PREFERRED STOCK INVESTMENT AGREEMENT
AGREEMENT dated as of _______________, 1997 between Interleaf, Inc. (the
"Company") and the investor whose name is set forth at the foot of this
Agreement (the "Investor").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Preferred Stock
Section I.1 Purchase and Sale of Preferred Stock. Upon the following
terms and conditions, the Company shall issue and sell to the Investor shares
of the Company's 6% Convertible Preferred Stock (the "Shares") having the
rights, designations and preferences set forth in Schedule I hereto, and the
Investor shall purchase from the Company the number of Shares designated on
the signature page hereof.
Section I.2 Purchase Price. The purchase price for the Shares (the
"Purchase Price") shall be $1,000 per share.
Section I.3 The Closing.
(a) The closing of the purchase and sale of the Shares (the
"Closing"), shall take place at the offices of the Company, at 10:00 a.m.,
local time on the later of the following: (i) the date on which the last to
be fulfilled or waived of the conditions set forth in Article IV hereof and
applicable to the Closing shall be fulfilled or waived in accordance
herewith, or (ii) such other time and place and/or on such other date as the
Investor and the Company may agree but in no event later than September 30,
1997. The date on which the Closing occurs is referred to herein as the
"Closing Date."
(b) On the Closing Date, the Company shall deliver to the Investor
certificates representing the number of Shares being purchased by the
Investor, registered in the name of the Investor, or deposit such Shares into
accounts designated by the Investor, and the Investor shall deliver to the
Company the Purchase Price for such Shares by cashier's check or wire
transfer in immediately available funds to such account as shall be
designated in writing by the Company. The Investor shall also deliver, as a
condition to the Closing, a Purchaser's Questionnaire in the form supplied by
the Company. In addition, each party shall deliver all documents,
instruments and writings required to be delivered by such party pursuant to
this Agreement at or prior to the Closing.
Section I.4 Covenant to Register.
(a) For purposes of this Section, the following definitions shall
apply:
(i) The terms "register," "registered," and "registration"
refer to a registration under the Securities Act of 1933, as amended (the
"Act"), effected by preparing and filing a registration statement in
compliance with the Act, and the declaration or ordering of effectiveness of
such registration statement, document or amendment thereto.
(ii) The term "Registrable Securities" does not include the
Shares but means (A) the shares of common stock issued or issuable upon
conversion of the Shares, or (B) any securities of the Company or securities
of any successor corporation issued pursuant to the provisions of Schedule I
hereto or issuable upon the conversion or exercise of any warrant, right or
other security that is issued as a dividend or other distribution with
respect to, or in exchange for or in replacement of the Shares, which in
either case (i) have not been resold pursuant to an effective registration
statement or pursuant to Rule 144 under the Act or (ii) may not be resold
pursuant to Rule 144(k) under the Act. For purposes of this Agreement,
securities will be considered ineligible for resale pursuant to
Rule 144(k) under the Act unless the Company's transfer agent has accepted an
instruction from the Company specifying that such securities are eligible for
sale pursuant to Rule 144(k).
(iii) The term "holder of Registrable Securities" includes
any person who holds Shares which are convertible into Registrable Securities.
(b) (i) The Company shall, as expeditiously as possible following
the Closing, file a registration statement on Form S-3, or if Form S-3 is not
then available, another appropriate form, covering the resale of all the
Registrable Securities under Rule 415. The number of shares of Common Stock
initially included in such registration statement shall be not less than 150%
of the number which would be issuable upon conversion of the Shares if all
thereof were to be converted at a conversion price equal to the average
closing price of the Common Stock during the five trading days prior to the
effective date of the registration statement. The Company shall use its best
efforts to cause such registration statement to become effective by the 90th
calendar day after the Closing Date (the "Initial Registration"). In the
event such registration statement is not so declared effective or if at any
time thereafter it does not include at least 120% of the number of
Registrable Securities which would then be issuable upon conversion of the 6%
Preferred (or any successor security) at the conversion price then in effect,
any holder of Registrable Securities shall have the right to require by
notice in writing that the Company register all or any part of the
Registrable Securities held by such holder (a "Demand Registration") and the
Company shall thereupon effect such registration in accordance herewith
(which may include adding such shares to an existing shelf registration).
The parties agree that if the holder of Registrable Securities demands
registration of less than all of the Registrable Securities, the Company, at
its option, may nevertheless file a registration statement covering all of
the Registrable Securities. If such registration statement is declared
effective with respect to all Registrable Securities, then so long as the
Company is in compliance with its obligations under Subsection (d)(i) through
(v) hereof, the demand registration rights granted pursuant to this
Subsection (b) (i) shall not be applicable. If such registration statement
is not declared effective with respect to all Registrable Securities, or if
the Company is not in compliance with said obligations, the demand
registration rights described herein shall remain in effect. The Company
shall provide holders of Registrable Securities reasonable opportunity to
review any such registration statement or amendment or supplement thereto
prior to the filing thereof. Nothing herein shall require the Company to
postpone filing the registration statement. If the Registrable Securities
are registered initially on a form other than Form S-3, and thereafter the
Company becomes eligible to use Form S-3, the Company will then take all
action permitted by Rule 401(e) under the Act to utilize the requirements of
Form S-3 thereafter.
(ii) The Company shall not be obligated to effect Demand
Registration under Subsection (b)(i) if all of the Registrable Securities
held by the holder of Registrable Securities which are demanded to be covered
by the Demand Registration are, at the time of such demand, included in an
effective registration statement and the Company is in compliance with its
obligations under Subsection (d) (i) through (v) hereof.
(iii) The Company may suspend the effectiveness of any such
registration effected pursuant to this Subsection (b) in the event, and for
such period of time as, such a suspension is required by the rules and
regulations of the Securities and Exchange Commission ("SEC"), and may
suspend use of the prospectus included in the Registration Statement if such
prospectus ceases to meet the requirements of Section 10 of the Act. The
Company will immediately advise the holders of the registered securities of
any such suspension, and will use its best efforts to cause such suspension
to terminate at the earliest possible date. The Investor agrees that
following receipt of any such notice, and until such suspension is
terminated, the Investor will not make use of the suspended prospectus and
will make no sales requiring delivery of such prospectus.
(iv) If the registration statement covering the required number
of Registrable Securities is not effective by the 90th calendar day after the
Closing Date, then the Company shall pay the Investor in cash an amount equal
to 3% of the total Purchase Price of the Shares purchased by the Investor for
each 30 day period thereafter until such registration statement is effective
(pro-rata as to a period of less than 30 days). An amount equal to 3% of the
total Purchase Price of Shares and any Registrable Securities then held by
Investor shall also be paid to the Investor in cash with respect to any
period in excess of 30 days that the effectiveness of the Registration
Statement or use of the prospectus is suspended as set forth in Section 1.4
(b)(iii) or the prospectus is otherwise unavailable for use by sellers of
Registrable Securities. Any payment hereunder shall be made not later than
ten days after the end of the
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30-day period with respect to which such payment is due. The "Purchase Price"
of Registrable Securities shall be, in the case of Registrable Securities
derived from conversion or substitution of Shares, the Purchase Price of such
Shares. This subsection is in addition to the provisions of Section 7.2(a)
hereof.
