EXHIBIT 4.0
SERIES B CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
This Preferred Stock Purchase Agreement ("Agreement") is made as of
this 30th day of March, 1999 by and between Scan-Graphics, Inc., a Pennsylvania
corporation (the "Company"), and Seaside Partners, L.P., a Delaware limited
partnership (the "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Convertible Preferred Stock.
1.1 Investment by the Investor. Subject to the terms and conditions
of this Agreement, at the Closing (as hereinafter defined), the Company will
issue and sell to the Investor, and the Investor will purchase, up to an
aggregate of 1,000 shares (the "Securities") of the Class A, Series B
Convertible Preferred Stock, par value $2.00 per share, of the Company (the
"Series B Stock") having the terms set forth in the Articles of Amendment of the
Company, the form of such Articles of Amendment attached hereto as Exhibit A
(the "Articles of Amendment"), at a purchase price per share of $1,000, for an
aggregate purchase price of $1,000,000 (the "Investment Amount"). For purposes
of this Agreement, the "Closing Price" shall be $2.30.
1.2 Closing. The purchase and sale of the Securities (the "Closing")
shall take place at the offices of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Professional Corporation,
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m. on March 30,
1999 (the "Closing Date").
1.3 Use of Proceeds. The Company will use the proceeds from the sale
of the Series B Stock for working capital purposes.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to, and agrees with, the Investor, except as set forth
on the Schedule of Exceptions furnished to the Investor and attached hereto as
Exhibit B, specifically identifying the relevant subsection hereof, which
exceptions shall be deemed to be representations and warranties as if made
hereunder, as follows:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Pennsylvania. The Company has all requisite power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company has all requisite power and authority to enter into and
perform this Agreement and the transactions contemplated hereby and is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure so to qualify could have a material adverse effect on its
business, properties, operations, earnings, assets, liabilities, condition
(financial or otherwise) or prospects (collectively, "Condition").
2.2 Capitalization.
(a) After giving effect to the transactions contemplated by this
Agreement, and immediately after the Closing, the capital stock of the Company,
as authorized by the Articles of Incorporation and the Articles of Amendment,
will consist of: (i) 50,000,000 shares of Common Stock, (A) 20,691,942 shares of
which are issued and outstanding, (B) 3,000,000 shares of which are reserved for
issuance to key employees, non-employee directors and consultants of the Company
under the Company's 1992 Long-Term Incentive Plan, as amended, (C) 500,000
shares of which are reserved for conversion of the outstanding Class A Preferred
Stock, Series A, par value $2.00 per share (the "Series A Preferred Stock"), (D)
2,148,000 shares of which remain reserved for conversion of the outstanding
Series E Preferred Stock ("Series E Preferred Stock"), (E) 2,754,322 shares of
which are reserved for exercise of warrants issued in connection with the Series
E Preferred Stock, (F) approximately 939,130 shares of which are reserved for
conversion of the Series B Stock, (G) 3,000,016 shares of which are reserved for
the exercise of outstanding warrants issued in connection with the Class A
Preferred Stock, Series D (the "Series D Preferred Stock"), and (H) 3,625,349
shares of which are reserved for the exercise of other outstanding warrants,
including warrants issued in connection with the Class A Preferred Stock, Series
C (the "Series C Preferred Stock"); (ii) 2,000,000 shares of Class B Preferred
Stock, none of which are issued and outstanding or available for reissuance; and
(iii) 1,000,000 shares of Class A Preferred Stock, (A) 500,000 shares of which
have been designated Series A Preferred Stock, all of which are issued and
outstanding, (B) 5,000 shares of which have been designated Series B Stock,
1,000 shares of which are issued and outstanding, (C) 5,200 shares of which have
been designated Series E Preferred Stock, 3,222 shares of which are issued and
outstanding, (D) 125,000 shares of which have been designated as Series C
Preferred Stock, none of which are issued and outstanding or available for
reissuance, and (E) 3,300 shares of which have been designated as Series D
Preferred Stock, none of which are issued and outstanding or available for
reissuance. The rights, privileges and preferences of the Class B Preferred
Stock, the Class A Preferred Stock (including, without limitation, the Series B
Stock) and the Common Stock are as stated in the Articles of Incorporation and
the Articles of Amendment.
(b) Except for Common Stock reserved for issuance as described
in subsection (a) above, as of the Closing, the Company will not (i) have
outstanding any capital stock or other securities convertible into or
exchangeable for any shares of its capital stock and, except as otherwise
contained in the Articles of Incorporation, the Articles of Amendment or
pursuant to the terms of any of the Purchase Documents, as defined in section
2.3 below, no person will have any right to subscribe for or to purchase
(including conversion or preemptive rights), or any options for the purchase of,
or any agreements providing for the issuance (contingent or otherwise) of, any
calls, commitments or other claims of any character relating to, any capital
stock or any stock or securities convertible into or exchangeable for any
capital stock of the Company; (ii) have any capital stock, equity interests or
other securities reserved for issuance for any purpose; or (iii) be subject to
any obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock or any convertible securities, rights or
options of the type described in the preceding clause (i). All of the issued and
outstanding shares of Common Stock, Class B Preferred Stock and Class A
Preferred Stock (including, without limitation, the Series B Stock) have been
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duly and validly issued and are fully paid and nonassessable and all of the
shares of Conversion Stock and the Warrant Shares, when issued as contemplated
hereby, will be validly issued, fully paid and nonassessable. To the best
knowledge of the Company, there are no agreements among the Company's
stockholders with respect to the voting or transfer of the Company's capital
stock, other than the agreements regarding transfer contained herein. Schedule I
attached hereto includes a complete and correct list of the name of each of the
Company's current or former officers, directors, employees or Persons that
beneficially own in excess of 5.0% of the outstanding equity interest of the
Company (each, a "Principal Owner") and the number of shares of Common Stock
owned by each such Principal Owner as of the Closing Date.
2.3 Authority; Execution and Delivery; Requisite Consents;
Nonviolation. The Company has, and as of the Closing will have, all requisite
power and authority to execute, deliver and perform this Agreement and each
other document or instrument executed by it, or any of its officers, in
connection herewith or therewith or pursuant hereto or thereto (this Agreement,
together with all of the foregoing documents and instruments, are sometimes
collectively referred to herein as the "Purchase Documents"), and to consummate
the transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement and the other Purchase Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary action on the part of the Company. This
Agreement and each of the other Purchase Documents that has been executed as of
the date hereof are, and each of the Purchase Documents will be as of the
Closing, duly executed and delivered by the Company and the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency or other similar laws affecting the enforceability of
creditors' rights in general or by general principles of equity. The execution,
delivery and performance of this Agreement and the other Purchase Documents, the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the offer, sale and delivery by the Company of
the Securities) will not: (a) except for the filing of the Articles of
Amendment, require the consent, license, permit, waiver, approval, authorization
or other action of, by or with respect to, or registration, declaration or
filing with, any court or governmental authority, department, commission, board,
bureau, agency or instrumentality, domestic or foreign ("Governmental
Authority") or any other individual, partnership, corporation, unincorporated
organization or association, limited liability company, trust or other entity
(collectively, a "Person"); (b) violate or conflict with any provision of the
Articles of Incorporation, the Articles of Amendment or the By-laws of the
Company, a complete and correct copy of which has been provided to counsel to
the Investor; or (c) constitute a default (with or without notice or lapse of
time or both) under, violate or conflict with, or give rise to a right of
termination, cancellation or acceleration or to a loss of a material benefit
under any Law (as defined in Section 2.6 below), Permit (as defined in Section
2.6 below), Order (as defined in Section 2.5 below), or contract, agreement,
arrangement or understanding, written or oral, to which the Company is or
hereafter may be a party or by which the Company or its properties are or
hereafter may be bound.
2.4 Subsidiaries. Except as set forth on Schedule 2.4, the Company
has no subsidiaries and does not, and prior to the Closing will not, own or
control, directly or indirectly, any partnership interests, stock or other
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equity interests in any partnership, corporation or other entity or any voting
rights or right to control the policies and direction of any partnership,
corporation or other entity.
2.5 Litigation. Except as set forth on Schedule 2.5, there is no
action, suit, proceeding, investigation or governmental approval process
(collectively, "Actions") pending or, to the best knowledge of the Company,
threatened against it, or affecting any of its properties or assets (including,
without limitation, any of its Permits) which individually or in the aggregate
could have a material adverse effect on its Condition, nor is there any basis
for any such Action. To the best knowledge of the Company, there is no Action
against any of its directors, officers or employees in connection with its
business which, in the event of an adverse judgment against any such Person,
could have a material adverse effect on the Condition of the Company, nor is
there any basis for any such Action. The foregoing includes, without limitation,
any Action pending or, to the Company's best knowledge, threatened (or any basis
therefor known to the Company) involving the prior employment of any employees
of the Company, their use in connection with the business of the Company of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers.
Neither the Company nor any of its assets or properties, nor, in connection with
its business, any of its directors, officers or employees, is subject to any
order, judgment, writ, injunction, decree, ruling or decision (collectively, an
"Order") of any Governmental Authority which is material to the Condition of the
Company. There is no Action by the Company currently pending or which the
Company intends to initiate which is material to its Condition.
2.6 Compliance with Laws; Permits. Assuming the accuracy of the
representations made by the Investor pursuant to Section 3 hereof, the offer and
sale of the Securities to the Investor will be in compliance with all applicable
federal and state securities laws. The Company has not violated or failed to
comply with, in any material respect, any statute, law, ordinance, rule,
regulation or policy of any Governmental Authority (collectively, "Laws") to
which it or any of its properties or assets is subject. The Company has all
permits, licenses, orders, certificates, authorizations and approvals of any
Governmental Authority (collectively, the "Permits") that are material to the
conduct of its business as presently conducted and as proposed to be conducted;
all such Permits are, and as of the Closing will be, in full force and effect;
no violations or notices of failure to comply have been issued or recorded in
respect of any such Permits; and the Company has no knowledge of any reason why
such Permits may be revoked or suspended. All applications, reports, notices and
other documents required to be filed by the Company with all Governmental
Authorities have been timely filed and are complete and correct in all material
respects as filed or as amended prior to the date hereof. With respect to any
required Permits, applications for which are either pending or contemplated to
be made pursuant to the business strategy of the Company, the Company knows of
no reason why such Permits should not be approved and granted by the appropriate
Governmental Authority. Neither the Company nor any of its officers, employees
or agents has made any illegal or improper payments to, or provided any illegal
or improper inducement for, any governmental official or other Person in an
attempt to influence any such Person to take or to refrain from taking any
action relating to the Company.
2.7 Absence of Certain Changes or Events. Since December 31, 1997,
there has been no change in the Condition of the Company, except for changes in
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the ordinary course of business consistent with past practice which have not
been, in the aggregate, materially adverse to the Company.
2.8 Title to Assets. The Company has good and marketable title to
all of its owned assets and properties, free and clear of any liens, pledges,
security interests, claims, encumbrances or other restrictions of any kind
(collectively, "Liens"). With respect to any assets or properties it leases, the
Company holds a valid and subsisting leasehold interest therein, free and clear
of any Liens, is in compliance, in all material respects, with the terms of the
applicable lease, and enjoys peaceful and undisturbed possession under such
lease. All of the assets and properties of the Company that are material to the
conduct of business as presently conducted or as proposed to be conducted by it
are in good operating condition and repair, subject to ordinary wear and tear.
The inventory of the Company is in good and marketable condition, does not and
will not include any material quantity of items which are obsolete, damaged or
slow moving, and is salable (or may be leased) in the normal course of business
as currently conducted by it, at current applicable prices and within normal
inventory "turn" experience.
