SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of April 30,
1998, by and among Datatec Systems, Inc., a Delaware corporation, with
headquarters located at 00X Xxxxxxxx Xxx, Xxxxxx, XX 00000 (the "COMPANY"), and
the investors listed on the Schedule of Buyers attached hereto (individually, a
"BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 ACT");
B. The Company has authorized the following series of Preferred Stock,
$.001 par value per share (the "PREFERRED STOCK"): the Company's Series E
Convertible Preferred Stock ("SERIES E PREFERRED STOCK") which shall be
convertible into shares of the Company's Common Stock, $.001 par value per share
(the "COMMON STOCK") (as converted, the "CONVERSION SHARES"), in accordance with
the terms of the Company's Certificate of Designations, Preferences and Rights
of the Series E Preferred Shares, in the form attached hereto as EXHIBIT A (the
"CERTIFICATE OF DESIGNATIONS");
C. The Company has authorized the issuance of Common Stock Purchase
Warrants (the "WARRANTS"), to acquire shares of Common Stock (such shares of
Common Stock issued upon exercise of the Warrants are hereinafter referred to as
the "WARRANT SHARES", and together with the Series E Preferred Stock, the
Warrants and the Conversion Shares, the "SECURITIES");
D. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, an aggregate of $3 million of Series E Preferred Stock in the
respective amounts set forth opposite each Buyer's name on the Schedule of
Buyers; and to receive, in consideration for such purchase, the Warrants, to
purchase an aggregate of 90,000 shares of Common Stock, subject to adjustment as
provided therein in the form attached hereto as EXHIBIT B; and
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
in the form attached hereto as EXHIBIT C (the "REGISTRATION RIGHTS AGREEMENT")
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF SERIES E PREFERRED SHARES.
a. PURCHASE OF SERIES E PREFERRED SHARES. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below,
the Company shall issue and sell to the Buyers and the Buyers shall purchase
from the Company an aggregate of 300 shares of Series E Preferred Stock (the
"SERIES E PREFERRED SHARES"), in the respective amounts set forth opposite each
Buyer's name on the Schedule of Buyers (the "CLOSING"). The per share purchase
price (the "PURCHASE PRICE") of the Preferred Shares shall be $10,000 or an
aggregate purchase price of $3 million. On the Closing Date (as defined below)
the Company shall deliver to each Buyer a stock certificate representing such
number of Series E Preferred Shares which such Buyer is then purchasing (as
indicated opposite such Buyer's name on the Schedule of Buyers), duly executed
on behalf of the Company and registered in the name of such Buyer or its
designee (the "STOCK CERTIFICATES").
b. CLOSING DATE. The date and time of the Closing (the "CLOSING
DATE") shall be 10:00 a.m. Eastern Standard Time on April 30, 1998, subject to
notification of satisfaction (or waiver) of the conditions to the Closing set
forth in Sections 6 and 7 below (or such later date as is mutually agreed to by
the Company and the Buyers). The Closing shall occur on the Closing Date at the
offices of Xxxxxxx Xxxx & Xxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
c. FORM OF PAYMENT. On the Closing Date, each Buyer shall pay the
Purchase Price to the Company for the Series E Preferred Shares to be issued and
sold to such Buyer at the Closing, by wire transfer of immediately available
funds in accordance with the Company's written wire instructions provided to the
Buyers at least two days prior to the Closing Date.
d. WARRANTS. In consideration of the purchase of the Series E
Preferred Shares, the Company shall on the Closing Date issue and deliver to
each Buyer, Warrants to acquire additional shares of Common Stock on the basis
of 30,000 shares of Common Stock for each $1 million face amount of Series E
Preferred Stock purchased by such Buyer.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
a. INVESTMENT PURPOSE. Such Buyer (i) is acquiring the Series E
Preferred Shares and the Warrants and (ii) upon conversion of the Series E
Preferred Shares and exercise of the Warrants, will acquire the Conversion
Shares and Warrant Shares, respectively, then issuable for its own account for
investment only and not with a view towards, or for resale in connection with,
the public sale or distribution thereof, except pursuant to sales registered or
exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any Securities for any
minimum or other specific term
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and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
b. ACCREDITED INVESTOR STATUS. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.
c RELIANCE ON EXEMPTIONS. Such Buyer understands that the Series E
Preferred Shares and Warrants are being offered and sold to it in reliance on
specific exemptions from the registration requirements of United States federal
and state securities laws and that the Company is relying in part upon the truth
and accuracy of, and such Buyer's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such Buyer set
forth herein in order to determine the availability of such exemptions and the
eligibility of such Buyer to acquire the Series E Preferred Shares and the
Warrants.
d. INFORMATION. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Series E
Preferred Shares and the Warrants which have been requested by such Buyer. Such
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below.
e. NO GOVERNMENTAL REVIEW. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Series E
Preferred Shares and the Warrants or the fairness or suitability of the
investment in the Securities nor have such authorities passed upon or endorsed
the merits of the offering of the Series E Preferred Shares and the Warrants.
f. TRANSFER OR RESALE. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) Securities have not been and
are not being registered under the 1933 Act or any state securities laws, and
may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
securities can be sold, assigned or transferred pursuant to Rule 144 promulgated
under the 1933 Act (or a successor rule thereto) ("RULE 144"); (ii) any sale of
such securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 0000 Xxx) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder.
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g. LEGENDS. Such Buyer understands that the certificates or other
instruments representing the Series E Preferred Shares, the Warrants, the
Conversion Shares and the Warrant Shares shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Securities upon which it is
stamped, if (i) upon a resale, any such Securities are registered for sale under
the 1933 Act, (ii) in connection with a sale transaction, such holder provides
the Company with an opinion of counsel, in a generally acceptable form, to the
effect that a public sale, assignment or transfer of any of the Securities may
be made without registration under the 1933 Act, or (iii) any of the Securities
can be sold pursuant to Rule 144 without any restriction as to the number of
securities acquired as of a particular date that can then be immediately sold.
Each Buyer acknowledges, covenants and agrees to sell any of the Securities
represented by a certificate(s) from which the legend has been removed, only
pursuant to (i) a registration statement effective under the 1933 Act, or (ii)
advice of counsel that such sale is exempt from registration required by Section
5 of the 1933 Act. In the event the above legend is removed from any of the
Securities, the Company may, upon reasonable advance notice to the holder,
require that the above legend be placed on any of the Securities that cannot
then be sold pursuant to an effective registration statement or Rule 144(k)
under the 1933 Act (or any successor rule thereto).
h. AUTHORIZATION; ENFORCEMENT. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable in accordance with its
terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. RESIDENCY. Such Buyer is a resident of that country specified in
the Schedule of Buyers.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. ORGANIZATION AND QUALIFICATION. The Company and its subsidiaries
(a complete list of which is set forth in Schedule 3(a)) are corporations duly
organized and validly existing in good standing under the laws of the
jurisdiction in which they are incorporated, and have the requisite corporate
power to own their properties and to carry on their business as now being
conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries taken as a whole or on the transaction contemplated hereby.
b. AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS.
(i) The Company has the requisite corporate power and authority to enter into
and perform this Agreement and the Registration Rights Agreement, to issue, sell
and perform its obligations with respect to the Series E Preferred Stock and the
Warrants in accordance with the terms hereof, the Certificate of Designations
and the Warrants, as applicable, and to issue the Conversion Shares and the
Warrant Shares upon conversion of the Series E Preferred Shares and the exercise
of the Warrants, respectively, in accordance with the Certificate of
Designations and the Warrants, respectively, (ii) the execution and delivery of
this Agreement and the Registration Rights Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby,
including without limitation the issuance of the Series E Preferred Shares and
the Warrants and the reservation for issuance and the issuance of the Conversion
Shares issuable upon conversion of the Series E Preferred Shares and the Warrant
Shares upon exercise of the Warrants have been duly authorized by the Company's
Board of Directors and no further consent or authorization is required by the
Company, its Board of Directors or its stockholders, (iii) this Agreement, the
Registration Rights Agreement, the certificates for the Series E Preferred
Shares and the Warrants have been duly executed and delivered by the Company,
(iv) this Agreement, the Registration Rights Agreement, the Stock Certificates
and the Warrants constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies, and (v) prior to the Closing, the Certificate of Designations will
have been filed with the Secretary of State of the State of Delaware and will be
in full force and effect, enforceable against the Company in accordance with its
terms.
c. CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of 75,000,000 shares of Common Stock, of which as
of April 27, 1998, 29,057,418 shares were issued and outstanding, and 4,000,000
shares of Preferred Stock, of which as of the date hereof, no shares were issued
and outstanding. All of such outstanding shares have been validly issued and are
fully paid and nonassessable. Except as disclosed in Schedule 3(c), no shares of
Common Stock or Preferred Stock are subject to preemptive rights or
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any other similar rights or any liens or encumbrances suffered or permitted by
the Company. Except as disclosed in Schedule 3(c), as of the date hereof, (i)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities and (iii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement). Except as disclosed in Schedule 3(c), there are
no securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of any of the Securities as described in this
Agreement. The Company has furnished to the Buyer true and correct copies of the
Company's Certificate of Incorporation, as amended and as in effect on the date
hereof (the "CERTIFICATE OF INCORPORATION"), and the Company's By-laws, as in
effect on the date hereof (the "BY-LAWS"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
d. ISSUANCE OF SECURITIES. The Series E Preferred Shares and
Warrants are duly authorized and, upon issuance in accordance with the terms
hereof, shall be (i) validly issued, fully paid and non-assessable, (ii) free
from all taxes, liens and charges with respect to the issue thereof and (iii)
entitled to the rights and preferences set forth in the Certificate of
Designations and the Warrants, respectively. Not less than 150% of the number of
shares of Common Stock necessary to provide for the issuance of the Conversion
Shares and the Warrant Shares (assuming such conversion or exercise took place
on the Closing Date) in accordance with the terms of this Agreement, the
Certificate of Designations and the Warrants have been duly authorized and
reserved for issuance upon conversion of the Series E Preferred Shares and
exercise of the Warrants. Upon conversion or exercise in accordance with the
Certificate of Designations and the Warrants, as applicable, the Conversion
Shares and Warrant Shares will be validly issued, fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issue thereof,
with the holders being entitled to all rights accorded to a holder of Common
Stock.
e. NO CONFLICTS. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of this Agreement, the Registration Rights
Agreement and the Warrants by the Company, the performance by the Company of its
obligations under the Certificate of Designations and the Warrants and the
consummation by the Company of the transactions contemplated hereby and thereby
will not (i) result in a violation of the Certificate of Incorporation, any
Certificate of Designations, Preferences and Rights of any outstanding series of
Preferred Stock of the Company or By-laws or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or instrument
to which the Company or any of its subsidiaries is a party, or result in a
6
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and the rules and regulations
of the principal market or exchange on which the Common Stock is traded or
listed) applicable to the Company or any of its subsidiaries or by which any
property or asset of the Company or any of its subsidiaries is bound or
affected. Except as disclosed in Schedule 3(e), neither the Company nor its
subsidiaries is in violation of any term of or in default under its Certificate
of Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of Preferred Stock of the Company or By-laws or their
organizational charter or by-laws, respectively, or any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or its
subsidiaries. The business of the Company and its subsidiaries is not being
conducted, and shall not be conducted, in violation of any law, ordinance or
regulation of any governmental entity. Except as specifically contemplated by
this Agreement and as required under the 1933 Act, the Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental or regulatory or self-regulatory
agency in order for it to execute, deliver or perform any of its obligations
under or contemplated by this Agreement, the Registration Rights Agreement or
the Warrants or perform its obligations under the Certificate of Designations in
accordance with the terms hereof or thereof. Except as disclosed in Schedule
3(e), all consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company is not in
violation of the listing requirements of the Nasdaq SmallCap Market. The Company
and its subsidiaries are unaware of any facts or circumstances which might give
rise to any of the foregoing or to delisting of the Common Stock by the Nasdaq
SmallCap Market.
f. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since April 30, 1996, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 ACT") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC DOCUMENTS"). The
Company has agreed to delivered to the Buyer or its representative true and
complete copies of the SEC Documents upon request. As of their respective dates,
the SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto, or (ii) in the case
of unaudited interim statements, to the extent they may exclude footnotes or may
be condensed or summary
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statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of its operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). No other information provided
by or on behalf of the Company to the Buyer which is not included in the SEC
Documents, including, without limitation, information referred to in Section
2(d) of this Agreement, contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they are or were made,
not misleading. The Company has not provided and will not provide to any Buyer
any material non-public information which, according to applicable law, rule or
regulation should have been disclosed publicly by the Company but which has not
been so disclosed as of the date hereof.
g. ABSENCE OF CERTAIN CHANGES. Except as expressly set forth in
Schedule 3(g), since January 31, 1998, there has been no material adverse change
and no material adverse development in the business, properties, operations,
financial condition, results of operations or prospects of the Company and its
subsidiaries taken as a whole. The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or its subsidiaries have any knowledge or
reason to believe that its creditors intend to initiate involuntary bankruptcy
proceedings.
h. ABSENCE OF LITIGATION. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its subsidiaries, threatened against or affecting the Company
or its subsidiaries or their respective directors or officers, or the Common
Stock, wherein an unfavorable decision, ruling or finding would (i) have a
material adverse effect on the transactions contemplated hereby (ii) adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, this Agreement, the Registration
Rights Agreement, the Warrants or any of the documents contemplated herein or
(iii), except as expressly set forth in Schedule 3(h), have a material adverse
effect on the business, operations, properties, financial condition, results of
operations or prospects of the Company and its subsidiaries taken as a whole.
i. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF THE SERIES E
PREFERRED SHARES. The Company acknowledges and agrees that each of the Buyers is
acting solely in the capacity of arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that each Buyer is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any of the Buyers
or any of their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental to such
Buyer's purchase of the Series E Preferred Shares. The Company further
represents to each Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation by the Company and
its representatives.
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j. NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 0000 Xxx) in connection with the offer or sale of any of
the Securities offered hereby.
k. NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause the offering of any of the Securities
to be integrated with prior offerings by the Company for purposes of the 1933
Act or any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of the National Association of
Securities Dealers Automated Quotations ("NASDAQ").
l. EMPLOYEE RELATIONS. Neither the Company nor any of its
subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. Except as
set forth on Schedule 3(l) attached hereto, none of the Company's or its
subsidiaries' employees is a member of a union and the Company and its
subsidiaries believe that their relations with their employees are good.
m. INTELLECTUAL PROPERTY RIGHTS. The Company and its subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights (collectively "INTELLECTUAL PROPERTY
RIGHTS") necessary to conduct their respective businesses as now conducted.
Except as set forth on Schedule 3(m), none of the Intellectual Property Rights
or other intellectual property rights have expired or terminated, or are
expected to expire or terminate in the near future. The Company and its
subsidiaries do not have any knowledge of any event, fact or circumstance
relating to (i) any infringement by the Company or its subsidiaries of any
trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets or other similar rights of others, or
of any such development of similar or identical trade secrets or technical
information by others or (ii) any person or entity now infringing any
Intellectual Property Rights or other similar rights or any such development of
similar or identical trade secrets or technical information owned or used by the
Company or any of its subsidiaries and, except as set forth on Schedule 3(m),
there is no claim, action or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or its subsidiaries
regarding any trademarks, trade names, service marks, service xxxx
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets or other similar
rights of others, or of any such development of similar or identical trade
secrets or technical information by others or (ii) any person or entity now
infringing any Intellectual Property Rights or other similar rights or any such
development of similar or identical trade secrets or other infringement; and the
Company and its subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing. The
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Company and its subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their Intellectual Property
Rights.
n. ENVIRONMENTAL LAWS. The Company and its subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval.
o. TITLE. The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(o) or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and its
subsidiaries. Any real property and facilities held under lease by the Company
and its subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and its subsidiaries.
p. INSURANCE. The Company and each of its subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as is prudent and customary in the businesses in which the
Company and its subsidiaries are engaged. Neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
q. REGULATORY PERMITS. The Company and its subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
r. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded
10
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
s. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company nor any
of its subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
reasonable judgment of the Company's officers has or is expected in the future
to have a material adverse effect on the business, properties, operations,
financial condition, results of operations or prospects of the Company or its
subsidiaries.
t. TAX STATUS. Except as set forth on Schedule 3(t), the Company and
each of its subsidiaries has made or filed all federal and state income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company and each of
its subsidiaries has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
u. CERTAIN TRANSACTIONS. Except as set forth on Schedule 3(u) and
except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed on Schedule 3(c), none of the officers, directors or employees
of the Company is presently a party to any transaction with the Company (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director or any such employee has a substantial interest or
is an officer, director, trustee or partner.
v. S-3 REGISTRATION. The Company is currently eligible to register
the resale of securities, including the resale of the Conversion Shares and the
Warrant Shares, on a registration statement on Form S-3 under the 1933 Act.
