EXHIBIT 10.8
PREFERRED STOCK INVESTMENT AGREEMENT
AGREEMENT dated as of May 15, 1998 between Telescan, Inc., a Delaware
corporation (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 1.1 PURCHASE AND SALE OF PREFERRED STOCK. Upon the following terms
and conditions, the Company shall issue and sell to the Investor, and the
Investor shall purchase from the Company, 60,000 shares of the Company's 5%
Convertible Preferred Stock (the "Shares" or the "Convertible Preferred") having
the rights, designations and preferences set forth in Schedule I hereto.
Section 1.2 PURCHASE PRICE. The purchase price for the Shares (the
"Purchase Price") shall be $25 per share.
Section 1.3 THE CLOSING.
(a) The closing of the purchase and sale of the Shares (the
"Closing"), shall take place at the offices of the Investor, 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. 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 Shares 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 all the Shares by cashier's
check or wire transfer in immediately available funds to such account as shall
be designated in writing 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 1.4 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 or similar
document 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" means the Shares and
the stock issued or issuable upon conversion of the Shares or otherwise issued
or issuable pursuant to this Agreement or the provisions of Schedule I hereto,
and any securities of the Company or securities of any successor corporation
issued as, 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.
(iii) The term "holder of Registrable Securities" means the
Investor and any permitted assignee of registration rights pursuant to Section
1.4(h).
(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 all the Registrable Securities,
and shall use its best efforts to cause such registration statement to become
effective by the 135th calendar day after the Closing Date (the "Initial
Registration"). In the event such registration is not so declared effective or
does not include all Registrable Securities, a 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). 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 and the Company is in compliance with its obligations
under Subsections (d)(i) through (v) of this Section 1.4, the demand
registration rights granted pursuant to this Subsection (b) (i) shall cease. If
such registration statement is not declared effective with respect to all
Registrable Securities, or if the Company is not in compliance with its
obligations, the demand registration rights described herein shall remain in
effect. The Company shall provide holders of Registrable Securities reasonable
opportunity (at least 3 business days) to review any such registration statement
or amendment or supplement thereto prior to the filing thereof.
(ii) The Company shall not be obligated to effect a Demand
Registration under Subsection (b)(i) above (a) 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) of this Section 1.4 or (b) if all of the
Registrable Securities may be sold under Rule 144(k) of the Act and the
Company's transfer agent has accepted an instruction from the Company to such
effect and issued one or more certificates
representing all such holder's Convertible Preferred or other Registrable
Securities without the legend specified in Article V, or any similar legend, to
such holder.
(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"). The Company will use its best
efforts to cause such suspension to terminate at the earliest possible date.
(iv) If the registration statement covering all Registrable
Securities is not filed by the 30th calendar day after the Closing Date or
effective by the 135th calendar day after the Closing Date, then, in either such
event, the Company shall pay the Investor in cash an amount equal to the
percentage specified in the following sentence of the total Purchase Price of
Shares and any other Registrable Securities then held by the Investor for each
15 day period thereafter until such registration statement is filed or
effective, as the case may be (pro-rata as to a period of less than 15 days).
For the fifteen days beginning after the 135th, 150th and 165th calendar day
after the Closing Date, such percentage shall be .25%, .5% and .75%,
respectively, and, thereafter, such percentage shall be 1.0%. If, following such
effectiveness, either the effectiveness of the Registration Statement is
suspended or a current prospectus meeting the requirements of Section 10 of the
Act is not available for delivery by the Investor (either, a "suspension"), an
amount equal to 1% of the total Purchase Price of Shares and any Registrable
Securities then held by Investor shall be paid to the Investor in cash, for each
15 days of such suspension (pro-rata as to a period of less than 15 days). Any
amount payable pursuant to the foregoing provisions of this Subsection (iv)
shall be paid on or before the fifth day following the end of the calendar month
in which such payment obligation arose.
(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) of this Section
1.4 which remains effective and not in suspension, 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 10 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) if the Registrable Securities may be sold
without registration under Rule 144(k) and the Company's transfer agent has
accepted an instruction from the Company to such effect and issued one or more
certificates representing all such Registrable Securities to the holders thereof
without the legend specified in Article V or any similar legend.
(d) Whenever required under this Section 1.4 to effect the
registration of any Registrable Securities, including, without limitation, the
Initial Registration, the Company shall, as expeditiously as 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; PROVIDED, HOWEVER, that in no event shall the Company be required to
keep the Registration Statement effective for a period greater than two years
from the Closing Date.
