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Exhibit 99.1
THIRD AMENDMENT TO BRIDGE SECURITIES
PURCHASE AGREEMENT AND RELATED DOCUMENTS
THIS THIRD AMENDMENT TO BRIDGE SECURITIES PURCHASE AGREEMENT AND
RELATED DOCUMENTS (this "THIRD AMENDMENT"), dated as of December 29, 1998,
among VISUAL EDGE SYSTEMS INC., a Delaware corporation (the "COMPANY"), and
INFINITY INVESTORS LIMITED, IEO HOLDINGS LIMITED (as the transferee from
INFINITY EMERGING OPPORTUNITIES LIMITED), SUMMIT CAPITAL LIMITED (as the
transferee from SANDERA PARTNERS, L.P.) and GLACIER CAPITAL LIMITED (as the
transferee from LION CAPITAL PARTNERS, L.P.) (collectively, the "PURCHASERS").
RECITALS
A. The Company and the Purchasers entered into the Bridge Securities
Purchase Agreement, dated as of June 13, 1997 (the "INITIAL PURCHASE
AGREEMENT"), as amended by that certain First Amendment to Bridge Securities
Purchase Agreement and Related Documents, dated as of December 31, 1997 (the
"FIRST AMENDMENT"), and as further amended by that certain Agreement and Second
Amendment to Bridge Securities Purchase Agreement and Related Documents, dated
as of March 27, 1998 (the "SECOND AMENDMENT"; the Initial Purchase Agreement,
as amended by the First Amendment and the Second Amendment, being referred to
herein as the "PURCHASE AGREEMENT").
B. The Company and the Purchasers now desire to amend the Purchase
Agreement and certain of the related Financing Documents and other related
documents in order to: (1) reprice the Conversion Price of the Convertible
Notes; (2) retire all of the issued and outstanding shares of the Series A
Convertible Preferred Stock of the Company and issue a new class of Series A-2
Convertible Preferred Stock of the Company in exchange therefor; (3) modify
certain conversion and resale limitations; (4) modify certain redemption
provisions; (5) modify certain interest and dividend provisions; (6) provide
for certain additional events of default; (7) reprice, issue and cancel certain
stock options; and (8) make certain other related changes.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
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ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. Capitalized terms used in this Third
Amendment, to the extent not otherwise defined herein, shall have the same
meanings as in the Purchase Agreement. In addition, the following term, as used
herein, has the following meaning:
"Series A-2 Certificate of Designation" means the Certificate of
Designation, Preferences and Rights of Series A-2 Convertible Preferred Stock
of Visual Edge Systems Inc., substantially in the form attached hereto as
Exhibit A, and filed pursuant to Section 3.1(a) hereof.
ARTICLE II
AMENDMENTS
SECTION 2.1 DEFINITIONS.
(a) Effective as of the date hereof, the following definitions
contained in Section 1.1 of the Purchase Agreement are amended to read in their
entirety as follows:
"Conversion Price" means:
(a) with respect to the Convertible Notes, $2.50 from the
date hereof until January 1, 2000, inclusive, and $1.25 thereafter;
and
(b) with respect to the Preferred Stock, (i) $1.25 as to
Preferred Shares, the liquidation preference of which shares
aggregates to no more than $2,000,000; (ii) if Preferred Shares with
an aggregate liquidation preference of $2,000,000 or more have been
converted into shares of Common Stock, then the Conversion Price for
the first $2,000,000 of aggregate liquidation preference of the
Preferred Shares shall be governed by clause (i) of this subsection
(b), and the Conversion Price for the excess over $2,000,000, up to a
maximum of $1,000,000, of aggregate liquidation preference of
Preferred Shares shall be $2.00 from the date hereof until June 30,
1999, inclusive, $1.375 from July 1, 1999 until January 1, 2000,
inclusive, and $1.25 after January 1, 2000; and (iii) if Preferred
Shares with an aggregate liquidation preference of $3,000,000 or more
have been converted into shares of Common Stock, then the Conversion
Price for the first $2,000,000 of aggregate liquidation preference of
the Preferred Shares shall be governed by clause (i) of this
subsection (b), the Conversion Price for the next $1,000,000 of
aggregate liquidation preference of the Preferred Shares shall be
governed by clause (ii) of this subsection (b) and the Conversion
Price for the excess over
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$3,000,000 of aggregate liquidation preference of Preferred Shares
shall be $2.50 from the date hereof until June 30, 1999, inclusive,
$2.00 from July 1, 1999 until January 1, 2000, inclusive, and $1.25
thereafter; such Conversion Price for the Preferred Stock shall be set
forth in the Certificate of Designation, Preferences and Rights of
Series A-2 Convertible Preferred Stock of Visual Edge Systems Inc.;
PROVIDED, HOWEVER, that upon the occurrence of an Event of Default,
"Conversion Price" with respect to the Convertible Notes or the
Preferred Stock, as applicable, shall mean the formula F/P where F =
the face amount of the Convertible Instrument being converted,
together with accrued and unpaid interest or dividends thereon through
the Conversion Date, as applicable, and P = the lesser of (x) $6.00
and (y) the product of 77.5% multiplied by the Market Price as of the
Conversion Date.
"Preferred Stock" means the Company's Series A-2 Convertible
Preferred Stock issued in accordance with the terms of the Certificate
of Designation, Preferences and Rights of Series A-2 Convertible
Preferred Stock of Visual Edge Systems Inc.
(b) Effective as of the date hereof, the following definitions are
added to Section 1.1 of the Purchase Agreement, in the appropriate alphabetical
positions:
"Formula Price" means the greater of (a) the aggregate
principal amount of the applicable Convertible Notes or the
liquidation preference of the Preferred Shares, as applicable, plus
any accrued and unpaid interest or dividends thereon, as applicable,
being repaid through the date of consummation of the prepayment (as
specified in Section 3.6 below) and (b) the sum of (x) the product of
(i) the number of shares of Common Stock into which the Convertible
Instruments being redeemed are then convertible at the then-current
Conversion Price and (ii) the average Closing Bid Price for the five
(5) Trading Days ending two (2) Business Days immediately preceding
the applicable date of consummation of the redemption as specified in
Section 3.6 below, and (y) the applicable amount of accrued but unpaid
interest on the Convertible Notes or dividends on the Preferred
Shares, as applicable, being repaid through the date of consummation
of the prepayment (as specified in Section 3.6 below).
"Sale Event" means the occurrence of any of the following:
(a) after December 20, 1998 any Person or group of Persons (within the
meanings of Sections 13 and 14 of the Exchange Act and the rules and
regulations of the Commission relating to such sections) other than
the Purchasers shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 of the Exchange Act and Regulations 13D-G
thereunder) of 50.1% or more of the outstanding shares of Common Stock
of the Company; (b) individuals constituting the Board of Directors of
the Company on December 20, 1998 (together with any new directors
whose election by such Board of Directors or whose
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nomination for election by the stockholders of the Company was
approved by vote of at least 50.1% of the directors still in office
who are either directors as of the date hereof or whose election or
nomination for reelection was previously so approved), cease for any
reason to constitute at least 66% of the Board of Directors of the
Company then in office; (c) any transfer of all or substantially all
of the assets of the Company to any Person in a single transaction or
a series of related transactions; or (d) any consolidation or merger
of the Company with or into another Person in which the Company is (x)
not the surviving entity or (y) survives such merger as a wholly owned
subsidiary of another Person (other than a merger which is effected
solely to change the jurisdiction of incorporation in the Company and
results in a reclassification, conversion or exchange of outstanding
shares of Common Stock solely into shares of Common Stock of the
surviving entity).
SECTION 2.2 PRINCIPAL MORATORIUM. Effective as of the date hereof,
Section 2.1 of the Second Amendment is deleted in its entirety, and all
references to the "Principal Moratorium" are hereby deleted in their entirety.
SECTION 2.3 PURCHASERS' SALE RESTRICTIONS AND OPTION RIGHT. Effective
as of the date hereof, Section 2.3 of the Second Amendment is deleted in its
entirety, and all references to the "Resale Limitation" or the "Option Right"
in any Financing Document are hereby deleted in their entirety.
SECTION 2.4 RIGHT OF FIRST REFUSAL. Effective as of the date hereof,
Section 2.4 of the Second Amendment is amended to add a new subsection (d)
thereto to read as follows:
"(d) The provisions of this Section 2.4 shall not apply: (i)
in the event of a public sale by the Purchasers of shares of Common
Stock on the NASDAQ Stock Market's SmallCap Market, or on such other
market as the Common Stock is traded at such time, pursuant to an
effective registration statement; and (ii) in the event of a private
sale of shares between or among any of the Purchasers and/or any
Affiliates of the Purchasers."
SECTION 2.5 VOLUNTARY PREPAYMENTS.
(a) Effective as of the date hereof, Section 3.4 of the Purchase
Agreement is amended to read in its entirety as follows:
"SECTION 3.4 VOLUNTARY PREPAYMENTS.
(a) Subject to the terms of this Section 3.4, the Company
may, at its option, prepay at any time all or any portion of the
Convertible Instruments remaining unconverted, immediately upon notice
to the holder of the Convertible Instruments
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specifying the amount of the prepayment pursuant to the terms of this
Article III. Partial prepayments shall be in an aggregate principal
amount of not less than $300,000.
(b) The price to be paid by the Company to prepay or redeem
the Convertible Instruments shall be the sum of (i) the aggregate
principal amount of the Convertible Notes or the liquidation
preference of the Preferred Stock, as applicable, PLUS (ii) any
accrued and unpaid interest on the Convertible Notes or dividends on
the Preferred Stock, as applicable, being redeemed, through the
applicable date of consummation of the prepayment (as specified in
Section 3.6 below); PROVIDED, HOWEVER, that upon the occurrence of an
Event of Default, the price to be paid by the Company to prepay or
redeem the Convertible Instruments shall be the Formula Price."
(b) Effective as of the date hereof, all references in the Financing
Documents to the term "Maximum Conversion Price" are hereby amended by deleting
the word "Maximum" so that each such reference is to the term "Conversion
Price."
(c) As specified in Section 3.6(c) of the Purchase Agreement, the
Company shall be required to redeem all of the Preferred Stock issued and
outstanding prior to the redemption of any of the Convertible Notes.
(d) The voluntary prepayment provisions of subsection (a) of this
section, together with the remaining terms of this Third Amendment (where
applicable), shall be set forth in the Series A-2 Certificate of Designation.
SECTION 2.6 EVENTS OF DEFAULT. Effective as of the date hereof,
Section 12.1 of the Purchase Agreement is amended by deleting the word "or" at
the end of subsection (o), replacing the comma at the end of subsection (p)
with a semicolon, and adding new subsections (q), (r), (s) and (t) thereto to
read as follows:
"(q) the voluntary resignation of any of Earl Takefman,
Richard Parker or Thomas Peters, unless the Closing Bid Price of the
Company's Common Stock exceeds $2.00 for twenty out of the thirty
Trading Days preceding the effective date of such resignation;
(r) the Company's right to use Greg Norman's name, likeness,
endorsement and certain trademarks, pursuant to the License Agreement,
dated as of March 1, 1995 (the "LICENSE AGREEMENT"), among the
Company, Greg Norman and Great White Shark Enterprises, as amended, is
materially impaired upon (i) the material breach by the Company of the
License Agreement which results in one of the counterparties thereto
terminating the License Agreement or (ii) any amendment to the License
Agreement that makes it economically impracticable to carry out the
Company's obligations thereunder;
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(s) the Commission does not declare the New Registration
Statement effective by March 31, 1999; or
(t) any default or breach by the Company of any of its
covenants, representations or agreements set forth in this Third
Amendment."
SECTION 2.7 INTEREST. Effective as of the date hereof, each of the
four Convertible Notes is amended by deleting the third paragraph of each
Convertible Note and replacing such paragraph with the following sentence:
"Interest on this Convertible Note shall be paid in cash and
shall be calculated on the basis of a 360-day year of twelve 30-day
months."
