SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 13, 2001
ULTRADATA SYSTEMS, INCORPORATED
(Exact name of Registrant as Specified in its Charter)
Delaware 0-25380 43-1401158
(State of Incorporation) (Commission File (IRS Employer
Number) Identification No.)
9375 Dielmann Industrial Drive, St. Louis, MO 63132
(Address of principal executive offices)
(314) 997-2250
Registrant's Telephone Number
Item 5. EXCHANGE OF CONVERTIBLE NOTES FOR PREFERRED SHARES
On August 13, 2001, Ultradata Systems, Incorporated ("Ultradata")
completed an exchange of 11.25% Senior Subordinated Secured Convertible
Promissory Notes (the "Notes") for 1408 of the 1424 shares of Series A
Convertible Preferred Stock now outstanding. The Series A Preferred Stock
which was exchanged had been issued on May 16, 2000 for a purchase price of
$1,408,000, and was subject to an accrual of principal totaling 11.25% per
annum.
The terms of the Notes include:
1. The principal amount of the Notes is $1,748,120.
2. The Notes will bear interest at 11.25% per annum. In addition,
there will be a one-time 10% interest accrual on any unpaid amount
of the Notes on June 1, 2002. That accrual, if unpaid, will be
added to the principal amount of the Notes on that date.
3. Ultradata will pay $140,000 toward the Notes in September, 2001,
$70,000 in October, 2001, and $90,000 monthly thereafter. Payments
will be applied first to accrued interest, then to principal.
4. Ultradata's obligations under the Notes are secured by a lien on
Ultradata's assets. The lien is subordinate to "Senior Debt," which
is defined as any borrowing from a commercial lender in which the
amount of the borrowing is determined by reference to accounts
receivable and inventory.
5. The principal and accrued interest on the Notes may be converted
into common stock at any time at the option of the holders. The
conversion rate will be the lower of $3.50 or 75% of the 5-day
average closing bid price, subject to certain anti-dilution rights.
The total number of shares into which the Notes may be converted
during any 90 day period cannot exceed 20% of the cumulative trading
volume for the 66 trading days preceding the date of conversion.
6. Ultradata may prepay any amount of the principal and interest on the
Notes, subject to a 10% prepayment penalty.
In connection with the sale of the Series A Preferred Stock in May 2000,
Ultradata had issued to the investors warrants to purchase up to 478,506
shares of common stock for a price of $5.00 per share until May 15, 2003. In
connection with the exchange on August 13, 2001, Ultradata reduced the
exercise price of the warrants to $1.50 per share.
EXHIBITS
10-a Exchange Agreement between Ultradata Systems, Incorporated and the
Investors Signatory Hereto - filed herewith.
10-b Form of 11.25% Senior Subordinated Secured Convertible Promissory Note
- filed herewith.
10-c Form of Stock Purchase Warrant issued for 478,506 shares - filed
herewith.
10-d Registration Rights Agreement with holders of the 11.25% Convertible
Notes and Stock Purchase Warrants - filed herewith.
10-e Security Agreement with holders of the 11.25% Convertible Notes - filed
herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ULTRADATA SYSTEMS, INCORPORATED
Dated: August 15, 2001 By:/s/ Monte Ross
Monte Ross
Chief Executive Officer
* * * * * * * * * * * * * * * * * *
EXHIBIT 10-a
EXCHANGE AGREEMENT
Between
ULTRADATA SYSTEMS, INCORPORATED
and
the Investors Signatory Hereto
EXCHANGE AGREEMENT dated as of August 6, 2001 (the "Agreement"), between the
Investors signatory hereto (each an "Investor" and together the "Investors"),
and Ultradata Systems, Incorporated, a Delaware corporation (the "Company").
RECITALS
Pursuant to a Convertible Preferred Stock and Warrants Purchase Agreement,
dated as of May 10, 2000, the Company sold and issued to the Investors, and
the Investors purchased, a total of 1,600 shares of the Company's Series A
Convertible Preferred Stock, $.01 par value per share (the "Series A Stock"),
together with Warrants to purchase a total of 478,506 shares of the Company's
Common Stock, $.01 par value per share (the "Common Stock"), at an exercise
price of $5.00 per share (the "Series A Warrants"). The Company has purchased
164 shares of Series A Stock from the Investors and has issued 56,118 shares
of Common Stock in exchange for 28 shares of Series A Stock. Accordingly,
the Investors own 1,408 shares of Series A Stock as of the date of this
Agreement.
In connection with the Company's sale of the Series A Stock to the Investors,
the Company and the Investors entered into a Registration Rights Agreement,
dated as of May 16, 2000, pursuant to which the Company agreed to file a
Registration Statement with the Securities and Exchange Commission with
respect to the Investors' public sale of the Common Stock issuable upon
conversion of the Series A Stock and exercise of the Series A Warrants. The
Company is in default under such Registration Rights Agreement. In connection
with such default, the Company has agreed to exchange its 11.25% Senior
Subordinated Secured Convertible Notes (the "Convertible Notes") for all
shares of Series A Stock held by the Investors and to exchange Warrants to
purchase 478,506 shares of Common Stock at an exercise price of $1.50 per
share ("Substitute Warrants") for the Series A Warrants held by the Investors,
all in accordance with the terms of this Agreement. The Company is relying
on the exemption from registration under Section 3(a)(9) of the Securities Act
of 1933, as amended, to issue the Convertible Notes and Substitute Warrants to
the Investors hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
In addition to the definitions set forth in the text of this Agreement,
the following capitalized terms shall have the meanings ascribed to them
below:
- "Capital Shares" shall mean the Common Stock and any shares of any other
class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the
Company.
- "Capital Shares Equivalents" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any
right to subscribe for any Capital Shares of the Company or any warrants,
options or other rights to subscribe for purchase or otherwise acquire
Capital Shares or any such convertible or exchangeable securities.
- "Closing" shall mean the closing of the exchange of the Series A Stock
and Series A Warrants for Convertible Notes and Substitute Warrants
pursuant to Section 2.1.
- "Closing Date" shall mean the first date on which (x) all conditions to
Closing have been satisfied or waived as provided in Section 2.1(d)
hereof and (y) the Closing shall have occurred.
- "Code" shall mean the United States Internal Revenue Code of 1986, as
amended, including the Treasury Regulations promulgated thereunder, as
applicable.