(c) If the Company proposes to register (including for this purpose
a registration effected by the Company for shareholders other than the
Investor) any of its stock or other securities under the Act in connection
with a public offering of such securities (other than a registration on Form
X-0, Xxxx X-0 or other limited purpose form) and all Registrable Securities
have not theretofore been included in a registration statement under
Subsection (b) which remains effective, the Company shall, at such time,
promptly give all holders of Registrable Securities written notice of such
registration. Upon the written request of any holder of Registrable
Securities given within twenty (20) days after receipt of such notice by the
holder of Registrable Securities, the Company shall use its best efforts to
cause to be registered under the Act all Registrable Securities that such
holder of Registrable Securities requests to be registered. However, the
Company shall have no obligation under this Subsection (c) to the extent
that, with respect to a public offering registration, the managing
underwriter of such public offering reasonably notifies such holder(s) in
writing of its determination that the Registrable Securities or a portion
thereof should be excluded therefrom. The rights of the Investor and the
obligations of the Company under this subsection are subject to any prior
registration rights of other shareholders of the Company which are disclosed
in Exhibit A hereto.
(d) Whenever required under this Section to effect the registration
of any Registrable Securities, including, without limitation, the Initial
Registration, the Company shall, as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration to become effective as provided in Section 1.4(b)(i), and
keep such registration statement effective for so long as any holder of
Registrable Securities desires to dispose of the securities covered by such
registration statement, or, if earlier, until such Registrable Securities may
be sold under Rule 144(k) (provided that the Company's transfer agent has
accepted an instruction from the Company to such effect).
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement and notify the holders of
the filing and effectiveness of such registration statement and any
amendments or supplements.
(iii) Furnish to each holder of Registrable Securities such
numbers of copies of a current prospectus conforming with the requirements of
the Act, copies of the registration statement, any amendment or supplement
thereto and any documents incorporated by reference therein and such other
documents as such holder of Registrable Securities may reasonably require in
order to facilitate the disposition of Registrable Securities owned by such
holder of Registrable Securities.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such securities or
"Blue Sky" laws of such jurisdictions as shall be reasonably requested by a
holder of Registrable Securities and keep such registration or qualification
effective as long as required to permit sale of Registrable Securities
thereunder, 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.
(v) Notify each holder of Registrable Securities immediately
of the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement
of material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances then existing, and use its best efforts to promptly
update and/or correct such prospectus.
(vi) Furnish to each holder of Registrable Securities included
therein (1) an opinion of
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counsel to the Company covering compliance of the registration statement, as
to form, with the requirements of the Act and the rules thereunder, and
covering the matters covered in the opinion filed as an exhibit to the
registration statement, and (2) a "cold comfort" letter or letters of the
Company's independent public accountants in the form and of the substance
customarily supplied to underwriters in connection with a public offering.
(vii) Use its best efforts to list the Registrable
Securities covered by such registration statement with any national market or
securities exchange on which the Common Stock is then listed.
(viii) Make available for inspection by the holder of
Registrable Securities, upon request, all SEC Documents (as defined below)
filed subsequent to the Closing and require the Company's representatives to
supply all information reasonably requested by any holder of Registrable
Securities in connection with such registration statement. Nothing herein
shall require the Company to postpone filing the registration statement or to
delay the effectiveness thereof.
(e) Each holder of Registrable Securities will furnish to the
Company in connection with any registration under this Section such
information regarding itself, the Registrable Securities and other securities
of the Company held by it, and the intended method of disposition of such
securities as shall be reasonably required to effect the registration of the
Registrable Securities held by such holder of Registrable Securities. The
Investor shall provide such data at or prior to the Closing. The intended
method of disposition (Plan of Distribution) of such securities as so
provided by Investor shall be included without alteration in the Registration
Statement covering the Registrable Securities and shall not be changed
without written consent of the Investor.
(f) (i) The Company shall indemnify, defend and hold harmless each
holder of Registrable Securities which are included in a registration
statement pursuant to the provisions of Subsections (b) or (c) (each, a
"Selling Shareholder") and each of its officers, directors, employees,
agents, partners or controlling persons (within the meaning of the Act)
(each, an "indemnified party") from and against, and shall reimburse such
indemnified party with respect to, any and all claims, suits, demands, causes
of action, losses, damages, liabilities, costs or expenses ("Liabilities") to
which such indemnified party may become subject under the Act or otherwise,
arising from or relating to (A) any untrue statement or alleged untrue
statement of any material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement thereto, or (B)
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; provided, however,
that the Company shall not be liable in any such case to the extent that any
such Liability arises out of or is based upon an untrue statement or omission
so made in reliance upon information furnished by such indemnified party in
writing specifically for use in the registration statement; provided further,
that the Company shall not be liable in any such case to the extent that any
such Liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any preliminary
prospectus if (i) a Selling Shareholder under an obligation to send or
deliver a copy of the prospectus with or prior to the delivery of written
confirmation of the sale of Registrable Securities to the person asserting
such Liability who purchased such Registrable Securities which are the
subject thereof from such Selling Shareholder failed to do so and (ii) the
prospectus would have corrected such untrue statement or omission; and
provided further, that the Company shall not be liable in any such case to
the extent that any Liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission in the
prospectus, if such untrue statement or alleged untrue statement, omission or
alleged omission is corrected in an amendment or supplement to the prospectus
and if, having previously been furnished by or on behalf of the Company with
copies of the prospectuses so amended or supplemented and having been
obligated to deliver such prospectuses, the Selling Shareholder thereafter
failed to deliver such prospectus as so amended or supplemented, prior to or
concurrently with the sale of Registrable Securities to the person asserting
such Liability who purchased such Registrable Securities which are the
subject thereof from such Selling Shareholder.
(ii) In the event of any registration under the Act of
Registrable Securities pursuant to Subsections (b) or (c), each holder of
such Registrable Securities hereby severally agrees to indemnify, defend and
hold harmless the Company, and its officers, directors, employees, agents,
partners, or controlling persons (within the meaning of the Act) (each, an
"indemnified party") from and against, and shall reimburse such indemnified
party with respect to, any and all Liabilities to which such indemnified
party may become subject under the Act or otherwise,
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arising from or relating to (A) any untrue statement or alleged untrue
statement of any material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement thereto, or (B)
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; provided, that
such holders will be liable in any such case to the extent, and only to the
extent, that any such Liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, prospectus or amendment or supplement thereto in
reliance upon written information furnished in an instrument duly executed by
such holder specifically for use in the registration statement.
(iii) Promptly after receipt by any indemnified party of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against another party (the
"indemnifying party") hereunder, notify such party in writing thereof, but
the omission so to notify shall not relieve the indemnifying party from any
Liability which it may have to the indemnified party other than under this
section and shall only relieve it from any Liability which it may have to the
indemnified party under this section if and to the extent it is actually
prejudiced by such omission. In case any such action shall be brought against
any indemnified party and such indemnified party shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to the
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to the indemnified party
under this section for any legal expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that if the defendants in any such action include both the
indemnifying party and such indemnified party and the indemnified party shall
have reasonably concluded, based upon an opinion of counsel, that there may
be reasonable defenses available to it which are different from or additional
to those available to the indemnifying party or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified party shall have the right to select
a separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with (subject to the following
sentence) the reasonable expenses and fees of such separate counsel and other
reasonable expenses related to such participation to be reimbursed by the
indemnifying party as incurred. If the Company is the indemnifying party it
shall pay the reasonable expenses and fees of only one separate counsel whose
selection is approved by the largest group of similarly situated indemnified
parties as measured by the aggregate face value of such Registrable
Securities owned by such group. Any indemnified party who chooses not to be
represented by the foregoing separate counsel shall be entitled, at its own
expense, to be represented by counsel of its own selection.