SECTION 2.8 DIVIDENDS. The Series A-2 Certificate of Designation shall
provide that (a) the Company will pay no dividends during the calendar year
1999, (b) dividends will not accrue during the calendar year 1999 and (c)
beginning on January 1, 2000, dividends shall accrue and be paid at a rate of
8.25% per annum.
SECTION 2.9 CANCELLATION OF WARRANTS. Effective as of the date of
satisfaction of all conditions contained in Sections 3.1 and 3.2 hereof, all
warrants issued to the Purchasers to date, other than warrants for the purchase
of shares of Common Stock to be exercised by the Purchasers pursuant to Section
3.2(b) hereof, are canceled and shall be null, void and without effect.
SECTION 2.10 LIMITATION ON CONVERSION. Effective as of the date
hereof, Section 10.5 of the Purchase Agreement is amended to read in its
entirety as follows:
"SECTION 10.5 LIMITATION ON CONVERSION. Notwithstanding the
conversion rights under the Convertible Instruments and exercise
rights under the Warrants, in no event shall the Purchasers be
entitled at any one time to convert any portion of the Convertible
Instruments or exercise any portion of the Warrants, in excess of that
portion of the Convertible Instruments or Warrants upon conversion and
exercise, as applicable, of which the sum of (a) the number of shares
of Common Stock beneficially owned by the Purchasers and their
Affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of
the Convertible Instruments and unexercised portion of the Warrants,
or other derivative securities convertible into or exchangeable for
shares of Common Stock which contain a limitation similar to that set
forth herein), and (b) the number of shares of Common Stock issuable
upon the conversion of the portion of the Convertible Instruments or
issuable upon exercise of the portion of the Warrants with respect to
which this determination is being made, would result in beneficial
ownership by the Purchasers and their Affiliates of
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more than 9.99% of the outstanding shares of Common Stock after giving
effect to such conversion or exercise. For purposes hereof, beneficial
ownership shall be determined in accordance with Rule 13d-3 of the
Exchange Act and Regulations 13D-G thereunder, except as otherwise
provided herein. The foregoing limitation shall not apply and shall be
of no further force or effect (i) immediately preceding and upon any
consummation of any Sale Event, or (ii) following the occurrence of
any Event of Default which is not cured within the greater of the time
period specified in either (A) a written notice delivered from the
Purchasers to the Company or (B) any applicable grace period."
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PURCHASERS.
The obligations of the Purchasers under this Third Amendment are subject to the
satisfaction, at or prior to 5:00 p.m. Eastern Standard Time on December 31,
1998 (the "TERMINATION DATE"), of each of the conditions contained in this
Section 3.1. If all such conditions are not satisfied at or prior to the
Termination Date, this Third Amendment shall automatically terminate and be of
no further force and effect.
(a) The Company shall file with the Secretary of State of the State of
Delaware the Series A-2 Certificate of Designation, substantially in the form
attached hereto as Exhibit A, setting forth: (i) the conversion price structure
referenced in Section 2.1 hereof, (ii) the voluntary prepayment structure
referenced in Section 2.5 hereof and (iii) the waiver of payment and accrual of
dividends for the calendar year 1999 set forth in Section 2.8 hereof.
(b) The Company shall issue to the Purchasers 6,000 shares of the
Series A-2 Convertible Preferred Stock of the Company, with such powers,
designations, preferences, rights, qualifications, limitations and restrictions
as set forth in the Series A-2 Certificate of Designation, filed pursuant to
subsection (a) of this section, in exchange for the Purchasers' delivery to the
Company for retirement of 6,000 shares of the Series A Convertible Preferred
Stock of the Company. Such exchange shall be accomplished by the Company and
Purchasers delivering a joint instruction letter, or separate instruction
letters, to the Company's transfer agent, which currently holds the shares of
Series A Convertible Preferred Stock.
(c) The Company shall execute and deliver that certain Client Service
Agreement, dated as of December 4, 1998 (the "CONTINENTAL AGREEMENT"), between
the Company and Continental Capital & Equity Corporation ("CONTINENTAL"),
substantially in the form attached hereto as Exhibit B.
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(d) The Company shall pay to the Purchasers all accrued and unpaid
interest on the Convertible Notes, as of December 31, 1998, in cash or in
Common Stock at the Company's option; PROVIDED, HOWEVER, that if the Company
elects to make such interest payments in Common Stock, then, as evidence of
such payment, the Company shall deliver to the Purchasers a copy of the letter
to the Company's transfer agent authorizing the issuance to the Purchasers of
stock certificates representing such Common Stock.
(e) The Company shall pay to the Purchasers all accrued and unpaid
dividends on the Series A Convertible Preferred Stock of the Company through
December 31, 1998, in cash or in Common Stock at the Company's option;
PROVIDED, HOWEVER, that if the Company elects to make such dividend payments in
Common Stock, then the amount of Common Stock paid by the Company to the
Purchasers shall be reduced by 25,000 shares of Common Stock.
(f) The relevant registration statements shall have been amended or
supplemented, as necessary, in order to (i) effect the registration under the
Securities Act of all shares of Common Stock into which the Convertible
Instruments held by the Purchasers may be converted, including any shares of
Common Stock issued as interest or dividends, together with all shares of
Common Stock owned by the Purchasers, (ii) increase the maximum number of
shares registered thereunder in accordance with Commission Rule 462(b) and
(iii) reflect the transactions set forth in this Third Amendment. In addition,
following the amendments contemplated by clause (ii) above, the Company shall
file with the Commission a new registration statement (the "NEW REGISTRATION
STATEMENT"), which registration statement shall be consistent with the terms of
the Registration Rights Agreement, dated as of June 13, 1997, among the Company
and Infinity Investors Limited, Infinity Emerging Opportunities Limited,
Sandera Partners, L.P. and Lion Capital Partners, L.P., and shall use its best
lawful efforts to have the same declared effective by the Commission as soon as
possible, but in any event by March 31, 1999, registering any shares of Common
Stock not included in the amendment or supplement to the existing registration
statements as a result of the limitations imposed by Commission Rule 462(b).
(g) An officer of the Company shall execute and deliver a certificate
setting forth resolutions of the Company's board of directors with respect to
the authorization, execution, delivery and performance of this Third Amendment,
the officers of the Company authorized to sign this Third Amendment and the
specimen signatures of the officers so authorized.
(h) The Company shall pay to the Purchasers the fees and expenses of
counsel pursuant to Section 6.1 hereof.
(i) Earl Takefman shall execute and deliver to the Purchasers a side
letter, substantially in the form attached hereto as Exhibit C (the "TAKEFMAN
SIDE LETTER"), imposing upon Mr. Takefman certain restrictions on his sale of
the Company's Common Stock.
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(j) The Company shall have delivered instructions to the Company's
transfer agent requesting such transfer agent to prepare the Warrant Exercised
Shares (as hereinafter defined).
SECTION 3.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company under this Third Amendment are subject to the
satisfaction, at or prior to the Termination Date, of each of the conditions
contained in this Section 3.2. If all such conditions are not satisfied at or
prior to the Termination Date, this Third Amendment shall automatically
terminate and be of no further force and effect.
(a) In order to retain the Company's management, and to provide proper
incentive for said management to pursue the Company's long-term goals, the
Company's Compensation Committee (the "COMMITTEE") shall execute and deliver a
letter and resolutions, substantially in the form attached hereto as Exhibit D,
pursuant to which the Committee resolves to (i) reprice to $1.00 per share all
outstanding stock options granted to Earl Takefman, Richard Parker and Thomas
Peters, all of which options shall be immediately vested, (ii) reprice to $1.00
per share approximately 82,000 existing employee stock options, all of which
options shall be immediately vested, (iii) grant to Richard Parker 200,000
additional stock options, which shall be immediately vested and have an
exercise price of $1.00 per share and (iv) grant to Richard Parker 200,000
additional stock options, and to Thomas Peters 100,000 additional stock
options, all of which options shall be immediately vested and have an exercise
price of $1.00 per share.
(b) The Purchasers shall exercise warrants, at an exercise price equal
to the Closing Bid Price on the day immediately preceding the Closing, for the
purchase of such number of shares (the "WARRANT EXERCISED SHARES") of Common
Stock to result in a total exercise price of approximately $12,500.
(c) The Purchasers shall cooperate with the Company in delivering to
the Company's transfer agent the joint instruction letter (with the Company),
or its separate instruction letter, regarding the exchange of shares referred
to in Section 3.1(b) hereof.
(d) Marion Interglobal Ltd. ("MARION") shall execute and deliver a
side letter, substantially in the form attached hereto as Exhibit E (the
"MARION SIDE LETTER"), releasing Earl Takefman from certain resale restrictions
to which Mr. Takefman and Marion have previously agreed.
ARTICLE IV
COVENANTS
SECTION 4.1 RETAINER OF INVESTMENT BANKING FIRM. If, prior to the
execution of this Third Amendment, the Company has not retained an investment
banking firm, reasonably
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acceptable to the Purchasers, to explore strategic alternatives (including,
without limitation, acquisitions, recapitalizations, sources of additional
financing, joint venture partners and a sale of the Company), then promptly
following the execution of this Third Amendment the Company shall use its best
efforts to retain such a firm.
SECTION 4.2 DELIVERY OF WARRANTS. Promptly following the execution of
this Third Amendment, the Purchasers shall use their best efforts to deliver to
the Company all warrants issued to the Purchasers to date, including those
warrants canceled pursuant to Section 2.9 hereof and those warrants exercised
pursuant to Section 3.2(b) hereof.
SECTION 4.3 COMBINATION OF SHARES.
(a) The Company shall not combine outstanding shares of Common Stock
into a smaller number of shares, unless (i) the Company deems such combination,
following consultation with counsel, necessary in order to meet the
qualification requirements for continued listing on the NASDAQ SmallCap Market
and (ii) the Company has used its best lawful efforts to meet such requirements
by other means (including, without limitation, timely responding to inquiries
and timely appealing any adverse determinations).
(b) In the event that the Company elects to combine outstanding shares
of Common Stock pursuant to subparagraph (a) of this section, the Company shall
combine outstanding shares (i) in order to meet the qualification requirements
of the NASDAQ SmallCap Market and (ii) as would result in the Market Price
being not materially higher than $2.00; PROVIDED, HOWEVER, that without the
prior written consent of the Purchasers, no single combination of shares, or
multiple combinations of shares in the aggregate, shall be at a ratio of or
greater than 4:1 (i.e. result in a reduction of more than 75% of the shares of
the Company's Common Stock presently outstanding).
SECTION 4.4 PUBLIC RELATIONS FIRM. Upon termination of the Continental
Agreement, the Company will consider extending or renewing the Continental
Agreement or retaining another public relations firm, if such extension,
renewal or retainer is determined by the Company's board of directors to be in
the Company's best long-term interests.
SECTION 4.5 ANTI-DILUTION. The Company shall (i) issue no shares of
Common Stock, or securities convertible into or exchangeable for shares of
Common Stock, or options, to Ronald Seale, Richard Parker, Thomas Peters or
Earl Takefman, or any of their respective affiliates, other than any issuance
(x) in connection with the exercise of any stock options currently held by such
persons or (y) in a capital-raising transaction or (z) of not more than 100,000
shares in the aggregate of Common Stock, or securities convertible into or
exchangeable for shares of Common Stock, in a transaction permitted by Section
6.2 hereof or (ii) not lower the exercise or conversion price of any stock
options or convertible securities held by such persons; PROVIDED,
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HOWEVER, that nothing in this Section 4.5 shall contravene any term or
provision of, or prohibit or restrict the Company from performing, the
respective employment agreements of Ronald Seale, Richard Parker, Thomas Peters
and Earl Takefman as currently in effect, as long as stock options to purchase
not more than an aggregate of 20,000 shares of Common Stock are granted in
accordance with such terms as currently in effect; and PROVIDED FURTHER, that
after December 31, 2000, the Company may issue stock options to Ronald Seale,
Richard Parker, Thomas Peters, Earl Takefman and any of their respective
affiliates at the Market Price and only with the approval of the independent
members of the Board of Directors of the Company.