- "Common Stock" shall mean the Company's common stock, $0.01 par value
per share.
- "Conversion Shares" shall mean the shares of Common Stock issuable upon
conversion of the Convertible Notes, including any shares of Common Stock
issued in payment of interest under the Convertible Notes.
- "Convertible Notes" shall mean the 11.25% Senior Subordinated Secured
Convertible Notes in the form of Exhibit A hereto.
- "Damages" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs or expenses (including, without limitation,
reasonable attorneys' fees and disbursements and reasonable costs and
expenses of expert witnesses and investigation).
- "Disclosure Schedule" shall mean the written disclosure schedule delivered
on or prior to the date hereof by the Company to the Investors that is
arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Agreement.
- "Effective Date" shall mean the date on which the SEC first declares
effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
- "Environmental Laws" shall mean foreign, federal, state and local laws
and regulations relating to the protection of human health and safety,
the environment or hazardous or toxic substances or wastes, pollutants
or contaminants.
- "Escrow Agent" shall have the meaning set forth in the Escrow Agreement.
- "Escrow Agreement" shall mean the Escrow Agreement in substantially the
form of Exhibit D hereto executed and delivered contemporaneously with
this Agreement.
- "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
- "GAAP" shall mean accounting principles generally accepted in the United
States as shall be in effect from time to time.
- "Intellectual Property" shall mean all trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations,
trade secrets, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar proprietary rights, information and
knowledge.
- "Irrevocable Transfer Agent Instructions" shall mean the Irrevocable
Transfer Agent Instructions, in the form of Exhibit F attached hereto,
from the Company to the Company's transfer agent.
- "IRS" shall mean the United States Internal Revenue Service.
- "Issuable Conversion and Warrant Shares" shall mean, as of a specified
date, the number of (x) Conversion Shares issuable upon conversion of
the Convertible Notes (assuming all such Convertible Notes were fully
convertible on such date regardless of any limitation on the timing or
amount of such conversions or exercises) and (y) Warrant Shares issuable
upon exercise of the Substitute Warrants outstanding (assuming all such
Substitute Warrants were fully exercisable on such date regardless of any
limitation on the timing or amount of such exercises).
- "Legend" shall mean the legend set forth in Section 9.1.
- "Market Price" on any given date shall mean the average of the closing bid
prices of the Common Stock on the Principal Market for the period of five
consecutive Trading Days ending on the Trading Day immediately prior to
the date for which the Market Price is to be determined. If the closing
bid prices are reported by Bloomberg L.P., then the prices used shall be
those quoted by Bloomberg. If the closing bid prices are not quoted by
Bloomberg L.P., then the prices used shall be those quoted by the National
Quotation Bureau, Inc. in its "pink sheets".
- "Material Adverse Effect" shall mean any effect on the business, operations,
properties, prospects, stock price or financial condition of the Company
that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or
situation that would prohibit or otherwise interfere with the ability of
the Company to enter into and perform any of its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Convertible Notes or the Substitute Warrants in any material respect.
- "Outstanding" when used with reference to any Capital Shares, shall mean,
at any date as of which the number of such Capital Shares is to be
determined, all issued and outstanding Capital Shares, and shall include
all such Capital Shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in such Capital Shares;
provided, however, that "Outstanding" shall not mean any such Capital
Shares then directly or indirectly owned or held by or for the account
of the Company.
- "Person" shall mean an individual, a corporation, a partnership, a
limited liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an
agency or instrumentality thereof.
- "Principal Market" shall mean the American Stock Exchange, the New York
Stock Exchange, the NASDAQ National Market, or the NASDAQ Small-Cap
Market, whichever is at the time the principal trading exchange or market
for the Common Stock, based upon share volume, or if the Common Stock is
not traded on an exchange, the over-the-counter market.
- "Registrable Securities" shall mean the Conversion Shares and the Warrant
Shares until (i) a Registration Statement with respect to the resale of
the Conversion Shares and the Warrant Shares has been declared effective
by the SEC, and all Conversion Shares and Warrant Shares have been
disposed of pursuant to the Registration Statement, (ii) all Conversion
Shares and Warrant Shares have been sold under circumstances under which
all of the applicable conditions of Rule 144 (or any similar provision
then in force) under the Securities Act ("Rule 144") are met, (iii) all
Conversion Shares and Warrant Shares have been otherwise transferred to
holders who may trade such shares without restriction under the Securities
Act, and the Company has delivered a new certificate or other evidence of
ownership for such securities not bearing a restrictive legend or (iv)
such time as, in the opinion of counsel to the Company (which opinion and
counsel shall be reasonably satisfactory to the holder of the Conversion
Shares or the Warrant Shares, as the case may be), all Conversion Shares
and Warrant Shares may be sold without any time, volume or manner
limitations pursuant to Rule 144(k) (or any similar provision then in
effect) under the Securities Act.
- "Registration Rights Agreement" shall mean the agreement regarding the
filing of a Registration Statement for the resale of the Registrable
Securities, entered into between the Company and the Investors as of the
Closing Date in the form annexed hereto as Exhibit C.
- "Registration Statement" shall mean a registration statement on Form S-3
(if use of such form is then available to the Company pursuant to the
rules of the SEC and, if not, on such other form promulgated by the SEC
for which the Company then qualifies and which counsel for the Company
shall deem appropriate, and which form shall be available for the resale
by the Investors of the Registrable Securities to be registered thereunder
in accordance with the provisions of this Agreement, the Registration
Rights Agreement and in accordance with the intended method of distribution
of such securities), for the registration of the resale by the Investors of
the Registrable Securities under the Securities Act.
- "Regulation D" shall mean Regulation D promulgated under the Securities
Act.
- "SEC" shall mean the Securities and Exchange Commission.
- "SEC Documents" shall mean the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2000 and each report, proxy statement
and registration statement filed by the Company with the SEC pursuant to
the Exchange Act or the Securities Act since the filing of such Annual
Report through the date hereof.
- "Securities" shall mean the Convertible Notes, the Substitute Warrants,
the Conversion Shares and the Warrant Shares, individually and
collectively.
- "Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
- "Security Agreement" shall mean the Security Agreement substantially in
the form of Exhibit G attached hereto from the Company to the Investor.
