1
EXHIBIT B
SUBSCRIPTION AGREEMENT
NOTE: THREE COMPLETED AND EXECUTED COPIES OF THIS SUBSCRIPTION
AGREEMENT MUST BE RETURNED, AND THE ENTIRE PURCHASE PRICE FOR
THE PREFERRED STOCK SUBSCRIBED FOR MUST BE PAID AS SET FORTH
HEREIN, TO SUBSCRIBE FOR THIS OFFERING.
Name of Investor: Scorpion Acrodyne Investors LLC
Number of Shares of Series A 8% Redeemable Convertible Preferred Stock,
$ 1.00 par value, at $3.0625 per Share: 163,265
Aggregate Purchase Price: $499,999.06
FOR RESIDENTS OF PENNSYLVANIA
THE SECURITIES ARE BEING SOLD AS PART OF A TRANSACTION WHICH
IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE PENNSYLVANIA SECURITIES ACT
OF 1972, AS AMENDED, PURSUANT TO SECTION 203(d) THEREOF.
SECTION 207(m) OF THE PENNSYLVANIA SECURITIES ACT OF 1972 ALSO
PROVIDES THAT EACH PERSON WHO ACCEPTS AN OFFER TO PURCHASE SECURITIES EXEMPTED
FROM REGISTRATION BY SECTION 203(d) DIRECTLY FROM THE ISSUER OR AFFILIATE OF THE
ISSUER WILL HAVE THE RIGHT TO WITHDRAW SUCH ACCEPTANCE WITHOUT INCURRING ANY
LIABILITY TO THE SELLER, THE UNDERWRITER (IF ANY) OR ANY OTHER PERSON WITHIN TWO
BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE ISSUER OF SUCH PERSON'S WRITTEN
BINDING CONTRACT OF PURCHASE OR, IN THE CASE OF A TRANSACTION IN WHICH THERE IS
NO BINDING CONTRACT OF PURCHASE, WITHIN TWO BUSINESS DAYS AFTER SUCH PERSON
MAKES THE INITIAL PAYMENT FOR THE SECURITIES BEING OFFERED.
TIMELY NOTICE OF AN INTENTION TO WITHDRAW WILL BE DEEMED TO
HAVE BEEN GIVEN BY A PROSPECTIVE PURCHASER WITHIN THE TWO BUSINESS DAY PERIOD,
IF, DURING SUCH TWO-DAY PERIOD, SUCH NOTICE IN WRITING: (1) IS ACTUALLY RECEIVED
BY THE ISSUER OR ITS AFFILIATE; (2) IS DELIVERED TO A TELEGRAPH OR OTHER MESSAGE
SERVICE FOR TRANSMITTAL; (3) IS DEPOSITED IN THE UNITED STATES MAILS, AND IN THE
CASE OF (2) ABOVE, ALL TELEGRAPH, POSTAGE OR OTHER TRANSMITTAL FEES ARE PAID BY
THE SENDER AND NOTICE IS ADDRESSED TO THE PRESIDENT OF ACRODYNE COMMUNICATIONS,
INC. (THE "COMPANY").
PERSONS TO WHOM OFFERS OR SALES ARE MADE IN PENNSYLVANIA ARE
FURTHER ADVISED THAT A PENNSYLVANIA PURCHASER CANNOT SELL THE SECURITIES FOR A
PERIOD OF TWELVE (12) MONTHS FROM
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THE DATE OF PURCHASE EXCEPT AS PERMITTED BY THE PENNSYLVANIA SECURITIES ACT
OF 1972.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), MAY BE PERMITTED TO DIRECTORS,
OFFICERS OR PERSONS CONTROLLING THE COMPANY, THE COMPANY IS AWARE THAT IN THE
OPINION OF THE SECURITIES AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
-----------------------------
SUBSCRIPTION AGREEMENT, dated as of September 3, 1998, by and
among Acrodyne Communications, Inc., a Delaware corporation (the "Company"), and
certain investors executing counterparts of this Agreement (collectively, the
"Investors," or each individually, an "Investor").
W I T N E S S E T H:
WHEREAS, the Company desires to sell to the Investors, and the
Investors desire to purchase from the Company, an aggregate of 326,530 shares of
the Company's Series A 8% Redeemable Convertible Preferred Stock, par value
$1.00 per share (the "Preferred Stock"), at a purchase price of $3.0625 per
share, having the rights and preferences set forth in the Certificate of
Designation attached hereto as Exhibit A (the "Certificate of Designation"); and
WHEREAS, the Company is described in the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1997 and Quarterly
Report on Form 10-QSB for the fiscal quarter ended June 30, 1998 (collectively,
the "Reports") on file with the Securities and Exchange Commission (the
"Commission");
NOW, THEREFORE, the parties hereto agree as follows:
1. SUBSCRIPTION AND PAYMENT. Subject to the terms and
conditions herein set forth, the undersigned (the "Investor") hereby subscribes
for the number of shares of Preferred Stock set forth above. The Investor agrees
to deliver to the Company at the Closing (as defined below) the aggregate
purchase price set forth above, payable in immediately available funds, for the
shares of Preferred Stock subscribed for hereby.
2. CLOSING. The closing (the "Closing") of the purchase and
sale of the Preferred Stock (the "Offering") will occur at the offices of
Xxxxxx, Xxxx & Xxxxxxxx LLP, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 on
September 4, 1998 or the earliest date thereafter on which the closing
conditions specified in Sections 7 and 8 of this Agreement have been satisfied
or waived (any such date, the "Closing Date"); provided, however, that if the
Closing has not occurred by September 8, 1998, then this Agreement will
terminate and the Closing will not take place. At the Closing, the Company will
deliver to the Investor one executed copy of this Agreement with a stock
certificate representing the Investor's ownership of the Preferred Stock
subscribed for hereby. Similar Subscription Agreements (all such agreements and
this
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Subscription Agreement being collectively referred to as the "Subscription
Agreements") will be executed by each of the Investors.
3. TERMINATION OF OFFERING. The Investor understands and
agrees that it will not be entitled to exercise the rights of a shareholder of
the Company until an appropriate certificate representing the Preferred Stock
for which the Investor has subscribed has been issued to the Investor on the day
of the Closing. If (a) the Company has reasonably determined that an event has
occurred or a condition exists which could materially and adversely affect the
business or proposed business of the Company and that such possibility warrants
termination of the Offering, (b) the conditions to the Closing of the Offering
are not satisfied or (c) the Company elects to terminate the Offering, then the
Offering will be terminated, the Company will not issue the Preferred Stock and
the Company will not be entitled to payment of the purchase price for the
Preferred Stock.
4. REPRESENTATIONS AND WARRANTIES BY INVESTOR. The Investor
hereby represents and warrants to the Company that:
(a) It is an "accredited investor" as that term is defined in
Rule 501 (a) under the Securities Act of 1933, as amended (the "Act").
(b) It has the requisite knowledge and experience in financial
and business matters to be capable of evaluating the merits and risks of an
investment in the Company.
(c) It has received and read the Reports and has evaluated the
risks of investing in the Company.
(d) It has been given the opportunity to ask questions of, and
receive answers from, the Company concerning the terms and conditions of the
Offering and to obtain additional information necessary to verify the accuracy
of the information contained in the Reports or such other information as it
desired in order to evaluate its investment.
(e) In making its decision to purchase the Preferred Stock
herein subscribed for, it has relied solely upon the Reports, the
representations, warranties, agreements, undertakings and acknowledgments of the
Company in this Agreement, and independent investigations made by the Company.
(f) It understands that an investment in the Company involves
certain risks and it has taken full cognizance of and understands such risks,
including those set forth in the Reports.
(g) It understands that neither the Preferred Stock nor the
shares of Common Stock of the Company, par value $.01 per share, into which the
Preferred Stock is convertible (the "Common Stock") has been registered under
the Act, and agrees that neither the Preferred Stock nor the Common Stock may be
sold, offered for sale, transferred, pledged, hypothecated or otherwise disposed
of except in compliance with the Act and subject to the terms of this
Subscription Agreement.
