the Company, has there occurred any event or does there
exist any condition which might properly be the basis therefor.
2.9 PATENTS.
The Company and its Subsidiaries own or have a valid right to use the
patents, patent rights, licenses, trade secrets, trademarks, trademark rights,
trade names or trade name rights or franchises, copyrights, inventions, and
intellectual property rights being used to conduct the businesses of the Company
and its Subsidiaries as now operated and as now proposed to be operated; and the
conduct of such businesses as now operated and as now proposed to be operated
does not and will not conflict with valid patents, patent rights, licenses,
trade secrets, trademarks, trademark rights, trade names or trade name rights or
franchises, copyrights, inventions, and intellectual property rights of others.
Neither the Company nor either of its Subsidiaries (i) has any obligation to
compensate any person or entity for the use of any such patents or rights or
(ii) has granted to any person or entity any license or other rights to use in
any manner any of the patents or rights of the Company or its Subsidiaries,
whether requiring the payment of royalties or not.
2.10 FINANCIAL STATEMENTS.
The Company has previously furnished true and complete copies of the
following financial statements for the Company:
(a) Statements of financial condition as of June 30, 1999 and June
30, 1998, and the related statements of operations and statements of changes in
financial position for the years then ended, all certified by Radin Glass & Co.,
LLP., independent accountants, and (b) unaudited statements of financial
condition as of August 31, 1999, and unaudited statements of operations for the
two-month period then ended. All such financial statements have been prepared in
conformity with generally accepted accounting principles applied on a basis
consistent with prior periods (except for the omission of notes to the unaudited
financial statements), fairly present, in all material respects, the
consolidated financial condition of the Company as of dates thereof, and the
consolidated results of operations of the Company for the periods indicated,
and, in the case of unaudited statements, subject to normal and recurring
year-end adjustments. Specifically, without limitation, such financial
statements reflect, as of their respective dates, all material accrued
liabilities and adequate reserves for all material un-accrued liabilities and
for all reasonably anticipated material losses of the Company. The books of
account of the Company fully and fairly reflect all of the transactions of such
companies and are complete and accurate. The Company is not subject to any
undisclosed material liability not (i) reflected in its August 31, 1999
unaudited financial statements referred to above or in the
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notes to the August 31, 1999 financial statements or (ii) incurred in the
ordinary course of business since August 31, 1999. For purposes of this
Agreement, all financial statements of the Company shall be deemed to include
any notes to such financial statements.
2.11 ABSENCE OF CERTAIN CHANGES.
Since June 30, 1999, whether or not in the ordinary course of business,
there has not occurred or arisen (a) any material adverse change in the
financial condition, operations, business or prospects of the Company, or (b)
any event, condition or state of facts of any character which materially or
adversely affects, or may materially or adversely affect, the financial
condition, operations, business or prospects of the Company.
2.12 TAX RETURNS AND REPORTS.
All federal income tax and state franchise tax returns and tax reports
required to be filed by the Company and its Subsidiaries have been filed with
the appropriate governmental agencies in all jurisdictions in which such returns
or reports are required to be filed. All such returns and reports constitute
complete and accurate representations, in all material respects, of the tax
liabilities of the Company. All federal income tax and state franchise and other
taxes (including interest and penalties) due from the Company have been fully
paid or adequately provided for on the books and financial statements of the
Company. None of the federal income tax returns of the Company have been audited
by the Internal Revenue Service. The Company knows of no additional assessments
or adjustments pending or threatened for any period, nor of any basis for any
such assessment or adjustment. The Company, its Subsidiaries and its affiliates
have not entered into any agreements with federal and state taxing authorities
extending the statute of limitations with respect to the assessment of federal
and state taxes for any period.
2.13 PROPERTIES.
The Company or its Subsidiaries have good and marketable title to the real
and personal properties and assets and valid leasehold interests in the leased
properties as and to the extent carried on the Company's books, including those
reflected on the unaudited statements of financial condition as of August 31,
1999 referred to in paragraph 2.10 above, except properties and assets disposed
of in the ordinary course of business since August 31, 1999, and none of such
properties or assets is subject to any mortgage, pledge, charge, lien, security
interest, encumbrance or joint ownership interest, except liens for taxes,
assessments, or governmental charges or levies if the same shall not at the time
be delinquent or thereafter can be paid without penalty, or are being contested
in good faith and by appropriate proceedings.
The use of any property of the Company or its Subsidiaries for the purpose
for which it was acquired is not now, and, based upon the laws, regulations and
ordinances in effect on the date of Closing, in the future will not be,
curtailed to a material degree by any violations prior to the Closing by the
Company or its Subsidiaries of any law, regulation or ordinance (including,
without limitation, laws, regulations or ordinances relating to zoning,
environmental protection, city planning or similar matters). The Company and its
Subsidiaries each enjoy peaceful and
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undisturbed possession under all leases under which they are operating, and all
said leases are valid and subsisting and in full force and effect.
2.14 AGREEMENTS.
Neither the Company nor its Subsidiaries have breached or received oral
or written notice of any claim or threatened claim that the Company or its
Subsidiaries have breached any of the terms or conditions of any agreement,
contract, lease, commitment or understanding , whether oral or written, the
breach or breaches of which singly or in the aggregate could materially or
adversely affect the assets, financial condition, operations, business or
prospects of the Company. To the best knowledge of the Company no party is in
breach of its obligations under any agreement, contract, lease, commitment or
understanding with the Company or any of its Subsidiaries.
2.15 PENSION BENEFIT PLAN.
Except for a 401(k) plan established by the Company in July 1999 (the
"Plan"), the Company does not have or make contributions to any pension, defined
benefit or defined contribution plans which are subject to the Federal Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). The Plan is
intended to be "qualified" within the meaning of section 401(a) of the Code is
so qualified and a current favorable determination to that effect has been
issued by the IRS. Neither Company nor any member of the its "controlled group"
as defined under section 414 of the Internal Revenue Code ("Code"), nor the
Plan, nor any trust created thereunder, nor any trustee or administrator thereof
has engaged in a transaction in connection with which the Company, the Plan, any
such trust, or any trustee or administrator thereof, could, directly or
indirectly, be subject to a civil penalty assessed pursuant to section 409 or
502(i) of ERISA, a tax imposed pursuant to section 4975 or 4976 of the Code, or
any other liability.
2.16 REGISTRATION RIGHTS.
Except as set forth in EXHIBIT 2.16 hereto, no person or entity has
demand or other rights to cause the Company to file any registration statement
under the Securities Act of 1933, as amended (the "Act"), relating to any
securities of the Company or any right to participate in any such registration
statement.
2.17 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 by the
Investor relating to this Agreement or the transactions contemplated hereby.