- "Series A Stock" shall mean the Company's Series A Convertible Preferred
Stock, $.01 par value per share.
- "Series A Warrants" shall mean the Warrants, dated May 16, 2000, issued to
each Investor to purchase a total of Two Hundred Thirty-Nine Thousand Two
Hundred Fifty-Three (239,253) shares of Common Stock at an exercise price
of Five Dollars ($5.00) per share.
- "Subsidiary" shall mean any entity in which the Company, directly or
indirectly, owns capital stock or holds an equity or similar interest.
- "Substitute Warrants" shall mean the warrants substantially in the form of
Exhibit B to be issued to the Investors hereunder.
- "Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications,
real or personal property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp, occupation,
alternative or add-on minimum, estimated and other taxes of any kind
whatsoever (including, without limitation, deficiencies, penalties,
additions to tax, and interest attributable thereto) whether disputed or
not.
- "Tax Return" means any return, information report or filing with respect
to Taxes, including any schedules attached thereto and including any
amendment thereof.
- "Trading Day" shall mean any day during which the Principal Market shall
be open for business.
- "Transaction Documents" shall mean this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Irrevocable Transfer Agent
Instructions, the Security Agreement and each of the other agreements
entered into by the parties hereto in connection with the transactions
contemplated by this Agreement.
- "Warrant Shares" shall mean all shares of Common Stock or other securities
issued or issuable pursuant to exercise of the Substitute Warrants.
ARTICLE II
Exchange of Series A Stock and Series A Warrants
for Convertible Notes and Substitute Warrants
Section 2.1. Exchange.
(a) Upon the terms and subject to the conditions set forth herein, at the
Closing, each Investor shall transfer, assign, convey and deliver to the
Company all right, title and interest in and to all of such Investor's shares
of Series A Stock and Series A Warrants, free and clear of all liens, security
interests, charges, encumbrances and rights of others (collectively, "Liens").
In consideration for the shares of Series A Stock and the Series A Warrants
delivered by the Investors to the Company, the Company shall issue and
deliver to each Investor (i) a Convertible Note having a principal amount
equal to the number of shares of Series A Stock delivered by such Investor as
set forth on the signature page hereof multiplied by the sum of (x) $1,100
plus (y) $0.3125 per day from (but not including) May 16, 2000 to (and
including) the Closing Date and (ii) one (1) Substitute Warrant in exchange
for each Series A Warrant transferred to the Company pursuant to this
Agreement.
(b) Upon execution and delivery of this Agreement, each Investor shall
deliver to the Escrow Agent certificates representing the Series A Stock and
the Series A Warrants to be delivered at the Closing as set forth on the
signature pages hereto, and the Company shall deliver to the Escrow Agent the
Convertible Notes and the Substitute Warrants to be delivered at the Closing,
in each case to be held by the Escrow Agent pursuant to the Escrow Agreement.
(c) The Closing shall occur at the offices of the Escrow Agent on the
Closing Date, at which time the Escrow Agent (x) shall release to the
Investors the Convertible Notes and the Substitute Warrants and (y) shall
release to the Company the certificates representing the Series A Stock and
the Series A Warrants, pursuant to the terms of the Escrow Agreement.
(d) The Closing shall be subject to the parties' satisfaction of the
conditions to Closing set forth below:
(i) The obligation of the Company hereunder to issue the Convertible
Notes and the Substitute Warrants to each Investor at the Closing is
subject to the satisfaction, at or before such Closing Date, of each
of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing each Investor with prior written notice
thereof:
(A) The Investors shall have executed each of the Transaction Documents
to be executed by them and delivered the same to the Company.
(B) The Escrow Agent shall have delivered to the Company the
certificates representing the Series A Stock and the Series A
Warrants being exchanged by the Investors at the Closing.
(C) The representations and warranties of the Investors shall be true
and correct as of the date when made and as of such Closing Date
as though made at that time (except for representations and
warranties that speak as of a specific date), and the Investors
shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to
be performed, satisfied or complied with by them at or prior to the
Closing Date.
(ii) The obligation of each Investor hereunder to exchange their shares
of Series A Stock and Series A Warrants for the Convertible Notes and
the Substitute Warrants at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions,
provided that these conditions are for each Investor's sole benefit
and may be waived by such Investor at any time in its sole discretion:
(A) The Company shall have executed each of the Transaction Documents
to be executed by it and delivered the same to such Investor.
(B) The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties
that speak as of a specific date) and the Company shall have
performed, satisfied and complied with the covenants, agreements
and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to
the Closing Date. Such Investor shall have received a certificate,
executed by the Company's Chief Executive Officer, dated as of the
Closing Date, to the foregoing effect and as to such other matters
as may be reasonably requested by such Investor, including, without
limitation, an update as of the Closing Date regarding the
representation contained in Section 4.3 below.
(C) Such Investor shall have received the opinion of the Company's
counsel dated as of such Closing Date, in form, scope and substance
reasonably satisfactory to such Investor and in substantially the
form of Exhibit E attached hereto.
(D) The Company shall have executed and delivered to such Investor a
Convertible Note in the principal amount as determined in
accordance with Section 2.1(a) hereof.
(E) The Company shall have executed and delivered to such Investor the
Substitute Warrants (in such denominations as such Investor shall
request) being issued to such Investor at the Closing.
(F) The Board of Directors of the Company shall have adopted resolutions
consistent with Section 4.2 below and in a form reasonably acceptable
to such Investor (the "Resolutions").
(G) As of the Closing Date, the Company shall have reserved out of its
authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Convertible Notes and the exercise
of the Substitute Warrants, the lesser of (i) all authorized, but
unissued and unreserved, shares of Common Stock or (ii) a number
of shares of Common Stock equal to at least 200% of the Issuable
Conversion and Warrant Shares as of the Closing Date.
(H) The Company shall have delivered the Irrevocable Transfer Agent
Instructions to its transfer agent, and such transfer agent shall
have acknowledged receipt thereof in writing.
(I) The Company shall have delivered to such Investor a certificate
evidencing the incorporation and good standing of the Company and
each Subsidiary in such corporation's state of incorporation issued
by the Secretary of State of such state of incorporation as of a
date within ten days of the Closing Date.
(J) The Company shall have delivered to such Investor a certified copy
of its Certificate of Incorporation as certified by the Secretary
of State of the State of Delaware within ten days of the Closing
Date.
