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EXHIBIT 10.1
PREFERRED STOCK EXCHANGE AGREEMENT
PREFERRED STOCK EXCHANGE AGREEMENT ("Exchange Agreement")
dated as of June 22, 1998 between Xxxxx Corporation, a Delaware corporation (the
"Company"), and each person or entity listed as an investor on Schedule I
attached hereto, and who has signed this Exchange Agreement (each signatory
individually an "Investor" and collectively the "Investors").
W I T N E S S E T H :
WHEREAS, the Company has heretofore entered into a Preferred
Stock Investment Agreement (the "Investment Agreement") dated November 12, 1997
with the certain investors that were signatories thereto (the "Original
Investors") and, pursuant to the Investment Agreement, the Company has
previously issued a series of Preferred Stock consisting of a total of 44,999
shares designated as "6% Cumulative Convertible Preferred Stock" (the "Original
Shares") to the Original Investors;
WHEREAS, certain of the Original Investors have not entered
into this Exchange Agreement, are not signatories hereto and are not listed on
Schedule I (the "Non-Participating Investors"); and
WHEREAS, the Company has previously issued to the Investors an
aggregate of 19,999 shares of the Original Shares pursuant to the Investment
Agreement (the "Exchange Shares"), and the Company and the Investors desire to
exchange the Exchange Shares now held by them on the Closing Date (as defined
below) for a like number of new 8% Cumulative Convertible Preferred Stock (the
"Preferred Shares"), having the rights, designations and preferences set forth
in the Certificate of Designations (the "Certificate") in the form of Exhibit 1
hereto on the terms and conditions set forth herein.
WHEREAS, the Preferred Shares will be convertible into shares
("Common Shares") of common stock, par value $0.01, of the Company ("Common
Stock"), pursuant to the terms of the Certificate, and the Investors will have
registration rights with respect to such Common Shares issuable upon conversion,
pursuant to the terms of that certain Registration Rights Agreement entered into
contemporaneously herewith between the Company and the Investors substantially
in the form of Exhibit A hereto ("Registration Rights Agreement").
NOW, THEREFORE, in consideration of the foregoing premises and
the covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
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ARTICLE I
ISSUANCE OF PREFERRED SHARES
IN EXCHANGE FOR EXCHANGE SHARES
Section 1.1 Issuance of Preferred Shares. Upon the following
terms and conditions, the Company shall contemporaneously herewith issue and
sell to each Investor severally, and each Investor severally shall acquire from
the Company, the number of Preferred Shares indicated next to such Investor's
name on Schedule I attached hereto.
(a) Exchange Shares. Each Investor shall
contemporaneously herewith exchange the Exchange Shares set forth next to such
Investor's name on Schedule I for the specified number of Preferred Shares by
delivering the original certificates representing the Exchange Shares duly
endorsed in blank or accompanied by appropriate stock power(s).
(b) The Closing; Effectiveness.
(i) The closing of the exchange of the Exchange
Shares for the Preferred Shares (the "Closing") shall take place at the
offices of Xxxxxx Xxxxxxx Xxxxxxxxx & Xxxx, PLLC ("WCSR") in Atlanta,
Georgia, contemporaneously with the execution hereof by all parties
(the "Closing Date").
(ii) The Company at the Effective Time (defined
below) shall deliver to each Investor certificates (with the number of
and denomination of such certificates reasonably requested by such
Investor) representing the Preferred Shares acquired hereunder by such
Investor registered in the name of such Investor or its nominee, and
such Investor at such time shall deliver to the Company the Exchange
Shares for the Preferred Shares acquired by such Investor hereunder.
The delivery by each Investor of the Exchange Shares applicable to it
as set forth in this paragraph shall constitute full consideration
delivered to the Company in satisfaction of such Investor's
obligation(s) hereunder.
(iii) This Exchange Agreement, the Certificate, the
Registration Rights Agreement and the Stock Pledge Agreement shall be
deemed effective only after the occurrence of both of the following
events: (A) written consent hereto by the Company's lender,
NationsCredit Commercial Corporation, through its NationsCredit
Commercial Funding Division; (B) written consent hereto by the holder
of the Series A Preferred Stock, Vulcan Ventures Incorporated (the
"Effective Time'); and (C) execution and delivery of mutual general
releases as of the Effective Time between each Investor and its
partners, officers, directors and other affiliates entities, on the one
hand, and each of the individual members of the Board of Directors of
the Company at the time of filing the court action referred to in
Section 3.18 hereof, in their capacities as directors and/or
shareholders of the Company, and Rinzai Ltd. and Kaifa Technologies
(H.K.) Limited in their capacity as shareholders, on the other hand.
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(iv) At the Effective Time, the Company shall deliver
to WCSR fully executed Debentures (as defined in the Certificate) in
the name of each Investor in the face amount of the Liquidation
Preference of the Preferred Shares held by such Investor at the
Effective Time. The Corporation and each Investor hereby instruct WCSR
as escrow agent to hold such Debenture in escrow, pursuant to an Escrow
Agreement to be entered into at the Effective Time, and to distribute
such Debentures to the Investors (subject to reduction for conversions
and redemptions, if any) at the Mandatory Exchange Date (as defined in
the Certificate).
(v) In the event that the written consents described
in Section 1.1(b)(iii) shall not have been obtained within thirty (30)
days from the Closing Date, the Investors may elect to terminate this
Exchange Agreement, return the Preferred Shares to the Company and
receive the Exchange Shares from the Company. Upon such election, this
Exchange Agreement shall be null and void and of no effect.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The
Company hereby makes the following representations and warranties to each of the
Investors as of the date hereof.
(a) Organization and Qualification; Material Adverse Effect.
The Company is a corporation duly incorporated and validly existing in good
standing under the laws of the State of Delaware and has the requisite corporate
power to own its properties and to carry on its business as now being conducted.
The Company does not have any direct or indirect subsidiaries other than the
subsidiaries listed on Schedule 2.1(a) attached hereto. The Company and each of
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 or property owned by it makes such qualification necessary, other than
those in which the failure so to qualify would not have a Material Adverse
Effect. "Material Adverse Effect" means any adverse effect on the business,
operations, properties, prospects, or financial condition of the entity with
respect to which such term is used and which is material to such entity and
other entities controlling or controlled by such entity taken as a whole, and
any material adverse effect on the transactions contemplated under this Exchange
Agreement, the Registration Rights Agreement or any other agreement or document
contemplated hereby or thereby.
(b) Authorization; Enforcement. (i) The Company has all
requisite corporate power and authority to enter into and perform this Exchange
Agreement and the Registration Rights Agreement, to file the Certificate and to
issue the Preferred Shares in accordance with the terms hereof, (ii) the
execution and delivery of this Exchange Agreement, the Preferred Shares and the
Registration Rights Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including the issuance of the
Preferred Shares and the resolutions contained in the Certificate, have been
duly authorized by all necessary corporate
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action, and no further consent or authorization of the Company or its Board of
Directors (or any committee or subcommittee thereof) or stockholders is
required, (iii) this Exchange Agreement and the Registration Rights Agreement
have been duly executed and delivered by the Company, (iv) this Exchange
Agreement and the Registration Rights Agreement constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of creditors' rights and
remedies or by other equitable principles of general application, and (v) on or
before the Effective Time the Company will have filed the Certificate with the
Secretary of State of Delaware.
(c) Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of 50,000,000 shares of Common Stock and
3,280,000 shares of preferred stock; there are 19,856,630 shares of Common Stock
and 1,217,930 shares of the Company's Series A Preferred Stock and 41,736
Original Shares issued and outstanding; and 6,798,070 shares of Common Stock and
no shares of preferred stock are reserved for issuance to persons other than the
Original Investors. All of the outstanding shares of the Company's Common Stock
and preferred stock have been validly issued and are fully paid and
nonassessable. Except as set forth in Schedule 2.1(c), no shares of capital
stock are entitled to preemptive rights; and there are as of the date hereof no
outstanding warrants for shares of Common Stock. There is not presently and will
not be any preferred stock issued and outstanding, other than the Series A
Preferred Stock (which will be superior to the Preferred Shares in payment of
dividends and liquidation preference) and other than the Original Shares (which
will be pari passu with the Preferred Shares), which has or will have rights
equal to or superior to the Preferred Shares, after completion of the
transactions contemplated hereby. There are no other scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities
or rights exchangeable or convertible into, any shares of capital stock of the
Company, or contracts, commitments, understandings, or arrangements by which the
Company is or may become bound to issue additional shares of capital stock of
the Company or options, warrants, scrip, rights to subscribe to, or commitments
to purchase or acquire, any shares, or securities or rights convertible into
shares, of capital stock of the Company (except as contemplated by or as
described in this Exchange Agreement or disclosed in Schedule 2.1(c)). Attached
hereto as Exhibit 2.1(c)(i) is a true and correct copy of the Company's
Certificate of Incorporation (the "Charter"), as in effect on the date hereof,
and attached hereto as Exhibit 2.1(c)(ii) is a true and correct copy of the
Company's Bylaws, as in effect on the date hereof (the "Bylaws"). The Company
has no present plan to amend its Charter or Bylaws, but this sentence shall in
no way limit the Company's ability to do so, provided that no such changes shall
violate this Exchange Agreement, the Certificate or the Registration Rights
Agreement.
(d) Issuance of Common Shares and Preferred Shares. The Common
Shares issuable upon conversion of the Preferred Shares pursuant to the
Certificate (the "Underlying Shares") are and will at all time hereafter
continue to be duly authorized and reserved for issuance and, upon such
conversion in accordance with the Certificate such Underlying Shares will be
validly issued, fully paid and non-assessable, free and clear of any and all
liens, claims and encumbrances, and listed for trading (when required to be
listed in accordance with the
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Registration Rights Agreement) on the Nasdaq National Market ("Nasdaq NMS") (or
the American Stock Exchange or the New York Stock Exchange, collectively with
the Nasdaq NMS, the "Approved Markets"), and the holders of such Underlying
Shares shall be entitled to all rights and preferences accorded to a holder of
Common Stock. The outstanding shares of Common Stock (including the Common
Shares and the Underlying Shares) are currently listed on the Nasdaq NMS. The
Preferred Shares are validly issued, fully paid and non-assessable, free and
clear of any and all liens, claims and encumbrances.
(e) Securities Compliance. The Company has notified the SEC
and the Nasdaq NMS, in accordance with their requirements, of the transactions
contemplated by this Exchange Agreement, the Certificate and the Registration
Rights Agreement, and has taken all other necessary action and proceedings as
may be required and permitted by applicable law, rule and regulation, for the
legal and valid issuance of the Preferred Shares hereunder, and the Common
Shares issuable upon conversion thereof.
(f) No Conflicts. The execution, delivery and performance of
this Exchange Agreement, the Registration Rights Agreement by the Company and
the consummation by the Company of the transactions contemplated hereby and
thereby and the filing of the Certificate do not and will not (i) result in a
violation of the Company's Charter or By-Laws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its subsidiaries is
a party or by which any of them is bound, or result in a violation of any
federal, state, local or foreign law, rule, regulation, order, judgment or
decree (including Federal and state securities laws and regulations) applicable
to the Company or any of its subsidiaries or by which any property or asset of
the Company or any of its subsidiaries is bound or affected, or (iii) conflict
with the terms of the Series A Preferred Stock and the holders of the Series A
Preferred Stock are not required to consent to or approve the redemption of the
Preferred Shares or the Debentures (as defined in the Certificate). The business
of the Company and its direct and indirect subsidiaries is being conducted in
material compliance with all applicable laws, ordinances or regulations of any
governmental entity. The Company is not required under Federal, state, local or
foreign law, rule or regulation to obtain any consent, authorization or order
of, or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Exchange Agreement, the Registration Rights Agreement and the Certificate or to
issue and sell the Preferred Shares in accordance with the terms hereof and
issue the Underlying Shares upon conversion thereof, except for the registration
provisions provided in the Registration Rights Agreement, provided that, for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Investors herein.
(g) SEC Documents; Financial Statements. The Common Stock of
the Company is registered pursuant to Section 12(g) of the Securities Exchange
Act of 1934, as
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amended (the "Exchange Act") and the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the
Securities and Exchange Commission ("SEC") pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to Section
13(a) or 15(d), in addition to one or more registration statements and
amendments thereto heretofore filed by the Company with the SEC (all of the
foregoing, including filings incorporated by reference therein, being referred
to herein as the "SEC Documents"). The Company has delivered or made available
to the Investors true and complete copies of all SEC Documents (including,
without limitation, proxy information and solicitation materials and
registration statements) filed with the SEC since its organization and all
annual SEC Documents filed with the SEC since its organization. None of the
Company or its representatives or agents has provided to any Investor or its
representatives or agents any material non-public information or any information
which, according to applicable law, rule or regulation, should have been
disclosed publicly by the Company but which has not been so disclosed. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act and the Securities Act of 1933, as amended
(the "Act") and the rules and regulations of the SEC promulgated thereunder and
other federal, state and local laws, rules and regulations applicable to such
SEC Documents, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except as set forth on
Schedule 2.1(g), the SEC Documents contain all material information concerning
the Company, and no event or circumstance has occurred which would require the
Company to disclose such event or circumstance in order to make the statements
in the SEC Documents not misleading on the date hereof or on the Closing Date
but which has not been so disclosed. The financial statements of the Company
included in the SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed or summary statements) and
fairly present in all material respects the financial position of the Company as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
(h) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Exchange Agreement or the Registration Rights Agreement or
the Certificate.
(i) Principal Exchange/Market. The principal market on which
the Common Shares are currently traded is the Nasdaq NMS.
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(j) No Material Adverse Change. Since January 3, 1998, no
Material Adverse Effect has occurred or exists, and no event or circumstance has
occurred that with notice or the passage of time or both is reasonably likely to
result in a Material Adverse Effect with respect to the Company or its
subsidiaries. Except as disclosed on Schedule 2.1(j), since January 3, 1998, the
Company has not (i) incurred or become subject to any material liabilities
(absolute or contingent), except liabilities incurred in the ordinary course of
business consistent with past practices; (ii) discharged or satisfied any
material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed, or made agreements to purchase
or redeem, any shares of its capital stock; (iv) sold, assigned or transferred
any other tangible assets, or canceled any debts or claims, except in the
ordinary course of business consistent with past practices; (v) suffered any
substantial losses (except for losses not constituting a Material Adverse
Effect) or waived any rights of material value, whether or not in the ordinary
course of business, or suffered the loss of any material amount of existing
business; (vi) made any changes in employee compensation, severance or change in
control arrangements, except in the ordinary course of business consistent with
past practices; or (vii) experienced any material problems, or received any
threat of any material problems, with labor or management in connection with the
terms and conditions of their employment.
(k) Accumulated Earnings and Profits. The Company represents
that it does not have any accumulated earnings and profits as of the end of its
taxable year immediately preceding the date hereof, and does not expect to have
any current earnings and profits for the current taxable year.
(l) No Undisclosed Liabilities. The Company and its direct and
indirect subsidiaries have no liabilities or obligations not disclosed in the
SEC Documents that, individually or in the aggregate, are required to be
disclosed therein, other than those liabilities incurred in the ordinary course
of the Company's or its subsidiaries' respective businesses since January 3,
1998, which liabilities, individually or in the aggregate, do not or would not
have a Material Adverse Effect on the Company or its direct or indirect
subsidiaries.
(m) No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to the Company or its direct or
indirect subsidiaries, taken as a whole, or their respective businesses,
properties, prospects, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed.
(n) No General Solicitation. Neither the Company, nor any of
its affiliates, or, to its knowledge, any person acting on its or their behalf
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the Act) in connection with the offer or sale
of the Preferred Shares or the Underlying Shares.
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(o) No Integrated Offering. Neither the Company, nor any of
its affiliates, nor to its knowledge any person acting on its or their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would require
registration of the Preferred Shares or the Underlying Shares, or of the
issuance of such securities, under the Act. The issuance of the Preferred Shares
or the Underlying Shares to the Investors will not be integrated with any other
issuance of the Company's securities (past, current or future) which requires
stockholder approval under the rules of the Nasdaq NMS, unless such stockholder
approval is obtained by the Company.
(p) Intellectual Property. The Company (and/or its direct or
indirect subsidiaries) owns or has or will obtain without delay in the normal
course of business (as identified on Schedule 2.1(p)) valid and continuing
licenses to use all patents, copyrights and trademarks ("intellectual property")
used in its business. Except as disclosed on Schedule 2.1(p), the Company and
its subsidiaries (i) have all intellectual property rights which are needed to
conduct the business of the Company and its subsidiaries as it is now being
conducted and (ii) have or will obtain without delay all intellectual property
rights which will be needed to conduct the business of the Company and its
subsidiaries as proposed to be conducted as disclosed in the Pre-Agreement SEC
Documents (defined below). The Company and its subsidiaries have no reason to
believe that the intellectual property rights which it owns are invalid or
unenforceable or that the use of such intellectual property by the Company or
its subsidiaries infringes upon or conflicts with any right of any third party,
and neither the Company nor any of its subsidiaries has received notice of any
such infringement or conflict, except for such of the foregoing as is set forth
in Schedule 2.1(p) and other similar matters, all of which the Company
reasonably believes are without merit or are immaterial. The Company and its
subsidiaries have no knowledge of any infringement of its intellectual property
by any third party, except for such infringement that the Company intends to
pursue actively or which the Company (in the exercise of its reasonable
commercial judgment) determines not to pursue. To the knowledge of the Company,
the Company owns or has valid and continuing licenses to use all intellectual
property necessary to the conduct of the Company's business as it is now being
conducted or proposed to be conducted as disclosed in the Pre-Agreement SEC
Documents. The Company knows of no actual or alleged infringement relating to
the intellectual property used by suppliers to the Company, except as described
in detail on Schedule 2.1(p) or except as is not reasonably likely to have a
Material Adverse Effect.