2.18 PERMITS; COMPLIANCE.
Each of the Company and its Subsidiaries is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates,
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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"), except for those Company Permits that if not possessed by the Company
or its Subsidiaries would not have a material adverse effect on the financial
condition, assets, operations, business or prospects of the Company. There is no
action or proceeding pending or, to the knowledge of the Company, threatened
regarding suspension or cancellation of any of the Company Permits, except with
respect to such Company Permits the failure of which to possess, or the
cancellation or suspension of which, would not, individually or in the
aggregate, have a material adverse effect on the financial condition, assets,
operations, business or prospects of the Company or its Subsidiaries. Neither
the Company nor its Subsidiaries is in conflict with, or in default or violation
of, any of the Company Permits, except where such conflict, default or violation
would not have a material adverse effect on the financial condition, assets,
operations, business or prospects of the Company. Since June 30, 1999, neither
the Company nor its Subsidiaries has received any notification with respect to
possible conflicts, defaults or violations of applicable laws.
2.19 INSURANCE.
The Company and its Subsidiaries are each insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in the
businesses in which the Company and its Subsidiaries are engaged.
2.20 DISCLOSURE.
Neither this Agreement, the financial statements referred in paragraph
2.10, nor any other agreement, document, certificate or written statement
furnished to the Investor or its special counsel by or on behalf of the Company
in connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading. To the
best knowledge of the Company's executive officers, after reasonable inquiry,
there is no fact within the knowledge of any of the executive officers of the
Company which has not been disclosed herein or in writing by them to the
Investor and which materially adversely affects, or in the future in their
opinion may, insofar as they can now foresee, materially adversely affect the
business, properties, assets or condition, financial or other, of the Company.
Without limiting the foregoing, the Company has no knowledge or belief that
there exists, or there is pending or planned, any patent, invention, device,
application or principle or any statute, rule, law, regulation, standard or code
which would materially adversely affect the condition, financial or other, or
the operations of the Company.
2.21 YEAR 2000 COMPLIANCE
All of the computer systems of the Company and its Subsidiaries, and
all of the computer software developed in connection with the products and
services of the Company and its Subsidiaries offered to third parties, are Year
2000 Compliant. For the purposes of this subsection 2.21 "Year 2000 Compliant"
shall mean the ability of the software and other
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processing capabilities of the Company to correctly interpret and manipulate all
data, in whatever form, including printed form, screen displays, financing
records, calculations and loan-related data, so as to avoid errors in processing
that may otherwise occur because of the inability of the software or other
processing capabilities to recognize accurately the year 2000 or subsequent
dates.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
The Investor represents and warrants to the Company as follows:
3.1 AUTHORIZATION.
When executed and delivered by the Investor, this Agreement will constitute
the valid and legally binding obligation of the Investor enforceable against the
Investor in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of creditors' rights and remedies or by other equitable principles of general
application.
3.2 ACCREDITED INVESTOR.
The Investor is an "accredited investor" as that term is defined in Rule
501 promulgated under the Act.
4. SECURITIES ACT OF 1933.
4.1 INVESTMENT REPRESENTATION.
(a) This Agreement is made with the Investor in reliance upon its
representations to the Company, which by its acceptance hereof the Investor
hereby confirms, that the Preferred Shares to be received will be acquired for
investment for an indefinite period for its own account and not with a view to
the sale or distribution of any part thereof, and that it has no present
intention of selling or otherwise distributing the same, but subject,
nevertheless, to any requirement of law that the disposition of its property
shall at all times be within its control. By executing this Agreement, the
Investor further represents that it does not have any contract, undertaking,
agreement or arrangement with any person to sell or transfer to such person any
of the Preferred Shares or any Common Stock acquired on conversion of the
Preferred Shares (all of such securities are hereinafter collectively referred
to as the "SECURITIES").
(b) The Investor understands that the Securities are not registered
under the Act on the ground that the sale provided for in this Agreement and the
issuance of securities is exempt pursuant to Section 4(2) of the Act and Rule
506 of Regulation D thereunder, and that the Company's reliance on such
exemption is predicated on its representations set forth herein.
(c) The Investor agrees that in no event will it make a disposition
of any of the Securities, unless the Securities shall have been registered under
the Act, unless and until (i) it
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shall have notified the Company with a statement of the circumstances
surrounding the proposed disposition and (ii) it shall have furnished the
Company with an opinion of counsel reasonably satisfactory to the Company to the
effect that (A) such disposition will not require registration of such
securities under the Act, and (B) that appropriate action necessary for
compliance with the Act has been taken.
(d) The Investor represents that it is able to fend for itself in the
transactions contemplated by this Agreement, has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, has the ability to bear the economic risks of its
investment and has been furnished with and has had access to such information as
would be made available in the form of a registration statement together with
such additional information as is necessary to verify the accuracy of the
information supplied and to have all questions which have been asked by the
Investor answered by the Company.
(e) The Investor understands that if a registration statement
covering the Securities under the Act is not in effect when it desires to sell
any of the Securities, it may be required to hold such Securities for an
indeterminate period. The Investor also acknowledges that it understands that
any sale of the Securities which might be made by it in reliance upon Rule 144
under the Act may be made only in limited amounts in accordance with the terms
and conditions of that Rule.
4.2 LEGENDS.
All certificates for the Securities shall bear substantially the following
legend:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED BY THE
ISSUEE FOR INVESTMENT PURPOSES. SAID SHARES MAY NOT BE SOLD OR TRANSFERRED
UNLESS (A) THEY HAVE BEEN REGISTERED UNDER SAID ACT, OR (B) THE TRANSFER
AGENT (OR THE COMPANY IF THEN ACTING AS ITS TRANSFER AGENT) IS PRESENTED
WITH EITHER A WRITTEN OPINION SATISFACTORY TO COUNSEL FOR THE COMPANY OR A
"NO-ACTION" OR INTERPRETIVE LETTER FROM THE STAFF OF THE SECURITIES AND
EXCHANGE COMMISSION TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE CIRCUMSTANCES OF SUCH SALE OR TRANSFER."
5. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING.
The obligations of the Investor under paragraphs 1.1 and 1.2 of this
Agreement are subject to the fulfillment at or before the Closing of each of the
following conditions:
5.1 REPRESENTATIONS AND WARRANTIES.
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The representations and warranties contained in paragraph 2 hereof shall be
true on and as of the Closing.
5.2 PERFORMANCE.
The Company shall have performed and complied with all agreements and
conditions contained herein required to be performed or complied with by it on
or before the Closing.
5.3 RESERVATION OF SHARES.
The Company shall have reserved one million two hundred fifty thousand
(1,250,000) shares of its Common Stock for issuance upon the conversion of the
Series C Preferred Shares.