(K) The Company shall have delivered to such Investor a certificate,
executed by the Company's Secretary dated the Closing Date, as to
(i) the resolutions described in Section 4.2, (ii) the Company's
Certificate of Incorporation and (iii) the Company's Bylaws, each
as in effect on the Closing Date.
(L) The Company shall have delivered to such Investor such other
documents relating to the transactions contemplated by this
Agreement as such Investor or its counsel may reasonably request.
(M) The Company shall have delivered to such Investor the written
agreements of each officer and director of the Company addressed
to the Investors, to vote all shares of Common Stock over which
they have voting control in favor of a shareholder proposal
authorizing an amendment to the Company's Certificate of
Incorporation to increase the number of shares of Common Stock the
Company is authorized to issue as provided in Section 6.15.
(N) Form UCC-1 Financing Statements shall have been filed with respect
to the Collateral under the Security Agreement naming the Company
as Debtor and the Investor as Secured Party in all required filing
offices as determined by the Investors or their counsel.
(O) Southwest Bank of St. Louis shall have released its lien on the
Company's assets and a Form UCC-3 Release shall have been filed
with respect thereto.
Section 2.2. Liquidated Damages. The parties hereto acknowledge and
agree that the amounts payable by the Company to the Investors pursuant to
the Registration Rights Agreement with respect to a Registration Default
thereunder shall constitute liquidated damages and not penalties. The parties
further acknowledge that (i) the amount of loss or damages likely to be
incurred as a result of such Registration Default is incapable or is
difficult to precisely estimate, (ii) the amounts payable as a result of a
Registration Default bear a reasonable proportion to and are not plainly or
grossly disproportionate to the probable loss likely to be incurred by the
Investors in connection with the failure by the Company to timely cause the
registration of the Registrable Securities under the Registration Rights
Agreement and (iii) the parties are sophisticated business parties and have
been represented by sophisticated and able legal and financial counsel and
negotiated this Agreement at arm's length.
ARTICLE III
Representations and Warranties of the Investors
Each Investor, severally and not jointly, represents and warrants to the
Company that:
Section 3.1. Intent. Such Investor is entering into this Agreement for its
own account and not with a view to or for sale in connection with any
distribution of the Common Stock. Such Investor has no present arrangement
(whether or not legally binding) at any time to sell the Securities to or
through any person or entity; provided, however, that by making the
representations herein, such Investor does not agree to hold such Securities
for any minimum or other specific term and reserves the right to dispose of
the Securities at any time in accordance with federal and state securities
laws applicable to such disposition.
Section 3.2. Sophisticated Investor. Such Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an
accredited investor (as defined in Rule 501 of Regulation D), and such
Investor has such experience in business and financial matters that it has
the capacity to protect its own interests in connection with this transaction
and is capable of evaluating the merits and risks of an investment in the
Securities. Such Investor acknowledges that an investment in the Securities
is speculative and involves a high degree of risk.
Section 3.3. Authority. This Agreement and each of the Transaction
Documents that is required to be executed by such Investor has been duly
authorized and validly executed and delivered by such Investor and is a valid
and binding agreement of such Investor enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
Section 3.4. Not an Affiliate. Such Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5. Absence of Conflicts. The execution and delivery of this
Agreement and each other Transaction Document, and the consummation of the
transactions contemplated hereby and thereby, and compliance with the
requirements hereof and thereof by such Investor, will not violate any law,
rule, regulation, order, writ, judgment, injunction, decree or award binding
on such Investor or (a) violate any provision of any indenture, instrument or
agreement to which such Investor is a party or is subject, or by which such
Investor or any of its assets is bound; (b) conflict with or constitute a
material default thereunder; (c) result in the creation or imposition of any
lien pursuant to the terms of any such indenture, instrument or agreement, or
constitute a breach of any fiduciary duty owed by such Investor to any third
party; or (d) require the approval of any third-party (which has not been
obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which Investor is subject or to which any
of its assets, operations or management may be subject.
Section 3.6. Disclosure; Access to Information. Such Investor has received
all documents, records, books and other publicly available information
pertaining to such Investor's investment in the Company as such Investor has
requested. Such Investor acknowledges that the Company is subject to the
periodic reporting requirements of the Exchange Act, and such Investor has
reviewed copies of all SEC Documents deemed relevant by such Investor.
Section 3.7. Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
Section 3.8. Investors' Principal Place of Business. The principal place
of business of each Investor is Toronto, Ontario, Canada.
Section 3.9. Ownership of Series A Securities. Such Investor owns the shares
of Series A Stock and the Series A Warrants to be exchanged by such Investor
hereunder on the Closing Date, free and clear of all Liens of any nature
whatsoever.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to the Investors that, except as set
forth on the Disclosure Schedule prepared by the Company and attached hereto:
Section 4.1. Organization of the Company. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of
the State of Delaware and has all requisite corporate authority to own its
properties and to carry on its business as now being conducted. The Company's
Subsidiaries are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated
and have the requisite corporate power and authority to own their properties
and to carry on their business as now being conducted. The Company does not
have any Subsidiaries and does not own more that fifty percent (50%) of or
control any other business entity except as set forth in the SEC Documents.
The Company and each of its Subsidiaries is duly qualified and is in good
standing as a foreign corporation to do business in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not have a Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power
and corporate authority to enter into and perform its obligations under the
Transaction Documents and to issue the Securities pursuant to their respective
terms; (ii) the execution, issuance and delivery of the Transaction Documents,
the Convertible Notes, and the Substitute Warrants by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required; and (iii) the Transaction Documents have been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
or similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles of general
application. The Company has duly and validly authorized and reserved for
issuance shares of Common Stock sufficient in number for the conversion of the
Convertible Notes and for the exercise of the Substitute Warrants. The
Company understands and acknowledges the potentially dilutive effect to the
Common Stock of the issuance of the Conversion Shares and, upon any exercise
of the Substitute Warrants, the Warrant Shares. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Convertible Notes and Warrant Shares upon exercise of the Substitute
Warrants in accordance with this Agreement, the Convertible Notes and the
Substitute Warrants is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company and notwithstanding the commencement of any case
under 11 U.S.C. Sec 101 et seq. (the "Bankruptcy Code").