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(h) It understands that no federal or state agency has made
any finding or determination as to the fairness for investment in, or any
recommendation or endorsement of, the Preferred Stock.
(i) The Preferred Stock herein subscribed for is being
acquired by it in good faith solely for its own account, for investment purposes
and not with a view to subdivision, distribution or resale, and the Investor
will not sell or otherwise dispose of any shares of the Preferred Stock or
Common Stock, as the case may be, unless:
(i) it has advised the Company in writing that it
intends to dispose of such shares of Preferred Stock or Common Stock,
as the case may be, in a manner to be described in such advice, and
counsel reasonably acceptable to the Company has delivered to the
Company an opinion that registration is not required under the Act or
under any applicable securities laws of any jurisdiction; or
(ii) a registration statement on an appropriate form
under the Act, or a post-effective amendment to such registration
statement, covering the proposed sale or other disposition of such
shares of Preferred Stock or Common Stock, as the case may be, is in
effect under the Act and such shares of Preferred Stock or Common Stock
or the proposed sale or other disposition thereof have been registered
or qualified under applicable securities laws of any jurisdiction.
(j) The Investor undertakes to notify the Company as soon as
practicable of any material change in any representation, warranty or other
information relating to the Investor set forth herein which occurs prior to the
Closing in order to insure compliance of the Investor with the terms of this
Agreement.
(k) The Investor acknowledges and agrees that the certificates
representing the Preferred Stock and the Common Stock will bear the following
legend (unless not required under the Act):
"The securities represented by this
certificate have not been registered under the Securities Act
of 1933 and may not be sold, exchanged, hypothecated or
transferred in any manner except in compliance with that
certain Subscription Agreement dated as of September 3, 1998
among the Company and various stockholders of the Company."
(l) The Investor also acknowledges that the Company may place
a stop transfer order against transfer of the Preferred Stock and the Common
Stock, if necessary in the Company's reasonable judgment in order to assure
compliance by the Investor with the terms of this Agreement.
(m) Each Investor located in the Commonwealth of Pennsylvania
further acknowledges and agrees that such Investor cannot sell the Preferred
Stock for a period of twelve (12) months from the date of purchase thereof
except as permitted by the Pennsylvania Securities Act of 1972.
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(n) If the Investor is a partnership, corporation, trust or
other entity, the Investor represents and warrants that (i) the individual
executing this Agreement has appropriate authority to act on behalf of the
Investor and (ii) the Investor was not specifically formed to acquire the
Preferred Stock subscribed for hereby. If the Investor is a partnership, the
Investor further represents that the funds to make this investment were not
derived from additional capital contributions of the partners of such
partnership made solely for the purpose of enabling such partnership to purchase
the Preferred Stock and that such partnership was not formed solely for the
purpose of enabling such partnership to purchase the Preferred Stock.
(o) The foregoing representations, warranties, agreements,
undertakings and acknowledgments are made by the Investor with the intent that
they be relied upon in determining its suitability as a purchaser of Preferred
Stock.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Investor that:
(a) The Company has duly filed with the Commission all reports
required by the Securities Exchange Act of 0000 (xxx "Xxxxxxxx Xxx"). The
Company has furnished to the Investor true and correct copies of the Reports.
The Reports do not, as of the date on which they were signed, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(b) The financial statements (including the related notes) of
the Company included in the Reports present fairly the financial position of the
Company as of the dates indicated and its results of operations for the periods
specified therein. All such financial statements have been prepared in
accordance with generally accepted accounting principles on a basis consistently
applied.
(c) Except as disclosed in the Reports, the Company does not
have any subsidiaries. The Company has been duly organized and validly existing
as a corporation in good standing under the laws of its jurisdiction of
organization, with full power and authority (corporate and other) to own its
properties and conduct its business as described in the Reports, and is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the character of the business conducted by it or the
location of the properties owned or leased by it makes such licenses,
certificates and permits from governmental authorities necessary for the conduct
of its business as described in the Reports.
(d) The authorized capital stock of the Company consists of
(i) 1,000,000 shares of Preferred Stock, par value $1.00 per share, of which
6,500 shares are issued and outstanding, and (ii) 10,000,000 shares of Common
Stock, par value $.01 per share. At the date hereof there are 5,322,270 shares
of Common Stock issued and outstanding. In addition, at the date hereof there
are outstanding options and warrants exercisable for a total of 2,165,120 shares
of Common Stock. The Company has all requisite power and authority to issue,
sell and deliver the Preferred Stock in accordance with and upon the terms and
conditions set forth in this Agreement and the Common Stock issuable upon
conversion to the Preferred Stock; and all corporate action required to be taken
by the Company for the due and proper authorization,
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issuance, sale and delivery of the Preferred Stock and Common Stock has been
validly and sufficiently taken. The outstanding shares of Common Stock are, and
the shares of Common Stock issuable upon conversion of the Preferred Stock in
accordance with its terms will be, when issued, duly authorized, validly issued,
fully paid and nonassessable.
(e) Except as set forth in this Agreement, or as described in
the Reports, subsequent to the respective dates as of which information is given
in the Reports, the Company has not incurred any material liability or
obligation, direct or contingent, or entered into any material transaction,
whether or not in the ordinary course of business, and there has not been any
material change on a consolidated basis in the capital stock, or any material
increase in the short-term debt or long-term debt, or any material adverse
change in the condition (financial or other), business, key personnel,
properties or results of operations of the Company.
(f) The Company is not in violation of its Certificate of
Incorporation or Bylaws or in default in the performance of any material
obligation contained in any material agreement, indenture or other instrument.
The performance by the Company of its obligations under this Agreement and the
consummation of the transactions herein contemplated will not conflict with or
result in a breach of the Certificate of Incorporation or Bylaws of the Company,
or any material agreement, indenture or other instrument to which the Company is
a party or by which it is bound, or any law, rule, administrative regulation or
decree of any court or governmental authority having jurisdiction over the
Company or its properties, or result in the creation or imposition of any
material lien, charge, claim or encumbrance upon any property or asset of the
Company. Except as required by the Act and applicable state securities or blue
sky laws, no consent, approval, authorization or order of any court or
governmental authority is required in connection with the consummation of the
transactions contemplated by this Agreement. The rights granted to the Investors
hereunder do not in any way conflict with and are not inconsistent with any
rights granted to the holders of the Company's securities or debt instruments.
(g) The Common Stock issuable upon conversion of the Preferred
Stock, upon such issuance, will conform to the description thereof contained in
the Reports. There are no preemptive rights or other rights to subscribe for or
to purchase, or any restriction upon the voting or transfer of, any shares of
Common Stock pursuant to the Company's Certificate of Incorporation or Bylaws or
any agreement or other instrument to which the Company is a party. Neither the
Offering nor the sale of the Preferred Stock as contemplated in this Agreement
gives rise to any rights, other than those which have been waived, for or
relating to the registration of any shares of Common Stock (other than as
provided in Section 9 of this Agreement).
(h) The Company has full right, power and authority to enter
into this Agreement and this Agreement has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding agreement
of the Company enforceable against the Company in accordance with its terms.
(i) Except as otherwise stated in the Reports, the Company (A)
has good and marketable title (in fee simple, in the case of real property),
free and clear of all liens and encumbrances, to all of the material real and
personal property described in the Reports as being owned by it, except for any
liens and encumbrances which are not material in the aggregate and
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do not materially interfere with the conduct of the business of the Company and
(B) has valid leases to the material real property described in the Reports as
under lease to it with such exceptions as do not materially interfere with the
conduct of the business of the Company.
(j) Except as set forth in the Reports, there are no actions,
suits or proceedings pending before or by any court or governmental agency or
authority, or any arbitrator, which seek to restrain or prohibit the
consummation of the transactions contemplated hereby or which might reasonably
be expected to result in any material adverse change in the condition (financial
or other), business or results of operations of the Company and, to the best of
the Company's knowledge, no such action, suit or proceeding has been threatened.
(k) The Company is not in violation of any law, ordinance,
governmental rule or regulation or court degree to which it may be subject and
the Company has not failed to obtain any license, permit, franchise or other
governmental authorization necessary to the ownership of its property or to the
conduct of its business, which violation or failure to obtain is likely to have
a material adverse effect on the condition (financial or other), business or
results of operations of the Company.