(q) Shareholder Rights Plan. Neither the acquisition of
Preferred Shares nor the deemed beneficial ownership of shares of Common Stock
prior to, or the acquisition of such shares pursuant to, the conversion of
Preferred Shares will in any event under any circumstance trigger the poison
pill provisions of any stockholders' rights or similar agreements, or a
substantially similar occurrence under any successor or similar plan.
(r) No Litigation. The Company currently has litigation
pending in the Supreme Court of the State of New York, Index No. 98/105848,
against the Investors and against the Non-Participating Investors. Except as set
forth in the SEC Documents delivered or made available to the Investors prior to
the date of this Exchange Agreement ("Pre-Agreement SEC
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Documents"), no litigation, investigation or claim (including those for unpaid
taxes) against the Company or any of its subsidiaries is pending or, to the
Company's knowledge, threatened, and no other event has occurred, which if
determined adversely could reasonably be expected to have a Material Adverse
Effect on the Company or could reasonably be expected to materially and
adversely effect the transactions contemplated hereby. The legal proceedings
described in the Pre-Agreement SEC Documents will not have an effect on the
transactions contemplated hereby, and will not have a Material Adverse Effect on
the Company.
(s) Brokers. The Company has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Company or any Investor relating to this Exchange
Agreement or the transactions contemplated hereby.
(t) Other Investors. Except as set forth on Schedule 2.1(t),
there are no outstanding securities issued by the Company that are entitled to
registration rights under the Act. Except as set forth in Schedule 2.1(t), there
are no outstanding securities issued by the Company that are directly or
indirectly convertible into, exercisable into, or exchangeable for, shares of
Common Stock of the Company, that have anti-dilution or similar rights that
would be affected by the issuance of the Preferred Shares.
(u) Certain Transactions. Except as disclosed in the
Pre-Agreement SEC Documents and except for arm's length transactions pursuant to
which the Company or any of its direct or indirect subsidiaries makes payments
in the ordinary course of business upon terms no less favorable than the Company
or any of its direct or indirect subsidiaries could obtain from third parties,
none of the officers, directors, or employees of the Company is presently a
party to any transaction with the Company or any of its direct or indirect
subsidiaries (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) Permits; Compliance. The Company and each of its direct
and indirect subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "Company Permits"), and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or cancellation of any
of the Company Permits except for such Company Permits the failure of which to
possess, or the cancellation or suspension of which, would not, individually or
in the aggregate, have a Material Adverse Effect on the Company. Neither the
Company nor any of it direct or indirect subsidiaries is in material conflict
with, or in material default or material violation of, any of the Company
Permits. Since January 3, 1998,
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neither the Company nor any of its direct or indirect Subsidiaries has received
any notification with respect to possible material conflicts, material defaults
or material violations of applicable laws.
(w) Insurance. The Company and each of its direct and
indirect subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary for the businesses in which
the Company and its direct and indirect subsidiaries are engaged. Neither the
Company nor any such direct or indirect 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 without a significant increase in cost.
(x) Internal Accounting Controls. The Company and each of its
direct and indirect 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
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(y) Margin Accounts. At no time since July 31, 1997 has
Xxxxxx Xxxxxx or Xxxxxx Xxxxx maintained more than 15% of his Common Stock owned
or controlled by such person in a margin account or placed more than 15% of his
Common Stock in a situation which could have resulted in an involuntary sale
thereof.
(z) Lock-Up. Xxxxxx X. Xxxxx has delivered to the Investors
the lock-up letter attached hereto as Exhibit B.
(aa) Restatement of Representations and Warranties. The
Company hereby represents and warrants that the representations and warranties
contained in the Preferred Stock Investment Agreement dated November 12, 1997
were in all material respects true and correct as of the Initial Closing and the
Subsequent Closing, as such terms are defined in said Preferred Stock Investment
Agreement.
Section 2.2 Representations and Warranties of the Investors.
Each of the Investors, severally (as to itself) and not jointly, hereby makes
the following representations and warranties to the Company as of the date
hereof and on the Closing Date:
(a) Authorization; Enforcement. (i) Such Investor has the
requisite power and authority to enter into and perform this Exchange Agreement
and the Registration Rights
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Agreement and to acquire the Preferred Shares being sold hereunder, (ii) the
execution and delivery of this Exchange Agreement and the Registration Rights
Agreement by such Investor and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate or partnership action, and (iii) this Exchange Agreement and the
Registration Rights Agreement constitute valid and binding obligations of such
Investor enforceable against such Investor in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
(b) No Conflicts. The execution, delivery and performance of
this Exchange Agreement and the Registration Rights Agreement and the
consummation by such Investor of the transactions contemplated hereby and
thereby do not and will not (i) result in a violation of such Investor's
organizational documents, or (ii) conflict with any agreement, indenture or
instrument to which such Investor is a party, or (iii) result in a material
violation of any law, rule, or regulation, or any order, judgment or decree of
any court or governmental agency applicable to such Investor. Such Investor is
not required to obtain any consent or authorization of any governmental agency
in order for it to perform its obligations under this Exchange Agreement or the
Registration Rights Agreement.
(c) Investment Representation. Such Investor is acquiring the
Preferred Shares for its own account and not with a view to distribution in
violation of any securities laws. Such Investor has no present intention to sell
the Preferred Shares or the Underlying Shares and such Investor has no present
arrangement (whether or not legally binding) to sell the Preferred Shares or
Underlying Shares to or through any person or entity; provided, however, that by
making the representations herein, such Investor does not agree to hold the
Preferred Shares or Underlying Shares for any minimum or other specific term and
reserves the right to dispose of the Preferred Shares or Underlying Shares at
any time in accordance with Federal and state securities laws applicable to such
disposition.
(d) Accredited Investor. Such Investor is an "accredited
investor" as defined in Rule 501 promulgated under the Act. The Investor has
such knowledge and experience in financial and business matters in general and
investments in particular, so that such Investor is able to evaluate the merits
and risks of an investment in the Preferred Shares and to protect its own
interests in connection with such investment. In addition (but without limiting
the effect of the Company's representations and warranties contained herein),
such Investor has received such information as it considers necessary or
appropriate for deciding whether to exchange the Exchange Shares for the
Preferred Shares pursuant hereto.
(e) Rule 144. Such Investor understands that there is no
public trading market for the Preferred Shares, that none is expected to
develop, and that the Preferred Shares must be held indefinitely unless such
Preferred Shares are converted into Underlying Shares or an
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exemption from registration is otherwise available. Such Investor has been
advised or is aware of the provisions of Rule 144 promulgated under the Act.
(f) Brokers. Such Investor has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Company relating to this Exchange Agreement or the
transactions contemplated hereby.
(g) Reliance by the Company. Such Investor understands that
the Preferred Shares are being offered in reliance on a transactional exemption
from the registration requirements of Federal and state securities laws and that
the Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of such Investor set
forth herein in order to determine the applicability of such exemptions and the
suitability of such Investor to acquire the Preferred Shares.
ARTICLE III
COVENANTS
Section 3.1 Registration and Listing; Effective Registration.
Until the earlier of such time as no Preferred Shares are outstanding and the
Investors cease to own any Underlying Shares or the Mandatory Exchange Date (as
defined in the Certificate) has occurred, the Company will cause the Common
Stock to continue at all times to be registered under Section 12(g) of the
Exchange Act, will comply in all material respects with its reporting and filing
obligations under the Exchange Act, and will not take any action or file any
document (whether or not permitted by the Exchange Act or the rules thereunder)
to terminate or suspend such reporting and filing obligations. Until such time
as no Preferred Shares are outstanding and the Investors cease to own any
Underlying Shares, the Company shall continue the listing and trading of the
Common Stock on the Nasdaq NMS or one of the other Approved Markets and comply
in all material respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Approved Market on which the Common
Stock is listed. The Company shall cause the Underlying Shares to be listed on
the Nasdaq NMS no later than the registration of the Underlying Shares under the
Act, and shall continue such listing on one of the Approved Markets in
accordance with the Company's obligations under the Registration Rights
Agreement. As used herein and in the Registration Rights Agreement and the
Certificate, the term "Effective Registration" shall mean that all obligations
under this Section 3.1 have been satisfied, all registration obligations of the
Company pursuant to the Registration Rights Agreement and this Exchange
Agreement have been satisfied, such registration is not subject to any
suspension or stop order, the prospectus for the Underlying Shares issuable upon
conversion of the Preferred Shares is current and such Common Shares are listed
for trading on one of the Approved Markets and such trading has not been
suspended for any reason (other than a general suspension of trading on the
applicable Approved Market for a period of not more than two Trading Days), and
none of the Company or any direct
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or indirect subsidiary of the Company is subject to any bankruptcy, insolvency
or similar proceeding.
Section 3.2 Certificates on Conversion.
(a) Upon any conversion by an Investor (or then holder of
Preferred Shares) of the Preferred Shares pursuant to the Certificate, the
Company shall issue and deliver to such Investor (or holder) within three (3)
Trading Days of the Conversion Date (as defined in the Certificate) a new
certificate or certificates for the number of Preferred Shares which such
Investor (or holder) has not yet elected to convert but which are evidenced in
part by the certificate(s) submitted to the Company in connection with such
conversion (with the number of and denomination of such new certificate(s)
designated by such Investor or holder).
(b) In lieu of delivering physical certificates representing
the Common Stock issuable upon conversion of Preferred Shares, provided the
Company's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of the
Investor (or then holder), the Company shall use its best efforts to cause its
transfer agent to electronically transmit the Common Stock issuable upon
conversion to the Investor (or then holder), by crediting the account of
Investor's (or then holder's) prime broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for delivery
described in the immediately preceding paragraphs shall apply to the electronic
transmittals described herein.
Section 3.3 Replacement Certificates. The certificate(s)
representing the Preferred Shares held by any Investor (or then holder) may be
exchanged by such Investor (or such holder) at any time and from time to time
for certificates with different denominations representing an equal aggregate
number of Preferred Shares, as requested by such Investor (or such holder) upon
surrendering the same. No service charge will be made for such registration or
transfer or exchange. In the event of lost certificate(s) for the Preferred
Shares, the Company will, upon execution and delivery of a Lost Certificate
Affidavit and Indemnity Agreement reasonably satisfactory to the Company, issue
a replacement certificate(s) for the lost certificate(s).
Section 3.4 Expenses. The Company shall pay simultaneously
herewith all reasonable due diligence fees and expenses and reasonable
attorneys' fees and expenses of Investors' counsel, incurred by the Investors in
connection with the preparation, negotiation, execution and delivery of this
Exchange Agreement, the Registration Rights Agreement, the Certificate and the
related agreements and documents and the transactions contemplated hereunder and
thereunder.
Section 3.5 Dividends or Distributions. So long as any
Preferred Shares remain outstanding, the Company agrees that it shall not (a)
declare or pay any dividends or make any distributions to any holder or holders
of Common Stock or other equity security junior to the Preferred Shares ("Junior
Security"), or (b) purchase or otherwise acquire for value, directly or
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indirectly, any Common Stock or other Junior Security of the Company or other
equity security on parity with the Preferred Shares.
Section 3.6 Notices. The Company agrees to provide all holders
of Preferred Shares with copies of all notices and information, including
without limitation notices and proxy statements in connection with any meetings,
that are provided to the holders of shares of Common Stock, contemporaneously
with the delivery of such notices or information to such Common Stock holders.
Section 3.7 Right of First Offer.
(a) Prior to the earlier of January 3, 2000, or the date on
which all of the Preferred Shares and the Debentures (as defined in the
Certificate) have either been redeemed or converted into the Common Shares into
which they are convertible, the Company shall not offer, sell, contract to sell
or otherwise issue or deliver or dispose of any Common Stock or other equity
securities or any securities which are convertible into or exchangeable for its
Common Stock or other equity securities or any convertible security, or any
warrants or other rights to subscribe for or to purchase or any options for the
purchase of Common Stock or other equity securities (other than (i) in a
bona-fide public offering conducted on the basis of a firm underwriting, (ii)
shares or options issued or which may be issued pursuant to the Company's
employee or director option plans or shares issued upon exercise of options,
warrants or rights outstanding on the Closing Date listed in the Pre-Agreement
SEC Documents, (iii) shares, options or other securities issued in any case
where the Company certifies to the Investors that the proceeds from such
issuance are required for a specific business purpose or for working capital
purposes, (iv) in connection with a merger or other business combination, (v) in
a transaction in which principal consideration other than cash is delivered,
(vi) as part of a joint venture, (vii) as part of an arm's length financing
arrangement with a commercial lender in which such commercial lender receives,
as additional but not primary consideration, warrants with a fixed strike price
that is subject only to customary and bona fide antidilution provisions, or
(viii) Preferred Shares issued to the Non-Participating Investors in a
one-for-one exchange for Original Shares (which Preferred Shares, in any case,
will be subject to the provisions of Section 3.21 of this Exchange Agreement)),
unless such offer, sale, issuance or financing ("Financing Transaction") is
first offered pro-rata to the Investors on the same terms to be offered to
non-Investors. The Company shall make such offer by providing each Investor with
written notice of the Company's intention to enter into the Financing
Transaction together with a term sheet containing the economic terms and
significant provisions of the Financing Transaction and any other information
reasonably requested by the Investors (the "Offer"). Such Offer shall be given
with respect to each Financing Transaction contemplated by the Company. The
Investors shall have ten (10) business days from receipt of the Offer to deliver
a written notice to the Company that the Investors wish to accept the Offer in
whole (subject to satisfactory due diligence and reasonably acceptable
definitive documentation) for the Financing Transaction. If the Investors do not
accept the Offer in its entirety or fail to respond within such ten (10)
business day period, then the Company shall be permitted to complete such
Financing Transaction without the Investors on terms and conditions
substantially identical to those contained
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in the Offer. If any Financing Transaction is contemplated on terms and
conditions not substantially identical to those contained in the Offer or with
proposed definitive documentation not those proposed by the Company with respect
to the Offer, then such Financing Transaction shall be deemed a new Financing
Transaction and the Investors shall again be entitled to receive an Offer for
such Financing Transaction on such new terms and conditions (and/or with such
new definitive documentation if applicable). As among the Investors, each
Investor shall have the right to participate in the Offer in whole, up to the
full extent of the Offer, provided that if such Offer is oversubscribed by the
Investors, each Investor shall only be entitled to participate in the Offer up
to its pro rata share.
(b) Notwithstanding the foregoing, if the Company initiates an
underwritten offering of its Common Stock or other equity securities or any
securities which are convertible into or exchangeable for its Common Stock
("Convertible Securities") or warrants or other rights to subscribe for or
purchase any Common Stock or Convertible Securities at an offering price less
than $9.00 per share, then each Investor shall be entitled, under the
Registration Rights Agreement, to specify all or part of such Investor's Common
Shares to be sold in such offering, subject to proportional allocation by the
underwriter, if the underwriter decides that marketing factors require a
limitation on securities underwritten. If an Investor elects not to participate
in such underwritten offering, the Company shall, promptly after the completion
thereof, redeem from such Investor a number of his Common Shares as determined
below, at an aggregate redemption price equal in dollar amount to the net
proceeds (after underwriting discounts) which the Investor would have received
if such Investor had elected to participate in the offering to the full extent
of such Investor's proportional allocation of such offering by the underwriters.
For purposes of this paragraph, each Investor's pro rata share of the
underwriter's proportional allocation to all selling shareholders shall be equal
to all Preferred Shares then held by such Investor as a percentage of all
Preferred Shares then held by all Investors; and if the Debentures have then
been issued, the face amount of the Debentures held by such Investor as a
percentage of the face amount in the aggregate of all Debentures held by all
Investors. For purposes of such redemption, it is assumed that if such Investor
had elected to participate in such offering, it would have done so to the full
extent of the Common Shares into which it could convert its Preferred Shares or
Debentures, as the case may be, subject to the underwriter's cut back. The
number of Common Shares so redeemed shall be equal in number to the dollar
amount of the redemption price divided by $9.00. The redemption shall occur
whether or not the Preferred Shares have been exchanged for Debentures. By way
of example only, if the underwriters allocated to all selling shareholders
fifteen percent (15%) of a $20.0 million offering, and if the Investor's pro
rata share of all Investors' shares was 25%, and the Investors in the aggregate
had the right to convert into Common Shares equal to 20% of all outstanding
shares of the Company, and each non-Investor shareholder elected to participate
to the full extent of all such shareholder's shares in the Company, then the
Company would be required to redeem from such Investor Common Shares at a
redemption price equal to $150,000 (.15 x 20.0 million x .2 x .25 = $150,000).
Section 3.8 Reservation of Stock Issuable Upon Conversion.
The Company shall at all times reserve and keep available out of its authorized
but unissued Common Stock, solely
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for the purpose of effecting the conversion of the Preferred Shares, such number
of shares of its Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding Preferred Shares, and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all the then outstanding Preferred Shares, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued Common Stock to such number
of shares as shall be sufficient for such purpose, including without limitation
engaging in best efforts to obtain the requisite shareholder approval. Without
in any way limiting the foregoing, the Company agrees to reserve and at all
times keep available solely for purposes of conversion of Preferred Shares such
number of authorized but unissued Common Shares that is at least equal to 200%
of the aggregate shares issuable upon exercise of Preferred Shares, which number
may be reduced by the number of Common Shares actually delivered pursuant to
conversion of Preferred Shares under the Certificate, and shall be appropriately
adjusted for any stock split, reverse split, stock dividend or reclassification
of the Common Stock.
Section 3.9 Parallel Exit Rights. So long as any Preferred
Shares or Debentures are outstanding, if the Company shall transfer for value in
one transaction or a series of related transactions any shares of Common Stock
to any third party pursuant to any unregistered private sale in which any
existing shareholders are offered the right to exercise any "piggy back" rights
("Offerees"), then the holders of any Preferred Shares or Debentures ("Existing
Holders"), at the option of each Existing Holder, shall be provided with the
opportunity to convert its Preferred Shares and/or Debentures into Common Shares
and each Existing Holder shall have the right to sell a percentage of its total
Common Shares equal to the percentage of the Offeree's total Common Stock
holdings being sold by such other selling shareholders. Each Existing Holder
shall execute and deliver all agreements and documents required to be executed
and delivered by the other selling shareholders, in order to effectuate such
sale.