2.9 Contracts. True and correct copies of all contracts, agreements,
notes, instruments, franchises, leases, licenses, commitments, arrangements or
understanding, written or oral (collectively, "Contracts") which are material to
the Condition of the Company have been made available to the Investor. All of
the Contracts are in full force and effect and constitute legal, valid and
binding obligations of the Company and, to the best knowledge of the Company,
the other parties thereto; the Company and, to the best knowledge of the
Company, each other party thereto, has performed in all material respects all
obligations required to be performed by it under the Contracts, and no material
violation or default exists in respect thereof, nor any event that with notice
or lapse of time, or both, would constitute a default thereof, on the part of
the Company or, to the best knowledge of the Company, any other party thereto;
none of the Contracts is currently being renegotiated; and the validity,
effectiveness and continuation of all Contracts will not be materially adversely
affected by the transactions contemplated by this Agreement.
2.10 Intellectual Property. (a) (i) The Company owns, or has the
right to use, all United States and foreign patents, trademarks, service marks,
trade names, brand names, computer software and programs, franchises,
technology, know-how and processes, and registered copyrights, and any
applications for any of the foregoing (collectively, the "Intellectual
Property") of any kind in which the Company has an interest or which is
otherwise used in, or relates to its business. Schedule II hereto contains a
true, correct and complete list of all registered trademarks and service marks,
all reserved trade names, all registered copyrights and all filed patent
applications and issued patents that are used in the Company's business or are
otherwise necessary for the conduct of its business as heretofore conducted and
all licenses or agreements that in any way affect the rights of the Company to
any of its Intellectual Property or any trade secret material (the "Intellectual
Property Licenses").
(ii) Subject to the limitations set forth in the
Intellectual Property Licenses, the Company has all right, title and interest in
all of the owned Intellectual Property, free and clear of all Liens. The Company
owns or has the exclusive or non-exclusive right to use all Intellectual
Property or trade secrets necessary to conduct its business as now being
conducted or as proposed to be conducted. The Company owns or possesses
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sufficient licenses or other rights to use all Intellectual Property covered by
its patents or patent applications necessary to conduct its business as now
being conducted and as proposed to be conducted by the Company.
(iii) The Company has not disclosed, other than in the
ordinary course of business and consistent with past practice and pursuant to
the Intellectual Property Licenses, any proprietary information relating to the
Intellectual Property or the Intellectual Property Licenses to any person other
than the Investor. The Company has at all times maintained reasonable procedures
to protect and have enforced all of its trade secrets. The Company has disclosed
trade secrets to other Persons solely as required for the conduct of its
business and solely under nondisclosure agreements that are enforceable by the
Company. Other than pursuant to the Intellectual Property Licenses, the Company
is not under any contractual or other obligation to disclose any proprietary
information relating to the Intellectual Property, any trade secret material to
the Company or the Intellectual Property Licenses, nor, to the best knowledge of
the Company, is any other party to the Intellectual Property Licenses under any
such obligation to disclose proprietary information included in or relating to
Intellectual Property, any trade secret material to the Company or the
Intellectual Property Licenses to any Person, and no event has taken place,
including the execution and delivery of this Agreement and the transactions
contemplated hereby or any related change in the business activities of the
Company, that would give rise to such obligation.
(iv) The consummation of the transactions contemplated
hereby will not alter, adversely affect or impair the rights of the Company to
any of the Intellectual Property, any trade secret material to it, or under any
of the Intellectual Property Licenses.
(b) (i) No claim with respect to the Intellectual Property, any
trade secret material to the Company, or any Intellectual Property License which
would adversely affect the ability of the Company to conduct its business as
presently conducted and as proposed to be conducted is currently pending or, to
the best knowledge of the Company, has been asserted, or overtly threatened by
any Person, nor does the Company know of any grounds for any claim against the
Company, (A) to the effect that any operation or activity of the Company
presently occurring or contemplated, including, inter alia, the manufacture, use
or sale of any product, device, instrument, or other material made or used
according to the patents or patent applications included in the Intellectual
Property or Intellectual Property Licenses, infringes or misappropriates any
United States or foreign copyright, patent, trademark, service ▇▇▇▇ or trade
secret; (B) to the effect that any other Person infringes on the Intellectual
Property or misappropriates any trade secret or know-how or other proprietary
rights material to the Company; (C) challenging the ownership, validity or
effectiveness of any of the Intellectual Property or trade secret material of
the Company; or (D) challenging the license of the Company or other legally
enforceable right under, any Intellectual Property or the Intellectual Property
Licenses.
(ii) The Company is not aware of any presently existing
United States or foreign patents or any patent applications which if issued as
patents would be infringed by any activity contemplated by the Company.
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(c) (i) The United States and foreign patents and patent
applications owned by the Company listed in Schedule II hereto (the "Patents and
Applications") as part of the Intellectual Property have been properly prepared
and filed on behalf of the Company as named therein and are being diligently
pursued by the Company. The inventions described in the Patents and Applications
are assigned or licensed to the Company and no other entity or individual has
any right or claim in any of the inventions, Patents and Applications or any
patents to be issued therefrom, except as set forth in the Intellectual Property
Licenses. To the Company's best knowledge, there are no defects in any of the
Patents and Applications that would cause any of them to be held invalid or
unenforceable. All relevant prior art of which the Company is aware has been
filed in the Patents and Applications.
(ii) The Company has delivered to the Investor all
information in its possession or of which it has knowledge concerning the
Patents and Applications and has no knowledge of any objection or proceeding,
pending or threatened, that would affect the validity of any patent issued
pursuant thereto. The Company has furnished to the Investor all prior art, of
which it presently has knowledge, that may be material to the validity or
enforceability of the patent claims being prosecuted in the Patents and
Applications.
(iii) Except in connection with the prosecution of the
patent applications listed in Schedule II hereto, there are no pending judicial
or governmental proceedings, including but not limited to interferences and
oppositions, relating to any of the Patents and Applications or any other
proprietary information to which the Company is a party or by which any property
(such term "property" specifically to include rights pursuant to licenses or
options or other rights to acquire licenses) of the Company is subject, and no
such proceedings are threatened or contemplated by Governmental Authorities or
other Persons.
(d) Nothing has come to the attention of the Company that has
caused it to believe that this Section 2.10, as of the date hereof and as of the
Closing, contains any untrue statement of a material fact or omits to state a
material fact required to be stated herein or necessary to make the statements
herein not misleading.
2.11 Insurance. The Company has in full force and effect all
insurance policies as are sufficient for compliance with all requirements of Law
and applicable agreements.
2.12 Labor Union Activities; Employee Relations. No employee of the
Company is represented by any labor union or covered by any collective
bargaining agreement; nor, to the best knowledge of the Company, has any labor
union sought to represent any of its employees of the Company. There is no
strike or other labor dispute involving the Company pending, or to the best
knowledge of the Company, threatened. To the best knowledge of the Company, no
officer or key employee intends to terminate his employment with it. To the best
knowledge of the Company, no officer or key employee of it is a party to or
bound by any Contract, or subject to any restrictions (including, without
limitation, any non-competition restriction), which would restrict the right of
such person to participate in the affairs of the Company.
2.13 ERISA. The Company does not maintain (nor has it ever
maintained) nor does it have (nor has it ever had) any obligation under
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(including, without limitation, any obligation to contribute to) an employee
benefit plan as described in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
2.14 Taxes. All federal, state, city, county, local and foreign
income, franchise, sales, use and value added tax returns and reports, and all
other material tax returns and reports required to be filed by the Company in
those or in any other jurisdiction (collectively, "Returns") have been timely
filed. All such Returns are true, correct and complete in all material respects.
All taxes, assessments, fees, interest, penalties and other charges with respect
thereto (collectively, "Taxes") due or claimed to be due from the Company have
been paid except to the extent reserved against on the Company's financial
statements. No income tax return of the Company has been audited by the
applicable Governmental Authority, and there are in effect no waivers of the
applicable statute of limitations for Taxes in any jurisdiction for the Company
for any period.
2.15 Environmental Matters. The business, assets and properties of
the Company are and have been operated and maintained in compliance with all
applicable federal, state, city, county and local environmental protection laws
and regulations (collectively, the "Environmental Laws"). No event has occurred
which, with or without the passage of time or the giving of notice, or both,
would constitute non-compliance by the Company with, or a violation by the
Company of, the Environmental Laws. The Company has not caused or permitted to
exist, as a result of an intentional or unintentional act or omission, a
disposal, discharge or release of solid wastes, pollutants or hazardous
substances, on or from any site which currently is or formerly was owned,
leased, occupied or used by it, except where such disposal, discharge or release
was in compliance with the Environmental Laws.
2.16 Books and Records. The books of account, ledgers and records of
the Company accurately and completely reflect in all material respects all
information relating to its business, the nature, acquisition, maintenance,
location and collection of its assets, and the nature of all transactions giving
rise to its obligations or accounts receivable. The minute books of the Company
fully set forth all action taken by its Board of Directors, stockholders and, if
any, executive committee (or other committee thereof).
2.17 Transactions with Affiliates. Except as set forth on Schedule
2.17, the Company has not had any direct or indirect dealings with any Principal
Owner or with any of such Principal Owner's Affiliates, associates or relatives.
The Company has no obligation to or claim against any Principal Owner, or any of
such Principal Owner's Affiliates, associates or relatives, and no such Person
has any obligation to or claim against the Company. All products, services or
benefits provided to the Company by any such Person, or provided by the Company
to any such Person are provided at a charge equal to the fair market value of
such products, services or benefits. No Principal Owner, nor any of such
Principal Owner's Affiliates, associates or relatives, has any direct or
indirect interest of any kind in any business or entity which is competitive
with the Company. "Affiliate" of a specified Person shall mean a person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the Person specified.
2.18 Registration Rights. Except as set forth on Schedule 2.18, no
Person has, and as of the Closing no Person shall have, demand, "piggy-back" or
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other rights to cause the Company to file any registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), relating to any of
its securities or to participate in any such registration statement.
2.19 No Brokers or Finders. Except as set forth on Schedule 2.19,
neither the Company nor any of its respective Affiliates has entered or will
enter into any agreement pursuant to which the Company or the Investor will be
liable, as a result of the transactions contemplated by this Agreement or any of
the Purchase Documents, for any claim of any person for any commission, fee or
other compensation as finder or broker and the Company agrees to indemnify the
Investor for any liability resulting from any such agreement.
2.20 Investment Company Act. The Company is not an "investment
company" nor is the Company directly or indirectly controlled by or acting on
behalf of any Person which is an "Investment Company" within the meaning of the
Investment Company Act of 1940, as amended.
2.21 Disclosure. In connection with the purchase of the Securities
by the Investors as contemplated hereby, the Company has, to its knowledge,
disclosed to the Investor all material facts and information concerning the
Company, its Condition and the Securities, and has not, to its knowledge, made
any untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements contained herein or in any of the
other Purchase Documents not misleading.
2.22 Year 2000 Compliance. The Company has reviewed its products,
business and operations which could be adversely affected by the risk that
computer applications developed, marketed, sold and delivered or used by the
Company may be unable to recognize and properly perform date-sensitive functions
involving dates prior to and after December 31, 1999 (the "Year 2000 Problem").
The Company's products and services provided or delivered to its customers and
the Company's internal information and business systems will be able to perform
properly date-sensitive functions for all dates before and after January 1,
2000. In addition, the Company has surveyed those vendors, suppliers and other
third parties (collectively, the "Outside Parties") with which the Company does
business and whose failure to adequately address the Year 2000 Problem could
have a material adverse effect on the Condition of the Company. Based upon the
aforementioned internal review and surveys of the Outside Parties, the Year 2000
Problem has not resulted in, and is not reasonably expected to have, a material
adverse effect on the Condition of the Company.
