EXHIBIT 99.2
SUMMARY INSTRUCTION SHEET FOR PURCHASER
(to be read in conjunction with the entire
Subscription Agreement which follows)
A. Complete all of the following items from the Subscription Agreement:
1. The Signature Page
2. Appendix I-1 - Debenture Certificate Questionnaire.
3. Appendix I-2 - Registration Statement Questionnaire.
B. Complete and sign the signature page to the Registration Rights Agreement
(Appendix III to the Subscription Agreement).
C. Return each of the foregoing by facsimile to David S. Lippes at Stroock &
Stroock & Lavan LLP, at telecopier number (310) 556-5959.
D. Return each of the foregoing by overnight courier to:
Rochon Capital Group, Ltd.
1000 Fourth Street
Suite 775
San Rafael, California 94901
Attn: Phillip L. Neiman
Telephone: (415) 459-4944
E. Wire transfer to the Escrow Agent for receipt on or before 12:00 p.m.
(Chicago time) on March 31, 1997, funds in the amount of the aggregate
purchase price of the Debenture as follows:
LaSalle National Bank, Chicago, IL
ABA 0710-00-505
LASALLE CHGO/CTR/BNF = Media Logic/AC-2090067
RFB= 62-7713-30-8
OBI = Sarah Webb X2444
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement") is made as of March 24,
1997, by and between Media Logic, Inc., a corporation organized under the laws
of the Commonwealth of Massachusetts (the "Company"), and the purchaser whose
name and address is set forth on the signature page hereof (the "Purchaser").
IN CONSIDERATION of the mutual covenants contained in this Agreement, the
Company and the Purchaser agree as follows:
1. Designation and Authorization of Sale of the Debentures. Subject to
the terms and conditions of this Agreement, the Company has authorized the sale
of up to $4,000,000 aggregate principal amount of 7% Convertible Subordinated
Debentures Due 2000 (the "Debentures"). The Debentures will be convertible into
shares (the "Conversion Shares") of the Company's common stock, par value $.01
per share (the "Common Stock"), on the terms set forth in Section 9 hereof.
Holders of Debentures shall receive an interest payment equal to $700 per
Debenture per annum (equivalent to 7% of the Purchase Price). The interest
shall be payable upon conversion or redemption of each Debenture either in
shares of Common Stock (the "Interest Shares") or in cash, at the option of the
Company, on the terms set forth in Section 10 hereof. The Debentures will be
issued only as fully registered Debentures, in denominations of $10,000 and
integral multiples thereof, without coupons.
2. Agreement to Sell and Purchase the Debentures.
(a) At the Closing (as defined in Section 3), the Company will sell to the
Purchaser, and the Purchaser will buy from the Company, upon the terms and
conditions hereinafter set forth, Debentures in the aggregate principal amount
set forth on the signature page hereof.
(b) The Company expects to enter into this same form of subscription
agreement with certain other investors (the "Other Purchasers") and to complete
sales of the Debentures to them. The Purchaser and the Other Purchasers are
hereinafter sometimes collectively referred to as the "Purchasers," and this
Agreement and the agreements executed by the Other Purchasers are hereinafter
sometimes collectively referred to as the "Agreements." The term "Documents"
shall mean this Agreement, the Registration Rights Agreement (as defined below),
the Escrow Agreement (as defined below) and the Form of Debenture,
collectively, together with any schedules or exhibits thereto. The term
"Placement Agent" shall mean Rochon Capital Group, Ltd.
(c) The Placement Agent reserves the right to reject in its sole
discretion this subscription for Debentures in whole or in part at any time
before the Closing Date notwithstanding prior receipt by the Purchaser of notice
of acceptance of his subscription, if the Placement Agent deems such action to
be in the best interests of the Company, or if the placement is over-subscribed,
or for any other reason. The Company reserves the right to reject this
subscription if the Company reasonably believes that the Purchaser is not an
"accredited investor" (as defined in Rule 501 under the Securities Act of 1933,
as amended (the "Securities Act").
(d) In the event of the rejection of this subscription for Debentures, the
Purchaser's subscription payment will be returned to the Purchaser with interest
and this Agreement shall have no force and effect. In the event the Purchaser's
subscription is accepted, on the Closing Date funds shall be released to the
Company and the certificates representing the Debentures shall be released to
the Purchaser.
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3. Delivery of the Debenture Certificates at the Closing. The completion
of the purchase and sale of the Debentures (the "Closing") shall occur at the
offices of LaSalle National Bank, Chicago, Illinois (the "Escrow Agent"), at
12:00 p.m. (Chicago Time) on or before March 31, 1997 (the "Closing Date"),
unless extended by mutual agreement of the Company and the Placement Agent. The
Purchaser shall wire Federal Reserve funds in an amount equal to the aggregate
price set forth on the signature page hereof to the Escrow Agent for receipt no
later than 12:00 p.m. (Chicago Time) on the Closing Date. Such funds will be
held in escrow until the Closing Date. At the Closing, the Company shall
deliver to the Purchaser, through the Escrow Agent, one or more debenture
certificates registered in the name of the Purchaser, or in such nominee name(s)
as designated by the Purchaser, representing the number of Debentures set forth
on the signature page hereof. The name(s) in which the Debenture certificates
are to be registered shall be set forth in the Debenture Certificate
Questionnaire attached hereto as part of Appendix I. The Company's obligation
to complete the purchase and sale of the Debentures and deliver such
certificate(s) to the Purchaser at the Closing shall be subject to the following
conditions, either of which may be waived by the Company: (a) receipt by the
Escrow Agent of Federal Reserve funds in the full amount of the purchase price
for the Debentures being purchased hereunder; and (b) the accuracy of the
representations and warranties made by the Purchasers and the fulfillment of
those undertakings of the Purchasers to be fulfilled prior to the Closing. The
Purchaser's obligations to accept delivery of such Debenture certificate(s) and
to pay for the Debentures shall be subject to the following conditions, either
of which may be waived by the Purchaser: (a) Receipt by the Company of a notice
from the American Stock Exchange ("ASE") waiving the requirements set forth in
Section 713(a) of the ASE's Listing Standards and Requirements as they relate to
the sale of the Debentures, and the continuing effectiveness of such notice; and
(b) the accuracy of the representations and warranties made by the Company
herein and the fulfillment in all material respects of those undertakings of the
Company to be fulfilled prior to Closing. The Purchaser's obligations hereunder
are expressly not conditioned on the purchase by any or all of the Other
Purchasers of the Debentures that they have agreed to purchase from the Company.
4. Representations, Warranties and Covenants of the Company. The Company
hereby represents and warrants to, and covenants with, the Purchaser as follows:
4.1. Organization and Qualification. Each of the Company and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to conduct its business as currently
conducted. Each of the Company and its subsidiaries is qualified to do business
as a foreign corporation and is in good standing in each jurisdiction in which
the failure to so qualify would have a material adverse effect on the business,
properties, prospects, condition (financial or otherwise), net worth or results
of operations of the Company and its subsidiaries, taken as a whole (a "Material
Adverse Effect").
4.2. Authorized Capital Stock; Authorization of Securities. The Company
has authorized and outstanding capital stock as set forth under the heading
"Capitalization" in the Confidential Offering Memorandum, including all exhibits
thereto and documents incorporated by reference therein as the same may be
amended or supplemented from time to time (the "Offering Memorandum"); the
issued and outstanding shares of the Company's Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and conform to the description thereof contained in
or incorporated by reference into the Offering Memorandum. All issued and
outstanding shares of capital stock of each subsidiary of the Company have been
duly authorized and validly issued and are fully paid and nonassessable. Except
as disclosed in or contemplated by the Offering Memorandum and the financial
statements of the Company, and the
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related notes thereto, included in the Offering Memorandum, neither the
Company nor any subsidiary has outstanding any options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments
to issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's
stock, stock bonus and other stock plans or arrangements and the options or
other rights granted and exercised thereunder, set forth in the Offering
Memorandum accurately an fairly presents the information required to be shown
with respect to such plans, arrangements, options and rights.
4.3. Issuance, Sale and Delivery of the Debentures. When issued, executed,
delivered and sold by the Company in accordance with this Agreement and paid for
by the Purchaser, the Debentures will have been duly and validly issued,
executed and delivered and will (i) constitute valid and legally binding
obligations of the Company enforceable against the Company in accordance with
their terms and entitled to the benefits provided in the Purchase Agreements,
subject, as to enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors' rights and to
general principles of equity, and (ii) be convertible into the Conversion Shares
in accordance with the terms of the Agreements. The Conversion Shares, the
Interest Shares (as defined in the Form of Debenture) and the Penalty Shares (as
defined in the Registration Rights Agreement) have been duly authorized and,
when issued, delivered and paid for in the manner set forth in this Agreement,
will be duly authorized, validly issued, fully paid and nonassessable, and will
conform to the description thereof contained in the Offering Memorandum. The
Conversion Shares, Interest Shares, and Penalty Shares, including any shares of
Common Stock issuable by reason of the anti-dilution provisions of the
Debentures, are hereinafter collectively referred to as the "Underlying Common
Shares." No preemptive rights or other rights to subscribe for or purchase
exist with respect to the issuance and sale of the Debentures or the issuance of
the Underlying Common Shares by the Company pursuant to this Agreement. No
further approval or authority of the stockholders or the Board of Directors of
the Company will be required for the issuance and sale of the Debentures or the
issuance of the Underlying Common Shares to be sold by the Company as
contemplated herein.
4.4. Due Execution, Delivery and Performance of the Agreements. The
Company has full corporate power and authority to enter into the Agreements and
the Documents and perform the transactions contemplated hereby and thereby. The
Agreements and the Documents have been duly authorized, executed and delivered
by the Company. The performance of the Agreements and the Documents by the
Company and the consummation of the transactions therein contemplated will not
violate any provision of the Restated Articles of Organization or By-Laws, or
other organizational documents, of the Company or any of its subsidiaries, and
will not conflict with, result in the breach or violation of, or constitute,
either by itself or upon notice or the passage of time or both, a default under
any agreement, mortgage, deed of trust, lease, franchise, license, indenture,
permit or other instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or any of its
respective properties may be bound or affected, any statute or any
authorization, judgment, decree, order, rule or regulation of any court or any
regulatory body, administrative agency or other governmental body applicable to
the Company or any of its subsidiaries or any of their respective properties.