Section 3.10 Best Efforts. The parties shall use their best
efforts to satisfy timely each of the conditions described in Section
1.1(b)(iii) of this Exchange Agreement.
Section 3.11 Form D; Blue Sky Laws. The Company agrees to file
a Form D with respect to the Preferred Shares and Underlying Shares, as required
under Regulation D, and to provide a copy thereof to each Investor promptly
after such filing. The Company shall have, before the Effective Time, taken such
action as the Company shall have reasonably determined is necessary to qualify
the Preferred Shares and Underlying Shares for sale to the Investors at the
Effective Time pursuant to this Exchange Agreement under applicable securities
or "blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and herewith provides evidence of any such action so
taken to each Investor.
Section 3.12 No Senior Securities; Series A Preferred. So long
as any Preferred Shares remain outstanding, the Company agrees that neither the
Company nor any direct or indirect subsidiary of the Company shall, without
prior written approval by seventy-five percent in interest of the holders of
outstanding Preferred Shares, (i) issue any shares of its preferred stock
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(other than the Series A Preferred Stock or Preferred Shares to the
Non-Participating Investors in a one-for-one exchange for the Original Shares
(which Preferred Shares, in any case, will be subject to Section 3.21 of this
Exchange Agreement and pari passu to the Preferred Shares issued to Investors
hereunder)) or any securities convertible into its preferred stock except for
preferred stock which is junior to the Preferred Shares in all respects, or (ii)
increase the authorized or issued number of, or change in any manner adverse to
the Investors the rights, privileges and preferences of, the Series A Preferred
Stock.
Section 3.13. Subordination of Future Indebtedness. Any
indebtedness or preferred stock (other than refinancing, replacement or
additions to the Company's credit facility with NationsCredit or any subsequent
lender or lenders, including participants, in any amount) issued after the date
of this Exchange Agreement shall be expressly subordinated in right of payment
to the Debentures, whether or not yet issued, in form and substance reasonably
satisfactory to the Investors, except that the Company may incur trade debt in
the ordinary course of business and may incur such indebtedness, as is required,
in the discretion of the Board of the Company, to provide the Company with
necessary working capital.
Section 3.14 S-3 Eligibility. The Company will do all things
reasonably necessary to remain eligible to use Form S-3, and will do nothing and
will not allow anything in its control to be done to interfere with such
eligibility.
Section 3.15 No Blackout. The Company shall not take any
action to cause the Investors to be unable to sell their Underlying Shares
pursuant to an effective Registration Statement (as defined in the Registration
Rights Agreement) for a period of sixty (60) days after the Effective Date.
Section 3.16 Election of Additional Directors.
(a) As of the Effective Time, the Company shall have taken
such actions as may be necessary or appropriate to create one (1) additional
seats on the Board of Directors of the Company. The Investors, acting
unanimously, shall have the right to propose the candidates for the vacancies
created by the creation of such additional seats on the Board of Directors. The
candidates proposed by the Investors shall not be employees, officers,
directors, shareholders, consultants, advisors or affiliates of any Investor.
The Board of Directors of the Company shall have the right, in its reasonable
discretion, to withhold approval of any one or more candidate proposed by the
Investors. Upon the proposal by the Investors of candidates reasonably
acceptable to the Board of Directors of the Company, the Board of Directors
shall appoint each such candidate to fill the vacancy created by the increase of
the number of seats on the Board.
(b) As of the Effective Time, the additional seat on the Board
of Directors of the Company shall have been added to the Class I Directors of
the Board of Directors of the Company. The new Director shall serve for the
remainder of the term of the Class, but each such new director designated by the
Investors shall be further limited so that at such time as all of the
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Preferred Shares of all of the Investors have either been redeemed by the
Company or converted into Common Shares by the Investors then such director
shall agree to resign. In any event, at the expiration of the term of the Class
I Directors, the position for such additional director shall terminate and shall
no longer exist.
Section 3.17 Estoppel. As of the Effective Time, each party
agrees and stipulates that there presently exists no material default or breach,
and no event has occurred which constitutes, or would constitute with notice or
the passage of time or both, a material default or breach of the Investment
Agreement, the Registration Rights Agreement or the Certificate of Designations
of the 6% Cumulative Convertible Preferred Stock, all dated November 12, 1997.
Effective at the Effective Time, the mandatory redemption notices given pursuant
to the investment agreement previously delivered to the Company by the Investors
shall be deemed to be null and void
Section 3.18 Mutual Release.
(a) The Company, for itself, its parents, subsidiaries,
affiliates, attorneys, employees, directors, officers, successors, legal
representatives and assigns, does hereby irrevocably and completely release and
discharge each of the Investors, and each Investor's fund management companies
and all other entities providing services to such Investors, and all of their
affiliates, partners, successors, assigns, employees, attorneys, agents,
beneficiaries, heirs, representatives, and all other persons, firms or
corporations liable, or who might be claimed to be liable, none of whom admit
any liability, but all of whom deny liability, of and from any and all claims,
demands, sums of money, actions, rights, causes of action, obligations,
liabilities or costs of every kind and character whatsoever which the Company
has ever had or claimed to have or now has or claims to have or hereafter may
have or claim to have against all, each or any of the Investors (or any of the
persons or entities identified above related to each of the Investors), whether
known or unknown, suspected or unsuspected, or which the Company (or any of the
persons or entities identified above related to the Company), by itself or
derivatively through any other entity, may now or hereafter otherwise have
against each of the Investors arising out of any acts, omissions, events,
occurrences, happenings, or circumstances occurring or existing prior to the
date hereof. At the Effective Time, the court action filed in the Supreme Court
of the State of New York, County of New York, Index No. 98/105848 on April 3,
1998, will be dismissed with prejudice by the Company only as to the Investors;
provided that the foregoing release and dismissal shall not affect or limit in
any way whatsoever the rights of the Company in the aforesaid litigation or
otherwise against the Non-Participating Investors, and all rights against such
Non-Participating Investors are expressly reserved.
(b) Each Investor, for itself, its fund management companies
and all other entities providing services to such Investors, its affiliates,
successors, assigns, employees, attorneys, agents, beneficiaries, heirs and
representatives, does hereby irrevocably and completely release and discharge
the Company, and its parents, subsidiaries, affiliates, attorneys, employees,
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directors, officers, successors, legal representatives, assigns, and all other
related persons, firms or corporations liable, or who might be claimed liable,
none of whom admit liability, but all of whom deny liability, of and from any
and all claims, demands, sums of money, actions, rights, causes of action,
obligations, liabilities or costs of every kind and character whatsoever which
each of the Investors (or any of the persons or entities identified above
related to each of the Investors) has ever had or claimed to have or now has or
claims to have or hereafter may have or claim to have against the Company (or
any of the persons or entities identified above related to the Company), whether
known or unknown, suspected or unsuspected, or which each of the Investors, by
itself or derivatively through any other entity, may now or hereafter otherwise
have against the Company (or any of the persons or entities identified above
related to the Company) arising out of any acts, omissions, events, occurrences,
or happenings occurring prior to the date hereof.
Section 3.19 Opinion of Counsel. At the Closing Date, the
Investors shall have received an opinion of counsel to the Company in the form
attached hereto as Exhibit C and such other opinions, certificates and documents
as the Investors or their counsel shall reasonably require incident to the
Closing Date.
Section 3.20 Officer's Certificate. The Company shall have
delivered to the Investors a certificate in form and substance satisfactory to
the Investors, executed by an officer of the Company, certifying as to
satisfaction of closing conditions, incumbency of signing officers, and the
true, correct and complete nature of the Charter, By-Laws, good standing and
authorizing resolutions of the Company.
Section 3.21 Most Favored Terms. Other than the Investment
Agreement, the Certificate of Designations of the 6% Cumulative Convertible
Preferred Stock, and the Registration Rights Agreement, all dated November 12,
1997 (the "Original Agreements"), there are no agreements or arrangements with
the Non-Participating Investors. Other than this Exchange Agreement, the
Certificate, the Debentures, the Registration Rights Agreement and the Stock
Pledge Agreement, there are no agreements or arrangements with the Investors. In
the event that (i) the Non-Participating Investors obtain a final nonappealable
court order enforcing the terms of the Original Agreements, or (ii) the Company
hereafter enters into a new Preferred Stock Exchange Agreement, any other
exchange or modification agreement relating to the issuance of the Original
Shares, any Certificate of Designations, note, debenture or other form of
security, or any Registration Rights Agreement, in any case with or for the
benefit of any of the NonParticipating Investors or Investors, or other
documents substantially similar thereto, by whatever name called, containing
terms or provisions more favorable to the Non-Participating Investors or
Investors than the terms and provisions hereof, or any other agreement,
understanding or arrangement (an "Alternate Arrangement") providing the
Non-Participating Investors or Investors with compensation or benefits without
the receipt by the Company of value in return therefor that is equivalent to the
value that would be received by the Company from an unaffiliated third party for
such compensation or benefit, then in such event, from and after the effective
time of any such court order or more favorable terms, provisions or Alternate
Arrangement, the Investors shall be
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given the benefit and effect of the Original Agreements or such more favorable
terms, provisions and Alternate Arrangement, as the case may be, in lieu of and
not in addition to the benefits and effect of this Exchange Agreement, the
Certificate, the Debenture and the Registration Rights Agreement. The decision
whether such new terms, provisions or Alternate Arrangement are more favorable
shall be at each Investor's sole and absolute discretion.
Section 3.22. Stock Pledge Agreement. As security for the
validly and relative priority of the Preferred Shares, the Company shall enter
into a Stock Pledge and Security Agreement substantially in the form of Exhibit
C hereto (the "Stock Pledge Agreement"). The Company agrees to receive all
Exchange Shares from the Investors pursuant to Section 1.1(b)(ii) as treasury
stock and further agrees to pledge them as collateral as stated above.
ARTICLE IV
LEGEND AND STOCK
The Company will issue one or more certificates representing
the Preferred Shares in the name of the Investor and in such denominations
specified by the Investor prior to (or from time to time subsequent to) Closing.
Each certificate representing the Preferred Shares shall be stamped or otherwise
imprinted with a legend substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD
OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
The Company agrees to reissue Preferred Shares without the
legend set forth above at such time as (i) the holder thereof is permitted to
dispose of such Preferred Shares and Common Stock issuable upon conversion or
exercise thereof pursuant to Rule 144(k) under the Act, or (ii) such Preferred
Shares are sold to a purchaser or purchasers who (in the opinion of counsel to
the seller or such purchaser(s), in form and substance reasonably satisfactory
to the Company and its counsel) are able to dispose of such shares publicly
without registration under the Act.
Nothing herein shall limit the right of any holder to pledge
these securities pursuant to a bona fide margin account or lending arrangement.
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ARTICLE V
MISCELLANEOUS
Section 5.1 Stamp Taxes. The Company shall pay all stamp and
other taxes and duties levied in connection with the issuance of the Preferred
Shares pursuant hereto and the Common Shares issued upon conversion thereof.
Section 5.2 Specific Performance; Consent to Jurisdiction;
Jury Trial.
(a) The Company and the Investors acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Exchange Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Exchange Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which any of
them may be entitled by law or equity.
(b) THE COMPANY AND EACH OF THE INVESTORS (I) HEREBY
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT
COURT, THE NEW YORK STATE COURTS AND OTHER COURTS OF THE UNITED STATES SITTING
IN NEW YORK COUNTY, NEW YORK FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS EXCHANGE AGREEMENT AND (II) HEREBY WAIVES,
AND AGREES NOT TO ASSERT IN ANY SUCH SUIT ACTION OR PROCEEDING, ANY CLAIM THAT
IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF
THE SUIT, ACTION OR PROCEEDING IS IMPROPER. THE COMPANY AND EACH OF THE
INVESTORS CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR
PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR
NOTICES TO IT UNDER THIS EXCHANGE AGREEMENT AND AGREES THAT SUCH SERVICE SHALL
CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING IN
THIS PARAGRAPH SHALL AFFECT OR LIMIT ANY RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY APPLICABLE LAW.
(c) THE COMPANY AND EACH INVESTOR HEREBY WAIVES ALL
RIGHTS TO A TRIAL BY JURY.
Section 5.3 Entire Agreement; Amendment. This Exchange
Agreement (including the Schedules and Exhibits hereto), together with the
Registration Rights Agreement, the Certificate and the agreements and documents
executed in connection herewith and therewith, contains the entire understanding
of the parties with respect to the matters covered hereby and
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thereby and, except as specifically set forth herein or therein, neither the
Company nor any Investor makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Exchange
Agreement may be waived or amended other than by a written instrument signed by
the party against whom enforcement of any such amendment or waiver is sought.
Section 5.4 Notices. Any notice or other communication
required or permitted to be given hereunder shall be in writing by mail,
facsimile or personal delivery and shall be effective upon actual receipt of
such notice. The addresses for such communications shall be:
to the Company:
Xxxxx Corporation
0000 Xxxxxxxxx Xxxxxxx Xxxx
Xxxxxxxx, Xxxxxxx 00000
Attention: Chairman
Facsimile: (000) 000-0000
with copies to:
Xxxxxx Xxxxxxx Xxxxxxxxx & Xxxx, PLLC
0000 Xxxxxxxxx
Xxxxxx, X.X.
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: G. Xxxxxx Xxxxxxx, Esq.
Facsimile: (000) 000-0000
to the Investors:
To each Investor at the address and/or fax number set
forth on Schedule I of this Exchange Agreement, and
with copies to counsel, if any, indicated on Schedule
I.
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.
Section 5.5 Indemnity. Each party shall indemnify each other
party against any loss, cost, claim or damages (including reasonable attorneys'
fees and disbursements but excluding consequential damages) incurred as a result
of such parties' breach of any representation, warranty, covenant or agreement
in this Exchange Agreement.
Section 5.6 Waivers. No waiver by any party of any default
with respect to any provision, condition or requirement of this Exchange
Agreement shall be deemed to be a
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continuing waiver in the future or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right accruing to
it thereafter.
Section 5.7 Headings. The headings herein are for convenience
only, do not constitute a part of this Exchange Agreement and shall not be
deemed to limit or affect any of the provisions hereof.
Section 5.8 Successors and Assigns. Except as otherwise
provided herein, this Exchange Agreement shall be binding upon and inure to the
benefit of the parties who have signed this Exchange Agreement and their
successors and permitted assigns. It shall not be necessary for this Exchange
Agreement to be binding on those Investors who are signatories hereto that all
Investors be signatories hereto. The parties hereto may amend this Exchange
Agreement in a writing signed by all such parties without notice to or the
consent of any third party. The Company may not assign this Exchange Agreement
or any rights or obligations hereunder without the prior written consent of all
Investors (which consent may be withheld for any reason in their sole
discretion), except that the Company may assign this Exchange Agreement in
connection with the sale of all or substantially all of its assets provided that
the Company is not released from any of its obligations hereunder, such assignee
assumes all obligations of the Company hereunder, and appropriate adjustment of
the provisions contained in this Exchange Agreement, the Registration Rights
Agreement and the Certificate is made, in form and substance satisfactory to the
Investors, to place the Investors in the same position as they would have been
but for such assignment, in accordance with the terms of the Certificate. Any
Investor may assign this Exchange Agreement (in whole or in part) or any rights
or obligations hereunder without the consent of the Company in connection with
any permitted sale or transfer all or any portion of the Exchange Shares held by
such Investor.
Section 5.9 Additional Investors. The Company may enter into
an addendum or other appropriate documentation to add any or all of the
Non-Participating Investors as a party hereto on terms identical hereto.
Section 5.10 No Third Party Beneficiaries. This Exchange
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
Section 5.11 Governing Law. This Exchange Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of New York applicable to contracts executed and to be performed entirely within
such state.
Section 5.12 Survival. The representations and warranties and
the agreements and covenants of the Company and each Investor contained herein
shall survive the Closing.
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Section 5.13 Execution. This Exchange Agreement may be
executed in two or more counterparts, all of which shall be considered one and
the same agreement, it being understood that all parties need not sign the same
counterpart.
Section 5.14 Publicity. The Company agrees that it will not
disclose, and will not include in any public announcement, the name of any
Investor without its consent, unless and until such disclosure is required by
law or applicable regulation, and then only to the extent of such requirement.
The Company agrees that it will deliver a copy of any public announcement
regarding the matters covered by this Exchange Agreement or any agreement and
document executed herewith to each Investor and any public announcement
including the name of an Investor to such Investor, prior to the release of such
announcements.
Section 5.15 Severability. The parties acknowledge and agree
that the Investors are not agents, affiliates or partners of each other, that
all representations, warranties, covenants and agreements of the Investors
hereunder are several and not joint, that no Investor shall have any
responsibility or liability for the representations, warrants, agreements, acts
or omissions of any other Investor, and that any rights granted to "Investors"
hereunder shall be enforceable by each Investor hereunder.
Section 5.16 Like Treatment of Holders; Redemption. Neither
the Company nor any of its affiliates shall, directly or indirectly, pay or
cause to be paid any consideration (immediate or contingent), whether by way of
interest, fee, payment for the redemptions or exchange of Preferred Shares, or
otherwise, to any holder of Preferred Shares, for or as an inducement to, or in
connection with the solicitation of, any vote, consent, waiver or amendment of
any terms or provisions of the Certificate or this Exchange Agreement or the
Registration Rights Agreement, unless such consideration is required to be paid
to all holders of Preferred Shares bound by such vote, consent, waiver or
amendment whether or not such holders so consent, vote, waive or agree to amend
and whether or not such holders tender their Preferred Shares for redemption or
conversion. The Company shall not, directly or indirectly, redeem any Preferred
Shares or provide other consideration to the holders thereof unless such offer
of redemption or consideration is made pro rata to all holders of Preferred
Shares on identical terms. The Company will provide each holder of Preferred
Shares with 6 Trading Days' advance written notice of any vote, consent, waiver
or amendment, whether or not involving such redemption or consideration.