(l) Neither the Company nor any of its officers, employees or
other persons directly or indirectly affiliated with it has, either directly or
through an agent, sold or offered for sale or solicited offers to subscribe for
or buy, or approached potential investors for or otherwise negotiated in respect
of, the Preferred Stock, other than with the Investors, and neither the Company
nor any of its employees or other persons directly or indirectly affiliated with
it has, either directly or through an agent, participated in the organization or
management of any entity or has engaged or proposes during any time after the
Closing to engage in any other activity, in a manner or under circumstances that
would jeopardize the status of the Offering as an exempted transaction under the
Act or under the laws of any state in which it is represented by the Company
that the Offering may be made.
(m) No person is entitled to receive any commission, fee or
compensation from the Company for services rendered as placement agent or
otherwise in connection with the offer or sale of the Preferred Stock pursuant
to the Offering, except for S-A Partners which is entitled only to receive from
the Company the warrants described in Section 6(d).
6. COVENANTS OF THE COMPANY. The Company covenants with the
Investor that:
(a) The Company will apply the net proceeds from the sale of
the Preferred Stock for general corporate purposes.
(b) At Closing, the Company will issue to the Investor a
warrant for the purchase of up to 250,000 shares of Common Stock, exercisable
for seven (7) years after the Closing Date, at an exercise price of $3.00 per
share of Common Stock, in the form of the Warrant Agreement attached hereto as
Exhibit B (such warrants, the "Investor Warrants").
(c) On each anniversary of the Closing Date, the Company will
issue to the Investor a warrant for the purchase of up to 75,000 shares of
Common Stock, exercisable for seven (7) years from the respective date of
issuance of such warrants, at an exercise price of
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$3.00 per share of Common Stock, in the form of the Warrant Agreement attached
hereto as Exhibit B (such warrants, the "Additional Investor Warrants");
provided, however, that the Additional Investor Warrants will be issued on any
anniversary date of the Closing Date only to the extent that the Preferred Stock
held by the Investor is outstanding on such date and has not been redeemed or
converted; and further, provided, that in the event of such redemption or
conversion, then the number of Additional Investor Warrants issuable to the
Investor shall be reduced pro tanto.
(d) At Closing, in consideration for being introduced to the
Investors, the Company will issue to S-A Partners a warrant for the purchase of
up to 25,000 shares of Common Stock, exercisable for seven (7) years after the
Closing Date at a warrant exercise price of $3.00 per share of Common Stock, in
the form of the Warrant Agreement attached hereto as Exhibit B (such warrants,
the "Finder Warrants" and, collectively with the Investor Warrants and the
Additional Investor Warrants, the "Warrants").
(e) The Company will, so long as the Investor is the holder of
Preferred Stock or Common Stock, furnish to the Investor, as soon as practicable
after the end of each fiscal year, an annual report with respect to such year
(including financial statements audited by independent public accountants) and,
as soon as practicable after the end of each quarterly period (other than the
last quarterly period) of each fiscal year, a statement (which need not be
audited) of the results of operations of the Company for such period, and, to
the extent not otherwise furnished, promptly upon the filing thereof, copies of
all reports filed by the Company with the Commission pursuant to the Exchange
Act.
(f) So long as the Investor is the holder of Preferred Stock
or Common Stock, the Company will permit any person designated by the Investor
in writing, at the sole expense of the Investor, to visit and inspect any of the
properties and books of account of the Company and to discuss its affairs,
finances and accounts with the principal officers of the Company, all at such
reasonable times and at such reasonable intervals as the Investor may reasonably
request; provided that the Company will not be required to reveal trade secrets
or information not reasonably pertinent to an evaluation of the credit of the
Company or compliance with this Agreement.
(g) The Company will at all times keep in reserve the number
of shares of its Common Stock issuable from time to time upon the conversion of
all the outstanding Preferred Stock.
(h) So long as the Investor is the holder of Preferred Stock
or Common Stock, the Company will use its best efforts to continue its
existence, pay all applicable taxes and comply with all applicable laws.
(i) The Company undertakes to notify each Investor as soon as
practicable of any material change in any representation, warranty or other
information relating to the Company set forth herein which occurs prior to the
Closing.
(j) Neither the Company nor any of its employees or other
persons directly or indirectly affiliated with it will engage in any activity
that would jeopardize the status of the
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Offering as an exempt transaction under the Act or under the laws of any state
in which the Offering is made.
(k) The Company acknowledges that the representations,
warranties, agreements, undertakings and acknowledgments are made by the Company
with the intent that they be relied upon by each Investor in determining whether
to invest in the Preferred Stock.
7. CONDITIONS OF INVESTOR OBLIGATIONS. The Investor's
obligations under this Agreement are subject to the accuracy of the
representations and warranties of the Company made in Section 5 hereof in all
material respects, to the performance by the Company of its other obligations
under this Agreement to be performed at or prior to the Closing and to the
following further conditions:
(a) At the Closing, the Investor will have received the
favorable opinion of counsel to the Company, dated the Closing Date and in form
and substance satisfactory to the Investor, to the effect that:
(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the laws of
its jurisdiction of organization, with full power and authority to own
its properties and conduct its business as described in the Reports,
and is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the location of the
properties owned or leased by it, as known by such counsel, makes such
qualification necessary,
(ii) The authorized capital stock of the Company
consists of 1,000,000 shares of preferred stock, par value $1.00 per
share, and 10,000,000 shares of Common Stock, par value $.01 per share.
The Company has all requisite power and authority to issue, sell and
deliver the Preferred Stock in accordance with and upon the terms and
conditions set forth in this Agreement; and all corporate action
required to be taken by the Company for the due and proper
authorization, issuance, sale and delivery of the Preferred Stock has
been validly and sufficiently taken. Upon payment by the Investor at
the Closing of the purchase price for the shares of Preferred Stock
subscribed for hereby, the Preferred Stock (and the Common Stock
issuable upon conversion thereof), upon issuance and delivery in the
manner described in the Certificate of Designation attached hereto,
will be duly authorized, validly issued, fully paid and nonassessable.
The Certificate of Designation, in the form attached hereto, has been
duly filed with the Secretary of State of the State of Delaware and the
resolutions contained therein have been duly adopted by the Board of
Directors of the Company. There are no preemptive or other rights to
subscribe for or to purchase, nor any restriction upon the voting or
transfer of, any shares of Common Stock pursuant to the Company's
Certificate of Incorporation, Bylaws or any agreement or other
instrument known to such counsel to which the Company is a party except
as described in the Reports.
(iii) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby do not
result in a violation of, or constitute a default under, the
Certificate of Incorporation or Bylaws of the Company, or any material
agreement, indenture or other instrument known to such counsel to which
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the Company is a party or by which it may be bound, or to which any
property of the Company is subject, nor will the performance by the
Company of its obligations hereunder violate any law, rule,
administrative regulation or decree known to such counsel of any court,
or any governmental agency or authority having jurisdiction over the
Company or its properties, or, to the knowledge of such counsel, result
in the creation or imposition of any material lien, charge, claim or
encumbrance upon any property or asset of the Company. No consent,
approval, authorization or other order of any court, governmental
agency or authority is required in connection with the consummation of
the transactions contemplated by this Agreement, except such as have
been obtained or as are contemplated hereunder.
(iv) The Company has full legal night, power and
authority to enter into this Agreement. This Agreement has been validly
authorized, executed and delivered by the Company and constitutes a
legal, valid and binding agreement of the Company, enforceable in
accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and
court decisions with respect thereto (provided that no opinion need be
expressed with respect to the application of equitable principles in
any proceeding, whether at law or in equity).