No consent, approval, authorization or other order of any court, regulatory
body, administrative agency or other governmental body is required for the
execution and delivery of this Agreement or the consummation of the transactions
contemplated by this Agreement, except for compliance with the Blue Sky laws
applicable to the offering of the Debentures. Upon their execution and
delivery, and assuming the valid execution thereof by the respective Purchasers,
the Agreements and the Documents will constitute valid and binding obligations
of the Company, enforceable in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' and contracting
parties' rights generally and except as
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enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
4.5. No Defaults. Except as to defaults, violations and breaches which
individually or in the aggregate would not be material to the Company, neither
the Company nor any of its subsidiaries is in violation or default of any
provision of its certificate of incorporation or bylaws, or other organizational
documents, or is in breach of or default with respect to any provision of any
agreement, judgment, decree, order, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument to which it is a party or by
which it or any of its properties are bound, except as set forth in the Offering
Memorandum; and there does not exist any state of fact which constitutes an
event of default on the part of the Company or any such subsidiary as defined in
such documents or which, with notice or lapse of time or both, would constitute
such an event of default, except such defaults which individually or in the
aggregate would have a Material Adverse Effect, except as set forth in the
Offering Memorandum.
4.6. No Actions. Except as disclosed in the Offering Memorandum or
incorporated by reference therein, there are no legal or governmental actions,
suits or proceedings pending or, to the best of the Company's knowledge,
threatened to which the Company or any of its subsidiaries is or may be a part
or of which property owned or leased by the Company or any of its subsidiaries
is or may be the subject, or related to environmental or discrimination matters,
which actions, suits or proceedings might, individually or in the aggregate,
prevent or adversely affect the transactions contemplated by this Agreement or
result in a Material Adverse Effect; and no labor disturbance by the employees
of the Company or any of its subsidiaries exists or is imminent which might be
expected to have a Material Adverse Effect. Neither the Company nor any of its
subsidiaries is party or subject to the provisions of any material injunction,
judgment, decree or order of any court, regulatory body administrative agency or
other governmental body.
4.7. Properties. The Company has good and marketable title to all the
properties and assets reflected as owned in the financial statements included in
the Offering Memorandum or incorporated by reference therein, subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if
any, reflected in such financial statements, or (ii) those which are not
material in amount and do not adversely affect the use made and promised to be
made of such property by the Company and its subsidiaries. The Company or the
applicable subsidiary holds its leased properties under valid and binding
leases, with such exceptions as are not materially significant in relation to
the business of the Company. Except as disclosed in the Offering Memorandum or
incorporated by reference therein, the Company owns or leases all such
properties as are necessary to its operations as now conducted or as proposed to
be conducted.
4.8. No Material Change; No Material Misstatement or Omission.
(a) Since December 31, 1996 and except as described in or specifically
contemplated by the Offering Memorandum or as disclosed to the Placement Agent,
(i) the Company and its subsidiaries have not incurred any material liabilities
or obligations, indirect, or contingent, or entered into any material verbal or
written agreement or other transaction which is not in the ordinary course of
business or which could result in a material reduction in the future earnings of
the Company and its subsidiaries; (ii) the Company and its subsidiaries have not
sustained any material loss or interference with their respective businesses or
properties from fire, flood, windstorm, accident, other calamity or any other
cause, whether or not covered by insurance; (iii) the Company has not paid or
declared any dividends or other distributions with respect to its capital stock
and the Company and its subsidiaries are not in default in the payment of
principal or interest on any outstanding debt obligations; (iv) there has not
been any change in the capital stock, other than the sale of the Debentures
hereunder or indebtedness material to the Company and its
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subsidiaries (other than in the ordinary course of business); and (v) there
has not been a Material Adverse Effect.
(b) As of the date thereof, the Offering Memorandum did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
4.9. Intellectual Property. Except as disclosed in or specifically
contemplated by the Offering Memorandum, the Company has sufficient trademarks,
trade names, patent rights, copyrights, licenses, and governmental
authorizations to conduct its businesses as now conducted; and the Company has
no knowledge of any material infringement by it of trademark, trade name rights,
patent rights, copyrights, licenses, trade secrets or other similar rights of
others, and no claim has been made against the Company regarding trademark,
trade name, patent, copyright, license, trade secrecy or other infringement
which could have a Material Adverse Effect.
4.10. Compliance. The Company has not been advised, and has no reason to
believe, that either it or any of its subsidiaries is not conducting business in
compliance with all applicable laws, rules and regulations of the jurisdictions
in which it is conducting business, including, without limitation, all
applicable local, state and federal environmental laws and regulations; except
where failure to be so in compliance would not have a Material Adverse Effect.
4.11. Taxes. The Company and its subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns and have paid or
accrued all taxes shown as due thereon, and the Company has no knowledge of tax
deficiency which has been or might be asserted or threatened against the Company
or its subsidiaries which could have a Material Adverse Effect.
4.12. Transfer Taxes. On the Closing Date, all stock transfer or other
taxes (other than income taxes) which are required to be paid in connection with
the sale and transfer of the Debentures to be sold to the Purchaser hereunder
will be, or will have been, fully paid or provided for by the Company and all
laws imposing such taxes will be or will have been fully complied with.
4.13. Investment Company. The Company is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
4.14. Offering Materials. The Company has not distributed and will not
distribute prior to the Closing Date any offering material in connection with
the offering and sale of the Debentures that has not been superseded by the
Offering Memorandum.
4.15. Insurance. Each of the Company and its subsidiaries maintains
insurance of the types and in the amounts generally deemed adequate for its
business, including, but not limited to, insurance covering all real and
personal property owned or leased by the Company and its subsidiaries against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect.
4.16. Contributions. Neither the Company nor any of its subsidiaries has,
directly or indirectly, at any time during the last five years (i) made any
unlawful contribution to any candidate for public office, or failed to disclose
fully any contribution in violation of law, or (ii) made any payment to any
federal or state governmental officer or official, or other person charged with
similar public or quasi-public duties, other than payments required or permitted
by the laws of the United States or any jurisdiction thereof.
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4.17. Compliance with NASD Rules and Regulations; Sales and Purchases of
Common Stock. The offering and sale of the Debentures pursuant to the terms and
conditions of the Offering Memorandum and the Agreements does not violate any
rule or regulation promulgated by the NASD. At any time from the Closing Date
up to but not including the 90th day after the Closing Date, the Company agrees
not to engage in any short sale or purchase of any shares of Common Stock of the
Company (or any securities convertible into, exercisable for or exchangeable or
exercisable for shares of Common Stock of the Company).
4.18. Legal Opinion. Prior to closing, Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C., counsel to the Company, will deliver its legal opinion to the
Placement Agent in the form of Appendix V hereto and stating that each of the
Purchasers may rely thereon as though such opinion was addressed directly to
such Purchasers.
4.19. Certificate. A certificate of the Company executed by the President
and Chief Executive Officer and Chief Financial Officer of the Company, dated
the Closing Date in form and substance satisfactory to the Purchasers to the
effect that the representations and warranties of the Company set forth in this
Section 4 are true and correct as of the date of this Agreement and as of the
Closing Date, and the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied on or prior to such
Closing Date.
4.20. Additional Information. The information contained in the following
documents which the Company has furnished to the Purchaser, or will furnish
prior to the Closing, is or will be true and correct in all material respects as
of their respective filing dates:
(a) the Company's Annual Report on Form 10-K for the year ended March 31,
1996;
(b) the Company's Amendment No.1 to Form 10-K on Form 10-K/A;
(c) the Company's Proxy Statement dated August 9, 1996;
(d) the Company's Quarterly Reports on Form 10-Q dated June 30, 1996 and
September 30, 1996, and December 31, 1996;
(e) the Confidential Offering Memorandum dated March 17, 1997 containing
certain summary information relating to the sale of the Debentures to
the Purchasers by the Company pursuant to the Agreements; and
(f) all other documents, if any (the "Other Exchange Act Documents"),
filed by the Company with the Securities and Exchange Commission (the
"Commission") since the date of filing of the aforementioned Form 10-K
with the Commission pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
4.21. Securities Law Compliance. Assuming the compliance by the Placement
Agent with its representations, warranties and covenants set forth in the
Placement Agency Agreement to which this Subscription Agreement relates between
the Company and the Placement Agent and the compliance by the Purchasers with
their representations and warranties set forth herein and in the other
Agreements, the issuance, offer and sale by the Company to the Purchasers of the
Debentures is exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) or 3(b) thereof. During the past 12 months, except for
the Company's Annual Report on Form 10-K for the year ended March 31, 1996, the
Company has timely filed all reports and other filings applicable to it pursuant
to the Exchange Act.
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4.22. Lock-up. Except for any shares of Common Stock to be registered on
behalf of Lee H. Elizer pursuant to his Separation Agreement with the Company,
the Company agrees not to sell or offer to sell any Common Stock (or securities
convertible into or exchangeable for Common Stock) which become or are capable
of becoming freely-tradeable within the 90-day period immediately following the
effectiveness of the Registration Statement to be filed by the Company pursuant
to Section 7 hereof.
4.23. Payment of the Debentures. The Company shall pay the principal of,
premium, if any, and interest on the Debentures on the dates and in the manner
provided herein and in the Debentures. The Company shall pay interest on
overdue principal and premium, if any, at the rate borne by the Debentures; it
shall pay interest, including post-petition interest in the event of a
proceeding under Title 11 of the U.S. Code or any similar Federal or State law
for the relief of debtors ("Bankruptcy Law"), on overdue installments of
interest at the same rate to the extent lawful.
4.24. Waiver of Stay, Extension or Usury Laws. The Company expressly
waives (to the extent that it may lawfully do so) any of its rights under any
stay or extension law or any usury law or other law that would prohibit or
forgive the Company from paying all or any portion of the principal of, premium,
if any, or interest on Debentures as contemplated herein, wherever enacted, now
or at any time hereafter in force, or that may affect the covenants or the
performance of this Purchase Agreement, and the Company (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage of any such
law.
4.25. Notice of Default. The Company will, so long as any Debentures are
outstanding, deliver to the Purchaser, within 10 days of becoming aware of any
Default or Event of Default (as defined below) in the performance of any
covenant, agreement or condition in this Purchase Agreement, a certificate
signed by two officers of the Company specifying such Default or Event of
Default, the period of existence thereof and what action the Company is taking
or proposes to take with respect thereto.
4.26. Limitation on Interest and Other Distributions. The Company will not
declare or pay any interest or make any distribution to holders of its capital
stock, or purchase, redeem or otherwise acquire or retire for value any of its
capital stock or permit any Subsidiary to purchase, redeem or otherwise acquire
or retire for value any of the its capital stock if at the time of any of the
aforementioned actions an Event of Default has occurred of which the Company has
knowledge and is continuing or would exist immediately after giving effect to
such action.