ARTICLE V
RATIFICATION; REPRESENTATIONS AND WARRANTIES
SECTION 5.1 RATIFICATION. The terms and provisions of the Financing
Documents, as modified by this Third Amendment, are ratified and confirmed and
shall continue in full force and effect. The Company acknowledges and agrees
that each of the Financing Documents, as amended hereby, is and shall remain in
full force and effect and is and shall continue to be the legal, valid and
binding obligation of the Company, enforceable against it in accordance with
each such document's terms.
SECTION 5.2 REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants to the Purchasers that: (a) the execution, delivery and
performance of this Third Amendment and all other documents executed and/or
delivered in connection herewith and all transactions and documents
contemplated hereby and thereby have been authorized by all requisite corporate
action on the part of the Company; (b) this Third Amendment constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to or limited by liquidation,
bankruptcy, conservatorship, insolvency, reorganization, rearrangement,
moratorium or other similar law relating to or affecting the rights of
creditors generally and general principals of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law); (c)
there is no provision of law, in the charter or bylaws of the Company, and no
provision of any existing mortgage, contract, lease, indenture or agreement
binding on the Company, which would be contravened by the making or delivery of
this Third Amendment or any other document executed and/or delivered in
connection herewith, or by the performance or observance of any of the terms
hereof or thereof; (d) the execution, delivery and performance of this Third
Amendment and the transactions contemplated hereby do not require any approval
or consent or, of filing or registration with, any governmental or any other
agency or authority, of stockholders, or of any other party or, if such
approval or consent is required, the same has been obtained; (e) each of the
representations and warranties of the Company contained in ARTICLE V of the
Purchase Agreement, as amended hereby, are true and correct on and as of the
date hereof as though made
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on such date except for those limited by their terms to the date given or
another specific date; and (f) as of the date hereof, no Event of Default has
occurred and is continuing.
ARTICLE VI
OTHER AGREEMENTS OF THE PARTIES
SECTION 6.1 FEES AND EXPENSES. The Company agrees to pay: (a) all of
its own fees and expenses incurred in connection with this Third Amendment and
the restructuring contemplated hereby; and (b) all reasonable out-of-pocket
fees and expenses of counsel incurred by the Purchasers in connection with this
Third Amendment and the restructuring contemplated hereby, up to a maximum of
$3,000.
SECTION 6.2 ANTI-DILUTION. In the event that the Company (a) issues
shares of Common Stock, or securities convertible into or exchangeable for
shares of Common Stock, in exchange for an amount of cash exceeding $3,000,000
or (b) during any calendar year, issues to any Person or Persons, other than
Greg Norman, Great White Shark Enterprises or David Feherty, an aggregate of
more than 100,000 shares of Common Stock, or securities convertible into or
exchangeable for an aggregate of more than 100,000 shares of Common Stock, then
the Conversion Price shall be adjusted by multiplying the Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding without giving effect to such issuance, and the denominator of
which shall be the number of shares of Common Stock outstanding after giving
effect to such issuance (including, in the case of securities convertible into
or exchangeable for shares of Common Stock, the number of shares of Common
Stock that would have been outstanding if such securities had been converted
into or exchanged for shares of Common Stock on the date of such issuance);
PROVIDED, HOWEVER, that no adjustment to the Conversion Price will be made with
respect to (y) any portion of an issuance pursuant to clause (a) of this
section, the proceeds of which are used to pay all or any part of the Company's
obligations to the Purchasers, and such proceeds shall not be considered in
determining whether the issuance exceeds the $3,000,000 threshold set forth in
clause (a) of this section, or (z) any issuance, the price per share at which
such issuance is made (or, in the case of securities convertible into or
exchangeable for shares of Common Stock, at an exchange or conversion price per
share as of the date of issue of such securities) is equal to or greater than
85% of the Market Price as of the date of such issuance.
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ARTICLE VII
MISCELLANEOUS
SECTION 7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations, warranties and covenants made in this Third Amendment shall
survive the execution and delivery of this Third Amendment.
SECTION 7.2 REFERENCES TO FINANCING DOCUMENTS. The Financing Documents
and any and all other agreements, documents or instruments now or hereafter
executed and delivered pursuant to the terms hereof or pursuant to the terms of
the Financing Documents, as amended hereby, are hereby amended so that any
reference therein to the Financing Documents shall mean a reference to the
Financing Documents as amended hereby.
SECTION 7.3 SEVERABILITY. Any provision of this Third Amendment held
by a court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of this Third Amendment and the effect
thereof shall be confined to the provision so held to be invalid or
unenforceable.
SECTION 7.4 APPLICABLE LAW. This Third Amendment and all other
documents executed pursuant hereto shall be governed by and construed in
accordance with the laws of the State of New York.
SECTION 7.5 SUCCESSORS AND ASSIGNS. This Third Amendment is binding
upon and shall inure to the benefit of the Purchasers and the Company, and
their respective successors and assigns, except that the Company may not assign
or transfer any of its rights or obligations hereunder without the prior
written consent of the Purchasers.
SECTION 7.6 EFFECT OF WAIVER. No consent or waiver, express or
implied, by the Purchasers to or for any breach or deviation from any covenant,
condition or duty by the Company shall be deemed a consent or waiver to or of
any other breach of the same or any other covenant, condition or duty.
SECTION 7.7 ENTIRE AGREEMENT. THE PURCHASE AGREEMENT, AS AMENDED
HEREBY, THE OTHER FINANCING DOCUMENTS AND ALL AGREEMENTS EXECUTED IN CONNECTION
WITH THIS THIRD AMENDMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
WITH RESPECT TO THE SUBJECT MATTER THEREOF AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
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SECTION 7.8 HEADINGS. The headings, captions and arrangements used in
this Third Amendment are for convenience only and shall not affect the
interpretation of this Third Amendment.
SECTION 7.9 COUNTERPARTS. This Third Amendment may be executed by
facsimile and in any number of counterparts, each of which counterparts will be
deemed an original, but all of which counterparts together shall constitute one
and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Third Amendment as of the date first above written.
VISUAL EDGE SYSTEMS INC.
By: /s/ Earl Takefman
---------------------------
Name: Earl Takefman
Title: Chief Executive Officer
INFINITY INVESTORS LIMITED
By: /s/ J. A. Loughfan
---------------------------
Name: J. A. Loughfan
Title: Director
IEO HOLDINGS LIMITED
By: /s/ James E. Martin
---------------------------
Name: James E. Martin
Title: Director
SUMMIT CAPITAL LIMITED
By: /s/ J. A. Loughfan
---------------------------
Name: J. A. Loughfan
Title: Director
GLACIER CAPITAL LIMITED
By: /s/ J. A. Loughfan
---------------------------
Name: J. A. Loughfan
Title: Director
[Signature page to Third Amendment]
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EXHIBIT A
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SERIES A-2 CERTIFICATE OF DESIGNATION
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STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "VISUAL EDGE SYSTEMS INC.", FILED IN THIS OFFICE ON THE
THIRTY-FIRST DAY OF DECEMBER, A.D. 1998, AT 8:30 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS.
/s/ Edward J. Freel
-----------------------------------
EDWARD J. FREEL, SECRETARY OF STATE
[SEAL]
2418423 8100 AUTHENTICATION: 9497762
981509691 DATE: 12-31-98
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CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
OF SERIES A-2 CONVERTIBLE PREFERRED STOCK
OF VISUAL EDGE SYSTEMS INC.
PURSUANT TO SECTION 151(g) OF THE
DELAWARE GENERAL CORPORATION LAW, AS AMENDED
NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority
conferred upon the Board of Directors of Visual Edge Systems Inc. (the
"Corporation") in accordance with the provisions of the Certificate of
Incorporation there is hereby established a series of the authorized preferred
stock of the Corporation, $.01 par value per share, which series shall be
designated as "Series A-2 Cumulative Convertible Redeemable Preferred Stock,"
and which shall consist of Ten Thousand (10,000) shares (collectively, the
"Series A-2 Shares" or singularly, a "Series A-2 Share") and shall have the
following dividend rights, voting rights, conversion rights, terms of
redemption, redemption prices, liquidation preferences and other rights,
qualifications, limitations and restrictions.
1. DIVIDEND RIGHTS
1.1 A. Beginning on January 1, 2000, the holder of record of
each Series A-2 Share (a "Holder") as of the Record Date (as defined below)
shall be entitled to receive, when, as and if declared by the Corporation's
Board of Directors or a duly authorized committee thereof, on March 31, June 30,
September 30 and December 31 of each year (each a "Dividend Payment Date"),
cumulative dividends per Series A-2 Share (the "Dividends") in either (i) cash
equal to the "Cash Rate" (as hereinafter defined) multiplied by the Liquidation
Preference (as defined in Paragraph 2.1 and as adjusted below) out of the funds
of the Corporation legally available therefor or (ii) at the option of the
Corporation or if the Corporation is legally restricted from paying such
Dividends in cash, in shares of Common Stock (as hereinafter defined) equal to
the "Stock Rate" (as hereinafter defined) multiplied by the Liquidation
Preference (as similarly defined and adjusted), for each Quarterly Payment
Period (as hereafter defined) that such Series A-2 Share is outstanding;
PROVIDED, HOWEVER, that dividends shall not be paid in shares of Common Stock
unless the Corporation has previously filed, and the U.S. Securities and
Exchange Commission (the "Commission") has previously declared effective, a
Registration Statement permitting the public resale of such shares from time to
time by the Holders pursuant to Rule 415 promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), and such Registration Statement
remains available for use by the Holders (the "Share Registration Event") and
PROVIDED, FURTHER, that upon liquidation or redemption, or following an Event
of Default (as defined in Paragraph 1.5), accrued and unpaid Dividends will be
paid in cash only. The Cash Rate and the Stock Rate shall be collectively
referred to as the "Dividend
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Rate." To the extent permitted by applicable law and not prohibited pursuant to
the terms of applicable credit instruments, senior securities or this
Certificate of Designation, the Board of Directors shall declare Dividends on
each Dividend Payment Date (or, if such day is not a business day, on the next
business day thereafter). Notwithstanding any of the foregoing provisions of
this Paragraph 1.1.A, the Corporation shall not pay, and no Holder shall be
entitled to receive, any Dividends during the calendar year 1999.
B. A "Quarterly Payment Period" shall mean the three-month period
ending on March 31, June 30, September 30 and December 31 of each year.
C. The "Cash Rate" shall mean an annual dividend rate of 8.25% (i.e.,
a quarterly dividend rate of 2.0625%), PROVIDED, HOWEVER, the "Cash Rate" shall
mean an annual dividend rate of 18.00% (i.e., a quarterly dividend rate of
4.5%) immediately upon the occurrence of an Event of Default payable in cash.
D. The "Stock Rate" shall mean an annual dividend rate of 8.25% (i.e.,
a quarterly dividend rate of 2.0625%) PROVIDED, HOWEVER, the "Stock Rate" shall
mean an annual dividend rate of 18.00% (i.e., a quarterly dividend rate of
4.5%) immediately upon the occurrence of an Event of Default (subject to
possible adjustment in the event of fractional shares as set forth in the
following sentence) payable in shares of Common Stock of the Corporation such
that the number of shares of Common Stock issued as Dividends shall be
determined by dividing the dollar amount of interest then owing by the
Conversion Price (as defined in Paragraph 4.2 below). Dividends paid at the
Stock Rate shall not be paid in fractional shares (all such fractional shares
being rounded up to the nearest whole number of shares).