(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, including a preliminary prospectus,
conforming with the requirements of the Act, copies of the registration
statement, any amendment or supplement to any thereof 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 other securities or
"Blue Sky" laws of such jurisdictions as shall be reasonably requested by the
holder of Registrable Securities; PROVIDED, HOWEVER, 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) Use its best efforts to list the Registrable Securities
covered by such registration statement with any national market or securities
exchange on which such securities are then listed;
(vii) Make available for inspection by the holder of
Registrable Securities,
upon request, all SEC Documents (as defined below) incorporated by reference
into the registration statement relating to such Registerable Securities or
filed subsequent to the Closing and require the Company's officers, directors
and employees to supply all information reasonably requested by any holder of
Registrable Securities in connection with such registration statement.
(viii) Furnish to each holder of Registrable Securities prompt
notice of the commencement of any stop-order proceedings under the Act, together
with copies of all relevant documents in connection therewith, and use its best
efforts to obtain withdrawal of any such stop order as soon as possible.
(e) Upon request of the Company, 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 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. Such Plan of Distribution may,
among other items, include a statement to the effect that Investor may pledge to
a broker or dealer Investor's Registrable Securities pursuant to the margin
provisions of any customer agreement between Investor and such broker or dealer,
that, upon a default by Investor, such broker or dealer may offer and sell the
pledged Registrable Securities and that the Registrable Securities may be sold
from time to time in one or more ordinary brokerage transactions (including
short sales) and in transactions in which the broker solicits purchases.
(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) 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 strict conformity with information furnished by such indemnified party in
writing specifically for use in the registration statement.
(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 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, 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
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 and in conformity with written information furnished by such
holder specifically for use in the preparation thereof.
(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 such party shall not relieve such 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 an indemnifying party is materially prejudiced
by such omission. In case any such action shall be brought against any
indemnified party and such indemnified party shall notify an 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 parties and the indemnified party shall have reasonably
concluded 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 the reasonable
expenses and fees of one such separate counsel (in addition to any local
counsel) and other reasonable expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(iv) In order to provide for just and equitable contribution
to joint liability
under the Act in any case in which either (A) any indemnified party specified in
paragraph (i) or (ii) above makes a claim for indemnification pursuant to this
Section 1.4(f), but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be fully enforced in such case notwithstanding the fact
that this Section 1.4(f) provides for indemnification in such case, or (B)
contribution under the Act may be required on the part of any such indemnified
party in circumstances for which indemnification is provided under this Section
1.4(f); then, in each such case, each indemnifying party will contribute to the
aggregate losses, claims, damages or liabilities to which such indemnified
parties may be subject as is appropriate to reflect the relative fault of such
indemnified parties on the one hand and such indemnifying parties on the other
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, it being understood that the parties acknowledge
that the overriding equitable consideration to be given effect in connection
with this provision is the ability of one party or the other to correct the
statement or omission which resulted in such losses, claims, damages or
liabilities, and that it would not be just and equitable if contribution
pursuant hereto were to be determined by PRO RATA allocation or by any other
method of allocation which does not take into consideration the foregoing
equitable considerations. Notwithstanding the foregoing, (x) the Investors and
the indemnified parties specified in paragraph (i) above will not be required to
contribute any amount in excess of the proceeds to them of all Registrable
Securities sold by them pursuant to such registration statement, and (y) no
person or entity guilty of fraudulent misrepresentation, within the meaning of
Section 11(f) of the Act, shall be entitled to contribution from any person or
entity who is not guilty of such fraudulent misrepresentation.
(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 securityholders
participating in such registration shall bear their pro-rata share of the
underwriting discounts and commissions, 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, the Company shall make available to the holders of Registrable
Securities and their counsel its documents and personnel for due diligence
purposes.
(h) The rights to cause the Company to register all or any portion
of Registrable Securities pursuant to this Section 1.4 may be assigned by
Investor from time to time, or at any time, to one or more transferees or
assignees. Within a reasonable time after any such transfer, the
Investor shall notify the Company of the name and address of each such
transferee or assignee and the securities with respect to which such
registration rights are being assigned, whereupon the Company shall promptly
issue and file with the SEC a prospectus supplement or amendment setting forth
the information with respect to such transferee or assignee specified in the
rules and regulations of the SEC (including Item 507 of Regulation S-K). Such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act. Any transferee asserting registration rights hereunder
shall be bound by the applicable provisions of this Agreement.
(i) The Company shall not agree to allow 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 2.1 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 the State of
Delaware 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
subsidiaries except as listed in Exhibit A hereto. 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 adverse effect on the
business, operations, properties, prospects, or financial condition of the
entity with respect to which such term is used and which is material to such
entity and other entities controlled by such entity 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 for any stockholder
approval required by the terms of the Company's listing agreement with Nasdaq or
the rules of such organization, (iii) this Agreement has been duly executed and
delivered by the Company, (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, and (v) prior to the Closing Date a Certificate of Designations
which authorizes the Convertible Preferred as provided in Schedule I will have
been filed with the Delaware Secretary of State and will be in full force and
effect, enforceable against the Company in accordance with its terms.