5. Representations, Warranties and Covenants of the Purchaser.
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(a) The Purchaser represents and warrants to, and covenants with, the
Company that: (i) the Purchaser, taking into account the personnel and resources
it can practically bring to bear on the purchase of Debentures, is
knowledgeable, sophisticated and experienced in making, and is qualified to
make, decisions with respect to investments in shares presenting an investment
decision like that involved in the purchase of the Debentures, including
investments in securities issued by the Company, and has requested, received,
reviewed and considered all information it deems relevant in making an informed
decision to purchase the Debentures; (ii) the Purchaser is acquiring the number
of Debentures set forth on the signature page hereof in the ordinary course of
its business and for its own account for investment only and with no present
intention of distributing any of such Debentures or Underlying Common Shares or
any arrangement or understanding with any other persons regarding the
distribution or purchase of such Debentures or Underlying Common Shares (this
representation and warranty does not limit the Purchaser's right to sell
pursuant to an exemption from registration or pursuant to the Registration
Statement or, other than with respect to any claims arising out of a breach of
this representation and warranty, the Purchaser's right to indemnification under
the Registration Rights Agreement); (iii) the Purchaser will not, directly or
indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit
any offers to buy, purchase or otherwise acquire or take a pledge of) any of the
Debentures or Underlying Common Shares except in compliance with the Securities
Act, and the rules and regulations promulgated thereunder, and under the
Exchange Act, and the rules and regulations promulgated thereunder, and the
terms and conditions of this Agreement; (iv) the Purchaser has completed or
caused to be completed the Registration Statement Questionnaire and the
Debenture Certificate Questionnaire, both attached hereto as Appendix I, for use
in preparation of the Registration Statement and the answers thereto are true
and correct to the best knowledge of the Purchaser as of the date hereof and
will be true and correct as of the effective date of the Registration Statement;
(v) the Purchaser has, in connection with its decision to purchase the number of
Debentures set forth on the signature page hereof, relied solely upon the
Confidential Offering Memorandum, receipt of which is hereby acknowledged, and
the representations and warranties of the Company contained in writing herein,
and has not relied upon any other statements, representations, warranties,
covenants or assurances of the Company or the Placement Agent; (vi) the
Purchaser is an "accredited investor" within the meaning of Rule 501 of
Regulation D ("Regulation D") promulgated under the Securities Act; and
(vii) the Purchaser understands that the Debentures and, except as provided in
Section 9 hereof, the Underlying Common Shares will contain a legend to the
following effect (provided that certificates for the Debentures shall omit the
last sentence thereof):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF EITHER AN EFFECTIVE
REGISTRATION STATEMENT FOR THESE SHARES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT. THESE SECURITIES ARE SUBJECT TO CERTAIN
REGISTRATION RIGHTS AS SET FORTH IN A REGISTRATION RIGHTS AGREEMENT, A
COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY.
(b) The Purchaser hereby covenants with the Company that it will not
directly or indirectly make any offer, sale, pledge, transfer or other
disposition of the Debentures or the Underlying Common Shares other than in
accordance with all applicable federal and state securities laws and the terms
and conditions of this Agreement, including, but not limited to, the other
representations, warranties and covenants of the Purchaser in this Section 5.
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(c) The Purchaser hereby covenants with the Company not to make any sale
of the Underlying Common Shares without effectively causing the prospectus
delivery requirement under the Securities Act to be satisfied, and the Purchaser
acknowledges and agrees that the Underlying Common Shares are not transferable
on the books of the Company unless the certificate submitted to the transfer
agent evidencing the Underlying Common Shares is accompanied by a certificate:
(i) in the form of Appendix IV hereto, (ii) executed by an officer of, or other
authorized person designated by, the Purchaser, and (iii) to the effect that (A)
the Underlying Common Shares have been sold in accordance with the Registration
Statement and (B) the requirement of delivering a current prospectus has been
satisfied.
(d) The Purchaser further represents and warrants to, and covenants with,
the Company that (i) the Purchaser has full right, power, authority and capacity
to enter into this Agreement and to consummate the transactions contemplated
hereby and has taken all necessary action to authorize the execution, delivery
and performance of this Agreement, and (ii) upon the execution and delivery of
this Agreement, this Agreement shall constitute a valid and binding obligation
of the Purchaser enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' and contracting
parties' rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
(e) The Purchaser acknowledges that it has had such access to financial
and other information concerning the Company and the Debentures as it deemed
necessary in connection with its decision to purchase the Debentures, including
an opportunity to ask questions and request information from the Company and its
management, all such questions have been answered and all information requested
has been provided to the satisfaction of the Purchaser, and the Purchaser has
not relied on any third party, including the Placement Agent, to conduct due
diligence.
(f) If the Purchaser proposes to sell, pledge, assign or otherwise
transfer or convey, directly or indirectly, any of the Debentures or the
Underlying Common Shares prior to the date that the Registration Statement
becomes effective, then the Purchaser shall provide the Company, prior to the
sale of any such Debentures or the Underlying Common Shares with a legal opinion
in form and substance satisfactory to the Company of legal counsel satisfactory
to the Company that such sale, pledge, assignment, transfer or conveyance is
exempt from the registration requirements under the Securities Act and any
applicable state securities and blue sky laws.
(g) The Purchaser acknowledges that the Company will characterize the
Debentures as preferred stock of the Company for federal income tax purposes,
and that, pursuant to Section 385(c) of the Internal Revenue Code of 1986, as
amended, this characterization is binding on all holders. Any holder treating
the Debenture in a manner inconsistent with such characterization must disclose
the inconsistent treatment on such holder's tax return. This characterization,
however, is not binding on the Internal Revenue Service, and neither the Company
nor the holder is excused from any interest or penalties resulting from improper
characterization.
6. Survival of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement or by the
Placement Agent, all covenants, agreements, representations and warranties made
by the Company and the Purchaser in writing herein and in the closing
certificates delivered pursuant hereto shall survive the execution of this
Agreement, the delivery to the Purchaser of the Debentures being purchased and
the payment therefor.
9
7. Registration of the Underlying Common Shares. In recognition of the
fact that Purchasers, even though purchasing Debentures for investment, may wish
to be legally permitted to sell their Underlying Common Shares when they deem
appropriate, the Company hereby covenants and agrees to prepare and file with
the Commission a registration statement (the "Registration Statement") with
respect to the resale of the Underlying Common Shares, as set forth in the
Registration Rights Agreement.
8. Reserved.
9. Conversion of Debentures.
9.1. Conversion. The Debentures shall be convertible at the option of the
holder into fully paid and non-assessable shares (rounded up to the nearest full
share) of Common Stock of the Company beginning on the earlier of (i) the
effective date of the Registration Statement or (ii) the 91st calendar day after
the date of issuance of the Debentures (the "Issue Date") at a conversion price
equal to the lower of (the "Conversion Price") (x) 120% of the average closing
bid price of the Common Stock as calculated over the five trading-day period
ending on the last trading day prior to the Subscription Date (as defined
herein) and (y) 80% of the average closing bid price of the Common Stock as
calculated over the five trading-day period ending on the trading day
immediately preceding the date on which the Company receives (by telecopier)
each Conversion Notice. The number of Conversion Shares issuable upon conversion
of each Debenture shall be determined by dividing $10,000 by the Conversion
Price in effect on the Conversion Date, as defined below. An individual
Debenture may only be permitted to convert in its entirety. Partial conversion
of an individual Debenture is not permitted.
9.2. Mechanics of Conversion.
(a) Conversions and Exchanges. The holder of any Debentures may exercise
the conversion right as to any number thereof by delivering via facsimile to the
Company, at the office of the Company at 310 South Street, Plainville,
Massachusetts, a Conversion Notice. The Conversion Notice shall state (i) that
the holder elects to convert its Debenture(s), (ii) the number of Debentures
which such holder is converting, (iii) subject to applicable securities laws,
the name(s) in which the certificate(s) representing the Conversion Shares and
Interest Shares, if any, to which such holder is entitled are to be issued, and
(iv) the telecopier number to which the Company shall telecopy its confirmation
described below. Notice given by telecopier to telecopier number (508) 695-8593
shall be deemed notice for purposes of this paragraph and shall be deemed given
at the time of the holder's transmittal. Within one business day of receipt of
any Conversion Notice, the Company shall, by telecopier, confirm receipt thereof
at the telecopier number included thereon, which confirmation shall set forth,
subject to Section 12.3 hereof, the number of Conversion Shares and Interest
Shares, if any, to be issued by the Company as a result of such conversion. The
Conversion Notice shall be deemed accepted by the Company provided the holder
surrenders, or causes any agent for the holder to surrender, the certificate(s)
for Debenture(s) to be converted, duly endorsed or assigned in blank, to the
Company, at the location set forth above, within three business days after
delivery of the Conversion Notice. Provided that the certificate(s) are
delivered in accordance with the preceding sentence, the conversion shall be
deemed to have been effected on the date of delivery of the Conversion Notice by
telecopier, and such date is referred to herein as the "Conversion Date."
Within four business days of receipt by the Company of the certificate(s)
representing the Debenture(s), the Company shall issue to such holder a
certificate or certificates representing the number of Conversion Shares and
Interest Shares, if any, which such holder is entitled to receive together with
a check or cash in respect of any fractional interest in a share of Common Stock
as provided in Section 9.3 hereof. Unless (i) such Conversion Shares and/or
Interest Shares have been held long enough to satisfy the holding period set
forth in Rule 144(k) (or
10
any successor provision) promulgated under the Securities Act, (ii) such
shares become freely tradeable pursuant to another exemption under the
Securities Act, or (iii) the converting holder purchased such shares pursuant
to a current prospectus under an effective registration statement covering
the purchase and sale of such shares, the certificate(s) representing the
Conversion Shares and the Interest Shares will bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED
IN THE ABSENCE OF EITHER AN EFFECTIVE REGISTRATION STATEMENT FOR THESE
SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF
COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. THESE
SHARES ARE SUBJECT TO CERTAIN REGISTRATION RIGHTS AS SET FORTH IN A
REGISTRATION RIGHTS AGREEMENT, A COPY OF WHICH MAY BE OBTAINED FROM
THE CORPORATION.
(b) Right of Rescission. The holder of the Debentures submitted for
conversion shall have the right to rescind such holder's conversion if the
Underlying Common Shares to which such holder is entitled are not issued by the
Company within four business days of receipt by the Company of the Debentures
being converted.