In expressing such opinion, such counsel may state (x) that, as to questions of
fact not independently established by such counsel, such counsel has relied on
certificates of the Company or its officers and of public officials, (y) that
such opinion is limited to the General Corporation Law of the State of Delaware,
the laws of the United States and the laws of the state in which such counsel
maintains its principal office, and that, in the event such principal office is
located outside of Pennsylvania, such counsel has assumed that the laws of the
Commonwealth of Pennsylvania are the same as the laws of the state in which such
principal office is located and (z) that, when reference is made in such opinion
to "knowledge" or to what is "known" to such counsel, such reference means the
actual knowledge of only those attorneys who have given substantive attention to
the representation of the Company and the preparation and negotiation of this
Agreement and the Certificate of Designation attached hereto.
(b) At the Closing, the Investor will have received a
certificate, dated the date thereof and signed by the Chairman of the Board and
President of the Company to the effect that:
(i) The representations and warranties of the Company
in this Agreement are true and correct in all material respects, as if
made at and as of the Closing Date, and the Company has complied with
all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date; and
(ii) The signer of said certificate has carefully
examined the Reports and after giving effect to all amendments or
supplements thereto, on the Closing Date, such Reports does not include
any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading.
(c) The Certificate of Designation for the Preferred Stock
will have been duly filed with the Secretary of State of the State of Delaware.
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(d) If any of the conditions specified in this Section 7 have
not been fulfilled in all material respects when and as required by this
Agreement to be fulfilled, the Investor may cancel this Agreement and all its
obligations under this Agreement by notifying the Company of such cancellation
in writing or by telegram or by facsimile at any time at or before the Closing
and any such cancellation will be without liability or obligation of any party
to any other party (except in the case of willful breach).
8. CONDITIONS OF OBLIGATIONS OF THE COMPANY. The obligations
of the Company under this Agreement are subject to the accuracy of the
representations and warranties of the Investor made in Section 4 hereof in all
material respects, to the performance by the Investor of its other obligations
under this Agreement to be performed at or prior to the Closing and to the
further condition that all other Investors must concurrently make the
investments contemplated to be made in connection with this Offering. If any of
the conditions specified in this Section 8 have not been fulfilled in all
material respects when and as required by this Agreement to be fulfilled, the
Company may cancel this Agreement and all its obligations under this Agreement
by notifying the Investor of such cancellation in writing or by telegram at any
time at or before the Closing and any such cancellation will be without
liability or obligation of any party to any other party (except in the case of
willful breach).
9. REGISTRATION RIGHTS.
(a) "Registration Period" means the period between the date of
this Agreement and the earlier of (i) the date on which all of the shares of
Common Stock and the Common Stock into which the Warrants are exercisable
(collectively, the "Registrable Securities") have been sold in transactions
where the transferee is not subject to securities law resale restrictions and
(ii) the date on which the Registrable Securities (in the opinion of Investor's
counsel) may be immediately sold without registration and free of restrictions
on transfer.
(b) "Registration Statement" means a registration statement
of the Company filed with the Securities and Exchange Commission (the "SEC")
under the Securities Act.
(c) The terms "register", "registered", and "registration"
refer to a registration effected by preparing and filing a Registration
Statement in compliance with the Securities Act and applicable rules and
regulations thereunder and pursuant to Rule 415 under the Securities Act, and
the declaration or ordering of effectiveness of such Registration Statement by
the SEC.
(d) The Company represents and warrants that it meets the
requirements for the use of Form S-3 and the Company will file all reports
required to be filed by the Company with the SEC in a timely manner so as to
maintain such eligibility for the use of Form S-3.
(e) Within ninety (90) days following the Closing Date, the
Company will prepare and file a Registration Statement on Form S-3 with the SEC,
registering all of the Registrable Securities for resale. To the extent
allowable under the Securities Act and the Rules promulgated thereunder, the
Registration Statement will include the Registrable Securities and such
indeterminate number of additional shares of Common Stock as may become issuable
pursuant to this Agreement and/or upon exercise of the Warrants to prevent
dilution resulting
Page 19 of 47
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from stock splits, stock dividends or similar transactions. The Registration
Statement (and each amendment or supplement thereto) will be provided to, and
subject to the reasonable approval of, the Investors and their counsel. The
Company will use its best efforts to cause such Registration Statement to be
declared effective by the SEC as soon as practicable after filing. Such best
efforts will include, but not be limited to, promptly responding to all comments
received from the staff of the SEC. Should the Company receive notification from
the SEC that the Registration Statement will receive no action or no review from
the SEC, the Company will cause such Registration Statement to become effective
within five (5) business days of such SEC notification. Once declared effective
by the SEC, the Company will cause such Registration Statement to remain
effective throughout the Registration Period.
(f) The Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) filed by the Company may
not contain any untrue statements 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 in which they were made, not misleading. The
Company will prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period and, during such period, will comply with the provisions of
the Securities Act with respect to the disposition of all Registrable Securities
of the Company covered by the Registration Statement until such time as all of
such Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the sellers thereof as set forth in the
Registration Statement.
10. INDEMNIFICATION. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act, any underwriter (as defined in the
Securities Act) for the Investors, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, expenses or liabilities (joint or several) (collectively, "Claims") to
which any of them become subject under the Securities Act, the Exchange Act or
otherwise, insofar as such Claims (or actions or proceedings, whether commenced
or threatened, in respect thereof) and out of or are based upon any of the
following statements, omissions or violations in the Registration Statement, or
any post-effective amendment thereof, or any prospectus included therein:
(i) any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
Page 20 of 47
13
(ii) any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or
contained in the final prospectus (as amended or supplemented, if the
Company files any amendment thereof or supplement thereto with the SEC)
or the omission or alleged omission to state therein any material fact
necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not
misleading, or
(iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act or any state securities
law or any rule or regulation (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations").
Subject to the restrictions set forth in Section 10(c) with respect to the
number of legal counsel, the Company will reimburse the Investors and each such
underwriter or controlling person, promptly as such expenses are incurred and
are due and payable, for any legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 10(a):
(A) will not apply to a Claim arising out of
or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such
Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus
was timely made available by the Company pursuant to this
Agreement hereof,
(B) with respect to any preliminary
prospectus will not inure to the benefit of any such person
from whom the person asserting any such Claim purchased the
Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue
statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as
then amended or supplemented, if a prospectus was timely made
available by the Company pursuant to this Agreement; and
(C) will not apply to amounts paid in
settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent will
not be unreasonably withheld. Such indemnity will remain in
full force and effect regardless of any investigation made by
or on behalf of the Indemnified Persons and will survive the
transfer of the Registrable Securities by the Investors to
this Agreement.
(b) In connection with any Registration Statement in which an
Investor is participating, each such Investor, severally and not jointly, agrees
to indemnify and hold harmless, to the same extent and in the same manner set
forth in Section 10(a), the Company, each of its directors, each of its officers
who signs the Registration Statement, each person, if any, who controls the
Company within the meaning of the Securities Act or the Exchange Act,
Page 21 of 47
14
any underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the Securities
Act or the Exchange Act (collectively and together with an Indemnified Person,
an "Indemnified Party"), against any Claim to which any of them may become
subject, under the Securities Act, the Exchange Act or otherwise, insofar as
such Claim arises out of or is based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement, and such
Investor will promptly reimburse any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 10(b) will not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent will not be
unreasonably withheld; provided, further, however, that the Investor will be
liable under this Section 10(b) for only that amount of a Claim as does not
exceed the net proceeds to such Investor as a result of the sale of Registrable
Securities pursuant to such Registration Statement. Such indemnity will remain
in full force and effect regardless of any investigation made by or on behalf of
such Indemnified Party and will survive the transfer of the Registrable
Securities by the Investors pursuant to this Agreement. Notwithstanding anything
to the contrary contain herein, the indemnification agreement contained in this
Section 10(b) with respect to any preliminary prospectus will not inure to the
benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.
(c) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 10 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party will, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 10, deliver to the indemnifying party a
written notice of the commencement thereof and this indemnifying party will have
the right to participate in and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying parties; provided, however, that an Indemnified Person or
Indemnified Party will have the night to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if, in the reasonable opinion
of counsel retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the indemnifying
party would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and other party represented
by such counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action will not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 10, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action. The indemnification required by this Section 10 will be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due and
payable. The provisions of this Section 10 will survive the termination of this
Agreement.