(c) CAPITALIZATION. The authorized capital stock of the Company
consists of 15,000,000 shares of Common Stock and 10,000,000 shares of Preferred
Stock; there are approximately 11,042,901 shares of Common Stock and 0 shares of
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 approximately 11,042,901 shares of Common Stock and 120,000
shares of Class A Preferred 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, 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 Certificate of Incorporation 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").
(d) ISSUANCE OF SHARES. The issuance of the Shares has been duly
authorized and, when paid for and 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 Company shall
have authorized and reserved for issuance upon conversion of the Shares 900,000
shares of Common Stock (the "Reserved Amount"), which number shall not be
reduced, but which shall be appropriately adjusted by the Board of Directors,
acting in good faith, in the event of stock splits, dividends or other
distributions, or other events so as to carry out the intentions of this
Agreement. If the Reserved Amount for any three consecutive trading days shall
be less than 125% of the number of shares of Common Stock issuable upon
conversion of the Convertible Preferred, the Company shall immediately notify
all holders of the Convertible Preferred of such occurrence and shall take
action as soon as possible, but in any event within 60 days (including, if
necessary, seeking shareholder approval to authorize the issuance of additional
shares of Common Stock) to increase the Reserved Amount to 200% of the number of
shares of Common Stock then issuable upon conversion of the Convertible
Preferred. The Common Stock issuable upon conversion of the Convertible
Preferred will be validly issued, fully paid and nonassessable 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 assets of the
Company or any of its subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect); 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 regulation 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 the
Certificate of Amendment with the Delaware 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, stock exchange or
state securities filings which may be required to be made by the Company
subsequent to the Closing, 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.
(f) SEC DOCUMENTS, FINANCIAL STATEMENTS. The Common Stock of the
Company is registered pursuant to Section 12(b) or Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the Company
has filed on a timely basis all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC since January 1, 1994 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
under the Act since July 1, 1993 (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 SEC Documents. 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 Act or the Exchange Act as the
case may be and the
rules and regulations of the SEC promulgated thereunder and other federal, state
and local laws, rules and regulations applicable to such SEC Documents, and none
of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The 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 as
may be otherwise indicated in such financial statements or the notes thereto)
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 report of the Company on Form 10-K or Form 10-Q has been prepared
and filed with the SEC, a copy of which is included in the SEC Documents, no
Material Adverse Effect has occurred or exists with respect to the Company or
its subsidiaries.
(h) NO UNDISCLOSED LIABILITIES. The Company and its subsidiaries
have no material liabilities or obligations not disclosed in the SEC Documents,
other than those incurred in the ordinary course of the Company's or its
subsidiaries' respective businesses since the date of the most recently filed
SEC Documents which, individually or in the aggregate, do not or would not have
a Material Adverse Effect on the Company or its subsidiaries.
(i) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. To the best knowledge of
the Company, 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.
(j) NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf, 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.
(k) NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Shares under the Act.
Section 2.2 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 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 when so provided.
(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 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.
(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 3.1 SECURITIES COMPLIANCE.
(a) The Company shall notify the SEC and the NASD or any applicable
stock exchange, 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 such Investor set forth herein in order to
determine the applicability of such exemptions and the suitability of such
Investor to acquire the Shares.
Section 3.2 REGISTRATION AND LISTING. Until at least three years after all
Shares have been converted into Common Stock, the Company will cause its Common
Stock 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
the Exchange 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 at least three years after all Shares have been
converted into Common Stock the Company will take all action within its power to
continue the listing or trading of its Common Stock where currently listed or
traded 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 or any
applicable exchange. The covenants set forth in this Section 3.2 shall not be
deemed to prohibit a merger, sale of all assets or other corporate
reorganization if the entity surviving or succeeding the Company is bound by
this Agreement with respect to its securities issued in exchange for or in
replacement of the Shares or Common Stock or the consideration received for or
in replacement of the Shares or Common Stock is cash.
ARTICLE IV
CONDITIONS
Section 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO SELL
THE SHARES. The obligation hereunder of the Company to issue and 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 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 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.
(d) LEGAL ACTION. No legal action, suit or proceeding shall be
pending or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement.
Section 4.2 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 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) CERTIFICATION BY THE COMPANY. The Investor shall have received a
certificate of the Company signed by its Chief Executive Officer and by its
Chief Financial Officer to the effect set forth in Subsections (a) and (b).
(d) NO TRADING SUSPENSION. From the date hereof to the Closing Date,
trading in the Company's Common Stock shall not have been suspended by the SEC
or the Nasdaq National Market or any exchange (except for any suspension of
trading of limited duration agreed to between
the Company and the Nasdaq National Market or any exchange solely to permit
dissemination of material information regarding the Company), and trading in
securities generally as reported by Nasdaq or any exchange where the Common
Stock is listed such shall not have been suspended or limited or minimum prices
shall not have been established on securities.