E. Beginning on January 1, 2000, dividends shall accrue (whether or
not paid) during each Quarterly Payment Period from the Dividend Payment Date
immediately preceding such Quarterly Payment Period to the earlier to occur of
a conversion event specified in Article 4 hereof, a redemption event specified
in Article 5 hereof or the last day of such Quarterly Payment Period. Dividends
shall be calculated on the basis of a 90-day Quarterly Payment Period and the
actual number of days elapsed. The Holder of any Series A-2 Shares which are
the subject of a conversion pursuant to Article 4 shall, on the Conversion Date
(as defined in Paragraph 4.5), be entitled to receive accrued Dividends on such
Series A-2 Shares which have not been declared and paid on or before such
Conversion Date. The Holder of any Series A-2 Shares which are the subject of a
redemption pursuant to Article 5 shall, on the redemption date (as specified in
paragraph 5.2.A), be entitled to receive dividends on such Series A Shares
which have not been declared and paid on or before such redemption date. For
any period with respect to which the Dividend is not fully paid as described
herein, such accrued but unpaid Dividends shall be added to the Liquidation
Preference of the Series A-2 Shares effective at the beginning of the period
next succeeding the period as to which such Dividends were not paid, and shall
thereafter accrue additional Dividends at the applicable Dividend Rate.
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Any Dividend payment made on Series A-2 Shares shall be credited against the
earliest accrued but unpaid Dividend which has been added to the Liquidation
Preference of the Series A-2 Shares pursuant to this Paragraph 1.1.E and shall
reduce the Liquidation Preference by the amount of the Dividend paid.
Notwithstanding any of the foregoing provisions of this Paragraph 1.1.E, no
Dividends shall accrue during the calendar year 1999, and no Dividends which,
absent the provisions of this sentence, would have accrued during the calendar
year 1999 shall be added to the Liquidation Preference of the Series A-2
Shares.
1.2 Dividends shall to the extent permitted by applicable law
be declared at least twenty (20) business days prior to the next Dividend
Payment Date for payment on the next Dividend Payment Date to the Holders of
record on the date determined in such declaration, which date shall in no event
be more than fifteen (15) business days after the date of declaration (the
"Record Date"). Dividends shall be payable on the earlier to occur of a
conversion event specified in Article 4 hereof or a redemption transaction
referenced in Article 5 herein or each Dividend Payment Date (or if any such
day is not a business day, the next succeeding business day).
1.3 So long as any Series A-2 Shares are outstanding, the
Corporation shall not declare, pay or set aside for payment any dividend (other
than in shares of Junior Stock (as hereinafter defined)) or other distribution
in respect of its Junior Stock, or call for redemption, redeem, purchase or
otherwise acquire for any consideration (other than shares of its Junior Stock)
any shares of its Junior Stock, any warrants, rights, calls or options
exercisable for any shares of Junior Stock unless all dividends accumulated and
unpaid with respect to the Series A-2 Shares are simultaneously declared and
paid. "Junior Stock" means Common Stock or any other series of preferred stock
of the Corporation which ranks junior to or on a parity with (as determined
pursuant to Article 6) the Series A-2 Shares. "Common Stock" means the common
stock, par value $.01 per share, of the Corporation and any share of successor
or replacement stock.
1.4 If one or more of the following events (each, an "Event
of Default") shall have occurred and be continuing:
A. an Event of Default (as defined in Section 12.1
of that Bridge Securities Purchase Agreement, dated June 13,
1997, by and among the Corporation and one or more of the
Holders, as subsequently amended (the "Purchase Agreement"))
has occurred;
B. a Dividend Payment Date has passed for three (3)
Business Days without declaration and payment (or the setting
aside for payment) of the full Dividend contemplated hereby
on all outstanding Series A-2 Shares;
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C. the Corporation has failed to timely observe or
perform any covenant contained in this Certificate of
Designation including, without limitation, any conversion
contemplated by Article 4 hereof or any redemption
contemplated by Article 5 hereof;
then, the Cash Rate and the Stock Rate shall be increased as specified in
Paragraph 1.1.C and 1.1.D above until the aggregate deficiency shall be
declared and fully paid.
2. RIGHTS ON LIQUIDATION
2.1 In the event of the liquidation, dissolution, winding-up
or sale or other disposition of all or substantially all of the assets of the
Corporation, whether voluntary or involuntary (each a "Liquidation"), the
Holder of a Series A-2 Share shall be entitled to receive with respect to such
Series A-2 Share, after the satisfaction of all distributions to holders of
other series of preferred stock, if any, which are expressly senior in
liquidation preference to the Series A-2 Shares, including any series of
preferred stock which is mandatorily redeemable (collectively, the "Senior
Payments") but before any distribution is made to or set aside for the holders
of Common Stock or any other series of preferred stock of the Corporation, if
any, which are junior in liquidation preference to the Series A-2 Shares, cash
or any other assets of the Corporation in an amount (or having a fair market
value) equal to One Thousand Dollars ($1,000) per share (the "Liquidation
Preference") plus all accrued but unpaid Dividends, in cash, up to the date of
the final distribution in Liquidation. If, after the satisfaction of all Senior
Payments, the assets of the Corporation available for distribution to Holders
shall be insufficient to permit the payment in full of the amount due the
Holders pursuant to this Paragraph 2.1, then the entire assets of the
Corporation available for distribution to Holders after the satisfaction of all
Senior Payments shall be distributed pari passu among the Holders and the
holders of other series of preferred stock which are not junior in liquidation
preferences to the Series A-2 Shares, if any, in accordance with their
respective liquidation preferences. The fair market value of any assets of the
Corporation and the proportion of cash and other assets distributed by the
Corporation to the Holders of the Series A-2 Shares shall be reasonably
determined in good faith by the Board of Directors. A merger or consolidation
of the Corporation with another corporation (or other business entity) or a
voluntary sale of all or substantially all of the assets of the Corporation
principally in exchange for stock and/or securities of another corporation (all
referred to as a "Merger") shall not be deemed a Liquidation if such Merger
does not occur as part of a proceeding under Title 11 of the United States Code
or any federal or state law for the protection of creditors or relief of
debtors.
2.2 After the payment to the holders of the Series A-2 Shares
of the full preferential amounts provided for in Section 2.1, the holders of
Series A-2 Shares shall have no right or claim to any of the remaining Assets
of the Corporation.
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3. VOTING RIGHTS
3.1 Except as otherwise provided in Paragraphs 3.2 and 3.3
below, each Holder shall have no voting rights. To the extent Holders of the
Series A-2 Shares have the right to vote, each Holder shall be entitled to that
number of votes for each share of Series A-2 Shares held by such Holder equal
to the total number of shares of Common Stock obtainable upon conversion of
such shares of Series A-2 Shares at the current Conversion Price on the record
date for the vote which is being taken or, if no such record date is
established, at the date such vote is taken or any written consent is
solicited.
3.2 So long as any of the Series A-2 Shares are outstanding
the Corporation will not, without the affirmative vote or consent of the
Holders of at least sixty-six and two-thirds percent (66-2/3%) of the Series
A-2 Shares at the time outstanding, given in person or by proxy, either in
writing or by a resolution adopted at a meeting called for such purpose, with
the Holders of the Series A-2 Shares voting or consenting separately as a
class:
A. amend, alter or repeal any of the provisions of
the Corporation's Certificate of Incorporation or Bylaws or
the resolution providing for the issue of the Series A-2
Shares or pass any shareholder resolution, including such
action effected by merger or similar transaction in which the
Corporation is the surviving corporation, if such amendment
or resolution would affect adversely the preferences, special
rights or powers of the Series A-2 Shares except if such
action is otherwise permitted under the other provisions of
this Paragraph 3.2;
B. increase or decrease (other than by redemption or
conversion) the total number of authorized Series A-2 Shares;
C. issue any capital stock which ranks senior to or
on a parity with the Series A-2 Shares with respect to rights
to receive distributions upon liquidation, dissolution, or
winding up of the Corporation or with respect to dividends;
or
D. enter into a Merger in which the Corporation is
not the surviving corporation; PROVIDED, HOWEVER, that the
provisions of this subparagraph D shall not be applicable to
any such Merger if the authorized capital stock of the
surviving corporation immediately after such Merger shall
include only classes or series of stock for which no such
consent or vote would have been required pursuant to this
Paragraph 3.2 if such class or series had been authorized by
the Corporation immediately prior to such Merger or which
have the same rights, preferences and limitations and
authorized amount as a class or series of stock of the
Corporation authorized prior to such Merger and continuing as
an authorized class or series at the time thereof.
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A Merger of the Corporation, or similar transaction in which
the holders of its capital stock receive all cash, shall not be deemed to
adversely affect the preferences, special rights or powers of the Series A-2
Shares. The authorization or issuance of any other series of preferred stock,
if such other series ranks junior to the Series A-2 Shares with respect to
rights to receive distributions upon liquidation, dissolution or winding up of
the Corporation or with respect to dividends, shall not be deemed to adversely
affect the preferences, special rights or powers of the Series A-2 Shares.
3.3 The Holders of a majority of the outstanding Series A-2
Shares (the "Majority Holders") voting separately as a class shall be entitled
to appoint one (1) designee to serve on the Board of Directors of the
Corporation (the "Designee"). The Majority Holders may, in their discretion, by
written notice to the Corporation appoint, remove and replace the Designee,
with or without cause at any time and from time to time. Further, without the
affirmative vote or approval of the Designee then serving on the Board of
Directors of the Corporation following the appointment of such Designee by the
Majority Holders, the Corporation may not (i) commence a voluntary case or
other proceeding seeking liquidation, winding-up, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency,
moratorium or other similar law now or hereafter in affect, (ii) seek the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of the Corporation (or for any substantial part of its property),
(iii) consent to any such relief or to such appointment of or taking possession
by any such official in any voluntary case or other proceeding commenced
against the Corporation, or (iv) take any corporate or other action to
authorize any of the foregoing.
3.4 Copies of all notices sent to the holders of any other
class or series of capital stock of the Corporation (including the Common
Stock) shall be simultaneously sent to each Holder.
4. CONVERSION RIGHTS
4.1 NUMBER OF SERIES A-2 SHARES. Each Series A-2 Share shall
be convertible, at the option of the Holder thereof, at any time and from time
to time, into that number of shares of Common Stock obtained by dividing the
Liquidation Preference (including any Dividends added to the Liquidation
Preference pursuant to Paragraph 1.1.E) of such Series A-2 Share by the
Conversion Price determined in accordance with Paragraph 4.2. The Holder is not
entitled to any rights of a holder of Common Stock (except to the extent
expressly set forth herein) until such Holder has converted all or a portion of
his Series A-2 Shares pursuant to the provisions of this Article 4.
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4.2 CONVERSION PRICE. The Conversion Price shall be equal to:
(i) $1.25 as to the Series A-2 Shares, the Liquidation Preference of which
shares aggregates to no more than $2,000,000; (ii) if Series A-2 Shares with an
aggregate Liquidation Preference of $2,000,000 or more have been converted into
shares of Common Stock, then the Conversion Price for the first $2,000,000 of
aggregate Liquidation Preference of the Series A-2 Shares shall be governed by
clause (i) of this Paragraph 4.2, and the Conversion Price for the excess over
$2,000,000, up to a maximum of $1,000,000, of aggregate Liquidation Preference
of the Series A-2 Shares shall be $2.00 from the date hereof until June 30,
1999, inclusive, $1.375 from July 1, 1999 until January 1, 2000, inclusive, and
$1.25 after January 1, 2000; and (iii) if Series A-2 Shares with an aggregate
Liquidation Preference of $3,000,000 or more have been converted into shares of
Common Stock, then the Conversion Price for the first $2,000,000 of aggregate
Liquidation Preference of the Series A-2 Shares shall be governed by clause (i)
of this Paragraph 4.2, the Conversion Price for the next $1,000,000 of
aggregate Liquidation Preference of the Series A-2 Shares shall be governed by
clause (ii) of this Paragraph 4.2 and the Conversion Price for the excess over
$3,000,000 of aggregate Liquidation Preference of the Series A-2 Shares shall
be $2.50 from the date hereof until June 30, 1999, inclusive, $2.00 from July
1, 1999 until January 1, 2000, inclusive, and $1.25 thereafter; PROVIDED,
HOWEVER, that upon the occurrence of an Event of Default, Conversion Price
shall mean the formula F/P where F = the Liquidation Preference of the Series
A-2 Shares being converted, together with accrued and unpaid dividends thereon
through the Conversion Date, and P = the lesser of (x) $6.00 and (y) the
product of 77.5% multiplied by the Market Price (as defined in Paragraph 4.9)
as of the Conversion Date (as defined in Paragraph 4.5).