Section 5.17 No Strict Construction. The language used in this
Exchange 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.
[SIGNATURES ON FOLLOWING PAGES]
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IN WITNESS WHEREOF, the parties hereto have caused this
Exchange Agreement to be duly executed as of the date first above written.
XXXXX CORPORATION
By: /s/ Xxxxxx X. Xxxxx
----------------------------------------
XXXXXX X. XXXXX, Chairman
By: /s/ Xxxxxx X. Xxxxxx
----------------------------------------
XXXXXX X. XXXXXX
Chief Executive Officer
INVESTORS:
XXXXX INTERNATIONAL
By: /s/
----------------------------------------
Name:
Title:
SHEPHERD INVESTMENTS INTERNATIONAL, LTD.
By: /s/
----------------------------------------
Name:
Title:
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
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RAMIUS FUND, LTD.
By: AG. RAMIUS PARTNERS, L.L.C., Investment Manager
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Managing Officer
GAM ARBITRAGE INVESTMENTS, INC.
By: XXXXXX, XXXXXX & CO., L.P., Investment Manager
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chief Operating Officer
XXXXXXXX, L.P.
By: XXXXXX, XXXXXX & CO., L.P., General Partner
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chief Operating Officer
RAPHAEL, L.P.
By: XXXXXX, XXXXXX & CO., L.P., General Partner
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chief Operating Officer
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
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AG SUPER FUND INTERNATIONAL PARTNERS, L.P.
By: XXXXXX, XXXXXX & CO., L.P., General Partner
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chief Operating Officer
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Exhibit 1
CERTIFICATE OF DESIGNATIONS
OF
8% CUMULATIVE CONVERTIBLE PREFERRED STOCK
FOR
XXXXX CORPORATION
XXXXX CORPORATION (f/k/a Access Beyond, Inc.), a Delaware
corporation (the "Corporation"), pursuant to the provisions of Section 151 of
the General Corporation Law of the State of Delaware, does hereby make this
Certificate of Designations and does hereby state and certify that pursuant to
the authority expressly vested in the Board of Directors of the Corporation by
the Certificate of Incorporation of the Corporation, the Board of Directors duly
adopted the following resolutions, which resolutions remain in full force and
effect as of the date hereof:
WHEREAS, the Corporation has heretofore entered into a
Preferred Stock Investment Agreement (the "Investment Agreement") dated November
12, 1997 with the certain investors that were signatories thereto ( the
"Original Investors") and, pursuant to the Investment Agreement, the Corporation
has previously issued a series of Preferred Stock consisting of a total of
44,999 shares designated as "6% Cumulative Convertible Preferred Stock" (the
"Original Shares") to the Original Investors;
WHEREAS, certain of the Original Investors have entered into
that certain Preferred Stock Exchange Agreement dated as of June 22, 1998 (the
"Exchange Agreement") to which this Certificate of Designations is Exhibit 1,
and are signatories thereto (the "Investors");
WHEREAS, certain of the Original Investors have not entered
into the Exchange Agreement and are not signatories thereto (the
"Non-Participating Investors"); and
WHEREAS, the Corporation has previously issued to the
Investors an aggregate of 19,999 shares of the Original Shares pursuant to the
Investment Agreement (the "Exchange Shares"), and the Corporation and the
Investors desire to exchange the Exchange Shares now held by them on the Closing
Date (as defined in the Exchange Agreement) for a like number of the "Preferred
Shares" (defined below), having the designations and preferences set forth in
this Certificate of Designations.
RESOLVED, that, pursuant to Article Four of the Amended and
Restated Certificate of Incorporation of the Corporation, the Board of Directors
hereby authorizes the issuance of, and fixes the designation and preferences and
relative, participating, optional and other special rights, and qualifications,
limitations and restrictions, of a series of Preferred Stock consisting of
41,736 shares, par value $0.01, to be designated "8% Cumulative Convertible
Preferred Stock" (the "Preferred Shares").
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RESOLVED, that each of the Preferred Shares shall rank equally
in all respects and shall be subject to the following terms and provisions:
1. DIVIDENDS.
(a) Cumulative. The holders of the Preferred
Shares shall be entitled to receive out of any assets legally available therefor
cumulative dividends at the per share rate of eight percent (8%) per annum for
all time periods measured from and after March 9, 1998, of the Liquidation
Preference calculated as of the time of the applicable dividend calculation of
each Preferred Share, payable quarterly, in arrears, on each of March 31, June
30, September 30 and December 31 of each year, commencing June 30, 1998 (each a
"Dividend Payment Date"), or if earlier, upon conversion or redemption of
Preferred Shares, in preference and priority to any payment of any dividend on
the Common Stock (as defined in Section 4 below) or any other class or series of
equity security of the Corporation, except for the Series A Preferred Stock of
the Corporation to which the Preferred Shares are junior in preference with
respect to the payment of dividends and the Original Shares with which the
Preferred Shares are pari passu. Such dividends shall accrue on any given share
from the most recent date on which a dividend has been paid with respect to such
share, or if no dividends have been paid at the rate of eight percent (8%) per
annum of the Liquidation Preference at the time of calculation of such dividend,
from and after March 9, 1998, and such dividends shall accrue from day to day
whether or not declared, based on the actual number of days elapsed. If at any
time dividends on the outstanding Preferred Shares at the rate set forth above
shall not have been paid or declared and set apart for payment with respect to
all preceding periods, the amount of the deficiency shall be fully paid or
declared and set apart for payment, but without interest, before any
distribution, whether by way of dividend or otherwise, shall be declared or paid
upon or set apart for the shares of any other class or series of equity security
of the Corporation ranking junior to the Preferred Shares. For so long as any
Preferred Shares are outstanding, the Corporation shall not pay any dividends on
any shares of Common Stock or any other equity security with ranking junior to
the Preferred Shares, without having received written consent of three-quarters
in interest of the holders of Preferred Shares.
(b) Cash or PIK. Any dividend payable on the
outstanding Preferred Shares may be paid, at the option of the Corporation,
either (i) in cash, or (ii) by adding the amount thereof to the Liquidation
Preference (as defined below) of such Preferred Shares; provided, however, that
if the Corporation shall fail to pay any dividend on a Dividend Payment Date,
the amount of such dividend shall be added to the Liquidation Preference for
such Preferred Shares and; provided further that any such dividend must be paid
in cash unless, at the time the Corporation elects to add the amount of such
payment to the Liquidation Preference, the Common Stock and Common Shares (as
defined below) are subject to Effective Registration (as defined in the Exchange
Agreement). The Corporation will be obligated to pay dividends on Dividend
Payment Dates pursuant to (ii) above until the Corporation gives each holder
written notice of its intention to pay dividends pursuant to (i) above, which
notice must be given at least 30 days before the next applicable Dividend
Payment Date. The Corporation will be obligated to pay dividends on conversions
on dates other than a Dividend Payment Date pursuant to (ii) above until the
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Corporation gives each holder written notice of its intention to pay dividends
pursuant to (i) above, which notice will only become effective 30 days after
being delivered. All notices described above will remain in force unless and
until replacement notices become effective in accordance with this Section 1(b).
2. LIQUIDATION PREFERENCE. In the event of any
liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary, the holders of each Preferred Share shall be entitled to receive,
prior and in preference to any distribution of any assets of the Corporation to
the holders of any other class or series of equity securities ranking junior to
the Preferred Shares (other than the Series A Preferred Stock of the Corporation
to which the Preferred Shares are junior in liquidation preference and the
Original Shares with which the Preferred Shares are pari passu) the amount of
125% of the Liquidation Preference of each Exchange Share as of the Exchange
Date, expressed as a dollar amount per share (which is $______ per Preferred
Share) plus the following, to the extent accrued after the Exchange Date: (x)
dividends added to the Liquidation Preference in accordance with Section
1(b)(ii) above, (y) default payments owing to such holder with respect to such
share pursuant to the Registration Rights Agreement (defined below) and (z) any
accrued but unpaid dividends (with dividends deemed accrued on a per diem basis
through the date of such event and thereafter even if such event or any
distribution is not on a Dividend Payment Date) (the "Liquidation Preference").
3. ISSUANCE OF PREFERRED SHARES. The Preferred Shares
shall be issued by the Corporation pursuant to the Exchange Agreement entered
into between the Corporation and the Investors, and holders of Preferred Shares
shall enjoy the benefits of the Registration Rights Agreement dated of even date
with the Exchange Agreement ("Registration Rights Agreement") entered into
between such parties in connection with the Exchange Agreement. The Corporation
is permitted to issue Preferred Shares to Non-Participating Investors in a
one-for-one exchange for the Original Shares under this Certificate of
Designations, which shall not be deemed a breach, adjustment or other triggering
event hereunder.
4. CONVERSION. Each holder of the Preferred Shares shall
have the right at any time and from time to time, at the option of such holder,
to convert any or all of its Preferred Shares, but not less than Preferred
Shares with a Liquidation Preference of at least $10,000, for such number of
fully paid, validly issued and nonassessable shares ("Common Shares") of common
stock, par value $0.01, of the Corporation ("Common Stock"), free and clear of
any liens, claims or encumbrances, as is determined by dividing (i) the
Liquidation Preference times the number of Preferred Shares being converted (the
"Conversion Amount"), by (ii) the Conversion Price (hereinafter defined).
(a) Mechanics of Conversion. To convert
Preferred Shares into Common Shares, the holder shall give written notice
("Conversion Notice") to the Corporation in the form of page 1 of Exhibit A
hereto (which Conversion Notice may be given by facsimile transmission) stating
that such holder elects to convert the same and shall state therein the number
of shares to be converted and the name or names in which such holder wishes the
certificate or certificates for
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Common Shares to be issued (the date of such Conversion Notice shall be referred
to herein as the "Conversion Date"). Either simultaneously with the delivery of
the Conversion Notice, or within one (1) Trading Day thereafter, the holder
shall deliver (which also may be done by facsimile transmission) page 2 to
Exhibit A hereto indicating the computation of the number of Common Shares to be
received. "Trading Day" means (x) if the Common Stock is listed on the New York
Stock Exchange or the American Stock Exchange, a day on which there is trading
on such stock exchange, (y) if the Common Stock is not listed on either of such
stock exchanges but sale prices of the Common Stock are reported on an automated
quotation system, a day on which trading is reported on the principal automated
quotation system on which sales of the Common Stock are reported, or (z) if the
foregoing provisions are inapplicable, a day on which quotations are reported by
National Quotation Bureau Incorporated. As soon as possible after delivery of
the Conversion Notice, such holder shall surrender the certificate or
certificates representing the shares being converted, duly endorsed, at the
office of the Corporation or of any transfer agent for such shares, provided
that the Corporation shall at all times maintain an office or agency in New York
City (or within 60 miles thereof) for such purposes; provided that the
Corporation need not effect any issuance prior to receiving all documents
required by this Section 4(a). The Corporation shall, promptly upon receipt of
such Conversion Notice, issue and deliver to or upon the order of such holder,
against delivery of the certificates representing the shares which have been
converted, a certificate or certificates for the number of Common Shares to
which such holder shall be entitled (with the number of and denomination of such
certificates designated by such holder), and the Corporation shall promptly
issue and deliver to such holder a certificate or certificates for the number of
Preferred Shares which such holder has not yet elected to convert hereunder but
which are evidenced in part by the certificate(s) delivered to the Corporation
in connection with such Conversion Notice; the Corporation shall effect such
issuance within three (3) Trading Days of the Conversion Date and shall transmit
the certificates by messenger or overnight delivery service to reach the address
designated by such holder within three (3) Trading Days after the receipt of
such Conversion Notice ("T+3"). If such Common Share certificates are not
received by such holder within T+3, such holder may revoke such Conversion
Notice in whole or in part. In lieu of delivering physical certificates
representing the Common Shares issuable upon conversion of Preferred Shares or
exercise of Warrants, provided the Corporation's transfer agent is participating
in the Depository Trust Company ("DTC") Fast Automated Securities Transfer
("FAST") program, upon request of the holder, the Corporation shall use its best
efforts to cause its transfer agent to electronically transmit the Common Shares
issuable upon conversion or exercise to the holder), by crediting the account of
holder's prime broker with DTC through its Deposit Withdrawal Agent Commission
("DWAC") system. The time periods for delivery described above shall apply to
the electronic transmittals through the DWAC system. The parties agree to
coordinate with DTC to accomplish this objective. The conversion pursuant to
this Section 4 shall be deemed to have been made immediately prior to the close
of business on the Conversion Date. The person or persons entitled to receive
the Common Shares issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Shares at the close of
business on the Conversion Date.
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(b) The Corporation shall be absolutely and
unconditionally obligated to issue the Common Shares to which such holder shall
be entitled pursuant to each Conversion Notice given in conformance with this
Certificate of Designations and the Exchange Agreement, without defense or
offset, and such obligation shall be independent of any other obligation or
covenant of any holder.
(c) Conversion Price. Each Preferred Share may
be converted into Common Shares by dividing the then applicable Liquidation
Preference of such Preferred Share by $9.00, which (subject to adjustment as
provided in this Certificate) shall be the Conversion Price for all purposes of
this Certificate.
(d) Optional Redemption.
(i) Subject to Section 4(d)(ii), the
Preferred Shares will be callable by the Corporation in whole or part (subject
to an aggregate minimum of $1,000,000 per optional redemption) at any time and
from time to time, upon 60 days advanced written notice (subject to the right of
holders to convert in advance of such optional redemption date, or thereafter if
the Corporation breaches its obligation to so redeem the Preferred Shares). On
the optional redemption date, the Corporation will pay in respect of the
redeemed Preferred Shares cash equal to the Liquidation Preference of the
Preferred Shares (or fraction thereof) redeemed.
(ii) The Corporation's notice to the
holders pursuant to Section 4(d)(i) above will be irrevocable and if the
Corporation fails to timely effect the redemption of all Preferred Shares
identified therein, then the Corporation's rights pursuant to this Section 4(d)
will permanently and immediately expire. Any optional redemption pursuant to
Section 4(d)(i) will be made pro-rata among all the holders. Any such notice
shall clearly identify the Trading Day on which the optional redemption will
occur, and no such notice will be effective unless, at all times between the
date of such notice and the optional redemption date, there shall be Effective
Registration of the Common Shares and the Common Stock. Such notice pursuant to
Section 4(d)(i) above shall also contain a representation by the Corporation
that the Corporation has or will have funds available at the optional redemption
date, and an undertaking by the Corporation to set aside such funds in a
segregated account for the purpose of such redemption, not less than five (5)
business days prior to the optional redemption date.
(e) Stock Splits; Dividends; Adjustments.
(i) If the Corporation, at any time
while the Preferred Shares are outstanding, (A) shall pay a stock dividend or
otherwise make a distribution or distributions on Common Stock payable in shares
of its share capital (whether payable in Common Stock or in shares of any
class), (B) subdivide outstanding Common Stock into a larger number of shares,
(C) combine outstanding Common Stock into a smaller number of shares, or (D)
issue by reclassification of Common Stock any shares of the Corporation, then
the Conversion Price shall be multiplied by a fraction, of which the numerator
shall be the number of shares of Common Stock outstanding before
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such event and of which the denominator shall be the number of shares of Common
Stock outstanding after such event. Any adjustment made pursuant to this Section
4(e)(i) shall become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(ii) In the event that the Corporation
issues or sells any Common Stock or securities which are convertible into or
exchangeable for its Common Stock or any convertible securities, or any warrants
or other rights to subscribe for or to purchase or any options for the purchase
of its Common Stock or any such convertible securities (other than (A) Preferred
Shares issued to Non-Participating Investors in a one-for-one exchange for the
Original Shares; (B) shares or options issued pursuant to the Corporation's
employee or director option plans; or (C) shares issued upon exercise of
options, warrants or rights outstanding on the date of the Exchange Agreement
and listed in the Corporation's most recent periodic report filed under the
Exchange Act) at an effective purchase price per share which is less than the
Conversion Price then in effect, then in each such case, the Conversion Price
shall be reduced effective concurrently with such issue or sale to an amount
determined by multiplying the Conversion Price then in effect by a fraction, (x)
the numerator of which shall be the sum of (1) the number of shares of Common
Stock outstanding immediately prior to such issue or sale, plus (2) the number
of shares of Common Stock which the aggregate consideration received by the
Corporation for such additional shares would purchase at the Conversion Price
then in effect; and (y) the denominator of which shall be the number of shares
of Common Stock of the Corporation outstanding immediately after such issue or
sale. Provided, however, that this Section 4(e)(ii) shall not apply to any
issuance of Common Stock or Convertible Securities (defined below) if the
purpose of the issuance is to raise funds to redeem the Preferred Shares to the
extent that the proceeds of such issuance are so used.
For the purposes of the foregoing
adjustment, in the case of the issuance of any convertible securities, warrants,
options or other rights to subscribe for or to purchase or exchange for, shares
of Common Stock ("Convertible Securities"), the maximum number of shares of
Common Stock issuable upon exercise, exchange or conversion of such Convertible
Securities shall be deemed to be outstanding, provided that no further
adjustment shall be made upon the actual issuance of Common Stock upon exercise,
exchange or conversion of such Convertible Securities. Convertible Securities
not exercisable or convertible because they are unvested shall not be deemed
outstanding until they become vested in accordance with their terms, via
acceleration or otherwise.
(iii) If the Corporation, at any time
while any Preferred Shares are outstanding, shall issue rights, options,
convertible securities or warrants to all holders of Common Stock entitling them
to subscribe for or purchase Common Stock at a price per share less than the
market value of Common Stock on the applicable Approved Market at the record
date therefor, the Conversion Price shall be multiplied by a fraction, of which
the denominator shall be the number of shares of Common Stock outstanding on the
date of issuance of such rights or warrants plus the number of additional shares
of Common Stock offered for subscription or purchase, and of which
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the numerator shall be the number of shares of Common Stock outstanding on the
date of issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would purchase
at such market value. Such adjustment shall be made whenever such rights or
warrants are issued, and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such rights or
warrants. However, upon the expiration of any right or warrant to purchase
Common Stock the issuance of which resulted in an adjustment in the Conversion
Price pursuant to this Section 4(e)(iii), if any such right or warrant shall
expire and shall not have been exercised, the Conversion Price shall immediately
upon such expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Conversion Price made pursuant to the
provisions of this Certificate of Designations after the issuance of such rights
or warrants) had the adjustment of the Conversion Price made upon the issuance
of such rights or warrants been made on the basis of offering the subscription
or purchase of only that number of shares of Common Stock actually purchased
upon the exercise of such rights or warrants actually exercised.