2.23 SEC Documents. The Company has filed, pursuant to the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), all SEC Documents (as defined below) required to be filed with
respect to the business and operations of the Company under each of the
Securities Act and Exchange Act, and the respective rules and regulations
thereunder, and all of the SEC Documents complied in all material respects with
all applicable requirements of the Securities Act or the Exchange Act, as the
case may be, and the appropriate act and the rules and regulations thereunder in
effect on the date each such report was filed. At the respective dates they were
filed, none of the SEC Documents contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
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which they were made, not misleading. The consolidated financial statements of
the Company included in the SEC Documents complied as to the form in all
material respects with the applicable accounting requirements and the published
rules and regulations of the Securities and Exchange Commission with respect
thereto, have been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied throughout the period involved (except
as may be indicated therein or in the notes thereto) and fairly present the
consolidated financial position, results of operations and cash flows of the
Company as of the dates or for the periods indicated therein, subject, in the
case of the unaudited statements, to normal year-end adjustments and the absence
of certain footnote disclosures. "SEC Documents" means all material forms,
statements, reports and documents (including all exhibits, amendments and
supplements thereto) required to be filed with respect to the business and
operations of the Company under each of the Securities Act and the Exchange Act,
and the respective rules and regulations thereunder.
3. Representations and Warranties of the Investor. The Investor hereby
represents and warrants to, and agrees with, the Company as follows:
3.1 Organization. The Investor is, and as of the Closing will be,
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization.
3.2 Authorization. The Investor has, and as of the Closing will
have, all requisite power and authority to execute, deliver and perform this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement, and the consummation of the
transactions contemplated hereby, have been duly and validly authorized by all
necessary action on the part of the Investor. This Agreement has been duly
executed and delivered by the Investor and constitutes its legal, valid and
binding obligation, enforceable against the Investor in accordance with its
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency or other similar laws affecting the enforceability of creditors'
rights in general or by general principles of equity.
3.3 No Legal Bar; Conflicts. Neither the execution and delivery of
this Agreement, nor the consummation by the Investor of the transactions
contemplated hereby, violates any law, statute, ordinance, regulation, order,
judgment or decree of any court or governmental agency applicable to the
Investor, or violates, or conflicts with, any contract, commitment, agreement,
understanding or arrangement of any kind to which the Investor is a party or by
which the Investor is bound.
3.4 No Litigation. No action, suit or proceeding against the
Investor relating to the consummation of any of the transactions contemplated by
this Agreement nor any governmental action against the Investor seeking to delay
or enjoin any such transactions is pending or, to the Investor's knowledge,
threatened.
3.5 Investment Intent. The Investor (i) is an accredited investor
within the meaning of Rule 501(a) under the Securities Act, (ii) is aware of the
limits on resale imposed by virtue of the nature of the transactions
contemplated by this Agreement and is aware that the certificates representing
the Investor's respective ownership of Series B Stock will bear related
restrictive legends and (iii) except as otherwise set forth herein, is acquiring
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the shares of the Company hereunder without registration under the Securities
Act in reliance on the exemption from registration contained in Section 4(2) of
the Securities Act, for investment for its own account, and not with a view
toward, or for sale in connection with, any distribution thereof, nor with any
present intention of distributing or selling such shares. The Investor has been
given the opportunity to ask questions of, and receive answers from, the
officers of the Company regarding the Company, its current and proposed business
operations and the Series B Stock, and the officers of the Company have made
available to the Investor all documents and information that the Investor has
requested relating to an investment in the Company. The Investor has been
represented by competent legal counsel in connection with its purchase of the
Series B Stock and acknowledges that the Company has relied upon the Investor's
representations in this Section 3 in offering and selling Series B Stock to the
Investor.
3.6 No Brokers or Finders. Neither the Investor nor any of its
respective Affiliates has entered or will enter into any agreement pursuant to
which the Investor or the Company will be liable, as a result of the
transactions contemplated by this Agreement or any of the Purchase Documents,
for any claim of any person for any commission, fee or other compensation as
finder or broker and the Investor agrees to indemnify the Company for any
liability resulting from any such agreement.
3.7 Economic Risk; Restricted Securities. The Investor recognizes
that the investment in the Securities involves a number of significant risks.
The foregoing, however, does not limit or modify the representations, warranties
and agreements of the Company in Section 2 of this Agreement or the right of the
Investor to rely thereon. The Investor is able to bear the economic risks of an
investment in the Securities for an indefinite period of time, has no need for
liquidity in such investment and, at the present time, can afford a complete
loss of such investment.
3.8 Hedging Activities. The Investor has no intention to engage in,
or has any agreement to engage in, any hedging transactions (including, but not
limited to, short sales, put and call options, cashless collar transactions or
other forms of derivative security transactions) with respect to the Common
Stock.
4. Conditions of the Investor's Obligations at Closing. The
obligation of the Investor to purchase the Securities to be purchased by it at
the Closing is subject to the fulfillment to the Investor's satisfaction, prior
to or at the Closing, of each of the following conditions:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in this Agreement and the other Purchase
Documents shall be true and correct in all material respects on and as of the
date of the Closing as if made on and as of such date.
4.2 Filing of Articles of Amendment. The Articles of Amendment shall
have been adopted by the Board of Directors of the Company and filed with the
Secretary of State of the Commonwealth of Pennsylvania.
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4.3 Performance. The Company shall have performed and complied with
all agreements and conditions required by this Agreement and the other Purchase
Documents to be performed or complied with by it prior to or at the Closing.
4.4 Stock Certificates. Etc. At the Closing, the Company shall have
tendered to the Investor a certificate representing the Investor's shares of
Series B Stock, all in form and substance satisfactory to the Investor and
sufficient to transfer to and vest in the Investor good and valid title to the
Securities, free and clear of any Lien.
4.5 Conduct of Business. The Company shall carry on its business
diligently and shall not make or institute any unusual methods of management,
accounting or operation, except as agreed to in writing by the Investor. All of
the property of the Company shall be used, operated, repaired and maintained in
a normal business manner consistent with past practice
4.6 Compliance With Laws. The Company will comply in all material
respects with all laws and regulations which are applicable to it, its ownership
of its assets or to the conduct of its business and will perform and comply in
all material respects with all contracts, commitments and obligations by which
it is bound.
4.7 No Material Adverse Change. There shall not have occurred any
material adverse change in the Condition of the Company.
4.8 Consents. The Company shall have obtained all consents,
approvals or waivers from Governmental Authorities and third Persons necessary
for the execution, delivery and performance of this Agreement, the other
Purchase Documents and the Articles of Amendment, and the transactions
contemplated hereby and thereby, all without material cost or other adverse
consequences to the Company. Without limiting the generality of the foregoing,
if applicable, each of the Company's existing stockholders shall have waived any
preemptive right or right of first offer any such stockholder may have to
purchase any of the Securities.
4.9 No Litigation. There shall not be any Action of or before any
Governmental Authority or other Person pending or threatened with respect to
this Agreement, the other Purchase Documents or the transactions contemplated
hereby or thereby or which might materially adversely affect the Condition of
the Company.
4.10 Opinion of Counsel. The Investor shall have received from
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇ LLP an opinion dated as of the Closing, in the
form attached hereto as Exhibit C.
4.11 Compliance Certificate. The Investor shall have received a
certificate dated as of the day of the Closing executed by the President and the
Chief Financial Officer of the Company certifying that the conditions specified
in this Section 4 have been fulfilled.
4.12 Related Documents. The Purchase Documents shall have been
executed and delivered by each of the parties thereto and in full force and
effect, and the Articles of Amendment, and all amendments thereto, if any, shall
have been filed with the Secretary of State of the Commonwealth of Pennsylvania
and shall be in full force and effect.
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4.13 Due Diligence. The Investor shall have completed its business,
financial and legal due diligence to its satisfaction, in its sole judgment.
4.14 Proceedings and Documents. All proceedings in connection with
the transactions contemplated hereby and all documents and instruments incident
to such transactions shall be satisfactory in substance and form to the Investor
and its counsel, in all material respects, and the Investor shall have received
all such counterpart originals or certified or other copies of such documents as
the Investor may reasonably request.
If at the Closing the Company fails to tender to the Investor the
documents specified herein which are required to be delivered to the Investor at
the Closing or if at the Closing any of the conditions specified in this Section
4 shall not have been fulfilled to the Investor's reasonable satisfaction, the
Investor shall, at its election, be relieved of all further obligations under
this Agreement.
5. Conditions of the Company's Obligations at Closing. The obligations
of the Company to the Investor under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions:
5.1 Representations and Warranties. The representations and
warranties of the Investor contained in this Agreement shall be true and correct
in all material respects on and as of the date of the Closing as if made on and
as of such date.
5.2 Payment of Purchase Price. The Investor shall have delivered to
the Company the purchase price specified in Section 1 hereof.
5.3 No Litigation. There shall not be any Action of or before any
Governmental Authority or other Person pending or threatened with respect to
this Agreement or the transactions contemplated hereby.
5.4 Proceedings and Documents. All proceedings in connection with
the transactions contemplated hereby and all documents and instruments incident
to such transactions shall be satisfactory in substance and form to the Company
and its counsel, and the Company shall have received all such counterpart
originals or certified or other copies of such documents as it may reasonably
request.
If at the Closing the Investor fails to tender to the Company the
payment or documents specified herein which are required to be delivered to the
Company at the Closing or if at the Closing any of the conditions specified in
this Section 5 shall not have been fulfilled to the Company's reasonable
satisfaction, the Company shall, at its election, be relieved of all further
obligations to the Investor under this Agreement.
6. Certain Post-Closing Covenants of the Company. The Company
covenants and agrees with the Investor as follows:
6.1 Board Meetings; Observer Rights. The Company will use its best
efforts to ensure that its Board of Directors holds meetings no less than four
times per year. The Company shall give to the Investor notice of each meeting of
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the Board of Directors of the Company and of each committee thereof at the same
time and in the same manner as notice is given to the directors of the Company.
One designee of the Investor shall be entitled to attend in person, as an
observer, all meetings held in person and to listen to telephone meetings of the
Board of Directors of the Company and of each committee thereof solely for the
purpose of allowing the Investor to have current information with respect to the
affairs of the Company. The Company shall provide to the Investor, in connection
with each meeting its observer designee is entitled to attend, whether or not
present at such meeting, copies of all notices, minutes, consents and all other
materials or information that it provides to the directors with respect to such
meeting, at the time such materials and information are given to its directors
(except that materials and information provided to directors of the Company at
meetings at which a designee of the Investor is not present shall be provided to
the Investor promptly after the meeting). If the Board of Directors of the
Company or any committee thereof proposes to take any action by written consent
in lieu of a meeting, the Company shall give written notice thereof to the
Investor prior to the effective date of such consent describing in reasonable
detail the nature and substance of such action. The Company shall bear all
reasonable travel and related expenses incurred by the observer designee of the
Investor associated with attending meetings. The Investor's observer rights
under this Section 6.1 shall terminate in the event the Investor holds less than
250 shares of Series B Stock.
6.2 Annual Meetings. The Company will hold an annual meeting of all
stockholders at which information with respect to its business will be furnished
and discussed.
6.3 Information. The Investor and its assignees shall be entitled to
receive, and the Company agrees to provide to the Investor and its assignees,
the following:
(a) Financial and Related Data.
(i) As soon as available, but in any event not later than
forty-five (45) days after the end of each fiscal quarter, the Company shall
deliver to the Investor its Quarterly Report on Form 10-Q.