4. COVENANTS AND AGREEMENTS.
a. BEST EFFORTS. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. FORM D. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each
Buyer promptly after such filing. The Company shall, on or before the Closing
Date, take such action as
11
the Company shall reasonably determine is necessary to qualify the Securities
for, or obtain exemption for the Securities for, sale to the Buyers at the
Closing pursuant to this Agreement under applicable securities or "Blue Sky"
laws of the states of the United States, and shall provide evidence of any such
action so taken to the Buyers on or prior to the Closing Date.
c. REPORTING STATUS. Until the earlier of (i) six months after the
date as of which the Investors (as that term is defined in the Registration
Rights Agreement) may sell all of the Conversion Shares and Warrant Shares
without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto) or (ii) the date which is six months after the date on which
none of the Series E Preferred Shares or Warrants are outstanding (the
"REGISTRATION PERIOD"), the Company (x) shall timely file all reports required
to be filed with the SEC pursuant to the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would otherwise
permit such termination and (y) will use its best efforts to maintain its
ability and eligibility to register securities on Form S-3.
d. USE OF PROCEEDS. The Company will use the proceeds from the sale
of the Series E Preferred Shares and Warrants for substantially the same
purposes in substantially the same amounts as indicated in Schedule 4(d).
e. FINANCIAL INFORMATION. The Company agrees to send the following
to each Investor (as that term is defined in the Registration Rights Agreement)
during the Registration Period: (i) within five (5) days after the filing
thereof with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly
Reports on Form 10-Q, any Current Reports on Form 8-K and any registration
statements or amendments filed pursuant to the 1933 Act; (ii) within one (1) day
after release thereof, copies of all press releases issued by the Company or any
of its subsidiaries; and (iii) copies of any notices and other information made
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.
f. RESERVATION OF SHARES. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 150% of the number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares and Warrant Shares, in the
aggregate, upon conversion of the Series E Preferred Shares and the exercise of
the Warrants, respectively, in accordance with the terms of this Agreement and
the Certificate of Designations.
g. LISTING. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon the Nasdaq SmallCap Market ("NASDAQ
SMALLCAP") (subject to official notice of issuance) and shall maintain, so long
as any other shares of Common Stock shall be so listed, the listing of all
Conversion Shares and Warrant Shares from time to time issuable under the terms
of this Agreement, the Certificate of Designations and the Warrants on each
national securities exchange and automated quotation system (including the
Nasdaq National Market System and Nasdaq SmallCap), if any, upon which shares of
Common Stock are then listed. The Company shall promptly provide to each
12
Buyer copies of any notices it receives from NASDAQ regarding the continued
eligibility of the Common Stock for listing on the Nasdaq SmallCap. The Company
shall pay all fees and expenses in connection with satisfying its obligations
under this Section 4(g).
h. EXPENSES. Each of the Company and the Buyers shall each pay its
respective costs and expenses incurred by such party in connection with the
negotiation, investigation, preparation, execution, delivery and performance of
this Agreement or the Certificate of Designations, the Warrants and the
Registration Rights Agreement; provided, that at the Closing as the Buyers may
request, the Company shall reimburse the Buyers for Buyers' attorneys' fees and
expenses reasonably incurred in connection with this Agreement, the Certificate
of Designations, the Warrants and the Registration Rights Agreement up to an
aggregate of $15,000.
i. ADDITIONAL ISSUANCES OF SECURITIES.
(a) RIGHT OF FIRST REFUSAL. If at any time on or before the
earlier of (i) the six-month anniversary of the Closing Date and (ii) the time
that the Buyers no longer hold any Series E Preferred Stock, the Company shall
desire to issue any Common Stock or any security convertible, exchangeable or
exercisable for Common Stock or any other right to acquire any Common Stock (the
"CONVERTIBLE Securities") pursuant to Section 4(2) of the 1933 Act or an
offering under Regulation D or Regulation S of the 1933 Act or in any other
private placement (other than pursuant to Company authorized stock option plans
or future equity financing whereby Common Stock or Convertible Securities are
issued to any person or entity which has or is proposed to have a material
business, technology or commercial relationship with the Company in addition to
any equity financing provided by such person or entity), then the Company shall
first comply with the terms of this Section 4(i).
(b) NOTICE REQUIREMENTS. The Company shall notify, or cause to be
notified, the Buyers not less than twenty (20) business days prior to the time
the Company intends to consummate such issuance (the "ISSUANCE NOTICE"). The
Issuance Notice shall set forth all of the terms of such proposed issuance.
(c) EXERCISE OF RIGHT OF FIRST REFUSAL. The right of first
refusal provided for in this Section 4(i) may be exercised by the Buyers by
delivery of a written notice to the Company (the "EXERCISE NOTICE"), within ten
(10) business days following receipt of the Issuance Notice (the "REFUSAL
PERIOD"). The Exercise Notice shall state that the Buyers agree to purchase all
or any specified part of the proposed issuance of such Common Stock or
Convertible Securities on terms substantially equal to the terms set forth in
the Issuance Notice.
(d) RIGHT TO ISSUE SECURITIES. After expiration of the Refusal
Period, if the provisions of this Section 4(i) have been complied with in all
respects by the Company and no Exercise Notice has been given, or if given, the
Buyers have not agreed to purchase all of the securities set forth in the
Issuance Notice, the Company shall have the right for sixty (60) calendar days
following the termination of the Refusal Period to issue such securities, or any
portion thereof not being purchased by the Buyers, specified in the Issuance
Notice on the terms described in the Issuance Notice without further notice to
the Buyers, but
13
after such sixty (60) calendar days, no such issuance may be made without again
giving notice to the Buyers and complying with all of the requirements of this
Section 4(i).
(e) The Company will not issue any Series E Preferred Shares
other than to the Buyers as contemplated hereby or as otherwise contemplated in
the Certificate of Designations.
j. DILUTIVE EFFECT. The Company understands and acknowledges that
the number of Conversion Shares and Warrant Shares issuable upon conversion of
the Series E Preferred Shares and exercise of the Warrants, respectively, will
increase in certain circumstances. The Company further acknowledges and agrees
that its obligation to issue Conversion Shares and Warrant Shares upon
conversion of the Series E Preferred Shares and exercise of the Warrants,
respectively, in accordance with this Agreement, the Certificate of
Designations, and the Warrants, as applicable, is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company.
k. NO SHORT SALES OF THE COMMON STOCK. So long as (i) a Buyer or
any of its affiliates beneficially owns any Series E Preferred Shares, (ii) the
Company has not issued any publicly traded convertible securities and (iii) the
Company is not in default under this Agreement, the Registration Rights
Agreement or the Certificate of Designations for failing to effect any
redemption pursuant to the terms of the Certificate of Designations or
conversion of any Series E Preferred Shares pursuant to the Certificate of
Designations, such Buyer shall not engage in any short sales of the Common Stock
("SHORT SALES"); provided, however, that the restriction on Short Sales set
forth in this Section 4(k) shall not apply to Short Sales made (i) for a number
of shares of Common Stock not greater than the maximum number of Conversion
Shares then issuable for all of such Buyer's outstanding Series E Preferred
Shares when the bid price (as reported by Bloomberg L.P.) of the shares of
Common Stock on the Nasdaq SmallCap is greater than the Closing Price (as
defined in the Certificate of Designations), or (ii) no earlier than ten (10)
days prior to the date on which such Buyer delivers a Conversion Notice (as
defined in the Certificate of Designations).
l. OPINION ON REMOVAL OF LEGEND. The Company will cause its
counsel to deliver an opinion, in the form attached hereto as Exhibit D, on the
effective date of a registration statement covering the resale of the Conversion
Shares and the Warrant Shares to the effect that the restrictive legend set
forth in Section 2(g) of this Agreement may be removed upon the sale, assignment
or other transfer of any and all such Conversion Shares and Warrant Shares sold
pursuant to such registration statement and accompanied by the prospectus
contained in such registration statement.
m. CONVERSION OF SERIES E PREFERRED SHARES AND EXERCISE OF
WARRANTS. Upon conversion of any Series E Preferred Shares or exercise of any
Warrants, the applicable Buyer shall deliver such shares or Warrants with a duly
executed stock power, medallion guaranteed, signed by either (I) Xxxxxxx Xxxx,
(II) Xxxxx Xxxxx or (III) the Chief Financial Officer of the Buyer. The Buyers
represent and warrant to the Company that such persons will be duly authorized
to execute such stock powers at such time of delivery thereof. The Buyers
request and the Company agrees that it will then instruct the transfer agent for
the Common Stock to issue the Conversion Shares or Warrant Shares either in
street or nominee name or in the name of a person other than any of the Buyers,
but not in the name of Buyers.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer agent
(in the form attached hereto as EXHIBIT E) to issue certificates, or at a
Buyer's request, to electronically issue such shares (e.g., through DWAC or
DTC), registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares or Warrant Shares in such amounts as specified from time
14
to time by each Buyer to the Company upon conversion of the Series E Preferred
Shares or exercise of the Warrants, respectively (the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS"). Such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(f)
hereof (in the case of the Conversion Shares and Warrant Shares, prior to
registration of the Conversion Shares and Warrant Shares under the 0000 Xxx)
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement, the Registration Rights Agreement, the
Certificate of Designations and the Warrants. Nothing in this Section 5 shall
affect in any way each Buyer's obligations and agreement to comply with all
applicable securities laws upon resale of any of the Securities. If a Buyer
provides the Company with an opinion of counsel, reasonably satisfactory in form
and substance to the Company, that registration of a resale by such Buyer of any
of the Securities is not required under the 1933 Act, the Company shall permit
the transfer, and, in the case of the Conversion Shares or Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denominations as specified by such Buyer. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyers shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Series E
Preferred Shares to each Buyer at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
a. Such Buyer shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
b. Such Buyer shall have delivered to the Company the Purchase
Price for the Series E Preferred Shares being purchased by such Buyer at the
Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
c. The representations and warranties of such Buyer shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the
15
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Series E
Preferred Shares at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to such Buyer.
b. The Certificate of Designations shall have been executed by the
Company and filed with the Secretary of State of the State of Delaware and
evidence of such filing shall have been provided to the Buyers (with a copy of
such filing being provided to Buyers as soon as practicable thereafter).
c. The Common Stock shall be authorized for trading on the Nasdaq
SmallCap, trading in the Common Stock issuable upon conversion of the Series E
Preferred Shares and exercise of the Warrants to be traded on the Nasdaq
SmallCap shall not have been suspended by the SEC or the Nasdaq SmallCap.
d. The representations and warranties of the Company shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. Such Buyer
shall have received a certificate, executed by the Chief Executive Officer of
the Company, dated as of the Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by such Buyer including,
without limitation, an update as of the Closing Date regarding the
representation contained in Section 3(c) above.
e. Each Buyer shall have received the opinion of the Company's
counsel dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to such Buyer and in substantially the form of EXHIBIT F attached
hereto.
f. The Company shall have executed and delivered to such Buyer the
Stock Certificates (in such denominations as such Buyer shall request) for the
Series E Preferred Shares being purchased by such Buyer at the Closing and the
Warrants.
16
g. The Board of Directors of the Company shall have adopted the
resolutions in substantially the form of EXHIBIT G attached hereto.
h. As of the Closing Date, the Company shall have reserved out of
its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Series E Preferred Shares and the exercise of the
Warrants, at least 150% of the number of shares of Common Stock necessary to
provide for the issuance of the Conversion Shares and Warrant Shares in
accordance with the terms of this Agreement, the Certificate of Designations and
the Warrants.
i. The Irrevocable Transfer Agent Instructions, in the form of
EXHIBIT E attached hereto, shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
j. The Transfer Agent shall have approved the form of opinion
attached hereto as EXHIBIT D and shall have agreed that upon receipt of such
opinion and compliance with the conditions set forth in such opinion, the
Transfer Agent shall promptly issue unlegended Conversion Shares and Warrant
Shares as required pursuant to the terms of this Agreement.
k. The transactions contemplated hereby shall not violate any law,
regulation or order then in effect and applicable to Buyers or the Company.
8. INDEMNIFICATION.
In consideration of each Buyer's execution and delivery of this
Agreement and acquiring the Securities hereunder and in addition to all of the
Company's other obligations under this Agreement, the Company shall defend,
protect, indemnify and hold harmless each Buyer and each other holder of
Securities and all of their officers, directors, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "BUYER
INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Buyer Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "BUYER INDEMNIFIED
Liabilities"), incurred by any Buyer Indemnitee (and shall advance the same) as
a result of, or arising out of, or relating to (a) subject to Section 9(i), any
misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Certificate of Designations, the Warrants, the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, the Certificate of
Designations, the Warrants or the Registration Rights Agreement or any other
certificate, instrument or document contemplated hereby or thereby, or (c) any
cause of action, suit or claim brought or made against such Buyer Indemnitee and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the Buyer Indemnitees, any transaction
financed or to be financed in whole or in part, directly or
17
indirectly, with the proceeds of the issuance of the Series E Preferred Shares
and Warrants or the status of such Buyer or holder of any of the Securities as
an investor in the Company. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Buyer Indemnified
Liabilities which is permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the principles of conflict of laws.
b. COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
c. HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. SEVERABILITY. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other
prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the documents referenced herein contain
the entire understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or therein,
neither the Company nor any Buyer makes any representation, warranty, covenant
or undertaking with respect to such matters. No provision of this Agreement may
be waived or amended other than by an instrument in writing signed by the party
to be charged with enforcement.
f. NOTICES. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy
is mailed by U.S. certified mail, return receipt requested; (iii) three (3) days
after being sent by U.S. certified mail, return receipt requested, or (iv) one
(1) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
18
If to the Company:
Datatec Systems, Inc.
00X Xxxxxxxx Xxx
Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Chief Financial Officer
With a copy to:
Xxxxxx Xxxxxxxx Frome & Xxxxxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxxxx, Esq.
If to the Transfer Agent:
Continental Stock Transfer & Trust Company
0 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Compliance Department
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to such Buyer's counsel as set forth on the Schedule of
Buyers. Each party shall provide five (5) days' prior written notice to the
other party of any change in address or facsimile number.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Securities. The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Buyers, except pursuant to a Major Transaction (as defined in
Section 3(c) of the Certificate of Designations) with respect to which the
Company is in compliance with Section 3 of the Certificate of Designations. A
Buyer may assign some or all of its rights hereunder without the consent of the
Company, provided, however, that (i) any such assignment shall not release such
Buyer from its obligations hereunder unless such obligations are assumed by such
assignee and the Company has consented to such assignment and assumption and
(ii) no Buyer may assign its rights hereunder in a manner that would cause the
offering of Securities hereunder to be required to be registered under the 1933
Act.
19
h. NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. SURVIVAL. The representations and warranties of the Company and
the Buyers contained in Sections 3 and 2, respectively, shall survive the
Closing until three years after the Closing Date, including, without limitation,
all financial statements thereto. The agreements and covenants set forth in
Sections 4, 5 and 9, and the indemnification provisions set forth in Section 8,
shall survive the Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
j. PUBLICITY. Without the prior written consent of the subject Buyer
or Buyers, the Company will not, and will use reasonable efforts to ensure that
its officers, directors, employees and agents do not, disclose the name of any
Buyer; provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure with
respect to such transactions as is required by applicable law and regulations
(although each Buyer shall be consulted by the Company in connection with any
such press release or other public disclosure prior to its release and shall be
provided with a copy thereof), but only to the extent required by such law or
regulation.
k. FURTHER ASSURANCES. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. PLACEMENT AGENT. The Company acknowledges that it has engaged a
placement agent in connection with the sale of the Series E Preferred Shares and
Warrants, which placement agent may have formally or informally engaged other
agents on its behalf. The Company shall be responsible for the payment of any
placement agent's fees or broker's commissions relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
attorneys' fees and out of pocket expenses) arising in connection with any such
claim.
m. NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
20
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
DATATEC SYSTEMS, INC. XXXXX INTERNATIONAL
By:________________________ By:__________________________
Name: Name:
Its: Its:
SHEPHERD INVESTMENTS
INTERNATIONAL, LTD.