The foregoing adjustments under
Section 4(e)(ii) and Section 4(e)(iii) shall not apply to a financing
transaction consisting of a private placement of the Corporation's securities in
connection with a strategic alliance. For this purpose, a strategic alliance
shall mean a transaction in which the acquiror of the Corporation's securities
enters a business relationship with the Corporation, material to the Corporation
and its subsidiaries taken as a whole independent of such acquiror's acquisition
of the Corporation's securities, as determined in the exercise of reasonable
business judgment by the Corporation's Board of Directors. Such strategic
alliances would include mergers and acquisitions, distribution, OEM and joint
venture relationships and the like.
(iv) If the Corporation, at any time
while the Preferred Shares are outstanding, shall distribute to all holders of
Common Stock evidences of its indebtedness or assets or cash then in each such
case the Conversion Price at which the Preferred Shares shall thereafter be
convertible shall be determined by multiplying the Conversion Price in effect
immediately prior to the record date fixed for determination of shareholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Fair Market Price for shares of Common Stock which shall be the
closing trading price on the record date mentioned above, and of which the
numerator shall be such Fair Market Price for shares of Common Stock on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one
share of outstanding Common Stock as determined by the Board of Directors in
good faith; provided, however that in the event of a distribution exceeding 5%
of the net assets of the Corporation in one or a series of transactions, such
fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent chartered accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Corporation) (an "Appraiser") selected in good faith by the
Board of Directors and holders of a three-quarters in interest of the Preferred
Shares. In either case the adjustments shall be described in a statement
provided to all holders of Preferred Shares of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
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to one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
(v) Whenever the Conversion Price is
adjusted pursuant to Section 4(e)(i), (ii), (iii) or (iv), the Corporation shall
promptly mail to each holder of the Preferred Shares a notice setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.
(f) Notice of Record Date. In the event of any
taking by the Corporation of a record date 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, any security or right convertible
into or entitling the holder thereof to receive additional Common Shares, or any
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right, the
Corporation shall deliver to each holder of Preferred Shares at least 20 days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution,
security or right and the amount and character of such dividend, distribution,
security or right.
(g) Issue Taxes. The Corporation shall pay any
and all issue and other taxes, excluding any income, franchise or similar taxes,
that may be payable in respect of any issue or delivery of Common Shares on
conversion of Preferred Shares pursuant hereto.
(h) Fractional Shares. No fractional shares
shall be issued upon the conversion of any Preferred Shares. All Common Shares
(including fractions thereof) issuable upon conversion of more than one
Preferred Share by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of a fraction of a share of Common Stock, the Corporation
shall, in lieu of issuing any fractional share, pay the holder otherwise
entitled to such fraction a sum in cash equal to the fair market value of such
fraction on the Conversion Date (as determined in good faith by the Board of
Directors of the Corporation).
(i) Reorganization or Merger; Going Private. In
case of any reorganization or any reclassification of the capital stock of the
Corporation or any consolidation or merger of the Corporation with or into any
other corporation or corporations or a sale of all or substantially all of the
assets of the Corporation to any other person, then, as part of such
reorganization, consolidation, merger or sale, if the holders of Common Stock
receive any publicly traded securities as part or all of the consideration for
such reorganization, consolidation, merger or sale, then provision shall be
made, in a manner reasonably satisfactory to three-quarters in interest of the
holders of the Preferred Shares then outstanding, such that each Preferred Share
shall thereafter be convertible into such new securities at a conversion price
which places the holders of Preferred Shares in an economically equivalent
position as they would have been if not for such event. In addition to the
foregoing, to the extent that the holders of Common Shares receive any
non-publicly traded securities or other property or cash as part or all of the
consideration for such
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36
reorganization, consolidation, merger or sale, then such distribution shall be
treated as a distribution under Section 4(e)(iv), and Section 4(e) shall govern
such distribution. The Corporation further agrees that it shall not agree or
consent to or enter into any transaction or series of transactions as a result
of which the Common Shares would cease to be publicly traded unless agreed to in
writing in advance by the Board of Directors of the Corporation and
three-quarters in interest of the holders of Preferred Shares, except for
transactions in which the holders of Common Stock receive only cash or publicly
traded securities and the Preferred Shares are afforded the protections of this
Section 4(i).
(j) Mandatory Exchange.
(i) All Preferred Shares held by each
holder on November 30, 1998 (the "Mandatory Exchange Date") (taking into account
conversions through November 29, 1998) shall be automatically exchanged into
convertible subordinated debentures in the form attached (the "Debentures")
issued to each holder in an amount equal to the Liquidation Preference of the
Preferred Shares then held by each holder. Each holder shall have the right to
convert in accordance herewith any or all of its Preferred Shares through
November 29, 1998. The Debentures will be accompanied by an opinion of counsel
in form and substance substantially identical to the form of opinion attached
hereto as Exhibit "B."
(ii) In the event of the occurrence prior
to November 30, 1998, of an Event of Default (as defined below), or an
Acceleration Event (as defined in Section 4(n) hereof), then the Mandatory
Exchange Date shall be accelerated to the date of such Event of Default or
Acceleration Event. An Event of Default shall be deemed to have occurred if the
Corporation shall breach any material term or condition of the Exchange
Agreement, this Certificate or the Registration Rights Agreement, and shall have
failed to cure such breach within ten (10) days after receipt of notice of such
breach in the case of a default involving the payment of money, and within
thirty (30) days after receipt of notice of such breach in the case of a
non-monetary breach. The date of an occurrence of an Event of Default shall be
deemed to have occurred on the next day following the expiration of the
above-stated applicable cure period without a cure having been effected. Upon
acceleration, all amounts become due and must be paid in immediately available
funds. The Corporation shall promptly notify each holder as soon as it becomes
aware of an occurrence of an Event of Default or an Acceleration Event.
(k) Limitations on Holder's Right to Convert.
Notwithstanding anything to the contrary contained herein, no Preferred Share
may be converted by a holder, to the extent that, after giving effect to Common
Shares to be issued pursuant to a Conversion Notice, the total number of shares
of Common Stock deemed beneficially owned by such holder (other than by virtue
of the ownership of Preferred Shares or ownership of other securities that have
limitations on a holder's rights to convert or exercise similar to those
limitations set forth herein), together with all Common Shares deemed
beneficially owned by the holder's "affiliates" (as defined in Rule 144 of the
Act) that would be aggregated for purposes of determining whether a group under
Section 13(d) of the Securities Exchange Act of 1934 exists, would exceed the
Restricted Ownership Percentage for such holder specified on Schedule I to the
Exchange Agreement of the total issued and outstanding shares
36
37
of the Corporation's Common Stock; provided that (w) each holder shall have the
right at any time and from time to time to reduce its Restricted Ownership
Percentage immediately upon notice to the Corporation, (x) each holder shall
have the right at any time and from time to time, to increase its Restricted
Ownership Percentage upon 61 days prior notice to the Corporation or immediately
in the event of a Change in Control Transaction, (y) each holder can make
subsequent adjustments pursuant to (w) or (x) any number of times from time to
time (which adjustment shall be effective immediately if it results in a
decrease in the percentage or shall be effective upon 61 days' prior written
notice or immediately in the event of a Change in Control Transaction if it
results in an increase in the percentage) and (z) each holder may eliminate or
reinstate this limitation at any time and from time to time (which elimination
will be effective upon 61 days' prior notice and which reinstatement will be
effective immediately). Without limiting the foregoing, in the event of a Change
in Control Transaction, any holder may reinstate immediately (in whole or in
part) the requirement that any increase in its Restricted Ownership Percentage
be subject to 61 days' prior written notice, notwithstanding such Change in
Control Transaction, without imposing such requirement on, or otherwise changing
such holder's rights with respect to, any other Change in Control Transaction.
For this purpose, any material modification of the terms of a Change in Control
Transaction will be deemed to result in a new Change in Control Transaction. The
delivery of a Conversion Notice by any holder shall be deemed a representation
by such holder that it is in compliance with this paragraph. The term "deemed
beneficially owned" as used in this Certificate of Designations shall exclude
shares that might otherwise be deemed beneficially owned by reason of the
convertibility of the Preferred Shares. A "Change in Control Transaction" will
be deemed to have occurred upon the earlier of announcement or consummation of a
transaction or series of transactions involving (x) any consolidation or merger
of the Corporation with or into any other corporation or other entity or person
(whether or not the Corporation is the surviving corporation), or any other
corporate reorganization or transaction or series of related transactions, in
which in excess of 50% of the Corporation's voting power is transferred through
a merger, consolidation, tender offer or similar transaction, or (y) in excess
of 50% of the Corporation's Board of Directors consists of directors not
nominated by the prior Board of Directors of the Corporation, or (z) any person
(as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), together with its affiliates and associates (as such
terms are defined in Rule 405 under the Securities Act of 1933, as amended (the
"Act")), beneficially owns or is deemed to beneficially own (as described in
Rule 13d-3 under the Exchange Act without regard to the 60-day exercise period)
in excess of 50% of the Corporation's voting power. The Corporation shall
provide all holders of Preferred Shares with the earlier of (i) 20 days' prior
written notice of any such Change in Control Transaction, to the extent the
Corporation has prior knowledge of a Change in Control Transaction; or (ii)
notice on the day immediately following the Corporation's learning of any such
transaction.
(l) Certificate for Conversion Price Adjustment.
The Corporation promptly shall furnish or cause to be furnished to such holder a
certificate prepared by the Corporation setting forth any adjustments or
readjustments of the Conversion Price pursuant to this Section 4.
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38
(m) Specific Performance. The Corporation agrees
that irreparable damage would occur in the event that any of the provisions of
this Certificate of Designations were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
holders of Preferred Shares shall be entitled to specific performance,
injunctive relief or other equitable remedies to prevent or cure breaches of the
provisions of this Certificate of Designations and to enforce specifically the
terms and provisions hereof, this being in addition to any other remedy to which
any of them may be entitled under agreement, at law or in equity.
(n) Acceleration of Mandatory Exchange Date.
Each holder shall have the unilateral option and right to compel the Corporation
to accelerate the Mandatory Exchange Date for any or all of such holder's
Preferred Shares simultaneously with the consummation of the events described
(an "Acceleration Event"):
(i) A Change in Control Transaction
announced before the effectiveness of a registration statement registering all
Common Shares issuable upon conversion of the Preferred Shares; or
(ii) A "going private" transaction under
Rule 13e-3 liquidation proceedings or other proceedings, or relief under any
bankruptcy law or any law for the relief of debt shall be instituted by or
against the Corporation, or the Corporation shall by any action or answer
approve of, consent to, or acquiesce in any such proceedings or admit to any
material allegations of, or default in answering a petition filed in any such
proceedings.
(o) Mandatory Repurchase Date. Each holder shall
have the unilateral option and right to compel the Corporation to repurchase any
or all of such holder's Preferred Shares within 3 days of a written notice
requiring such repurchase, at a price per Preferred Share equal to the
Liquidation Preference of each such Preferred Share if any of the following
events involving the Corporation shall have been announced as pending, planned
or shall have occurred:
(i) The Corporation shall (A) become
insolvent; (B) admit in writing its inability to pay its debts generally as they
mature; (C) make an assignment for the benefit of creditors or commence
proceedings for its dissolution; or (D) apply for or consent to the appointment
of a trustee, liquidator or receiver for it or for a substantial part of its
property or business; or
(ii) Bankruptcy, reorganization,
insolvency or liquidation proceedings or other proceedings, or relief under any
bankruptcy law or any law for the relief of debt shall be instituted by or
against the Corporation, or the Corporation shall by any action or answer
approve of, consent to, or acquiesce in any such proceedings or admit to any
material allegations of, or default in answering a petition filed in any such
proceedings.
(p) Self-Tenders. In the event of a tender offer
by the Corporation under Rule 13e-4 promulgated pursuant to the Exchange Act,
each holder of Preferred Shares will have
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39
the unilateral option to tender into the tender offer. If a holder determines
not to participate in or to withdraw from such tender offer, and at all times
prior to the closing of such tender offer, all other rights of such holder under
this Certificate of Designations, the Exchange Agreement and the Registration
Rights Agreement will remain unmodified and in full force and effect.
5. VOTING RIGHTS. The affirmative vote of 85% in interest of
the Corporation's outstanding Preferred Shares shall be necessary for (i) any
amendment of this Certificate of Designations, (ii) any amendment to the
Certificate of Incorporation or by-laws of the Corporation that may amend or
change or adversely affect any of the rights, preferences, or privileges of the
Preferred Shares, and (iii) any reorganization or reclassification of the
capital stock of the Corporation, any consolidation or merger (other than the
Merger) of the Corporation with or into any other corporation or corporations,
or any sale of all or substantially all of the assets of the Corporation, that,
in any such case, would have an adverse effect on any of the rights,
preferences, or privileges of the Preferred Shares; provided, however, that the
affirmative vote of 100% in interest of the Corporation's outstanding Preferred
Shares shall be necessary for any change in the interest rate, maturity date,
payment date, Mandatory Exchange Date, or any waiver of the foregoing; and
provided, however, further that holders of Preferred Shares who are affiliates
of the Corporation (and the Corporation itself) shall not participate in such
vote and the Preferred Shares of such holders shall be disregarded and deemed
not to be outstanding for purposes of such vote. Except as set forth in this
Section 5, the holders of Preferred Shares shall not have any voting rights.
6. NOTICES. The Corporation shall distribute to the holders of
Preferred Shares copies of all notices, materials, annual and quarterly reports,
proxy statements, information statements and any other documents distributed
generally to the holders of shares of Common Stock of the Corporation, at such
times and by such method as such documents are distributed to such holders of
such Common Stock.
7. REPLACEMENT CERTIFICATES. The certificate(s) representing
the Preferred Shares held by any holder of Preferred Shares may be exchanged by
such holder at any time and from time to time for certificates with different
denominations representing an equal aggregate number of Preferred Shares, as
reasonably requested by such holder, upon surrendering the same. No service
charge will be made for such registration or transfer or exchange.
8. ATTORNEYS' FEES. Any holder of Preferred Shares shall be
entitled to recover from the Corporation the reasonable attorneys' fees and
expenses incurred by such holder in connection with enforcement by such holder
of any obligation of the Corporation hereunder.
9. NO REISSUANCE. No Preferred Shares acquired by the
Corporation by reason of redemption, purchase, conversion or otherwise shall be
reissued.
[EXECUTION ON THE FOLLOWING PAGE]
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40
Signed on June __, 1998.
XXXXX CORPORATION
By:_______________________________________
XXXXXX X. XXXXX, Chairman
By:_______________________________________
XXXXXX X. XXXXXX,
Chief Executive Officer
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41
EXHIBIT A
CONVERSION NOTICE
FOR
8% CUMULATIVE CONVERTIBLE PREFERRED SHARES
The undersigned, as a holder ("Holder") of shares of 8% Cumulative Convertible
Preferred Stock ("Preferred Shares") of Xxxxx Corporation (the "Corporation"),
hereby irrevocably elects to convert ___________ Preferred Shares for shares
("Common Shares") of Common Stock, par value $0.01 per share (the "Common
Stock"), of the Corporation according to the terms and conditions of the
Certificate of Designations for the Preferred Shares as of the date written
below. The undersigned hereby requests that share certificates for the Common
Stock to be issued to the undersigned pursuant to this Conversion Notice be
issued in the name of, and delivered to, the undersigned or its designee as
indicated below. No fee will be charged to the holder of Preferred Shares for
any conversion. Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed thereto in the Certificate of Designations.
Conversion Date:__________________________
Conversion Information: NAME OF HOLDER:
By:
Print Name:
-----------------------
Print Title:
----------------------
Print Address of Holder:
----------------------------------
----------------------------------
Issue Common Stock to:
----------------------------------
at
--------------------------------
----------------------------------
If Common Stock is to be issued to a person other than Holder,
Holder's signature must be guaranteed below:
SIGNATURE GUARANTEED BY:
---------------------------------------------------
THE COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED
IS SET FORTH ON PAGE 2 OF THE CONVERSION NOTICE.
42
PAGE 2 TO CONVERSION NOTICE DATED __________________ FOR: ____________________
(CONVERSION DATE) (NAME OF HOLDER)
COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED
Number of Preferred Shares converted: ______________ shares
Number of Preferred Shares converted x Liquidation Preference $___________
TOTAL DOLLAR AMOUNT CONVERTED $
===========
CONVERSION PRICE $___________
Number of Common Shares = Total dollar amount converted = $___________
-----------------------------
Conversion Price
NUMBER OF COMMON SHARES = ___________________
If the conversion is not being settled by the Depository Trust Company, please
issue and deliver __________ certificate(s) for Common Shares in the following
amount(s):
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
If the Holder is receiving certificate(s) for Preferred Shares upon the
conversion, please issue and deliver ____________ certificate(s) for Preferred
Shares in the following amount(s):
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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43
No. _____ $_________
XXXXX CORPORATION
14% CONVERTIBLE SUBORDINATED DEBENTURE
ISSUE DATE: NOVEMBER 30, 1998
DUE JANUARY 3, 2000
XXXXX CORPORATION, a Delaware corporation (the "Company"), for value
received, hereby promises to pay to_________________________________________,
or registered assigns, the principal sum of ______________________ ($_________),
together with all accrued but unpaid interest, on January 3, 2000 (the
"Maturity Date"), and to pay interest on the aforesaid principal sum quarterly
on each March 1, June 1, September 1 and December 1 of each year, commencing
March 1, 1999, at the rate of fourteen percent (14%) per annum (computed on
the basis of a 360-day year of twelve 30-day months) and from the most recent
date to which interest has been paid or, if no interest has been paid, from
the date of initial issuance. The default rate on this debenture (the
"Debenture") shall be two percent (2%) per annum over the stated 14%
interest rate.