(c) Exchanges. After the Registration Statement is declared effective by
the Commission, if any holder of legended Conversion Shares and Interest Shares,
or any holder of Debentures who simultaneously submits a Conversion Notice,
shall deliver to the Company (i) the certificate representing such shares or
Debentures, as the case may be, and (ii) a letter of representations to the
effect of Sections 5(b) and 5(c) herein, then the Company shall within four
business days after receipt by the Company of the foregoing issue new shares in
exchange for the aforementioned legended shares or Debentures, which new shares
shall be legended as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SHARES MAY BE SOLD
PURSUANT TO THE REGISTRATION STATEMENT PROVIDED THAT THE HOLDER
COMPLIES WITH THE PROSPECTUS DELIVERY REQUIREMENTS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE SALE IS IN COMPLIANCE WITH
THE PLAN OF DISTRIBUTION SET FORTH IN THE PROSPECTUS. THE SHARES ARE
SUBJECT TO CERTAIN REGISTRATION RIGHTS AS SET FORTH IN A REGISTRATION
RIGHTS AGREEMENT, A COPY OF WHICH MAY BE OBTAINED FROM THE
CORPORATION.
Upon the sale by any holder of Conversion Shares and any Interest Shares
pursuant to and in accordance with the Registration Statement and delivery to
the Company by such holder of a certificate in the form of Appendix IV hereto,
then the Company shall within four business days after receipt by the Company of
the foregoing issue new shares which shall not bear any legend regarding
limitations on transferability thereof.
(d) Names. The person in whose name the certificate(s) for the Conversion
Shares and any Interest Shares are to be issued shall be deemed to have become a
stockholder of record on the applicable Conversion Date unless the transfer
books of the Company are closed on that date, in which event he or she shall be
deemed to have become a stockholder of record on the next succeeding date on
which the transfer books are open, but the Conversion Price shall be that in
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effect on the Conversion Date. Upon conversion of only a portion of the number
of whole Debentures covered by a certificate representing Debentures surrendered
for conversion, the Company shall issue and deliver to or upon the written order
of the holder of the certificate so surrendered for conversion, at the expense
of the Company, a new certificate covering the number of Debentures representing
the unconverted portion of the certificate so surrendered, which new certificate
shall entitle in all respects the holder thereof to the rights of Debentures
represented thereby to the same extent as if the certificate theretofore
covering such unconverted shares had not been surrendered for conversion.
(e) Penalties for Failure to Convert or Exchange. In the event the
Company does not issue to any holder of Debentures certificate(s) for the
Underlying Common Shares to which such holder is entitled within four business
days (the "Final Conversion Date") of receipt by the Company of the Debentures
being converted pursuant to Section 9.2(b) and/or (c), then the Company shall
pay said holder liquidated damages equal to 25% of the aggregate principal
amount of Debentures being converted on each of the first four business days
immediately following the Final Issue Date or until the Underlying Common Shares
to which such holder is entitled have been issued by the Company, whichever is
earlier, and shall pay liquidated damages equal to 100% of the aggregate
principal amount of Debentures being converted on the fifth business day
following the Final Issue Date if the Underlying Common Shares to which such
holder is entitled have not been issued by the Company by such date. In the
event the Company does not issue to any holder of Underlying Common Shares
certificate(s) for shares upon their exchange as provided in Section 9.2(c)
within four business days (the "Final Exchange Date") of receipt by the Company
of the shares being exchanged, then the Company shall pay said holder, on each
of the first four business days immediately following the Final Exchange Date or
until the Underlying Common Shares to which such holder is entitled have been
issued by the Company, whichever is earlier, for each share of Common Stock
being exchanged, liquidated damages equal to 25% of the closing bid price of the
Common Stock on the day such shares were received by the Company, and shall pay,
for each share of Common Stock being exchanged, liquidated damages equal to 100%
of the closing bid price of the Common Stock on the day such shares were
received by the Company on the fifth business day following the Final Exchange
Date if the Underlying Common Shares to which such holder is entitled have not
been issued by the Company by such date.
9.3. Fractional Shares. No fractional shares of Common Stock or scrip
shall be issued upon conversion of Debentures. If more than one Debenture shall
be surrendered for conversion at any one time by the same holder, the number of
full shares of Common Stock issuable upon conversion thereof shall be computed
on the basis of the aggregate amount of Debentures so surrendered. Instead of
any fractional shares of Common Stock which would otherwise be issuable upon
conversion of any amount of Debentures, the Company shall pay a cash adjustment
in respect of such fractional interest in an amount determined on the basis of
the then Current Market Price per share of Common Stock. Fractional interests
shall not be entitled to interest, and the holders thereof shall not be entitled
to any rights as stockholders of the Company in respect of such fractional
interests.
12
9.4. Adjustments to Conversion Price for Certain Events. The Conversion
Price shall be subject to adjustment from time to time as set forth in this
subsection.
(a) In case at any time, or from time to time, the Company shall: (i)
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a interest or other distribution payable in shares of capital
stock; (ii) subdivide its outstanding shares of Common Stock into a larger
number of shares; (iii) combine its outstanding shares of Common Stock into a
smaller number of shares; or (iv) issue by reclassification or recapitalization
of its Common Stock any other class or series of shares of the Company
(including any such reclassification or recapitalization in connection with a
consolidation or merger in which the Company is the continuing corporation), the
Conversion Price in effect at the time of the record date for such interest or
of the effective date of such subdivision, combination, reclassification or
recapitalization shall be proportionately adjusted so that the holder of any
Debentures surrendered for conversion after such time shall be entitled to
receive the aggregate number and kind of shares which, if such Debentures had
been converted immediately prior to such time, such holder would have owned or
have been entitled to receive. Such adjustment shall be made successively
whenever any event listed above shall occur. In the event that such interest or
distribution is not so made, the Conversion Price shall again be adjusted to be
the Conversion Price which would then be in effect if such record date has not
been fixed.
(b) In case at any time or from time to time the Company shall (except as
hereinafter provided) issue or sell any shares of Common Stock after March 31,
1997, except Common Stock which may be issued pursuant to (i) the terms of this
Agreement and the Debentures, (ii) the exercise of options granted pursuant to
any stock option plan currently in existence or which may hereafter be adopted
by the Company where the exercise price of such options is not less than the
fair market value of a share of Common Stock on the date such option were
granted, (iii) the exercise of up to 100,000 options granted pursuant to any
stock option plan currently in existence or which may hereafter be adopted by
the Company where the exercise price of such options is less than the fair
market value of a share of Common Stock on the date such options were granted,
(iv) any obligations of the Company to issue securities pursuant to the terms of
any employment or separation arrangements in effect on the date hereof, (v) any
shares which may be issued to Christian P. Marlowe and/or Marlowe Engineering
Company in connection with current litigation, and (vi) any shares issued in
connection with warrants issued on the Closing Date to the Placement Agent or
Adar Equities LLC, (collectively, "Additional Shares of Common Stock"), at a
discount to the Current Market Price (as defined below) which is greater than
the then applicable discount set forth in Section 9.1, the then applicable
discount shall be adjusted to reflect the greater discount. For the purposes of
this subsection, the date as of which the Current Market Price for such
Additional Shares of Common Stock shall be computed shall be the earlier of (x)
the date on which the Company shall enter into a legally binding contract for
the issuance or sale of such Additional Shares of Common Stock or (y) the date
of the actual issuance of such Additional Shares of Common Stock. The
provisions of this subsection shall not apply to any issuance of Additional
Shares of Common Stock for which an adjustment is provided under subsection (a)
of this Section 9.4. No adjustment shall be made under this subsection upon the
issuance of any Additional Shares of Common Stock which are issued pursuant to
the exercise of any warrants or other subscription or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any Convertible
Securities (as defined below), if any such adjustment shall previously have been
made upon the issuance of such warrants or other rights or upon the issuance of
such Convertible Securities (or upon the issuance of any warrant or other rights
therefor) pursuant to subsection (c) of this Section 9.4. Adjustments shall be
made successively whenever such an issuance of Additional Shares of Common Stock
shall occur. In the event that such Additional Shares of Common Stock are not
so issued or sold, the Conversion Price shall again be adjusted to be the
Conversion Price
13
which would then be in effect if such issuance had not occurred.
The "Current Market Price" per share of Common Stock at any date herein
specified shall the average of the daily market prices for five consecutive
Trading Days (as defined below) ending on the last trading day prior to such
date, except that for purposes of Section 9.3 hereof, the "Current Market Price"
per share of Common Stock shall mean the market prices on the Trading Day
therein specified. The market price for each such Trading Day shall be
(i) if the Common Stock is quoted on the Nasdaq National Market or Nasdaq Small
Cap Market, the reported last sales price, or (ii) if the Common Stock is listed
or admitted to trading on a national securities exchange, the last reported
sales prices regular way, or (iii) if the Common Stock is quoted on the NASD OTC
Bulletin Board, the average of the closing bid and asked prices regular way, or
(iv) if the Common Stock is not so quoted, as reasonably determined by the Board
of Directors of the Company.
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock or other securities which are convertible into or exercisable or
exchangeable for, with or without payment of additional consideration in cash or
property, for Additional Shares of Common Stock, either immediately or upon the
arrival of a specified date or the happening of a specified event.
"Trading Day" shall mean any day on which trading takes place (i) in the
over-the-counter-market and prices reflecting such trading are published by the
National Association of Securities Dealers Automated Quotation System or, (ii)
if the Common Stock is then listed or admitted to trading on a national
securities exchange, on the principal national securities exchange on which the
Common Stock is then listed or admitted to trading.
(c) In case at any time, or from time to time, the Company shall take a
record of the holders of the Common Stock for the purpose of entitling them to
receive a distribution of, or shall otherwise issue, any warrants or other
rights to subscribe for or purchase any Additional Shares of Common Stock or any
Convertible Securities and the consideration per share for which Additional
Shares of Common Stock may at any time thereafter be issuable pursuant to such
warrants or other rights or pursuant to the terms of such Convertible Securities
shall be less than the Current Market Price, then the Conversion Price
immediately thereafter shall be adjusted as provided in subsection (d) of this
section 9.4 on the basis that (i) the maximum number of Additional Shares of
Common Stock issuable pursuant to all such warrants or other rights or necessary
to effect the conversion or exchange of all such Convertible Securities shall be
deemed to have been issued as of the date for the determination of the Current
Market Price per share of Common Stock as hereinafter provided, and (ii) the
aggregate consideration for such maximum number of Additional Shares of Common
Stock shall be deemed to be the minimum consideration received and receivable by
the Company for the issuance of such Additional Shares of Common Stock pursuant
to such warrants or other rights or pursuant to the terms of such Convertible
Securities. For the purposes of this subsection (c), the date as of which the
Current Market Price per share of Common Stock shall be computed shall be the
earliest of (x) the date on which the Company shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive any such
warrants or other rights, (y) the date on which the Company shall enter into a
legally binding contract for the issuance of such warrants or other rights or
(z) the date of actual issuance of such warrants or other rights. Such
reduction shall be made successively whenever such a record date is fixed. In
the event that such rights or warrants are not so issued or (if issued) to the
extent not exercised, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such record date had not been
fixed or such unexercised rights or warrants had not been issued.