"Closing Bid Price" shall mean the closing bid price of the
Corporation's Common Stock as reported by Bloomberg L.P. ("Bloomberg") on the
principal securities exchange or trading market where such security is listed
or traded or, if the foregoing does not apply, the closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no trading price is reported for
such security by Bloomberg, then the average of the bid prices of any
market-makers for such securities as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the closing bid price cannot be calculated
for such security on such date on any of the foregoing bases, the closing bid
price of such security on such date shall be the fair market value as mutually
determined by the holders of the Series A-2 Shares and the Corporation for
which the calculation of the closing bid price requires, and in the absence of
such mutual determination, as determined by the Board of Directors of the
Corporation in good faith.
4.3 LIMITATION ON CONVERSION. Notwithstanding the conversion
rights under this Article 4, in no event shall any Holder be entitled at any
one time to convert any Series A-2 Share if the sum of (i) the number of shares
of Common Stock beneficially owned by such Holder and any person or entity
controlling, controlled by or under common control with such Holder (other than
shares of Common Stock which may be deemed beneficially owned through
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the ownership of unconverted Series A-2 Shares, or other derivative securities
convertible into or exchangeable for shares of Common Stock which contain a
limitation similar to that set forth herein), and (ii) the number of shares of
Common Stock issuable upon the conversion of the Series A-2 Shares with respect
to which this determination is being made, would result in beneficial ownership
by such Holder and any person or entity controlling, controlled by or under
common control with such Holder of more than 9.99% of the outstanding shares of
Common Stock after giving effect to such conversion. For purposes hereof,
beneficial ownership shall be determined in accordance with Rule 13d-3 of the
Exchange Act and Regulations 13D-G thereunder, except as otherwise provided
herein. The foregoing limitation shall not apply and shall be of no further
force or effect (i) immediately preceding and upon any consummation of any Sale
Event (as hereinafter defined), or (ii) following the occurrence of any Event
of Default which is not cured within the greater of the time period specified
in either (A) a written notice delivered from any Holder to the Corporation or
(B) any applicable grace period. "Sale Event" means the occurrence of any of
the following:
(i) after December 20, 1998 any Person or group of Persons
(within the meanings of Sections 13 and 14 of the Exchange Act and the
rules and regulations of the Commission relating to such sections)
other than the Purchasers shall have acquired beneficial ownership
(within the meaning of Rule 13d-3 of the Exchange Act and Regulations
13D-G thereunder) of 50.1% or more of the outstanding shares of Common
Stock of the Corporation;
(ii) individuals constituting the Board of Directors of the
Corporation on December 20, 1998 (together with any new directors
whose election by such Board of Directors or whose nomination for
election by the stockholders of the Corporation was approved by vote
of at least 50.1% of the directors still in office who are either
directors as of the date hereof or whose election or nomination for
reelection was previously so approved), cease for any reason to
constitute at least 66% of the Board of Directors of the Corporation
then in office;
(iii) any transfer of all or substantially all of the assets
of the Corporation to any Person in a single transaction or a series
of related transactions; or
(iv) any consolidation or merger of the Corporation with or
into another Person in which the Corporation is (x) not the surviving
entity or (y) survives such merger as a wholly owned subsidiary of
another Person (other than a merger which is effected solely to change
the jurisdiction of incorporation in the Corporation and results in a
reclassification, conversion or exchange of outstanding shares of
Common Stock solely into shares of Common Stock of the surviving
entity).
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4.4 CONVERSION UPON REORGANIZATION. In case at any time and
from time to time the Corporation shall (i) effect a Share Reorganization (as
defined in Paragraph 4.12), (ii) effect a Merger, (iii) transfer all or
substantially all of its assets or (iv) reclassify its Common Stock (other than
as contemplated by Paragraph 4.2) and pursuant to any such event (each, a
"Capital Reorganization"), any assets or securities of the Corporation, any
successor or transferee corporation or any affiliate thereof or cash is
received by or distributed to the holders of Common Stock, then each Holder of
Series A-2 Shares shall have the right thereafter to convert each Series A-2
Share into the kind and amount of securities, cash or property that such Holder
would have received upon consummation of such transaction if such Holder had
converted the Holder's Series A-2 Shares into Common Stock immediately prior to
the consummation of such transaction, and the Holder shall have no other
conversion rights nor shall there be any adjustment to the Conversion Price. In
any such event, effective provision shall be made in the Certificate of
Incorporation of the successor or transferee corporation or otherwise, so that
the provisions set forth herein for the protection of the conversion rights of
the Series A-2 Shares shall thereafter be applicable, as nearly as reasonably
may be, to any such other securities, cash and property deliverable upon
conversion of the Series A-2 Shares or other convertible stock or securities
received by the Holders in place thereof, and any such successor or transferee
corporation shall expressly assume the obligation to deliver, upon the exercise
of the conversion privilege, such other securities, cash or property as the
Holders of the Series A-2 Shares, or other convertible stock or securities
received by the Holders in place thereof, shall be entitled to receive pursuant
to the provisions hereof, and to make provision for the protection of the
conversion right as provided herein. In case securities other than Common
Stock, cash or property shall be issuable, payable or deliverable by the
Corporation upon conversion as aforesaid, then all references in this Paragraph
4.4 shall be deemed to apply, so far as appropriate and as nearly as may be, to
such other securities, cash or property.
4.5 CONVERSION METHOD. Any Holder of Series A-2 Shares may,
at any time prior to the close of business on the date which is two (2)
business days prior to the Redemption Date (as defined in Paragraph 5.2) for
such Series A-2 Shares, exercise the conversion rights as to such Series A-2
Shares by delivering to the Corporation during regular business hours, care of
the then transfer agent (the "Transfer Agent") for the Corporation, a notice
requesting conversion on a specified date and the number of Series A-2 Shares
that the Holder elects to convert (a "Notice of Conversion"). The Notice of
Conversion shall also state the names and addresses of the persons to whom
certificates for shares of Common Stock shall be issued, the denominations of
such certificates and reasonable delivery instructions with respect thereto.
Each conversion shall be deemed to have been effected on the date such Notice
of Conversion (the "Conversion Date") is delivered to the Transfer Agent
(including delivery via facsimile). The person in whose name any certificate
for shares of Common Stock is issuable upon the conversion shall be deemed to
have become the holder of record of the Common Stock at such time. If the stock
transfer books of the Corporation are closed on the Conversion Date, the
Conversion Date for purposes of determining record ownership shall be the next
succeeding day on which the stock
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transfer books are open (and the conversion shall be deemed to have been
effected immediately prior to the close of business on that day), but in all
cases the conversion shall be at the Conversion Price in effect on the
Conversion Date specified in the Notice of Conversion. As promptly as
practicable after the Conversion Date but in any event within three (3) trading
days of the receipt of the Notice of Conversion, the Corporation shall, and
shall use its best lawful efforts to cause the Transfer Agent to, issue and
deliver to such Holder, at the expense of the Corporation and in accordance
with such Holder's delivery instructions, a certificate or certificates for the
number of full shares of Common Stock to which such Holder is entitled and cash
with respect to any fractional interest in a share of Common Stock as provided
in Paragraph 4.6 below (which shall be promptly deposited by the Corporation
with the Transfer Agent for delivery to the Holder).
4.6 FRACTIONAL SHARES OF COMMON STOCK. No fractional shares
of Common Stock or scrip shall be issued upon conversion of Series A-2 Shares.
If more than one Series A-2 Share shall be surrendered for conversion at any
one time by the same Holder, the number of full shares of Common Stock issuable
upon conversion of such Series A-2 Shares shall be computed on the basis of the
aggregate number of Series A-2 Shares so surrendered. Instead of any fractional
shares of Common Stock which otherwise would be issuable upon conversion of any
Series A-2 Shares, the Corporation shall pay a cash adjustment in respect of
such fractional interest based upon the Conversion Price in effect at the close
of business on the last business day prior to the Conversion Date.
4.7 TAXES. All shares of Common Stock issued upon conversion
of Series A- 2 Shares will be validly issued, fully paid and nonassessable. The
Corporation shall pay any and all documentary stamp or similar issue or
transfer taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of Series A-2 Shares pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the Series A-2 Shares so
converted were registered, and no such issue or delivery shall be made unless
and until the person requesting such transfer has paid to the Corporation the
amount of any such tax or has established to the satisfaction of the
Corporation that such tax has been paid or that no such tax is payable.
4.8 SURRENDERED SERIES A-2 SHARES. All certificates
representing Series A-2 Shares converted or redeemed shall be appropriately
canceled on the books of the Corporation and the Series A-2 Shares so converted
or redeemed represented by such certificates shall be restored to the status of
authorized but unissued Series A-2 Shares.
4.9 MARKET PRICE. The term "Market Price" on any day shall
mean the average of the closing bid prices per share of the Common Stock as
reported by Bloomberg on the NASDAQ Stock Market's SmallCap Market, or on such
other exchange or automated
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28
quotation system as the Common Stock is then traded, or, if the foregoing does
not apply, the average of the closing bid prices of any market makers for such
securities as reported in the "pink sheets" by the National Quotation Bureau,
Inc., in each case for the five (5) consecutive trading days immediately
preceding the date of determination. When referred to herein, a "trading day"
shall mean a business day in which the principal market on which the Common
Stock is traded is open for trading for at least four (4) hours. If at the time
of any computation pursuant to this Paragraph 4.9 the Common Stock is not then
traded on any trading market, the "Market Price" for the purposes hereof shall
be the fair value as reasonably determined in good faith by the Board of
Directors of the Corporation.
4.10 AVAILABLE COMMON STOCK. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of Series A-2
Shares, such number of shares of Common Stock as shall from time to time be
sufficient to effect a conversion of all outstanding Series A-2 Shares under
Paragraph 4.1, as such number may from time to time be adjusted, and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding Series A-2 Shares,
the Corporation shall promptly take such corporate action as may, in the
opinion of its counsel and subject to any necessary approval of its
stockholders, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
4.11 NOTICE TO HOLDERS. In the event (i) the Corporation
shall declare a dividend or other distribution on the Common Stock other than
regular cash dividends declared in the ordinary course or dividends or other
distributions payable in Common Stock, (ii) the Common Stock is subdivided,
combined or reclassified, (iii) of a Merger, (iv) of a Liquidation, (v) the
Corporation offers for subscription pro rata to holders of Common Stock any
additional shares of stock of any class or series or other rights, or (vi) an
Event of Default shall occur then, in each such event, the Corporation shall
mail to each Holder at the Holder's address as it appears in the stock records
of the Corporation, promptly and in any event at least fifteen (15) days prior
to the date described in clause (a) below, a notice stating (a) if applicable,
the date for the determination of holders of Common Stock entitled to receive
the distribution, subscription rights or the consideration in the Merger or
Liquidation, or the date of determination as to which shares of Common Stock
will be affected by a subdivision, combination, reclassification, (b) a brief
statement of the facts requiring such notice, and (c) if applicable, that the
Conversion Price shall be adjusted.