(e) 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.
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) the holder thereof is permitted to dispose of
such Shares (or securities issued upon conversion thereof) pursuant to Rule
144(k) 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 registered under the Act.
ARTICLE VI
TERMINATION
Section 6.1 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 6.2 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 within 15 days
following the date of this Agreement,
provided that the party seeking to terminate the Agreement is not in breach of
the Agreement.
Section 6.3 AUTOMATIC TERMINATION. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the 30th day following the date of this Agreement;
PROVIDED, HOWEVER, that any such termination shall not terminate the liability
of any party which is then in breach of the Agreement.
ARTICLE VII
MISCELLANEOUS
Section 7.1 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, provided that the Company shall pay, at the
Closing, to the Investor's law firm all reasonable legal costs related to this
transaction. The Company shall pay all stamp and other taxes and duties levied
in connection with the issuance of the Shares pursuant hereto.
Section 7.2 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 Fort Worth, Texas 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 7.3 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 7.4 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
Senior Vice President
Telescan, Inc.
0000 Xxxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
with copies to: Xxxxx X. Xxxxxx
Liddell, Sapp, Zivley, Hill & XxXxxx, L.L.P.
000 Xxxxxx, 00xx Xxxxx
Xxxxxxx, Xxxxx 00000-0000
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
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 7.5 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 7.6 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 7.7 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. The assignment by a party to this
Agreement of any rights hereunder shall not affect the obligations of such party
under this Agreement.
Section 7.8 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 7.9 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of Texas without
regard to such state's principles of conflict of laws.
Section 7.10 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 and VII shall survive the Closing.
Section 7.11 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 7.12 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.
Section 7.13 NASDAQ. The term "Nasdaq" or "Nasdaq National Market" herein
refers to the principal market on which the Common Stock of the Company is
traded. If the Common Stock is listed on a securities exchange, or if another
market becomes the principal market on which the Common Stock is traded or
through which price quotations for the Common Stock are reported, the term
"Nasdaq" or "Nasdaq National Market" shall be deemed to refer to such exchange
or other principal market.
Section 7.14 TRANSFERABILITY. The Investor shall not sell, assign or
otherwise transfer its Shares without the prior written consent of the Company;
provided, however, that the Investor may sell, assign or otherwise transfer its
Shares to any of its affiliates or associates at any time without such consent.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
TELESCAN, INC.
By: /s/ XXX XXXXXX
Name: XXX XXXXXX
Its: CHIEF FINANCIAL OFFICER
THE INVESTOR
Q FUNDING, L.P.
By: Acme Widget, L.P., general partner
By: Scepter Holdings, Inc., general partner
By: /s/ XXXXXXXX XXXXXX
Xxxxxxxx Xxxxxx, President
Address:
Q Funding, L.P.
Attn: Xxxxxxxx Xxxxxx
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxxx, Xxxxx 00000
Name and address of Investor's counsel:
Xxxxxx X. Xxxxxx
Xxxxx, Xxxx & Xxxxxxx, P.C.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxxx, Xxxxx 00000
SCHEDULE I
RESOLUTION ESTABLISHING PREFERENCES
of
5% CONVERTIBLE PREFERRED STOCK
RESOLVED that there shall be a series of shares of the Class A Preferred
Stock of the Corporation designated "5% Convertible Preferred Stock"; that the
number of shares of such series shall be 120,000 and that the rights and
preferences of such series (the "Convertible Preferred") and the limitations or
restrictions thereon, shall be as follows:
1. DIVIDENDS. The holders of the Convertible Preferred shall be entitled
to receive out of any assets legally available therefor cumulative dividends at
the rate of $1.25 per share per annum, payable quarterly on March 31, June 30,
September 30 and December 31 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. 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 Convertible 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.
2. LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, the holders of
the Convertible Preferred shall be entitled to receive, prior and in preference
to any distribution of any assets of the Corporation to the holders of any other
class or series of shares, the amount of $25 per share plus any accrued but
unpaid dividends (the "Liquidation Preference").
3. FORCED CONVERSION.
(a) The Corporation at its option may cause all outstanding shares
of the Convertible Preferred to be converted into Common Stock at any time
beginning 24 months after the date of issuance, on at least 20 days' notice, at
a conversion price determined as set forth in Section 4 hereof (the "Conversion
Price") as of the date specified in such notice (the "Conversion Date") and
otherwise on the terms set forth in said Section 4; PROVIDED, HOWEVER, that the
Corporation may not exercise such right of conversion unless (i) the Closing
Price (last trade price) of the Common Stock as reported by Nasdaq for the 20
consecutive trading days prior to the date the Conversion Notice (as defined in
paragraph (b) below) is mailed has not on any day been less than
120% of the Conversion Cap (as defined in Section 4(d)(ii) hereof) (subject to
adjustment for stock dividends, stock splits and reverse stock splits), and (ii)
the shares issuable upon conversion of the Convertible Preferred are registered
for resale by an effective registration statement ("Registration Statement")
under the Securities Act of 1933, as amended (the "Act"), and a current
prospectus meeting the requirements of Section 10 of the Act is available for
delivery at the Conversion Date.