(ii) As soon as available, but in any event within ninety
(90) days after the end of each fiscal year of the Company, the Company shall
deliver to the Investor its Annual Report on Form 10-K.
(iii) Promptly, but in any event within ten (10) days, after
any distribution to its stockholders generally or to specific stockholders by
agreement, to its directors, to prospective investors or to the financial
community of an annual report, proxy statement, registration statement or other
similar report or communication, a copy of each such report, proxy statement,
registration statement or other similar report or communication; and promptly,
but in any event within ten (10) days after any filing with the Securities and
Exchange Commission or with any national securities exchange or with the
National Association of Securities Dealers, Inc., of any publicly available
annual or periodic or special report or proxy statement or registration
statement, a copy of such report or statement; and promptly, but in any event
within two (2) business days, after released, copies of all press releases and
other statements made available generally by the Company to the public
concerning material developments.
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(iv) From time to time, and promptly, such additional
information and financial data regarding results of operations, financial
condition, business, affairs or prospects of the Company, which the Investor may
reasonably request. Notwithstanding the foregoing, the Company shall not be
required to disclose to the Investor material non-public information as
determined in good faith by the Board of Directors.
(b) Access to Properties. The Company shall permit
representatives designated by the Investor, upon reasonable prior notice to the
Company, to visit and inspect each of the Company's properties, Notwithstanding
the foregoing, the Company shall not be required to disclose to the Investor
material non-public information as determined in good faith by the Board of
Directors to examine its respective corporate and financial records (and make
copies thereof or extracts therefrom), to discuss its respective affairs,
finances and accounts with the Company's directors and officers, and, through
the President or chief financial officer of the Company's, as the case may be,
its key employees and accountants, all at such reasonable times as may be
requested by the Investor.
6.4 Exemption from Investment Company Act. The Company shall conduct
its business so that it shall not become an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
6.5 Accounting and Reserves. The Company shall maintain a standard
and uniform system of accounting and shall keep proper books and records and
accounts in which full, true and correct entries shall be made of its
transactions, all in accordance with GAAP applied on a consistent basis through
all periods, and shall set aside on such books for each fiscal year all such
proper reserves for depreciation, obsolescence, amortization, bad debts and
other purposes in connection with its operations as are required by such
principles so applied.
6.6 Transactions with Affiliates. Except for arrangements for
development research involving aggregate amounts less than $60,000, the Company
shall not, directly or indirectly, enter into any transaction or agreement with
any stockholder of the Company or any Affiliate of the Company, unless the
transaction or agreement is (i) reviewed and approved by a majority of
Disinterested Directors (as defined below) and (ii) on terms no less favorable
to the Company than those obtainable from a non-Affiliated Person. A
"Disinterested Director" shall mean an individual who is not and who has not
been an officer or employee of the Company and who is not a member of the family
of, controlled by or under common control with, any such officer or employee.
6.7 Additional Covenants.
(a) The Company shall timely file all such SEC Documents
required to be filed by it pursuant to the Exchange Act in order to permit sales
under Rule 144 of the Securities Act.
(b) During any period in which the Company is not subject to
Section 13 or 15(d) of the Exchange Act, the Company shall make available
information required to be provided by Rule 144A(d)(4), upon request.
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(c) Upon the request of the Investor and the certification of
the Investor that it qualifies under Rule 144(k) of the Securities Act, the
Company shall, without further requirement, remove all restrictive legends from
the Investor's securities, insofar as such restrictions relate to the transfer
of such securities under the Securities Act.
6.8 Issuance of Warrants. In the event that upon the first
anniversary of the Closing Date (the "Anniversary Date") the average of the
closing prices of the Common Stock on the Nasdaq SmallCap Market (or such other
quotation system or securities exchange upon which the Company's Common Stock is
then traded) as reported by the Nasdaq Stock Market on the 25 consecutive
trading days immediately preceding the Anniversary Date (the "Anniversary
Price") is less than 1.45 times the Closing Price, the Company shall grant to
the Investor five-year warrants ("Warrants") to purchase, at an exercise price
equal to the Anniversary Price, such number of shares of the Common Stock as
determined in accordance with the following formula:
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I ((1.45 x CP) - AP)
W= ---------- x ----------------
(CP x 50%) 0.45 x CP
where:
W = the number of Warrants issuable pursuant to this Section 6.8.
I = the Investment Amount.
CP = the Closing Price.
AP = the Anniversary Price.
The form of such Warrants is attached hereto as Exhibit D. It is understood and
agreed that in no event shall the Anniversary Price be deemed to be less than
50% of the Closing Price.
6.9 Registration of Shares of Conversion Stock and the Warrant
Shares.
(a) The Company agrees to register the shares of Conversion
Stock by filing a registration Statement on Form S-3 (or any successor form
thereto) with respect to the shares of Conversion Stock and using its best
efforts to have such registration statement declared effective on or prior to
the Anniversary Date. The Company shall cause such registration statement to
remain effective for three (3) years following the Anniversary Date.
(b) The Company agrees to use its best efforts to register the
Warrant Shares by filing a registration statement on Form S-3 (or any successor
form thereto), as soon as practicable after the Anniversary Date, but in no
event later than thirty (30) days after the Anniversary Date, and using its best
efforts to have such registration statement become effective as soon as
practicable. The Company shall cause such registration statement to remain
effective for three (3) years following the Anniversary Date.
(c) In the event the Company fails to satisfy its obligations to
the Investor under this Section 6.9, the Company shall be obligated to pay to
the Investor liquidated damages in an amount equal to six percent (6%) per month
(or any part thereof), compounded monthly, on the Investment Amount, until such
time the Company is no longer in breach of this Section 6.9. Any payments due to
the Investor pursuant to this Section 6.9(c) shall be made no later than the
fifteenth (15th) day of the month following the month in which such liquidated
damages were incurred.
6.10 Stockholder Approval. In the event the aggregate number of
shares of Common Stock issuable upon the conversion of the Securities, the
Warrants and any other securities that may be integrated therewith exceeds 19.9%
of the Company's issued and outstanding capital stock as of the Closing Date,
the Company shall use its best efforts to obtain stockholder approval as
required by NASD Rule 4310(c)(25)(H)(i) as soon as practicable. Until such
stockholder approval is obtained, the maximum number of shares of Common Stock
-17-
issuable upon conversion of the Series B Stock and upon exercise of the Warrants
shall not exceed 19.9% of the Company's issued and outstanding capital stock as
of the Closing Date. In the event such stockholder approval is not obtained by
the Anniversary Date then, at any time after the Anniversary Date until such
time such stockholder approval is obtained, out of any assets of the Company
legally available therefor, the Investor shall have the right to require to
Company to redeem shares of the Series B Stock (the "Redeemed Shares") at a
price per share equal to the closing price of the Common Stock on the Nasdaq
SmallCap Market (or such other quotation system or securities exchange upon
which the Company's Common Stock is then traded) less the Conversion Price (as
defined in the Articles of Amendment) then in effect. The Company shall pay the
Investor for the Redeemed Shares within five (5) business days after the demand
for redemption is made by the Investor. Such amounts payable to the Investor
under this Section 6.10 shall accrue interest at 8% per annum after such 5-day
period and such accrued interest shall be payable on demand of the Investor.
7. Certain Post-Closing Covenants of the Investor. The Investor
covenants and agrees with the Company as follows:
7.1 Hedging Activities. The Investor shall not engage in any hedging
transactions (including short sales, put and call options, cashless collar
transactions or other forms of derivative security transactions) with respect to
the Common Stock that may have an impact on the market price of the Common
Stock.
7.2 Limitation on Sales. Except for block sales of 25,000 shares or
more, commencing on the Anniversary Date, during any 10-day trading period, the
Investor agrees that all sales of shares of Conversion Stock or Warrant Shares,
if any, made by the Investor during such 10-day trading period shall not exceed
twenty-five percent (25%) of total reported sales of shares of Common Stock
during the immediately preceding 10-day trading period. Notwithstanding the
foregoing, in the event there are additional Investors purchasing the Series B
Stock at the Closing each such Investor shall be entitled to sell only such
Investor's pro rata share of such shares of Conversion Stock or Warrant Shares,
as the case may be, determined in accordance with the Investment Amount paid by
each such Investor compared to the Total Investment Amount. The "Total
Investment Amount" shall mean the sum of all Investment Amounts paid by each
Investor purchasing the Series A Stock at the Closing.
8. Miscellaneous.
8.1 Expenses. The Company will each bear all reasonable legal and
other expenses incurred by the Investor with respect to the execution of this
Agreement and the execution of each of the Purchase Documents.
8.2 Publicity. Except as may be required by Law, or in connection
with a public offering, the Company shall neither use the name of, nor make
reference to, the Investor or any of its Affiliates in any press release or in
any public manner without the Investor's prior written consent.
8.3 Indemnification. The Company agrees to indemnify the Investor
and each officer, director, employee, agent, partner, stockholder and Affiliate
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of the Investor (collectively, the "Indemnified Parties") for, and hold each
Indemnified Party harmless from and against: (i) any and all damages, losses,
claims and other liabilities of any and every kind, including, without
limitation, judgments and costs of settlement, and (ii) any and all
out-of-pocket costs and expenses of any and every kind, including, without
limitation, reasonable fees and disbursements of counsel for such Indemnified
Parties (all of which expenses periodically shall be reimbursed as incurred), in
each case, arising out of or suffered or incurred in connection with any of the
following: (a) any misrepresentation or any breach of any warranty made by the
Company herein or in any of the other Purchase Documents, (b) any breach or
non-fulfillment of any covenant or agreement made by the Company herein or in
any of the other Purchase Documents, and (c) any claim relating to or arising
out of a violation of applicable federal or state securities laws by the Company
in connection with the sale of the Securities by the Company to the Investor.
8.4 Survival. All representations, warranties, covenants and
agreements contained in or made pursuant to this Agreement or contained in any
certificate delivered pursuant to this Agreement, shall remain operative and in
full force and effect, regardless of any investigation made by or on behalf of
any party hereto, and shall survive the transfer and payment for the Securities
and the consummation of the transactions contemplated hereby; provided, however,
that the representations and warranties of the parties set forth in Sections 2
and 3 shall survive until March 31, 2000.
8.5 Assignment. This Agreement and all the provisions hereof shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns, if any, except that neither this Agreement
nor any rights or obligations hereunder shall be assigned or delegated by the
Company without the prior written consent of the Investor. After the Closing,
except as set forth on Schedule 8.5, the Investor and its successors and assigns
may, without the consent of the Company, assign this Agreement and the
Investor's rights hereunder and under the other Purchase Documents (including,
without limitation, the Securities purchased by the Investor), in whole or in
part, to (i) any Affiliate of the Investor; (ii) any other transferee of at
least 20% of the Securities acquired by the Investor; or (iii) in connection
with an estate transfer, provided, however, that the Company shall not be
required to permit such Assignment if such Assignment is in violation of federal
securities regulations or relevant state "blue sky" laws.
8.6 Amendment; Waiver. Any term, covenant, agreement or condition of
this Agreement may be amended, and compliance therewith may be waived (either
generally or in a particular circumstance and either retroactively or
prospectively), by one or more substantially concurrent written instruments
signed by the Company and by the Investor. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon the Investor and the
Company.
8.7 Applicable Law. The laws of the State of New Jersey shall govern
the interpretation, validity and performance of the terms of this Agreement,
regardless of the law that might be applied under principles of conflicts of
law.