By:__________________________
Name:
Its:
SCHEDULE OF BUYERS
Number of
Investor Address and Series E Investor's Advisor and Legal
Investor Name Facsimile Number Preferred Shares Counsel Address
------------- ---------------- ---------------- -----------------------------
Xxxxx International c/o Staro Asset Management 150 Xxxxxxx Xxxxx, Esq.
(Bermuda) 0000 Xxxx Xxxxxx Xxxxxx Xxxxxxx Xxxx Xxxxx LLP
Mequon, Wisconsin 53092 Xxx Xxxx, XX 00000
Fax: (000) 000-0000 Fax: (000) 000-0000
Shepherd Investments c/o Staro Asset Management 150 Xxxxxxx Xxxxx, Esq.
International, Ltd. 0000 Xxxx Xxxxxx Xxxxxx Xxxxxxx Xxxx Xxxxx LLP
(British Virgin Islands) Xxxxxx, Xxxxxxxxx 00000 Xxx Xxxx, XX 00000
Fax: (000) 000-0000 Fax: (000) 000-0000
EXHIBIT A
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF SERIES E CONVERTIBLE PREFERRED STOCK
OF
DATATEC SYSTEMS, INC.
Datatec Systems, Inc. (the "COMPANY"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation, as amended, of the Company, and
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
the Board of Directors of the Company at a meeting duly held, adopted
resolutions (i) authorizing a new series of the Company's previously authorized
preferred stock, $.001 par value per share, and (ii) providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of 300 shares of
Series E Convertible Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 300
shares of Series E Convertible Preferred Stock, $.001 par value per
share (the "SERIES E PREFERRED SHARES"), and the stated value shall
be $10,000 per share (the "STATED VALUE") which shall have the
following powers, designations, preferences and other special
rights:
(1) DIVIDENDS. The holders of the outstanding Series E
Preferred Shares (collectively, the "HOLDERS" and each a "HOLDER")
shall not be entitled to receive any dividends in respect of Series
E Preferred Shares.
(2) HOLDER'S CONVERSION OF SERIES E PREFERRED SHARES.
Each Holder shall have the right, at such Holder's option, to
convert the Series E Preferred Shares into shares of the Company's
common stock, $.001 par value per share (the "COMMON STOCK") (as
converted, the "CONVERSION SHARES"), on the following terms and
conditions:
(a) CONVERSION RIGHT. Subject to the provisions of
Section 2(e) below, any Holder shall be entitled to convert, at any
time or times on or after the date that is 181 days after the
initial date of issuance of the Series E Preferred Shares (the
"CLOSING DATE"), up to 50% (the "CONVERSION LIMIT") of the number of
Series E Preferred Shares
owned by such Holder into fully paid and nonassessable shares
(rounded to the nearest whole share in accordance with Section 2(f)
below) of Common Stock, at the Conversion Rate (as defined below);
provided, however, that the Conversion Limit shall no longer apply
at any time (i) after the date that is 270 days after the Closing
Date or (ii) that the Conversion Price (as defined in Section
2(b)(iii) below) is equal to or greater than $6.29 (the "CLOSING
PRICE"); provided further that in no event shall any Holder be
entitled to convert Series E Preferred Shares in excess of that
number of Series E Preferred Shares which, upon giving effect to
such conversion, would cause the aggregate number of shares of
Common Stock beneficially owned by the Holder and its affiliates to
exceed 4.9% of the outstanding shares of the Common Stock following
such conversion. For purposes hereof, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended.
(b) CONVERSION RATE. The number of shares of Common
Stock issuable upon conversion of each of the Series E Preferred
Shares pursuant to Sections 2(a) and 2(f) shall be determined
according to the following formula (the "CONVERSION RATE"):
STATED VALUE
------------
Conversion Price
For purposes of this Certificate of Designations, the following
terms shall have the following meanings:
(i) "AVERAGE MARKET PRICE" means the average of the
Closing Bid Prices of the Common Stock for the five trading days immediately
preceding the applicable date.
(ii) "CLOSING BID PRICE" means, for any security as
of any date, the closing bid price of such security on the principal securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg, L.P. ("BLOOMBERG"), or if the foregoing does not apply, the
closing bid price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
closing bid price is reported for such security by Bloomberg, the average of the
bid prices of any market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc.
(iii) "CONVERSION PRICE" means the lower of (A) the
Closing Price and (B) the Floating Conversion Price.
(iv) "FLOATING CONVERSION PRICE" means the average of
the Closing Bid Prices of the Common Stock for any two trading days selected by
the Holder during the 10 consecutive trading days immediately preceding the
Conversion Date, in each case, subject to adjustment as provided herein.
(v) "REGISTRATION STATEMENT" means the registration
statement covering the resale of the shares of Common Stock issuable upon
conversion of the Series E
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Preferred Shares and the exercise of the warrants issuable to the Holders and
required to be filed by the Company pursuant to the Registration Rights
Agreement between the Company and the initial Holders (the "REGISTRATION RIGHTS
AGREEMENT").
(c) ADJUSTMENT TO CONVERSION PRICE -- DILUTION AND OTHER EVENTS.
In order to prevent dilution of the rights granted under this Certificate of
Designations, (x) the Closing Bid Prices for any days during any measuring
period prior to any of the events set forth below (the "ADJUSTING CLOSING BID
PRICES") and (y) the Closing Price will each be subject to adjustment from time
to time as provided in this Section 2(c).
(i) ADJUSTMENT UPON DECLARATION OF DIVIDENDS AND
OTHER EVENTS. If the Company shall (I) declare a dividend or make a distribution
in shares of Common Stock, (II) subdivide or reclassify the outstanding shares
of Common Stock into a greater number of shares, or (III) combine or reclassify
the outstanding Common Stock into a smaller number of shares, the Adjusting
Closing Bid Prices and the Closing Price in effect on the record date of such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be proportionately adjusted.
(ii) ADJUSTMENT UPON ISSUANCE OF CERTAIN SECURITIES.
If at any time on or before the first anniversary of the Closing Date, the
Company in any manner issues or sells (a "SUBSEQUENT FINANCING") pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the "1933 ACT"),
Regulation D or Regulation S of the 1933 Act or any other private placement of
any security convertible into, exchangeable for or exercisable for Common Stock
or any other right to acquire Common Stock ("CONVERTIBLE SECURITIES") and the
price per share for which Common Stock is issuable upon the conversion, exchange
or exercise of such Convertible Security:
(A) is determined based on a formula that
contains a discount (the "CLOSING PRICE DISCOUNT") to the formula used
in determining the Closing Price hereunder (i.e. less than 120% of
either the Closing Bid Prices, Average Market Prices, fair market
value, current market prices or similar concept), then from and after
the time of such Subsequent Financing the Closing Price shall be
recalculated using the Closing Price Discount as if in effect on the
date of initial determination the Closing Price; or
(B) is subject to a conversion formula that is
not based on a premium to the Closing Bid Price at the time of
conversion of such Convertible Securities in such Subsequent Financing
(the "ALTERNATE FLOATING CONVERSION FORMULA"), then from and after the
time of such Subsequent Financing the Holders shall have the option,
to be exercised by written notice delivered to the Company within 30
days of the closing of such Subsequent Financing, to elect to have the
Alternate Floating Conversion Formula replace the Floating Conversion
Price;
PROVIDED, HOWEVER, that no adjustment shall be
made pursuant to this Section (2)(c)(ii) if (x) the Subsequent Financing
contains a conversion formula that is solely
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based on a fixed conversion price and such fixed conversion price does not
represent a discount to the Closing Bid Prices, Average Market Prices, fair
market value, current market prices or similar concept, or (y) such adjustment
would result in an increase in the Conversion Price then in effect.
(iii) NOTICES.
(A) Immediately upon any adjustment or proposed
Subsequent Financing as contemplated by this Section (2)(c), the
Company will give written notice thereof to each Holder, setting
forth in reasonable detail and certifying the calculation of such
adjustment or the terms of such Subsequent Financing, as applicable.
(B) The Company will give written notice to each
Holder at least twenty (20) days prior to the date on which the
Company closes its books or takes a record (I) with respect to any
dividend or distribution upon the Common Stock, or (II) for
determining rights to vote with respect to any Organic Change,
dissolution or liquidation; provided that in no event shall such
notice be provided to such holder prior to such information being
made known to the public. "ORGANIC CHANGE" shall mean any
recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets to
another Person or other transaction which is effected in such a way
that holders of Common Stock are entitled to receive (either
directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock. "PERSON" shall mean
an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and
a government or any department or agency thereof.
(C) The Company will also give written notice to
each Holder at least twenty (20) days prior to the date on which any
Organic Change, dissolution or liquidation will take place.
(iv) Successive adjustments in the Adjusting Closing
Bid Prices or the Closing Price shall be made whenever any event
specified above shall occur. All calculations under this Section
2(c) shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. No adjustment in the
Conversion Price or Closing Price shall be made if the amount of
such adjustment would be less than $0.01, but any such amount shall
be carried forward and an adjustment with respect thereto shall be
made at the time of and together with any subsequent adjustment
which, together with such amount and any other amount or amounts so
carried forward, shall aggregate $0.01 or more.
(d) MECHANICS OF CONVERSION. Subject to the Company's
inability to fully satisfy its obligations under a Conversion Notice (as defined
below) as provided for in Section 5 below:
(i) HOLDER'S DELIVERY REQUIREMENTS. To convert Series E
Preferred Shares into full shares of Common Stock on any date (the
"CONVERSION DATE"),
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the Holder thereof shall (A) deliver or transmit by facsimile, for
receipt on or prior to 11:59 p.m. Eastern Time on such date, a copy of
a fully executed notice of conversion in the form attached hereto as
Exhibit I (the "CONVERSION NOTICE") to convert such Series E Preferred
Shares with an aggregate Stated Value of not less than $200,000 for
all Holders submitting a Conversion Notice simultaneously or nearly
simultaneously on such Conversation Date (provided that Holders shall
be entitled to submit Conversation Notices for less than such amount
on three occasions or such greater number of occasions as may be
consented to by the Company, which consent shall not be unreasonably
withheld), to the Company, and (B) surrender to a common carrier for
delivery to the Company as soon as practicable following such date,
the original certificates representing the Series E Preferred Shares
being converted (or an indemnification undertaking with respect to
such shares in the case of their loss, theft or destruction) (the
"PREFERRED STOCK CERTIFICATES") and the originally executed Conversion
Notice.
(ii) COMPANY'S RESPONSE. Upon receipt by the Company of a
facsimile copy of a Conversion Notice, the Company shall immediately
send, via facsimile, a confirmation of receipt of such Conversion
Notice to such Holder. Upon receipt by the Company of the Preferred
Stock Certificates to be converted pursuant to a Conversion Notice,
together with the originally executed Conversion Notice, the Company
shall insure that it or its transfer agent shall, within three
business days following the date of receipt (or the fourth business
day following the date of receipt if received after 11:00 a.m. local
time of the Company), (I) issue and surrender to a common carrier for
overnight delivery to the address as specified in the Conversion
Notice, a certificate, registered in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder
shall be entitled, or (II) credit such aggregate number of shares of
Common Stock to which the Holder shall be entitled to the Holder's or
its designee's balance account with The Depository Trust Company, or
(III) if the Holder requests and such issuance is permissible under
the 1933 Act, issue shares in electronic format (e.g., via DWAC).
(iii) DISPUTE RESOLUTION. In the case of a dispute as to
the determination of the Conversion Price, the Company shall promptly
issue to the Holder the number of shares of Common Stock that is not
disputed and shall submit the disputed determinations or arithmetic
calculations to the Holder via facsimile within one business day of
receipt of such Holder's Conversion Notice. If such Holder and the
Company are unable to agree upon the determination of the Conversion
Price within one business day of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company
shall within one business day submit via facsimile the disputed
determination of the Conversion Price to an independent, reputable
accounting firm of national standing acceptable to the Company and
such Holder of Series E Preferred Shares. The Company shall cause such
accounting firm to perform the determinations or calculations and
notify the Company and the holder of the results no later than 48
hours from the time it receives the disputed determinations or
calculations. Such accounting firm's determination shall be binding
upon all parties absent manifest error.
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(iv) RECORD HOLDER. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of
Series E Preferred Shares shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on the
Conversion Date.
(v) COMPANY'S FAILURE TO TIMELY CONVERT. If the Company
shall fail (other than as a result of the situations described in
Section 4(a) with respect to which the Holder has elected, and the
Company has satisfied its obligations under, one of the options set
forth in subparagraphs (i) through (iv) of Section 4(a)) to issue to a
Holder on a timely basis as described in this Section 2(d), the number
of shares of Common Stock to which such Holder is entitled upon such
Holder's conversion of Series E Preferred Shares, the Company shall
pay damages to such Holder equal to the actual damages incurred by
such Holder as a result of such Holder's having needed to "buy in"
shares of Common Stock to satisfy its securities delivery requirements
("BUY IN ACTUAL DAMAGES").
(e) MANDATORY CONVERSION. If any Series E Preferred Shares
remain outstanding on the Mandatory Conversion Date (as defined
below), then all such Series E Preferred Shares shall be converted as
of such date in accordance with this Section 2 as if the Holders of
such Series E Preferred Shares had given the Conversion Notice on the
Mandatory Conversion Date, and the Conversion Date had been fixed as
of the Mandatory Conversion Date, for all purposes of this Section 2.
All Holders of Series E Preferred Shares shall thereupon and within
two (2) business days thereafter surrender all Preferred Stock
Certificates, duly endorsed for cancellation, to the Company. No
person shall thereafter have any rights in respect of Series E
Preferred Shares, except the right to receive shares of Common Stock
on conversion thereof, as provided in this Section 2. "MANDATORY
CONVERSION DATE" means April 30, 2001; provided, however, that the
Mandatory Conversion Date may be extended as set forth in Sections
(3)(d)(i) and (ii).
(f) FRACTIONAL SHARES. The Company shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of
Common Stock (including fractions thereof) issuable upon conversion of
more than one Series E Preferred Share by a Holder shall be aggregated
for purposes of determining whether the conversion would result in the
issuance of a fraction of a share of Common Stock. If, after the
aforementioned aggregation, the issuance would result in the issuance
of a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock up or down to the nearest whole
share.
(g) TRANSFER TAXES. The Company shall pay any and all taxes
which may be imposed upon it with respect to the issuance and delivery
of Common Stock upon the conversion of the Series E Preferred Shares.
(3) CONVERSION/REDEMPTION UPON MAJOR TRANSACTION; REDEMPTION
OPTION UPON TRIGGERING EVENT; COMPANY REDEMPTION OPTION.
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(a) CONVERSION/REDEMPTION UPON MAJOR TRANSACTION. Within five
(5) business days after the earlier of (i) a public announcement by
the Company of a Major Transaction (the "ANNOUNCEMENT DATE") and (ii)
receipt by the Holders of a Notice of Major Transaction (as defined
below), the Holders shall have the option to elect to convert all of
the Series E Preferred Shares then outstanding in accordance with
Sections 2(d) and 3(e) hereof, calculated as if a Conversion Notice is
given to the Company on the Announcement Date; provided, however, that
in the event that the Company is unable to deliver Common Stock that
may be immediately sold pursuant to an effective Registration
Statement to the Holders to satisfy the request set forth in such
Conversion Notice, the Company shall be obligated to (i) deliver to
the Holders as many shares of Common Stock as may be immediately sold
pursuant to an effective Registration Statement and then (ii) pay the
Holders the balance of the value of such outstanding Series E
Preferred Shares in cash at a price per Series E Preferred Share equal
to the product of (A) the aggregate number of shares of Common Stock
for which each such Series E Preferred Share would be converted into
on the date such Conversion Notice is actually delivered to the
Company (the "MANDATORY TRANSACTION SHARES") multiplied by (B) the
closing price of the Common Stock on such date ("MAJOR TRANSACTION
REDEMPTION PRICE"). In addition to the penalties set forth in Section
2(d)(v), in the event that the Company fails to pay the Holders as
provided in this Section 3(a), interest shall accrue at the rate of 2%
per month (or such lesser amount allowed by law) on such outstanding
amounts and be due and payable in advance on the first day of each
month (the "MANDATORY INTEREST"). The Company may elect at any time to
pay such outstanding cash amounts by delivering to the Holders Common
Stock that may immediately be sold pursuant to an effective
Registration Statement in an amount equal to the aggregate of (i) the
Mandatory Transaction Shares and (ii) the number of shares of Common
Stock that the Mandatory Interest then due and payable could purchase
on such date at the Average Market Price. If the Holders fail to
exercise their right to convert as set forth in this Section 3(a), the
Company may redeem the Series E Preferred Shares in either one of the
following two methods as shall be specified by the Holders: (i) in
cash at the Major Transaction Redemption Price or (ii) by issuing to
the Holders the number of shares of Common Stock that the Holders
would be entitled to receive if they had given a Conversion Notice on
the Announcement Date and the Conversion Date had been fixed as of
such date.