(b) At least 30 days, but not more than 60 days, prior to the
Conversion Date, written notice (the "Conversion Notice") shall be mailed, first
class postage prepaid, by the Corporation to each holder of record of the
Convertible Preferred, at the address last shown on the records of the
Corporation for such holder, notifying such holder of the conversion which is to
be effected, specifying the Conversion Date and calling upon each such holder to
surrender to the Corporation, in the manner and at the place designated, a
certificate or certificates representing the number of shares of Convertible
Preferred held by such holder. Subject to the provisions of the following
subsection (c), on or after the Conversion Date, each holder of Convertible
Preferred shall surrender to the Corporation the certificate or certificates
representing the shares of Convertible Preferred owned by such holder as of the
Conversion Date, in the manner and at the place designated in the Conversion
Notice, and thereupon the shares issuable upon such conversion shall be
delivered as provided in Section 4(b) hereof.
(c) If at the Conversion Date the Registration Statement is for any
reason no longer effective, then no shares shall be converted and the Conversion
Notice shall be deemed to be withdrawn. In such event, any certificates for
Convertible Preferred which have been surrendered for conversion shall be
returned to the persons surrendering the same; PROVIDED, HOWEVER, that if a
holder shall have received shares of Common Stock upon conversion of Convertible
Preferred after the Conversion Notice was given but before the Conversion Date,
such holder may elect either to retain such Common Stock or rescind such
conversion by tendering such shares of Common Stock to the Corporation.
(d) On the third anniversary of the Closing Date (the "Termination
Date"), all then outstanding shares of Convertible Preferred shall be
automatically converted into Common Stock at the Conversion Price and otherwise
pursuant to the applicable provisions set forth in Section 4 hereof.
4. OPTIONAL CONVERSION. The holders of the Convertible Preferred shall
have optional conversion rights as follows:
(a) RIGHT TO CONVERt. Each share of Convertible Preferred shall be
convertible, at any time 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 Convertible Preferred determined
pursuant to Section 2 hereof on the date the notice of conversion is given, by
(ii) the Conversion Price determined as hereinafter provided in effect on said
date.
2
(b) MECHANICS OF CONVERSION. To convert shares of Convertible
Preferred into shares of Common Stock, the holder shall give written notice to
the Corporation (which notice may be given by facsimile transmission, confirmed
in due course by first class mail) 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. The
Corporation shall effect such issuance within three business days of its receipt
of the notice of conversion and shall transmit the certificates by messenger or
overnight delivery service to reach the corporate address designated by such
holder within three business days after the receipt of such notice. Notice of
conversion may be given by a holder at any time during the day up to 11:59 p.m.
New York 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 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 such date.
(c) PAYMENTS IN THE EVENT OF NON-CONVERSION. If, at any time, the
Corporation fails for any reason to deliver, within the three business day
period described above, certificates representing such number of shares of
Common Stock to which the holder is entitled upon such conversion, then the
Corporation shall pay to such holder $0 per share of such non-converted
Convertible Preferred for each calendar day of such non-delivery period on the
first day of each week following the date of any such failed delivery. In
addition, if (i) the Corporation fails for any reason to deliver, within such
three business day period specified above, shares of Common Stock to the holder
upon a conversion of the Convertible Preferred and (ii) after such three
business day period specified above with respect to such conversion, the holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
make delivery upon a sale by the holder of the shares of Common Stock (the "Sold
Shares") which such holder anticipated receiving upon such conversion, the
Corporation shall pay such holder within two business days following receipt of
written notice of a claim pursuant to this Section 4(c) (in addition to any
other remedies available to the holder) the amount by which (x) such holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the net proceeds received by such holder
from the sale of the Sold Shares.
(d) DETERMINATION OF CONVERSION PRICE.
(i) The Conversion Price at any date shall be 95% of the
lowest trade price of the Common Stock as reported by Nasdaq during a period of
ten consecutive trading days immediately preceding such date; PROVIDED, HOWEVER,
that two days shall be added to such period
3
each month, commencing on the first day following the date that is six months
after the date of the original issuance of the Convertible Preferred, until such
period shall have been lengthened to 22 days.
(ii) The Conversion Price at any date shall not be greater
than $8.62 (the "Conversion Cap").
(iii) The "lowest trade price" of the Common Stock on any day
shall be the lowest reported sale price of the Common Stock on Nasdaq or any
other principal securities price quotation system or market on which prices of
the Common Stock are reported. The term "trading day" means a day on which
trading is reported on the principal quotation system or market on which prices
of the Common Stock are reported.