(g) (i) With respect to the inclusion of Registrable Securities in
a registration statement pursuant to Subsections (b) or (c), all fees, costs
and expenses of and incidental to such registration, inclusion and public
offering shall be borne by the Company; provided, however, that any Selling
Shareholders participating in such registration shall bear their own share of
the underwriting discounts and commissions, and transfer taxes if any,
incurred by them in connection with such registration.
(ii) The fees, costs and expenses of registration to be borne
by the Company as provided in this Subsection (g) shall include, without
limitation, all registration, filing and NASD fees, printing expenses, fees
and disbursements of counsel and accountants for the Company, and all legal
fees and disbursements and other expenses of complying with state securities
or Blue Sky laws of any jurisdiction or jurisdictions in which securities to
be offered are to be registered and qualified. Subject to appropriate
agreements as to confidentiality, and upon reasonable advance notice from the
holder or its counsel, the Company shall make available to counsel for the
holders of Registrable Securities upon reasonable request its documents and
personnel for due diligence purposes, and shall pay the reasonable fees and
disbursements of one law firm (but not more than one) acting as counsel for a
majority of such holders. Except as otherwise provided herein, fees and
disbursements of counsel and accountants for the Selling Shareholders shall
be borne by the respective Selling Shareholders. Nothing herein shall
require the Company to postpone filing the registration statement or delay
its effectiveness.
(h) The rights to cause the Company to register all or any portion
of Registrable Securities pursuant to this Section may be assigned by
Investor to a transferee or assignee of all, or a portion equal to 20% or
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more, in the aggregate, of its Shares or the Registrable Securities derived
from such Shares. Any transferee asserting registration rights hereunder
shall agree to be bound by the applicable provisions of this Agreement.
(i) From and after the date of this Agreement, the Company shall
not grant additional "piggy-back" registration rights to the holders of any
securities of the Company to include any of their securities in any
registration statement filed by the Company pursuant to Subsection (b) unless
such inclusion will not reduce the amount of the Registrable Securities
included therein.
ARTICLE II
Representations and Warranties
Section II.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Investor:
(a) Organization and Qualification. The Company is a corporation
duly incorporated and existing in good standing under the laws of
Massachusetts and has the requisite corporate power to own its properties and
to carry on its business as now being conducted. The Company does not have
any material subsidiaries except as listed in Exhibit A hereto or in the SEC
Documents (as hereinafter defined). The Company and each such subsidiary, if
any, 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
or property owned by it makes such qualification necessary other than those
in which the failure so to qualify would not have a Material Adverse Effect.
"Material Adverse Effect" means any material adverse effect on the business,
operations, properties, prospects, or financial condition of the Company and
its subsidiaries taken as a whole.
(b) Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the Shares in accordance with the terms hereof, (ii) the execution and
delivery of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action, and no further consent or authorization of the Company or
its Board of Directors or stockholders is required except as contemplated by
this Agreement or Schedule I hereto (including stockholder approval), (iii)
this Agreement has been duly executed and delivered by the Company, and (iv)
this Agreement constitutes a valid and 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. The Company's chief
executive officer and chief financial officer and directors have studied and
fully understand the nature of the securities being sold hereunder, and
recognize that they have a potential dilutive effect.
(c) Capitalization. The authorized capital stock of the Company
consists of ______ shares of Common Stock and _______ shares of preferred
stock; there are _________ shares of Common Stock and _________ shares of
Class C preferred stock issued and outstanding; and, upon issuance of the
Shares in accordance with the terms hereof and pursuant to similar agreements
of like tenor, there will be _______ shares of Common Stock, approximately
_______ shares of Class C preferred stock, and ____ shares of 6% Convertible
Preferred Stock issued and outstanding. All of the outstanding shares of the
Company's Common Stock have been validly issued and are fully paid and
nonassessable. Except as set forth in Exhibit A hereto and as described in
the SEC Documents, no shares of Common Stock are entitled to preemptive
rights or registration rights and there are no outstanding options,
convertible securities, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company or
options, warrants, scrip, rights to subscribe to, or commitments to purchase
or acquire, any shares, or securities or rights convertible into shares, of
capital stock of the Company. The Company has furnished or made available to
the Investor true and correct copies of the Company's charter documents as in
effect on the date hereof (the "Charter"), and the Company's By-Laws, as in
effect on the date hereof (the "By-Laws").
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(d) Issuance of Shares. The issuance of the Shares has been duly
authorized and, when paid for or issued in accordance with the terms hereof,
the Shares shall be validly issued, fully paid and non-assessable and
entitled to the rights and preferences set forth in Schedule I hereto. The
Common Stock issuable upon conversion of the Shares will be duly authorized
and reserved for issuance and, upon conversion in accordance with the
Certificate of Designation to be filed by the Company to establish the rights
and preferences of the Shares, will be validly issued, fully paid and
non-assessable and not subject to any preemptive rights or adverse claims,
and the holders shall be entitled to all rights and preferences accorded to a
holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) result in a
violation of the Company's Charter or By-Laws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or
result in a violation of any federal, state, local or foreign 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 as contemplated by Section 10 of Schedule I hereto
and except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in
the aggregate, have a Material Adverse Effect); provided that, for purposes
of such representation as to Federal, state, local or foreign law, rule or
regulation, no representation is made herein with respect to any of the same
applicable solely to the Investor and not to the Company. The business of
the Company is not being conducted in violation of any law, ordinance or
regulations of any governmental entity, except for violations which either
singly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under Federal, state or local law, rule
or regulation in the United States to obtain any consent, authorization or
order of, or make any filing (other than the filing of a Certificate setting
forth the terms of the Shares with the Massachusetts Secretary of State) or
registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or
issue and sell the Shares in accordance with the terms hereof (other than any
SEC, NASD or state securities filings which may be required to be made by the
Company and any registration statement which may be filed pursuant hereto);
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein. Purchase of the
Shares by the Investor and conversion of the Shares pursuant to the
provisions hereof and of Schedule I hereto, if and so long as Section 3.5
hereof is complied with, will not cause any person to become an "acquiring
person" or otherwise create any remedy against the Investor under the
Shareholder Rights Plan of the Company.
(f) SEC Documents, Financial Statements. 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 has filed all
reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the
Exchange Act, including material filed pursuant to Section 13(a) or 15(d), in
addition to one or more registration statements and amendments thereto
heretofore filed by the Company with the SEC (all of the foregoing including
filings incorporated by reference therein being referred to herein as the
"SEC Documents"). The Company has delivered or made available to the
Investor true and complete copies of the quarterly and annual (including,
without limitation, proxy information and solicitation materials) SEC
Documents filed with the SEC since December 31, 1995. The Company has not
provided to the Investor any information which, according to applicable law,
rule or regulation, should have been disclosed publicly by the Company but
which has not been so disclosed, other than with respect to the transactions
contemplated by this Agreement. 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
except as set forth on Exhibit A 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 financial statements of the Company included
in the SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such
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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 financial position of the Company as of the dates thereof and the results
of operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments).