5.4 STATE SECURITIES LAWS.
The Company will have complied with all requirements under all applicable
state securities laws with respect to the offer and sale of the Preferred Shares
and the Common Stock to be issued upon the conversion thereto.
5.5 COMPLIANCE CERTIFICATE.
There shall have been delivered to the Investor a certificate signed by the
Company's president certifying that the conditions specified in paragraphs 5.1,
5.2, 5.3, 5.4, and 5.8 have been fulfilled.
5.6 OPINION OF COUNSEL.
There shall have been delivered to the Investor an opinion, attached as
Exhibit 2, of Xxxx X. Xxxxxxxx, counsel for the Company, to the effect that (i)
the Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York, (ii) this Agreement has been
duly authorized, executed, and delivered by the Company and constitutes a valid
and enforceable obligation of the Company in accordance with its terms and,
after investigation deemed reasonable by such counsel under the circumstances,
such counsel has no knowledge of any breach by the Company of its
representations, warranties and covenants under this Agreement, (iii) the Series
C Preferred Shares have been duly authorized, issued and delivered and are
validly outstanding, (iv) upon issuance and sale of all of the Series C
Preferred Shares purchased hereby, the Company shall have outstanding an
aggregate of not more than nine million eight hundred forty-six thousand three
hundred forty (9,846,340) shares of Common Stock and two million five hundred
thousand (2,500,000) shares of Series A Preferred Shares, two hundred seventy
nine thousand seven hundred seventy one (279,771) shares of Series B Preferred
Stock and one million (1,000,000) shares of Series C Preferred Shares, (v)
immediately prior to the Closing, the Company shall have reserved not more than
one million (1,000,000) shares of Common Stock for issuance upon conversion of
the Series C Preferred Shares, (vi) no approval or authorization of any other
public body is necessary for the issuance and sale by the Company of the Series
C Preferred Shares, and (vii) based in part upon the representations of the
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Investor, the offer, sale, and delivery of the Series C Preferred Shares under
the circumstances contemplated by this Agreement constitutes an exempt
transaction under the Act.
5.7 PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the transactions
contemplated at the Closing hereby and all documents and instruments incident to
such transactions will be reasonably satisfactory in substance and form to the
Investor and its counsel, and the Investor and its counsel will have received
all such counterpart originals or certified or other copies of such documents as
they may reasonably request.
5.8 ADOPTED DESIGNATION OF RIGHTS AND PREFERENCES.
An adopted Designation of Rights and Preferences in substantially the form
attached hereto as Exhibit 1shall have been adopted by the Board of Directors of
the Company and been filed with the New York Secretary of State.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligations of the Company under paragraphs 1.1 and 1.2 of this
Agreement are subject to the fulfillment at or before the Closing of each of the
following conditions:
6.1 WARRANTIES TRUE ON THE CLOSING DATE.
The representations and warranties of the Investor contained in paragraphs
3 and 4 hereof shall be true on and as of the Closing with the same effect as
though said representations and warranties had been made on and as of the
Closing.
7. REGISTRATION RIGHTS.
7.1 SHARES INCLUDED IN REGISTRATION STATEMENT.
The Company covenants and agrees to file a "shelf" registration statement
with respect to all shares of Common Stock held by or issuable to the Investor.
Such registration statement shall be filed promptly after the Company becomes
eligible to file a registration statement on Form S-3 for a secondary offering.
7.2 OBLIGATIONS OF THE COMPANY.
In connection with the Registration Statement, the Company shall:
(a) Use its best efforts to cause such Registration Statement to
become and remain effective until all Registrable Shares have been sold or any
Registrable Shares that have not been sold are eligible for resale under Rule
144 during a single three-month period.
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(b) Prepare and file with the SEC such amendments and supplements to
the Registration Statement and the prospectus used in connection therewith as
may be necessary to permit the disposition of all of the Registrable Shares.
(c) Furnish to the Investor such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as it may reasonably request in order to
facilitate the disposition of the Registrable Shares owned by it.
(d) Use its best efforts to register and qualify the Registrable
Shares under such other securities or Blue Sky laws of such jurisdictions as
shall be reasonably appropriate for the distribution of the securities covered
by the Registration Statement, provided that the Company shall not be required
in connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions, and further provided that (anything herein to the contrary
notwithstanding with respect to the bearing of expenses) if any jurisdiction in
which the securities shall be qualified shall require that expenses incurred in
connection with the qualification therein of the securities be borne by selling
shareholders, then such expenses shall be payable by selling shareholders pro
rata, to the extent required by such jurisdiction.
(e) Use reasonable efforts to assist the Investor in the marketing of
Common Stock in connection with the registration contemplated herein.
(f) Promptly notify the Investor in writing (i) at any time of the
happening of any event as a result of which the prospectus included in the
registration statement provided for herein, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and (ii) of any
request by the SEC or any other regulatory body or other body having
jurisdiction for any amendment or supplement to the registration statement or
other document relating to such registration, and in either such case, at the
request of the Investor prepare and furnish to such Investor a reasonable number
of copies of a supplement to or an amendment of such prospect as may be
necessary so that, as thereafter delivered to the purchasers of such Registrable
Shares, such prospectus shall not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
7.3 FURNISH INFORMATION.
It shall be a condition precedent to the obligations of the Company to take
any action pursuant to this paragraph 7 that the Investor shall furnish to the
Company such information regarding it, the Registrable Shares held by it, and
the intended method of disposition thereof as the Company shall reasonably
request and as shall be required in connection with the action to be taken by
the Company.
7.4 EXPENSES.
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13
All expenses incurred in connection with the Registration Statement,
including without limitation all registration and qualification fees, printing
and accounting fees, fees and disbursements of counsel for the Company, but
excluding underwriting discounts and commissions shall be borne by the Company.
The Investor shall bear the fees and costs of its own counsel (if different from
counsel for the Company).
7.5 INDEMNIFICATION.
In the event any of the Registrable Shares are included in the Registration
Statement under this paragraph 7:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless the Investor and every controlling person thereof against any
losses, claims, damages or liabilities, joint or several, to which they may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities or actions in respect thereof arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein, or allegedly necessary to make the
statements therein not misleading; and will reimburse the Investor, such
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this subparagraph 7.5(a) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company nor shall the Company
be liable in any such case for any such loss, claim, damage, liability, or
action to the extent that it arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in connection
with such registration statement, preliminary prospectus, final prospectus, or
amendments or supplements thereto, in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by the Investor, any underwriter of Registrable Shares or
controlling person thereof.