Section 4.3. Capitalization. The authorized capital stock of the Company
consists of 10,000,000 shares of Common Stock, $0.01 par value per share, of
which 3,249,533 shares were issued and outstanding as of July 25, 2001 and
5,000,000 shares of preferred stock, par value $0.01 per share, of which
3,320 shares have been designated as Series A Convertible Preferred Stock, of
which 1,424 shares were issued and outstanding as of July 25, 2001. Except
for (i) outstanding options and warrants as set forth in the SEC Documents,
(ii) 334,025 stock options awarded under the Company's 1994 Stock Option Plan
and the Company's 1996 Stock Option Plan, (iii) the outstanding shares of
Series A Stock, (iv) the outstanding Series A Warrants, and (v) as set forth
in the Disclosure Schedule, there are no outstanding Capital Shares Equivalents
nor any agreements or understandings pursuant to which any Capital Shares
Equivalents may become outstanding. The Company is not a party to any
agreement granting preemptive, registration or anti-dilution rights to any
person with respect to any of its equity or debt securities. All of the
outstanding shares of Common Stock of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable.
Section 4.4. Common Stock. The Company has registered its Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full
compliance with all reporting requirements of the Exchange Act, and the
Company is in compliance with all requirements for the continued listing or
quotation of its Common Stock, and such Common Stock is currently listed or
quoted on a Principal Market. As of the date hereof, the Principal Market is
the over-the-counter market, and except as set forth in the SEC Documents, the
Company has not received any notice regarding, and to its knowledge there is
no threat of, the termination or discontinuance of the eligibility of the
Common Stock for such listing.
Section 4.5. SEC Documents. The Company has delivered to the Investors
true and complete copies of the SEC Documents. The Company has not provided
the Investors any information that, according to applicable law, rule or
regulation, should have been disclosed publicly prior to the date hereof by
the Company, but which has not been so disclosed. As of their respective dates,
the SEC Documents complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and rules and
regulations of the SEC promulgated thereunder, and the SEC Documents did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the rules and regulations of the SEC or other applicable rules
and regulations with respect thereto at the time of such inclusion. Such
financial statements have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the
case of unaudited interim statements, to the extent they exclude footnotes or
may be condensed or summary statements) and fairly present in all material
respects the financial position of the Company as of the dates thereof and
the results of operations and cash flows for the periods then ended (subject,
in the case of unaudited interim statements, to normal year-end audit
adjustments). Neither the Company nor any of its subsidiaries has any material
indebtedness, obligations or liabilities of any kind (whether accrued,
absolute, contingent or otherwise, and whether due or to become due) that
would have been required to be reflected in, reserved against or otherwise
described in the financial statements or in the notes thereto in accordance
with GAAP, which was not fully reflected in, reserved against or otherwise
described in the financial statements or the notes thereto included in the
SEC Documents or was not incurred in the ordinary course of business consistent
with the Company's past practices since the last date of such financial
statements. No other information provided by or on behalf of the Company to
the Investors that is not included in the SEC Documents, including, without
limitation, information referred to in Section 3.6 of this Agreement, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading.
Section 4.6. Exemption from Registration; Valid Issuances. Subject to the
accuracy of the Investors' representations in Article III, the Company's
issuance of the Convertible Notes and Substitute Warrants under this Agreement
does not, and the Company's issuance of the Conversion Shares on the Investor's
conversion of the Convertible Notes and the Warrant Shares on the exercise of
the Substitute Warrants will not, require registration under the Securities
Act and/or any applicable state securities law. When issued and paid for in
accordance with the Substitute Warrants and validly converted in accordance
with the terms of the Convertible Notes, the Conversion Shares and the Warrant
Shares will be duly and validly issued, fully paid, and non-assessable.
Neither the issuance of the Securities pursuant to, nor the Company's
performance of its obligations under, the Transaction Documents will (i) result
in the creation or imposition by the Company of any liens, charges, claims or
other encumbrances upon any of the Securities or, except as contemplated herein,
any of the assets of the Company, or (ii) entitle the holders of Outstanding
Capital Shares to preemptive or other rights to subscribe for or acquire the
Capital Shares or other securities of the Company. None of the Securities
will subject the Investors to personal liability to the Company or its
creditors by reason of an Investor's possession thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any person
acting on its or their behalf (i) has conducted or will conduct any general
solicitation (as that term is used in Rule 502(c) of Regulation D) or general
advertising with respect to the sale of the Convertible Notes or the Substitute
Warrants, or (ii) made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would require
registration of the Securities under the Securities Act.
Section 4.8. No Conflicts. The Company's execution, delivery and
performance of the Transaction Documents, the Company's performance of its
obligations under the Convertible Notes, and the Company's consummation of the
transactions contemplated hereby and thereby do not and will not (i) result in
a violation of the Company's Certificate of Incorporation or By-Laws or
(ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument, or any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and the rules and regulations of the Principal Market) applicable to the
Company or by which any property or asset of the Company is bound or affected.
The Company is not otherwise in violation of any term of or in default under
its Certificate of Incorporation, any Certificate of Designations, Preferences
and Rights of any outstanding series of preferred stock or its By-laws, or any
contract, agreement, mortgage, indebtedness, indenture, instrument, judgment,
decree or order or any statute, rule or regulation applicable to the Company,
except for possible conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations that would not individually or in
the aggregate have a Material Adverse Effect. The Company's business is not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in
the aggregate would not result in a Material Adverse Effect. Except as
specifically contemplated by this Agreement and as required by the Securities
Act, the Company is not required to obtain any consent, authorization or order
of, or make any filing or registration with, any court or governmental agency
or any regulatory or self regulatory organization, in order for it to execute,
deliver or perform any of its obligations under or contemplated by the
Transaction Documents or to perform its obligations under the Convertible Notes
and Substitute Warrants, in each case in accordance with the terms hereof or
thereof. All consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the preceding sentence
have been obtained or effected on or prior to the date hereof.
Section 4.9. No Material Adverse Change. Since December 31, 2000, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in any SEC Documents filed at least five (5) days prior
to the date hereof and available on EDGAR. The Company has not taken any
steps, and does not currently expect to take any steps, to seek protection
pursuant to the Bankruptcy Code or any law generally affecting creditors'
rights nor does the Company have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
Section 4.10. No Undisclosed Events, Liabilities, Developments, or
Circumstances. No event, liability, development or circumstance has occurred
or exists with respect to the Company or its Subsidiaries or their respective
businesses, properties, operations or financial condition, that would be
required to be disclosed by the Company under applicable securities laws on a
registration statement filed with the SEC relating to an issuance and sale by
the Company of its Common Stock and which has not been publicly announced.