(d) In case at any time, or from time to time, the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a distribution, by interest
14
or otherwise, of evidences of its indebtedness or assets (including
securities, but excluding (i) any interest or distribution referred to in
subsection (a) of this Section 9.4 and (ii) any interest or distribution paid
in cash out of funds legally available therefor of the Company), then in each
such case the Conversion Price in effect after such record date shall be
determined by multiplying the Conversion Price in effect immediately prior to
such record date by a fraction, of which the numerator shall be the total
number of outstanding shares of Common Stock multiplied by the Current Market
Price on such record date, less the fair market value (as determined by the
Board of Directors of the Company, whose determination shall be conclusive)
of the portion of the assets or evidences of indebtedness so to be
distributed, and of which the denominator shall be the total number of
outstanding shares of Common Stock multiplied by such Current Market Price.
Such adjustment shall be made successively whenever such a record date is
fixed. In the event that such distribution is not so made, the Conversion
Price shall again be adjusted to be the Conversion Price which would then be
in effect if such record date had not been fixed.
(e) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least five percent (5%)
in such conversion price; provided, however, that any adjustment which by reason
of this subsection (e) is not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
subsection shall be made to the nearest cent or to the nearest 1/100 of a share.
9.5. Automatic Conversion. The Debentures shall mature three years after
the Issue Date (the "Maturity Date") and shall automatically convert into
Conversion Shares at the then current Conversion Price on the Maturity Date.
All accrued but unpaid interest on the Debentures shall be payable to the
holders on the Maturity Date in either Interest Shares or cash, at the option of
the Company.
9.6. No Impairment. The Company will not, by amendment of its certificate
of incorporation or through any reorganization (pursuant to any petition under
the Bankruptcy Code or otherwise), transfer of assets, consolidation, merger or
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 9 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Debentures against impairment.
9.7. Notice Provisions.
(a) Whenever any conversion price shall be adjusted pursuant hereto, the
Company shall forthwith obtain a certificate signed by the Company's chief
financial officer, setting forth, in reasonable detail, the event requiring the
adjustment and the method by which such adjustment was calculated (including a
description of the basis on which the Company's independent public accountants
determined the fair value of any evidences of indebtedness, shares of stock,
other securities or property or assets or warrants or other subscription or
purchase rights referred to in subsections 9.4(b) through 9.4(e) hereof) and
specifying the new conversion prices and (if applicable) describing the amount
and kind of common stock, securities, property or assets or cash which may be
received upon conversion of the Debentures, after giving effect to such
adjustment. The Company shall promptly cause a signed copy of such certificate
to be delivered to each holder of Debentures.
(b) In case the Company shall propose (i) to pay any interest payable in
stock of any class to the holders of its Common Stock or to make any other
distribution to the holders of its Common Stock, (ii) to offer to the holders
of its
15
Common Stock rights to subscribe for or to purchase any Convertible
Securities or Additional Shares of Common Stock or shares of stock of any class
or any other securities, rights or options, (iii) to effect any reclassification
of its Common Stock (other than a reclassification involving only the
subdivision or combination of outstanding shares of Common Stock), (iv) to
effect any capital reorganization, (v) to effect any consolidation, merger or
sale, transfer or other distribution of all or substantially all its property,
assets or business, (vi) to file a voluntary petition seeking liquidation,
reorganization, arrangement, readjustment of debts or for any other relief under
the Bankruptcy Code or under any other act or law pertaining to insolvency or
debtor relief, whether state, federal or foreign, now or hereafter existing, or
(vii) to effect the liquidation, dissolution, winding-up or reorganization of
the Company, then in each such case, the Company shall give to each holder of
Debentures a notice of such proposed action, which shall specify the date on
which a record is to be taken for the purposes of such stock interest,
distribution or rights, or the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer, disposition, filing of
bankruptcy, liquidation, dissolution or winding-up is to take place and the date
of participation therein by the holders of Common Stock, if any such date is to
be fixed, and shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action on the Common Stock
and the conversion prices after giving effect to any adjustment which will be
required as a result of such action. Such notice shall be so given in the case
of any action covered by (i) or (ii) above at least 20 days prior to the record
date for determining holders of the Common Stock for purposes of such action
and, in the case of any other such action, at least 20 days prior to the date of
the taking of such proposed action or the date of participation therein by the
holders of Common Stock, whichever shall be the earlier.
9.8. Treasury Stock. The sale or other disposition of any issued shares of
Common Stock owned or held by or for the account of the Company shall be deemed
an issuance thereof for purposes of subsection 9.4 hereof, but until so issued
such shares shall not be deemed to be outstanding.
9.9. Computation of Consideration. To the extent that any Additional
Shares of Common Stock or any Convertible Securities or any warrants or other
rights to subscribe for or purchase any Additional Shares of Common Stock or any
Convertible Securities shall be issued for a cash consideration, the
consideration received by the Company therefor shall be deemed to be the amount
of the cash received by the Company therefor, or, if such Additional Shares of
Common Stock or Convertible Securities are offered by the Company for
subscription, the subscription price, or, if such Additional Shares of Common
Stock or Convertible Securities are sold to underwriters or dealers for public
offering without a subscription offering, the initial public offering price, in
any such case excluding any amounts paid or receivable for accrued interest or
accrued interest and without deduction of any compensation, discounts or
expenses paid or incurred by the Company for and in the underwriting of, or
otherwise in connection with, the issue thereof. To the extent that such
issuance shall be for a consideration other than cash, then, except as herein
otherwise expressly provided, the amount of such consideration shall be deemed
to be the fair value of such consideration at the time of such issuance as
determined by the Board of Directors of the Company. The consideration for any
Additional Shares of Common Stock issuable pursuant to any warrants or other
rights to subscribe for or purchase the same shall be the consideration received
by the Company for issuing such warrants or other rights, plus the additional
consideration payable to the Company upon the exercise of such warrants or other
rights. The consideration for any Additional Shares of Common Stock issuable
pursuant to the terms of any Convertible Securities shall be the consideration
received by the Company for issuing any warrants or other rights to subscribe
for or purchase such Convertible Securities, plus the consideration paid or
payable to the Company in respect of the subscription for or purchase of such
Convertible Securities, plus the additional consideration, if any, payable to
the Company upon the exercise of the right of conversion or
16
exchange in such Convertible Securities. In case of the issuance at any time
of any Additional Shares of Common Stock or Convertible Securities in payment
or satisfaction of any interest upon any class of stock other than Common
Stock or in payment of any debt, the Company shall be deemed to have received
for such Additional Shares of Common Stock or Convertible Securities a
consideration equal to the amount of such interest or debt so paid or
satisfied.
9.10. Fractional Interests. In computing adjustments under this Section 9,
fractional interests in Common Stock shall be taken into account to the nearest
one-hundredth of a share.
9.11. Anti-Dilution Provisions. No adjustment shall be made as a result of
any increase in the number of Additional Shares of Common Stock issuable or any
decrease in the consideration payable upon any issuance of Additional Shares of
Common Stock, pursuant to any provisions intended solely to avoid dilution
contained in any warrants, rights or Convertible Securities.
9.12. When Adjustment Not Required.
(a) If the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a interest or distribution or
subscription or purchase rights and shall, thereafter and before the
distribution to stockholders thereof, legally abandon its plan to pay or deliver
such interest, distribution, subscription or purchase rights, then thereafter no
adjustment shall be required by reason of the taking of such record and any such
adjustment previously made in respect thereof shall be rescinded and annulled.
(b) If the Company declares or makes any interest or distribution with
respect to Common Stock, other than regular cash interest or interest payable
solely in shares of Common Stock, and each holder of any Debentures concurrently
receives interest or distributions equal in amount and in the same kind of
property (whether cash, securities or other property) as such holder would be
entitled to receive if all of the outstanding Debentures were converted into
Common Stock as of the record date of such interest or distribution with respect
to Common Stock, then thereafter no adjustment shall be required with respect to
such interest or distribution.
9.13. Other Action Affecting Common Stock. If a set of facts shall occur
which, without being specifically controlled by the other provisions of this
Section 9, would not fairly protect the conversion rights of the Debentures in
accordance with the essential intent and principles of such provisions, then the
Board of Directors of the Company shall in good faith make an adjustment in the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such conversion rights.
9.14. Necessary Corporate Action. Before taking any action which would
result in an adjustment in the Conversion Price, the Company shall obtain all
such authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction thereof.
9.15. Taxes Upon Conversion. The Company shall pay all documentary, stamp
or other transaction taxes attributable to the issuance or delivery of shares of
Common Stock upon conversion of any Debentures.
9.16. Reservation of Common Stock; Cancellation of Converted Debentures.
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of Debentures, the full number of whole shares of
Common Stock then deliverable upon the conversion of all Debentures at the
time outstanding (assuming full payment of interest with Interest Shares),
subject to adjustment as
17
provided herein. All shares of Common Stock which shall be so issuable
shall, when issued upon conversion of all or any portion of the Debentures, be
duly and validly issued and fully paid and non-assessable and free from all
taxes, liens and charges with respect to the issuance thereof. All Debentures
converted pursuant hereto shall be canceled by the Company.
9.17. Interest Constitutes Corporate Debt. All interest accrued and unpaid
on Debentures to and including the date of conversion, whether or not declared
by the Board of Directors, shall constitute a debt of the Company payable
without interest to the converting holders and shall be paid by the Company on
the Conversion Date, in its option, either in cash or by the issuance of
Interest Shares as provided in Section 10 hereof.
10. Interest. Each holder of Debentures shall be entitled to receive a
cumulative annual interest payment of $700 for each Debenture held. Interest is
payable only upon conversion or redemption of the Debentures pursuant to Section
9 or Section 11 hereof and are payable either (i) in Interest Shares, with the
number thereof to be determined by dividing the accrued interest payable by the
average Market Price of the Common Stock over the five trading-day period
preceding the Conversion Date and rounded up to the nearest full share, or (ii)
in cash, at the option of the Company. Interest on the Debentures shall
accumulate from the Issue Date through the date of conversion or redemption, as
the case may be, on the basis of a calendar year consisting of 12 months each
consisting of 30 days. Interest shall be payable in cash only out of the assets
of the Company legally available for the payment thereof.