(b) To the extent permitted by law, the Investor will indemnify and
hold harmless the Company and every controlling person thereof, each of their
directors, each of their officers who have signed such registration statement,
each person, if any, who controls the Company within the meaning of the Act, and
any underwriter of such Registrable Shares for the Company (within the meaning
of the Act) against any losses, claims, damages, or liabilities to which the
Company or any such director, officer, controlling person, or underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any untrue or alleged untrue statement of any material fact contained
in such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or allegedly necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
Page 13
14
omission or alleged omission was made in such registration statement,
preliminary prospectus, or amendments or supplements thereto, in reliance upon
and in conformity with written information furnished by the Investor expressly
for use in connection with such registration; and the Investor will reimburse
any legal or other expenses reasonably incurred by the Company or any such
director, officer, controlling person or underwriter of such Registrable Shares
in connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there were material
misstatements or omissions in connection with the information presented by the
Investor for use in connection with such registration.
(c) Promptly after receipt by an indemnified party under this
subparagraph 7.5 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this subparagraph 7.5, notify the indemnifying party in writing of
the commencement thereof and the indemnifying party shall have the right to
participate in and to assume the defense thereof with counsel mutually
satisfactory to the parties. The failure to notify an indemnifying party
promptly of the commencement of any such action, if prejudicial to the ability
to defend such action, shall relieve such indemnifying party under this
subparagraph 7.5 with respect to such claim, but the omission so to notify the
indemnifying party will not relieve such party of any liability which such party
may have to any indemnified party otherwise other than under this subparagraph
7.5 or with respect to any other claim under this subparagraph 7.5 as to which
proper notice is given.
(d) If recovery is not available under the foregoing indemnification
provisions of this paragraph, for any reason other than as specified therein,
the parties entitled to indemnification by the terms thereof shall be entitled
to contribution to liabilities and expenses, except to the extent that
contribution is not permitted under Section 11(f) of the Act. In determining the
amount of contribution to which the respective parties are entitled, there shall
be considered the relative benefits received by each party from the offering of
the securities (taking into account the portion of the proceeds of the offering
realized by each), the parties' relative knowledge and access to information
concerning the matter with respect to which the claim was asserted, the
opportunity to correct and prevent any statement of omission, and any other
equitable considerations appropriate under the circumstances; provided that in
no event will any Investor be required to contribute an amount in excess of the
original cost to that Investor of its Shares included in that offering. The
Company and the Investor agree that it would not be equitable if the amount of
such contribution were determined by pro rata or per capita allocation.
7.6 REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investor the benefits of Rule 144
promulgated under the Act, the Company agrees to use its best efforts (i) to
file with the SEC in a timely manner all reports and other documents required to
be filed by an issuer of securities registered under the Act or the Exchange
Act, (ii) to maintain in effect the registration of its Common Stock under
Section 12 of the Exchange Act and (iii) so long as any Investor owns any of the
Shares, to furnish in writing upon such Investor's request the following
information: (A) the Company's name, address and telephone number, (B) the
Company's Internal Revenue Service identification number, (C) the Company's SEC
file number, (D) the number of shares of Common Stock outstanding as shown by
the most recent report or statement published by the Company, (E) the
Page 14
15
average weekly volume of trading in such shares reported on all national
securities exchanges during the four calendar weeks preceding the date of
receipt of request by the Investor, (F) whether the Company has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act and (G)
any and all communications by the Company with its shareholders. With respect to
a rule or regulation of the SEC (other than Rule 144) which may at any time
permit an Investor to sell Common Stock to the public without registration, the
Company agrees to take such action as is reasonable to enable utilization of
such rule.
7.7 DEFINITIONS.
(a) A person shall be deemed an "Investor" if such person then holds
any Preferred Shares or Common Stock received upon conversion of the Preferred
Shares.
(b) "Registrable Shares" shall mean and include any shares of Common
Stock issuable or issued upon conversion of the Preferred Shares issued pursuant
to this Agreement.
8. COVENANTS.
8.1 FINANCIAL STATEMENTS.
The Company promptly shall deliver to each holder of Preferred Shares
audited annual and unaudited quarterly financial statements.
8.2 RESERVATION OF SHARES.
The Company shall reserve sufficient additional shares of Common Stock for
issuance upon conversion of all Preferred Shares then outstanding.
8.3 ADOPTION OF CERTIFICATE OF DETERMINATION OF PREFERENCES.
The Company shall adopt and file a Designation of Rights and Preferences
attached hereto as Exhibit 1 with respect to the Series C Preferred Shares, and
the Investor hereby authorizes, approves and consents to all actions taken or to
be taken by the Company in connection with the adoption and filing of such
Designation of Rights and Preferences.
8.4 ISSUANCE OR SALE OF STOCK IN MATERIAL SUBSIDIARIES.
The Company shall not without the Investor's consent cause to be issued or
sold more than 10% of the stock of any material subsidiary.
8.8 BOARD REPRESENTATION
Until the date which is three years from the date of this Agreement and so
provided that (i) PNC Bank Corp. or any direct and indirect subsidiary thereof
(collectively, "PNC") owns an
Page 15
16
aggregate of at least 500,000 shares of Common Stock and Series C Preferred
Shares (which number shall be subject to adjustment to reflect any subdivisions,
splits or reverse stock splits of the Common Stock and Series C Preferred
Shares); and (ii) the holders of Series C Preferred Shares do not, pursuant to
Section 5(B) of the Designation of Rights and Preferences attached hereto as
Exhibit 1, have a representative on the Board of Directors or observer at the
Board of Directors, PNC shall, at each meeting of the shareholders of the
Company at which members of the Board of Directors are to be elected, have the
right, but not the obligation, to nominate as part of the Board of Directors'
slate of nominees one individual to serve as a director of the Company. If PNC
does not exercise such right or if such individual is not elected to serve on
the Board of Directors following such nomination PNC shall have the right but
not the obligation to one observer at each meeting of the Board of Directors
9. MISCELLANEOUS
9.1 AGREEMENT IS ENTIRE CONTRACT.
Except as specifically referenced herein, this Agreement constitutes the
entire contract between the parties hereto concerning the subject matter hereof
and no party shall be liable or bound to the other in any manner by any
warranties, representations or covenants except as specifically set forth
herein. Any previous agreement among the parties related to the transactions
described herein is superseded hereby. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto. Nothing in this Agreement, express
or implied, is intended to confer upon any party, other than the parties hereto,
and their respective successors and assigns, any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as expressly
provided herein.
9.2 GOVERNING LAW.
This Agreement shall be governed by and construed under the laws of the
State of New York.
9.3 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
9.4 TITLE AND SUBTITLES.
The titles of the paragraphs and subparagraphs of this Agreement are for
convenience and are not to be considered in construing this Agreement.