(iv) If, 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 the Conversion Cap shall be proportionately decreased or increased, as
appropriate, to give effect to such event.
(e) DISTRIBUTIONS. If 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 other than additional
shares of Common Stock, then in each such event provision shall be made so that
the holders of Convertible Preferred shall receive, at the same time as the
holders of Common Stock, the securities of the Corporation which they would have
received had they been the owners on such record date of the number of shares of
Common Stock issuable to them upon conversion on such record date.
(f) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of any
adjustment or readjustment of the Conversion Price or the Conversion Cap
pursuant to this Section 4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and,
in the event the Corporation and the holders of the Convertible Preferred shall
not agree on such adjustment or readjustment, cause the independent public
accountant regularly employed to audit the financial statements of the
Corporation to make or verify such computation and prepare and furnish to each
holder of Convertible 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 Convertible 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 Convertible Preferred with respect to each share of Common
Stock received upon such conversion.
4
(g) 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 mail to each holder of
Convertible Preferred at least 10 days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution, security or right and the amount and
character of such dividend, distribution, security or right.
(h) 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 Convertible 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.
(i) 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 Convertible 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 Convertible Preferred, subject to the limitation set
forth in Subsection (m) below, 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 Convertible 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 its best efforts to obtain the requisite shareholder
approval.
(j) FRACTIONAL SHARES. No fractional shares shall be issued upon the
conversion of any share or shares of Convertible Preferred. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Convertible 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 fraction on the date of conversion (as determined in good faith by the
Board of Directors of the Corporation).
(k) NOTICES. Any notice required by the provisions of this Section
to be given to the holders of shares of Convertible Preferred shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at its address appearing on the books of the Corporation.
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(l) REORGANIZATION OR MERGER.
(i) Subject to clause (ii) below, 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, the holders of Convertible Preferred
shall thereafter have the right to receive upon conversion of their Convertible
Preferred shares, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
issuable upon conversion, such stock, securities or other assets which the
holder would have been entitled to receive in such transaction had the
Convertible Preferred been converted immediately prior to such transaction, and
in any such case appropriate provisions shall be made with respect to the rights
and interests of the holders of the Convertible Preferred to the end that the
provisions hereof shall thereafter be applicable, as nearly as may be
practicable, in relation to any securities thereafter deliverable upon the
exercise hereof.
(ii) 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
where all, or a part, of the consideration paid in connection with any such
event to the holders of Common Stock consists of common stock of the surviving
corporation (or its direct or indirect parent corporation), such surviving
corporation (or its parent entity) shall establish, as of the effective time of
any such event, a new series or class of preferred securities having terms
essentially identical to those of the Convertible Preferred so as to carry out
fully the terms of this Section 4(l); PROVIDED, HOWEVER, that (A) the Conversion
Cap shall be set at an amount equal to the Conversion Cap in effect immediately
prior to the effective time of such event multiplied by the appropriate exchange
ratio or conversion factor established in connection with such event (subject to
clause (C) below, the "Exchange Ratio"), (B) if there shall be a conversion on a
date sooner than ten trading days after such event, the Conversion Price shall
be determined as specified in Section 4(d)(i) except that, in the case of
trading days prior to the effective time of any such event, the trade price of
the Common Stock shall be multiplied by the Exchange Ratio and (C) if only part
of such consideration paid in connection with such event consists of such common
stock, the Exchange Ratio shall be appropriately adjusted by the Board of
Directors of the Corporation, acting in good faith. The Corporation shall not
effect any transaction described in this Section 4(l) unless the resulting
successor or acquiring entity (if not the Corporation) assumes by written
instrument the obligations of the Corporation under this Certificate of
Designation including this Section 4(l).
(iii) Notwithstanding clauses (i) and (ii) above, in case of
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, the Corporation may, at its option,
redeem the shares of Convertible Preferred, in whole and not in part, on the
date of the 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 (the "Redemption Date"). In any such
case, the redemption price (the "Redemption Price") shall be an amount in cash
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such that the holders of the Convertible Preferred shall have received, through
the Redemption Date, a compounded internal rate of return on their investment in
the Convertible Preferred of 20% per annum (using quarterly compounding and
including any dividends paid). Such Redemption Price shall be payable on the
Redemption Date. Notice of such Redemption Date shall be given at least 30 days,
but not more than 60 days, prior to the Redemption Date and shall be given,
MUTATIS MUTANDIS, in the manner specified in Section 3 for the giving of a
Conversion Notice.