1. SERIES.
This Debenture is one of a duly authorized issue of debentures of the
Company designated as its 14% Convertible Subordinated Debentures Due 2000 (the
"Debentures"), limited to the aggregate principal amount of $___________.
2. METHOD OF PAYMENT.
The Company will pay interest on the Debenture (except defaulted
interest) to the person who is the registered holder of the Debenture at the
close of business on the first day of the month of the interest payment date.
All interest payments shall be payable in currency of the United States that at
the time of payment is legal tender for payment of public and private debts. All
interest payments shall be same day funds and shall be paid by certified check,
cashier's check or wired funds at the holder's registered address.
The holder must surrender the Debenture to the Company in order to
collect the payment of principal. Upon surrender of the Debenture on or after
the Maturity Date, the Company will pay principal and any accrued but unpaid
interest in currency of the United States that at the time of payment is legal
tender for payment of public and private debts. Such payment shall be paid by
certified check, cashier's check or wired funds at the holder's registered
address.
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44
3. OPTIONAL REDEMPTION.
Redemption Premium. At any time and from time to time after December
31, 1998, the Company at its option may redeem this Debenture, in whole or in
part (subject to an aggregate minimum of $1,000,000 per optional redemption), at
a redemption price equal to the principal amount hereof, plus accrued and unpaid
interest to the redemption date. Said optional redemption shall also be subject
to the right of holders to convert in advance of such optional redemption date
as set forth in Section 4 of this Debenture.
Requirements for Redemption. In order to redeem this Debenture, in
whole or in part, the Company must not be in material default hereunder and the
Common Stock into which the Debentures are convertible shall be subject to
Effective Registration (as that term is defined in that certain Preferred Stock
Exchange Agreement of even date herewith by and between the Company and the
Investors listed in Schedule I thereto (the "Preferred Stock Exchange
Agreement"), both at the time of the notice of redemption and through and
including the redemption date.
Selection of Securities to be Redeemed. If less than all of the
outstanding Debentures are to be redeemed, the Company shall select the
Debentures pro rata among all holders of Debentures, proportionate to the
principal amount of the Debentures held by such holder as a percentage of the
aggregate principal amount of all Debentures held by all holders. The Company
shall make the selection from the Debentures outstanding not previously called
for redemption. Debentures and portions of them it selects shall be in amounts
of $1,000 or whole multiples of $1,000. Provisions hereof that apply to
Debentures called for redemption also apply to portions of Debentures called for
redemption.
Notice of Redemption. At least 60 days before a redemption date, the
Company shall mail a notice of redemption by first-class mail or by overnight
courier to each holder of Debentures to be redeemed. The notice shall identify
the Debentures to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) that the Company has or will have funds available at the optional
redemption date;
(4) that Debentures called for redemption may be converted by the
holders pursuant to Section 4 of the Debentures at any time before the close of
business on the day prior to the redemption date;
(6) that holders who want to convert Debentures must satisfy the
requirements in Section 4 of the Debentures;
(7) that Debentures called for redemption must be surrendered to the
Company to collect the redemption price; and
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45
(8) that interest on Debentures called for redemption ceases to accrue
on and after the redemption date.
Effect of Notice of Redemption. Once notice of redemption is mailed,
Debentures called for redemption become due and payable on the redemption date
and at the redemption price. Upon surrender to the Company, such Debentures
shall be paid at the redemption price, on the redemption date. The Company's
notice of redemption shall be irrevocable and if the Company fails to timely
effect the redemption of all Debentures identified in such notice of redemption,
then the Company's rights pursuant to this Section 3 will permanently and
immediately expire.
Debentures Redeemed in Part. Upon surrender of a Debenture that is
redeemed in part, the Company shall issue to the holder a new Debenture equal in
principal amount to the unredeemed portion of the Debenture surrendered.
Failure to Redeem. Upon the failure of the Company to timely redeem all
Debentures identified in a notice of redemption, the un-redeemed Debentures that
were called for redemption in the notice of redemption shall thereafter bear
interest at the rate of sixteen percent (16%) per annum.
4. CONVERSION.
Conversion Right. The holder of the Debenture may convert it into
shares of common stock, $0.01 par value per share, of the Company (the "Common
Stock") at any time before the close of business on January 3, 2000. If the
Debenture is called for redemption, the holder may convert it at any time before
the close of business on the day prior to the redemption date. If the last day
on which a Debenture may be converted is a day on which banking institutions in
New York are not open for business (a "Legal Holiday"), the Debenture may be
surrendered to the Company on the next succeeding day that is not a Legal
Holiday. The conversion price is $9.00 of principal amount (plus any accrued and
unpaid interest) of the Debenture per share of Common Stock, subject to
adjustment as set forth in Section 5 below (the "Conversion Price"). To
determine the number of shares of Common Stock issuable upon conversion of the
Debenture, divide the principal amount (plus any accrued and unpaid interest) of
the Debentures presented for conversion by the Conversion Price in effect on the
Conversion Date (as defined below). No adjustment will be made for dividends or
distributions on shares of Common Stock issued upon conversion of the Debenture.
The Company will deliver its check for any fractional share.
Mechanics of Conversion. To convert the Debenture into Common Shares,
the holder shall give written notice ("Conversion Notice") to the Company in the
form of page 1 of Exhibit A hereto (which Conversion Notice may be given by
facsimile transmission) stating that such holder elects to convert the same and
shall state therein the number of shares to be converted and the name or names
in which such holder wishes the certificate or certificates for Common Shares to
be issued (the date of such Conversion Notice shall be referred to herein as the
"Conversion Date"). Either simultaneously with the delivery of the Conversion
Notice, or within one (1) Trading Day thereafter, the holder shall deliver
(which also may be done by facsimile transmission) page 2 to Exhibit A hereto
indicating the computation of the number of Common Shares to be received.
"Trading Day" means (x) if the Common Stock is listed on the New York Stock
Exchange or the American Stock Exchange, a day on which there
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46
is trading on such stock exchange, (y) if the Common Stock is not listed on
either of such stock exchanges but sale prices of the Common Stock are reported
on an automated quotation system, a day on which trading is reported on the
principal automated quotation system on which sales of the Common Stock are
reported, or (z) if the foregoing provisions are inapplicable, a day on which
quotations are reported by National Quotation Bureau Incorporated. The holder
may only convert a portion of the Debenture if the portion is $1,000 or an
integral multiple of $1,000. If a holder of Debentures converts more than one
Debenture at the same time, the number of shares of Common Stock issuable upon
the conversion shall be based on the total principal amount of the Debentures
converted.
As soon as possible after delivery of the Conversion Notice, such
holder shall surrender the Debentures being converted, together with appropriate
endorsements or transfer documents if required by the Company, at the office of
the Company or of any transfer agent for such shares, provided that the Company
shall at all times maintain an office or agency in New York City (or within 60
miles thereof) for such purposes; provided that the Company need not effect any
issuance prior to receiving all documents required by this Section 4. If the
Common Stock is to be transferred to a third party, the holder shall pay any
transfer or similar tax if required. Upon surrender of a Debenture that is
converted in part, the Company shall issue to the holder a new Debenture equal
in principal amount to the unconverted portion of the Debenture surrendered. The
Company shall, promptly upon receipt of such Conversion Notice, issue and
deliver to or upon the order of such holder, against delivery of the Debentures
which have been converted, a certificate or certificates for the number of
Common Shares to which such holder shall be entitled (with the number of and
denomination of such certificates designated by such holder); the Company shall
effect such issuance within three (3) Trading Days of the Conversion Date and
shall transmit the certificates by messenger or overnight delivery service to
reach the address designated by such holder within three (3) Trading Days after
the receipt of such Conversion Notice ("T+3"). If such Common Share certificates
are not received by such holder within T+3, such holder may revoke such
Conversion Notice in whole or in part. In lieu of delivering physical
certificates representing the Common Shares issuable upon conversion of the
Debentures, provided the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program, upon request of the holder, the Company shall use its best efforts to
cause its transfer agent to electronically transmit the Common Shares issuable
upon conversion or exercise to the holder), by crediting the account of holder's
prime broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC")
system. The time periods for delivery described above shall apply to the
electronic transmittals through the DWAC system. The parties agree to coordinate
with DTC to accomplish this objective. The conversion pursuant to this Section 4
shall be deemed to have been made immediately prior to the close of business on
the Conversion Date. The person or persons entitled to receive the Common Shares
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Common Shares at the close of business on the
Conversion Date.
Obligation to Convert. The Company shall be absolutely and
unconditionally obligated to issue the Common Shares to which such holder shall
be entitled pursuant to each Conversion Notice given in conformance with this
Debenture and the Preferred Stock Exchange Agreement, without defense or offset,
and such obligation shall be independent of any other obligation or covenant of
any holder.
Registration Rights. The Registration Rights Agreement dated
June____, 1998 between the Company and each holder of Debentures shall apply in
full force and effect with respect to the Common
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47
Stock of the Company into which this Debenture may be converted pursuant to this
Section 4, as if the shares of Common Stock were being converted in exchange for
Preferred Shares under the Company's Certificate of Designation of 8%
Convertible Preferred Stock.
5. ADJUSTMENT OF THE CONVERSION PRICE.
Adjustment for Change in Capital Stock. If the Company, at any time
while the Debentures are outstanding:
(1) pays a dividend in shares of its Common Stock or otherwise make a
distribution or distributions on Common Stock payable in shares of its share
capital (whether payable in Common Stock or in shares of any class);
(2) subdivides its outstanding shares of Common Stock into a greater
number of shares;
(3) combines its outstanding shares of Common Stock into a smaller
number of shares; or
(4) issues by reclassification of its shares of Common Stock any shares
of its capital stock,
then the conversion privilege and the Conversion Price in effect immediately
prior to such action shall be adjusted so that the holder of the Debenture
thereafter converted may receive the number of shares of capital stock of the
Company which he would have owned immediately following such action if he had
converted the Debenture immediately prior to such action. For a dividend or
distribution, the adjustment shall become effective immediately after the record
date for the dividend or distribution. For a subdivision, combination or
reclassification, the adjustment shall become effective immediately after the
effective date of the subdivision, combination or reclassification.
If after an adjustment a holder of the Debenture upon conversion of it
may receive shares of two or more classes of capital stock of the Company, the
Board of Directors shall determine the allocation of the adjusted Conversion
Price between or among the classes of capital stock. After such allocation, the
conversion prices of the classes of capital stock shall thereafter be subject to
adjustment on terms comparable to those set forth herein as being applicable to
Common Stock.
Issuance or Sale of Securities. In the event that the Company issues or
sells any Common Stock or securities which are convertible into or exchangeable
for its Common Stock or any convertible securities, or any warrants or other
rights to subscribe for or to purchase or any options for the purchase of its
Common Stock or any such convertible securities (other than shares or options
issued pursuant to the Company's employee or director option plans or shares
issued upon exercise of options, warrants or rights outstanding on the date of
the Preferred Stock Exchange Agreement and listed in the Company's most recent
periodic report filed under the Exchange Act, at an effective purchase price per
share which is less than the Conversion Price then in effect, then in each such
case, the Conversion Price shall be reduced effective concurrently with such
issue or sale to an amount determined by multiplying the Conversion Price then
in effect by a fraction, (x) the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such issue or
sale, plus (2) the number of shares of Common Stock which the aggregate
consideration received by the Company for
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48
such additional shares would purchase at the Conversion Price then in effect;
and (y) the denominator of which shall be the number of shares of Common Stock
of the Company outstanding immediately after such issue or sale. Provided,
however, that this Section 5 shall not apply to any issuance of Common Stock or
Convertible Securities (defined below) if the purpose of the issuance is to
raise funds to redeem the Debentures to the extent that the proceeds of such
issuance are so used.
For the purposes of the foregoing adjustment, in the case of the
issuance of any convertible securities, warrants, options or other rights to
subscribe for or to purchase or exchange for, shares of Common Stock
("Convertible Securities"), the maximum number of shares of Common Stock
issuable upon exercise, exchange or conversion of such Convertible Securities
shall be deemed to be outstanding, provided that no further adjustment shall be
made upon the actual issuance of Common Stock upon exercise, exchange or
conversion of such Convertible Securities. Convertible Securities not
exercisable or convertible because they are unvested shall not be deemed
outstanding until they become vested in accordance with their terms, via
acceleration or otherwise.
Below Market Sales. If the Company, at any time while any Debentures
are outstanding, shall issue rights, options, convertible securities or warrants
to all holders of Common Stock entitling them to subscribe for or purchase
Common Stock at a price per share less than the market value of Common Stock on
the applicable Approved Market at the record date therefor, the Conversion Price
shall be multiplied by a fraction, of which the denominator shall be the number
of shares of Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the number of
shares of Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered would purchase at such market value. Such
adjustment shall be made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the Conversion Price pursuant to this Section
5, if any such right or warrant shall expire and shall not have been exercised,
the Conversion Price shall immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Debenture after the
issuance of such rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights or warrants been made on the basis of
offering the subscription or purchase of only that number of shares of Common
Stock actually purchased upon the exercise of such rights or warrants actually
exercised.
The foregoing adjustments shall not apply to a financing transaction
consisting of a private placement of the Company's securities in connection with
a strategic alliance. For this purpose, a strategic alliance shall mean a
transaction in which the acquirer of the Company's securities enters a business
relationship with the Company, material to the Company and its subsidiaries
taken as a whole independent of such acquirer's acquisition of the Company's
securities, as determined in the exercise of reasonable business judgment by the
Company's Board of Directors. Such strategic alliances would include mergers and
acquisitions, distribution, OEM and joint venture relationships and the like.
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49
Other Adjustments. If the Company, at any time while the Debentures are
outstanding, shall distribute to all holders of Common Stock evidences of its
indebtedness or assets or cash then in each such case the Conversion Price at
which the Debenture shall thereafter be convertible shall be determined by
multiplying the Conversion Price in effect immediately prior to the record date
fixed for determination of shareholders entitled to receive such distribution by
a fraction of which the denominator shall be the Fair Market Price for shares of
Common Stock which shall be the closing trading price on the record date
mentioned above, and of which the numerator shall be such Fair Market Price for
shares of Common Stock on such record date less the then fair market value at
such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one share of outstanding Common Stock as determined by
the Board of Directors in good faith; provided, however that in the event of a
distribution exceeding 5% of the net assets of the Company in one or a series of
transactions, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
chartered accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) (an "Appraiser")
selected in good faith by the Board of Directors and holders of a three-quarters
in interest of the Debentures. In either case the adjustments shall be described
in a statement provided to all holders of Debentures of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
When Adjustment May Be Deferred. No adjustment in the Conversion Price
need be made unless the adjustment would require an increase or decrease of at
least one percent in the Conversion Price. Any adjustments not made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Section shall be made to the nearest cent or to the
nearest 1/100th of a share, as the case may be.
When Adjustment Is Not Required. No adjustment in the Conversion Price
need be made for a change in the par value of the Common Stock.
Notice of Adjustment. Whenever the Conversion Price is adjusted, the
Company shall promptly mail to the holders of the Debentures a notice of the
adjustment.
Reorganization or Merger; Going Private. In case of any reorganization
or any reclassification of the capital stock of the Company or any consolidation
or merger of the Company with or into any other corporation or corporations or a
sale of all or substantially all of the assets of the Company to any other
person, then, as part of such reorganization, consolidation, merger or sale, if
the holders of Common Stock receive any publicly traded securities as part or
all of the consideration for such reorganization, consolidation, merger or sale,
then provision shall be made, in a manner reasonably satisfactory to
three-quarters in interest of the holders of the Debentures then outstanding,
such that each Debenture shall thereafter be convertible into such new
securities at a conversion price which places the holders of the Debentures in
an economically equivalent position as they would have been if not for such
event. In addition to the foregoing, to the extent that the holders of Common
Shares receive any non-publicly traded securities or other property or cash as
part or all of the consideration for such reorganization, consolidation, merger
or sale, then such distribution shall be treated as a distribution under this
Section 5. The Company further agrees that it shall not agree or consent to or
enter into any
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50
transaction or series of transactions as a result of which the Common Shares
would cease to be publicly traded unless agreed to in writing in advance by the
Board of Directors of the Company and three-quarters in interest of the holders
of the Debentures, except for transactions in which the holders of Common Stock
receive only cash or publicly traded securities and the holders of the
Debentures are afforded the protections of this Section 5.
Notice of Certain Transactions. In the event of any taking by the
Company of a record date 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, any security or right convertible into or
entitling the holder thereof to receive additional Common Shares, or any right
to subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, the Company
shall deliver to each holder of the Debentures at least 20 days prior to the
date specified therein, a notice specifying the date on which any such record is
to be taken for the purpose of such dividend, distribution, security or right
and the amount and character of such dividend, distribution, security or right.