Section 4.11. No Integrated Offering. The Company has not, directly or
indirectly, made any offers or sales of any security or solicited any offers
to buy any security, under circumstances that would require registration of
any of the Securities under the Securities Act or cause this offering of
Securities to be integrated with prior offerings of securities by the Company
for purposes of the Securities Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Principal Market; nor will the Company or any of its Subsidiaries take any
action or steps that would require registration of the Securities under the
Securities Act or cause the offering of the Securities to be integrated with
other offerings.
Section 4.12. Litigation and Other Proceedings. Except as disclosed in the
SEC Documents, there are no lawsuits or proceedings pending or, to the
knowledge of the Company, threatened, against the Company or any Subsidiary or
any of their officers or directors in their capacities as such, nor has the
Company received any written or oral notice of any such action, suit,
proceeding or investigation, which could reasonably be expected to have a
Material Adverse Effect. Except as set forth in the SEC Documents, no
judgment, order, writ, injunction or decree or award has been issued by or,
to the knowledge of the Company, requested of any court, arbitrator or
governmental agency which could result in a Material Adverse Effect.
Section 4.13. No Misleading or Untrue Communication. Neither Company nor,
to the knowledge of the Company, any person representing the Company, or any
other person selling or offering to sell the Convertible Notes or the
Substitute Warrants in connection with the transaction contemplated by this
Agreement, has made, at any time, any oral communication in connection with
the offer or sale of the same which contained any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements, in the light of the circumstances under which they were made,
not misleading.
Section 4.14. Material Non-Public Information. The Company has not disclosed
to the Investors any material non-public information that (i) if disclosed,
would reasonably be expected to have a material effect on the price of the
Common Stock or (ii) according to applicable law, rule or regulation, should
have been disclosed publicly by the Company prior to the date hereof, but which
has not been so disclosed.
Section 4.15. Insurance. The Company and each subsidiary maintains property
and casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards and the
Company's historical claims experience. Neither the Company nor any Subsidiary
has been refused any insurance coverage sought or applied for, and neither the
Company nor any such Subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely
affect the condition, financial or otherwise, or the earnings, business or
operations of the Company and its Subsidiaries, taken as a whole. The Company
maintains officers' and directors' liability insurance in the amount of
$1,000,000.
Section 4.16. Tax Matters.
(a) The Company and each Subsidiary has filed all Tax Returns which it is
required to file under applicable laws; all such Tax Returns are true and
accurate and have been prepared in compliance with all applicable laws; the
Company has paid all Taxes due and owing by it or any Subsidiary (whether or
not such Taxes are required to be shown on a Tax Return) and have withheld and
paid over to the appropriate taxing authorities all Taxes which it is required
to withhold from amounts paid or owing to any employee, stockholder, creditor
or other third parties; and since December 31, 1998, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company as if its current tax year were
treated as ending on the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company or any Subsidiary is
or may be subject to taxation by that jurisdiction. There are no foreign,
federal, state or local tax audits or administrative or judicial proceedings
pending or being conducted with respect to the Company or any Subsidiary; no
information related to Tax matters has been requested by any foreign, federal,
state or local taxing authority; and, except as disclosed above, no written
notice indicating an intent to open an audit or other review has been received
by the Company or any subsidiary from any foreign, federal, state or local
taxing authority. There are no material unresolved questions or claims
concerning the Company's Tax liability. The Company (A) has not executed or
entered into a closing agreement pursuant to Sec 7121 of the Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law; or (B) has not agreed to, and is not required to make any
adjustments pursuant to Sec 481 (a) of the Code or any similar provision of
state, local or foreign law by reason of a change in accounting method
initiated by the Company or any of its subsidiaries, has no knowledge that
the IRS has proposed any such adjustment or change in accounting method, and
does not have any application pending with any taxing authority requesting
permission for any changes in accounting methods that relate to the business
or operations of the Company. The Company has not been a United States real
property holding corporation within the meaning of Sec 897(c)(2) of the Code
during the applicable period specified in Sec 897(c)(1)(A)(ii) of the Code.
(c) The Company has not made an election under Sec 341(f) of the Code. The
Company is not liable for the Taxes of another person that is not a Subsidiary
of the Company under (A) Treas. Reg. Sec 1.1502-6 (or comparable provisions of
state, local or foreign law), (B) as a transferee or successor, (C) by
contract or indemnity or (D) otherwise. The Company is not a party to any
tax sharing agreement. The Company has not made any payments, nor is it
obligated to make payments or a party to an agreement that could obligate it
to make any payments that would not be deductible as a result of the
applicability of Sec 280G of the Code.
Section 4.17. Property. Neither the Company nor any of its Subsidiaries
owns any real property. Each of the Company and its subsidiaries has good and
marketable title to all personal property that it owns, free and clear of all
liens, encumbrances and defects except such as do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company; and to the Company's
knowledge, any real property, mineral or water rights, and buildings that the
Company holds under lease as a tenant are held by it under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the use made and intended to be made of such property, mineral
or water rights, and buildings by the Company and its Subsidiaries.
Section 4.18. Intellectual Property. Each of the Company and its
Subsidiaries owns or possesses adequate and enforceable rights or licenses to
use all Intellectual Property necessary for the conduct of its business as now
being conducted. None of the Company's or any Subsidiary's Intellectual
Property necessary to conduct its business as now conducted or as proposed to
be conducted have expired or terminated, or are expected to expire or
terminate within two years from the date of this Agreement. To the Company's
knowledge, except as disclosed in the SEC Documents neither the Company nor
any of its subsidiaries is infringing upon or in conflict with any right of
any other person with respect to any Intellectual Property. Except as
disclosed in the SEC Documents, no adverse claims have been asserted by any
person to the ownership or use of any Intellectual Property, and the Company
has no knowledge of any basis for such claim.
Section 4.19. Internal Controls and Procedures. The Company maintains books
and records and internal accounting controls that provide reasonable assurance
that (i) all transactions to which the Company or any Subsidiary is a party or
by which its properties are bound are executed with management's authorization;
(ii) the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any
Subsidiary is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with GAAP.