(g) No Material Adverse Change. Since the date through which the
most recent quarterly report of the Company on Form 10-Q has been prepared
and filed with the SEC, a copy of which is included in the SEC Documents, no
event which would have a Material Adverse Effect has occurred or exists with
respect to the Company or its subsidiaries otherwise than in the ordinary
course of business, except as otherwise disclosed or reflected in other SEC
Documents prepared through or as of a date subsequent thereto, and the
Company has not received any communication from the SEC or the NASD regarding
any possible de-listing of the Company's Common Stock except as disclosed in
the Company's report on Form 10-Q for June 30, 1997 and subsequent related
communications from the NASD.
(h) No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects,
operations or financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed.
(i) No General Solicitation. Neither the Company, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf
(including Xxxxxxxx Capital Corp. (the "Placement Agent")), has engaged in
any form of general solicitation or general advertising (within the meaning
of Regulation D under the Act) in connection with the offer or sale of the
Shares.
(j) No Integrated Offering. Earlier offers or discussions
regarding possible sales of securities by the Company have not been such as
to require registration of the Shares under the Act.
(k) Approval Commitments. The Company has received binding
assurance from its chief executive officer, chief financial officer and its
directors and the only stockholder known to the Company that owns more than
5% of the outstanding stock of the Company, to the effect that such persons
will vote all their shares in favor of such approval of the transactions
contemplated hereby as may be necessary to comply with any rule or regulation
of the NASD or any other regulatory agency.
(l) Lender Approvals. The Company has received all consents or
approvals from holders of its debt securities that are necessary to allow the
Company to redeem a portion of the Shares if so required pursuant to Schedule
I hereto.
Section II.2 Representations and Warranties of the Investor. The
Investor hereby makes the following representations and warranties to the
Company:
(a) Authorization, Enforcement. (i) Such Investor has the
requisite power and authority to enter into and perform this Agreement and to
purchase the Shares being sold hereunder, (ii) the execution and delivery of
this Agreement by the Investor and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate or
partnership action, and (iii) this Agreement constitutes a valid and 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.
(b) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by the Investor of the transactions
contemplated hereby do not and will not (i) result in a violation of the
Investor's charter documents or By-Laws or (ii) conflict with any agreement,
indenture or instrument to which Investor is a party, or (iii) result in a
violation of any law, rule, or regulation, or any order, judgment or decree
of any court or governmental agency applicable to Investor. The business of
the Investor is not being conducted in violation of any
8
law or regulation of any governmental entity, except for possible violations
which either singly or in the aggregate do not and will not have a material
adverse effect on the Investor. The Investor is not required to obtain any
consent or authorization of any governmental agency in order for it to
perform its obligations under this Agreement. The data to be provided by the
Investor in connection with registering the Registrable Securities under the
Act will be true and correct in all material respects.
(c) Investment Representation. The Investor is purchasing the
Shares for its own account for investment and not with a view to distribution
otherwise than in compliance with the Act. Investor has no present intention
to sell the Shares and Investor has no present arrangement (whether or not
legally binding) to sell the Shares to or through any person or entity;
provided, however, that by making the representations herein, the Investor
does not agree to hold the Shares for any minimum or other specific term and
reserves the right to dispose of the Shares at any time in accordance with
Federal and state securities laws applicable to such disposition.
(d) Accredited Investor. The Investor is an accredited investor as
defined in Rule 501 promulgated under the Act. The Investor has such
knowledge and experience in financial and business matters in general, and
investments in particular, so that the Investor is able to evaluate the
merits and risks of an investment in the Shares and to protect its own
interests in connection with such investment. In addition (but without
limiting the effect of the Company's representations and warranties contained
herein), the Investor has received such information as it considers necessary
or appropriate for deciding whether to purchase the Shares pursuant hereto.
The Investor acknowledges that no representation or warranty is made by the
Placement Agent or any persons representing the Placement Agent with respect
to the Company or sale of the Shares.
(e) Rule 144. The Investor understands that there is no public
trading market for the Shares, that none is expected to develop, and that the
Shares must be held indefinitely unless such Shares or securities into which
the Shares are converted are registered under the Act or an exemption from
registration is available. The Investor has been advised or is aware of the
provisions of Rule 144 promulgated under the Act.
ARTICLE III
Covenants
Section III.1 Securities Compliance.
(a) The Company shall notify the SEC and NASD, in accordance with
their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Shares and Common Stock issuable upon conversion thereof to
the Investor or subsequent holder.
(b) The Investor understands that the Shares are being offered and
sold in reliance on a transactional exemption from the registration
requirements of Federal and state securities laws and that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Investor set forth
herein in order to determine the applicability of such exemptions and the
suitability of the Investor to acquire the Shares.
Section III.2 Registration and Listing. Until one (1) year after all
Shares have been converted into Common Stock, the Company will cause its
Common Stock (or other securities into which the Shares are convertible) to
continue to be registered under Sections 12(b) or 12(g) of the Exchange Act,
will comply in all respects with its reporting and filing obligations under
said act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement and will not take any action or
file any document (whether or not permitted by the Act or the Exchange Act or
the rules thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under said Acts,
except as permitted herein. Until one (1) year after all Shares have been
converted into Common Stock the Company will use its best efforts to continue
the listing or trading of its Common Stock (or other securities into which
the Shares are convertible) on the Nasdaq National Market or the Nasdaq Small
Cap Market or a
9
national securities exchange and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules
of the NASD and Nasdaq.
Section III.3 Stockholder Approval. The Company will use its best
efforts to promptly notice and hold a stockholders meeting as soon as
reasonably practicable to obtain any stockholder approvals required by the
Company (including those required by all applicable agreements between the
Company and the NASD or Nasdaq) to allow for issuance of Common Stock upon
conversion of the Shares.
Section III.4 Sale Restrictions. Following conversion of the Shares
into Common Stock of the Company, Investor will not on any trading day offer
or sell publicly on NASDAQ or on the principal exchange on which the Common
Stock is traded, or any other securities market or securities exchange, on a
net basis, more than the following number of such shares of Common Stock:
the greatest of (i) 10% of the average daily trading volume of the Common
Stock for the five trading days immediately preceding such sale as reported
by NASDAQ or by such principal exchange, (ii) 12,000 shares, or (iii) 10% of
the trading volume for the Common Stock on such day, as reported by NASDAQ
or by such principal exchange. This provision shall survive the final
conversion date of the Shares.
Section III.5 Conversion Rights. Investor shall not be entitled to
convert any Share into Common Stock of the Company if following conversion of
such Share the Investor and its affiliates (within the meaning of the
Exchange Act) shall be the beneficial owners (as defined in Rule 13d-3 under
the Exchange Act) of 10% or more of the Common Stock of the Company, or if a
lesser percentage is set forth after the name of the Investor on the
signature page hereof, such lesser percentage. The provisions of this
Section cannot be amended.
Section III.6 Hedging Restrictions. Investor agrees not to engage in
any short sales, swaps, purchasing of puts, or other hedging activities that
involve the direct or indirect use of the Common Stock or any derivative
securities based on Common Stock to hedge its investment in the Shares. This
Section shall not apply to transactions in which Investor has no beneficial
interest made on behalf of third-party clients who are not holders of Shares.
Section III.7 Notice of Conversion Cap. No later than 10 days after the
end of the 15th full calendar month after the Closing Date the Company will
deliver notice to the Investor specifying the amount of the then applicable
Conversion Cap (as defined in Schedule I hereto) and the calculation thereof.