11. CONTRIBUTION.
Page 22 of 47
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(a) If the indemnification provided for in Section 10 herein
is unavailable to the Indemnified Parties in respect of any losses, claims,
damages or liabilities referred to herein (other than by reason of the
exceptions provided therein), then each such Indemnifying Party, in lieu of
indemnifying such Indemnified Party, will contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities as between the Company on the one hand and any Investor on the
other, in such proportion as is appropriate to reflect the relative fault of the
Company and of such Investor in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative fault of the Company on
the one hand and of any Investor on the other will be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or by such Investor.
(b) In no event will the obligation of any Indemnifying Party
to contribute under this Section 11 exceed the amount that such Indemnifying
Party would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 10(a) or 10(b) hereof had been
available under the circumstances.
(c) The Company and the Investors agree that it would not be
just and equitable if contribution pursuant to this Section 11 were determined
by pro rata allocation (even if the Investors or the underwriters were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraphs. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraphs will be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this section, no Investor or
underwriter will be required to contribute any amount in excess of the amount by
which (i) in the case of any Investor, the net proceeds received by such
Investor from the sale of Registrable Securities or (ii) in the case of an
underwriter, the total price at which the Registrable Securities purchased by it
and distributed to the public were offered to the public exceeds, in any such
case, the amount of any damages that such Investor or underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
12. PUBLIC INFORMATION. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) File with the SEC in a timely manner and make and keep
available all reports and other documents required of the Company under
the Exchange Act so long as the Company remains subject to such
requirements and the filing and availability of such reports and other
documents is required for the applicable provisions of Rule 144; and
Page 23 of 47
16
(b) Furnish to each Investor so long as such Investor holds
Registrable Securities, promptly upon request, (i) a written statement
by the Company that it has complied with the reporting requirements of
Rule 144 and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so
filed by the Company and (iii) such other information as may be
reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.
13. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement will be
automatically assigned by the Investors to transferees or assignees of all or
any portion of such securities or Warrants exercisable into Registrable
Securities only if:
(a) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such
assignment,
(b) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of the name and
address of such transferee or assignee and the securities with respect
to which such registration rights are being transferred or assigned,
(c) following such transfer or assignment, the further
disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities
laws,
(d) at or before the time the Company received the written
notice contemplated by clause (b) of this Section 13, the transferee or
assignee agrees in writing with the Company to be bound by all of the
provisions contained herein,
(e) such transfer will have been made in accordance with the
applicable requirements of the Agreement, and
(f) such transferee will be an "accredited investor" as that
term is defined in Rule 501 of Regulation D promulgated under the
Securities Act.
14. EXPENSES. All reasonable legal expenses of the Investors
incurred in connection with this Offering up to a total of $15,000 will be borne
by the Company. Subject to the preceding sentence, each party hereto will bear
its own legal and other expenses incurred in connection with this Offering.
15. NOTICES.
(a) Any notice required to be given or delivered to the
Investor will be mailed first class, postage prepaid, return receipt requested,
to such Investor's address shown on the signature page hereof
Page 24 of 47
17
(b) Any notice required to be given or delivered to the
Company will be mailed first class, postage prepaid, return receipt requested,
to:
Acrodyne Communications, Inc.
000 Xxxxxxxx Xxxx Xxxx
Xxxx Xxxx, XX 00000
Attn: President
with a copy to:
Xxxxxx, Xxxx & Xxxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx X. Xxxxx, Esq.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties and agreements hereunder will survive execution
of this Agreement and delivery of the Preferred Stock.
17. GOVERNING LAW. This Agreement and the rights and
obligations of the parties will be governed by and construed in accordance with
the laws of New York applicable to contracts made and to be performed wholly
within that State.
Page 25 of 47
18
IN WITNESS WHEREOF, the undersigned has executed this
Subscription Agreement as of the date first above written.
SCORPION-ACRODYNE INVESTORS LLC
Name of Subscriber
By: /s/ Xxxxx XxXxxxxx
-----------------------
Name: Xxxxx XxXxxxxx
Title: Member
Address:
c/o Scorpion Holdings Inc.
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Tax Identification Number:
00-0000000
The terms of the foregoing including the subscription described therein are
agreed to and accepted as of the date first above written:
ACRODYNE COMMUNICATIONS, INC.
By:
---------------------------
Name: A. Xxxxxx Xxxxxxx
Title: Chairman and President
The terms of the foregoing, insofar as they relate to S-A Partners, are agreed
to and accepted as of the date first above written:
S-A Partners
By: /s/ Xxxxx XxXxxxxx
------------------------
Name: Xxxxx XxXxxxxx
Title: Partner
Page 26 of 47
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EXHIBIT A
[Form of Certificate of Designation]
Page 27 of 47
20
CERTIFICATE OF DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS, AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS, OF THE
SERIES A 8% REDEEMABLE CONVERTIBLE PREFERRED STOCK OF ACRODYNE
COMMUNICATIONS, INC.
-------------------------
(Under Section 151 of the Delaware General Corporation Law)
-------------------------
We, A. Xxxxxx Xxxxxxx, Chairman of the Board and President,
and Xxxxxx X. Xxxxxxx, Secretary, of Acrodyne Communications, Inc., a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "Company") in accordance with the
provisions of Section 151 of the General Company Law of the State of Delaware,
DO HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of
Directors by the Certificate of Incorporation of said Company which was filed in
the office of the Secretary of State of the State of Delaware on May 3, 1991,
said Board of Directors, acting by unanimous written consent of all
non-interested directors, adopted a resolution providing for the authorization
of a series of Preferred Stock consisting of 326,530 shares designated Series A
8% Redeemable Convertible Preferred Stock, which resolution is as follows:
"RESOLVED that, pursuant to Article FOURTH of the Certificate
of Incorporation of the Company, there be and hereby is authorized and created a
series of Preferred Stock, hereby designated as the Series A 8% Convertible
Redeemable Preferred Stock, to consist of 326,530 shares, par value of $1.00 per
share, having the designations, preferences and relative, participating,
optional and other special rights, qualifications, limitations and restrictions
as hereinafter set forth:
1. DESIGNATION. The designation of the series of Preferred
Stock created hereby is Series A 8% Convertible Redeemable Preferred Stock (the
"Series A Preferred Stock"), and the number of shares constituting such series
is 326,530.
2. RANK.
(a) The Series A Preferred Stock will, with respect to
dividend rights, rights on redemption and rights on liquidation, winding up and
dissolution, rank prior to all classes of Common Stock of the Company and to
each other class of capital stock or series of preferred stock of the Company
hereafter created which does not expressly provide that it ranks senior to or on
a parity with the Series A Preferred Stock. All of such equity securities of the
Company to which the Series A Preferred Stock ranks prior are collectively
referred to herein as the "Junior Stock."
(b) The Series A Preferred Stock will, with respect to
dividend rights, rights on redemption and rights on liquidation, winding up and
dissolution, rank on a parity with any
Page 28 of 47
21
class of capital stock or series of preferred stock of the Company hereafter
created which expressly provides that it ranks on a parity with the Series A
Preferred Stock. All of such equity securities of the Company with which the
Series A Preferred Stock ranks on a parity are collectively referred to herein
as the "Parity Stock." The Series A Preferred Stock will rank junior, and is
hereby deemed "Junior Stock" with respect to, the Company's 8% Convertible
Redeemable Preferred Stock issued on March 29, 1996.
(c) The Series A Preferred Stock will, with respect to
dividend rights, rights on redemption and rights on liquidation, winding up and
dissolution, rank junior to each class of capital stock or series of preferred
stock of the Company hereafter created which expressly provides that it ranks
senior to the Series A Preferred Stock. All of such equity securities of the
Company to which the Series A Preferred Stock ranks junior are collectively
referred to herein as the "Senior Stock."