9.5 NOTICES.
Any notice required or permitted hereunder shall be given in writing and
shall be deemed effectively given upon personal delivery, registered or
certified mail, telefax or nationally recognized express courier and addressed
to a party at its address hereinafter shown below or at
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17
such other address as such party may designate by 10 days advance written notice
to the other party.
To the Company:
XXXXXXXX.XXX INCORPORATED
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Telefax: 000 000-0000
Attention: Xxxxxxx Xxxxxx
To the Investor:
PNC INVESTMENT CORP.
000 0xx Xxxxxx, 00xx Xxxxx
Xxxxxxxxx, XX 00000
Telefax: 000 000-0000
Attention: Xxxxxx Xxxxx
Copy to:
General Counsel for Consumer Banking
PNC INVESTMENT CORP
000 0XX Xxxxxx, 00xx Xxxxx
Fax: 000 000-0000
9.6 SURVIVAL OF WARRANTIES.
The warranties and representations of the Company contained in or made
pursuant to this Agreement shall survive the execution and delivery of this
Agreement and the Closing hereunder.
9.7 AMENDMENT OF AGREEMENT.
Except as expressly provided herein, any provision of this Agreement may be
amended or waived on behalf of all Investors by a written instrument signed by
the Company and by Investors holding at least a majority of the aggregate of the
shares of Common Stock issuable and issued upon conversion of the Series C
Preferred Shares.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
Page 17
18
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first written above.
XXXXXXXX.XXX INCORPORATED
/s/ Xxxxx X. High
By: _________________________
Authorized Signature
Xxxxx X. High
President
PNC INVESTMENT CORP.
/s/ Xxxxxx X. Xxxxxxxxxx
By:__________________________
Authorized Signature
Xxxxxx X. Xxxxxxxxxx
Chairman
Page 18
19
Schedule 2.2
--------------------------------------------------------------------------------
Xxxxxxxx.xxx Incorporated Common Stock Issue History
(Does not include shares reserved, but not yet issued)
--------------------------------------------------------------------------------
Amount Total
Date Issued to Issued Outstanding
---------------------------------------------------------------------------------------
3/5/1999 Shares outstanding at effective date
of merger 8,284,836
5/7/1999 IB Channel 40,000 8,324,836
5/7/1999 Genesis Communications
(Xxxxxxxxx) 15,000 8,339,836
5/7/1999 EER Systems 175,000 8,514,836
5/7/1999 Xxxxxxx/Xxxx/Xxxxx 432,375 8,947,211
5/7/1999 Outreach Technologies 20,000 8,967,211
5/7/1999 Bridge Lenders 185,000 9,152,211
8/10/1999 Former ECI Shareholders 550,809 9,703,020
8/10/1999 USA Group Xxxx-Xxxxxx 108,196 9,611,216
8/10/1999 Wolf Rock Corporation 9,836 9,821,052
8/20/1999 Piedmont Consulting 5,000 9,526,052
8/20/1999 Veritas Group 20,000 9,846,052
8/20/1999 Employer 401K Match 288 9,846,340
---------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Xxxxxxxx.xxx Incorporated Series A Preferred Stock Issue History
--------------------------------------------------------------------------------
Amount Total
Date Issued to Issued Outstanding
---------------------------------------------------------------------------------------
3/5/1999 Shares outstanding at effective date
of merger --
4/2/1999 Provident Life and Accident
Insurance Company 750,000 750,000
5/11/1999 1st Trust & Co., for Xxxxxx X.
Xxxxxxxxx XXX 25,000 775,000
9/1/1999 Augsback & Co. Investment Group 90,000 865,000
9/7/1999 Augsback & Co. Investment Group 25,000 890,000
---------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Xxxxxxxx.xxx Incorporated Series B Preferred Stock History
--------------------------------------------------------------------------------
Amount Total
Date Issued to Issued Outstanding
---------------------------------------------------------------------------------------
3/5/1999 Shares outstanding at effective date
of merger --
8/10/1999 Former ECI Shareholders 234,771 234,771
8/10/1999 USA Group Xxxx-Xxxxxx 45,000 279,771
---------------------------------------------------------------------------------------
20
EXHIBIT 1
DESIGNATION OF RIGHTS AND PREFERENCES OF SERIES C
NON-VOTING CONVERTIBLE PREFERRED STOCK
OF
XXXXXXXX.XXX INCORPORATED
1. Designation, Initial Number and Date of Issue.
The class of shares of preferred stock hereby classified shall be
designated the "Series C Preferred Stock" (the "Series C Preferred Stock"). The
initial number of authorized shares of the Series C Preferred Stock shall be
One Million (1,000,000). The Stated Value of the Series C Preferred Stock shall
be $4.00 per share, and the Par Value of the Series C Preferred Stock shall be
$.01 per share. The date that a share of Series C Preferred Stock is issued is
referred to herein as its "Date of Issue."
2. Distributions.
The holders of the Series C Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors of the Company, out of funds at
the time legally available for payment of dividends in the State of New York, a
cumulative dividend at an annual rate, based on a year of 360 days consisting
of 12 thirty-day months, equal to 6% applied to the amount of the Stated Value
per share of Series C Preferred Stock. Such dividends shall be payable in
respect of each share of Series C Preferred Stock quarterly, in arrears, on the
last day of March, June, September and December in each year (each a "Dividend
Payment Date"), commencing on the first such date to occur which is at least
thirty days after its Date of Issue. The dividend payable on the first Dividend
Payment Date shall be calculated and based on the period from the Date of Issue
through such Dividend Payment Date. Each period commencing on the later of the
Date of Issue of a share of the Series C Preferred Stock or the first day after
the last preceding Dividend Payment Date and ending on the next Dividend
Payment Date or, in the case of a final dividend, the effective date of a
liquidating distribution or conversion of such shares of Series C Preferred
Stock into Common Stock is referred to herein as a "Dividend Period." If the
date fixed for payment of a final liquidating distribution on any shares of
Series C Preferred Stock or the date on which any shares of Series C Preferred
Stock are converted into Common Stock does not coincide with a Dividend Payment
Date, then subject to the provisions hereof relating to such liquidating
distribution or conversion, the final Dividend Period applicable to such shares
shall be the period from the last Dividend Payment Date prior to the date such
liquidating distribution or conversion occurs through the effective date of such
liquidating distribution or conversion.