8.8 Judicial Proceedings. Any judicial proceeding involving any
dispute, controversy or claim arising out of or relating to this Agreement or
the rights or interests of the Investor or the Company or the breach or alleged
breach of this Agreement, whether arising during or at or after the termination
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of this Agreement (each of the foregoing disputes, controversies and claims
hereinafter referred to as an "agreement dispute"), shall be brought only in a
federal or state court located in the state of New Jersey, and each of the
parties hereto (i) unconditionally accepts the exclusive jurisdiction of such
courts and any related appellate court and irrevocably agrees to be bound by any
judgment rendered thereby and (ii) irrevocably waives any objection such party
may now have or hereafter has as to the venue of any such proceeding brought in
such a court or that such court is an inconvenient forum. Each of the parties
hereto hereby waives trial by jury in any judicial proceeding to which they are
parties involving an agreement dispute.
8.9 Notices. All notices and other communications provided for
herein shall be dated and in writing and shall be deemed to have been duly given
(x) on the date of delivery, if delivered personally or by telecopier, receipt
confirmed, (y) on the second following business day, if delivered by a
recognized overnight courier service, or (z) seven days after mailing, if sent
by registered or certified, return receipt requested, postage prepaid, in each
case, to the party to whom it is directed at the following address (or at such
other address as any party hereto shall hereafter specify by notice in writing
to the other parties hereto):
(i) If to the Company, to it at the following address:
Scan-Graphics, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
(ii) If to the Investor, to it at the following address:
Seaside Partners, L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Managing Director
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
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with a copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Professional Corporation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
8.10 Integration. This Agreement and the documents referred to
herein or delivered pursuant hereto or pursuant to such documents, including all
exhibits and schedules, contain the entire understanding of the parties with
respect to their subject matter and supersede all prior agreements and
understandings between the parties with respect to their subject matter.
8.11 Severability. Each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited or invalid under
applicable law, such provision will be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of this Agreement.
8.12 Descriptive Headings. The section and other headings contained
in this Agreement are for convenience of reference only and shall not affect the
meaning or interpretation of this Agreement.
8.13 Counterparts. This Agreement may be executed in two or more
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which together shall be deemed to be one and the same
agreement.
* * * * * * *
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SCAN-GRAPHICS, INC.:
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President and Chief Executive Officer
INVESTOR:
SEASIDE PARTNERS, L.P.
By: SEASIDE ADVISORS, L.L.C.,
its general partner
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Managing Director
ARTICLES OF AMENDMENT
of
SCAN-GRAPHICS, INC.
STATEMENT OF DESIGNATION
of
CLASS A, SERIES B CONVERTIBLE PREFERRED STOCK
Scan-Graphics, Inc., a corporation organized and existing
under the laws of the Commonwealth of Pennsylvania (the "Corporation"), does
hereby certify that, pursuant to the authority conferred on the Board of
Directors of the Corporation by the Articles of Incorporation (the "Articles of
Incorporation"), of the Corporation and in accordance with Section 1522 of the
Business Corporation Law of the Commonwealth of Pennsylvania, the Board of
Directors of the Corporation adopted the following resolution establishing a
series of 5,000 shares of Preferred Stock of the Corporation designated as
"Class A, Series B Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the
Board of Directors of this Corporation by the Articles of
Incorporation, a series of Preferred Stock, par value $2.00 per share,
of the Corporation is hereby established and created, and that the
designation and number of shares thereof and the voting and other
powers, preferences and relative, participating, optional or other
rights of the shares of such Preferred Stock and the qualifications,
limitations and restrictions thereof are as follows:
There shall be a series of Preferred Stock designated as
"Class A, Series B Convertible Preferred Stock" and the number of shares
constituting such series shall be 5,000, subject to adjustment as provided
herein. Such series is referred to herein as the "Series B Convertible Preferred
Stock".
1. Voting. The holders of shares of Series B Convertible Preferred
Stock shall not be entitled to any vote with respect to such shares on any
question or matter, except as expressly set forth herein or as required by
applicable law.
2. Dividends. Except as otherwise provided in this paragraph 2, the
holders of shares of Series B Convertible Preferred Stock shall not be entitled
to receive dividends. The holders of the Series B Convertible Preferred Stock
shall be entitled to receive, out of funds legally available therefor, dividends
at the same rate as dividends (other than dividends on the Common Stock paid
solely in additional shares of Common Stock, except as provided in subparagraph
4D(4)) are paid with respect to the Common Stock (treating each share of Series
B Convertible Preferred Stock as being equal to the number of shares of Common
Stock (including fractions of a share) into which each share of Series B
Convertible Preferred Stock is then convertible).
3. Liquidation, Dissolution and Winding-up.
3A. Subject to adjustment as set forth in paragraph 3C below, upon
any liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary, the holders of the shares of Series B Convertible Preferred
Stock shall be paid an amount equal to $2.30 per share (the "Original Purchase
Price") (which amount shall be subject to equitable adjustment whenever there
shall occur a stock split combination, reclassification or other similar event
involving the Series B Convertible Preferred Stock) plus, in the case of each
share, an amount equal to dividends accrued but unpaid thereon, computed to the
date payment thereof is made available, before any payment shall be made to the
holders of any stock ranking on liquidation junior to the Series B Convertible
Preferred Stock, such amount payable with respect to one share of Series B
Convertible Preferred Stock being sometimes referred to as the "Series B
Liquidation Preference Payment" and with respect to all shares of Series B
Convertible Preferred Stock being sometimes referred to as the "Series B
Liquidation Preference Payments." If upon any liquidation, dissolution, or
winding up of the Corporation, the assets to be distributed to the holders of
the Series B Convertible Preferred Stock shall be insufficient to permit payment
to such stockholders of the full preferential amounts aforesaid, then all of the
assets of the Corporation available for distribution to holders of the Series B
Convertible Preferred Stock shall be distributed to such holders of the Series B
Convertible Preferred Stock pro rata, so that each holder receives that portion
of the assets available for distribution as the number of shares of Series B
Convertible Preferred Stock held by such holder bears to the total number of
shares of Series B Convertible Preferred Stock then outstanding. For purposes
hereof, the Common Stock shall rank on liquidation junior to the Series B
Convertible Preferred Stock.
3B. Upon any liquidation, dissolution or winding up of the
Corporation, immediately after the holders of Series B Convertible Preferred
Stock shall have been paid in full the Series B Liquidation Preference Payments
or funds necessary for such Series B Liquidation Preference Payments shall have
been set aside by the Corporation in trust for the account of holders of the
Series B Convertible Preferred Stock so as to be available for such Series B
Liquidation Preference Payments, the holders of the Series B Convertible
Preferred Stock shall be entitled to no further participation in the
distribution of the assets of the Corporation, and the remaining assets of the
Corporation legally available for distribution to its stockholders shall be
distributed among the holders of other classes of securities of the Corporation
in accordance with their respective terms.
3C. Written notice of such liquidation, dissolution or winding up,
stating a payment date and the place where said payments shall be made, shall be
given by mail, postage prepaid, or by telex to non-U.S. residents, not less than
20 days prior to the payment date stated therein, to the holders of record of
Series B Convertible Preferred Stock, such notice to be addressed to each such
holder at its address as shown by the records of the Corporation. The (x)
consolidation or merger of the Corporation into or with any other entity or
entities which results in the exchange of outstanding shares of the Corporation
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for securities or other consideration issued or paid or caused to be issued or
paid by any such entity or affiliate thereof (except a consolidation or merger
into a wholly-owned subsidiary or merger in which the Corporation is the
surviving Corporation and the holders of the Corporation's voting stock
outstanding immediately prior to the transaction constitute a majority of the
holders of voting stock outstanding immediately following the transaction), (y)
the sale or transfer by the Corporation of all or substantially all its assets,
or (z) the sale or transfer by the Corporation's stockholders of more than 50%
in voting power of the Corporation's capital stock, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
the provisions of this paragraph 3.
Whenever the distributions provided for in this paragraph 3 shall be payable in
property other than cash, the value of such distributions shall be the fair
market value of such property as determined in good faith by the Board of
Directors of the Corporation.
4. Conversion. The holders of shares of Series B Convertible Preferred
Stock shall have the following conversion rights:
4A. Right to Convert. Subject to the terms and conditions of this
paragraph 4, the holder of any share or shares of Series B Convertible Preferred
Stock shall have the right (the "Conversion Right"), at its option, to convert
any such shares of Series B Convertible Preferred Stock (except that upon any
liquidation of the Corporation the right of conversion shall terminate at the
close of business on the business day fixed for payment of the amounts
distributable on the Series B Convertible Preferred Stock) into such number of
fully paid and nonassessable shares of Common Stock as is obtained by (i)
multiplying the number of shares of Series B Convertible Preferred Stock so to
be converted by the Original Purchase Price, plus a premium on such Original
Purchase Price accruing at a rate equal to eight percent (8%) per annum (the
"Original Purchase Price Premium"), and (ii) dividing the result by the
conversion price equal to the Original Purchase Price or in case an adjustment
of such price has taken place pursuant to the further provisions of this
paragraph 4, then by the conversion price as last adjusted and in effect at the
date any share or shares of Series B Convertible Preferred Stock are surrendered
for conversion (such price, or such price as last adjusted, being referred to as
the "Series B Conversion Price"). Such rights of conversion shall be exercised
by the holder thereof by giving written notice that the holder elects to convert
a stated number of shares of Series B Convertible Preferred Stock into Common
Stock and by surrender of a certificate or certificates for the shares so to be
converted to the Corporation at its principal office (or such other office or
agency of the Corporation as the Corporation may designate by notice in writing
to the holders of the Series B Convertible Preferred Stock) at any time during
its usual business hours on the date set forth in such notice, together with a
statement of the name or names (with address) in which the certificate or
certificates for shares of Common Stock shall be issued.
4B. Issuance of Certificates; Time Conversion Effected. Subject to
the limitations in paragraph 4P, promptly after the receipt of the written
notice referred to in paragraph 4A and surrender of the certificate or
certificates for the share or shares of Series B Convertible Preferred Stock to
be converted, but in no event later than ten (10) trading days following the
Conversion Date (as defined below), the Corporation shall issue and deliver, or
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cause to be issued and delivered, to the holder, registered in such name or
names as such holder may direct, a certificate or certificates for the number of
whole shares of Common Stock issuable upon the conversion of such share or
shares of Series B Convertible Preferred Stock. In the event the limitations in
paragraph 4P do not apply and the Corporation fails to deliver the proper
documentation to the Corporation's transfer agent such that the transfer agent
may deliver to the holder such shares of Common Stock within such 10-trading day
period, the Corporation shall be obligated to pay to the holder a late payment
fee of (i) $100 for each $10,000 of shares of Series B Convertible Preferred
Stock so converted (determined by multiplying such shares of Series B
Convertible Preferred Stock by the Series B Conversion Price then in effect) per
day for each of the first five (5) trading days following the specified date of
delivery and (ii) $300 for each $10,000 of shares of Series B Convertible
Preferred Stock so converted (determined by multiplying such shares of Series B
Convertible Preferred Stock by the Series B Conversion Price then in effect) per
day thereafter. To the extent permitted by law, such conversion shall be deemed
to have been effected and the Series B Conversion Price shall be determined as
of the close of business on the date on which such written notice shall have
been received by the Corporation and the certificate or certificates for such
share or shares shall have been surrendered as aforesaid (the "Conversion
Date"), and at such time the rights of the holder of such share or shares of
Series B Convertible Preferred Stock shall cease, and the person or persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares represented thereby.
4C. Fractional Shares; Partial Conversion. No fractional shares
shall be issued upon conversion of Series B Convertible Preferred Stock into
Common Stock and no payment or adjustment shall be made upon any conversion on
account of any cash dividends on the Common Stock issued upon such conversion.