ARTICLE IV
Conditions
Section IV.1 Conditions Precedent to the Obligation of the Company to
Sell the Shares. The obligation hereunder of the Company to issue and/or
sell the Shares to the Investor is subject to the satisfaction, at or before
the Closing, of each of the conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company at any time
in its sole discretion.
(a) Accuracy of the Investor's Representations and Warranties. The
representations and warranties of the Investor shall be true and correct in
all material respects when made and as of the Closing Date.
(b) Performance by the Investor. The Investor shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by the Investor at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
which prohibits the consummation of any of the transactions contemplated by
this Agreement.
Section IV.2 Conditions Precedent to the Obligation of the Investor to
Purchase the Shares. The obligation hereunder of the Investor to acquire and
pay for the Shares is subject to the satisfaction, at or before the Closing,
of each of the conditions set forth below. These conditions are for the
Investor's sole benefit and may be waived by the Investor
10
at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. 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 that time (except for representations and warranties that
speak as of a particular date).
(b) Performance by the Company. The Company shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by the Company at or prior to the Closing.
(c) Nasdaq. The Company's Common Stock shall be listed and trade
on the Nasdaq National Market on the Closing Date.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
which prohibits the consummation of any of the transactions contemplated by
this Agreement.
(e) Opinion of Counsel, Etc. At the Closing the Investor shall
have received an opinion of counsel to the Company (who may be in-house
counsel) in the form attached hereto, and such other certificates and
documents as the Investor or its counsel shall reasonably require incident to
the Closing.
ARTICLE V
Legend on Stock
Each certificate representing the Shares and, if appropriate, securities
issued upon conversion thereof, shall be stamped or otherwise imprinted with
a legend substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION
FROM SUCH REGISTRATION REQUIREMENTS.
The Company agrees to reissue certificates representing the Shares or, if
applicable, the securities issued upon conversion thereof without the legend
set forth above at such time as (i) in the opinion of counsel to the holder,
the holder thereof is permitted to dispose of such Shares (or securities
issued upon conversion thereof) pursuant to Rule 144 under the Act, (ii) the
securities are sold to a purchaser or purchasers who (in the opinion of
counsel to such purchasers, in form and substance reasonably satisfactory to
the Company and its counsel) are able to dispose of such shares publicly
without registration under the Act, or (iii) such securities are included in
an effective registration statement under the Act.
ARTICLE VI
Termination
Section VI.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of
the Company and the Investor.
Section VI.2 Other Termination. This Agreement may be terminated by
action of the Board of Directors or other governing body of the Investor or
the Company at any time if the Closing shall not have been consummated by the
fifth business day following the date of this Agreement and in no event later
than September 30, 1997.
Section VI.3 Automatic Termination. This Agreement shall automatically
terminate without any further
11
action of either party hereto if the Closing shall not have occurred by the
tenth business day following the date of this Agreement.
ARTICLE VII
Miscellaneous
Section VII.1 Fees and Expenses. Except as otherwise set forth in
Section 1.4 hereof, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. The Company will
compensate the Placement Agent and will indemnify it against certain
liabilities. The Placement Agent's compensation includes a cash payment in
an amount equal to 8.7% of the Purchase Price of Shares sold by the Company,
and the issuance of warrants to the Placement Agent to purchase that number
of Shares equal to 10% of the number of Shares sold. The Company shall pay
all stamp and other taxes and duties levied in connection with the issuance
of the Shares pursuant hereto.
Section VII.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Investor acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which either
of them may be entitled by law or equity.
(b) Each of the Company and the Investor (i) hereby irrevocably
submits to the jurisdiction of the United States District Court and other
courts of the United States sitting in New York for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement and (ii)
hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction
of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Company and the Investor consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing in this paragraph shall affect or limit
any right to serve process in any other manner permitted by law.
Section VII.3 Entire Agreement: Amendment. This Agreement contains the
entire understanding of the parties with respect to the matters covered
hereby and, except as specifically set forth herein, neither the Company nor
the Investor 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 a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought.
Section VII.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective
(a) upon hand delivery or delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below
(if delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such delivery
(if delivered other than on a business day during normal business hours where
such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to
such address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be:
to the Company: Xxxxx X. Xxxxxxxxx, President
Interleaf, Inc.
00 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Fax: (000) 000-0000
12
with a copy to: Xxxx Xxxxxx, Esq.
Peabody & Xxxxxx
00 Xxxxx Xxxxx
Xxxxxx, XX 02110-21253342
Fax: (000) 000-0000
to the Investor: At the address set forth at the foot of this
Agreement, with copies to Investor's counsel
as set forth at the foot of this Agreement or
as specified in writing by Investor
with a copy to: Xxxxxx X. Xxxxxxxx
Xxxxxxxx Capital Corp.
0000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
Any party hereto may from time to time change its address for notices by
giving at least 10 days' written notice of such changed address to the other
party hereto.
Section VII.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission
of either party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
Section VII.6 Headings. The headings herein are for convenience only,
do not constitute a part of this Agreement and shall not be deemed to limit
or affect any of the provisions hereof.
Section VII.7 Successors and Assigns. Except as otherwise provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties and their successors and assigns. The parties hereto may amend this
Agreement without notice to or the consent of any third party.
Section VII.8 No 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.
Section VII.9 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of New York
without regard to such state's principles of conflict of laws.
Section VII.10 Survival. The representations and warranties of the
Company and the Investor contained in Article II and the agreements and
covenants set forth in Articles I, III, V and VII shall survive the Closing
for five years.
Section VII.11 Execution. 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, it being understood that both parties need not
sign the same counterpart. In the event any signature is delivered by
facsimile transmission, the party using such means of delivery shall cause
the manually executed signature page(s) to be physically delivered to the
other party within five days of the execution hereof.
Section VII.12 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Investor
without its consent, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
13
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
INTERLEAF, INC.
By:
------------------------------
Name:
Its: President
Number of Shares THE INVESTOR
________________ By:
-------------------------------
Name:
Dollar Amount at Its:
$1,000 per share Investor's address:
$_______________ Percentage limitation, if desired ______
Name and address of Investor's counsel:
14
SCHEDULE I
RESOLUTION ESTABLISHING PREFERENCES
of
6% CONVERTIBLE PREFERRED STOCK
RESOLVED that there shall be a series of shares of the Preferred
Stock of the Corporation designated "6% Convertible Preferred Stock"; that
the number of authorized shares of such series shall be 11,000 and that the
rights and preferences of such series (the "6% Preferred") and the
limitations or restrictions thereon, shall be as follows:
1. Dividends.
(a) The holders of the 6% Preferred shall be entitled to receive
out of any assets legally available therefor cumulative dividends at the rate
of $60.00 per share per annum, payable annually on September 30 of each year,
when and as declared by the Board of Directors, in preference and priority to
any payment of any dividend on the Common Stock or any other class or series
of stock of the Corporation ranking junior to the 6% Preferred and ranking
pari passu with the Class C Preferred Stock of the Corporation. Such
dividends shall accrue on any given share from the day of original issuance
of such share and shall accrue from day to day whether or not earned or
declared. If at any time dividends on the outstanding 6% Preferred at the
rate set forth above shall not have been paid or declared and set apart for
payment with respect to all preceding periods, the amount of the deficiency
shall be fully paid or declared and set apart for payment, but without
interest, before any distribution, whether by way of dividend or otherwise,
shall be declared or paid upon or set apart for the shares of any other class
or series of stock of the Corporation except a class or series which is
entitled to priority over the 6% Preferred.