(b) REDEMPTION OPTION UPON TRIGGERING EVENT. In addition to
all other rights of the Holders contained herein, after a Triggering
Event (as defined below), each Holder shall have the right in
accordance with Section 3(f), at such Holder's option, to require the
Company to redeem all or a portion of such Holder's Series E Preferred
Shares in cash at a price per Series E Preferred Share equal to 130%
of the Stated Value per share of the Series E Preferred Shares (the
"TRIGGERING EVENT REDEMPTION PRICE" and, collectively with the "MAJOR
TRANSACTION REDEMPTION PRICE," the "REDEMPTION PRICE").
(c) "MAJOR TRANSACTION". A "MAJOR TRANSACTION" shall be deemed
to have occurred at such time as any of the following events:
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(i) the consolidation or merger of the Company with or
into another Person (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of
incorporation of the Company or pursuant to a merger after which the
holders of the Company's outstanding capital stock immediately prior
to the merger own a number of shares of the resulting company's
outstanding capital stock sufficient to elect a majority of the
resulting company's board of directors) ;
(ii) the sale or transfer of substantially all of the
Company's assets (other than a sale or transfer to an entity
controlling, controlled by or under common control with the Company);
or
(iii) a purchase, tender or exchange offer for more than
50% of the outstanding shares of Common Stock is made and accepted by
the holders thereof.
(d) "TRIGGERING EVENT". A "TRIGGERING EVENT" shall be deemed
to have occurred at such time as any of the following events:
(i) notice from the Company, at any time that the Holder
is permitted to convert Series E Preferred Shares hereunder, that
Common Stock issued or issuable upon conversion of the Series E
Preferred Shares cannot be sold under the Registration Statement (the
"SUSPENSION PERIOD"), for any period of five consecutive trading days
(other than by reason of a general suspension of trading of all
securities on the applicable exchange or market); provided that any
demand for redemption under this Section 3(d)(i) must be made by a
Holder within 30 days after receipt of notice from the Company of the
termination of the Suspension Period; and, provided further that if a
Holder does not make a demand for redemption pursuant to this Section
3(d)(i) with respect to one or more Suspension Periods, then the
Mandatory Conversion Date shall be extended by the aggregate number of
days in all such Suspension Periods multiplied by 1.5;
(ii) at any time that the Holder is permitted to convert
Series E Preferred Shares hereunder, the failure of the Common Stock
or the Conversion Shares to be listed on The New York Stock Exchange,
the Nasdaq National Market System or the Nasdaq SmallCap Market, for a
period of five consecutive trading days (the "DELISTING PERIOD");
provided, however, that any demand for redemption under this Section
3(d)(ii) must be made by a Holder within 30 days after receipt of the
Notice of Triggering Event (as defined in Section 3(f)); and, provided
further that if a Holder does not make a demand for redemption
pursuant to this Section 3(d)(ii) with respect to one or more
Delisting Periods, then the Mandatory Conversion Date shall be
extended by the aggregate number of days in all such Delisting Periods
multiplied by 1.5;
(iii) the Company's notice to any Holder, including by
way of public announcement or by failure to respond within five (5)
days to a written demand from such Holder, at any time, of its
intention not to comply with proper requests for conversion of any
Series E Preferred Shares into shares of Common Stock, including due
to any of the reasons set forth in Section 4(a) below, except in any
case in which the basis
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for such intention by the Company is a bona fide dispute as to the
right of such Holder to such conversion; or
(iv) the Registration Statement is not declared
effective by the SEC on or before 180 days immediately following the
Closing Date.
(e) MECHANICS OF CONVERSION/REDEMPTION UPON MAJOR TRANSACTION.
No sooner than fifteen (15) days nor later than ten (10) days prior to
the consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver
written notice thereof via facsimile and overnight courier ("NOTICE OF
MAJOR TRANSACTION") to each Holder. The Holders shall have the option
to elect to convert the Series E Preferred Shares then outstanding
into full shares of Common Stock within five (5) business days after
receipt of the Notice of Major Transaction as if such Holder were
electing to voluntarily convert such shares pursuant to Section 2(d)
or to specify the method of redemption chosen by the Holders set forth
in the last sentence set forth in Section 3(a).
(f) MECHANICS OF REDEMPTION AT OPTION OF HOLDER UPON
TRIGGERING EVENT. Within one (1) day after the occurrence of a
Triggering Event, the Company shall deliver written notice thereof via
facsimile and overnight courier ("NOTICE OF TRIGGERING EVENT") to each
Holder. At any time after receipt of a Notice of Triggering Event, but
only for as long as the facts giving rise to the Triggering Event
continue to exist, the Holders may require the Company to redeem all
or any portion of the Series E Preferred Shares by delivering written
notice thereof via facsimile and overnight courier ("NOTICE OF
REDEMPTION AT OPTION OF HOLDER UPON TRIGGERING EVENT") to the Company,
which Notice of Redemption at Option of Holder Upon Triggering Event
shall indicate (i) the number of Series E Preferred Shares that such
Holders are requesting redemption for and (ii) the applicable
Redemption Price, as calculated pursuant to Section 3(b) above.
(g) COMPANY REDEMPTION OPTION. In addition to the foregoing,
if the Closing Bid Price of the Common Stock is less than $5.00 for
any two trading days in any period of ten consecutive trading days,
the Company, solely at its option, can elect, by delivering a notice
of such election within two (2) business days of the applicable
two-day determination period (a "NOTICE OF COMPANY REDEMPTION"), to
redeem from all Holders the outstanding Series E Preferred Shares for
which the Company has not received a Conversion Notice (the "COMPANY
REDEMPTION OPTION") in cash at a price per Series E Preferred Share
equal to 115% of the Stated Value per share of the Series E Preferred
Shares (the "COMPANY REDEMPTION PRICE"). Subject to Section 3(h)
hereof, upon a Holder's receipt of a Notice of Company Redemption, the
Holder shall no longer deliver to the Company a Conversion Notice.
(h) PAYMENT OF REDEMPTION PRICE. Upon (i) the occurrence of a
Major Transaction, (ii) the Company's receipt of a Notice(s) of
Redemption at Option of Holder Upon Triggering Event from any Holder
or (iii) the Company's delivery of a Notice of Company Redemption, the
Company shall immediately notify each Holder by facsimile
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of the mechanics of the delivery of each Holder's Preferred Stock
Certificate and each Holder shall thereafter promptly send such
Holder's Preferred Stock Certificates to be redeemed to the Company.
The Company shall deliver the applicable Redemption Price or Company
Redemption Price, as applicable, to such Holder within ten (10) days
after (i) the Company's delivery of a Notice of Major Transaction,
(ii) the Company's receipt of notices to affect a redemption or (iii)
the Company's delivery of a Notice of Company Redemption; provided
that a Holder's Preferred Stock Certificates shall have been so
delivered to the Company; provided further that if the Company is
unable to redeem all of the Series E Preferred Shares, (i) in the case
of the occurrence of a Major Transaction or receipt of a Notice of
Redemption at Option of Holder Upon Triggering Event, the Company
shall redeem an amount from each Holder equal to such Holder's
pro-rata amount (based on the number of Series E Preferred Shares held
by such Holder relative to the number of Series E Preferred Shares
outstanding) of all Series E Preferred Shares being redeemed and (ii)
in the case of the Company Redemption Option, the Company's redemption
election shall be null and void.
(i) In the case of the occurrence of a Major Transaction or
the receipt of Notice(s) of Redemption at Option of Holder Upon
Triggering Event, if the Company shall fail to redeem all of the
Series E Preferred Shares submitted for redemption (other than
pursuant to a dispute as to the arithmetic calculation of the
Redemption Price), in addition to any remedy such Holder may have
under this Certificate of Designations and the Securities Purchase
Agreement between the Company and the initial Holders (the "SECURITIES
PURCHASE AGREEMENT"), the Redemption Price payable in respect of such
unredeemed Series E Preferred Shares shall bear interest at the rate
of 1.25% per month (prorated for partial months) until paid in full.
In the case of a Triggering Event or delivery of a Notice of Company
Redemption, until the Company pays such unpaid Redemption Price or
Company Redemption Price, as applicable, in full to each Holder,
Holders of the Series E Preferred Shares submitted for redemption
pursuant to this Section 3 and for which the applicable Redemption
Price or Company Redemption Price, as applicable, has not been paid,
shall have the option (the "VOID OPTIONAL REDEMPTION OPTION") to, in
lieu of redemption, require the Company to promptly return to each
Holder all of the Series E Preferred Shares that were submitted for
redemption by such Holder under this Section 3 and for which the
Redemption Price or Company Redemption Price, as applicable, has not
been paid, by sending written notice thereof to the Company via
facsimile (the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the Company's
receipt of such Void Optional Redemption Notice(s) and prior to
payment of the full Redemption Price or Company Redemption Price, as
applicable, to each Holder, (i) the Notice(s) of Redemption at Option
of Holder Upon Triggering Event or Notice of Company Redemption shall
be null and void with respect to those Series E Preferred Shares
submitted for redemption and for which the Redemption Price or Company
Redemption Price, as applicable, has not been paid, and (ii) the
Company shall immediately return any Series E Preferred Shares
submitted to the Company by each Holder for redemption under this
Section 3(i) and for which the Redemption Price or Company Redemption
Price, as applicable, has not been paid. Notwithstanding the
foregoing, in the event of a dispute as to the determination of the
arithmetic calculation of
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the Redemption Price or Company Redemption Price, as applicable, such
dispute shall be resolved pursuant to Section 2(d)(iii) above.
Payments provided for in this Section 3 shall have priority to
payments to other stockholders in connection with a Major Transaction.
(4) INABILITY TO FULLY CONVERT.
(a) HOLDER'S OPTION IF COMPANY CANNOT FULLY CONVERT. If, upon
the Company's receipt of a Conversion Notice, the Company cannot issue
shares of Common Stock registered for resale under the Registration
Statement for any reason, including, without limitation, because the
Company (x) does not have a sufficient number of shares of Common
Stock authorized and available, (y) is otherwise prohibited by
applicable law or by the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or its Securities from issuing all
of the Common Stock which is to be issued to a holder of Series E
Preferred Shares pursuant to a Conversion Notice or (z) fails to have
a sufficient number of shares of Common Stock registered for resale
under the Registration Statement, then the Company shall issue as many
shares of Common Stock as it is able to issue in accordance with such
Holder's Conversion Notice and pursuant to Section 2(d) above and,
with respect to the unconverted Series E Preferred Shares, the Holder,
solely at such Holder's option, can elect to (unless the Company
issues and delivers the Conversion Shares underlying the unconverted
Series E Preferred Shares prior to the Holder's election hereunder, in
which case such Holder shall only be entitled to receive Buy In Actual
Damages under Section 2(d)(v)):
(i) require the Company to redeem from such Holder those
Series E Preferred Shares for which the Company is unable to issue
Common Stock in accordance with such holder's Conversion Notice
("REQUIRED REDEMPTION") at a price per Series E Preferred Share (the
"REQUIRED REDEMPTION PRICE") equal to the Triggering Event Redemption
Price as of such Conversion Date;
(ii) if the Company's inability to fully convert Series E
Preferred Shares is pursuant to Section 4(a)(z) above, require the
Company to issue restricted shares of Common Stock in accordance with
such Holder's Conversion Notice and pursuant to Section 2(e) above;
(iii) void its Conversion Notice and retain or have
retained, as the case may be, the nonconverted Series E Preferred
Shares that were to be converted pursuant to such Holder's Conversion
Notice; or
(iv) if the Company's inability to fully convert Series E
Preferred Shares is pursuant to such rules and regulations described
in Section 4(a)(y) above, require the Company to issue shares of
Common Stock in accordance with such Holder's Conversion Notice and
pursuant to Section 2(d) above at a Conversion Price equal to the
Average Market Price of the Common Stock for the five (5) consecutive
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trading days preceding such Holder's Notice in Response to Inability
to Convert (as defined below).
(b) MECHANICS OF FULFILLING HOLDER'S ELECTION. The
Company shall immediately send via facsimile to a Holder of Series E
Preferred Shares, upon receipt of a facsimile copy of a Conversion
Notice from such Holder which cannot be fully satisfied as described
in Section 4(a) above, a notice of the Company's inability to fully
satisfy such Holder's Conversion Notice (the "INABILITY TO FULLY
CONVERT NOTICE"). Such Inability to Fully Convert Notice shall
indicate (i) the reason why the Company is unable to fully satisfy
such Holder's Conversion Notice, (ii) the number of Series E Preferred
Shares which cannot be converted and (iii) the applicable Required
Redemption Price. Such Holder must within five (5) business days of
receipt of such Inability to Fully Convert Notice deliver written
notice via facsimile to the Company ("NOTICE IN RESPONSE TO INABILITY
TO CONVERT") of its election pursuant to Section 4(a) above.
(c) PAYMENT OF REQUIRED REDEMPTION PRICE. If such Holder
shall elect to have its shares redeemed pursuant to Section 4(a)(i)
above, the Company shall pay the Required Redemption Price in cash to
such Holder within ten (10) days of the Company's receipt of the
Holder's Notice in Response to Inability to Convert (the "Required
Redemption Payment Period"). If the Company shall fail to pay the
applicable Required Redemption Price to such holder on a timely basis
as described in this Section 4(c) (other than pursuant to a dispute as
to the determination of the arithmetic calculation of the Required
Redemption Price), in addition to any remedy such Holder may have
under this Certificate of Designations and the Securities Purchase
Agreement, such unpaid amount shall bear interest at the rate of 1.25%
per month (prorated for partial months) until paid in full. From and
after the expiration of the Required Redemption Payment Period until
the full Required Redemption Price is paid in full to such Holder,
such Holder may void the Required Redemption with respect to those
Series E Preferred Shares for which the full Required Redemption Price
has not been paid and receive back such Series E Preferred Shares.
Notwithstanding the foregoing, if the Company fails to pay the
applicable Required Redemption Price within such ten (10) day time
period due to a dispute as to the determination of the arithmetic
calculation of the Redemption Price, such dispute shall be resolved
pursuant to Section 2(d)(iii) above.
(d) PRO-RATA CONVERSION AND REDEMPTION. In the event the
Company receives a Conversion Notice from more than one Holder on the
same day and the Company can convert and redeem some, but not all, of
the Series E Preferred Shares pursuant to this Section 4, the Company
shall convert and redeem from each Holder electing to have Series E
Preferred Shares converted and redeemed at such time an amount equal
to such Holder's pro-rata amount (based on the number of Series E
Preferred Shares held by such Holder relative to the number of Series
E Preferred Shares outstanding) of all Series E Preferred Shares being
converted and redeemed at such time.
(5) REISSUANCE OF CERTIFICATES. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than
all of the Series E Preferred
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Shares represented by a particular Preferred Stock Certificate, the
Company shall promptly cause to be issued and delivered to the Holder
of such Series E Preferred Shares a Preferred Stock Certificate
representing the remaining Series E Preferred Shares which have not
been so converted or redeemed.
(6) RESERVATION OF SHARES. The Company shall, so long as any of
the Series E Preferred Shares are outstanding, reserve and keep
available out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Series E Preferred
Shares, such number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all of the Series E
Preferred Shares then outstanding; provided that the number of shares
of Common Stock so reserved shall at no time be less than 150% of the
number of shares of Common Stock for which the outstanding Series E
Preferred Shares are at any time convertible; provided further that
such shares of Common Stock so reserved shall be allocated for
issuance upon conversion of Series E Preferred Shares pro rata among
the Holders based on the number of Series E Preferred Shares held by
such Holder relative to the total number of authorized Series E
Preferred Shares.