4.12 ADJUSTMENT OF CONVERSION PRICE.
A. If and whenever the Corporation shall:
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(i) subdivide the outstanding shares of Common Stock into a
greater number of shares;
(ii) consolidate the outstanding shares of Common Stock into
a smaller number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock;
(iv) make a distribution on the outstanding Common Stock to
all or substantially all the holders of Common Stock payable in Common
Stock or securities convertible into or exchangeable for Common Stock;
or
(v) (a) issue shares of Common Stock, or securities
convertible into or exchangeable for shares of Common Stock, in
exchange for an amount of cash exceeding $3,000,000 or (b) during any
calendar year, issue to any Person or Persons, other than Greg Norman,
Great White Shark Enterprises or David Feherty, an aggregate of more
than 100,000 shares of Common Stock, or securities convertible into or
exchangeable for an aggregate of more than 100,000 shares of Common
Stock;
any of such events being herein called a "Share Reorganization," then in each
such case, the Conversion Price shall be adjusted, effective immediately after
the record date at which the holders of Common Stock are determined for the
purposes of the Share Reorganization or, if no record date is fixed, the
effective date of the Share Reorganization, by multiplying the Conversion Price
in effect on such record or effective date, as the case may be, by a fraction
of which:
(I) the numerator shall be the number of shares of Common
Stock outstanding on such record or effective date (without giving
effect to the transaction); and
(II) the denominator shall be the number of shares of Common
Stock outstanding after giving effect to such Share Reorganization,
including, in the case of a distribution of securities convertible
into or exchangeable for shares of Common Stock, the number of shares
of Common Stock that would have been outstanding if such securities
had been converted into or exchanged for Common Stock on such record
or effective date;
PROVIDED, HOWEVER, that no adjustment to the Conversion Price will be made with
respect to (y) any portion of an issuance pursuant to clause (v)(a) of this
section, the proceeds of which are used to pay all or any part of the Company's
obligations to the Purchasers, and such proceeds
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shall not be considered in determining whether the issuance exceeds the
$3,000,000 threshold set forth in clause (v)(a) of this section, or (z) any
issuance, the price per share at which such issuance is made (or, in the case
of securities convertible into or exchangeable for shares of Common Stock, at
an exchange or conversion price per share as of the date of issue of such
securities) is equal to or greater than 85% of the Market Price as of the date
of such issuance.
B. If and whenever the Corporation shall issue to all or
substantially all the holders of Common Stock, rights, options or warrants
under which such holders are entitled, during a period expiring not more than
45 days after the record date of such issue, to subscribe for or purchase
Common Stock (or securities convertible into or exchangeable for Common Stock),
at a price per share (or, in the case of securities convertible into or
exchangeable for Common Stock, at an exchange or conversion price per share at
the date of issue of such securities) of less than 95% of the Market Price of
the Common Stock on such record date (any such event being herein called a
"Rights Offering"), then, in each such case, the Conversion Price shall be
adjusted, effective immediately after the record date at which holders of
Common Stock are determined for the purposes of the Rights Offering, by
multiplying the Conversion Price in effect on such record date by a fraction of
which:
(i) the numerator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such
record date;
and
(II) a number obtained by dividing:
(A) either,
(x) the product of the total number of shares of
Common Stock so offered for subscription or purchase and the price at
which such shares are so offered, or
(y) the product of the maximum number of shares of
Common Stock into or for which the convertible or exchangeable
securities so offered for subscription or purchase may be converted or
exchanged and the conversion or exchange price of such securities,
or, as the case may be, by
(B) the Market Price of the Common Stock on such record date;
and
(ii) the denominator shall be the sum of:
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31
(I) the number of shares of Common Stock outstanding on such
record date; and
(II) the number of shares of Common Stock so offered for
subscription or purchase (or, in the case of securities convertible
into or exchangeable for Common Stock, the maximum number of shares of
Common Stock for or into which the securities so offered for
subscription or purchase may be converted or exchanged).
To the extent that such rights, options or warrants are not exercised prior to
the expiry time thereof, the Maximum Price shall be readjusted effective
immediately after such expiry time to the Maximum Price which would then have
been in effect upon the number of shares of Common Stock (or securities
exchangeable into Common Stock) actually delivered upon the exercise of such
rights, options or warrants.
C. If and whenever the Corporation shall issue or distribute
to all or substantially all the holders of Common Stock:
(i) shares of the Corporation of any class, other than Common
Stock;
(ii) rights, options or warrants; or
(iii) any other assets (excluding cash dividends and
equivalent dividends in shares paid in lieu of cash dividends in the
ordinary course);
and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then, in each such case, the Conversion Price shall be
adjusted, effective immediately after the record date at which the holders of
Common Stock are determined for purposes of the Special Distribution, by
multiplying the Conversion Price in effect on such record date by a fraction of
which:
(i) the numerator shall be the difference between:
(A) the product of the number of shares of Common Stock
outstanding on such record date and the Market Price of the Common
Stock on such date; and
(B) the fair market value, as determined by the Directors
(whose determination shall be conclusive), to the holders of Common
Stock of the shares, rights, options, warrants, evidences of
indebtedness or other assets issued or distributed in the Special
Distribution (net of any consideration paid therefor by the holders of
Common Stock), and
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(ii) the denominator shall be the product of the number of
shares of Common Stock outstanding on such record date and the Market
Price of the Common Stock on such date.
D. The following rules and procedures shall be applicable to
adjustments made in this Certificate of Designation:
(A) no adjustment in the Conversion Price shall be required
unless such adjustment would result in a change of at least 1% in the
Conversion Price then in effect, PROVIDED, HOWEVER, that any
adjustments which, but for the provisions of this clause would
otherwise have been required to be made, shall be carried forward and
taken into account in any subsequent adjustment;
(B) no adjustment in the Conversion Price shall be made
pursuant to this Paragraph 4.12 in respect of the issue from time to
time of Common Stock to holders of Common Stock who exercise an option
to receive substantially equivalent dividends in Common Stock in lieu
of receiving cash dividends in the ordinary course; and
(C) if a dispute shall at any time arise with respect to any
adjustment of the Conversion Price, such dispute shall be conclusively
determined by the auditors of the Corporation or, if they are unable
or unwilling to act, by a firm of independent chartered accountants
selected by the Directors and any such determination shall be binding
upon the Corporation and the Holders.
E. The Corporation shall from time to time promptly after the
occurrence of any event which requires an adjustment in the Conversion Price
deliver to the Holders and the Transfer Agent a certificate specifying the
nature of the event requiring the adjustment, the amount of the adjustment
necessitated thereby, the Conversion Price after giving effect to such
adjustment and setting forth, in reasonable detail, the method of calculation
and the facts upon which such calculation is based.
F. If the Corporation shall fix a record date for:
(a) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the
consolidation of outstanding Common Stock into a smaller number of
shares),
(b) any Rights Offering,
(c) any Special Distribution,
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(d) any Capital Reorganization (other than a reclassification
or redesignation of the Common Stock into other shares), or
(e) any cash dividend other than a cash dividend on the
Series A-2 Shares,
the Corporation shall, not less than ten (10) days prior to such record date
or, if no record date is fixed, prior to the effective date of such event, give
to the Holders notice of the particulars of the proposed event or the extent
that such particulars have been determined at the time of giving the notice.
5. REDEMPTION OBLIGATIONS
5.1 OPTIONAL REDEMPTION.
A. The Corporation may, at its option, redeem all or
any portion of the Series A-2 Shares remaining unconverted, by notice to the
Holder of such shares specifying the amount of the redemption. In the event
that the foregoing notice is provided to a Holder, such Holder shall have no
right to convert any of such Holder's Series A-2 Shares into shares of Common
Stock pursuant to the provisions of Article 4 hereof. Partial redemption shall
be in an aggregate principal amount of not less than $300,000.
B. The price to be paid by the Corporation to redeem
all or any portion of the Series A-2 Shares remaining unconverted shall be the
sum of (i) the aggregate Liquidation Preference of the Series A-2 Shares plus
(ii) any accrued and unpaid dividends on the Series A-2 Shares being redeemed,
through the date of consummation of the redemption (as specified in Paragraph
5.2.A); PROVIDED, HOWEVER, that upon the occurrence of an Event of Default, the
price to be paid by the Corporation to redeem all or any portion of the Series
A-2 Shares remaining unconverted shall be the greater of (y) the aggregate
Liquidation Preference of the Series A-2 Shares and (z) the Formula Price. The
"Formula Price" shall mean the greater of (I) the Liquidation Preference of the
Series A-2 Shares, as applicable, plus any accrued and unpaid dividends
thereon, being redeemed through the date of consummation of the redemption (as
specified in Paragraph 5.2 below) and (II) the sum of (x) the product of (i)
the number of shares of Common Stock into which the Series A-2 Shares being
redeemed are then convertible at the then current Conversion Price and (ii) the
average Closing Bid Price for the five (5) Trading Days ending two (2) Business
Days immediately preceding the applicable date of consummation of the
redemption as specified in Paragraph 5.2 below, and (y) the applicable amount
of accrued but unpaid dividends on the Series A-2 Shares, as applicable, being
redeemed through the date of consummation of the redemption (as specified in
Paragraph 5.2 below).
C. The Corporation shall be required to redeem all
of the issued and outstanding Series A-2 Shares in the manner provided by the
Purchase Agreement.
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5.2 REDEMPTION PROCEDURES
A. Any redemption pursuant to Paragraph 5.1 above
shall be deemed to be consummated and effective on the date notice is provided
to the holder of the Series A-2 Shares being redeemed (the "Redemption Date").
B. Within one (1) business day after the effective
date of a redemption of the Series A-2 Shares as specified above, the
Corporation shall deposit the applicable redemption price with the Transfer
Agent for immediate delivery to each Holder of the Series A-2 Shares subject
to redemption as contemplated by any applicable Transfer Agent Agreement and,
simultaneously therewith, shall provide notice to the Holders (the "Redemption
Notice") advising them of (i) the fact of redemption, (ii) the applicable
redemption date, (iii) the applicable redemption price and (iv) all other
material facts relating to the redemption referenced therein.
C. The Corporation shall select the Series A-2
Shares to be redeemed in any redemption in which not all of the Series A-2
Shares are to be redeemed (to the extent permitted) so that the ratio of the
number of Series A-2 Shares of each holder selected for redemption to the total
number of Series A-2 Shares owned by that holder shall be the same as the ratio
of all such Series A-2 Shares selected for redemption bears to the total of all
then outstanding Series A-2 Shares. Should any Series A-2 Shares be required to
be redeemed under the terms hereof not be redeemed solely by reason of
limitations imposed by law, the Series A-2 Shares shall then be redeemed to the
maximum extent permitted by law and shall be redeemed thereafter on the
earliest possible dates.
5.3 PAYMENT OF ADDITIONAL AMOUNTS
A. Any and all payments by the Corporation hereunder
to any Holder and each "qualified assignee" thereof shall be made free and
clear of and without deduction or withholding for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto (all such taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes")
unless such Taxes are required by law or the administration thereof to be
deducted or withheld. If the Corporation shall be required by law or the
administration thereof to deduct or withhold any Taxes from or in respect of
any sum payable under the Series A-2 Shares (i) the sum payable shall be
increased as may be necessary so that after making all required deductions or
withholdings (including deductions or withholdings applicable to additional
amounts paid under this Paragraph 5.3) such Holder receives an amount equal to
the sum it would have received if no such deduction or withholding had been
made; (ii) the Corporation shall make such deductions or withholdings; and
(iii) the Corporation shall forthwith pay the full amount deducted or withheld
to the relevant taxation or other authority in accordance with applicable law.
A "qualified assignee" of a Holder
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is a person that is organized under the laws of (I) the United States or (II)
any jurisdiction other than the United States or any political subdivision
thereof and that (y) represents and warrants to the Corporation that payments
of the Corporation to such assignee under applicable law would not be subject
to any Taxes and (z) from time to time, as and when requested by the
Corporation, executes and delivers to the Corporation and the Internal Revenue
Service forms, and provides the Corporation with any information, necessary to
establish such assignee's continued exemption from Taxes under applicable law.
B. The Corporation shall forthwith pay any present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies (all such taxes, charges and levies hereinafter
referred to as "Other Taxes") which arise from any payment made under this
Certificate of Designation or the transactions contemplated hereby.