In case the number of shares of Series B Convertible Preferred Stock represented
by the certificate or certificates surrendered pursuant to paragraph 4A exceeds
the number of shares converted, the Corporation shall, upon such conversion,
execute and deliver to the holder, at the expense of the Corporation, a new
certificate or certificates for the number of shares of Series B Convertible
Preferred Stock represented by the certificate or certificates surrendered which
are not to be converted. If any fractional share of Common Stock would, except
for the provisions of the first sentence of this ▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇ delivered upon
such conversion, the Corporation, in lieu of delivering such fractional share,
shall pay to the holder surrendering the Series B Convertible Preferred Stock
for conversion an amount in cash equal to the current market price of such
fractional share as determined in reference to the closing price of the
Corporation's Common Stock on the Nasdaq SmallCap Market (or such other
quotation system or securities exchange upon which the Corporation's Common
Stock is then traded) on the Conversion Date, and based upon the aggregate
number of shares of Series B Convertible Preferred Stock surrendered by any one
holder of conversion into Common Stock.
4D. Adjustment of Series B Conversion Price Upon Issuance of Common
Stock. For a period not to exceed eighteen (18) months after the Closing Date
(as defined in the Purchase Agreement), except as provided in paragraphs 4F and
4G, if and whenever the Corporation shall issue or sell, or is, in accordance
with subparagraphs 4D(1) through 4D(7), deemed to have been issued or sold, any
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shares of Common Stock for a consideration per share less than the lesser of (x)
the Series B Conversion Price in effect immediately prior to the time of such
issue or sale, (such number being appropriately adjusted to reflect the
occurrence of any event described in paragraph 4G), and (y) the closing price of
the Corporation's Common Stock on the Nasdaq SmallCap Market (or such other
quotation system or securities exchange upon which the Corporation's Common
Stock is then traded) on the Conversion Date, then, forthwith upon such issue or
sale, the Series B Conversion Price shall be reduced to the price determined by
dividing (i) the aggregate consideration received by the Corporation upon such
issue or sale by (ii) the total number of shares of Common Stock issued upon
such issue or sale. The provisions of this paragraph 4D may be waived in any
instance, without a meeting, prospectively or retroactively, by the holders of
Series B Convertible Preferred Stock by obtaining the approval of the holders of
Series B Convertible Preferred Stock in the manner prescribed by paragraph 4.
For purposes of this paragraph 4D, the following subparagraphs 4D(1)
to 4D(7) shall also be applicable:
4D(1) Issuance of Rights or Options. Except for the Reserved
Shares, in case at any time the Corporation shall in any manner grant
(whether directly or by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or security
convertible into or exchangeable for Common Stock (such warrants,
rights or options being called "Options" and such convertible or
exchangeable stock or securities being called "Convertible Securities")
whether or not such Options or the right to convert or exchange any
such Convertible Securities are immediately exercisable, and the price
per share for which Common Stock is issuable upon the exercise of such
Options or upon the conversion or exchange of such Convertible
Securities (determined by dividing (i) the total amount, if any,
received or receivable by the Corporation as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon the exercise
of all such Options, plus, in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such Options)
shall be less than the Series B Conversion Price in effect immediately
prior to the time of the granting of such Options, then the total
maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon conversion or exchange of the total maximum amount
of such Convertible Securities issuable upon the exercise of such
Options shall be deemed to have been issued for such price per share as
of the date of granting of such Options or the issuance of such
Convertible Securities and thereafter shall be deemed to be
outstanding. Except as otherwise provided in subparagraph 4D(3), no
adjustment of the Series B Conversion Price shall be made upon the
actual issue of such Common Stock or of such Convertible Securities
upon exercise of such Options or upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities.
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4D(2) Issuance of Convertible Securities. Except for the
Reserved Shares, in case the Corporation shall in any manner issue
(whether directly or by assumption in a merger or otherwise) or sell
any Convertible Securities, whether or not the rights to exchange or
convert any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon such
conversion or exchange (determined by dividing (i) the total amount
received or receivable by the Corporation as consideration for the
issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less than the
Series B 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 shall be deemed to have been issued for such price per share
as of the date of the issue or sale of such Convertible Securities and
thereafter shall be deemed to be outstanding, provided that (a) except
as otherwise provided in subparagraph 4D(3), no adjustment of the
Series B Conversion Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities
and (b) if any such issue or sale of such Convertible Securities is
made upon exercise of any Options to purchase any such Convertible
Securities for which adjustments of the Series B Conversion Price have
been or are to be made pursuant to other provisions of this paragraph
4D, no further adjustment of the Series B Conversion Price shall be
made by reason of such issue or sale.
4D(3) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in subparagraph 4D(1), the
additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subparagraph
4D(1) or 4D(2), or the rate at which Convertible Securities referred to
in subparagraph 4D(1) or 4D(2) are convertible into or exchangeable for
Common Stock shall change at any time (including, but not limited to,
changes under or by reason of provisions designed to protect against
dilution), the Series B Conversion Price in effect at the time of such
event shall forthwith be readjusted to the Series B Conversion Price
which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed
purchase price, additional consideration or conversion rate, as the
case may be, at the time initially granted, issued or sold, but only if
as a result of such adjustment the Series B Conversion Price then in
effect hereunder is thereby reduced; and on the expiration of any such
Option or the termination of any such right to convert or exchange such
Convertible Securities, the Series B Conversion Price then in effect
hereunder shall forthwith be increased to the Series B Conversion Price
which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such expiration or termination, never
been issued.
4D(4) Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the
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Corporation payable in Common Stock (except for the issue of stock
dividends or distributions upon the outstanding Common Stock for which
adjustment is made pursuant to paragraph 4G), Options or Convertible
Securities, any Common Stock, Options or Convertible Securities, as the
case may be, issuable in payment of such dividend or distribution shall
be deemed to have been issued or sold without consideration and the
Series B Conversion Price then in effect shall be appropriately
decreased so that the number of shares of Common Stock issuable upon
conversion of each share of Series B Convertible Preferred Stock shall
be increased in proportion to such increase in the aggregate number of
shares of Common Stock outstanding.
4D(5) Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor, without deduction
therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith.
In case any shares of Common Stock, Options or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Corporation shall
be deemed to be the fair value of such consideration as determined in
good faith by the Board of Directors of the Corporation, without
deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith.
In case any Options shall be issued in connection with the issue and
sale of other securities of the Corporation, together comprising one
integral transaction in which no specific consideration is allocated to
such Options by the parties thereto, such Options shall be deemed to
have been issued for such consideration as determined in good faith by
the Board of Directors of the Corporation.
4D(6) Record Date. In case the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling them
(i) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities or (ii) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be.
4D(7) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by
or for the account of the Corporation, and the disposition of any such
shares shall be considered an issue or sale of Common Stock for the
purpose of this paragraph 4D.
4E. Adjustment of Series B Conversion Price to Conversion Date
Price. In the event the average of the closing prices of the Common Stock on the
Nasdaq SmallCap Market (or such other quotation system or securities exchange
upon which the Corporation's Common Stock is then traded) as reported by the
Nasdaq Stock Market for the consecutive 25-trading day period immediately
preceding the Conversion Date (the "Conversion Date Price") is less than the
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then existing Series B Conversion Price, the Series B Conversion Price shall be
immediately adjusted to equal the Conversion Date Price, provided, however, that
in no event shall the Conversion Date Price be deemed to be less than fifty
percent (50%) of the Original Purchase Price.
4F. Certain Issues of Common Stock Excepted. Anything herein to the
contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Series B Conversion Price in the case of the issuance of (i)
shares of Common Stock issuable upon conversion of the Series B Convertible
Preferred Stock and (ii) Reserved Shares.
4G. Subdivision or Combination of Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Series B Conversion Price in effect immediately prior to such
subdivision shall be proportionately reduced, and, conversely, in case the
outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Series B Conversion Price in effect immediately prior to such
combination shall be proportionately increased.
4H. Reorganization or Reclassification. Subject to paragraph 3C, if
any capital reorganization, reclassification, recapitalization, consolidation,
merger, sale of all or substantially all of the Corporation's assets or other
similar transaction (any such transaction being referred to herein as an
"Organic Change") shall be effected in such a way that holders of Common Stock
shall be entitled to receive (either directly or upon subsequent liquidation)
stock, securities or assets with respect to or in exchange for Common Stock,
then, as a condition of such Organic Change, lawful and adequate provisions
shall be made whereby each holder of a share or shares of Series B Convertible
Preferred Stock shall thereupon have the right to receive, upon the basis and
upon the terms and conditions specified herein and in lieu of or in addition to,
as the case may be, the shares of Common Stock immediately theretofore
receivable upon the conversion of such share or shares of Series B Convertible
Preferred Stock, such shares of stock, securities or 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 Common Stock immediately
theretofore receivable upon such conversion had such Organic Change not taken
place, and in any case of a reorganization or reclassification only appropriate
provisions shall be made with respect to the rights and interests of such holder
to the end that the provisions hereof (including without limitation provisions
for adjustments of the Series B Conversion Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of such conversion rights.
4I. Notice of Adjustment. Upon any adjustment of the Series B
Conversion Price, then and in each such case the Corporation shall give written
notice thereof, by first class mail, postage prepaid, or by facsimile
transmission to non-U.S. residents, addressed to each holder of shares of Series
B Convertible Preferred Stock at the address of such holder as shown on the
books of the Corporation, which notice shall state the Series B Conversion Price
resulting from such adjustment, setting forth in reasonable detail the method
upon which such calculation is based.
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4J. Other Notices. In case at any time:
(1) the Corporation shall declare any dividend upon its Common
Stock payable in cash or stock or make any other distribution to the holders of
its Common Stock;
(2) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a consolidation or
merger of the Corporation with or into, or a sale of all or substantially all
its assets to, another entity or entities; or
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by facsimile transmission to non-U.S. residents,
addressed to each holder of any shares of Series B Convertible Preferred Stock
at the address of such holder as shown on the books of the Corporation, (a) at
least 20 days' prior written notice of the date on which the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least 20 days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause (a) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto and such notice in accordance with the foregoing clause (b)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
4K. Stock to be Reserved. The Corporation will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Series B Convertible Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Series B Convertible Preferred
Stock. The Corporation covenants that all shares of Common Stock which shall be
so issued shall be duly and validly issued and fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof, and,
without limiting the generality of the foregoing, the Corporation covenants that
it will from time to time take all such action as may be requisite to assure
that the par value per share of the Common Stock is at all times equal to or
less than the Series B Conversion Price in effect at the time. The Corporation
will take all such action as may be necessary to assure that all such shares of
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Common Stock may be so issued without violation of any applicable law or
regulation, or of any requirement of any national securities exchange upon which
the Common Stock may be listed.
4L. No Reissuance of Series B Convertible Preferred Stock. Shares of
Series B Convertible Preferred Stock which are converted into shares of Common
Stock as provided herein shall not be reissued.
4M. Issue Tax. The issuance of certificates for shares of Common
Stock upon conversion of Series B Convertible Preferred Stock shall be made
without charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series B Convertible
Preferred Stock which is being converted.
4N. Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Preferred Stock or of any shares of
Common Stock issued or issuable upon the conversion of any shares of Preferred
Stock in any manner which interferes with the timely conversion of such
Preferred Stock, except as may otherwise be required to comply with applicable
securities laws.