11. Redemption.
11.1. Mandatory Redemption. The Company shall redeem Debentures subject to
a Conversion Notice by paying to the holder cash equal to $12,500 per Debenture,
together with cash in the amount of all accrued and unpaid interest thereon
through the Redemption Date (as defined in subsection 11.3 herein), if (i) a
Conversion Notice is submitted which, if accepted, would otherwise require the
Company to issue, in combination with all Debentures previously converted, a
number of shares of Common Stock in excess of 20% of the number of shares of
Common Stock outstanding on the day prior to the Issue Date and (ii) the ASE has
not issued a waiver with respect to such rule.
11.2. Mechanics of Redemption. If any Debentures subject to a Conversion
Notice are to be redeemed pursuant hereto, notice thereof (the "Redemption
Notice") shall be sent immediately upon receipt by the Company of such
Conversion Notice to the holder(s) requesting conversion by telecopier and for
overnight delivery by a nationally recognized overnight express courier service
to such holder at such holder's address and telecopier number as the same shall
appear on the books of the Company. The Company shall redeem the Debentures it
is redeeming on the seventh calendar day following the date on which the Company
provides a Redemption Notice (the "Redemption Date"). The Redemption Notice
shall state that (a) the Debentures will be redeemed at the close of business on
the Redemption Date, (b) the redemption price, (c) the place at which
certificates for the Debentures called for redemption must be surrendered to
collect the redemption price, (d) interest on Debentures called for redemption
cease to accrue at the close of the last day prior to the Redemption Date and
(e) the section of this Agreement pursuant to which they are to be redeemed.
If, on the Redemption Date, the Company fails to pay to the holder(s) the
redemption price in cash for all of the outstanding Debentures, then the Company
shall pay in cash to the holder(s) thereof, as liquidated damages, an amount
equal to two percent of the redemption price for each 30 calendar day period, or
portion thereof, during which the redemption price remains unpaid, which period
shall commence on the Redemption Date. Any payments required to be made by the
Company pursuant to the preceding sentence shall be made in cash and on the last
day of each period as described therein and shall not have the effect of
reducing the redemption price.
18
11.3. Partial Redemption. If less than all of the outstanding Debentures
are to be redeemed, the amounts to be redeemed shall be determined pro rata
relative to each holder's percentage of ownership of the outstanding aggregate
amount as of the date of the Redemption Notice. From and after the Redemption
Date, unless the Company shall default in the payment of redemption price
pursuant to the Redemption Notice, all interest on the Debentures shall cease to
accrue and all rights of the holders thereof as security-holders of the Company,
except the right to receive the redemption price (but without interest thereon),
shall cease and terminate.
11.4. Transfer Books. To facilitate the redemption of any Debentures, the
Board of Directors is authorized to cause the transfer books for such Debentures
to be closed as to the shares to be redeemed, unless the rules of any national
securities exchange or automated quotation system on which the Debentures may be
listed or quoted prohibit the closing of such transfer books.
12. Events of Default.
12.1. Definition. An "Event of Default", as used herein, means any one of
the following events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order or any court or any order, rule or
regulation of any administrative or governmental body):
(1) the Company defaults in the payment of interest on any Debenture
when the same becomes due and payable and such default continues for a
period of 30 days;
(2) the Company defaults in the payment of the principal of or
premium, if any, on any Debenture when the same becomes due and payable
upon redemption or otherwise;
(3) the failure to perform any covenant or agreement of the Company
contained in Section 2(a), 3, 4.12, 4.25, 4.26, 7, 9, 11, 13 or 15 of this
Agreement or the Debentures which continues uncured for 60 days;
(4) acceleration of any indebtedness for money borrowed (including
obligations under leases required to be capitalized on the balance sheet of
the Company under generally accepted accounting principles but not
including any indebtedness or obligation for which recourse is limited to
property purchased) in an aggregate principal amount in excess of
$1,000,000, whether existing on the date of the execution of this Agreement
or thereafter created, if such acceleration is not annulled within 30 days
after written notice to the Company by the holders of at least 50% in
principal amount of outstanding Debentures;
(5) there shall be a default under any bond, debenture, note or other
evidence of Indebtedness (as defined below) or under any mortgage,
indenture or other instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness of the Company or any
Subsidiary, whether any such Indebtedness now exists or shall hereafter be
created, if (a) either (i) such event of default results from the failure
to pay any such Indebtedness at maturity or (ii) as a result of such event
of default, the maturity of such Indebtedness has been accelerated prior to
its stated maturity and such acceleration shall not be rescinded or
annulled or the accelerated amount paid within ten days after notice to the
Company of such acceleration, or such Indebtedness having been discharged,
and (b) the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to
pay principal or interest thereon, or the maturity of which has been so
accelerated, aggregates $1,000,000 or more;
19
(6) the Company pursuant to or within the meaning of any Bankruptcy
Law:
(a) commences a voluntary case or proceeding,
(b) consents to the entry of an order for relief against it in
an involuntary case or proceeding,
(c) consents to the appointment of a custodian of it or for all
or substantially all of its property, or
(d) makes a general assignment for the benefit of its creditors;
or
(7) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law:
(a) for relief against the Company in an involuntary case or
proceeding,
(b) appointing a receiver, trustee, liquidator or similar
official of the Company or for all or substantially all of its
property under any Bankruptcy Law, or
(c) ordering the liquidation of the Company,
and the order or decree remains unstayed and in effect for 90 days.
"Indebtedness," as used herein, means, without duplication: (i) all
indebtedness for borrowed money whether or not evidenced by a promissory note,
draft or similar instrument; (ii) that portion of obligations with respect to
any lease that is properly classified as a liability on a balance sheet in
accordance with generally accepted accounting principles; (iii) notes payable
and drafts accepted representing extensions of credit; (iv) any balance owed for
all or any part of the deferred purchase price of property or services, which
purchase price is due more than six months from the date of incurrence of the
obligation in respect thereof (except any such balance that constitutes (x) a
trade payable or an accrued liability arising in the ordinary course of business
or (y) a trade draft or note payable issued in the ordinary course of business
in connection with the purchase of goods or services), if and to the extent such
debt would appear as a liability upon a balance sheet of such person prepared in
accordance with generally accepted accounting principles; (v) any debt of others
described in the preceding clauses (i) through (iv) which such person has
guaranteed or for which it is otherwise liable; and (vi) any deferral,
amendment, renewal, extension, supplement or refunding of any of the foregoing
Indebtedness; provided, however, that, in computing the "Indebtedness" of any
person, there shall be excluded any particular indebtedness if, upon or prior to
the maturity thereof and at the time of determination of such indebtedness,
there shall have been deposited with a depository in trust money (or evidences
of indebtedness if permitted by the instrument creating such indebtedness) in
the necessary amount to pay, redeem or satisfy such indebtedness as it becomes
due, and the amount so deposited shall not be included in any computation of the
assets of such person.
12.2. Acceleration. If an Event of Default (other than an Event of
Default specified in Section 12.1(5) or 12.1(6) occurs and is continuing, the
Purchasers of 50% in principal amount of the Debentures then outstanding by
notice to the Company may declare to be due and payable immediately the
principal amount of the Debentures plus accrued interest to the date of
acceleration. Upon any such declaration, such amount shall be due and
payable immediately, and upon payment of such amount all of the Company's
obligations with respect to the Debentures shall terminate. If an Event of
Default specified in Section 12.1(5) or 12.1(6) occurs, all unpaid
20
principal and accrued interest on the Debentures then outstanding shall
become and be immediately due and payable without any declaration or the act
on the part of the Purchaser. Purchasers of at least 50% of the aggregate
principal amount of the Debentures by written notice to the Company may
rescind an acceleration and its consequences if (i) all existing Events of
Default, other than the non-payment of the principal of the Debentures, which
have become due solely by such declaration of acceleration, have been cured
or waived, (ii) to the extent the payment of such interest is lawful,
interest on overdue installments of interest and overdue principal and
premium, if any, which has become due otherwise than by such declaration of
acceleration, has been paid, and (iii) the rescission would not conflict with
any judgment or decree of a court of competent jurisdiction.
12.3. Other Remedies. If an Event of Default occurs and is continuing, the
Purchaser may pursue any available remedy by proceeding at law or in equity to
collect the payment of principal, and premium, if any, or interest on the
Debentures or to enforce the performance of any provision of the Debentures or
this Agreement.
A delay or omission by the Purchaser 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. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
13. Subordination.
13.1. Debentures Subordinated to Senior Indebtedness.
(a) The Company and the Purchaser agree that the payment of the principal
of, premium, if any, and interest on the Debentures (all of the foregoing, a
"Payment or Distribution") is subordinated and junior in right of payment, to
the extent and in the manner provided in this Section 13 to the prior payment in
full in cash of all Senior Indebtedness whether outstanding on the date hereof
or hereafter created, incurred, assumed or guaranteed. "Senior Indebtedness"
means the principal, premium, if any, and unpaid interest on and all other
amounts payable under or in respect of Indebtedness of the Company for money
borrowed; provided, however, that Senior Indebtedness shall not include (i)
Indebtedness owed to a subsidiary or (ii) the principal, premium, if any, and
interest on any Indebtedness of the Company which by its terms is expressly
subordinated in right of payment to the Debentures.
A Payment or Distribution shall include any asset of any kind or character,
and may consist of cash, securities or other property, by set-off or otherwise,
and shall include, without limitation, any purchase, redemption or other
acquisition of Debentures.
(b) The Senior Indebtedness of the Company shall continue to be Senior
Indebtedness and entitled to the benefit of these subordination provisions
irrespective of any amendment, modification or waiver of any term of any
instrument relating to refinancing of the Senior Indebtedness.
(c) All the provisions of this Agreement and the Debentures shall be
subject to the provisions of this Section 13 so far as they may be applicable
thereto.
(d) No right of any holder of any Senior Indebtedness to enforce
subordination as herein provided shall at any time or in any way be affected or
impaired by any failure to act on the part of the Company, the Purchaser or the
holders of the Senior Indebtedness, or by any noncompliance by the Company or
the Purchaser with any of the terms, provisions and covenants of the Debentures
or this Agreement, regardless of any knowledge thereof that any such holder of
Senior Indebtedness
21
may have or be otherwise charged with.