3. DIVIDENDS.
(a) The holders of Series A Preferred Stock will be entitled
to receive in preference to the holders of any Junior Stock, when, as and if
declared by the Board of Directors, out of funds legally available for the
payment thereof, dividends at the annual rate of 8% of Liquidation Value (as
defined below). Such dividends will be cumulative, will accumulate (whether or
not declared) from the date of issuance (the "Issue Date") and will be payable
on the last day of each calendar quarter (each such date being a "dividend
payment date" and each such quarterly period being a "dividend period"),
commencing September 30, 1998. The dividend amount payable in respect of each
share of Series A Preferred Stock on each dividend payment date (the "Dividend
Amount") will be computed by multiplying the applicable annual percentage rate
set forth above by a fraction the numerator of which will be the number of days
in the applicable dividend period and the denominator of which will be 365 and
multiplying the amount so obtained by the Liquidation Value.
(b) Dividends with respect to the Series A Preferred Stock
may, at the election of the Company, be paid in cash or in kind by the issuance
of additional shares of Series A Preferred Stock to the holders entitled hereto.
The number of shares of Series A Preferred Stock remitted to the holders in any
dividend payment shall be equal to the Dividend Amount divided by the
Liquidation Value (as defined in Section 4 below). Notwithstanding anything to
the contrary herein, the issuance of shares of Series A Preferred Stock for the
payment of dividends shall not require the vote of the holders of Series A
Preferred Stock.
(c) All dividends paid with respect to shares of the Series A
Preferred Stock pursuant to Section 3(a) hereof will be paid pro rata to the
holders entitled thereto.
(d) Holders of shares of the Series A Preferred Stock will be
entitled to receive the dividends provided for in Section 3(a) hereof in
preference to and in priority over any dividends upon any of the Junior Stock.
(e) Each fractional share of Series A Preferred Stock
outstanding (if any) will be entitled to a ratably proportionate amount of all
dividends accruing with respect to each outstanding share of Series A Preferred
Stock pursuant to Section 3(a) hereof.
Page 29 of 47
22
4. LIQUIDATION PREFERENCE.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, the holders of shares
of Series A Preferred Stock then outstanding will be entitled to be paid out of
the assets of the Company available for distribution to its stockholders an
amount equal to $3.0625 for each share of Series A Preferred Stock outstanding
(such amount, as it may be adjusted from time to time to give effect to any
stock splits or combinations, recapitalizations or other similar events, the
"Liquidation Value") plus an amount equal to all accumulated but unpaid
dividends thereon to the date fixed for the liquidation, dissolution or winding
up, before any payment is made or any assets distributed to the holders of any
of the Junior Stock.
(b) Except as provided in Section 4(a) hereof, holders of
Series A Preferred Stock will not be entitled to any distribution in the event
of liquidation, dissolution or winding up of the affairs of the Company. If the
assets of the Company are not sufficient to pay in full the liquidation payments
payable to the holders of outstanding shares of Series A Preferred Stock and any
shares of Parity Stock, then the holders of all such shares will share ratably
in accordance with the respective amounts to which the holders of outstanding
shares of Series A Preferred Stock and any Parity Stock would be entitled if all
amounts payable thereon were paid in full.
(c) The liquidation payment with respect to each outstanding
fractional share of Series A Preferred Stock (if any) will be equal to a ratably
proportionate amount of the liquidation payment with respect to each outstanding
share of Series A Preferred Stock.
5. REDEMPTION.
(a) The Series A Preferred Stock is redeemable, at the option
of the Company, at any time and from time to time, at a per share redemption
price equal to the Liquidation Value thereof, plus an amount equal to all
accumulated but unpaid dividends thereon to the date fixed for redemption.
(b) In the event the Company redeems shares of Series A
Preferred Stock, the following procedures will apply:
(i) Notice of redemption will be given by first class
mail, postage prepaid, mailed not less than 30 days nor more than 60
days prior to the date on which shares of the Series A Preferred Stock
are to be redeemed (any such date, a "Redemption Date"), to all holders
of record of the shares to be redeemed at such holder's address as the
same appears on the stock register of the Company. Each such notice
will state (a) the Redemption Date, (b) the redemption price and (c)
the place or places where certificates for such shares are to be
surrendered for payment of the redemption price.
(ii) Notice having been mailed as aforesaid, from and
after the redemption date (unless the Company defaults on payment of
the redemption price of the shares called for redemption) said shares
will no longer be deemed to be outstanding, will have the status of
authorized but unissued shares of Series A Preferred Stock and will not
be reissued as shares of Series A Preferred Stock, and all rights of
the holders thereof as
Page 30 of 47
23
stockholders of the Company (except the right to receive from the
Company the redemption price) will cease. Upon surrender, in accordance
with said notice, of the certificates for any shares so redeemed
(properly endorsed or assigned for transfer, if the Board of Directors
of the Company so requires and the notice so states), such shares will
be redeemed by the Company at the redemption price aforesaid.
6. CONVERSION.
(a) Each share of the Series A Preferred Stock is convertible
at the option of the holder thereof, at any time and from time to time, into
fully paid and non-assessable shares of Common Stock at the conversion price of
$3.0625 per share of Common Stock, subject to adjustment pursuant to Section
6(g) below (as the same may be adjusted from time to time, the "Conversion
Price"). The number of shares of Common Stock issuable upon conversion of a
share of Series A Preferred Stock will be equal to the quotient of the
Liquidation Value divided by the Conversion Price at the time in effect.
(b) The shares of Common Stock deliverable upon conversion of
shares of Series A Preferred Stock will be Common Stock as constituted at the
date of conversion.
(c) Before any holder of Series A Preferred Stock becomes
entitled to convert the same into Common Stock, such holder must exercise its
option to convert by surrendering the certificate or certificates for such
shares of Series A Preferred Stock at the office of the Company (or such office
or agency of the Company as it reasonably designates), which certificate or
certificates, if the Company so requests, will be duly endorsed to the Company
or in blank, or accompanied by proper instruments of transfer to the Company or
in blank, and will give written notice to the Company that such holder elects so
to convert such shares of Series A Preferred Stock, and by stating in writing
therein the name or names in which such holder wishes the certificate or
certificates for Common Stock to be issued. Every such notice of election to
convert will be effective on the date completed and will constitute a contract
between the holder of such shares of Series A Preferred Stock and the Company,
whereby such holder will be deemed to subscribe for the amount of Common Stock
which such holder will be entitled to receive upon such conversion and, in
satisfaction of such subscription, to deposit the shares of Series A Preferred
Stock to be converted and to release the Company from all liability thereunder
(except to deliver the shares deliverable upon conversion thereof), and thereby
the Company will be deemed to agree that the amount paid to it for such shares
of Series A Preferred Stock, together with the surrender of the certificate or
certificates therefor and the extinguishment of liability thereof (except as
aforesaid), will constitute full payment of such subscription for Common Stock
to be delivered upon such conversion.
(d) The Company will, as soon as practicable after such
deposit of certificates for the Series A Preferred Stock accompanied by the
written notice and the statement above prescribed, deliver at said office to the
holder for whose account such shares of Series A Preferred Stock were so
surrendered, or to such holder's nominee or nominees, certificates for the
number of full shares of Common Stock to which such holder is to be entitled as
aforesaid, together with a cash adjustment of any fraction of a share as
hereinafter provided, if not evenly convertible. Subject to the following
provisions of this paragraph, such conversion will be deemed to have been made
as of the date of such surrender of the shares of Series A Preferred
Page 31 of 47
24
Stock to be converted and at the Conversion Price in effect at the date of such
surrender; and the person or persons entitled to receive the Common Stock
deliverable upon conversion of such shares of Series A Preferred Stock will be
treated for all purposes as the record holders of such Common Stock on such
date. The Company will not be required to convert any shares of Series A
Preferred Stock while the stock transfer books of the Company are closed for any
purpose; but the surrender of shares of Series A Preferred Stock for conversion
during any period while such books are so closed will become effective for
conversion immediately upon reopening of such books, as if the conversion had
been made on the date such shares of Series A Preferred Stock were surrendered,
and at the Conversion Price in effect at the date of such surrender.