3. Conversion.
Subject to the limitation set forth in paragraph 3(K) below, the Series C
Preferred Stock shall be convertible into such number of fully paid, validly
issued and nonassessable shares of Common Stock, free and clear of any liens,
claims or encumbrances as hereinafter provided and, when so converted, shall be
canceled and retired and shall not be reissued as such:
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(A) Any holder of the Series C Preferred Stock may at any time or from
time to time convert such stock into the Common Stock of the Company. In order
to convert the Series C Preferred Stock into Common Stock, the holder thereof
on any business day must present and surrender to the Company at its offices
located at 000 Xxxxxxxxx Xxxxxx, Xxxxxxxxxx, XX 00000 the certificate or
certificates of the Series C Preferred Stock to be converted into Common Stock,
duly endorsed to the Company or in blank, together with a notice of conversion,
which shall state therein the number of shares to be converted and the name or
names in which such holder wishes the certificate or certificates for Common
Stock to be issued ("Conversion Notice").
(B) Each holder of Series C Preferred Stock shall have the right to
convert such Series C Preferred Stock on and subject to the following terms and
conditions:
(i) The Series C Preferred Stock shall be converted into Common Stock
at the conversion ratio, determined as hereinafter provided, in effect at the
time of conversion. Unless such conversion ratio shall be adjusted as
hereinafter provided, the conversion ratio shall be one (1) share of Common
Stock for each share of Series C Preferred Stock ("Conversion Ratio").
(ii) The conversion of the Series C Preferred Stock shall be deemed
to have occurred on the date the holder thereof provides and surrenders, as the
case may be, to the Company, pursuant to paragraph 3(A) hereof, a Conversion
Notice and the certificate or certificates representing the Series C Preferred
Stock to be converted into Common Stock, duly endorsed to the Company or in
blank. The person or persons entitled to receive the Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such Common Stock at such time. As promptly as practicable on or
after the date of any conversion, but in no event later than 10 business days
following the receipt by the Company of the Conversion Notice, the Company
shall issue and deliver by hand against a signed receipt therefor or by United
States registered mail, return receipt requested, or by overnight delivery
service, to the address designated by the holder in the Conversion Notice, a
stock certificate or stock certificates of the Company representing the number
of shares of Common Stock to which such holder is entitled, together with check
or cash in lieu of any fraction of a share and in payment of all accrued and
unpaid dividends, to the person or persons entitled to receive same. In case of
the conversion of only a part of the shares of any holder of Series C Preferred
Stock, the Company shall also issue and deliver to such holder a new
certificate of Series C Preferred Stock representing the number of shares of
such Series C Preferred Stock not converted by such holder.
(C)(i) Subject to the limitation set forth in paragraph 3(K) below,
the Company may require mandatory conversion of all, but not less than all, of
the Series C Preferred Stock on or after the first anniversary of the initial
purchase and sale of the Series C Preferred Stock (the "Mandatory Conversion
Date"), provided that (x) after the first anniversary of the initial purchase
and sale of the Series C Preferred Stock the average closing bid price of the
Company's Common Stock on the Over-the-Counter Bulletin Board or the Nasdaq
Stock Exchange, as applicable, for the 20 consecutive trading days immediately
preceding the
Page 2
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Mandatory Conversion Date has exceeded $6.00 per share; and (y) the Company
elected to mandatory convert all other series of Preferred Stock.
(ii) Conversion of the Series C Preferred Stock in to Common Stock
pursuant to this paragraph 3(C) shall be deemed to have occurred on the
Mandatory Conversion Date whether or not the holder of such stock delivers to
the Company its certificate or certificates for the Series C Preferred Stock.
Anything in this Section 3(C) to the contrary notwithstanding, the Company may
not require the conversion of any shares of Series C Preferred Stock unless,
concurrently with such mandatory conversion, the Company shall also require the
mandatory conversion of the same Pro Rata Proportion (as hereinafter defined) of
shares of the Series A Preferred Stock of the Company. For the purposes of the
preceding sentence "Pro Rata Proportion" shall mean a fraction the numerator of
which shall be the number of shares of Series C Preferred Stock or Series A
Preferred Stock, as the case may be, subject to mandatory conversion and
denominator of which shall be all outstanding shares of Series C Preferred Stock
or Series A Preferred Stock, as the case may be.
(D) The Conversion Ratio shall be subject to adjustment as follows:
(i) If the Company subdivides (e.g., stock dividend) or splits up the
issued and outstanding shares of Common Stock into a greater number of shares of
the Common Stock, the Conversion Ratio in effect at the opening of business on
the business day immediately preceding the date fixed for the determination of
the stockholders whose shares of Common Stock shall be subdivided or split up
(the "Split Record Date") shall be proportionately increased, and in case issued
and outstanding shares of Common Stock shall be combined into a smaller number
of shares of Common Stock, the Conversion Ratio in effect at the opening of
business on the business day immediately preceding the date fixed for the
determination of the stockholders whose shares of Common Stock shall be combined
(the "Combination Record Date") shall be proportionately decreased, such
increase or decrease, as the case may be, becoming effective immediately after
the opening of business on the business day immediately after the Split Record
Date or the Combination Record Date, as the case may be.
(ii) In case of any capital reorganization, any reclassification of
the stock of the Company (other than as a result of a stock dividend or
subdivision, split up or combination of shares), or the merger of the Company
with or into another person or entity (other than a merger in which the Company
is the continuing corporation and which does not result in any change in the
Common Stock) or of the sale, exchange, lease, transfer or other disposition of
all or substantially all of the properties and assets of the Company as an
entirety or the participation by the Company in a share exchange as the
corporation the stock of which is to be acquired, the Series C Preferred Stock
shall (effective on the opening of business on the date after the effective date
of such reorganization, reclassification, merger, sale or exchange, lease,
transfer or other disposition or share exchange) be convertible into the kind
and number of shares of stock or other securities or property of the Company or
of the surviving corporation resulting from such merger or to which such
properties and assets shall have been sold, exchanged, leased, transferred or
otherwise disposed or which was the corporation whose securities were exchanged
for those of the Company to which the holder of the number of shares of Common
Stock
Page 3
23
deliverable (at the close of business on the date immediately preceding the
effective date of such reorganization, reclassification, merger, sale,
exchange, lease, transfer or other disposition or share exchange) upon
conversion of Series C Preferred Stock would have been entitled upon such
reorganization, reclassification, merger, sale, exchange, lease, transfer or
other disposition or share exchange. The provisions of this subparagraph
3(B)(ii) shall similarly apply to successive reorganizations, reclassifications,
mergers, sales, exchanges, leases, transfers or other dispositions or other
share exchanges.