Limitations on Holder's Right to Convert. Notwithstanding anything to
the contrary contained herein, no Debenture may be converted by a holder, to the
extent that, after giving effect to Common Shares to be issued pursuant to a
Conversion Notice, the total number of shares of Common Stock deemed
beneficially owned by such holder (other than by virtue of the ownership of
Debentures or ownership of other securities that have limitations on a holder's
rights to convert or exercise similar to those limitations set forth herein),
together with all Common Shares deemed beneficially owned by the holder's
"affiliates" (as defined in Rule 144 of the Act) that would be aggregated for
purposes of determining whether a group under Section 13(d) of the Securities
Exchange Act of 1934 exists, would exceed the Restricted Ownership Percentage
for such holder specified on Schedule I to the Preferred Stock Exchange
Agreement of the total issued and outstanding shares of the Company's Common
Stock; provided that (w) each holder shall have the right at any time and from
time to time to reduce its Restricted Ownership Percentage immediately upon
notice to the Company, (x) each holder shall have the right at any time and from
time to time, to increase its Restricted Ownership Percentage upon 61 days prior
notice to the Company or immediately in the event of a Change in Control
Transaction, (y) each holder can make subsequent adjustments pursuant to (w) or
(x) any number of times from time to time (which adjustment shall be effective
immediately if it results in a decrease in the percentage or shall be effective
upon 61 days' prior written notice or immediately in the event of a Change in
Control Transaction if it results in an increase in the percentage) and (z) each
holder may eliminate or reinstate this limitation at any time and from time to
time (which elimination will be effective upon 61 days' prior notice and which
reinstatement will be effective immediately). Without limiting the foregoing, in
the event of a Change in Control Transaction, any holder may reinstate
immediately (in whole or in part) the requirement that any increase in its
Restricted Ownership Percentage be subject to 61 days' prior written notice,
notwithstanding such Change in Control Transaction, without imposing such
requirement on, or otherwise changing such holder's rights with respect to, any
other Change in Control Transaction. For this purpose, any material modification
of the terms of a Change in Control Transaction will be deemed to result in a
new Change in Control Transaction. The delivery of a Conversion Notice by any
holder shall be deemed a representation by such holder that it is in compliance
with this paragraph. The term "deemed beneficially owned" as used in this
Debenture shall exclude shares that might otherwise be deemed beneficially owned
by reason of the convertibility of the Preferred Shares. A "Change in
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51
Control Transaction" will be deemed to have occurred upon the earlier of
announcement or consummation of a transaction or series of transactions (other
than the Merger) involving (x) any consolidation or merger of the Company with
or into any other corporation or other entity or person (whether or not the
Company is the surviving corporation), or any other corporate reorganization or
transaction or series of related transactions in which in excess of 50% of the
Company's voting power is transferred through a merger, consolidation, tender
offer or similar transaction, or (y) in excess of 50% of the Company's Board of
Directors consists of directors not nominated by the prior Board of Directors of
the Company, or (z) any person (as defined in Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), together with its
affiliates and associates (as such terms are defined in Rule 405 under the
Securities Act of 1933, as amended (the "Act")), beneficially owns or is deemed
to beneficially own (as described in Rule 13d-3 under the Exchange Act without
regard to the 60-day exercise period) in excess of 50% of the Company's voting
power. The Company shall provide all holders of the Debentures with the earlier
of (i) 20 days' prior written notice of any such Change in Control Transaction,
to the extent the Company has prior knowledge of a Change in Control
Transaction; or (ii) notice on the day immediately following the Company's
learning of any such transaction.
6. SUBORDINATION.
Senior Debt. The Debentures are subordinated in right of payment to the
prior payment in full of all Senior Debt. Senior Debt means (1) the Company's
debt to NationsCredit, including assignees and participants and including any
refinancing, replacement or additions thereto; and (2) obligations of the
Company as lessee under leases of real property or capital or operating leases
of personal property, whether outstanding on the date of issuance of the
Debenture or thereafter incurred or created.
This provision shall constitute a continuing offer to and agreement
with all persons who, in reliance upon such provisions, become holders of, or
continue to hold, Senior Debt. Such provisions are made for the benefit of the
holders of Senior Debt. Such holders are made obligees under this Section, and
they or each of them may enforce such provisions.
Company Not to Make Payments with respect to Debentures in Certain
Circumstances. Upon the maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all principal thereof and premium, if any, and
interest thereon shall first be paid in full, or such payment duly provided for
in cash or in a manner satisfactory to the holders of such Senior Debt, before
any payment is made on account of the principal of or interest on the
Debentures. Upon the happening of any default in payment of the principal of,
premium, if any, or interest on any Senior Debt, then, unless and until such
default shall have been cured or waived or shall have ceased to exist, no
payment shall be made by the Company with respect to the principal of or
interest on the Debentures or the acquisition of the Debentures. Nothing in the
Debentures, however, shall relieve the holders of such Senior Debt or their
representative from any notice requirements set forth in the instrument
evidencing such Senior Debt.
Debentures Subordinated to Prior Payment of All Senior Debt on
Dissolution, Liquidation or Reorganization of the Company. Upon any distribution
of assets of the Company following any dissolution, winding up, liquidation or
reorganization for the benefit of creditors of the Company
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52
(whether in bankruptcy, insolvency or receivership proceedings or upon an
assignment for the benefit of creditors or otherwise):
(1) the holders of all Senior Debt shall first be entitled to receive
payments in full of the principal thereof and interest due thereon before the
holders of the Debentures are entitled to receive any payment on account of the
principal of or interest on the Debentures;
(2) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the holders of the
Debentures would be entitled except for the provisions of this Section, shall be
paid by the liquidating trustee or agent or other person making such payment or
distribution directly to the holders of Senior Debt or their representative, or
to the trustee under any indenture under which Senior Debt may have been issued
(pro rata as to each such holder, representative or trustee on the basis of the
respective amounts of unpaid Senior Debt held or represented by each), to the
extent necessary to make payment in full of all Senior Debt remaining unpaid,
after giving effect to any concurrent payment or distribution or provision
therefor to the holders of such Senior Debt; and
(3) in the event that, notwithstanding the foregoing provisions of this
Section, any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, shall be received by the
holders of the Debentures on account of principal of or interest on the
Debentures before all Senior Debt is paid in full or effective provision made
for its payment, such payment or distribution shall be received and held in
trust for and shall be paid over to the holders of the Senior Debt remaining
unpaid or unprovided for or their representatives, or to the trustee under any
indenture under which such Senior Debt may have been issued (pro rata as
provided above), for application to the payment of such Senior Debt until all
such Senior Debt shall have been paid in full, after giving effect to any
concurrent payment or distribution or provision therefor to the holders of such
Senior Debt.
Debentures Subordinate to Series A Preferred Stock. The Debentures are
junior in right of payment to the prior payment in full of all dividends with
respect to the Series A Preferred Stock of the Corporation. Upon any
distribution of assets of the Company pursuant to any dissolution, winding up,
liquidation or reorganization for the benefit of creditors of the Company
(whether in bankruptcy, insolvency or receivership proceedings or upon an
assignment for the benefit of creditors or otherwise) the Debentures are junior
in liquidation preference to the Series A Preferred Stock of the Corporation.
Holders of Debentures to be Subrogated to Rights of Holders of Senior
Debt. Subject to the payment in full of all Senior Debt, the holders of the
Debentures shall be subrogated equally and ratably to the rights of the holders
of Senior Debt to receive payments or distributions of assets of the Company
applicable to the Senior Debt until all amounts owing on the Debentures shall be
paid in full; and for the purpose of such subrogation, no payments or
distributions to the holders of the Senior Debt by or on behalf of the Company
or by or on behalf of the holders of the Debentures by virtue of' this Section
which otherwise would have been made to the holders of the Debentures shall, as
between the Company, its creditors other than holders of Senior Debt and the
holders of the Debentures, be deemed to be payment by the Company to or on
account of the Senior Debt, it being understood that the provisions
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53
of this Section are intended solely for the purpose of defining the relative
rights of the holders of the Debentures, on the one hand, and the holders of the
Senior Debt, on the other hand.
Obligation of the Company Unconditional. Nothing contained herein is
intended to or shall impair, as between the Company, its creditors other than
holders of Senior Debt and the holders of the Debentures, the obligation of the
Company, which is absolute and unconditional, to pay to the holders of the
Debentures the principal of and interest on the Debenture as and when the same
shall become due and payable in accordance with their terms, or is intended to
or shall affect the relative rights of the holders of the Debentures and
creditors of the Company other than the holders of the Senior Debt, nor shall
anything herein or therein prevent the holders of the Debentures from exercising
all remedies otherwise permitted by applicable law upon default, subject to the
rights, if any, under this Section of the holders of Senior Debt in respect of
cash, property or securities of the Company received upon the exercise of any
such remedy. Upon any distribution of assets of the Company referred to in this
Section, the holders of the Debentures shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, or a
certificate of the liquidating trustee or agent or other person making any
distribution to the holders of the Debentures, for the purpose of ascertaining
the persons entitled to participate in such distribution, the holders of the
Senior Debt and other indebtedness of the Company, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Section.
Interest and Conversions. Nothing contained in this Debenture is
intended to or shall affect the obligation of the Company to make, or prevent
the Company from making, at any time except during the pendency of any
dissolution, winding up, liquidation or reorganization proceeding, and except
during the continuance of any event of default specified in Section 10 (not
cured or waived), payments at any time of the principal of or interest on the
Debentures.
New Debt. Any new debt to which the Company becomes obligated after the
date of the Preferred Stock Exchange Agreement which does not otherwise come
within the definition of Senior Debt shall be junior to the Debentures.
7. TRANSFER.
THE DEBENTURE IS BEING ISSUED IN A TRANSACTION NOT REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION. NEITHER THE DEBENTURE NOR THE COMMON STOCK INTO WHICH IT HAY BE
CONVERTED MAY BE OFFERED FOR SALE, SOLD, PLEDGED, HYPOTHECATED OR TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH TRANSACTION
UNDER SUCH LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.
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54
8. PERSONS DEEMED OWNERS.
The registered holder of a Debenture may be treated as its owner for
all purposes.
9. SUCCESSOR CORPORATION.
When Company May Merge, etc. The Company shall not consolidate or merge
into, or, in one or a series of related transactions, transfer or lease all or
substantially all of its assets to, any person unless:
(l) the person is a corporation;
(2) the person assumes all the obligations of the Company under
the Debentures, except that it need not assume the obligations of the Company as
to conversion of Debentures if pursuant to the reorganization or merger
provisions of Section 5 the Company or another person enters into an agreement
obligating it to deliver securities, cash or other assets upon conversion of
Debentures; and
(3) immediately after the transaction no Event of Default as
defined in Section 10 exists.
When a successor corporation assumes all the obligations of its predecessor
under the Debentures, the predecessor corporation will be released from those
obligations.
10. DEFAULTS AND REMEDIES.
Event of Default. An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on any
Debenture when the same becomes due and payable and the default
continues for a period of 5 days;
(2) the Company defaults in the payment of the principal of
any Debenture when the same becomes due and payable at maturity, upon
redemption or otherwise;
(3) the Company fails to comply with any of its other
covenants, conditions or agreements in the Debentures or the Exchange
Agreement and the default continues for the period and after the notice
specified below;
(4) the Company or any subsidiary whose assets at the time
constitute 10 percent or more of the consolidated assets of the Company
("Principal Subsidiary") pursuant to or within the meaning of any
Bankruptcy Law (as defined below):
(a) commences a voluntary case,
(b) consents to the entry of an order for relief
against it in an involuntary case,
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55
(c) consents to the appointment of a Custodian
(as defined below) of it or for all or
substantially all of its property, or
(d) makes a general assignment for the benefit
of its creditors;
(5) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(a) is for relief against the Company or any
Principal Subsidiary in an involuntary case,
(b) appoints a Custodian of the Company or any
Principal Subsidiary or for all or
substantially all of the property of the
Company or any Principal Subsidiary, or
(c) orders the liquidation of the Company or any
Principal Subsidiary, and the order or
decree remains unstayed and in effect for 60
days;
(6) the Company defaults in payment of the Senior Debt;
(7) the occurrence of a Change in Control Transaction (as
defined in the Certificate); or
(8) A "going private" transaction under Rule 13e-3 liquidation
proceedings or other proceedings, or relief under any bankruptcy law or
any law for the relief of debt shall be instituted by or against the
Company, or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit to any
material allegations of, or default in answering a petition filed in
any such proceedings.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official
under any Bankruptcy Law.
Individual Defaults. Each holder of the Debentures shall have an
independent right to enforce an Event of Default. To the extent that a holder
notifies the Company of an Event of Default, the Company shall promptly mail
notice of the receipt of the notice of an Event of Default to all other holders.
The decision by a holder to enforce an Event of Default, to waive an Event of
Default or to take no action with respect to an Event of Default shall, in no
way, affect another holder's rights to enforce an Event of Default.
Right to Cure. A default occurring by virtue of the Company's failure
to comply with any of its other covenants, conditions or agreements in the
Debentures (clause (3) above) is not an Event of Default unless and until a
holders of a Debenture notifies the Company of the default and the Company does
not cure the default within 30 days after receipt of the notice. The notice must
specify the default,
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56
demand that it be remedied and state that the notice is a "Notice of Default."
Notice by one holder of an Event of Default shall not constitute notice by any
other holder of a Debenture.
Acceleration Rights. Except as modified by the Company's right to cure
certain defaults set forth above, if an Event of Default occurs, the holder of
any Debenture, by notice to the Company, may declare the principal of and
accrued interest on that Debentures to be due and payable immediately. Upon such
declaration such principal and interest shall be due and payable immediately. By
notice to the Company, the holders of any Debenture may rescind an acceleration
and its consequences if all existing Events of Default have been cured or waived
(other than the nonpayment of principal of and accrued interest on the
Debentures which shall have become due solely because of the acceleration) and
if the rescission would not conflict with any judgment or decree. No notice
given by one holder under this provisions shall constitute notice by any other
holder of a Debenture.
Remedies for Interfering Events. In the event that an "Interfering
Event" occurs under the Registration Rights Agreement dated June 22, 1998, then,
in addition to the remedies available hereunder, a holder shall have any the
remedies available thereunder.
Waiver. A delay or omission by the holder of the Debenture in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. Any holder, by notice to the Company, may waive an existing
Event of Default and its consequences.
Remedies Not Exclusive. If an Event of Default occurs and is
continuing, the holder of the Debenture may pursue any available remedy by
proceeding at law or in equity to collect the payment of principal of or
interest on the Debenture or to enforce the performance of any provision of the
Debenture. No remedy is exclusive of any other remedy. All remedies are
cumulative to the extent permitted by law.
Notice. In the event that the Company shall become aware of a Default
or an Event of Default, it shall provide prompt notice thereof to the Investors.
11. VOTING RIGHTS.
The affirmative vote of the holders of at least eighty-five percent
(85%) of the principal amount of the outstanding Debentures shall be necessary
for (i) any amendment to the Certificate of Incorporation or by-laws of the
Company that may amend or change or adversely affect any of the rights,
preferences, or privileges of the Debentures, and (ii) any reorganization or
reclassification of the capital stock of the Company, any consolidation or
merger (other than the Merger) of the Company with or into any other corporation
or corporations, or any sale of all or substantially all of the assets of the
Company, that, in any such case, would have an adverse effect on any of the
rights, preferences, or privileges of the Debentures. Except as set forth in
this Section 11, the holders of Preferred Shares shall not have any voting
rights.
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57
12. NO RECOURSE AGAINST OTHERS.
A director, officer, employee or shareholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Debenture or for any claim based on, in respect of or by reason of such
obligation or its creation. The holder by accepting the Debenture waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Debenture.
13. AMENDMENT.
With Consent of Holders. The Company may amend the Debenture without
notice to the holder hereof but with the written consent of the holders of at
least seventy-five percent (75%) in principal amount of the outstanding
Debentures. The holders of a majority in principal amount of the outstanding
Debentures may waive compliance by the Company with any provision of the
Debentures without notice to any holder. Without the consent of each holder
affected, however, an amendment or waiver may not:
(l) reduce the amount of Debentures whose holders
must consent to an amendment or waiver;
(2) reduce the rate of or extend the time for payment
of interest on any Debenture;
(3) reduce the principal of or premium on or change
the fixed maturity of any Debenture;
(4) make any change in this Section;
(5) make any change in Section 6 that adversely
affects the rights of any holder;
(6) make any Debenture payable in money other than
that stated in the Debenture; or
(7) make any change that materially affects the right
to convert any Debenture.
An amendment under this Section may not make any change that adversely
affects the rights under Section 6 of any holder of an issue of Senior Debt
unless the holders of the issue pursuant to its terms consent to the change.
Revocation and Effect of Consents. Until an amendment or waiver becomes
effective, a consent to it by the holder of the Debenture is a continuing
consent by the holder and every subsequent holder of the Debenture or portion
thereof that evidences the same debt as the consenting holder's Debenture, even
if notation of the consent is not made on the Debenture. Any such holder or
subsequent holder may revoke the consent as to his Debenture or portion thereof,
however, if the Company receives the notice
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58
of revocation before the date the amendment or waiver becomes effective. An
amendment or waiver becomes effective in accordance with its terms and
thereafter binds every holder.
Notation on or Exchange of Securities. If an amendment or waiver
changes the terms of a Debenture, the Company may require the holder of the
Debenture to deliver it to the Company. The Company may place an appropriate
legend on the Debenture noting the changed terms and return it to the holder.
Alternatively, if the Company so determines, the Company may issue in exchange
for the Debenture a new debenture that reflects the changed terms.
14. NOTICES.
(a) Any notice or other communication required or permitted to be given
hereunder shall be in writing by mail, facsimile or personal delivery and shall
be effective upon actual receipt of such notice. The addresses for such
communications shall be:
to the Company:
Xxxxx Corporation
0000 Xxxxxxxxx Xxxxxxx Xxxx
Xxxxxxxx, Xxxxxxx 00000
Attention: Chairman
Facsimile: (000) 000-0000
with copies to:
Xxxxxx Xxxxxxx Xxxxxxxxx & Xxxx, PLLC
0000 Xxxxxxxxx
Xxxxxx, X.X.
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: G. Xxxxxx Xxxxxxx, Esq.
Facsimile: (000) 000-0000
to the Holders:
To each Holder at the address and/or fax number set
forth on Exhibit B of this Debenture, and with copies
to counsel, if any, indicated on Exhibit B.
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.
(b) The Company shall distribute to the holders of the Debentures
copies of all notices, materials, annual and quarterly reports, proxy
statements, information statements and any other
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59
documents distributed generally to the holders of shares of Common Stock of the
Company, at such times and by such method as such documents are distributed to
such holders of such Common Stock.