(7) VOTING RIGHTS. Holders shall have no voting rights, except as
required by law, including but not limited to the General Corporation
Law of the State of Delaware, and as expressly provided in this
Certificate of Designations.
(8) LIQUIDATION, DISSOLUTION, WINDING-UP. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company, the Holders shall be entitled to receive in cash out of the
assets of the Company, whether from capital or from earnings available
for distribution to its stockholders (the "PREFERRED FUNDS"), before
any amount shall be paid to the holders of any of the capital stock of
the Company of any class junior in rank to the Series E Preferred
Shares in respect of the preferences as to the distributions and
payments on the liquidation, dissolution and winding up of the
Company, an amount per Series E Preferred Share equal to the Stated
Value (such amount being referred to as the "LIQUIDATION VALUE");
provided that, if the Preferred Funds are insufficient to pay the full
amount due to the Holders and holders of shares of other classes or
series of preferred stock of the Company that are of equal rank with
the Series E Preferred Shares as to payments of Preferred Funds (the
"PARI PASSU SHARES"), then each Holder and holder of Pari Passu Shares
shall receive a percentage of the Preferred Funds equal to the full
amount of Preferred Funds payable to such holder as a liquidation
preference, in accordance with their respective Certificate of
Designations, Preferences and Rights, as a percentage of the full
amount of Preferred Funds payable to all holders of Series E Preferred
Shares and Pari Passu Shares. The purchase or redemption by the
Company of stock of any class, in any manner permitted by law, shall
not, for the purposes hereof, be regarded as a liquidation,
dissolution or winding up of the Company. Neither the consolidation or
merger of the Company with or into any other Person, nor the sale or
transfer by the Company of less than substantially all of its assets,
shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Company.
-13-
(9) PREFERRED RANK. All shares of Common Stock and all other
series of preferred stock of the Company are and shall be of junior
rank to all Series E Preferred Shares in respect to the preferences as
to distributions and payments upon the liquidation, dissolution and
winding up of the Company. The rights of the shares of Common Stock
and all other series of preferred stock of the Company shall be
subject to the preferences and relative rights of the Series E
Preferred Shares. As long as any of the Series E Preferred Shares
initially issued remain outstanding, then without the prior express
written consent of the Holders of not less than two-thirds (2/3) of
the then outstanding Series E Preferred Shares, the Company shall not
hereafter authorize or issue additional or other capital stock that is
of senior or pari passu rank to the Series E Preferred Shares in
respect of the preferences as to distributions and payments upon the
liquidation, dissolution and winding up of the Company. Without the
prior express written consent of the Holders of not less than
two-thirds (2/3) of the then outstanding Series E Preferred Shares,
the Company shall not hereafter authorize or make any amendment to the
Company's Certificate of Incorporation or bylaws, or file any
resolution of the board of directors of the Company with the Delaware
Secretary of State containing any provisions, which would adversely
affect or otherwise impair the rights or relative priority of the
Holders relative to the holders of the Common Stock or the holders of
any other class of capital stock. Provided that the Series E Preferred
Shares have not been redeemed pursuant to Section 3(a) hereof, in the
event of the merger or consolidation of the Company with or into
another corporation, the Series E Preferred Shares then outstanding
shall maintain their relative powers, designations and preferences
provided for herein and no merger shall result inconsistent therewith.
(10) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS WITH RESPECT TO
OTHER CAPITAL STOCK. Until the earlier of (i) 270 days after the
Closing Date, (ii) the time that the Conversion Limit is no longer
applicable or (iii) such time as all of the Series E Preferred Shares
have been converted or redeemed as provided herein, the Company shall
not, directly or indirectly, redeem, or declare or pay any cash
dividend or distribution on its Common Stock or any other series of
preferred stock of the Company without the prior express written
consent of the Holders of not less than two-thirds (2/3) of the then
outstanding Series E Preferred Shares; provided, however, that the
Company shall not be restricted from repurchasing shares of its common
stock for fair value.
(11) VOTE TO CHANGE THE TERMS OF SERIES E PREFERRED SHARES. The
affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting, of the Holders of not less than
two-thirds (2/3) of the then outstanding Series E Preferred Shares,
shall be required for any change to this Certificate of Designations
or the Company's Certificate of Incorporation which would amend,
alter, change or repeal any of the powers, designations, preferences
and rights of the Series E Preferred Shares.
(12) LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of
evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of any Preferred Stock Certificates representing the
Series E Preferred Shares, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the
Company
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and, in the case of mutilation, upon surrender and cancellation of the
Preferred Stock Certificate(s), the Company shall execute and deliver
new Preferred Stock Certificate(s) of like tenor and date; provided,
however, the Company shall not be obligated to re-issue Preferred
Stock Certificates if the Holder contemporaneously requests the
Company to convert such Series E Preferred Shares into Common Stock.
(13) ASSIGNMENT. The Series E Preferred Shares shall not be
assignable by a Holder; PROVIDED, HOWEVER, that all or any portion of
the Series E Preferred Shares shall be assignable to no more than five
(5) affiliates (as such term is defined in the 1933 Act) (a
"Transferee") of the Holders if: (i) the Holder agrees in writing with
the Transferee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such
assignment; (ii) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of the name and
address of such Transferee; and (iii) such Transferee shall be an
"accredited investor" as that term is defined in Rule 501 of
Regulation D promulgated under the 1933 Act.
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IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by _________________________, its
_________________________________, as of the ____ day of April 1998.
DATATEC SYSTEMS, INC.
By:----------------------------
Name: _______________
Its: _______________
DATATEC SYSTEMS, INC.
CONVERSION NOTICE
AND TRANSFER AGENT INSTRUCTIONS
Reference is made to the Certificate of Designations, Preferences and Rights of
Datatec Systems, Inc. (the "CERTIFICATE OF DESIGNATIONS"). In accordance with
and pursuant to the Certificate of Designations, the undersigned hereby elects
to convert the number of shares of Series E Convertible Preferred Stock, $.001
par value per share (the "SERIES E PREFERRED SHARES"), of Datatec Systems, Inc.,
a Delaware corporation (the "COMPANY"), indicated below into shares of Common
Stock, $.001 par value per share (the "COMMON STOCK"), of the Company, by
tendering the stock certificate(s) representing the share(s) of Series E
Preferred Shares specified below as of the date specified below.
Date of Conversion:
---------------------------------------------------------
Number of Series E Preferred Shares to be converted:
-------------------------
Stock certificate no(s). of Series E
Preferred Shares to be converted:
--------------------------------------------
Please confirm the following information:
Conversion Price:
------------------------------------------------------------
Number of shares of Common Stock to be issued:
-------------------------------
Please issue and deliver the Common Stock into which the Series E Preferred
Shares are being converted in the following name and to the following address:
Issue to:
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
Facsimile Number:
---------------------------------------------------------
Authorization:
------------------------------------------------------------
By:
Title:
Dated:
--------------------------------------------------------------------
Continental Stock Transfer & Trust Company, as transfer agent and
registrar of the Common Stock, is hereby authorized and directed to issue the
above number of shares of Common Stock in the name of the above referenced
entity or person and to deliver the certificates representing such shares using
an overnight delivery service.
DATATEC SYSTEMS, INC.
By: _______________________
54
EXHIBIT B
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT AND THE SECURITIES
PURCHASE AGREEMENT DATED AS OF APRIL 30, 1998 BY AND AMONG DATATEC SYSTEMS,
INC., XXXXX INTERNATIONAL AND SHEPHERD INVESTMENTS INTERNATIONAL, LTD.
DATATEC SYSTEMS, INC.
[FORM OF COMMON STOCK PURCHASE WARRANT]
No. W-[ ] April 30, 1998
Warrant to Purchase 45,000
Shares of Common Stock
DATATEC SYSTEMS, INC., a Delaware corporation (the
"Company"), for value received, hereby certifies that [ ] or registered assigns
(the "Holder"), is entitled to purchase from the Company 45,000 duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock, par value
$.001 per share, of the Company (the "Common Stock"), at a purchase price equal
to $6.29 per share, at any time or from time to time prior to 5:00 P.M., New
York City time, on April 30, 2001 (the "Expiration Date"), all subject to the
terms, conditions and adjustments set forth below in this Warrant.
This Warrant is one of the Common Stock Purchase
Warrants (collectively, the "Warrants", such term to include any such warrants
issued in substitution therefor) originally issued pursuant to the terms of the
Securities Purchase Agreement, dated as of April 30, 1998 by and among the
Company, the Holder and Xxxxx International Shepherd Investments International,
Ltd. (the "Purchase Agreement"). The Warrants originally so issued evidence
rights to purchase an aggregate of 90,000 shares of Common Stock subject to
adjustment as provided herein. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned such terms in the Purchase
Agreement.
1. DEFINITIONS. As used herein, unless the context otherwise requires,
the following terms shall have the meanings indicated:
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares (including
treasury shares) of Common Stock issued or sold (or, pursuant to Section 3.3 or
3.4, deemed to be issued) by the Company after the date hereof, whether or not
subsequently reacquired or retired by the Company, other than
(a) (i) shares issued upon the exercise of the Warrants and (ii)
such number of additional shares as may become issuable upon the
exercise of the Warrants by reason of adjustments required pursuant to
the anti-dilution provisions applicable to such Warrants as in effect
on the date hereof; and
(b) (i) shares issued upon the exercise of options granted or to
be granted under the Company's stock option plans as in effect on the
date hereof or under any other employee stock option or purchase plan
or plans adopted or assumed after such date by the Company's Board of
Directors; PROVIDED in each such case that the exercise or purchase
price for any such share shall not be less than 85% of the fair market
value (determined in good faith by the Company's Board of Directors) of
the Common Stock on the date of grant, and (ii) such additional number
of shares as may become issuable pursuant to the terms of any such
plans by reason of adjustments required pursuant to anti-dilution
provisions applicable to such securities in order to reflect any
subdivision or combination of Common Stock, by reclassification or
otherwise, or any dividend on Common Stock payable in Common Stock.
"BUSINESS DAY" shall mean any day other than a Saturday or a Sunday or
a day on which commercial banking institutions in the City of New York are
authorized by law to be closed. Any reference to "days" (unless Business Days
are specified) shall mean calendar days.
"CERTIFICATE OF DESIGNATIONS" shall mean the Company's Certificate of
Designations, Preferences and Rights of the Series E Preferred Shares.
"CLOSING BID PRICES" shall mean for any security as of any date, the
closing bid price of such security on the principal securities exchange or trade
market where such security is listed or trades as reported by Bloomberg, L.P.
("BLOOMBERG"), or if the foregoing does not apply, the closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price is reported
for such security by Bloomberg, the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc.
"COMMISSION" shall mean the Securities and Exchange Commission or any
successor agency having jurisdiction to enforce the Securities Act.
"COMMON STOCK" shall have the meaning assigned to it in the
introduction to this Warrant, such term to include any stock into which such
Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock, and all other stock of
2
any class or classes (however designated) of the Company the holders of which
have the right, without limitation as to amount, either to all or to a share of
the balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference.
"COMPANY" shall have the meaning assigned to it in the introduction to
this Warrant, such term to include any corporation or other entity which shall
succeed to or assume the obligations of the Company hereunder in compliance with
Section 4.
"CONVERTIBLE SECURITIES" shall mean any evidences of indebtedness,
shares of stock (other than Common Stock) or other securities directly or
indirectly convertible into or exchangeable for Additional Shares of Common
Stock.
"CURRENT MARKET PRICE" shall mean, on any date specified herein, the
average of the daily Closing Bid Prices during the 10 consecutive trading days
commencing 15 trading days before such date, except that, if on any such date
the shares of Common Stock are not listed or admitted for trading on any
national securities exchange or quoted in the over-the-counter market, the
Current Market Price shall be the Fair Value on such date.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations thereunder, or any
successor statute.
"EXPIRATION DATE" shall have the meaning assigned to it in the
introduction to this Warrant.
"FAIR VALUE" shall mean, on any date specified herein (i) in the case
of cash, the dollar amount thereof, (ii) in the case of a security admitted for
trading on any national securities exchange or quoted in the over-the-counter
market, the Current Market Price, and (iii) in all other cases determined in
good faith jointly by the Company and the Holder; PROVIDED, HOWEVER, that if
such parties are unable to reach agreement within a reasonable period of time,
the Fair Value shall be determined in good faith by an independent investment
banking firm selected jointly by the Company and the Holder or, if that
selection cannot be made within ten days, by an independent investment banking
firm selected by the American Arbitration Association in accordance with its
rules, and PROVIDED FURTHER, that the Company shall pay all of the fees and
expenses of any third parties incurred in connection with determining the Fair
Value.
"OPTIONS" shall mean any rights, options or warrants to subscribe for,
purchase or otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.
"OTHER SECURITIES" shall mean any stock (other than Common Stock) and
other securities of the Company or any other Person (corporate or otherwise)
which the holders of the Warrants at any time shall be entitled to receive, or
shall have received, upon the exercise of the Warrants, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
3
"PERSON" shall mean any individual, firm, partnership, corporation,
trust, joint venture, association, joint stock company, limited liability
company, unincorporated organization or any other entity or organization,
including a government or agency or political subdivision thereof, and shall
include any successor (by merger or otherwise) of such entity.
"PURCHASE AGREEMENT" shall have the meaning assigned to it in the
introduction to this Warrant.
"PURCHASE PRICE" shall mean initially $6.29 per share, subject to
adjustment and readjustment from time to time as provided in Section 3, and, as
so adjusted or readjusted, shall remain in effect until a further adjustment or
readjustment thereof is required by Section 3.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights
Agreement dated as of April 30, 1998, substantially in the form of Exhibit C to
the Purchase Agreement.
"RIGHTS" shall have the meaning assigned to it in Section 3.10.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended from
time to time, and the rules and regulations thereunder, or any successor
statute.
"WARRANTS" shall have the meaning assigned to it in the introduction to
this Warrant.
2. EXERCISE OF WARRANT.
2.1. MANNER OF EXERCISE; PAYMENT OF THE PURCHASE PRICE. (a) This
Warrant may be exercised by the Holder hereof, in whole or in part, at any time
or from time to time prior to the Expiration Date, by surrendering to the
Company at its principal office this Warrant, with the form of Election to
Purchase Shares attached hereto as Exhibit A (or a reasonable facsimile thereof)
duly executed by the Holder and accompanied by payment of the Purchase Price for
the number of shares of Common Stock specified in such form.
(b) Payment of the Purchase Price shall be made in United States
currency by cash or delivery of a certified check or bank draft payable to the
order of the Company or by wire transfer to the Company.
2.2. WHEN EXERCISE EFFECTIVE. Each exercise of this Warrant shall be
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant shall have been surrendered to, and the
Purchase Price shall have been received by, the Company as provided in Section
2.1, and at such time the Person or Persons in whose name or names any
certificate or certificates for shares of Common Stock (or Other Securities)
shall be issuable upon such exercise as provided in Section 2.3 shall be deemed
to have become the holder or holders of record thereof for all purposes.
2.3. DELIVERY OF STOCK CERTIFICATES, ETC.; CHARGES, TAXES AND EXPENSES.
(a) As soon as practicable after each exercise of this Warrant, in whole or in
part, and in any event
4
within three Business Days thereafter, the Company shall cause to be issued in
the name of and delivered to the Holder hereof or, subject the Purchase
Agreement, as the Holder may direct,
(i) a certificate or certificates, or, if then
permissible under the Securities Act, at a Holder's request to
electronically issue such shares (e.g., through DWAC or DTC), for
the number of shares of Common Stock (or Other Securities) to which
the Holder shall be entitled upon such exercise plus, in lieu of
issuance of any fractional share to which the Holder would otherwise
be entitled, if any, a check for the amount of cash equal to the
same fraction multiplied by the Current Market Price per share on
the date of Warrant exercise, and
(ii) in case such exercise is for less than all of the
shares of Common Stock purchasable under this Warrant, a new Warrant
or Warrants of like tenor, for the balance of the shares of Common
Stock purchasable hereunder.