4O. Definition of Common Stock. As used in this paragraph 4, the
term "Common Stock" shall mean and include the Corporation's authorized Common
Stock, par value $0.001 per share, as constituted on the date of filing of these
terms of the Series B Convertible Preferred Stock, and shall also include any
capital stock of any class of the Corporation thereafter authorized which shall
neither be limited to a fixed sum or percentage of par value in respect of the
rights of the holders thereof to participate in dividends nor entitled to a
preference in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; provided that the
shares of Common Stock receivable upon conversion of shares of Series B
Convertible Preferred Stock shall include only shares designated as Common Stock
of the Corporation on the date of filing of this instrument, or in case of any
reorganization or reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in paragraph 4H.
4P. Limitations on Conversion.
(a) The holder of any share or shares of Series B Convertible
Preferred Stock shall not be entitled to exercise the Conversion Right set forth
in paragraph 4A prior to the Anniversary Date (as defined in the Purchase
Agreement), provided, however, that the foregoing restriction shall not be
applicable if any of the following events occurs:
(i) a public announcement of a Change of Control (as defined in
paragraph 6(a) hereof); or
(ii) a material adverse change in the Corporation's business or
condition (financial or otherwise).
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(b) The aggregate number of shares of Common Stock issuable upon
conversion of the Series B Convertible Preferred Stock and the Warrants (as
defined in the Purchase Agreement) shall not exceed 19.9% of the Corporation's
issued and outstanding capital stock as of the Closing Date (as defined in the
Purchase Agreement) without first obtaining stockholder approval as required by
NASD Rule 4310(c)(25)(H)(i).
4Q. Mandatory Conversion. All outstanding shares of Series B
Convertible Preferred Stock shall automatically convert to shares of Common
Stock on the third anniversary of the Closing Date (as defined in the Purchase
Agreement).
5. Right of First Refusal.
(a) Subject to paragraph 5(e), for so long as any shares of Series B
Convertible Preferred Stock remain outstanding during the twelve (12) month
period after the Closing Date (as defined in the Purchase Agreement), the
Corporation shall not issue, sell or exchange, agree to issue, sell or exchange,
in any case whether from treasury shares, from the issuance of authorized but
unissued shares or otherwise, any (i) shares of Common Stock, (ii) any
Convertible Securities, or (iii) any Options unless, in each case, the
Corporation shall have first offered to sell to each Eligible Purchaser (as
defined in subparagraph (f) below) such Eligible Purchaser's Proportionate
Percentage (as defined in subparagraph (f) below) of such securities (the
"Offered Securities") at a unit price and on such other terms as shall have been
specified by the Corporation in a written offer delivered to such Eligible
Purchasers (the "Offer"), which Offer by its terms shall remain open and
irrevocable for a period of 10 days from the date it is delivered by the
Corporation to the Eligible Purchasers.
(b) Notice of each Eligible Purchaser's intention to accept an Offer
made pursuant to subparagraph (a) above shall be evidenced by a writing (the
"Notice of Acceptance") signed by such Eligible Purchaser and delivered to the
Corporation prior to the end of the 10-day period of such Offer, setting forth
the portion of the Offered Securities which such Eligible Purchaser elects to
purchase. If any Eligible Purchaser fails to subscribe for all of its
Proportionate Percentage of the Offered Securities to be sold, the participating
Eligible Purchasers shall be entitled to purchase the balance of that Eligible
Purchaser's Proportionate Percentage in the same proportion in which they were
first entitled to purchase the Offered Securities (excluding for purposes of the
computation of such proportions such Eligible Purchasers subscribing for less
than their respective Proportionate Percentages). The Corporation shall by
written notice notify each Eligible Purchaser five days following the expiration
of the 10-day period described above of the amount of Offered Securities which
each Eligible Purchaser may purchase pursuant to the foregoing sentence and each
Eligible Purchaser shall then have five (5) additional days from the delivery of
such notice to indicate such additional amount, if any, that such Eligible
Purchaser wishes to purchase. This process shall be repeated until one or more
such Eligible Purchasers have agreed, or no one or more such Eligible Purchasers
have agreed, to accept the Offer with respect to all of the Offered Securities.
(c) In the event that Notices of Acceptance are not given by the
Eligible Purchasers in respect of all of the Offered Securities, the Corporation
11
shall have 90 days from the expiration of the later of the foregoing 10 or 5 day
period, whichever is applicable, to sell or enter into an agreement to sell all
or any part of the Offered Securities as to which a Notice of Acceptance has not
been given by the Eligible Purchasers (the "Refused Securities") to any other
person or persons, on terms and conditions, including, without limitation, unit
price, which are no more favorable to such other person or persons or less
favorable to the Corporation and the Eligible Purchasers which have given
Notices of Acceptance than those set forth in the Offer. Upon the closing of the
sale of the Refused Securities, each applicable Eligible Purchaser shall
purchase from the Corporation, and the Corporation shall sell to each applicable
Eligible Purchaser, the Offered Securities in respect of which a Notice of
Acceptance was delivered to the Corporation by such Eligible Purchaser, on the
terms specified in the Offer.
(d) Any Offered Securities not purchased by the Eligible Purchasers
or other person or persons in accordance with subparagraph (c) above may not be
sold or otherwise disposed of until they are again offered to the Eligible
Purchasers under the procedures specified in subparagraphs (a), (b) and (c)
hereof.
(e) The rights of the Eligible Purchasers under this provision shall
not apply to the following securities (the "Excluded Securities"):
(i) Reserved Shares;
(ii) shares of Common Stock issued as a stock dividend or upon
any subdivision or combination of shares of Common Stock;
(iii) shares of Common Stock issued upon the conversion of the
Series B Convertible Preferred Stock;
(iv) securities of the Corporation issued in connection with the
acquisition of all or part of another entity or in connection with a
joint venture or such other strategic investment; and
(v) securities of the Corporation to be offered and sold to the
public through underwriters pursuant to a registration statement
under the Securities Act of 1933, as amended.
(f) For purposes hereof, the following terms shall have the
following respective meanings:
(i) "Eligible Purchasers" shall mean any and all holders of
shares of Series B Convertible Preferred Stock; and
(ii) "Proportionate Percentage" shall mean, as to an Eligible
Purchaser, that percentage which expresses the ratio which (x) the
12
number of outstanding shares of Series B Convertible Preferred Stock
then beneficially owned by such Eligible Purchaser bears to (y) the
then aggregate number of outstanding shares of Series B Convertible
Preferred Stock.
6. Definitions. As used herein, the following terms shall have the
following meanings:
(a) The term Change of Control shall mean (i) any transaction or
series of transactions (including, without limitation, a tender offer, merger or
consolidation) the result of which is that any "person" or "group" (within the
meaning of sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), becomes the "beneficial" owners (as defined in
rule 13(d)(3) under the Securities Exchange Act of 1934) of more than 50 percent
(50%) of the total aggregate voting power of all classes of the voting stock of
the Corporation and/or warrants or options to acquire such voting stock,
calculated on a fully diluted basis, or (ii) a sale of assets constituting all
or substantially all of the assets of the Corporation (determined on a
consolidated basis).
(b) The term "Purchase Agreement" shall mean the Series B
Convertible Preferred Stock Purchase Agreement to be entered into on or about
the date these Articles of Amendment become effective by and between the
Corporation and Seaside Partners, L.P.
(c) The term "Reserved Shares" shall mean (i) (A) 2,339,862 shares
of Common Stock which are reserved for issuance to key employees, non-employee
directors and consultants of the Corporation under the Corporation's 1992
Long-Term Incentive Plan, as amended, (B) 500,000 shares of Common Stock which
are reserved for conversion of the outstanding Class A Preferred Stock, Series
A, par value $2.00 per share (the "Series A Preferred Stock"), (C) 2,148,000
shares of Common Stock which remain reserved for conversion of the outstanding
Series E Preferred Stock ("Series E Preferred Stock"), (D) 2,754,322 shares of
Common Stock which are reserved for exercise of warrants issued in connection
with the Series E Preferred Stock, (E) approximately 939,130 shares of Common
Stock which are reserved for conversion of the Series B Convertible Preferred
Stock, (F) 3,000,016 shares of Common Stock which are reserved for the exercise
the exercise of outstanding warrants issued in connection with the Class A
Preferred Stock, Series D (the "Series D Preferred Stock"), and (G) 3,625,349
shares of Common Stock which are reserved for the exercise of other outstanding
warrants, including warrants issued in connection with the Class A Preferred
Stock, Series C (the "Series C Preferred Stock"); (ii) 2,000,000 shares of Class
B Preferred Stock, none of which are issued and outstanding or available for
reissuance; and (iii) 1,000,000 shares of Class A Preferred Stock, (A) 500,000
shares of which have been designated Series A Preferred Stock, all of which are
issued and outstanding, (B) 5,000 shares of which have been designated Series B
Stock, 1,000 shares of which are issued and outstanding, (C) 5,200 shares of
which have been designated Series E Preferred Stock, 3,222 shares of which are
issued and outstanding, (D) 125,000 shares of which have been designated as
Series C Preferred Stock, none of which are issued and outstanding or available
for reissuance, and (E) 3,300 shares of which have been designated as Series D
13
Preferred Stock, none of which are issued and outstanding or available for
reissuance. All of the foregoing are subject to adjustment to reflect an event
described in paragraph 4G hereof.
* * * * * *
14
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, NOR UNDER ANY STATE SECURITIES LAWS AND
NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT OR SUCH LAWS AND THE RULES AND REGULATIONS THEREUNDER.
WARRANT TO PURCHASE SHARES OF COMMON
STOCK OF SCAN-GRAPHICS, INC.
Warrant No. _____ Dated: March ___, 2000
This certifies that Seaside Partners, L.P. (the "Holder"), for value
received, is entitled, subject to the terms set forth below, to purchase from
SCAN-GRAPHICS, INC., a Pennsylvania corporation (the "Company"), [ ] ([ ]) fully
paid and nonassessable shares (the "Warrant Shares") of the Company's Common
Stock, par value $0.001 per share (the "Stock"), at a price of $[ ] per share
(the "Stock Purchase Price") at any time but not earlier than the Commencement
Date (as defined below) or later than 5:00 p.m. (New York Time) on the
Expiration Date (as defined below), upon surrender to the Company at its
principal office at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, Attention: President (or at such other location as the Company may advise
Holder in writing) of this Warrant properly endorsed with the form of Exercise
Notice attached hereto duly completed and signed upon payment in cash, certified
check or wire transfer of the aggregate Stock Purchase Price for the number of
shares for which this Warrant is being exercised determined in accordance with
the provisions hereof. The Stock Purchase Price and the number of Warrant Shares
purchasable hereunder are subject to adjustment as provided in Section 3 of this
Warrant. This Warrant and all rights hereunder, to the extent not exercised in
the manner set forth herein shall terminate and become null and void on the
Expiration Date (as defined below). "Commencement Date" shall mean the date of
this Warrant. "Expiration Date" shall mean the fifth anniversary of the
Commencement Date.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Warrant Shares.
(a) This Warrant is exercisable by payment of the Stock Purchase
Price by cash payment, certified check or wire transfer, in the manner set forth
above at the option of Holder at any time but not earlier than the Commencement
Date or later than 5:00 p.m. (New York Time) on the Expiration Date for all or a
portion of the shares of Stock subject to this Warrant. The Company agrees that
the Warrant Shares purchased under this Warrant shall be and are deemed to be
issued to Holder as the record owner of such shares as of the close of business
on the date on which this Warrant shall have been surrendered and payment made
for such shares (unless the Conversion Right is exercised). Subject to the
provisions of Section 2, certificates for the Warrant Shares so purchased shall
be delivered to Holder by the Company's transfer agent at the Company's expense
within five (5) trading days of the date this Warrant shall have been
surrendered and payment made for such Warrant Shares (unless the Conversion
Right (as defined in Section 1(b) below) is exercised). The stock certificate(s)
so delivered shall be in such denominations of Stock requested by the Holder and
shall be registered in the name of the Holder or such other name as shall be
designated by the Holder, subject to the limitations contained in Section 2. If,
upon exercise of this Warrant, fewer than all of the shares of Stock evidenced
by this Warrant are purchased prior to the Expiration Date of this Warrant, one
or more new warrants substantially in the form of, and on the terms in, this
Warrant will be issued for the remaining number of shares of Stock not purchased
upon exercise of this Warrant.