15. INTEREST LIMITATION.
Notwithstanding any other term of this Debenture, the maximum amount of
interest which may be charged to or collected from any person liable hereunder
shall be absolutely limited to, and shall in no event exceed, the maximum amount
or interest which could lawfully be charged or collected under applicable law
(including, to the extent applicable, the provisions of section 5197 of the
Revised Statutes of the United States of America, as amended, 12 U.S.C. SS 85,
as amended), so that the maximum of all amounts constituting interest under
applicable law, howsoever computed, shall never exceed such lawful maximum, and
any term of this Debenture which could be construed as providing for interest in
excess of such lawful maximum shall be and hereby is made expressly subject to
and modified by the provisions of this paragraph.
16. SEVERABILITY.
If any provisions of this Agreement shall be held invalid under any
applicable laws, such invalidity shall not affect any other provision of this
Agreement that can be given effect without the invalid provision, and, to this
end, the provisions hereof are severable.
17. ABBREVIATIONS/CAPITALIZED TERMS.
Customary abbreviations may be used in the name of a holder of the
Debenture or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gifts
to Minors Act). Capitalized terms, unless otherwise defined herein, shall have
the same meaning as those set forth in the Preferred Stock Exchange Agreement.
Dated: ___________________
[EXECUTION ON THE FOLLOWING PAGE]
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60
IN WITNESS WHEREOF, Xxxxx Corporation has caused this instrument to be
signed by its Chairman and its Chief Executive Officer and by its Secretary or
an Assistant Secretary and a facsimile of its corporate seal to be affixed
hereunto or imprinted hereon.
XXXXX CORPORATION
BY:
----------------------------------
XXXXXX X. XXXXX, Chairman
ATTEST: BY:
----------------------------------
XXXXXX X. XXXXXX
Chief Executive Officer
--------------------------------
Secretary or Assistant Secretary
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EXHIBIT A
CONVERSION NOTICE
FOR
14% CUMULATIVE CONVERTIBLE SUBORDINATED DEBENTURES
The undersigned, as a holder ("Holder") of 14% Convertible Subordinated
Debentures ("Debentures") of Xxxxx Corporation, Inc. (the "Company"), hereby
irrevocably elects to convert all or a portion of the Debentures for shares
("Common Shares") of Common Stock, par value $0.01 per share (the "Common
Stock"), of the Company according to the terms and conditions of the Debentures
as of the date written below. The undersigned hereby requests that share
certificates for the Common Stock to be issued to the undersigned pursuant to
this Conversion Notice be issued in the name of, and delivered to, the
undersigned or its designee as indicated below. No fee will be charged to the
holder of Debentures for any conversion. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed thereto in the Debentures.
Conversion Date:
-------------------------
Conversion Information: NAME OF HOLDER:
By:
Print Name:
-------------------------
Print Title:
------------------------
Print Address of Holder:
------------------------------------
------------------------------------
Issue Common Stock to:
------------------------------------
at
----------------------------------
------------------------------------
If Common Stock is to be issued to a person other than Holder,
Holder's signature must be guaranteed below:
SIGNATURE GUARANTEED BY:
---------------------------------------------------
THE COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED
IS SET FORTH ON PAGE 2 OF THE CONVERSION NOTICE.
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62
PAGE 2 TO CONVERSION NOTICE DATED __________________ FOR: ____________________
(CONVERSION DATE) (NAME OF HOLDER)
COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED
Principal Amount of Debentures converted plus accrued
and unpaid interest, default payments and penalties $
------------
TOTAL DOLLAR AMOUNT CONVERTED $
============
CONVERSION PRICE $
------------
Number of Common Shares = Total dollar amount converted = $
----------------------------- ------------
Conversion Price
NUMBER OF COMMON SHARES =
-------------------
If the conversion is not being settled by the Depository Trust Company, please
issue and deliver _________ certificate(s) for Common Shares in the following
amount(s):
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
If the Holder is receiving Debentures upon the conversion, please issue and
deliver the Debentures in the following amount(s):
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
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EXHIBIT C
STOCK PLEDGE AND SECURITY AGREEMENT
THIS STOCK PLEDGE AND SECURITY AGREEMENT (the "Stock Pledge
Agreement") made and entered into as of June 22, 1998 between XXXXX CORPORATION
(f/k/a Access Beyond, Inc.), a Delaware corporation ("Pledgor"), and each of the
entities listed under "Investors" on the signature page hereto, and who has
signed this Agreement (each signatory individually an "Investor" and
collectively the "Investors"), each with offices at the address listed under
such Investor's name on Schedule I hereto. This Stock Pledge Agreement shall be
effective as of the Effective Time (as defined in that certain Preferred Stock
Exchange Agreement of even date herewith by and between Pledgor and the
Investors).
W I T N E S S E T H :
WHEREAS, pursuant to that certain Preferred Stock Investment
Agreement by and between Pledgor, the Investors and certain other investors who
are not signatories hereto dated November 12, 1997 (the "Investment Agreement"),
Pledgor has previously issued to the Investors an aggregate of 19,999 shares of
Pledgor's 6% Cumulative Convertible Preferred Stock (the "Exchange Shares");
WHEREAS, Pledgor and the Investors have agreed, pursuant to
that certain Preferred Stock Exchange Agreement of even date herewith by and
between Pledgor and the Investors (the "Exchange Agreement") to exchange the
Exchange Shares held on the Closing Date (as defined in the Exchange Agreement)
for new 8% Cumulative Convertible Preferred Stock (the "Preferred Shares")
subject to the terms and conditions set forth therein.
WHEREAS, pursuant to the terms of, and in partial
consideration for, the Investors' agreement to enter into the Exchange
Agreement, Pledgor has further agreed to hold the Exchange Shares as treasury
stock and pledge them as security as described herein;
NOW, THEREFORE, for Ten Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in the Exchange Agreement and
this Stock Pledge Agreement, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Secured Obligations. This Stock Pledge Agreement is
given to provide collateral security against the occurrence of an Event of
Default as described in Section 9 hereof (the "Secured Obligations").
64
2. Pledge and Security Interest.
(a) Pledgor hereby pledges and grants to the
Investors a security interest in the Exchange Shares to secure the Secured
Obligations (which shares shall be evidenced by the stock certificates issued in
the name of Pledgor which Pledgor has contemporaneously herewith delivered to
the Investors, together with stock powers duly executed in blank), under the
terms and conditions set forth herein.
(b) Upon the request of the Investors, Pledgor
will execute such financing statements and other documents, pay the cost of
filing or recording the same in all public offices deemed necessary or
appropriate by the Investors, and do such other acts and things as the Investors
may from time to time reasonably request and maintain a valid security interest
in all the Exchange Shares, free of all other liens and claims except those
expressly permitted or granted herein.
3. Representations and Warranties. Pledgor hereby
represents and warrants to the Investors as follows:
(a) Pledgor is the legal, registered owner of
the Exchange Shares and holds full and absolute beneficial title to the Exchange
Shares, free and clear of all liens, charges, encumbrances, security interests,
and voting trust restrictions of every kind and nature except as in favor of the
Investors;
(b) That no consent or approval of any person,
entity, or government or regulatory authority is necessary to the validity of
the pledge contained in this Agreement, except such as have been obtained by the
Effective Time (as defined in the Exchange Agreement);
(c) That Pledgor has full power and authority to
pledge the Exchange Shares to the Investors as security for the Secured
Obligations, and will defend its title thereto against the claims of all persons
whomsoever;
(d) That Pledgor has granted to the Investors a
security interest in the Exchange Shares which is at the time hereof valid and
of first priority under applicable law, and no financing statement, security
interest, or other lien or encumbrance covering the Exchange Shares or its
proceeds is outstanding or on file in any public office, except any that may
have been filed in favor of the Investors;
(e) That Pledgor has the full power and
authority to enter into this Stock Pledge Agreement and to perform its
obligations hereunder, and this Stock Pledge Agreement constitutes the valid,
binding, and enforceable agreement of Pledgor, enforceable against it in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, or other similar laws affecting the rights of creditors generally,
and except with respect to the applicability of general equitable principals
which may limit the availability of specific performance or other equitable
remedies.
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65
4. Registration in Nominee Name; Denominations. Upon an
Event of Default under this Stock Pledge Agreement, each Investor may require
Pledgor to register the Exchange Shares in the name of such Investor or any
nominee or nominees of such Investor. Each Investor shall at all times have the
right to exchange the stock certificate(s) representing the Exchange Shares for
stock certificate(s) of smaller or larger denominations for any purpose
consistent with this Stock Pledge Agreement.
5. Covenants. So long as any of the Secured Obligations
remain unperformed, Pledgor covenants and agrees with the Investors as follows:
(a) Pledgor shall retain the Exchange Shares as
treasury stock;
(b) Pledgor shall keep the Exchange Shares free
from all security interests, liens, levies, attachments, voting restrictions,
and all other encumbrances, except for the interest of the Investors herein or
otherwise granted;
(c) Pledgor shall not assign, sell, transfer,
deliver, issue, or otherwise dispose of any of the Exchange Shares or any
interest therein; and
(d) Pledgor shall pay all taxes, assessments,
and all other charges of any nature which may be levied or assessed with respect
to the Exchange Shares; provided that Pledgor shall have the right to contest in
good faith any tax assessments or other charges.
6. Voting Rights: Dividends, Etc.
(a) During the term of this Stock Pledge
Agreement, each Investor shall be entitled to exercise any and all voting and
consensual rights and powers accruing to an owner of the Exchange Shares or any
part thereof for any purpose not inconsistent with the terms of this Stock
Pledge Agreement.
(b) Upon the occurrence and during the
continuance of any Event of Default:
(i) Each Investor shall surrender to
Pledgor a number of Preferred Shares equal to the number of Preferred Shares as
to which it is exercising its foreclosure rights and such surrendered Preferred
Shares shall be extinguished or a dollar amount of Debentures equal to the
dollar amount of Debentures as to which it is exercising its foreclosure rights
and such surrendered Debentures shall be extinguished;
(ii) Pledgor shall deliver to each
Investor such stock powers duly executed in blank or other documents of
ownership with respect to a number of Exchange Shares equal to the number of
Preferred Shares or equal to the dollar amount of Debentures surrendered by the
Investor; and
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66
(iii) All rights of Pledgor to a number of
Exchange Shares equal to the number of Preferred Shares surrendered by the
Investor shall cease, and all such rights shall thereupon become vested in the
Investors, which shall have the sole and exclusive right and authority to
exercise such voting and consensual rights and powers, all in accordance with
and subject to the Investment Agreement and the Original Agreements (as that
term is defined in the Exchange Agreement).
7. Attorney-in-Fact. Pledgor hereby irrevocably
constitutes and appoints each Investor as Pledgor's agent and attorney-in-fact,
upon the occurrence and continuance of an Event of Default, for the purposes of
carrying out the provisions of this Stock Pledge Agreement with respect to such
Investor and taking any action and executing any interest which such Investor or
Pledgor may deem necessary or advisable to accomplish the purposes hereof. The
foregoing power of attorney is coupled with an interest and shall be terminated
only upon performance of the Secured Obligations.
8. Release of Collateral. For each Preferred Share which
is converted to Common Stock or redeemed by Pledgor, the Investor receiving the
redemption or Common Stock shall surrender a share of Exchange Stock to Pledgor
and Investor's security interest in such Exchange Share shall be extinguished.
9. Events of Default. An Event of Default shall occur
under this Stock Pledge Agreement upon the occurrence of any one or more of the
following events:
(a) a court of competent jurisdiction shall
enter a permanent injunction or other equitable relief pursuant to a final,
non-appealable order, judgment or ruling preventing Pledgor from performing its
obligations to one or more of the Investors with respect to the Preferred Shares
or the Debenture held by such Investor;
(b) a court of competent jurisdiction shall
enter a final, non-appealable order, judgment or ruling that the Preferred
Shares or Debentures are subordinate to any other class of shares (other than
the Series A Preferred Shares); or
(c) a court of competent jurisdiction shall
enter a final, non-appealable order, judgment or ruling that the Preferred
Shares or Debentures were unauthorized, were improperly issued, or were issued
in violation of Pledgor's Charter or Bylaws, which final and binding order,
judgment or ruling effectively prevents Pledgor from honoring the terms of the
Preferred Stock.
10. Rights and Remedies on Default. Upon the occurrence
of an Event of Default under this Stock Pledge Agreement, the Investors may, in
their sole discretion and without further notice or demand, proceed immediately
to exercise any and all of the Investors's rights, powers, and privileges with
respect to any collateral securing any of the Secured Obligations and to the
Exchange Shares, including, without limitation, all rights as a holder of the
Exchange Shares; and exercise any
4
67
other right or remedy available to the Investors under the applicable Uniform
Commercial Code or otherwise available by agreement or under federal or state
law. All rights and remedies herein specified are cumulative and are in addition
to such other rights and remedies as may be available to the Investors.
11. Term of Agreement. This Stock Pledge Agreement shall
terminate upon Pledgor's performance in full of its obligations under the
Certificate and/or Debentures, at which time the Investors shall reassign and
deliver to Pledgor, or to such person or persons as Pledgor may in writing
designate, against receipt, any Exchange Shares held by the Investors, together
with appropriate instruments of reassignment and release. Such reassignment
shall be without recourse upon or warranty by the Investors, except as to claims
through the Investors.
12. Miscellaneous.
(a) Notices. Any notice or other communication
required or permitted to be given hereunder shall be in writing by mail,
facsimile or personal delivery and shall be effective upon actual receipt of
such notice. The addresses for such communications shall be:
to Pledgor:
Xxxxx Corporation
0000 Xxxxxxxxx Xxxxxxx Xxxx
Xxxxxxxx, Xxxxxxx 00000
Attention: Chairman
Facsimile: (000) 000-0000
with copies to:
Xxxxxx Xxxxxxx Xxxxxxxxx & Xxxx, PLLC
0000 Xxxxxxxxx Xxxxxx, X.X.
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: G. Xxxxxx Xxxxxxx, Esq.
Facsimile: (000) 000-0000
to the Investors:
To each Investor at the address and/or fax number set
forth on Schedule I of this Exchange Agreement, and
with copies to counsel, if any, indicated on Schedule
I.
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.
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(b) Survival. All representations, warranties,
covenants, and agreements herein contained shall survive the execution and
delivery of this Stock Pledge Agreement.
(c) No Waiver. No failure on the part of the
Investors to exercise, and no delay in exercising, any right, power, or remedy
granted hereunder, or available at law, in equity, or otherwise, shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right,
power, or remedy by the Investors preclude any other or further exercise
thereof, or the exercise of any other right, power, or remedy.
(d) Entire Agreement. This Stock Pledge
Agreement contains the entire agreement between the parties with respect to the
pledge of and security interest in the Stock Collateral and supersede any prior
agreements or understandings.
(e) Amendments. This Stock Pledge Agreement may
be amended only by written agreement between the parties hereto.
(f) Time of Essence. Time is of the essence
under this Stock Pledge Agreement.
(g) Governing Law. This Stock Pledge Agreement
shall be governed by and construed and enforced in accordance with the laws of
the State of New York applicable to contracts executed and to be performed
entirely within such state.
(h) Successors and Assigns. This Stock Pledge
Agreement shall be binding upon, and shall inure to the benefit of, the parties
hereto and their respective heirs, administrators, legal representatives,
successors, and assigns, except that Pledgor shall not be permitted to assign
its obligations under this Agreement or any interest herein or otherwise pledge,
encumber, or grant any options with respect to the Exchange Shares held as
collateral under this Stock Pledge Agreement.
(i) Severability. If any provision of this
Stock Pledge Agreement or any portion thereof shall be invalid or unenforceable
under applicable law, such part shall be ineffective to the extent of such
invalidity or unenforceability only, without in any way affecting the remaining
parts of such provision or other remaining provisions.
(j) Further Assurances. Pledgor agrees to do
such further acts, and to execute and deliver such additional conveyances,
assignments, agreements, and instruments as the Investors may at any time
request in connection with the administration and enforcement of this Stock
Pledge Agreement or relative to the Exchange Shares or any part thereof, or in
order better to assure and confirm to the Investors its rights, powers, and
remedies hereunder.
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69
(k) Execution in Counterparts. This Stock
Pledge Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which, taken together, shall
constitute one and the same instrument.
(l) Headings and Capitalized Terms. The
descriptive headings of the several paragraphs are for convenience only and are
not to affect the construction of or to be taken into consideration in
interpreting this Stock Pledge Agreement. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Exchange
Agreement.
[EXECUTION HEREOF ON FOLLOWING PAGES]
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70
IN WITNESS WHEREOF, Pledgor and the Investors have caused this
Stock Pledge Agreement to be duly executed under hand and seal, as of the day
and year first above written.
PLEDGOR:
XXXXX CORPORATION
By: /s/ Xxxxxx X. Xxxxx
-------------------------------------
XXXXXX X. XXXXX, Chairman
By: /s/ Xxxxxx X. Xxxxxx
-------------------------------------
XXXXXX X. XXXXXX
Chief Executive Officer
INVESTORS:
XXXXX INTERNATIONAL
By: /s/
-------------------------------------
Name:
Title:
SHEPHERD INVESTMENTS
INTERNATIONAL, LTD.
By: /s/
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
[SIGNATURES ARE CONTINUED ON FOLLOWING PAGE]
8
71
RAMIUS FUND, LTD.
By: AG. RAMIUS PARTNERS, L.L.C.,
Investment Manager
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Managing Officer
GAM ARBITRAGE INVESTMENTS, INC.
By: XXXXXX, XXXXXX & CO., L.P.,
Investment Manager
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chief Operating Officer
XXXXXXXX, L.P.
By: XXXXXX, XXXXXX & CO., L.P., General
Partner
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chief Operating Officer
[SIGNATURES ARE CONTINUED ON FOLLOWING PAGE]
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RAPHAEL, L.P.
By: XXXXXX, XXXXXX & CO., L.P., General
Partner
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chief Operating Officer
AG SUPER FUND INTERNATIONAL
PARTNERS, L.P.
By: XXXXXX, XXXXXX & CO., L.P., General
Partner
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chief Operating Officer
10