(b) Issuance of certificates for shares of Common Stock
upon the exercise of this Warrant shall be made without charge to
the Holder hereof for any issue or transfer tax or other incidental
expense, in respect of the issuance of such certificates, all of
which such taxes and expenses shall be paid by the Company.
2.4. COMPANY TO REAFFIRM OBLIGATIONS. The Company shall, at the time of
each exercise of this Warrant, upon the request of the Holder hereof,
acknowledge in writing its continuing obligation to afford to such Holder all
rights to which such Holder shall continue to be entitled after such exercise in
accordance with the terms of this Warrant, PROVIDED that if the Holder of this
Warrant shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford such rights to the Holder.
3. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE.
3.1. ADJUSTMENT OF NUMBER OF SHARES.
Upon each adjustment of the Purchase Price as a result of the
calculations made in this Section 3, this Warrant shall thereafter evidence the
right to receive, at the adjusted Purchase Price, that number of shares of
Common Stock (calculated to the nearest one-hundredth) obtained by dividing (i)
the product of the aggregate number of shares covered by this Warrant
immediately prior to such adjustment and the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price by (ii) the Purchase
Price in effect immediately after such adjustment of the Purchase Price.
3.2. ADJUSTMENT OF PURCHASE PRICE.
3.2.1. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In case the
Company at any time or from time to time after the date hereof shall issue or
sell Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 3.3 or 3.4 but excluding
Additional Shares of Common Stock purchasable upon exercise of Rights referred
to in Section 3.10), without consideration or for a consideration per share less
5
than the fair market value of such additional shares of Common Stock as
determined in good faith by the Board of Directors of the Company as in effect
immediately prior to such issue or sale, then, and in each such case, subject to
Section 3.8, the Purchase Price shall be reduced, concurrently with such issue
or sale, to a price (calculated to the nearest .001 of a cent) determined by
multiplying such Purchase Price by a fraction
(a) the numerator of which shall be the sum of (i) the
number of shares of Common Stock outstanding immediately prior to
such issue or sale and (ii) the number of shares of Common Stock
which the gross consideration received by the Company for the total
number of such Additional Shares of Common Stock so issued or sold
would purchase at such Current Market Price, and
(b) the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such issue or
sale, PROVIDED that, for the purposes of this Section 3.2.1, (x)
immediately after any Additional Shares of Common Stock are deemed
to have been issued pursuant to Section 3.3 or 3.4, such Additional
Shares shall be deemed to be outstanding, and (y) treasury shares
shall not be deemed to be outstanding.
3.2.2. EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In case the Company
at any time or from time to time after the date hereof shall declare, order, pay
or make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or other securities or property or
Options by way of dividend or spin-off, reclassification, recapitalization or
similar corporate rearrangement) on the Common Stock, then, in each such case,
subject to Section 3.8, the Purchase Price in effect immediately prior to the
close of business on the record date fixed for the determination of holders of
any class of securities entitled to receive such dividend or distribution shall
be reduced, effective as of the close of business on such record date, to a
price determined by multiplying such Purchase Price by a fraction
(x) the numerator of which shall be the Current Market
Price in effect on such record date or, if the Common Stock trades
on an ex-dividend basis, on the date prior to the commencement of
ex-dividend trading, less the Fair Value of such dividend or
distribution applicable to one share of Common Stock, and
(y) the denominator of which shall be such Current
Market Price.
3.3. TREATMENT OF OPTIONS AND CONVERTIBLE SECURITIES. In case the
Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities of the Company entitled to receive, any
Options or Convertible Securities (whether or not the rights thereunder are
immediately exercisable), then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue, sale, grant or assumption or,
in case such a
6
record date shall have been fixed, as of the close of business on such record
date (or, if the Common Stock trades on an ex-dividend basis, on the date prior
to the commencement of ex-dividend trading), PROVIDED that such Additional
Shares of Common Stock shall not be deemed to have been issued unless (i) the
consideration per share (determined pursuant to Section 3.5) of such shares
would be less than the fair market value of such shares as determined in good
faith by the Board of Directors of the Company as in effect on the date of and
immediately prior to such issue, sale, grant or assumption or immediately prior
to the close of business on such record date (or, if the Common Stock trades on
an ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), as the case may be and (ii) such Additional Shares of Common Stock are
not purchasable pursuant to Rights referred to in Section 3.10, and PROVIDED,
FURTHER, that
(a) whether or not the Additional Shares of Common Stock
underlying such Options or Convertible Securities are deemed to be
issued, no further adjustment of the Purchase Price shall be made
upon the subsequent issue or sale of Convertible Securities or
shares of Common Stock upon the exercise of such Options or the
conversion or exchange of such Convertible Securities;
(b) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any
increase in the consideration payable to the Company, or decrease in
the number of Additional Shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof (by change of rate or
otherwise), the Purchase Price computed upon the original issue,
sale, grant or assumption thereof (or upon the occurrence of the
record date, or date prior to the commencement of ex-dividend
trading, as the case may be, with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase
or decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options, or the
rights of conversion or exchange under such Convertible Securities,
which are outstanding at such time;
(c) upon the expiration (or purchase by the Company and
cancellation or retirement) of any such Options which shall not have
been exercised or the expiration of any rights of conversion or
exchange under any such Convertible Securities which (or purchase by
the Company and cancellation or retirement of any such Convertible
Securities the rights of conversion or exchange under which) shall
not have been exercised, the Purchase Price computed upon the
original issue, sale, grant or assumption thereof (or upon the
occurrence of the record date, or date prior to the commencement of
ex-dividend trading, as the case may be, with respect thereto), and
any subsequent adjustments based thereon, shall, upon such
expiration (or such cancellation or retirement, as the case may be),
be recomputed as if:
(i) in the case of Options for Common Stock
or Convertible Securities, the only Additional Shares of
Common Stock issued or sold were the Additional Shares
of Common Stock, if any, actually issued or sold upon
the exercise of such Options or the conversion or
exchange of such Convertible
7
Securities and the consideration received therefor was
the consideration actually received by the Company for
the issue, sale, grant or assumption of all such
Options, whether or not exercised, plus the
consideration actually received by the Company upon such
exercise, or for the issue or sale of all such
Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any,
actually received by the Company upon such conversion or
exchange, and
(ii) in the case of Options for Convertible
Securities, only the Convertible Securities, if any,
actually issued or sold upon the exercise of such
Options were issued at the time of the issue or sale,
grant or assumption of such Options, and the
consideration received by the Company for the Additional
Shares of Common Stock deemed to have then been issued
was the consideration actually received by the Company
for the issue, sale, grant or assumption of all such
Options, whether or not exercised, plus the
consideration deemed to have been received by the
Company (pursuant to Section 3.5) upon the issue or sale
of such Convertible Securities with respect to which
such Options were actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c)
above shall have the effect of increasing the Purchase Price by an
amount in excess of the amount of the adjustment thereof originally
made in respect of the issue, sale, grant or assumption of such
Options or Convertible Securities; and
(e) in the case of any such Options which expire by
their terms not more than 30 days after the date of issue, sale,
grant or assumption thereof, no adjustment of the Purchase Price
shall be made until the expiration or exercise of all such Options,
whereupon such adjustment shall be made in the manner provided in
subdivision (c) above.
3.4. TREATMENT OF STOCK DIVIDENDS, STOCK SPLITS, ETC. In case the
Company at any time or from time to time after the date hereof shall declare or
pay any dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the day immediately prior to the day upon which such corporate action becomes
effective.
3.5. COMPUTATION OF CONSIDERATION. For the purposes of this Section 3,
(a) the consideration for the issue or sale of any Additional
Shares of Common Stock shall, irrespective of the accounting treatment
of such consideration,
8
(i) insofar as it consists of cash, be
computed at the amount of cash received by the Company,
without deducting any expenses paid or incurred by the
Company or any commissions or compensations paid or
concessions or discounts allowed to underwriters,
dealers or others performing similar services in
connection with such issue or sale,
(ii) insofar as it consists of property
(including securities) other than cash, be computed at
the Fair Value thereof at the time of such issue or
sale, and
(iii) in case Additional Shares of Common
Stock are issued or sold together with other stock or
securities or other assets of the Company for a
consideration which covers both, be the portion of such
consideration so received, computed as provided in
clauses (i) and (ii) above, allocable to such Additional
Shares of Common Stock, such allocation to be determined
in the same manner that the Fair Value of property not
consisting of cash or securities is to be determined as
provided in the definition of 'Fair Value' herein;
(b) Additional Shares of Common Stock deemed to have
been issued pursuant to Section 3.3, relating to Options and
Convertible Securities, shall be deemed to have been issued for a
consideration per share determined by dividing
(i) the total amount, if any, received and
receivable by the Company as consideration for the
issue, sale, grant or assumption of the Options or
Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set
forth in the instruments relating thereto, without
regard to any provision contained therein for a
subsequent adjustment of such consideration to protect
against dilution) payable to the Company upon the
exercise in full of such Options or the conversion or
exchange of such Convertible Securities or, in the case
of Options for Convertible Securities, the exercise of
such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities,
in each case computing such consideration as provided in
the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a
subsequent adjustment of such number to protect against
dilution) issuable upon the exercise of such Options or
the conversion or exchange of such Convertible
Securities; and
(c) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 3.4, relating to stock dividends, stock splits, etc., shall
be deemed to have been issued for no consideration.
9
3.6. ADJUSTMENTS FOR COMBINATIONS, ETC. In case the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Purchase Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
3.7. DILUTION IN CASE OF OTHER SECURITIES. In case any Other Securities
shall be issued or sold or shall become subject to issue or sale upon the
conversion or exchange of any stock (or Other Securities) of the Company (or any
issuer of Other Securities or any other Person referred to in Section 4) or to
subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis consistent with the standards established in the
other provisions of this Section 3, the purchase rights granted by this Warrant,
then, and in each such case, the computations, adjustments and readjustments
provided for in this Section 3 with respect to the Purchase Price and the number
of shares purchasable upon Warrant exercise shall be made as nearly as possible
in the manner so provided and applied to determine the amount of Other
Securities from time to time receivable upon the exercise of the Warrants, so as
to protect the holders of the Warrants against the effect of such dilution.
3.8. DE MINIMIS ADJUSTMENTS. If the amount of any adjustment of the
Purchase Price per share required pursuant to this Section 3 would be less than
$.01, such amount shall be carried forward and adjustment with respect thereto
made at the time of and together with any subsequent adjustment which, together
with such amount and any other amount or amounts so carried forward, shall
aggregate a change in the Purchase Price of at least $.01 per share. All
calculations under this Warrant shall be made to the nearest .001 of a cent or
to the nearest one-hundredth of a share, as the case may be.
3.9. ABANDONED DIVIDEND OR DISTRIBUTION. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution (which results in an adjustment to the
Purchase Price under the terms of this Warrant) and shall, thereafter, and
before such dividend or distribution is paid or delivered to shareholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
distribution, then any adjustment made to the Purchase Price and number of
shares of Common Stock purchasable upon Warrant exercise by reason of the taking
of such record shall be reversed, and any subsequent adjustments, based thereon,
shall be recomputed.
3.10. SHAREHOLDER RIGHTS PLAN. Notwithstanding the foregoing, in the
event that the Company shall distribute "poison pill" rights pursuant to a
"poison pill" shareholder rights plan (the "Rights"), the Company shall, in lieu
of making any adjustment pursuant to Section 3.2.1 or Section 3.2.2 hereof, make
proper provision so that each Holder who exercises a Warrant after the record
date for such distribution and prior to the expiration or redemption of the
Rights shall be entitled to receive upon such exercise, in addition to the
shares of Common Stock issuable upon such exercise, a number of Rights to be
determined as follows: (i) if such exercise occurs on or prior to the date for
the distribution to the holders of Rights of separate certificates evidencing
such Rights (the "Distribution Date"), the same number of Rights to which a
holder
10
of a number of shares of Common Stock equal to the number of shares of Common
Stock issuable upon such exercise at the time of such exercise would be entitled
in accordance with the terms and provisions of and applicable to the Rights; and
(ii) if such exercise occurs after the Distribution Date, the same number of
Rights to which a holder of the number of shares into which the Warrant so
exercised was exercisable immediately prior to the Distribution Date would have
been entitled on the Distribution Date in accordance with the terms and
provisions of and applicable to the Rights, and in each case subject to the
terms and conditions of the Rights.
4. CONSOLIDATION, MERGER, ETC.
4.1. ADJUSTMENTS FOR CONSOLIDATION, MERGER, SALE OF ASSETS,
REORGANIZATION, ETC. In case the Company after the date hereof (a) shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Stock or Other Securities
(other than a capital reorganization or reclassification resulting in the issue
of Additional Shares of Common Stock for which adjustment in the Purchase Price
is provided in Section 3.2.1 or 3.2.2), then, and in the case of each such
transaction, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Warrant, the Holder of this Warrant,
upon the exercise hereof at any time after the consummation of such transaction
shall be entitled to receive (at the aggregate Purchase Price in effect at the
time of such consummation for all Common Stock or Other Securities issuable upon
such exercise immediately prior to such consummation), in lieu of the Common
Stock or Other Securities issuable upon such exercise prior to such
consummation, the amount of securities, cash or other property to which such
Holder would actually have been entitled as a shareholder upon such consummation
if such Holder had exercised this Warrant immediately prior thereto, subject to
adjustments (subsequent to such consummation) as nearly equivalent as possible
to the adjustments provided for in Sections 3 through 5.
4.2. ASSUMPTION OF OBLIGATIONS. Notwithstanding anything contained in
the Warrants or in the Purchase Agreement to the contrary, the Company shall not
effect any of the transactions described in clauses (a) through (d) of Section
4.1 unless, prior to the consummation thereof, each Person (other than the
Company) which may be required to deliver any stock, securities, cash or
property upon the exercise of this Warrant as provided herein shall assume, by
written instrument delivered to, and reasonably satisfactory to, the Holder of
this Warrant, (a) the obligations of the Company under this Warrant (and if the
Company shall survive the consummation of such transaction, such assumption
shall be in addition to, and shall not release the Company from, any continuing
obligations of the Company under this Warrant), (b) the obligations of the
Company under the Agreement, the Certificate of Designations and the
Registration Rights Agreement and (c) the obligation to deliver to the Holder
such shares of stock, securities, cash or property as, in accordance with the
foregoing provisions of this Section 4, the Holder may be entitled to receive.
Nothing in this Section 4 shall be deemed to
11
authorize the Company to enter into any transaction not otherwise permitted by
the Purchase Agreement.
5. OTHER DILUTIVE EVENTS. In case any event shall occur as to which the
provisions of Section 3 or Section 4 hereof are not strictly applicable or if
strictly applicable would not fairly protect the purchase rights of the Holder
in accordance with the essential intent and principles of such Sections, then,
in each such case, the Board of Directors of the Company shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to preserve, without dilution, the
purchase rights represented by this Warrant.
6. NO DILUTION OR IMPAIRMENT. The Company shall not, by amendment of
its certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the Holder of
this Warrant against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (a) shall not permit the par value of
any shares of stock receivable upon the exercise of this Warrant to exceed the
amount payable therefor upon such exercise, (b) shall take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock, free from all taxes,
liens, security interests, encumbrances, preemptive rights and charges on the
exercise of the Warrants from time to time outstanding, (c) shall not take any
action which results in any adjustment of the Purchase Price if the total number
of shares of Common Stock (or Other Securities) issuable after the action upon
the exercise of all of the Warrants would exceed the total number of shares of
Common Stock (or Other Securities) then authorized by the Company's certificate
of incorporation and available for the purpose of issue upon such exercise, and
(d) shall not issue any capital stock of any class which is preferred as to
dividends or as to the distribution of assets upon voluntary or involuntary
dissolution, liquidation or winding-up, unless the rights of the holders thereof
shall be limited to a fixed sum or percentage of par value or a sum determined
by reference to a formula based on a published index of interest rates, an
interest rate publicly announced by a financial institution or a similar
indicator of interest rates in respect of participation in dividends and to a
fixed sum or percentage of par value in any such distribution of assets.
7. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable upon
the exercise of this Warrant, the Company at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms of this Warrant and
prepare a certificate, signed by the Chairman of the Board, President or one of
the Vice Presidents of the Company, and by the Chief Financial Officer, the
Treasurer or one of the Assistant Treasurers of the Company, setting forth such
adjustment or readjustment and showing in reasonable detail the method of
calculation thereof and the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or to be received
by the Company for any Additional Shares of
12
Common Stock issued or sold or deemed to have been issued, (b) the number of
shares of Common Stock outstanding or deemed to be outstanding, and (c) the
Purchase Price in effect immediately prior to such issue or sale and as adjusted
and readjusted (if required by Section 3) on account thereof. The Company shall
forthwith mail a copy of each such certificate to each holder of a Warrant and
shall, upon the written request at any time of any holder of a Warrant, furnish
to such holder a like certificate. The Company shall also keep copies of all
such certificates at its principal office and shall cause the same to be
available for inspection at such office during normal business hours by any
holder of a Warrant or any prospective purchaser of a Warrant designated by the
holder thereof. The Company shall, upon the request in writing of the Holder (at
the Company's expense), retain independent public accountants of recognized
national standing selected by the Board of Directors of the Company to make any
computation required in connection with adjustments under this Warrant, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment, which shall be binding on the Holder and the Company.
8. NOTICES OF CORPORATE ACTION. In the event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any consolidation or
merger involving the Company and any other Person, any transaction or
series of transactions in which more than 50% of the voting securities of
the Company are transferred to another Person, or any transfer, sale or
other disposition of all or substantially all the assets of the Company to
any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
the Company shall mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, sale, disposition, dissolution, liquidation or winding-up is to take
place and the time, if any such time is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for the securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 20 days prior to the date
therein specified.
13
9. REGISTRATION OF COMMON STOCK. If any shares of Common Stock required
to be reserved for purposes of exercise of this Warrant require registration
with or approval of any governmental authority under any federal or state law
(other than the Securities Act) before such shares may be issued upon exercise,
the Company shall, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered or approved, as the case may
be. At any such time as Common Stock is listed on any national securities
exchange or trade market, the Company shall, at its expense, obtain promptly and
maintain the approval for listing on each such exchange or trade market, upon
official notice of issuance, the shares of Common Stock issuable upon exercise
of the then outstanding Warrants and maintain the listing of such shares after
their issuance; and the Company shall also list on such national securities
exchange or trade market, shall register under the Exchange Act and shall
maintain such listing of, any Other Securities that at any time are issuable
upon exercise of the Warrants, if and at the time that any securities of the
same class shall be listed on such national securities exchange or trade market
by the Company.
10. RESERVATION OF STOCK, ETC. The Company shall at all times reserve
and keep available, solely for issuance and delivery upon exercise of the
Warrants, the number of shares of Common Stock (or Other Securities) from time
to time issuable upon exercise of all Warrants at the time outstanding. All
shares of Common Stock (or Other Securities) issuable upon exercise of any
Warrants shall be duly authorized and, when issued upon such exercise, shall be
validly issued and, in the case of shares, fully paid and nonassessable with no
liability on the part of the holders thereof, and, in the case of all
securities, shall be free from all taxes, liens, security interests,
encumbrances, preemptive rights and charges. The transfer agent for the Common
Stock, which may be the Company (the "Transfer Agent"), and every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of any of the purchase rights represented by this Warrant, are hereby
irrevocably authorized and directed at all times until the Expiration Date to
reserve such number of authorized and unissued shares as shall be requisite for
such purpose. The Company shall keep copies of this Warrant on file with the
Transfer Agent for the Common Stock and with every subsequent Transfer Agent for
any shares of the Company's capital stock issuable upon the exercise of the
rights of purchase represented by this Warrant. The Company shall supply such
Transfer Agent with duly executed stock certificates for such purpose. All
Warrant Certificates surrendered upon the exercise of the rights thereby
evidenced shall be canceled, and such canceled Warrants shall constitute
sufficient evidence of the number of shares of stock which have been issued upon
the exercise of such Warrants. Subsequent to the Expiration Date, no shares of
stock need be reserved in respect of any unexercised Warrant.
11. REGISTRATION AND TRANSFER OF WARRANTS, ETC.
11.1. WARRANT REGISTER; OWNERSHIP OF WARRANTS. Each Warrant issued by
the Company shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as it is issued and transferred, which Warrant Register
shall be maintained by the Company at its principal office or, at the Company's
election and expense, by a Warrant Agent or the Company's transfer agent. The
Company shall be entitled to treat the registered Holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes and shall not be
bound to
14
recognize any equitable or other claim to or interest in such Warrant on the
part of any other Person, and shall not be affected by any notice to the
contrary, except that, if and when any Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes. A Warrant, if properly assigned, may be
exercised by a new holder without a new Warrant first having been issued.
11.2. TRANSFER OF WARRANTS. If applicable, this Warrant and all rights
hereunder are transferable in whole or in part, without charge to the Holder
hereof, upon surrender of this Warrant with a properly executed Form of
Assignment attached hereto as Exhibit B at the principal office of the Company.
Upon any partial transfer, the Company shall at its expense issue and deliver to
the Holder a new Warrant of like tenor, in the name of the Holder, which shall
be exercisable for such number of shares of Common Stock with respect to which
rights under this Warrant were not so transferred and to the transferee a new
Warrant of like tenor, in the name of the transferee, which shall be exercisable
for such number of shares of Common Stock with respect to which rights under
this Warrant were so transferred.
11.3. REPLACEMENT OF WARRANTS. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
11.4. ADJUSTMENTS TO PURCHASE PRICE AND NUMBER OF SHARES.
Notwithstanding any adjustment in the Purchase Price or in the number or kind of
shares of Common Stock purchasable upon exercise of this Warrant, any Warrant
theretofore or thereafter issued may continue to express the same number and
kind of shares of Common Stock as are stated in this Warrant, as initially
issued.
11.5. FRACTIONAL SHARES. Notwithstanding any adjustment pursuant to
Section 3 in the number of shares of Common Stock covered by this Warrant or any
other provision of this Warrant, the Company shall not be required to issue
fractions of shares upon exercise of this Warrant or to distribute certificates
which evidence fractional shares. In lieu of fractional shares, the Company
shall make payment to the Holder, at the time of exercise of this Warrant as
herein provided, in an amount in cash equal to such fraction multiplied by the
Current Market Price of a share of Common Stock on the date of Warrant exercise.
12. REMEDIES; SPECIFIC PERFORMANCE. The Company stipulates that there
would be no adequate remedy at law to the Holder of this Warrant in the event of
any default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant and accordingly, the Company
agrees that, in addition to any other remedy to which the Holder may be entitled
at law or in equity, the Holder shall be entitled to seek to compel specific
performance of the obligations of the Company under this Warrant, without the
posting of any bond, in accordance with the terms and conditions of this Warrant
in
15
any court of the United States or any State thereof having jurisdiction, and if
any action should be brought in equity to enforce any of the provisions of this
Warrant, the Company shall not raise the defense that there is an adequate
remedy at law. Except as otherwise provided by law, a delay or omission by the
Holder hereto in exercising any right or remedy accruing upon any such breach
shall not impair the right or remedy or constitute a waiver of or acquiescence
in any such breach. No remedy shall be exclusive of any other remedy. All
available remedies shall be cumulative.
13. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. Nothing contained in this
Warrant shall be construed as conferring upon the Holder hereof any rights as a
shareholder of the Company or as imposing any obligation on the Holder to
purchase any securities or as imposing any liabilities on the Holder as a
shareholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
14. NOTICES. Any notices, consents, waivers or other communications
required or permitted to be given hereunder must be in writing and will be
deemed to have been delivered (i) upon receipt, when delivered personally; (ii)
upon receipt, when sent by facsimile, provided a copy is mailed by U.S.
certified mail, return receipt requested; (iii) three (3) days after being sent
by U.S. certified mail, return receipt requested, or (iv) one (1) day after
deposit with a nationally recognized overnight delivery service, in each case
properly addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
If to the Company:
Datatec Systems, Inc.
00X Xxxxxxxx Xxx
Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Chief Financial Officer
With a copy to:
Xxxxxx Xxxxxxxx Frome & Xxxxxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxxxx, Esq.
If to a Holder, to its address and facsimile number on the register
maintained by the Company. Each party shall provide five (5) days' prior written
notice to the other party of any change in address or facsimile number.
Notwithstanding the foregoing, the exercise of any Warrant shall be effective in
the manner provided in Section 2.
16
15. AMENDMENTS. This Warrant and any term hereof may not be amended,
modified, supplemented or terminated, and waivers or consents to departures from
the provisions hereof may not be given, except by written instrument duly
executed by the party against which enforcement of such amendment, modification,
supplement, termination or consent to departure is sought.
16. DESCRIPTIVE HEADINGS, ETC. The headings in this Warrant are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Warrant otherwise
requires: (1) words of any gender shall be deemed to include each other gender;
(2) words using the singular or plural number shall also include the plural or
singular number, respectively; (3) the words "hereof", "herein" and "hereunder"
and words of similar import when used in this Warrant shall refer to this
Warrant as a whole and not to any particular provision of this Warrant, and
Section and paragraph references are to the Sections and paragraphs of this
Warrant unless otherwise specified; (4) the word "including" and words of
similar import when used in this Warrant shall mean "including, without
limitation," unless otherwise specified; (5) "or" is not exclusive; and (6)
provisions apply to successive events and transactions.
17. GOVERNING LAW. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of New York (without giving effect to the
conflict of laws principles thereof).
18. JUDICIAL PROCEEDINGS. Any legal action, suit or proceeding brought
against the Company with respect to this Warrant may be brought in any federal
court of the Southern District of New York or any state court located in New
York County, State of New York, and by execution and delivery of this Warrant,
the Company hereby irrevocably and unconditionally waives any claim (by way of
motion, as a defense or otherwise) of improper venue, that it is not subject
personally to the jurisdiction of such court, that such courts are an
inconvenient forum or that this Warrant or the subject matter may not be
enforced in or by such court. The Company hereby irrevocably and unconditionally
consents to the service of process of any of the aforementioned courts in any
such action, suit or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, at its address set forth or provided for in
Section 14, such service to become effective 10 days after such mailing. Nothing
herein contained shall be deemed to affect the right of any party to serve
process in any manner permitted by law or commence legal proceedings or
otherwise proceed against any other party in any other jurisdiction to enforce
judgments obtained in any action, suit or proceeding brought pursuant to this
Section. The Company irrevocably submits to the executive jurisdiction of the
aforementioned courts in such action, suit or proceeding.
17
19. REGISTRATION RIGHTS AGREEMENT. The shares of Common Stock (and
Other Securities) issuable upon exercise of this Warrant (or upon conversion of
any shares of Common Stock issued upon such exercise) shall constitute
Registrable Securities (as such term is defined in the Registration Rights
Agreement). Each holder of this Warrant shall be entitled to all of the benefits
afforded to a holder of any such Registrable Securities under the Registration
Rights Agreement and such holder, by its acceptance of this Warrant, agrees to
be bound by and to comply with the terms and conditions of the Registration
Rights Agreement applicable to such holder as a holder of such Registrable
Securities.
DATATEC SYSTEMS, INC.
By:
------------------------------------
Name:
Title:
18
EXHIBIT A to
COMMON STOCK PURCHASE WARRANT
[FORM OF]
ELECTION TO PURCHASE SHARES
AND TRANSFER AGENT INSTRUCTIONS
The undersigned hereby irrevocably elects to exercise the Warrant to
purchase ____ shares of Common Stock, par value $.001 per share ("Common
Stock"), of DATATEC SYSTEMS, INC. and hereby makes payment of $________
therefor. The undersigned hereby requests that certificates for such shares be
issued and delivered as follows:
ISSUE TO:_______________________________________________________________________
(NAME)
--------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
--------------------------------------------------------------------------------
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:_____________________________________________________________________
(NAME)
--------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
If the number of shares of Common Stock purchased hereby is less than
the number of shares of Common Stock covered by the Warrant, the undersigned
requests that a new Warrant representing the number of shares of Common Stock
not so purchased be issued and delivered as follows:
ISSUE TO:_______________________________________________________________________
(NAME OF HOLDER)
--------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
DELIVER TO:_____________________________________________________________________
(NAME OF HOLDER1)
--------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
Dated: _____________________ [NAME OF HOLDER]
By__________________________________________
Name:
Title:
Continental Stock Transfer & Trust Company, as transfer agent and
registrar of the Common Stock, is hereby authorized and directed to issue the
above number of shares of Common Stock in the name of the above referenced
entity or person and to deliver the certificates representing such shares using
an overnight delivery service.
DATATEC SYSTEMS, INC.
By: _______________________
EXHIBIT B to
COMMON STOCK PURCHASE WARRANT
[FORM OF] ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto the Assignee named below all of the rights of the undersigned to
purchase Common Stock, par value $.001 per share ("Common Stock") of DATATEC
SYSTEMS, INC. represented by the Warrant, with respect to the number of shares
of Common Stock set forth below:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
---------------- ------- -------------
and does hereby irrevocably constitute and appoint ________ Attorney to make
such transfer on the books of DATATEC SYSTEMS, INC. maintained for that purpose,
with full power of substitution in the premises.
Dated: ____________________ [NAME OF HOLDER]
By____________________________________
Name:
Title:
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of April 30,
1998, by and among Datatec Systems, Inc., a Delaware corporation, with
headquarters located at 00X Xxxxxxxx Xxx, Xxxxxx, XX 00000 (the "COMPANY"), and
the undersigned buyers (each, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyers shares of the
Company's Series E Convertible Preferred Stock (the "SERIES E PREFERRED
SHARES"), which will be convertible into shares of the Company's common stock,
$.001 par value per share (the "COMMON STOCK") (as converted, the "CONVERSION
SHARES") in accordance with the terms of the Company's Certificate of
Designations, Preferences and Rights of the Series E Convertible Preferred Stock
(the "CERTIFICATE OF DESIGNATIONS"); and
B. In consideration for the Buyers agreeing to purchase the Series E
Preferred Shares, the Company shall issue and deliver to the Buyers, common
stock purchase warrants (the "WARRANTS") to acquire additional shares of Common
Stock pursuant to the terms of the Securities Purchase Agreement (the shares of
Common Stock issued or issuable upon exercise of the Warrants are hereinafter
referred to as the "WARRANT SHARES");
C. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 ACT"), and
applicable state securities laws:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "INVESTOR" means a Buyer and any transferee or assignee thereof
to whom a Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9.
9
b. "PERSON" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("RULE 415"), and the declaration or ordering of effectiveness of such
Registration Statement(s) by the United States Securities and Exchange
Commission (the "SEC").
d. "REGISTRABLE SECURITIES" means (i) the Conversion Shares issued
or issuable upon conversion of the Series E Preferred Shares, (ii) the Warrant
Shares issued or issuable upon exercise of the Warrants and (iii) any shares of
capital stock issued or issuable with respect to the Conversion Shares, the
Series E Preferred Shares, the Warrant Shares or the Warrants as a result of any
stock split, stock dividend, recapitalization, exchange or similar event.
e. "REGISTRATION STATEMENT" means a registration statement of the
Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare, and, on or
prior to fifteen (15) business days after the date of issuance of the Series E
Preferred Shares, file with the SEC a Registration Statement or Registration
Statements (as is necessary) on Form S-3 (or, if such form is unavailable for
such a registration, on such other form as is available for such a registration,
subject to the consent of each Buyer and the provisions of Section 2(c), which
consent will not be unreasonably withheld), covering the resale of all of the
Registrable Securities, which Registration Statement(s) shall state that, in
accordance with Rules 416 and 457 promulgated under the 1933 Act, such
Registration Statement(s) also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the Series E
Preferred Shares (i) to prevent dilution resulting from stock splits, stock
dividends or similar transactions and (ii) if permitted by such rules, by reason
of changes in the Conversion Price or Conversion Rate of the Series E Preferred
Shares in accordance with the terms thereof. Such Registration Statement shall
initially register for resale at least that number of shares of Common Stock
equal to the number of Registrable Securities as of the date immediately
preceding the date the Registration Statement is initially filed with the SEC,
subject to adjustment as provided in Section 3(b). Such registered shares of
Common Stock shall be allocated among the Investors pro rata based on the total
number of Registrable Securities issued or issuable as of each date that a
Registration Statement, as amended, relating to the resale of the Registrable
Securities is declared effective by the SEC. The Company shall use its best
efforts to have the Registration Statement declared effective by the SEC as soon
as practicable thereafter.