(m) RESTRICTED NUMBER OF CONVERSION SHARES. The Corporation shall
not be obligated to issue, in the aggregate, shares of Common Stock upon
conversion of the Convertible Preferred if issuance of such shares would (i)
constitute a breach of the Corporation's obligations under its agreements with
the NASD or Nasdaq or the rules of such organizations or (ii) cause the
Corporation to exceed the number of shares authorized in its charter or articles
of incorporation. If further issuances of shares of Common Stock upon redemption
of the Convertible Preferred would cause the Corporation to exceed either of the
limitations specified in clauses (i) and (ii) above, then so long thereafter as
such limitation shall continue to be applicable and any shares of Convertible
Preferred are submitted for conversion, such shares shall receive in cash an
amount equal to the current value of the Common Stock which such shares would
otherwise be entitled to receive upon conversion (such value per share to be the
closing price of such shares as reported by Nasdaq on the Conversion Date), in
lieu of the Common Stock such shares would otherwise be entitled to receive upon
conversion, and such shares will be deemed cancelled. In the event that any such
cash payment shall be required, the Corporation shall so notify the holder by
telephone, confirmed in writing by telecopy (specifying the number of shares
affected and the amount of cash to be paid), on the same day that notice of
conversion is given by such holder to the Corporation. Payment of said cash
amount shall be made no later than one business day after the time specified in
Section 4(b) for the delivery of Common Stock upon conversion, and shall bear
daily interest thereafter until paid at a rate equal to the lesser of .1% or the
highest rate permitted by law. Such maximum number of shares of Common Stock
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. The Corporation shall, at any time upon the oral or written request
of any holder, forthwith inform such holder, orally or in writing, of the
highest Common Stock trade price at which any cash payment under this subsection
(m) would then be required.
(n) REISSUANCE OF CERTIFICATES. In the event of an optional
conversion of Convertible Preferred pursuant to Section 4(a) hereof in which
less than all of the shares of Convertible Preferred of a particular certificate
are converted, the Corporation shall promptly cause to be issued and delivered
to the holder of such certificate a certificate representing the remaining
shares of Convertible Preferred which have not been so converted.
(o) CORPORATION TO PREVENT DILUTION. If any event or condition
occurs as to which other provisions of this Section 4 are not strictly
applicable or if strictly applicable would not fairly protect the conversion
rights of the holders of the Convertible Preferred in accordance with the
essential intent and principles of such provisions, or which might materially
and adversely affect the
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conversion rights of any holder hereof, then the Corporation, acting in good
faith, shall make an adjustment in the application of such provisions, or an
addition thereto, in accordance with such essential intent and principles, so as
to protect such conversion rights as aforesaid, including, without limitation,
any adjustment necessary with respect to the Conversion Price and the Conversion
Cap so as to preserve the rights of the holders of the Convertible Preferred.
5. OTHER PROVISIONS. For all purposes of this Resolution, the term "date
of issuance" and the terms "Closing" or "Closing Date" shall mean the day on
which shares of the Convertible Preferred are first issued by the Corporation.
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. The term "Nasdaq" herein refers to the principal market on which the
Common Stock of the Corporation is traded. If the Common Stock is listed on a
securities exchange, or if another market becomes the principal market on which
the Common Stock is traded or through which price quotations for the Common
Stock are reported, the term "Nasdaq" shall be deemed to refer to such exchange
or other principal market.
6. RESTRICTIONS AND LIMITATIONS. The Corporation shall not undertake the
following actions without the consent, which consent shall not be unreasonably
withheld in the case of clause (ii) below, of the holders of a majority of the
Convertible Preferred, voting separately as a class: (i) modify its Certificate
of Incorporation or Bylaws, by merger or otherwise, so as to amend or change any
of the rights, preferences, or privileges of the Convertible Preferred, (ii) so
long as at least 20,000 shares of the Convertible Preferred remain outstanding,
authorize or issue any derivative or equity-linked security; PROVIDED, HOWEVER,
that the Corporation may authorize or issue such securities pursuant to
qualified employee stock option plans, (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 Convertible Preferred while there exists
any arrearage in the payment of cumulative dividends hereunder; PROVIDED,
HOWEVER, that the Corporation may effect purchases for the purpose of funding
qualified employee stock option plans, or (iv) pay or effect any dividend or
distribution to shareholders of cash, securities or any other items whatsoever;
PROVIDED, HOWEVER, that the Corporation may effect one or more distributions of
securities (and cash in lieu of any fractional shares) in connection with the
spin-off of its non-financial business assets to shareholders.
7. NO FIVE PERCENT HOLDERS.
(a) The purpose of this Section is to prevent any holder from
holding over 5% of the Corporation's Common Stock without the consent of the
Board of Directors or 90 days' prior written notice, the holders having assured
the Corporation of their intentions, as of the Closing Date, to remain passive
investors and not to acquire any significant (that is, over 5%) block of the
Corporation's Common Stock without such consent or prior written notice.