(e) In the event that the Debentures are declared due and payable before
their expressed maturity because of the occurrence of a default hereunder, (i)
the Company will give prompt notice in writing of such happening to the holders
of Senior Indebtedness and (ii) all Senior Indebtedness shall forthwith become
immediately due and payable upon demand, regardless of the expressed maturity
thereof.
13.2. Company Not to Make Payments with Respect to Debentures in Certain
Circumstances. No Payment or Distribution shall be made by the Company on
account of principal of, premium, if any, or interest on the Debentures, whether
upon stated maturity, upon redemption or acceleration, or otherwise, or on
account of the purchase or other acquisition of Debentures, whether upon stated
maturity, upon redemption or acceleration, or otherwise, if there shall have
occurred and be continuing a default with respect to any Senior Indebtedness
permitting the acceleration thereof or with respect to the payment of any Senior
Indebtedness and (a) such default is the subject of a judicial proceeding or
(b) notice of such default in writing or by telegram has been given to the
Company by any holder or holders of any Senior Indebtedness, unless and until
the Company shall have received written notice from such holder or holders that
such default or event of default shall have been cured or waived or shall have
ceased to exist.
Upon any acceleration of the principal of the Debentures or any payment by
the Company or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to creditors upon any dissolution or
winding up or liquidation or reorganization of the Company, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other proceedings,
all amounts due or to become due upon all Senior Indebtedness shall first be
paid in full in cash, or payment thereof provided for to the satisfaction of the
holders thereof, before any Payment or Distribution is made on account of the
redemption price or principal of (and premium, if any) or interest on the
Debentures; and (subject to the power of a court of competent jurisdiction to
make other equitable provision, which shall have been determined by such court
to give effect to the rights conferred in this Section 13.2 upon the Senior
Indebtedness and the holders thereof with respect to the Debentures or the
Purchasers thereof or the Purchaser, by a lawful plan of reorganization or
readjustment under applicable law) upon any such dissolution or winding up or
liquidation or reorganization, any Payment or Distribution by the Company or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, to which the Purchaser would be entitled except for the
provisions of this Section 13.2, shall be paid by the Company or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other Person
making such Payment or Distribution directly to the holders of Senior
Indebtedness of the Company or their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, to the extent necessary to pay all Senior Indebtedness in
full in cash, after giving effect to any concurrent payment or distribution to
or for the holders of Senior Indebtedness, before any Payment or Distribution is
made to the Purchaser.
In the event that, notwithstanding the foregoing, any Payment or
Distribution by the Company of any kind or character, whether such payment shall
be in cash, property or securities, prohibited by the foregoing, and the Company
shall have made payment to the Purchaser before all Senior Indebtedness is paid
in full in cash, or provision is made for such payment to the satisfaction of
the holders thereof, and if such fact shall then have been or thereafter be made
known to the Purchaser, then and in such event such Payment or Distribution
shall be paid over by the Purchaser or delivered to the holders of Senior
Indebtedness or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing any
Senior Indebtedness may have been issued, as their respective interests may
appear, for application to the
22
payment of all Senior Indebtedness remaining unpaid to the extent necessary
to pay all Senior Indebtedness in full in cash, after giving effect to any
concurrent Payment or Distribution to or for the holders of such Senior
Indebtedness, and, until so delivered, the same shall be held in trust by the
Purchaser as the property of the holders of Senior Indebtedness.
The holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Purchaser, without incurring
responsibility to the Purchaser and without impairing or releasing the
obligations of the Purchaser hereunder to the holders of Senior Indebtedness:
(i) change the manner, place or terms of payment or change or extend the time of
payment of, or renew or alter, Senior Indebtedness, or otherwise amend in any
manner Senior Indebtedness or any instrument evidencing the same or any
agreement under which Senior Indebtedness is outstanding;
(ii) sell, exchange, release or otherwise deal with any property pledged,
mortgaged or otherwise securing Senior Indebtedness;
(iii) release any person liable in any manner for the collection of Senior
Indebtedness; (iv) apply any amounts received to any liability of the Company
owing to holders of Senior Indebtedness; and/or (v) exercise or refrain from
exercising any rights against the Company and any other person.
13.3. Subrogation of Debentures. Subject to the payment in full in cash
of all amounts then due (whether by acceleration of the maturity thereof or
otherwise) on account of all Senior Indebtedness at the time outstanding, the
Purchaser shall be subrogated to the rights of the holders of Senior
Indebtedness to receive Payments or Distributions of cash, property or
securities of the Company applicable to the Senior Indebtedness until the
principal of, premium, if any, and interest on the Debentures shall be paid in
full; and, for the purposes of such subrogation, no Payments or Distributions to
the holders of Senior Indebtedness to which the Purchaser would be entitled
except for the provisions of this Section 13.3, and no payments over pursuant to
the provisions of this Section 13.3 to the holders of Senior Indebtedness by
Purchaser, shall, as between the Company, the Company's creditors other than
holders of Senior Indebtedness, and Purchaser, be deemed to be a payment by the
Company to or on account of the Senior Indebtedness. It is understood that the
provisions of this Section 13.3 are and are intended solely for the purpose of
defining the relative rights of the Purchaser, on the one hand, and the holders
of Senior Indebtedness, on the other hand.
Nothing contained in this Section or elsewhere in this Agreement or in the
Debentures is intended to or shall impair, as among the Company, its creditors
other than the holders of Senior Indebtedness, and the Purchaser, the obligation
of the Company, which is absolute and unconditional, to pay to the Purchaser the
principal of, premium, if any, and interest on the Debentures 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 Purchaser and creditors of the
Company other than the Purchaser, nor shall anything herein or therein prevent
the Purchaser from exercising all remedies otherwise permitted by applicable law
upon default under this Agreement, subject to the rights, if any, under this
Section 13.3 of the holders of Senior Indebtedness in respect of cash, property
or securities of the Company received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to in
this Section 13.3, the Purchaser shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which any dissolution,
winding up, liquidation or reorganization proceedings are pending, or
certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent
or other person making such payment or distribution, delivered to Purchaser for
the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of Senior Indebtedness 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
13.3.
23
13.4. No Impairment of Subordination. No right of any present or future
holder of any Senior Indebtedness to enforce subordination as herein provided
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Company or the Purchaser or by any act, or failure to
act, in good faith, by any holder of Senior Indebtedness, or by any
noncompliance by the Company or the Purchaser with the terms, provisions and
covenants of this Agreement, regardless of any knowledge thereof which any such
holder may have or otherwise be charged with.
13.5. Section 13 Not To Prevent Events of Default. The failure to make a
payment on account of principal of, premium, if any, or interest on the
Debentures by reason of any provision in this Section 13 shall not be construed
as preventing the occurrence of an Event of Default with respect to such
Debentures under Section 12.
13.6. Debentures Senior to Subordinated Indebtedness. The indebtedness
represented by the Debentures will be senior and prior in right of payment to
all Subordinated Indebtedness, to the extent and in the manner provided in such
Subordinated Indebtedness. "Subordinated Indebtedness" means the principal,
premium, if any, and interest on any Indebtedness of the Company which by its
terms is expressly subordinated in right of payment to the Debentures.
14. Broker's Fee. The Purchaser acknowledges that the Company intends to
pay the Placement Agent a fee of up to 10% and to issue the Placement Agent or
its designee warrants to purchase Common Stock of the Company in respect of the
sale of the Debentures to the Purchaser. Each of the parties hereto represents
that, on the basis of any actions and agreements by it, there are no other
brokers or finders entitled to compensation in connection with the sale of the
Debentures to the Purchaser, except as may have been previously disclosed to the
Placement Agent.
15. Notices. All notices, requests, consents and other communications
hereunder shall be in writing, shall be by telecopier, with a copy being mailed
by a nationally recognized overnight express courier, and shall be deemed given
when receipt is acknowledged by transmit confirmation report and shall be
addressed as follows:
(a) if to the Company, to:
310 South Street
Plainville, Massachusetts 02762
Attn: Chief Financial Officer
Telephone: (508) 695-2006
Telecopier: (598) 695-8593
or to such other person at such other place as the Company shall
designate to the Purchaser in writing;
(b) if to the Purchaser, at its address and telecopier number as set forth
at the end of this Agreement, or at such other address or addresses as
may have been furnished to the Company in writing.
16. Changes. Any provision of this Agreement or the Debentures may be
amended or waived if the Company shall obtain the written agreement thereto of
the holder or holders of at least 50% of the principal amount of the Debentures
at the time outstanding, except that, without the written agreement of the
holder or holders of all the Debentures at the time outstanding, no such
amendment or waiver shall (i) change the maturity of any Debentures or change
the principal of, or the rate of interest or any premium payable with respect
to, any Debenture, (ii) change the percentage of the unpaid principal amount of
the Debentures required with respect to any
24
amendment or waiver, or (iii) amend, modify or revise any of the provisions
of Sections 1 and 2, or of this Section 16. Each holder of the Debentures at
the time or thereafter outstanding shall be bound by any such amendment or
waiver complying with the foregoing requirements, whether or not a notation
thereof shall have been placed on the Debenture. Executed or true and
correct copies of any amendment or waiver shall be delivered by the Company
to each holder of outstanding Debentures promptly following the date on which
such amendment shall extend to or affect any provision or obligation not
expressly amended or waived.
No course of dealing between the Company and any Purchaser or the holder of
any Debenture, and no delay in exercising any rights hereunder or under any
Debenture, shall imply or otherwise operate as a waiver of any rights of any
Purchaser or the holder of any Debenture. For the purpose of determining
whether the holders of outstanding Debentures of the requisite unpaid principal
amount at any time have taken any action authorized by this Section, or by any
other provision of this Agreement and for all other purposes of this Agreement,
any Debentures owned by the Company or any affiliate of the Company shall not be
deemed outstanding.
17. Headings. The headings in this Agreement are for convenience of
reference only and shall not affect the meanings herein.
18. Severability. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof shall not in any way be
affected or impaired thereby.
19. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York (without reference to its
rules as to conflicts of law) and the federal law of the United States of
America. Each party to this Agreement irrevocably agrees that any legal action
or proceeding arising out of or relating to this Agreement or any agreement or
transactions contemplated hereby shall be brought in the courts of the State of
New York or of the United States of America for the District of New York and
hereby expressly submits to the personal jurisdiction and venue of such courts
for the purposes thereof and expressly waives any claim for improper venue and
any claim that such courts are an inconvenient forum.
20. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original. Facsimile signatures
are considered to be originals and shall have the same effect.
21. Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
[Remainder of Page Intentionally Left Blank]
25
IN WITNESS WHEREOF, the Purchaser has duly caused this Agreement to be
executed by its duly authorized representative as of the day and year first
above written.