(b) Subject to the mutual agreement of the Company and the Holder,
in lieu of the payment of the Stock Purchase Price, the Holder may require the
Company to convert this Warrant into shares of Stock (the "Conversion Right") as
provided for in this Section 1(b). Upon exercise of the Conversion Right, the
Company shall deliver to the Holder (without payment by the Holder of any of the
Stock Purchase Price) that number of shares of Stock equal to the quotient
obtained by dividing (x) the value of the Warrant on the date the Conversion
Right is exercised (determined by subtracting the aggregate Stock Purchase Price
in effect immediately prior to the exercise of the Conversion Right from the
aggregate Market Value (as defined in Section 1(d) below), for the Warrant
Shares immediately prior to the exercise of the Conversion Right) by (y) the
Market Value of one share of Stock immediately prior to the exercise of the
Conversion Right.
(c) The Conversion Right may be exercised by the Holder by
delivering the Warrant Certificate with a duly executed Exercise Notice in the
form attached hereto with the conversion section completed to the Company.
(d) For the sole purpose of determining the number of Warrant
Shares which shall be delivered to the Holder by the Company pursuant to the
Conversion Right as set forth in Section 1(b) above, Market Value shall mean the
average of the daily high and low price of a share of the Stock as listed on the
Nasdaq SmallCap Market (or such other exchange or quotation system on which the
Stock may then be listed) for the ten (10) days of trading ending on the third
business day preceding the date of exercise of such Conversion Right, or in the
event the Stock is not then publicly traded, the Market Value shall be
determined in good faith by the Company and the Holder. Unless otherwise agreed
to by the parties hereto, in the event the parties are unable to agree upon the
Market Value within thirty (30) days of the date of exercise of the Conversion
Right, the Market Value shall be determined by a nationally recognized
investment banking firm by lot from two (2) investment banking firms chosen by
the Company and two (2) investment banking firms chosen by the Holder, none of
which shall have been engaged by either party within five (5) years prior to the
date of selection.
2. Shares to Be Fully Paid; Reservation of Shares. The Company
covenants and agrees that the Warrant Shares will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any stockholder and free of all taxes (other than income
-2-
taxes which may be applicable to Holder), liens and charges with respect to the
issue thereof. The Company covenants that it will reserve and keep available a
sufficient number of shares of its authorized but unissued Stock for such
exercise. The Company will take all such reasonable action as may be necessary
to assure that such shares of Stock may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of any
domestic securities exchange or automated quotation system upon which the Stock
may be listed.
3. Adjustment of Stock Purchase Price and Number of Shares. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3.
3.1 Subdivision or Combination of Stock and Stock Dividend. In case the
Company shall at any time subdivide its outstanding shares of Stock into a
greater number of shares or declare a dividend upon its Stock payable solely in
shares of Stock, the Stock Purchase Price in effect immediately prior to such
subdivision or declaration shall be proportionately reduced, and the number of
shares issuable upon exercise of the Warrant shall be proportionately increased.
Conversely, in case the outstanding shares of Stock of the Company shall be
combined into a smaller number of shares, the Stock Purchase Price in effect
immediately prior to such combination shall be proportionately increased, and
the number of shares issuable upon exercise of the Warrant shall be
proportionately reduced.
3.2 Notice of Adjustment. Promptly after adjustment of the Stock
Purchase Price or any increase or decrease in the number of shares purchasable
upon the exercise of this Warrant, the Company shall give written notice
thereof, by first class mail, postage prepaid, addressed to the Holder at the
address of such Holder as shown on the books of the Company. The notice shall be
signed by an authorized officer of the Company and shall state the effective
date of the adjustment and the Stock Purchase 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 this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
3.3 Other Notices. If at any time:
(a) the Company shall declare any cash dividend upon its Stock;
(b) the Company shall declare any dividend upon its Stock payable
in stock (other than a dividend payable solely in shares of Stock) or make any
special dividend or other distribution to the holders of its Stock;
(c) there shall be any consolidation or merger of the Company with
another corporation, or a sale of all or substantially all of the Company's
assets to another corporation; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
-3-
then, in any one or more of said cases, the Company shall give, by certified or
registered mail, postage prepaid, addressed to the registered holder of this
Warrant at the address of such holder as shown on the books of the Company, (i)
at least 10 days prior written notice of the date on which the books of the
Company shall close or a record shall be taken for such dividend, distribution
or subscription rights or for determining rights to vote in respect of any such
dissolution, liquidation or winding-up, (ii) at least 10 days prior written
notice of the date on which the books of the Company shall close or a record
shall be taken for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger or sale, and (iii) in
the case of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, at least 10 days written notice of
the date when the same shall take place. Any notice given in accordance with
clause (i) above shall also specify, in the case of any such dividend,
distribution or option rights, the date on which the holders of Stock shall be
entitled thereto. Any notice given in accordance with clause (iii) above shall
also specify the date on which the holders of Stock shall be entitled to
exchange their Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, as the case may be.
3.4 Changes in Stock. In case at any time prior to the Expiration Date,
the Company shall be a party to any transaction (including, without limitation,
a merger, consolidation, sale of all or substantially all of the Company's
assets or recapitalization of the Stock) in which the previously outstanding
Stock shall be changed into or exchanged for different securities of the Company
or common stock or other securities of another corporation or interests in a
noncorporate entity or other property (including cash) or the Company shall make
a distribution on its shares, other than regular cash dividends on its
outstanding stock, or any combination of any of the foregoing (each such
transaction being herein called the "Transaction" and the date of consummation
of the Transaction being herein called the "Consummation Date"), then, as a
condition of the consummation of the Transaction, lawful and adequate provisions
shall be made so that each Holder, upon the exercise hereof at any time on or
after the Consummation Date, shall be entitled to receive, and this Warrant
shall thereafter represent the right to receive, in lieu of the Stock issuable
upon such exercise prior to the Consummation Date, the highest amount of
securities or other property to which such Holder would actually have been
entitled as a stockholder upon the consummation of the Transaction if such
Holder had exercised such Warrant immediately prior thereto. The provisions of
this Section 3.4 shall similarly apply to successive Transactions.
4. Investment Representations.
By receipt of this Warrant, and by its execution the Holder
represents to the Company the following:
(a) the Holder understands that this Warrant and any Stock
purchased upon its exercise are securities, the issuance of which requires
compliance with federal and state securities laws;
-4-
(b) the Holder is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire this Warrant;
(c) the Holder is acquiring this Warrant for investment for the
Holder's own account only and not with a view to, or for resale in connection
with, any "distribution" thereof within the meaning of the Securities Act of
1933, as amended (the "Act");
(d) the Holder acknowledges and understands that the securities
constitute "restricted securities" under the Act and must be held indefinitely
unless they are subsequently registered under the Act or an exemption from such
registration is available; and
(e) the Holder has no intention to engage in, or has any agreement
to engage in, any hedging transactions (including, but not limited to, short
sales, put and call options, cashless collar transactions or other forms of
derivative security transactions) with respect to the Stock.
5. Issue Tax. The issuance of certificates for shares of Stock upon the
exercise of the Warrant shall be made without charge to the holder of the
Warrant for any issue tax in respect thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then holder of the Warrant being exercised.
6. No Voting or Dividend Rights; Limitation of Liability. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a stockholder in
respect of meetings of stockholders for the election of directors of the Company
or any other matters or any rights whatsoever as a stockholder of the Company.
In addition, if the Holder of the Warrant does not exercise this Warrant or
convert this Warrant pursuant to Section 1(b) above prior to the occurrence of
an event described above, except as provided in Sections 3.1 and 3.5, the Holder
shall not be entitled to receive the benefits accruing to existing holders of
the Stock pursuant to such event. No dividends or interest shall be payable or
accrued in respect of this Warrant or the interest represented hereby or the
shares purchasable hereunder until, and only to the extent that, this Warrant
shall have been exercised. No provisions hereof, in the absence of affirmative
action by the Holder to purchase shares of Stock, and no mere enumeration herein
of the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder for the Stock Purchase Price or as a stockholder of the
Company whether such liability is asserted by the Company or by its creditors.
7. Restrictions on Transferability of Securities; Compliance With
Securities Act.
7.1 Restrictions on Transferability. This Warrant and the Warrant
Shares shall not be transferable in the absence of the effectiveness of a
registration statement with respect to such securities under the Act, or an
exemption therefrom. This Warrant and the Warrant Shares may be transferred in
any manner in compliance with applicable law.
-5-
7.2 Restrictive Legend. In the absence of the effectiveness of
registration under the Act or an exemption therefrom as contemplated by Section
7.1, each certificate representing the Warrant Shares or any other securities
issued in respect of the Warrant Shares upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), NOR
UNDER ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES
NOR ANY INTEREST THEREIN MAY BE TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT OR SUCH LAWS AND THE
RULES AND REGULATIONS THEREUNDER.
8. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
9. Notices. Any notice, request or other document required or permitted
to be given or delivered to the holder hereof or the Company shall be delivered
or shall be sent by certified or registered mail, postage prepaid, to each such
holder at its address as shown on the books of the Company or to the Company at
the address indicated therefor in the first paragraph of this Warrant.
10. Descriptive Headings and Governing Law. The descriptive headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of New Jersey without reference to the
principles of conflicts of laws.
11. Lost Warrants or Stock Certificates. The Company represents and
warrants to Holder that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of any Warrant or stock
certificate representing the Warrant Shares and in the case of any such loss,
theft, destruction or mutilation, upon receipt of an indemnity and, if
requested, bond reasonably satisfactory to the Company, or in the case of any
such mutilation, upon surrender and cancellation of such Warrant or stock
certificate, the Company at its expense will make and deliver a new Warrant or
stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant or stock certificate.
12. Fractional Shares. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share pay the holder entitled to such fraction a sum in cash equal to the fair
market value of any such fractional interest as it shall appear on the public
-6-
market, or if there is no public market for such shares, then as shall be
reasonably determined by the Company.
*******
-7-
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer, thereunto duly authorized as of the date first written above.
SCAN-GRAPHICS, INC.
By:
-------------------------------
Name:
Title:
-8-
FORM OF EXERCISE NOTICE
(To be signed and delivered
upon exercise of Warrant)
SCAN-GRAPHICS, INC.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
The undersigned, the holder of the within Warrant (Warrant
Certificate Number __________), hereby irrevocably elects to exercise the
purchase right represented by such Warrant for, and to purchase thereunder
__________________, shares of Common Stock, par value $0.001 per share (the
"Stock"), of SCAN-GRAPHICS, INC. (the "Company"), and subject to the following
paragraph, herewith makes payment of ______________Dollars ($_________ )
therefor and requests that the certificates for such shares be issued in the
name of, and delivered to, __________________________________ whose address
is ___________________________________.
The undersigned does/does not (circle one) request the exercise of the
within Warrant pursuant to the cashless exercise right set forth in Section 1(b)
of the Warrant.
DATED: ____________________
---------------------------------------
(Signature must conform in all
respects to name of holder as specified
on the face of the Warrant)
---------------------------------------
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(Address)