(e) Upon any conversion of shares of Series A Preferred Stock,
the shares of Series A Preferred Stock so converted will have the status of
authorized and unissued shares of the Company's Series A Preferred Stock, and
the number of shares of Series A Preferred Stock which the Company has authority
to issue will not be decreased by the conversion of shares of Series A Preferred
Stock. The Company will at all times reserve and keep available, out of its
authorized and unissued stock and solely for the purpose of effecting the
conversion of the Series A Preferred Stock, such number of shares of its Common
Stock as will from time to time be sufficient, in the judgment of its Board of
Directors, to effect the conversion of all shares of Series A Preferred Stock
from time to time outstanding. The Company will from time to time, in accordance
with the laws of the State of Delaware, increase the authorized number of shares
of its Common Stock if, at any time, the number of authorized shares of its
Common Stock remaining unissued is not sufficient to permit the conversion of
all of the shares of Series A Preferred Stock then outstanding.
(f) The Company will pay any and all issue or other taxes that
may be payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of Series A Preferred Stock pursuant hereto. The Company
will not, however, be required to pay any tax which may be payable in respect of
any transfer involved in the issue and delivery of Common Stock in a name other
than that in which the shares of Series A Preferred Stock so converted were
registered, and no such issue or delivery will be made unless and until the
person requesting such issue has paid to the Company the amount of such tax or
has established, to the satisfaction of the Company, that such tax has been
paid.
(g) The Conversion Price will be subject to the following
adjustments:
(i) If, at any time and from time to time after the
date hereof, the Company issues or sells any shares of Common Stock
other than the "Excluded Shares" (as defined in Section 6(h) below),
including by way of dividend on any Junior Stock of the Company,
without consideration or for a consideration per share less than the
Conversion Price in effect immediately prior to the issue or sale of
such additional shares, the Conversion Price in effect immediately
prior to such issue or sale will be reduced to an amount equal to the
quotient determined by dividing:
(A) an amount equal to the sum of (x) the
product of (1) the total number of shares of Common Stock
outstanding immediately prior to the date of such issue or
sale of such additional shares, multiplied by (2) the
Conversion Price in effect immediately prior to such issue or
sale, plus (y) the
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aggregate consideration, if any, received by the Company upon such
issue or sale, by
(B) the total number of shares of Common
Stock outstanding immediately after such issue or sale.
(ii) For purposes of Section 6(g)(i) above, the
following provisions will also be applicable:
(A) In the case of (x) the issue or sale of
additional shares of Common Stock for cash, the consideration
received by the Company therefor will be deemed to be the
amount of cash received by the Company or (y) the issue or
sale of additional shares of Common Stock for a consideration
other than cash (including services), the amount of the
consideration other than cash will be deemed to be the fair
value of such consideration as determined in good faith by the
Board of Directors of the Company, in either case without
deduction therefrom of any compensation or discount paid or
allowed to underwriters or dealers or other performing similar
services or for any expenses incurred in connection therewith.
(B) In case any shares of Common Stock (or
any "Convertible Securities" or "Rights" to purchase Common
Stock or Convertible Securities (as defined in subparagraph
(C) below)) are to be issued in connection with any merger of
another Company into the Company, the amount of consideration
therefor will be deemed to be the fair value of the assets of
such merged Company as determined by the Board of Directors of
the Company after deduction therefrom of all cash and other
consideration (if any) paid by the Company in connection with
such merger.
(C) If, at any time and from time to time
after the date hereof, the Company issues or grants any
rights, warrants or options (collectively, the "Rights") to
subscribe for or to purchase Common Stock, or to subscribe for
or purchase any indebtedness or shares of stock convertible
into or exchangeable for Common Stock (such convertible or
exchangeable stock or securities being called "Convertible
Securities"), whether or not such Rights are immediately
exercisable or any such Convertible Securities are immediately
convertible or exchangeable, and if the price per share for
which Common Stock is issuable upon the exercise of such
Rights or upon conversion or exchange of such Convertible
Securities (determined by dividing (a) the total amount, if
any, received or receivable by the Company as consideration
for the granting of such Rights plus the minimum aggregate
amount of additional consideration payable to the Company upon
the exercise of such Rights, plus, in the case of any such
Rights exercisable for Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable
upon the conversion or exchange of such Convertible
Securities, by (b) the total maximum number of shares of
Common Stock issuable upon the exercise of such Rights or upon
the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such
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Rights) is less than the Conversion Price in effect
immediately prior to the time of issue or grant of such
Rights, then the total maximum number of shares of Common
Stock issuable upon the exercise of such Rights or upon
conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such
Rights will (as of the date of granting of such Rights) be
deemed to be issued and outstanding and to have been issued
for such price per share.
(D) If, at any time and from time to time
after the date hereof, the Company issues or sells any
Convertible Securities, whether or not such Convertible
Securities are immediately convertible or exchangeable, and
the price per share for which Common Stock is issuable upon
such conversion or exchange (determined by dividing (a) the
total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (b) the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) is less than
the Conversion Price in effect immediately prior to the time
of such issue or sale, then the total maximum number of shares
of Common Stock issuable upon conversion or exchange of all
such Convertible Securities will (as of the date of the issue
or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued for such price per share.
(E) In the case of the issuance of shares of
Common Stock or Convertible Securities as a stock dividend,
the aggregate number of shares of Common Stock or Convertible
Securities issued in payment of such dividend will be deemed
to have been issued at the close of business on the date fixed
for the determination of stockholders entitled to receive such
dividend and will be deemed to have been issued without
consideration.
(F) The number of shares of Common Stock at
any time outstanding will exclude all shares then owned or
held by or for the account of the Company.
(G) For the purposes of this Section 6(g),
the term "Common Stock" means (i) the class of stock
designated as the common stock of the Company at the date of
the adoption of these resolutions or (ii) any other class of
stock resulting from successive changes or reclassification of
such common stock consisting solely of change in par value, or
from par value to no par value, or from no par value to par
value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 6(g), the holder of
any share of Series A Preferred Stock thereafter surrendered
for conversion becomes entitled to receive any shares of the
Company other than shares of its Common Stock, thereafter the
number of such other shares so receivable upon conversion of
any such share will be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock
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contained in this Section 6(g), and all other provisions
hereof with respect to Common Stock will apply in like terms
to any other shares.
(iii) If at any time, and from time to time after the
date hereof, the shares of Common Stock are subdivided into a greater
number of shares of Common Stock other than on account of or as a
result of a dividend, the Conversion Price in effect immediately prior
to such subdivision will, simultaneously with the effectiveness of such
subdivision, be proportionately reduced, and conversely, in case
outstanding shares of Common Stock are combined into a smaller number
of shares of Common Stock, the Conversion Price in effect immediately
prior to such combination will, simultaneously with the effectiveness
of such combination, be proportionately increased.
(iv) In case the Company makes any distribution of
its assets upon or with respect to its Common Stock, as a liquidating
or partial liquidating dividend, or other than as a dividend payable
out of earnings or retained earnings, each holder of Series A Preferred
Stock will, upon the conversion of such holder's Series A Preferred
Stock after the record date for such distribution or, in the absence of
a record date, after the date of such distribution receive, in addition
to the shares of Common Stock covered by such conversion, the amount of
such assets (or, at the option of the Company, a sum equal to the value
thereof at the time of distribution as determined by the Board of
Directors in good faith) which would have been distributed to such
holder if such holder had converted such holder's Series A Preferred
Stock immediately prior to the record date for such distribution or, in
the absence of a record date, immediately prior to the date of such
distribution.
(v) If the Conversion Price is adjusted upon the
issuance of any Right or any Convertible Securities pursuant to Section
6(g)(ii)(B), 6(g)(ii)(C) or 6(g)(ii)(D), the following will apply:
(A) If the purchase price provided for in any such
Rights, or the rate at which any such Convertible Securities are
convertible into or exchangeable for Common Stock, changes or a
different purchase price or rate becomes effective at any time or from
time to time (other than under or by reason of provisions designed to
protect against dilution), then, upon such change becoming effective,
the Conversion Price then in effect hereunder will forthwith be
increased or decreased to such Conversion Price as would have been
applicable had the adjustments made upon the granting or issuance of
such Rights or Convertible Securities been made upon the basis of (1)
the issuance of the number of shares of Common Stock theretofore
actually delivered upon the exercise of such Rights or upon the
conversion or exchange of such Convertible Securities and the total
consideration received therefor and (2) the granting or issuance at the
time of such change of any such Rights or Convertible Securities then
still outstanding for the consideration, if any, received by the
Company therefor and to be received on the basis of such changed price,
but in no event will the Conversion Price be increased above what it
was prior to the original granting or issuance of such Rights or
Convertible Securities.