(b) Dividends shall be paid in shares of 6% Preferred valued at
$1,000 per share. Dividends not theretofore paid shall be paid upon
conversion of any share of the 6% Preferred and shall be simultaneously
converted into Common Stock together with the share on which such dividends
have accrued.
(c) At its option, the Corporation may elect to pay accumulated
dividends in cash. The Corporation must give notice of such election in the
manner provided in Section 5 hereof at least ten (10) calendar days prior to
both the date of payment and the date Notice of Conversion is given by a
holder. The Corporation may choose the cash election any number of times and
each such election may be effective for any length of time established by the
Corporation and stated in its notice of the election.
2. Liquidation Preference.
(a) The liquidation rights of the 6% Preferred shall rank pari
passu with the Class C Preferred Stock of the Corporation. In the event of
any liquidation, dissolution or winding up of the Corporation, either
voluntary or involuntary, the holders of the 6% Preferred shall be entitled
to receive, prior and in preference to any distribution of any assets of the
Corporation to the holders of the Common Stock or any other class or series
of shares except any class or series which is entitled to priority over the
6% Preferred and except for ratable distribution to the Class C Preferred
Stock, the amount of $1,000 per share plus any accrued but unpaid dividends
plus any amounts accrued but unpaid under Section 1.4(b)(iv) of the Preferred
Stock Investment Agreement under which shares of the 6% Preferred were
originally issued (the "Liquidation Preference").
(b) Subject to the last sentence of this Section, a consolidation
or merger of the Corporation with or into any other corporation or
corporations, or a sale of all or substantially all of the assets of the
Corporation, shall, at the option of the holders of the 6% Preferred, be
deemed a liquidation, dissolution or winding up within the meaning of this
Section 2 if the shares of stock of the Corporation (along with all
derivative securities) outstanding
1
immediately prior to such transaction represent immediately after such
transaction less than a majority of the voting power of the surviving
corporation (or of the acquirer of the Corporation's assets in the case of a
sale of assets). Such option may be exercised by the vote or written consent
of holders of a majority of the 6% Preferred at any time within thirty
calendar days after written notice of the essential terms of such transaction
shall have been given to the holders of the 6% Preferred as provided in
Section 5 hereof. Such notice shall be given by the Corporation immediately
following determination of such essential terms. If such option is
exercised, the holders of the 6% Preferred shall be entitled to receive, in
cash, immediately upon the occurrence of such transaction, an amount per
share equal to the Liquidation Preference divided by the difference between
100% and the Applicable Percentage determined pursuant to Section 4 hereof.
This Section shall not apply to a business combination in which the Common
Stock of the Corporation is converted solely into or exchanged solely for
voting common stock of the corporation surviving such business combination,
if (i) such common stock of the surviving corporation is listed and traded on
the NASDAQ National Market, the American Stock Exchange or the New York Stock
Exchange, and (ii) the Board of Directors of the Corporation determines in
good faith that the conversion rights and other rights and preferences of the
6% Preferred are preserved and not rendered of less value by the terms of
such business combination.
3. Mandatory Conversion.
On the fifth anniversary of the date of issuance, all then
outstanding shares of 6% Preferred shall be automatically converted into
Common Stock at the Conversion Price on such anniversary date and otherwise
pursuant to the applicable provisions set forth in Section 4 hereof.
4. Conversion. The holders of the 6% Preferred shall have optional
conversion rights as follows:
(a) Accrual of Conversion Rights. The Conversion Period shall
commence 90 days after the date of issuance, and shall continue thereafter
for the life of the issue. Each holder of record of 6% Preferred shares on
the date of commencement of the Conversion Period (an "Original Holder")
shall be entitled to convert in any calendar month the following percentage
of the 6% Preferred shares held by such holder on the date of commencement of
the Conversion Period (the "Conversion Restriction"). The percentage for
each calendar month will be determined based on the highest of the daily low
trading prices of the Common Stock during such month, as follows:
Highest of daily low trading Percentage becoming
prices during month convertible for such month
$2.50 or less 10.0%
$2.51 to $3.50 10.0%
$3.51 to $4.00 12.5%
$4.01 to $5.50 15.0%
$5.51 to $6.00 17.5%
$6.01 to $7.50 20.0%
$7.51 to $8.50 22.5%
$8.51 or more 25.0%
The number of shares which may be converted in any calendar month shall
include on a cumulative basis the number of shares which might have been but
were not converted during earlier calendar months, except that in any month
in which the highest of the daily low trading prices is $2.50 or less, the
amount converted shall not exceed 10%. In the case of transfers of shares by
an Original Holder the Corporation shall make such notations on its stock
ownership records and on the certificates for shares issued upon transfer so
as to reflect the portion (if any) of the transferred shares which have
become convertible pursuant to this provision, or the Corporation may at its
election issue certificates representing the 6% Preferred shares in such
form, or with such annotations, as to reflect the time or times at which the
shares represented by such certificates will become convertible.
(b) Removal of Limitations. The limitations set forth in Section
4(a) hereof, with respect to the percentage of 6% Preferred shares which may
be converted during certain time periods, shall terminate and all the 6%
Preferred shares shall thereafter be fully convertible if any of the
following events or conditions shall occur or exist: (i) an event described
in Section 2(b) (subject to the exclusion in the last sentence of such
Section) shall occur, whether or
2
not the holders of 6% Preferred deem such event to be a liquidation; (ii)
proceedings for relief under any bankruptcy or similar law for the relief of
debtors are instituted by or against the Corporation or any of its
significant subsidiaries and, if instituted against the Corporation or such
subsidiary, are consented to or not dismissed within 30 days; (iii) the
independent auditors of the Corporation shall fail or be unwilling to express
within 90 days after the end of the Corporation's fiscal year a customary
opinion on the financial statements of the Corporation, or shall express such
opinion subject to a "going concern" qualification; (iv) the Common Stock of
the Corporation shall cease to be listed on either the NASDAQ Small-Cap
Market, the NASDAQ National Market, or a national securities exchange; or (v)
there shall be a material breach by the Corporation of any of its obligations
hereunder or under the Preferred Stock Investment Agreements pursuant to
which the 6% Preferred was originally issued which has a material adverse
effect on the holders of 6% Preferred.
(c) Right to Convert. At and after the time it has become
convertible, each share of 6% Preferred shall be convertible, at the option
of the holder thereof, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing (i) the liquidation
preference of the 6% Preferred share determined pursuant to Section 2(a)
hereof on the date the notice of conversion is given, by (ii) the Conversion
Price determined as hereinafter provided in effect on said date, provided
however, that a share of 6% Preferred shall not be converted into Common
Stock if following such conversion the holder thereof together with
affiliates of such holder would be the beneficial owners (as defined in Rule
13d-3 under the Securities Exchange Act of 1934) of 10% or more of the Common
Stock of the Corporation.