(iii) If the Company shall issue to the holders of its Common Stock rights or
warrants to subscribe for or purchase shares of its Common Stock at a price less
than 90% of the Current Market Price (as defined below in its paragraph) of the
Company's Common Stock at the record date fixed for the determination of the
holders of Common Stock entitled to such rights or warrants, the conversion rate
in effect immediately prior to said record date shall be increased, effective at
the opening of business on the next following full business day, to an amount
determined by multiplying such conversion rate by a fraction the numerator of
which is the number of shares of Common Stock of the Company outstanding
immediately prior to said record date plus the number of additional shares of
its Common Stock offered for subscription or purchase and the denominator of
which is said number of shares outstanding immediately prior to said record date
plus the number of shares of Common Stock of the Company which the aggregate
subscription or purchase price of the total number of shares so offered would
purchase at the Current Market Price of the Company's Common Stock at said
record date. The term "Current Market Price" at said record date shall mean the
average of the daily last reported sale price per share of the Company's Common
Stock on the principal stock exchange on which the Common Stock is then listed
during the 20 consecutive full business days commencing with the 30th full
business day before said record date, provided that if there was no reported
sale on any such day or days there shall be substituted the average of the
closing bid and asked quotations on that exchange on that day, and provided
further that if the Common Stock was not listed on any stock exchange on any
such day or days there shall be substituted the average of the lowest bid and
the highest asked quotations in the over-the-counter market on that day.
(iv) Whenever the Conversion Ratio shall be adjusted as provided
herein, the Company shall prepare and send to the holders of the Series C
Preferred Stock a statement, signed by the chief financial officer of the
Company, showing in detail the facts requiring such adjustment and the
Conversion Ratio that shall be in effect after such adjustment.
(v) In the event the Company shall propose to take any action of the
types described in paragraph 3(D) hereof, the Company shall give notice to the
holder of Series C Preferred Stock, which notice shall specify the record date,
if any, with respect to any such action and the date on which such action is to
take place. Such notice shall be given on or prior to the earlier of 30 days
prior to the record date or the date which such action shall be taken. Such
notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Conversion Ratio and the
number, kind or class of shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action or
Page 4
24
deliverable upon conversion of the Series C Preferred Stock. Failure to give
notice in accordance with this paragraph 3(D)(v) shall not render such action
ultra xxxxx, illegal or invalid.
(E) No adjustment of the Conversion Ratio shall be made in any of the
following cases:
(i) the grant or exercise of stock options hereafter granted, or
under any employee stock option plan now or hereafter authorized, to the extent
that the aggregate of the number of shares which may be purchased under such
options and the number of shares issued under such employee stock option plan
is less than or equal to ten percent (10%) of the number of shares of Common
Stock outstanding on January 1 of the year of the grant or exercise;
(ii) the issuance of shares of Common Stock in connection with the
acquisition by the Company or by any subsidiary of the Company of 80% or more
of the assets of another corporation, and shares issued in connection with the
acquisition by the Company or by any subsidiary of the Company of 80% or more
of the voting shares of another corporation (including shares issued in
connection with such acquisition of voting shares of such other corporation
subsequent to the acquisition of an aggregate of 80% of such voting shares),
shares issued in a merger of the Company or a subsidiary of the Company with
another corporation in which the Company or the Company's subsidiary is the
surviving corporation, and shares issued upon the conversion of other
securities issued in connection with any such acquisition or in any such merger;
(iii) the issuance of shares of Common Stock pursuant to all stock
options, warrants and convertible securities outstanding on the date of the
filing of this Certificate of Amendment to the Certificate of Incorporation of
the Company ("Certificate");
(iv) sales of Common Stock of the Company for cash in an
underwritten public offering.
(F) Whenever the Conversion Ratio is adjusted as herein provided, the
Company shall prepare a certificate signed by the Treasurer of the Company
setting forth the adjusted conversion ratio and showing in reasonable detail
the facts upon which such adjustment is based. As promptly as practicable, the
Company shall cause a copy of such certificate to be mailed to each holder of
record of issued and outstanding Series C Preferred Stock at the address of
such holder appearing on the Company's books.
(G) The Company shall pay all taxes that may be payable in respect of the
issue or delivery of Common Stock on conversion of Series C Preferred Stock
pursuant hereto, but shall not pay any tax which may be payable with respect to
income or gains of the holder of any Series C Preferred Stock or Common Stock
or any tax which may be payable in respect of any transfer involved in the
issue and delivery of the Common Stock in a name other than that in which the
Series C Preferred Stock so converted was registered, and no such issue or
delivery shall be made unless and until the person requesting such issue has
paid to the Company the
Page 5
25
amount of any such tax, or has established, to the satisfaction of the Company,
that such tax has been paid.
(H) (i) Upon conversion of any shares of Series C Preferred Stock
pursuant to paragraphs 3(A) and (B) hereof, the holders of such shares of
Series C Preferred Stock so converted shall not be entitled to receive any
dividends declared with respect to such shares of Series C Preferred Stock
unless such dividends shall have been declared by the Board of Directors and
the record date for such dividends shall have been on or before the date such
shares shall have been converted. No payment or adjustment shall be made on
account of dividends declared and payable to holders of Common Stock of record
on a date prior to the date of the conversion of shares of Series C Preferred
Stock pursuant to paragraphs 3(A) and 3(B) hereof.
(ii) Upon the mandatory conversion of any shares of Series C
Preferred Stock pursuant to paragraph 3(C) hereof, the holders of such shares
of Series C Preferred Stock so converted shall be entitled to receive a dollar
amount equal to all accrued dividends and unpaid distributions prior to the
Mandatory Conversion Date, whether or not declared thereon.
(I) No fractional shares or scrip representing fractional shares shall be
issued upon the conversion of any shares of Series C Preferred Stock. If more
than one share of Series C Preferred Stock shall be surrendered for conversion
at one time by the same holder, the number of full shares issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
such shares so surrendered. If the conversion of any share of Series C
Preferred Stock results in a fraction, an amount equal to such fraction
multiplied by the current market value of the Common Stock on the day of
conversion shall be paid to such holder in cash by the Company. For purposes of
this paragraph 3(I), "current market value of Common Stock" shall mean the
value of the Common Stock as reflected in the last trade of the Common Stock on
the date of conversion.
(J) The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized Common Stock, for the purpose of
effecting the conversion of the issued and outstanding Series C Preferred
Stock, the full number of shares of Common Stock then deliverable in the event
and upon the conversion of all of the Series C Preferred Stock then issued and
outstanding.