(b) Notwithstanding anything to the contrary contained herein, the
Convertible Preferred shall not be convertible by a holder or the Corporation or
at the Termination Date to the extent (but only to the extent) that, if so
converted the holder would beneficially own in excess of
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4.9% of the then outstanding shares of Common Stock of the Corporation. To the
extent this limitation applies, the determination of whether any particular
shares of Convertible Preferred shall be convertible shall be in the sole
discretion of the holder thereof and submission of the Convertible Preferred for
conversion shall be deemed to be the holder's determination of whether such
Convertible Preferred is convertible, subject to such aggregate percentage
limitation. No prior inability to convert Convertible Preferred pursuant to this
Section 7 shall have any effect on the applicability of its provisions with
respect to any subsequent determination of convertibility. For the purposes of
this Section 7, beneficial ownership and all calculations including, without
limitation, with respect to calculations of percentage ownership, shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and the regulations thereunder. Notwithstanding the foregoing,
each holder shall have the right to waive such restriction upon 90 days' prior
notice to the Corporation. No transferee of Convertible Preferred shall be bound
by such restriction unless the transferee expressly so agrees. The provisions of
this Section 7 may be waived or implemented in a manner otherwise than in strict
conformity with the terms hereof with the approval of the Board of Directors.
8. VOTING RIGHTS.
(a) GENERAL. The holders of Convertible Preferred will not have any
voting rights except as set forth herein or as otherwise from time to time
required by law. In connection with any right to vote, each holder of
Convertible Preferred will have one vote for each share held. Any shares of
Convertible Preferred held by the Corporation or any entity controlled by the
Corporation shall not have voting rights hereunder and shall not be counted in
determining the presence of a quorum.
(b) CONTINGENT VOTING RIGHTS. So long as at least 20,000 shares of
the Convertible Preferred shall remain outstanding, whenever (i) dividends on
the Convertible Preferred shall be in arrears in an amount equal to at least two
quarterly dividends (whether or not consecutive), (ii) the Corporation shall not
have timely paid to the holders of the Convertible Preferred up to 1% of the
Conversion Price thereof for each 15 day period a registration statement
covering the Convertible Preferred and the Common Stock into which it shall be
convertible and certain other registrable securities is not available for use by
the holders, all as specified in the investment agreement pursuant to which the
Convertible Preferred was issued on the Closing Date, (iii) the Corporation, for
five consecutive trading days, shall not have sufficient shares of Common Stock
authorized and reserved for issuance to cover the number of shares of Common
Stock into which the Convertible Preferred shall then be convertible hereunder,
then, in the case of any of the events specified in the foregoing clauses (i)
through (iii), (A) the number of members of the Board of Directors of the
Corporation shall be increased to create such number of vacancies as may be
required to permit the holders of Convertible Preferred to elect forthwith one
member of the Board of Directors, or such other appropriate action shall be
taken to permit such election, effective as of the time of election of such
director as hereinafter provided and (B) the holders of the Convertible
Preferred (voting separately as a class) will have the exclusive right to vote
for and elect such additional director of the Corporation at any meeting of
stockholders of the Corporation at which
9
directors are to be elected held during the period the defaults specified in
clauses (i), (ii) and (iii) above continue and remain uncured. The right of the
holders of the Convertible Preferred to vote for such additional director shall
terminate when the applicable defaults specified in clauses (i), (ii) and (iii)
above shall be cured. The term of office of the director so elected shall
terminate immediately upon the termination of the right of the holders of the
Convertible Preferred to vote for such additional director.
The foregoing right of holders of the Convertible Preferred with respect
to the election of one member of the Board of Directors may be exercised at any
annual meeting of stockholders or at any special meeting of stockholders held
for such purpose. If the right to elect a director shall have accrued to the
holders of the Convertible Preferred more than 90 days preceding the date
established for the next annual meeting of stockholders, the Chairman of the
Board of the Corporation shall, within 20 days after the delivery to the
Corporation at its principal office of a written request for a special meeting
signed by the holders of at least 25% of the Convertible Preferred then
outstanding, call a special meeting of the holders of the Convertible Preferred
to be held within 30 days after the delivery of such request for the purpose of
electing such additional director.
The holders of the Convertible Preferred, voting separately as a class,
shall have the right to remove without cause at any time and replace any
director such holders shall have elected pursuant to this Section 8(b).
(c) CLASS VOTING RIGHTS. So long as the Convertible Preferred is
outstanding, the holders thereof shall also have the class voting rights
specified in Section 6.
9. NO ADVERSE ACTIONS. The Corporation shall not in any manner, whether by
amendment of the Certificate of Incorporation (including, without limitation,
any Certificate of Designation), merger, reorganization, recapitalization,
consolidation, sales of assets, sale of stock, tender offer, dissolution or
otherwise, take any action, or permit any action to be taken, solely or
primarily for the purpose of increasing the value of any class of stock of the
Corporation if the effect of such action is to reduce the value or security of
the Convertible Preferred.
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