(d) Mechanics of Conversion. To convert shares of 6% Preferred
into shares of Common Stock, the holder shall give written notice to the
Corporation (which notice may be given by facsimile transmission) that such
holder elects to convert the same and 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 shares of Common Stock to be issued. Promptly
thereafter the holder shall surrender the certificate or certificates
representing the shares to be converted, duly endorsed, at the office of the
Corporation or of any transfer agent for such shares, or at such other place
designated by the Corporation. The Corporation shall, immediately upon
receipt of such notice, issue and deliver to or upon the order of such
holder, against delivery of the certificates representing the shares which
have been converted, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled, and a certificate
representing the shares of 6% Preferred not so converted, if any. The
Corporation shall effect such issuance immediately and shall transmit the
certificates by messenger or overnight delivery service to reach the address
designated by such holder within three trading days after the receipt of such
notice. Notice of conversion may be given by a holder at any time of day up
to 5:00 pm Los Angeles time, and such conversion shall be deemed to have been
made immediately prior to the close of business on the date such notice of
conversion is given (the "Conversion Date"). The person or persons entitled
to receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock at the close of business on the Conversion Date.
(e) Determination of Conversion Price.
(i) On any Conversion Date prior to the first day of the
thirteenth calendar month after the Closing, the Conversion Price shall not
be less than $1.50, and until the end of the seventh month following the
Closing the Conversion Price shall be $5.50. Subject to the foregoing
sentence and to the provisions of subsection (e)(iii) and subsection (f) of
this Section, on any Conversion Date, the Conversion Price shall be the
average of the three (3) lowest daily trading prices of the Common Stock for
the 22 consecutive trading days ending with the trading day prior to the
Conversion Date, reduced by the Applicable Percentage (as defined below) in
effect on the Conversion Date.
(ii) The Applicable Percentage shall be as follows:
9.8% starting on the first day of the eighth (8th) calendar month
after Closing.
11.1% starting on the first day of the ninth (9th) calendar month after
Closing.
12.4% starting on the first day of the tenth (10th) calendar month
after Closing.
13.7% starting on the first day of the eleventh (11th) calendar month
after Closing.
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15.0% starting on the first day of the twelfth (12th) calendar month
after Closing and thereafter.
(iii) From and after the first day of the sixteenth (16th)
calendar month after Closing, the Maximum Conversion Price ("Conversion Cap")
shall be 85% of the average low daily trading price of the Common Stock
during the period beginning on the first day of the twelfth (12th) calendar
month following Closing and ending on the last day of the fifteenth (15th)
calendar month following Closing. Notwithstanding the prior sentence, in no
event shall the Conversion Cap be less than the greater of: i) two dollars
and fifty cents ($2.50), or ii) the average daily closing price of the Common
Stock for the five (5) trading days immediately prior to the Closing.
(iv) The terms "low trading price" and "last sale price" of the
Common Stock on any day shall mean, respectively, (A) the lowest reported
sale price and the last reported sale price of the Common Stock on the
principal stock exchange on which the Common Stock is listed, or (B) if the
Common Stock is not listed on a stock exchange, the lowest reported sale
price and the last reported sale price of the Common Stock on the principal
automated securities price quotation system on which sale prices of the
Common Stock are reported, or (C) if the Common Stock is not listed on a
stock exchange and sale prices of the Common Stock are not reported on an
automated quotation system, the lowest bid price and the last bid price for
the Common Stock as reported by National Quotation Bureau Incorporated. If
none of the foregoing provisions are applicable, the "low trading price" and
"last sale price" of the Common Stock on a day will be the fair market value
of the Common Stock on that day as determined by a member firm of the New
York Stock Exchange, Inc., selected by the Board of Directors of the
Corporation. The term "trading day" means (x) if the Common Stock is listed
on at least one stock exchange, a day on which there is trading on the
principal stock exchange on which the Common Stock is listed, (y) if the
Common Stock is not listed on a stock exchange but sale prices of the Common
Stock are reported on an automated quotation system, a day on which trading
is reported on the principal automated quotation system on which sales of the
Common Stock are reported, or (z) if the foregoing provisions are
inapplicable, a day on which quotations are reported by National Quotation
Bureau Incorporated. The "closing price" of the Common Stock on any day
means the "last sale price" as defined above.
(v) In the event that during any period of consecutive trading
days provided for above, the Corporation shall declare or pay any dividend on
the Common Stock payable in Common Stock or in rights to acquire Common
Stock, or shall effect a stock split or reverse stock split, or a
combination, consolidation or reclassification of the Common Stock, then the
Conversion Price and (if such event occurs during or after the 12th month
after the date of issuance) the Conversion Cap shall be proportionately
decreased or increased, as appropriate, to give effect to such event, and
like adjustment shall be made in any price per share specified in dollars
herein.
(f) Green Floor. If at any time the Conversion Price falls below
three dollars ($3.00) per share (the "Green Floor Price"), the Corporation
may at its option, exercised by written notice ("Cash Conversion Notice")
given to the holders of the 6% Preferred five days prior to the effective
date specified in such Notice (the "Effective Date") honor any conversion
request otherwise properly made, if at a Conversion Price lower than the
Green Floor Price, by a cash payment in lieu of the issuance of Common Stock
in an amount equal to the proceeds which would otherwise have been received
by the holder if conversion were in fact made into Common Stock and such
Common Stock were sold at the high trade price on the trading day immediately
preceding the date that the conversion notice is received (the "Cash
Conversion Amount"). The Cash Conversion Notice may specify an expiration
date of such Notice, or may specify a limitation on the aggregate number of
dollars which the Corporation will pay in Cash Conversion Amounts. When such
dollar limitation is reached the Corporation shall give immediate notice to
the holders of 6% Preferred that the Cash Conversion Notice is no longer in
effect. The Corporation may at any time reset the Green Floor Price to any
price determined by the Corporation by giving 30 days prior notice to the
holders of the 6% Preferred. If notice of conversion shall be given by a
holder of 6% Preferred shares on a date that a Cash Conversion Notice is in
effect, the Corporation shall within 48 hours following surrender of the
share certificate as provided in Section 4(d) hereof make payment of the Cash
Conversion Amount to such holder by wire transfer of immediately available
funds in U.S. dollars pursuant to such wire transfer instructions as may have
been given by such holder, or otherwise by mailing by certified mail a bank
cashiers' or certified check for the Cash Conversion Amount to the record
address of such holder. A Cash Conversion Notice shall cease to be effective
if the Corporation fails to make payment of the Cash Conversion Amount to any
holder entitled thereto in the manner and within the time specified in the
foregoing sentence, time being of the essence. If a Cash Conversion Notice
ceases to be effective pursuant to the foregoing sentence, it shall not
thereafter be effective as to any holder and no Cash Conversion Notice may
thereafter
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be given by the Corporation. The number of shares that a holder is entitled
to convert, determined pursuant to subsections (a) and (b) of this Section 4,
shall not be affected by the giving or effectiveness of a Cash Conversion
Notice. Any Cash Conversion Notice shall be given as provided in Section 5
hereof.
(g) Distributions. In the event the Corporation shall at any time
or from time to time make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation or any of its
subsidiaries or other property, other than cash dividends from earnings or
dividends of additional shares of Common Stock, then in each such event
provision shall be made so that the holders of 6% Preferred shall receive,
upon the conversion thereof, the securities or other property which they
would have received had they been the owners on the date of such event of the
number of shares of Common Stock issuable to them upon conversion.