(K) In no event shall PNC Bank Corp. or any indirect or direct subsidiary
thereof (collectively, "PNC") be entitled to convert any shares of Series C
Preferred Stock nor shall the Company be entitled to require conversion of any
shares of Series C Preferred Stock in excess of that number of shares of
Series C Preferred Stock upon the conversion of which the sum of (1) the number
of shares of Common Stock beneficially owned (as such term is defined for the
purposes of Rule 13(d) promulgated under the Securities Exchange Act of 1934,
as amended) by PNC and (2) the number of shares of Common Stock issuable upon
the conversion of the number of shares of Series C Preferred Stock with respect
to which the determination in this provision is made, would result in the
beneficial ownership by PNC of five percent (5%) or more of the issued and
outstanding shares of Common Stock and any series of voting preferred stock of
the Company unless PNC has provided to the Company a written opinion of counsel
that
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a greater percentage of beneficial ownership of such capital stock is
permissible pursuant to then applicable laws or regulations.
(L) In no event shall PNC be entitled to sell or otherwise transfer shares
of Series C Preferred Stock and Common Stock to a person unaffiliated with PNC
or Company if immediately after the transfer (1) the number of shares of Common
Stock and any series of voting preferred stock of the Company and (2) the number
of shares of Common Stock issuable upon the conversion of the shares of Series C
Preferred Stock would result in the beneficial ownership by the acquiring person
of five percent (5%) or more of the issued and outstanding shares of Common
Stock and any series of voting preferred stock of the Company unless (1)
pursuant to a widely dispersed public offering, (2) immediately prior to the
transfer the acquiring person would hold, upon exercise of the conversion rights
of any Series C Preferred Stock it held immediately prior to the transfer, more
than 50 percent of the issued and outstanding Common Stock and any series of
voting preferred stock of the Company or (3) the Company has stated in writing
that it has no objection to such transfer.
4. Liquidation or Dissolution.
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up of the affairs of the Company, the holders of the issued and
outstanding Series C Preferred Stock shall be entitled to receive for each
share of Series C Preferred Stock, before any distribution of the assets of the
Company shall be made to the holders of any other class of capital stock,
except for holders of the Series A Convertible Preferred Stock which shall have
the rights and preferences set forth in the Designation of Rights and
Preferences of the Series A Preferred Shares as previously adopted by the
Company's Board of Directors and on file with the New York Secretary of State on
the date hereof, a dollar amount equal to the Stated Value thereof plus all
accrued and unpaid distributions whether or not earned or declared thereon,
without interest. After payments in full have been made to all holders of any
series of the issued and outstanding preferred stock of the Company, or funds
necessary for such payment shall have been set aside in trust for the account of
the holders of any series of the issued and outstanding preferred stock of the
Company, so as to be and continue to be available therefor, then, before any
further distribution of the assets of the Company shall be made, a dollar amount
equal to that already distributed to the holders of any series of the issued and
outstanding preferred stock of the Company shall be distributed pro-rata to the
holders of the other issued and outstanding classes of capital stock of the
Company, subject to the rights of any other class of capital stock set forth in
the Certificate of Incorporation, as amended, of the Company. After such payment
shall have been made in full to the holders of such other issued and outstanding
capital stock, or funds necessary for such payment shall have been set aside in
trust for the account of the holders of such other issued and outstanding
capital stock so as to be and continue to be available therefor, the holders of
the issued and outstanding Series C Preferred Stock shall be entitled to
participate with the holders of all other classes of issued and outstanding
capital stock in the final distribution of the remaining assets of the Company,
and, subject to any rights of any other class of capital stock set forth in the
Certificate of Incorporation, as amended, of the Company, the remaining assets
of the Company shall be divided and distributed ratably among the holders of
both the Series C Preferred Stock and the other capital stock then issued and
outstanding
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according to the proportion by which their respective record ownership of
shares of Common Stock Equivalents (as defined below in this paragraph) bears
to the total number of shares of Common Stock Equivalents then issued and
outstanding. "Common Stock Equivalents" shall mean all shares of Common Stock
that are outstanding plus all shares of Common Stock issuable upon conversion
of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock
or the Series C Preferred Stock or any other series of convertible preferred
stock of the Company. If, upon such liquidation, dissolution, or winding up,
the assets of the Company distributable, as aforesaid, among the holders of any
series of preferred stock of the Company shall be insufficient to permit the
payment of them of said amount, the entire assets shall be distributed ratably
among the holders of any series of issued and outstanding preferred stock of
the Company. A consolidation or merger of the Company, a share exchange, a
sale, lease, exchange or transfer of all or substantially all of its assets as
an entirety, or any purchase or redemption of stock of the Company of any
class, shall not be regarded as a "liquidation, dissolution, or winding up of
the affairs of the Company" within the meaning of this paragraph 4.
5. Voting Rights and Board Representation.
(A) Except as otherwise required by applicable law, the Series C
Preferred Stock shall not be entitled to vote on any matter.
(B) So long as there are at least 500,000 shares of Series C Preferred
Stock outstanding (which number shall be subject to proportional adjustment to
reflect any subdivisions, splits or reverse stock splits of the Series C
Preferred Stock) the holders of the Series C Preferred Stock voting separately
as a class shall be entitled, as such holders voting separately as a class may
determine, to elect one director to the Board of Directors or to appoint one
observer to the Board of Directors.
6. Changes in Terms of Series C Preferred Stock.
The terms of the Series C Preferred Stock may not be amended, altered or
repealed, and no class of capital stock or securities convertible into capital
stock shall be authorized, including by way of a merger, which has superior
rights to the Series C Preferred Stock as to distributions or liquidation,
without the consent of the holders of at least two-thirds of the outstanding
shares of Series C Preferred Stock. This Section 6 shall in no way limit the
Company's abilities to issue securities which are pari passu with the Series C
Preferred Stock.
7. No Implied Limitations.
Except as otherwise provided by express provisions of this Certificate,
nothing herein shall limit, by inference or otherwise, the discretionary right
of the Board of Directors to classify and reclassify and issue any shares of
Series C Preferred Stock and to fix or alter all terms thereof to the full
extent provided in the Certificate of Incorporation, as amended, of the Company.
8. General Provisions.
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In addition to the above provisions with respect to the Series C Preferred
Stock, such Series C Preferred Stock shall be subject to, and entitled to the
benefits of, the provisions set forth in the Company's Certificate of
Incorporation, as amended, of the Company with respect to preferred stock
generally but not with respect to any series of preferred stock in particular.
9. Notices.
All notices required or permitted to be given by the Company with respect
to the Series C Preferred Stock shall be in writing, and if delivered by first
class United States mail, postage prepaid, or by overnight delivery service, to
the holders of the Series C Preferred Stock at their last addresses as they
shall appear upon the books of the Company, shall be conclusively presumed to
have been duly given, whether or not the stockholder actually receives such
notice; provided, however, that failure to duly give such notice by mail, or
any defect in such notice, to the holders of any stock designated for
redemption, shall not affect the validity of the proceedings for the
redemption of any other shares of Series C Preferred Stock.
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