(B) On the expiration of any such Rights, or on the
termination of any right to convert or exchange any such Convertible
Securities, the Conversion Price xxxx
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forthwith be readjusted to such Conversion Price as would have been
applicable had the adjustment made upon the granting or issuance of
such Rights or such Convertible Securities been made upon the basis of
the issuance or sale of only the number of shares of Common Stock
actually issued upon the exercise of such Rights or upon the conversion
or exchange of such Convertible Securities.
(C) If the purchase price provided for in any such
Rights, or the rate at which any such Convertible Securities are
convertible into or exchangeable for Common Stock, changes at any time
under or by reason of any provision with respect thereto designed to
protect against dilution, then in case of the delivery of Common Stock
upon the exercise of any such Rights or upon conversion or exchange of
any such Convertible Securities, the Conversion Price then in effect
hereunder will forthwith be decreased to such Conversion Price as would
have been applicable had the adjustment made upon the issuance of such
Rights or such Convertible Securities been made upon the basis of the
issuance of (and the total consideration received for) the shares of
Common Stock delivered as aforesaid.
(vi) Whenever the Conversion Price is to be adjusted
pursuant to the provisions of this paragraph, the Company will
forthwith mail to each holder of Series A Preferred Stock a statement
specifying the revised Conversion Price resulting from such adjustment
and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of the Series A Preferred
Stock and setting forth in reasonable detail the method of calculation
of such adjustment and the facts upon which such calculation is based.
(vii) Notwithstanding anything contained herein to
the contrary, no adjustment in the Conversion Price will be made if the
amount of such adjustment is less than 1% of such price, but in such
case any adjustment that would otherwise be required then to be made
will be made at the time of, and together with, the next subsequent
adjustment which, together with any adjustment or adjustments so
carried forward, will amount to not less than 1% of the Conversion
Price.
(viii) No fractional shares or scrip representing
fractional shares will be issued upon the conversion of any share of
Series A Preferred Stock. If more than one share of Series A Preferred
Stock is surrendered for conversion at one time by the same holder, the
number of full shares issuable upon conversion thereof will be computed
on the basis of the aggregate number of such shares so surrendered. If
the conversion of any share of Series A Preferred Stock results in a
fraction, an amount equal to such fraction multiplied by the Conversion
Price of the Common Stock on the day of conversion will be paid to such
holder in cash by the Company.
(ix) (A) If any capital reorganization or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with another Company, or the sale of all or
substantially all of its assets to another Company is to be effected in
such a way that holders of Common Stock are to be entitled to receive
stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and
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29
adequate provisions must be made whereby each holder of Series A
Preferred Stock will thereafter have the right to receive, upon the
basis and upon the terms and conditions specified herein and in lieu of
the shares of the Common Stock of the Company immediately theretofore
issuable upon the conversion of the Series A Preferred Stock held by
such holder, such shares of stock, securities and assets as may be
issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares
of such stock immediately theretofore issuable upon the conversion of
the Series A Preferred Stock held by such holder, had such
reorganization, reclassification, consolidation, merger or sale not
taken place, and in any such case appropriate provision will be made
with respect to the rights and interests of the holders of the Series A
Preferred Stock to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Conversion Price)
will thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities and assets thereafter deliverable upon the
conversion of Series A Preferred Stock.
(B) The Company covenants and agrees that it
will not effect any such consolidation, merger or sale unless
at the time of or prior to such transaction the purchasing or
successor Company or other entity (if other than the Company)
expressly assumes all of the liabilities and obligations of
the Company hereunder.
(h) Anything hereinabove to the contrary notwithstanding, no
adjustment to the Conversion Price will be made pursuant to Section 6(g) upon:
(i) the issuance or sale by the Company of any shares
of Common Stock or any rights, options, warrants or convertible
securities (or any rights or options to purchase convertible
securities) pursuant to (A) a redemption or conversion of the Series A
Preferred Stock or (B) the exercise, redemption or conversion of any
warrants, options, rights or convertible securities issued or
outstanding on the Issue Date;
(ii) the issuance of shares of Common Stock to
employees or directors of the Company, the granting of stock options to
such employees or directors or the issuance of shares of Common Stock
pursuant to the exercise of any such options;
(iii) the issuance or sale of securities pursuant to
the exercise of rights, options or warrants, or conversion or exchange
of convertible securities hereafter issued for which an adjustment has
previously been made (or was not required to be made) pursuant to the
provision of Section 6(g) hereof; and
(iv) any increase in the number of shares of Common
Stock subject to any right, option, warrant or convertible security
referred to in paragraph (i), (ii) or (iii) of this Section 6(h)
pursuant to the provisions of such right, option, warrant or
convertible security designed to protect against dilution.
Any securities referred to in this Section 6(h) as to which no adjustment is
required are referred to herein as the "Excluded Shares."
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7. VOTING RIGHTS.
(a) Except as otherwise required by law, the Series A
Preferred Stock and Common Stock are hereby deemed to constitute one class for
the purpose of voting or giving consent in lieu of voting on all matters
submitted for a vote of the Company's stockholders or as to which such consent
is sought. Each holder in whose name shares of Series A Preferred Stock are
registered on the record date for determining the holders of Series A Preferred
Stock entitled to vote at any meeting of stockholders or adjournment thereof, or
to consent to corporate action in writing without a meeting, will be entitled
to, at such meeting or with respect to such action, the number of votes equal to
the number of whole shares of Common Stock into which the shares of Series A
Preferred Stock registered in the name of such holder on such record date are
convertible.
(b) The Company will not, without the affirmative vote or
consent of the holders of a majority of the issued and outstanding Series A
Preferred Stock voting as a separate class, (A) create any Senior Stock or
Parity Stock or (B) amend, alter or repeal the Company's Certificate of
Incorporation to adversely affect the voting powers, rights or preferences of
the Series A Preferred Stock, or (C) for so long as at least 72,500 shares of
Series A Preferred Stock are outstanding, issue Common Stock or securities
convertible into Common Stock in any offering or series of related offerings to
any person or any group (within the meaning of Section 13(d)(3) of the
Securities Exchange of 1934) which after the issuance or conversion thereof
would represent ten percent (10%) or more of the then outstanding Common Stock
(assuming for purposes of such calculation the conversion of all securities and
instruments convertible into Common Stock).
8. PREEMPTIVE RIGHTS.
For so long as at least 72,500 shares of Series A Preferred
Stock are outstanding, in the event of the proposed issuance of Common Stock, or
Convertible Securities or Rights (collectively, "Securities"), other than
Excluded Shares, the Investor shall have the right, on the same terms as those
of the proposal and during a period of thirty (30) days after the Company has
given notice to the Investor of such proposed issuance or granting, to purchase
a proportion of such Securities, equal to such Investor's proportionate
ownership of Common Stock (assuming the conversion of all Series A Preferred
Stock and all other Convertible Securities then issued) on a record date to be
determined by the Company, not more than thirty (30) days prior to such issuance
of granting. The price or prices for such Securities shall not be less favorable
than the price or prices at which such Securities are proposed to be offered for
sale or granted to others, without deduction of the expenses of and compensation
for the sale, underwriting or purchase of such Securities by underwriters or
dealers as may be paid by the Company. The provisions of this Section 8 will not
apply to the proposed issuance of Securities in a public offering registered
under the Securities Act of 1933.
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IN WITNESS WHEREOF, the undersigned have executed this
certificate as of September 2, 1998.
------------------------------
A. Xxxxxx Xxxxxxx
Chairman of the Board and President
------------------------------
Xxxxxx X. Xxxxxxx
Secretary
NA982460.065/3
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EXHIBIT B
[Form of Warrant]
Page 40 of 47