Section 4.20. Payments and Contributions. Neither the Company, any
subsidiary, nor any of its directors, officers or, to its knowledge, other
employees has (i) used any Company funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating to
political activity; (ii) made any direct or indirect unlawful payment of
Company funds to any foreign or domestic government official or employee;
(iii) violated or is in violation of any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any bribe, rebate, payoff,
influence payment, kickback or other similar payment to any person with
respect to Company matters.
Section 4.21. Acknowledgment Regarding Investors' Acquisition of Convertible
Notes. The Company acknowledges and agrees that each of the Investors is
acting solely in the capacity of arm's-length purchaser with respect to the
Transaction Documents and the transactions contemplated thereby. The Company
further acknowledges that no Investor is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated thereby and any advice
given by any of the Investors or any of their respective representatives or
agents in connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to such Investor's purchase of the
Securities. The Company further represents to each Investor that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
Section 4.22. Labor Matters. Neither the Company nor any of its Subsidiaries
is involved in any union labor dispute nor, to the knowledge of the Company
or any of its Subsidiaries, is any such dispute threatened. Neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that relations with
their employees are good. No executive officer (as defined in Rule 501(f) of
the Securities Act) has notified the Company that such officer intends to
leave the Company or otherwise terminate such officer's employment with the
Company.
Section 4.23. Environmental Laws. The Company and its Subsidiaries (i) are
in compliance with any and all applicable Environmental Laws, (ii) have
received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and
(iii) are in compliance with all terms and conditions of any such permit,
license or approval where, in each of the three foregoing cases, the failure
to so comply would have, individually or in the aggregate, a Material Adverse
Effect.
Section 4.24. Regulatory Permits. The Company and its Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such items would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit.
Section 4.25. No Materially Adverse Contracts, Etc. Neither the Company nor
any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is a party to any contract or agreement
that in the reasonable judgment of the Company's officers has or is expected
to have a Material Adverse Effect.
Section 4.26. Certain Transactions. Except as set forth in the SEC Documents
filed at least ten days prior to the date hereof and except for arm's-length
transactions pursuant to which the Company makes payments in the ordinary
course of business upon terms no less favorable than the Company could obtain
from third parties and other than the grant of stock options disclosed in the
Disclosure Schedule, none of the officers or directors of the Company is
presently a party to any transaction with the Company or any of its
Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer
or director or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer or director has a substantial
interest or is an officer, director, trustee or partner.
Section 4.27. Transactions With Affiliates. Except as set forth in the SEC
Documents filed at least ten days prior to the date hereof and other than the
grant of stock options disclosed on the Disclosure Schedule, none of the
officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to
the knowledge of the Company, any corporation, partnership, trust or other
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.
Section 4.28. Application of Takeover Protections. The Company and its board
of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the laws of the state of its incorporation
which is or could become applicable to the Investors as a result of the
transactions contemplated by this Agreement, including, without limitation,
the Company's issuance of the Securities and the Investor's ownership of the
Securities.
Section 4.29. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Investors relating to the terms or
conditions of the transactions contemplated by the Transaction Documents,
except as set forth in the Transaction Documents.
Section 4.30. No Misrepresentation. The representations and warranties of
the Company contained in this Agreement, any schedule, annex or exhibit hereto
and any agreement, instrument or certificate furnished by the Company to the
Investors pursuant to this Agreement, do not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
ARTICLE V
Covenants of the Investors
Section 5.1 Best Efforts. Each Investor, severally and not jointly,
covenants with the Company that it shall use its best efforts to timely
satisfy each of the conditions to be established by it as provided in Article
II of this Agreement.
Section 5.2 Restrictions on Short Sales. Each Investor, severally and not
jointly, covenants with the Company that commencing on the date on which the
SEC declares the Registration Statement to be effective and at all times during
which such Investor may sell the Company's Common Stock pursuant to such
Registration Statement, it will not, directly or indirectly through any
affiliate, sell short any shares of the Company's Common Stock, except during
the period of ten (10) Trading Days immediately preceding any Conversion Date
(as defined in the Convertible Notes). Each Investor shall have the right to
sell short shares of the Company's Common Stock during the period of ten (10)
Trading Days immediately preceding any Conversion Date, provided that the
number of shares of Common Stock sold by such Investor on any Trading Date
shall not exceed ten percent (10%) of the trading volume of the Company's
Common Stock on such Trading Date.
ARTICLE VI
Covenants of the Company
Section 6.1. Best Efforts. The Company shall use its best efforts to
timely satisfy each of the conditions to be satisfied by it as provided in
Article II of this Agreement.
Section 6.2. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect, and the Company shall
comply in all material respects with the terms thereof.
Section 6.3. Reservation of Common Stock. As of the date hereof, the
Company has reserved for the purpose of enabling the Company to issue the
Conversion Shares and the Warrant Shares pursuant to any conversion of the
Convertible Preferred Stock or exercise of the Warrants, the lesser of (i) all
authorized, but unissued and unreserved, shares of Common Stock or (ii) a
number of shares of Common Stock equal to not less than 200% of the Issuable
Conversion and Warrant Shares. If the Company does not have a sufficient
number of authorized, but unissued and unreserved, shares of Common Stock to
reserve for issuance 200% of the Issuable Conversion and Warrant Shares, then
upon approval of the amendment to the Company's Certificate of Incorporation
referred to in Section 6.15, the Company shall reserve additional shares of
Common Stock such that the total number of shares of Common Stock reserved for
issuance equals 200% of the Issuable Conversion and Warrant Shares as of the
date of such approval.
Section 6.4. Listing of Common Stock. If the Company's Common Stock is at
any time hereafter listed on a Principal Market (including the OTC Bulletin
Board), the Company shall maintain such listing and, as soon as required by the
rules of the Principal Market and any other national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are
listed, shall list the Conversion Shares and the Warrant Shares on the
Principal Market and each such other exchange or system. The Company further
agrees, if the Company applies to have the Common Stock traded on any other
Principal Market, it will include in such application the Conversion Shares
and the Warrant Shares, and will take such other action as is necessary or
desirable in the opinion of the Investors to cause the Conversion Shares and
Warrant Shares to be listed on such other Principal Market as promptly as
possible. The Company will take all action necessary to continue the listing
and trading of its Common Stock on a Principal Market (including, without
limitation, maintaining sufficient net tangible assets) and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market and shall provide Investors with
copies of any correspondence to or from such Principal Market which questions
or threatens delisting of the Common Stock, within three (3) Trading Days of
the Company's receipt thereof, until the Investors have disposed of all of
their Registrable Securities.