(h) Certificates as to Adjustments. Upon the occurrence of any
adjustment or readjustment of the Conversion Price or the Conversion Cap
pursuant to Section 4(e)(v) or Section 4(m) hereof, or any adjustment of the
cash per-share prices specified herein, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of 6% Preferred a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall,
upon the written request at any time of any holder of 6% Preferred, furnish
or cause to be furnished to such holder a like certificate prepared by the
Corporation setting forth (i) such adjustments and readjustments, and (ii)
the number of other securities and the amount, if any, of other property
which at the time would be received upon the conversion of 6% Preferred with
respect to each share of Common Stock received upon such conversion. If any
holder disputes the computation of such adjustment the Corporation shall
cause independent public accountants selected by the Corporation to verify
and, if necessary, correct such computation.
(i) Notice of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive additional
shares of Common Stock, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or property,
or to receive any other right, the Corporation shall give notice to each
holder of 6% Preferred at least 10 days prior to such date specifying the
date on which any such record is to be taken for the purpose of such
dividend, distribution, security or right and the amount and character of
such dividend, distribution, security or right.
(j) Issue Taxes. The Corporation shall pay any and all issue and
other taxes, excluding any income, franchise or similar taxes, that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of 6% Preferred pursuant hereto; provided, however, that
the Corporation shall not be obligated to pay any transfer taxes resulting
from any transfer requested by any holder in connection with any such
conversion.
(k) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the 6% Preferred, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the 6% Preferred, and if at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the 6%
Preferred, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for
such purpose, including, without limitation, engaging in best efforts to
obtain the requisite shareholder approval as promptly as practicable.
(l) Fractional Shares. No fractional shares shall be issued upon
the conversion of any share or shares of 6% Preferred. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of 6% Preferred by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market
value of such
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fraction on the date of conversion (as determined in good faith by the Board
of Directors of the Corporation).
(m) Reorganization or Merger. In case of any reorganization or any
reclassification of the capital stock of the Corporation or any consolidation
or merger of the Corporation with or into any other corporation or
corporations or a sale of all or substantially all of the assets of the
Corporation to any other person, and the holders of 6% Preferred do not elect
to treat such transaction as a liquidation, dissolution or winding up as
provided in Section 2, then, as part of such reorganization, consolidation,
merger or sale, provision shall be made so that each share of 6% Preferred
shall thereafter be convertible into the number of shares of stock or other
securities or property (including cash) to which a holder of the number of
shares of Common Stock deliverable upon conversion of such share of 6%
Preferred would have been entitled upon the record date of (or date of, if no
record date is fixed) such event and, in any case, appropriate adjustment (as
determined by the Board of Directors) shall be made in the application of the
provisions herein set forth with respect to the rights and interests
thereafter of the holders of the 6% Preferred, to the end that the provisions
set forth herein shall thereafter be applicable, as nearly as equivalent as
is practicable, in relation to any shares of stock or the securities or
property (including cash) thereafter deliverable upon the conversion of the
shares of 6% Preferred. The Corporation shall have no obligation to obtain
the prior consent of the holders of 6% Preferred, individually or as a class,
except as expressly provided herein or as provided by applicable law.
5. Notices. Any notice to be given to the holders of the 6% Preferred
shall be (i) mailed by first class mail postage prepaid to each holder of 6%
Preferred at the address shown on the records of the Corporation for such
holder, (ii) transmitted by telecopy or facsimile transmission to any holder
which has supplied a telecopy or facsimile address to the Corporation, and
(iii) unless receipted for by telecopy or facsimile on the date such notice
is given, shall be transmitted by an overnight delivery service or courier
service for delivery at the address shown on the records of the Corporation
for such holder on the first business day following the date such notice is
given, or if delivery in one business day to such address cannot be effected
by such delivery service, then on the earliest day on which such delivery can
be made.
6. Other Provisions. For all purposes of this Resolution, the term
"date of issuance" or "closing" shall mean the day on which shares of the 6%
Preferred are first issued by the Corporation, and the terms "trading price",
"low trading price", "closing price", "last trade price", and "trading days"
shall have the meanings given them in Section 4(e) hereof. Any provision
herein which conflicts with or violates any applicable usury law shall be
deemed modified to the extent necessary to avoid such conflict or violation.
7. Restrictions and Limitations. The Corporation shall not undertake
the following actions without the consent of the holders of a majority of the
6% Preferred: (i) modify its Certificate of Incorporation or Bylaws so as to
amend or change any of the rights, preferences, or privileges of the 6%
Preferred, (ii) authorize or issue any other equity security senior to the 6%
Preferred, or (iii) purchase or otherwise acquire for value any Common Stock
or other equity security of the Corporation either junior or senior to or on
a parity with the 6% Preferred while there exists any arrearage in the
payment of cumulative dividends hereunder.
8. Voting Rights. Except as provided herein or as provided for by
law, the 6% Preferred shall have no voting rights.
9. Attorneys' Fees. Any holder of 6% Preferred shall be entitled to
recover from the Corporation the reasonable attorneys' fees and expenses
incurred by such holder in connection with enforcement by such holder of any
obligation of the Corporation hereunder, if such holder is the prevailing
party in an action or proceeding to compel such enforcement.
10. Limitation on Number of Conversion Shares. The Corporation shall
not be obligated to issue, in the aggregate, more than 3,150,000 shares of
Common Stock as presently constituted (the "Nasdaq Cap") upon conversion of
the 6% Preferred, if issuance of a larger number of shares would constitute a
breach of the Rules or Designation Criteria of the NASDAQ Stock Market (the
"NASDAQ Rules"). Subject to the obligation to effect certain redemptions
pursuant to the last three sentences of this Section, if further issuances of
shares of Common Stock upon conversion of the 6% Preferred would constitute a
breach of the NASDAQ Rules (i.e., all of the shares permitted to be issued
under the Nasdaq Cap shall have been so issued), then so long thereafter as
such limitation shall continue to be applicable and
6
any shares of 6% Preferred are submitted for conversion such shares shall
receive in cash an amount equal to the Cash Conversion Amount determined as
provided in Section 4(f) hereof, in lieu of the Common Stock which such
shares would otherwise be entitled to receive upon conversion. Payment of
the Cash Conversion Amount shall be made no later than as specified in
Section 4(f) and shall bear daily interest thereafter at the rate of
one-tenth of one percent per day until paid. The NASDAQ Cap shall be
proportionately and equitably adjusted in the event of stock splits, stock
dividends, reverse stock splits, reclassifications or other such events, in
such manner as the Board of Directors of the Corporation shall reasonably
determine. If (A) the Corporation is unable to obtain the requisite
shareholder approval concerning the issuance of shares of Common Stock upon
conversion of the 6% Preferred to satisfy the NASDAQ Rules prior to December
31, 1997, then (B) the Corporation shall immediately redeem, at a "Special
Redemption Price" equal to 110% of the liquidation preference of such shares,
the smallest number of Shares which is sufficient, in the Corporation's
reasonable judgment, such that following such redemption, conversion of the
remaining shares of 6% Preferred would not constitute a breach of the
Corporation's obligations under the NASDAQ Rules. Any redemption effected
pursuant to the preceding sentence shall require 15 days' notice and the
Redemption Date shall be not more than 15 days after the date specified in
Clause A of the preceding sentence. Such redemption shall be made pro-rata.
If there shall be a default in payment of the Special Redemption Price, the
amount so payable shall bear daily interest from and after the Redemption
Date at the rate of one-tenth of one
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