2
b. COUNSEL AND INVESTMENT BANKERS. Subject to Section 5 hereof, in
connection with any offering pursuant to Section 2, the Buyers shall have the
right to select legal counsel and an investment banker or bankers and manager or
managers to administer their interest in the offering, which investment banker
or bankers or manager or managers shall be reasonably satisfactory to the
Company. The Company shall reasonably cooperate with any such counsel and
investment bankers.
c. ELIGIBILITY FOR FORM S-3. The Company represents, warrants and
covenants that it will meet the requirements for the use of Form S-3 for
registration of the sale by the Buyers and any other Investor of the Registrable
Securities on and after the fifteenth (15th) business day following the date of
issuance of the Series E Preferred Shares and the Company has filed and shall
file all reports required to be filed by the Company with the SEC in a timely
manner so as to obtain and maintain such eligibility for the use of Form S-3. In
the event that Form S-3 is not available for sale by the Investors of the
Registrable Securities, then the Company (i) with the consent of each Investor
pursuant to Section 2(a), shall register the sale of the Registrable Securities
on another appropriate form and (ii) the Company shall undertake to register the
Registrable Securities on Form S-3 as soon as such form is available, provided
that the Company shall maintain the effectiveness of the Registration Statement
then in effect until such time as a Registration Statement on Form S-3 covering
the Registrable Securities has been declared effective by the SEC.
3. RELATED OBLIGATIONS.
At such time as the Company is obligated to file a Registration
Statement with the SEC pursuant to Section 2(a), the Company will use its best
efforts to effect the registration of the Registrable Securities in accordance
with the intended method of disposition thereof and, pursuant thereto, the
Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the fifteenth (15th) business day after the date of issuance of the Series E
Preferred Shares for the registration of Registrable Securities pursuant to
Section 2(a)) and use its best efforts to cause such Registration Statement(s)
relating to Registrable Securities to become effective as soon as possible after
such filing (but no later than ninety (90) days after the issuance of the Series
E Preferred Shares for the registration of Registrable Securities pursuant to
Section 2(a)), and keep the Registration Statement(s) effective pursuant to Rule
415 at all times until the earlier of (i) six months after the date as of which
the Investors may sell all of the Registrable Securities without restriction
pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto) or
(ii) the date on which (A) the Investors shall have sold all the Registrable
Securities and (B) none of the Series E Preferred Shares is outstanding (the
"REGISTRATION PERIOD"), which Registration Statement(s) (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading. In the event
that such Registration Statement is not declared effective by the
-3-
SEC within 90 days after the issuance of the Series E Preferred Shares, until
the Registration Statement is declared effective by the SEC, the Company will
incur a cash penalty of $15,000 for the first 30 days thereafter (pro rated for
any partial period thereof), payable at the earlier of the end of such 30-day
period or on the declared effectiveness of the Registration Statement, and
$30,000 for each additional 30 days thereafter (pro rated for any partial period
thereof), payable at the earlier of the end of each such 30-day period or the
declared effectiveness of the Registration Statement.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement(s) and the prospectus(es) used in connection with the Registration
Statement(s), which prospectus(es) are to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep the Registration
Statement(s) effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by the
Registration Statement(s) until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the Registration
Statement(s). Provided that it is determined that Rules 416 and 457 are not
available to register an indeterminate number of shares as set forth in Section
2(a)(ii) hereof or for any other applicable reasons, then in the event the
number of shares available under a Registration Statement filed pursuant to this
Agreement is insufficient to cover all of the Registrable Securities, the
Company shall amend the Registration Statement, or file a new Registration
Statement (on the short form available therefor, if applicable), or both, so as
to cover all of the Registrable Securities, in each case, as soon as
practicable, but in any event within fifteen (15) days after the necessity
therefor arises (based on the market price of the Common Stock and other
relevant factors on which the Company reasonably elects to rely). The Company
shall use it best efforts to cause any such necessary amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof. For purposes of the foregoing provision, if applicable, the
number of shares available under a Registration Statement shall be deemed
"insufficient to cover all of the Registrable Securities" if at any time the
number of Registrable Securities issued or issuable upon conversion and
redemption of the Series E Preferred Shares and exercise of the Warrants is
greater than the quotient determined by dividing (i) the number of shares of
Common Stock available for resale under such Registration Statement by (ii) 2.0.
For purposes of the calculation set forth in the foregoing sentence, any
restrictions on the convertibility of the Series E Preferred Shares shall be
disregarded and such calculation shall assume that the Series E Preferred Shares
are then convertible into shares of Common Stock at the then prevailing
Conversion Rate (as defined in the Company's Certificate of Designations).
c. The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement(s) and its legal counsel
without charge (i) promptly after the same is prepared and filed with the SEC at
least one copy of the Registration Statement and any amendment thereto,
including financial statements and schedules, all documents incorporated therein
by reference and all exhibits, the prospectus(es) included in such Registration
Statement(s) (including each preliminary prospectus) and, with regards to the
Registration Statement, to the extent requested any correspondence by or on
behalf of the Company to the SEC or the staff of the SEC and any correspondence
from the SEC or the staff of
-4-
the SEC to the Company or its representatives, (ii) upon the effectiveness of
any Registration Statement, ten (10) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such other
number of copies as such Investor may reasonably request) and (iii) such other
documents, including any preliminary prospectus, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement(s)
under such other securities or "blue sky" laws of such jurisdictions in the
United States as any Investor reasonably requests, (ii) prepare and file in
those jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
each Investor who holds Registrable Securities of the receipt by the Company of
any notification with respect to the suspension of the registration or
qualification of any of the Registrable Securities for sale under the securities
or "blue sky" laws of any jurisdiction in the United States or its receipt of
actual notice of the initiation or threatening of any proceeding for such
purpose.
e. In the event Investors who hold a majority of the Registrable
Securities being offered in the offering select underwriters for the offering,
the Company shall, subject to Section 2(b) hereof, enter into and perform its
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the underwriters of such offering.
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor in writing of the happening of any event
as a result of which the prospectus included in a Registration Statement, as
then in effect, includes an untrue statement of a material fact or omission to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and promptly prepare a supplement or amendment to the
Registration Statement to correct such untrue statement or omission, and deliver
ten (10) copies of such supplement or amendment to each Investor (or such other
number of copies as such Investor may reasonably request). The Company shall
also promptly notify each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to each Investor by
facsimile on the same day of such effectiveness and by overnight mail), (ii) of
any request by the SEC for amendments or supplements to a Registration Statement
or related prospectus or related information, and (iii) of
-5-
the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
or the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify each Investor who holds Registrable Securities being sold
(and, in the event of an underwritten offering, the managing underwriters) of
the issuance of such order and the resolution thereof or its receipt of actual
notice of the initiation or threat of any proceeding for such purpose.
h. The Company shall permit each Investor and a single firm of
counsel, initially Xxxxxxx Xxxx & Xxxxx LLP or such other counsel as thereafter
designated as selling stockholders' counsel by the Investors who hold a majority
of the Registrable Securities being sold, to review and comment upon the
Registration Statement(s) and all amendments and supplements thereto at least
three (3) business days prior to their filing with the SEC, and not file any
document in a form to which such counsel reasonably objects. The Company shall
not submit a request for acceleration of the effectiveness of a Registration
Statement(s) or any amendment or supplement thereto without the prior approval
of such counsel, which consent shall not be unreasonably withheld.
i. At the request of the Investors who hold a majority of the
Registrable Securities being sold, the Company shall furnish, on the date that
Registrable Securities are delivered to an underwriter, if any, for sale in
connection with the Registration Statement (i) if required by an underwriter, a
letter, dated such date, from the Company's independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, and (ii) an opinion, dated as of such date, of
counsel representing the Company for purposes of such Registration Statement, in
form, scope and substance as is customarily given in an underwritten public
offering, addressed to the underwriters and the Investors.
j. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in strict confidence and shall not make any disclosure (except to an
Investor) or use of any Record or other information which the Company determines
in good faith to be confidential, and of which determination the Inspectors are
so notified, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration
-6-
Statement or is otherwise required under the 1933 Act, (b) the release of such
Records is ordered pursuant to a final, non-appealable subpoena or order from a
court or government body of competent jurisdiction, or (c) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement. Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential.
k. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this or any other agreement. The
Company agrees that it shall, upon learning that disclosure of such information
concerning an Investor is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt written notice to
such Investor and allow such Investor, at the Investor's expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
l. The Company shall use its best efforts either to (i) cause all
the Registrable Securities covered by a Registration Statement to be listed on
each securities exchange on which securities of the same class or series issued
by the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation and quotation of all the Registrable Securities covered by the
Registration Statement on the Nasdaq National Market System or the Nasdaq
SmallCap Market for such Registrable Securities and, without limiting the
generality of the foregoing, to arrange for at least two market makers to
register with the National Association of Securities Dealers, Inc. as such with
respect to such Registrable Securities. The Company shall pay all fees and
expenses in connection with satisfying its obligation under this Section 3(l).
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any managing
underwriter or underwriters, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or, if there is no
managing underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters, if any, or
the Investors may request. Not later than the date on which any Registration
Statement registering the resale of Registrable Securities is declared
effective, the Company shall deliver to its transfer agent instructions,
accompanied by any reasonably required opinion of counsel, that permit sales of
unlegended securities in a timely
-7-
fashion that complies with then mandated securities settlement procedures for
regular way market transactions.
n. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.
o. The Company shall provide a CUSIP number, a transfer agent and
registrar of all such Registrable Securities not later than the effective date
of such Registration Statement.
p. If requested by the managing underwriters or an Investor, the
Company shall immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Investors agree should be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and with respect to
any other terms of the underwritten (or best efforts underwritten) offering of
the Registrable Securities to be sold in such offering; make all required
filings of such prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such prospectus supplement or
post-effective amendment; and supplement or make amendments to any Registration
Statement if requested by a shareholder or any underwriter of such Registrable
Securities.
q. The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities.
r. The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated filing
date of the Registration Statement, the Company shall notify each Investor or
its counsel of the information the Company requires from each such Investor. It
shall be a condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall furnish to the
Company such information as may be requested in writing by the Company regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.
-8-
b. Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement(s) hereunder.
c. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to the Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of 3(f) and, if so directed by the Company, such Investor shall
deliver to the Company (at the expense of the Company) or destroy all copies in
such Investor's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.
d. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company shall be paid by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor who holds such
Registrable Securities, the directors, officers, partners, employees, agents and
each Person, if any, who controls any Investor within the meaning of the 1933
Act or the Securities Exchange Act of 1934, as amended (the "1934 ACT"), and any
underwriter (as defined in the 0000 Xxx) for the Investors, and the directors
and officers of, and each Person, if any, who controls, any such underwriter
within the meaning of the 1933 Act or the 1934 Act (each, an "INDEMNIFIED
PERSON"), against any losses, claims, damages, liabilities, judgments, fines,
penalties, charges, costs, attorneys' fees, amounts paid in settlement or
expenses, joint or several (collectively, "CLAIMS"), incurred in investigating,
preparing or defending any action, claim, suit, inquiry, proceeding,
investigation or appeal taken from the foregoing by or before any court or
governmental, administrative or other regulatory agency, body or the SEC,
whether pending or threatened, whether or not an indemnified party is
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or may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may
become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registrable Securities are
offered, or the omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which the statements therein were made, not misleading,
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus if used prior to the effective date of
such Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading, or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement (the matters in the
foregoing clauses (i) through (iii) being, collectively, "VIOLATIONS"). Subject
to the restrictions set forth in Section 6(d) with respect to the number of
legal counsel, the Company shall reimburse the Investors and each such
underwriter or controlling person, promptly as such expenses are incurred and
are due and payable, for any legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c); (ii) with respect to any preliminary prospectus, shall
not inure to the benefit of any such person from whom the person asserting any
such Claim purchased the Registrable Securities that are the subject thereof (or
to the benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such prospectus was
timely made available by the Company pursuant to Section 3(c), and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it; (iii) shall not be available to
the extent such Claim is based on a failure of the Investor to deliver or to
cause to be delivered the prospectus made available by the Company; and (iv)
shall not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
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b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based upon any Violation, in each case
to the extent, and only to the extent, that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or
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potential differing interests between such Indemnified Person or Indemnified
Party and any other party represented by such counsel in such proceeding. The
Company shall pay reasonable fees for only one separate legal counsel for the
Investors, and such legal counsel shall be selected by the Investors holding a
majority in interest of the Registrable Securities included in the Registration
Statement to which the Claim relates. The Indemnified Party or Indemnified
Person shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the Indemnified Party or Indemnified Person which relates to such action or
claim. The indemnifying party shall keep the Indemnified Party or Indemnified
Person fully apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. No indemnifying party shall be
liable for any settlement of any action, claim or proceeding effected without
its written consent, provided, however, that the indemnifying party shall not
unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the consent of the Indemnified Party or Indemnified Person,
consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified Person of a
release from all liability in respect to such claim or litigation. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.
e. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
f. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6; (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 0000 Xxx) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (iii) contribution by any seller of
Registrable Securities shall be limited in
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amount to the net amount of proceeds received by such seller from the sale of
such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of
Rule 144 promulgated under the 1933 Act or any other similar rule or regulation
of the SEC that may at any time permit the investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to have the Company register Registrable Securities
pursuant to this Agreement shall be automatically assignable by the Investors to
any affiliate (as such term is defined in the 1933 Act) (a "Transferee") of the
Investors to whom transfer of the Registrable Securities is permitted of all or
any portion of Registrable Securities if: (i) the Investor agrees in writing
with the Transferee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment; (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such Transferee,
and (b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the Transferee is restricted under
the 1933 Act and applicable state securities laws; (iv) at or before the time
the Company receives the written notice contemplated by clause (ii) of this
sentence the Transferee agrees in writing with the Company to be bound by all of
the provisions contained herein; (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement; (vi) such Transferee shall be an "accredited investor" as that term
is defined in Rule 501 of Regulation D promulgated under the 1933 Act; and (vii)
in the event the assignment occurs subsequent to the date of effectiveness of
the Registration Statement required to be filed pursuant to Section 2(a),
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the Transferee agrees to pay all reasonable expenses of amending or
supplementing such Registration Statement to reflect such assignment.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who hold two-thirds (2/3) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile, provided a copy is mailed
by U.S. certified mail, return receipt requested; (iii) three (3) days after
being sent by U.S. certified mail, return receipt requested; or (iv) one (1) day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
if to the Company:
Datatec Systems, Inc.
00X Xxxxxxxx Xxx
Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Chief Financial Officer
with a copy to:
Xxxxxx Xxxxxxxx Frome & Xxxxxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxxxx, Esq.
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if to a Buyer, to its address and facsimile number on
the Schedule of Buyers attached hereto, with copies to
such Buyer's counsel as set forth on the Schedule of
Buyers.
Each party shall provide five (5) days prior notice to the other party
of any change in address, phone number or facsimile number.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York without regard to the principles of
conflict of laws. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. This Agreement, the Certificate of Designations, the Warrants and
the Securities Purchase Agreement (including all schedules and exhibits thereto)
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. The aforementioned documents supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
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IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
DATATEC SYSTEMS, INC. XXXXX INTERNATIONAL
By:______________________ By:________________________________
Name: Name: _______________
Its: Its: _______________
SHEPHERD INVESTMENTS
INTERNATIONAL, LTD.
By:________________________________
Name: _______________
Its: _______________
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SCHEDULE OF BUYERS
INVESTOR ADDRESS AND INVESTOR'S LEGAL COUNSEL AND
INVESTOR NAME FACSIMILE NUMBER COUNSEL'S ADDRESS
------------- ---------------- ----------------------------
Xxxxx International c/o Staro Asset Management Xxxxxxx Xxxxx, Esq.
0000 Xxxx Xxxxxx Xxxxxx Xxxxxxx Xxxx & Xxxxx LLP
Xxxxxx, Xxxxxxxxx 00000 000 Xxxxx Xxxxxx
Fax: (000) 000-0000 Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Shepherd Investments c/o Staro Asset Management Xxxxxxx Xxxxx, Esq.
International, Ltd. 0000 Xxxx Xxxxxx Xxxxxx Xxxxxxx Xxxx & Xxxxx LLP
Xxxxxx, Xxxxxxxxx 00000 000 Xxxxx Xxxxxx
Fax: (000) 000-0000 Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
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