C. The Corporation shall indemnify each Holder, or
qualified assignee, for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Paragraph 5.3) paid by each Holder, or qualified
assignee, and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted. Payment under this indemnification
shall be made within 30 days from the date such Holder or assignee makes
written demand therefor. A certificate as to the amount of such Taxes or Other
Taxes submitted to the Corporation by such Holder or assignee shall be
conclusive evidence of the amount due from the Corporation to such party.
D. Within 30 days after the date of any payment of
Taxes, the Corporation will furnish to each Holder the original or a certified
copy of a receipt evidencing payment thereof.
6. RANKING OF STOCK OF THE CORPORATION
Any stock of any class or classes of the Corporation shall be
deemed to rank:
A. Prior to the Series A-2 Shares, either as to dividends or
upon liquidation, if the holders of such class or classes shall be entitled to
the receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, as the case may be, in preference
or priority to the Holders;
B. On a parity with the Series A-2 Shares, either as to
dividends or upon liquidation, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per share or sinking and fund
provisions, if any, are different from those of the Series A-2 Shares, if the
holders of such stock shall be entitled to the receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding up of the
Corporation, as the case
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36
may be, in proportion to their respective dividend rates or liquidation prices
without preference or priority, one over the other, as between the holders of
such stock and the Holders, and
C. Junior to the Series A-2 Shares, either as to dividends or
upon liquidation, if such class shall be Common Stock or if the Holders of the
Series A-2 Shares shall be entitled to receipt of dividends or of amounts
distributable upon dissolution, liquidation, winding up of the Corporation, or
upon redemption as the case may be, in preference or priority to the holders of
shares of such class or classes.
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of the Corporation are each authorized to
do or cause to be done all such acts or things and to make, execute and deliver
or cause to be made, executed and delivered all such agreements, documents,
instruments and certificates in the name and on behalf of the Corporation or
otherwise as they deem necessary, desirable or appropriate to execute or carry
out the purpose and intent of the foregoing resolutions.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Designation, Preferences and Rights of Series A-2 Convertible Preferred Stock
of Visual Edge Systems, Inc. as of December 29, 1998.
VISUAL EDGE SYSTEMS INC.
By: /s/ Earl T. Takefman
-------------------------
Name: Earl T. Takefman
Title: Chief Executive Officer
38
EXHIBIT B
---------
CONTINENTAL AGREEMENT
39
-----------
CONTINENTAL
CAPITAL
& EQUITY
CORPORATION
-----------
195 Wekiva Springs Road
Suite 200
Longwood, Florida 32779
Phone
(407) 682-2001
Fax
(407) 682-2544
CLIENT SERVICE AGREEMENT
THIS AGREEMENT is made and entered into this 4th day of December 1998 between
CONTINENTAL CAPITAL & EQUITY CORPORATION, located at 195 Wekiva Springs Road,
Suite 200, Longwood, FL 32779, hereinafter sometimes referred to as (CCEC) and
VISUAL EDGE SYSTEMS INC., located at 2424 North Federal Highway, Suite 100,
Boca Raton, Florida 33431, hereinafter sometimes referred to as (the
"Company").
WITNESSETH:
WHEREAS, CCEC is a public relations and direct marketing advertising firm
specializing in the dissemination of information about publicly traded
companies, and
WHEREAS, the Company is publicly held with its common stock trading on NASDAQ
small cap, and
WHEREAS, the Company desires to publicize itself with the intention of making
its name and business better known to its shareholders, investors, and
brokerage houses, and
WHEREAS, CCEC is willing to accept the Company as a client.
NOW THEREFORE, in consideration of the mutual covenants herein contained, it is
agreed:
1. ENGAGEMENT: The Company hereby engages CCEC to publicize the Company to
brokers, prospective investors and shareholders described in Section 2 of this
agreement, and subject to the further provisions of this Agreement. CCEC hereby
accepts the Company as a client and agrees to publicize it as described in
Section 2 of this agreement, but subject to the further provisions of this
Agreement.
2. MARKETING PROGRAM: Consists of the following components:
(A) CCEC will review and analyze all aspects of the Company's goals
and make recommendations on feasibility and achievement of desired goals.
(B) CCEC will review all of the general information and recent filings
from the Company and produce 50,000 piece direct mail package to include an 11"
X 17" self mailer and an ample number of corporate profiles so as to allow for
one profile for each respondent to the original mailing. Profiles will be
prepared in brokerage style format, both items to be approved by the Company
prior to circulation.
(C) CCEC will provide through their network, firms and brokers
interested in participating and schedule and conduct the necessary due
diligence and obtain the required approvals necessary for those firms to
participate. CCEC will also interview and make determinations on any firms or
brokers referred by the Company with regard to their participation.
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40
(D) CCEC will be available to the Company to field any calls from
firms and brokers inquiring about the Company.
(E) CCEC will use its best efforts to feature the Company in the
January issues of Investors Direct and/or BuySide Magazine, and use its best
efforts to obtain for the Company, exposure on radio programming, in
independent financial newsletters, and through on-line fax and Internet
broadcast services.
(F) CCEC will promote the Company on the Worldwide Internet via CCEC's
home web site (www.insidewallstreet.com). Further CCEC shall create banner ads
for placement on financial web sites with hyperlinks back to the Company's
feature page on CCEC's home web site. The banner ads shall run for two (2)
months.
(G) CCEC, at the request of the Company, shall assist the Company in
releasing all press announcements. The Company shall be solely responsible for
paying all fees associated with the actual release(s) through BusinessWire,
P.R. Newswire, or any other comparable news dissemination source.
3. TIME OF PERFORMANCE: Services to be performed under this Agreement shall
commence upon execution of this Agreement and shall continue until completion,
which generally is expected to occur within six months.
4. COMPENSATION AND EXPENSES: In consideration of the services to be performed
by CCEC, the Company agrees to pay compensation to CCEC as follows:
(A) $25,000, payable in cash. Cash is due upon execution of this
Agreement.
(B) 50,000 free trading shares. Shares are due upon execution of this
Agreement.
(C) An Option to purchase 50,000 common shares, with an exercise price
of $1.00. The term of the option shall expire twelve (12) months from the day
the shares underlying the option are registered.
(D) An Option to purchase 50,000 common shares, with an exercise price
of $3.00. The term of the option shall expire twelve (12) months from the day
the shares underlying the option are registered.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY: The Company represents and
warrants to CCEC, each such representation and warranty being deemed to be
material that:
(A) The Company will cooperate fully and timely with CCEC to enable
CCEC to perform its obligations under this Agreement.
(B) The execution and performance of this Agreement by the Company has
been duly authorized by the senior management of the Company in accordance with
applicable law.
(C) The performance by the Company of this Agreement will not violate
any applicable court decree, law or regulation, nor will it violate any
provisions of the organizational documents of the Company or any contractual
obligation by which the Company may be bound.
Page 2 of 5
41
(D) The Company will promptly deliver to CCEC a complete due diligence
package to include latest 10K, latest 10Q, last 6 months of press releases and
all other relevant materials, including but not limited to corporate reports,
brochures, etc.
(E) The Company will promptly deliver to CCEC a list of names and
addresses of all shareholders of the Company which it is aware.
(F) The Company will promptly deliver to CCEC a list of brokers and
market makers of the Company's securities which have been following the Company.
(G) Because CCEC will rely on such information to be supplied it by
the Company, all such information shall be true, accurate, complete and not
misleading, in all respects, to the best of the Company's knowledge.
(H) The Company will act diligently and promptly in reviewing
materials submitted to it by CCEC to enhance timely distribution of the
materials and will inform CCEC of any inaccuracies contained therein prior to
the projected publication date.
6. DISCLAIMER BY CCEC: CCEC WILL BE THE PREPARER OF CERTAIN PROMOTIONAL
MATERIALS. CCEC MAKES NO REPRESENTATION THAT (A) ITS SERVICE WILL RESULT IN ANY
ENHANCEMENT TO THE COMPANY (B) THE PRICE OF THE COMPANY'S PUBLICLY TRADED
SECURITIES WILL INCREASE, (C) ANY PERSON WILL PURCHASE SECURITIES IN THE
COMPANY, OR (D) ANY INVESTOR WILL LEND MONEY TO OR INVEST IN OR WITH THE
COMPANY.
7. EARLY TERMINATION: If the Company fails to materially cooperate with CCEC in
a timely manner, CCEC shall have the right to terminate any further performance
under this Agreement. In such event, CCEC shall be entitled to receive and
retain the same as liquidated damages, and not as a penalty, in lieu of all
other remedies, the parties acknowledging and agreeing that it would be too
difficult currently to determine the exact extent of CCEC's damage, but that
the receipt and retention of such compensation is reasonable present estimate
of such damage.
8. LIMITATION OF CCEC LIABILITY: If CCEC fails to perform its services
hereunder, its entire liability for the failed services to the Company shall not
exceed the lessor of (a) the amount of cash compensation CCEC has received from
the Company under section 4 of this agreement or (b) the actual damage to the
Company as a result of such non-performance. IN NO EVENT WILL CCEC BE LIABLE FOR
ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES NOR FOR ANY CLAIM AGAINST THE
COMPANY BY ANY PERSON OR ENTITY ARISING FROM OR IN ANY WAY RELATED TO THIS
AGREEMENT, UNLESS SUCH DAMAGES RESULT FROM THE USE, BY CCEC, OF INFORMATION NOT
AUTHORIZED BY THE COMPANY.
Page 3 of 5
42
9. OWNERSHIP OF MATERIALS: All right, title and interest in and to materials to
be produced by CCEC, not including existing property of Visual Edge and/or
Great White Enterprises used in production of said materials, in connection
with the contract and other services to be rendered under this Agreement shall
be and remain the sole and exclusive property of CCEC, except that if the
Company performs fully and timely its obligations hereunder, it shall be
entitled to receive upon written request, five hundred (500) copies of all such
materials.
10. CONFIDENTIALITY: Until such time as the same may become publicly known, CCEC
agrees that any confidential nature will not be revealed or disclosed to any
person or entity, except in the performance of this Agreement, and upon
completion of its services and upon written request of the Company all
materials, original documentation provided by the Company will be returned to
it. CCEC will, however, require Confidentiality Agreements from its own
employees and from contractors CCEC reasonably believes will come in contact
with confidential material.
11. NOTICES: All notices hereunder shall be in writing and addressed to the
party at the address herein set forth, or at such other address as to which
notice pursuant to this section may be given, and shall be given by personal
delivery, by certified mail, express mail or by national overnight courier
services. Notices will be deemed given upon the earlier of actual receipt or
three (3) business days after being mailed or delivered to such courier
service.
Notices shall be addressed to CCEC at:
Suite 200
195 Wekiva Springs Road
Longwood, FL 32779
and to the Company at:
Suite 100
2424 North Federal Highway
Boca Raton, FL 33431
ATTN: Chief Executive Officer
Any notices to be given hereunder will be effective if executed by and sent
by the attorneys for the parties giving such notice, and in connection
therewith the parties and their respective counsel agree that in giving such
notice such counsel may communicate directly in writing with such parties to
the extent necessary to give such notice.
12. SEPARABILITY: If one or more of the provisions of this Agreement shall be
held invalid, illegal, or unenforceable in any respect, such provision, to the
extent invalid, illegal, or unenforceable, and provided that such provision is
not essential to the transaction provided for by this Agreement, shall not
affect any other provision hereof, and the Agreement shall be construed as if
such provision had never been contained herein.
Page 4 of 5
43
13. ARBITRATION: Any controversy or claim that is less than $100,000 arising
out of or relating to the Client Service Agreement, or the breach thereof, shall
be settled by arbitration in accordance with the commercial arbitration rules
of the American Arbitration Association, and judgement upon the award rendered
by the arbitrator(s) may be entered in any court having jurisdiction thereof.
14. MISCELLANEOUS:
(A) EFFECTIVE DATE OF REPRESENTATIONS: Shall be no later than the date
CCEC is prepared to distribute letters and/or brochures pursuant to the
contract.