Print or Type: Name of Purchaser
(Individual or Institution):
_______________________________________
Name of Individual representing
Purchaser (if an Institution):
_______________________________________
Title of Individual representing
Purchaser (if an Institution):
_______________________________________
Signature by: Individual Purchaser or Individual
representing Purchaser:
_______________________________________
Address:_______________________________
_______________________________________
Telephone:_____________________________
Telecopier:____________________________
AGGREGATE AMOUNT OF
DEBENTURES PURCHASED: _________________
ACCEPTED AND AGREED TO
THIS ___ DAY OF MARCH 1997:
MEDIA LOGIC, INC.
By:_______________________________________
Name:
Title:
26
Appendix I-1
(one of two)
MEDIA LOGIC, INC.
DEBENTURE CERTIFICATE QUESTIONNAIRE
-----------------------------------
In connection with the preparation of the certificate(s) for the
Debentures, please provide us with the following information:
1. The exact name in which your
Debentures are to be
registered in (this is the
name that will appear on your
certificate(s)). You may use
the name of a registered
holder if appropriate:
___________________________
2. The relationship between the
Purchaser and the registered
holder, if any:
__________________________
3. The mailing address of the
registered holder named in
item 1 above:
_________________________
_________________________
_________________________
_________________________
4. The Social Security Number or
Tax Identification Number of the
registered holder named in item 1:
__________________________
Appendix I-2
(two of two)
MEDIA LOGIC INC.
REGISTRATION STATEMENT QUESTIONNAIRE
------------------------------------
In connection with the preparation of the Registration Statement, please
provide us with the following information:
1. Please state the name of the beneficial owner of the Debentures. This
is the name that will appear in the "Selling Securityholder" section of the
Registration Statement.
- --------------------------------------------------------------------------------
2. Please provide the number of: (1) Debentures purchased by the person
or entity named in Item 1 above; (2) shares of Common Stock that the person or
entity named in Item 1 above owned at March 1, 1997.
(1) (2)
Amount of Number of Shares of
Debentures Common Stock Owned
Purchased At March 1, 1997
--------- ----------------
3. Unless you check the following box, all Underlying Common Shares
relating to the Debentures listed above will be included in the Registration
Statement.
/ /
If you checked the foregoing box, please indicate a lesser number of Debentures
to be used to determine the number of Underlying Common Shares to be included in
the Registration Statement.
- --------------------------------------------------------------------------------
4. Have you, your organization or the beneficial owner named above had
any position, office or other material relationship within the past three years
with the Company or its affiliates other than as disclosed in the Prospectus
included in the Registration Statement?
____ Yes ____ No
If yes, please indicate the nature of any such relationships below:
- --------------------------------------------------------------------------------
Appendix II
CONVERSION NOTICE
URGENT/FOR IMMEDIATE ATTENTION
addressed to:
Media Logic, Inc.
310 South Street
Plainville, Massachusetts 02762
Attn: Chief Financial Officer
Telephone: (508) 695-2006
Telecopier: (508) 695-8593
Name of Nominee or Registered Holder:
_________________________________________________________________
(Print)
Telecopier number to which confirmation of receipt of this Conversion Notice
should be sent:
_________________________________________________________________
(Print)
Amount of Debentures being converted hereby: _________________________________
If you want the Common Stock certificate, if any, made out in another person's
name, fill in the form below:
(INSERT OTHER PERSON'S SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER, WHERE APPLICABLE)
-----------------------------------------
-----------------------------------------
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(Print or type assignee's name, title, address and zip code)
Date:_____________________________________________________________
Signature:_________________________________________________________
Appendix III
REGISTRATION RIGHTS AGREEMENT
Appendix IV
PURCHASER'S CERTIFICATE OF SUBSEQUENT SALE
------------------------------------------
The undersigned, [an officer of, or other person duly authorized by]
________________________________________________________________________________
[fill in official name of individual or institution]
hereby certifies that he/she [said institution] is the Purchaser of the
securities evidenced by the attached certificate, and as such, sold such
securities on ____________ in accordance with registration statement
No. ____________, and the requirement of delivering a current prospectus and
current annual and quarterly reports by the Company has been complied with in
connection with such sale.
Print or Type:
Name of Purchaser
(Individual or
Institution): ____________________________________________
Name of Individual
representing
Purchaser (if an
Institution): ____________________________________________
Title of Individual
representing
Purchaser (if an
Institution): ____________________________________________
Signature by:
Individual Purchaser
or Individual
representing
Purchaser: ____________________________________________
Appendix V
Form of Opinion of Counsel to the Company
-----------------------------------------
1. The Company and each of its subsidiaries has been duly organized and
is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation with full power and authority to own and lease its
properties and to conduct its business as now being conducted; the Company and
each of its subsidiaries is duly qualified to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure to so qualify would not, singly or in the aggregate,
have a material adverse effect on the business, properties, prospects, condition
(financial or otherwise), net worth or results of operations of the Company and
its subsidiaries taken as a whole.
2. The Company has authorized and outstanding capital stock as set forth
under the heading "Capitalization" in the Confidential Offering Memorandum (the
"Offering Memorandum"); the issued and outstanding shares of the Company's
Common Stock have been duly authorized and validly issued, are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and conform to
the description thereof contained in or incorporated by reference into the
Offering Memorandum. All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. Except as disclosed in or contemplated by the
Offering Memorandum and the financial statements of the Company and the related
notes thereto included in the Offering Memorandum, neither the Company nor any
subsidiary has outstanding any options to purchase, or any preemptive rights or
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations.
3. The Debentures have been duly and validly authorized and, when issued,
executed, delivered and sold by the Company in accordance with the Agreements,
will have been duly and validly issued, executed and delivered and will
constitute valid and legally binding obligations of the Company enforceable
against the Company in accordance with their terms and entitled to the benefits
provided in the Agreements, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights and to general principles of equity. The
Warrants to be issued by the Company will be, upon issuance thereof, duly
authorized, fully paid and non-assessable. No further approval or authority of
the stockholders or the Board of Directors of the Company will be required for
the issuance and sale of the Debentures or the issuance of the Underlying Common
Shares.
4. The Conversion Shares have been duly authorized and reserved for
issuance upon conversion of the Debentures and, when issued and delivered upon
such conversion in accordance with the Form of Debenture, will be fully paid and
non-assessable and will not have been issued in violation of or subject to any
preemptive rights or other similar rights or, to such counsel's knowledge,
similar contractual rights. The Interest Shares have been duly authorized and
reserved for issuance upon payment of the interest on the Debentures and, when
issued and delivered upon such payment, will fully paid and non-assessable and
will not have been issued in violation of or subject to any preemptive rights or
other similar rights or, to such counsel's knowledge, similar contractual
rights. The Penalty Shares have been duly authorized and reserved for issuance
upon payment of such penalties and, when issued and delivered upon such
payment, will be fully paid and non-assessable and will not have been issued
in violation of or subject to any preemptive rights or other similar rights
or, to such counsel's knowledge, similar contractual rights. The Rochon
Warrant Shares have been duly authorized and reserved for issuance upon
exercise of the Rochon Warrants and will fully paid and non-assessable and
will not have been issued in violation of or subject to any preemptive or
other similar rights or, to such counsel's knowledge, similar contractual
rights.
5. The Company has full corporate power and authority to enter into the
Placement Agency Agreement, the Escrow Agreement, each of the Warrant
Agreements, each of the Subscription Agreements and each of the Registration
Rights Agreements (collectively, the "Agreements"). The Agreements have been
duly authorized, executed and delivered by the Company. The performance of the
Agreements by the Company and the consummation of the transactions therein
contemplated will not violate any provision of the certificate of incorporation
or bylaws, or other organizational documents, of the Company or any of its
subsidiaries, and will not conflict with, result in the breach or violation of,
or constitute, either by itself or upon notice or the passage of time or both, a
default under any agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
any of its respective properties may be bound or affected, any statute or any
authorization, judgment, decree, order, rule or regulation of any court or any
regulatory body, administrative agency or other governmental body applicable to
the Company or any of its subsidiaries or any of their respective properties.
To such counsel's knowledge, no consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other governmental body
is required for the execution and delivery of the Agreements or the consummation
of the transactions contemplated thereby, except for compliance with the Blue
Sky laws applicable to the offering of the Debentures. Upon their execution and
delivery, and assuming the valid execution thereof by the respective Purchasers,
the Agreements will constitute valid and binding obligations of the Company,
enforceable in accordance with their respective terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' and contracting parties' rights generally
and except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
6. Except as to defaults, violations and breaches which individually or
in the aggregate would not be material to the Company or which are described in
the Offering Memorandum, neither the Company nor any of its subsidiaries is in
violation or default of any provision of its certificate of incorporation or
bylaws, or other organizational documents, or is in breach of or default with
respect to any provision of any agreement, judgment, decree, order, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other instrument
to which it is a party or by which it or any of its properties are bound; and
there does not exist any state of fact which constitutes an event of default on
the part of the Company or any such subsidiary as defined in such documents or
which, with notice or lapse of time or both, would constitute such an event of
default, except such defaults which individually or in the aggregate would have
a Material Adverse Effect.
7. Except as described in the Offering Memorandum, to such counsel's
knowledge, there is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or threatened,
against or affecting the Company or any of its subsidiaries which might,
singly or in the aggregate, have a Material Adverse Effect, or which might
materially and adversely affect the Agreements; to such counsel's knowledge,
all pending legal or governmental proceedings to which the Company or any of
its subsidiaries is a party or of which any of their property or assets is
the subject which are not described in the Offering
Memorandum, including ordinary routine litigation incidental to the business,
are, considered in the aggregate, not material to the business of the Company
and its subsidiaries taken as a whole.
8. The Common Stock is registered pursuant to Section 12(b) or Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the Company has timely filed all material required to be filed pursuant to
Sections 13(a) or 15(d) of the Exchange Act for a period of at least 12 months
preceding the date hereof. The Company complies with the eligibility
requirements for the use of Form S-3 under the Securities Act of 1933, as
amended. The issuance of the Underlying Common Stock in accordance with the
terms and conditions of the Agreements will not violate the applicable listing
agreement between the Company and any securities exchange or market on which the
Company's securities are listed.
9. Assuming the compliance by the Placement Agent with its
representations, warranties and covenants set forth in the Placement Agency
Agreement dated March 17, 1997 between the Company and the Placement Agent
and the compliance by the Investors with the representations and warranties
set forth in their respective Subscription Agreements, the issuance, offer
and sale by the Company to the Investors of the Debentures is exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) or
3(b) thereof.