(B) GOVERNING LAW: This Agreement shall be governed by and interpreted
under the laws of the State of Florida where CCEC has been organized and this
Agreement has been accepted by CCEC. Venue for all litigation shall be Seminole
County, Florida.
(C) CURRENCY: In all instances, references to dollars shall be deemed
to be United States Dollars.
(D) MULTIPLE COUNTERPARTS: This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original.
Executed as a sealed instrument as of the last day and year shown hereunder.
CONFIRMED AND AGREED ON THE ____ DAY OF ____________, 1998
CONTINENTAL CAPITAL & EQUITY CORPORATION
By: /s/ Juan Ferreira /s/ Jim Schnof, CFO
------------------------------ ------------------------------
CCEC Representative CCEC Officer
------------------------------ ------------------------------
Witness Witness
CONFIRMED AND AGREED ON THE ____ DAY OF ____________, 1998
VISUAL EDGE SYSTEMS INC.
By: /s/ Earl Takefman
------------------------------ ------------------------------
Duly Authorized Witness
Page 5 of 5
44
EXHIBIT C
Takefman Side Letter
45
December 31, 1998
Infinity Investors Limited IEO Holdings Limited
c/o HW Partners, L.P. c/o HW Partners, L.P
1601 Elm Street 1601 Elm Street
Suite 4000 Suite 4000
Dallas, Texas 75201 Dallas, Texas 75201
Summit Capital Limited Glacier Capital Limited
c/o HW Partners, L.P. c/o HW Partners, L.P.
1601 Elm Street 1601 Elm Street
Suite 4000 Suite 4000
Dallas, Texas 75201 Dallas, Texas 75201
Dear Sirs:
Reference is made to the Bridge Securities Purchase Agreement, dated as of June
13, 1997 (as amended, the "PURCHASE AGREEMENT"), among Visual Edge Systems Inc.
(the "COMPANY'), Infinity Investors Limited, Infinity Emerging Opportunities
Limited, Summit Capital Limited and Glacier Capital Limited (collectively, the
"Purchasers"). Capitalized terms used but not defined herein have the meanings
set forth in the Purchase Agreement and the Executive Employment Agreement,
dated as of January 1, 1996 (the "EMPLOYMENT AGREEMENT"), between the Company
and Earl Takefman, as amended.
In connection with the third amendment to the Purchase Agreement, Earl Takefman
("TAKEFMAN") hereby represents that all shares of Common Stock of the Company
over which he has an ownership interest are owned either by Takefman personally
or by Status One Investments Inc. ("STATUS ONE"), and agrees, for himself and on
behalf of Status One, as follows:
(1) Until the earlier to occur of (a) the one-year anniversary of the
date of this letter and (b) the termination of his employment with
the Company, Takefman will not sell any shares of the Company's
Common Stock; PROVIDED, HOWEVER, that the restriction contained in
this Section 1 shall not apply in the event of a sale by the
Purchasers of any shares of the Company's Common Stock subsequent
to the date hereof, and that in the event of such a sale by the
Purchasers, such restriction shall be null and void; PROVIDED,
FURTHER, that the exclusion contained in the immediately-preceding
clause shall not apply in the event of a sale of any of the 12,500
warrant shares retained by the Purchasers pursuant to Section
3.2(b) of the third amendment to the Purchase
46
Agreement, and that such a sale of any of the 12,500 warrant
shares shall not relieve Takefman from the resale restriction
contained in this Section 1.
(2) If he is terminated for Cause (as defined in the Employment
Agreement, the relevant language from which is attached hereto as
Exhibit A), Takefman will not sell any shares of the Company's
Common Stock for one year following the effective date of such
termination.
(3) If he is terminated without Cause, or if he resigns, Takefman will
not sell any shares of the Company's Common Stock for thirty days
following the later of (a) such termination or resignation, as
applicable, and (b) the expiration of any applicable limitations
imposed by federal or state securities laws.
(4) The provisions of this letter shall bind any successors to the
Company's Common Stock owned by Takefman personally, or by Status
One, as of the date hereof.
The Purchasers agree to provide prompt written notice to Takefman in the event
of a sale by any of the Purchasers of any shares of the Company's Common Stock.
Very truly yours,
/s/ Earl Takefman
----------------------------------
Earl Takefman
Acknowledged and agreed:
STATUS ONE INVESTMENTS INC.
/s/ Earl Takefman
- ------------------------------
Title: Chief Executive Officer
47
Acknowledged and agreed, with respect
to the final paragraph of this letter.
INFINITY INVESTORS LIMITED
/s/ James A. Loughfan
- --------------------------------
By: James A. Loughfan
Title: Director
IEO HOLDINGS LIMITED
/s/ John A. Brooks
- ---------------------------------
By: John A. Brooks
Title: Director
SUMMIT CAPITAL LIMITED
/s/ James E. Martin
- ---------------------------------
By: James E. Martin
Title: President
GLACIER CAPITAL LIMITED
/s/ James E. Martin
- ---------------------------------
By: James E. Martin
Title: President
48
Exhibit A
Definition of "Cause" as Set Forth in Employment Agreement
3.4 For the purpose of this Agreement, "Cause" shall mean: (i) the
conviction of the Employee of a felony or an indictable offense under
United States laws, (ii) the misappropriation or embezzlement of funds
by the Employee or (iii) the Employee is materially impaired from
performing his duties hereunder because of alcohol, drug or any
substance abuse.
49
Exhibit D
Compensation Committee Letter Resolutions
50
December 21, 1998
Infinity Investors Limited Infinity Emerging Opportunities Limited
c/o HW Partners, L.P. c/o HW Partners, L.P
1601 Elm Street 1601 Elm Street
Suite 4000 Suite 4000
Dallas, Texas 75201 Dallas, Texas 75201
Summit Capital Limited Glacier Capital Limited
c/o HW Partners, L.P. c/o HW Partners, L.P.
1601 Elm Street 1601 Elm Street
Suite 4000 Suite 4000
Dallas, Texas 75201 Dallas, Texas 75201
Visual Edge Systems Inc.
2424 North Federal Highway, Suite 100
Boca Raton, Florida 33431
Dear Sirs:
This letter is being delivered in connection with the Bridge Securities Purchase
Agreement, dated as of June 13, 1997 (as amended, the "PURCHASE AGREEMENT"),
among Visual Edge Systems Inc. (the "COMPANY"), Infinity Investors Limited,
Infinity Emerging Opportunities Limited, Summit Capital Limited and Glacier
Capital Limited.
Attached herewith please find a copy of resolutions of the Compensation
Committee of the Company (the "COMMITTEE"), pursuant to which the Committee
resolves to take the actions required by Section 3.2(a) of the Purchase
Agreement.
Very truly yours,
VISUAL EDGE SYSTEMS INC.
COMPENSATION COMMITTEE
/s/ Ronald F. Seale
---------------------------------------
Ronald F. Seale
/s/ Earl T. Takefman
---------------------------------------
Earl T. Takefman
/s/ Mark Hershhorn
---------------------------------------
Mark Hershhorn
51
VISUAL EDGE SYSTEMS INC.
WRITTEN CONSENT IN LIEU OF A
MEETING OF THE COMPENSATION COMMITTEE
The undersigned, being all of the members of the Compensation Committee (the
"COMMITTEE") of Visual Edge Systems Inc., a Delaware Corporation (the
"CORPORATION"), acting pursuant to Section 141(f) of the Delaware General
Corporation Law, hereby adopt by written consent, as of this 21st day of
December, 1998, the following resolutions with the same force and effect as if
they had been unanimously adopted at a duly convened meeting of the Committee,
and direct that this written consent be filed with the minutes of the
proceedings of the Committee.
WHEREAS, the Corporation has been presented with a proposal (the
"PROPOSAL") from the holders of the Corporation's Series A Preferred
Stock (the "PREFERRED STOCKHOLDERS") which the Corporation finds very
favorable because the Proposal will limit the amount of the dilution
that would otherwise occur upon conversion; and
WHEREAS, it is a condition to the Proposal that the Corporation reprice
certain currently outstanding stock options and grant to certain
members of management additional stock options; and
WHEREAS, the Committee finds that, in order to retain the Corporation's
management, and to provide proper incentives for said management to
pursue the Corporation's long-term goals, it is advisable to reprice
certain currently outstanding stock options of the Corporation and to
grant to certain members of management additional stock options.
NOW, THEREFORE, BE IT RESOLVED, that this Committee hereby reprices to
$1.00 per share all outstanding stock options held by Earl Takefman,
Richard Parker and Thomas Peters, all of which options shall be
immediately vested; and further
RESOLVED, that this Committee hereby reprices to $1.00 per share
approximately 82,000 currently outstanding stock options held by the
employees of the Corporation listed on Exhibit A hereto; and further
52
RESOLVED, that this Committee hereby grants to Richard Parker 200,000
additional stock options, which options shall be immediately vested and
have an exercise price of $1.00 per share; and further
RESOLVED, that this Committee hereby accepts delivery from the
Preferred Stockholders of 300,000 warrants which they have delivered to
the Company as a condition to the Proposal, and from these 300,000
warrants the Committee hereby grants to Richard Parker 200,000
additional stock options, and to Thomas Peters 100,000 additional stock
options, all of which options shall be immediately vested and have an
exercise price of $1.00 per share; and further
RESOLVED, that each officer of the Corporation be, and each of them
hereby is, authorized, empowered and directed to execute and deliver
such other instruments and documents, and to take all such other and
further actions, in the name of and on behalf of the Corporation, as
any such officer shall deem necessary or desirable to carry out the
purpose and intention of the foregoing resolutions and to effectuate
the transactions contemplated thereby.
[Signature page follows]
-2-
53
IN WITNESS WHEREOF, the undersigned have executed this written consent as of the
date first written above.
/s/ Ronald F. Seale
-----------------------------
Ronald F. Seale
/s/ Earl T. Takefman
-----------------------------
Earl T. Takefman
/s/ Mark Hershhorn
-----------------------------
Mark Hershhorn
[Signature page to Compensation Committee Consent]
54
EXHIBIT A
HOLDERS OF EMPLOYEE STOCK OPTIONS
Ray Augustine
Wendi Bassett
Scott Becker
Kelly Finley
Melissa Forzly
Matt Hanson
Joe Hearn
55
EXHIBIT E
---------
MARION SIDE LETTER
56
December 21, 1998
Morgan Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178-0060
Status One Investments Inc.
c/o Earl Takefman
2424 North Federal Highway
Suite 100
Boca Raton, Florida 33431
Dear Sirs:
Reference is made to (a) the Bridge Securities Purchase Agreement, dated as of
June 13, 1997 (as amended, the "PURCHASE AGREEMENT"), among Visual Edge Systems
Inc. (the "COMPANY"), Infinity Investors Limited, Infinity Emerging
Opportunities Limited, Summit Capital Limited and Glacier Capital Limited, and
(b) the Escrow Agreement, dated as of March 31, 1998 (the "ESCROW AGREEMENT"),
among the Company, Marion Interglobal Ltd., Status One Investments Inc. ("STATUS
ONE"), Alan Lubell and Morgan, Lewis & Bockius LLP, as escrow agent (the
"AGENT").
In connection with the third amendment to the Purchase Agreement, and pursuant
to Section 3(D) of the Escrow Agreement, the undersigned hereby instructs the
Agent to release to Status One all of the shares of the Company's common stock
owned by Status One and held by the Agent pursuant to the Escrow Agreement.
Status One shall be under no further restrictions from the undersigned with
respect to such shares.
Very truly yours,
MARION INTERGLOBAL, LTD.
/s/ Ron Seale
-------------------------------
By: Ron Seale
Title: Senior Managing Director
Acknowledged:
MORGAN, LEWIS & BOCKIUS LLP
/s/ Morgan, Lewis & Bockius LLP
- -------------------------------
By:
Title:
STATUS ONE INVESTMENTS INC.
/s/ Earl Takefman
- -------------------------------
By: Earl Takefman
Title: Chief Executive Officer