Section 6.5. Exchange Act Registration. The Company will cause its Common
Stock to continue to be registered under Section 12(b) or Section 12(g) of the
Exchange Act, will use its best efforts to comply in all respects with its
reporting and filing obligations under the Exchange Act, and will not take any
action or file any document (whether or not permitted by the Exchange Act or
the rules thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange
Act until the Investors have disposed of all of their Registrable Securities.
Section 6.6. Legends. The certificates evidencing the Registrable
Securities shall be free of legends, except as set forth in Article IX.
Section 6.7. Corporate Existence; Conflicting Agreements. The Company will
take all steps necessary to preserve and continue its corporate existence.
The Company shall not enter into any agreement, the terms of which agreement
would restrict or impair the right or ability of the Company to perform any of
its obligations under this Agreement, any of the other Transaction Documents,
the Convertible Notes or the Substitute Warrants.
Section 6.8. Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with
or into, or a transfer of all or substantially all of the assets of the
Company to, another entity (a "Consolidation Event") unless the resulting
successor or acquiring entity (if not the Company) assumes by written
instrument or by operation of law the obligation to deliver to the Investors
such shares of stock and/or securities as the Investors are entitled to receive
pursuant to this Agreement, the Convertible Notes or the Substitute Warrants.
Section 6.9. Issuance of Convertible Notes and Warrant Shares. The
issuance of the Convertible Notes and the Substitute Warrants at the Closing
and the issuance of the Conversion Shares on conversion of the Convertible
Notes shall be made pursuant to the exemption from registration under Section
3(a)(9) of the Securities Act, and the issuance of the Warrant Shares pursuant
to exercise of the Substitute Warrants shall be made in accordance with the
provisions and requirements of Section 4(2) and Section 4(6) of the Securities
Act or Regulation D and any applicable state securities law. The Company shall
take such action as reasonably necessary to qualify the Convertible Notes for,
or obtain exemption for the Convertible Notes for, issuance to the Investors
at the Closing pursuant to this Agreement under applicable securities or "Blue
Sky" laws of the states of the United States, and shall provide evidence of
any such action so taken to the Investors on or prior to the Closing Date.
The Company shall make all filings and reports relating the offer and sale of
the Securities required under the applicable securities or "Blue Sky" laws of
the states of the United States following the Closing Date.
Section 6.10. Intentionally Omitted.
Section 6.11. Pro-Rata Redemption. The Company shall make payments required
to be made under the Convertible Notes pro-rata among all Investors and their
assignees in proportion the principal amount of the Convertible Notes then
held by such Investors or their assignees.
Section 6.12. Relief in Bankruptcy. The Company shall not seek judicial
relief from its obligations hereunder except pursuant to the Bankruptcy Code.
In the event the Company is a debtor under the Bankruptcy Code, the Company
hereby waives to the fullest extent permitted any rights to relief it may have
under 11 U.S.C. Sec 362 in respect of the conversion of the Convertible Notes
and the exercise of the Substitute Warrants. The Company agrees, without cost
or expense to the Investors, to take or consent to any and all action necessary
to effectuate relief under 11 U.S.C. Sec 362.
Section 6.13. Cancellation of Series A Stock and Series A Warrants. The
Company shall cancel all shares of Series A Stock and all Series A Warrants
delivered to it at the Closing and shall not sell or otherwise issue such
shares of Series A Stock or Series A Warrants to any Person after the Closing
Date.
Section 6.14. Financial Information. Until all Registrable Securities may
be sold without registration under the Securities Act, the Company shall send
the following to each holder of Registrable Securities: (i) within five (5)
days after the filing thereof with the SEC, a copy of its Annual Report on
Form 10-KSB, its Quarterly Reports on Form 10-QSB, any Current Reports on Form
8-K and any registration statements or amendments (other than on Form S-8)
filed pursuant to the Securities Act; (ii) on the same day as the release
thereof, copies of all press releases issued by the Company or any of its
Subsidiaries; and (iii) copies of any notices and other information made
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders. The Company may send such information to each Investor by
e-mail to the e-mail address specified in Article XII.
Section 6.15 Proxy Statement. If at any time after the Closing Date, the
Company has fewer than 2,000,000 shares of Common Stock reserved and authorized
for issuance upon conversion of the Convertible Notes, the Company shall,
within twenty (20) business days of the date on which such event occurs, file
with the SEC a notice of a stockholders' meeting and a proxy statement (which
proxy statement has been previously reviewed by the Investors and a counsel
of their choice), which shall be for a stockholders' meeting to be held not
later than sixty (60) days after the date of such filing with the SEC,
soliciting each such stockholder's affirmative vote at such stockholders'
meeting for approval of an amendment to the Company's Certificate of
Incorporation to increase the number of shares of Common Stock the Company is
authorized to issue. The amendment to the Company's Certificate of
Incorporation shall increase the number of authorized shares of Common Stock
such that the Company will have authorized and reserved for issuance upon
conversion of the Convertible Notes not less than 300% of the number of shares
of Common Stock that would be issuable on conversion of the Convertible Notes
on the business day immediately preceding the date of filing such proxy
statement with the SEC. Promptly after the earlier of (x) the expiration of
the period during which the SEC may, but does not, review such notice and
proxy statement, or (y) the SEC's approval of such notice of meeting and proxy
statement, if the SEC reviews them, the Company shall provide each stockholder
entitled to vote at a meeting of stockholders of the Company with such notice
of a stockholders' meeting and proxy statement, and the Company shall use its
best efforts to solicit its stockholders' approval of such amendment to the
Certificate of Incorporation and cause the Board of Directors of the Company
to recommend to the stockholders that they approve such proposal. If the
Company fails to give notice or hold a stockholders' meeting within sixty (60)
days after the filing of such proxy statement with the SEC, if the SEC does
not review the proxy statement, or one hundred twenty (120) days after the
date of such filing, if the SEC reviews the proxy statement (unless such
failure is the result solely of the actions of the Investors), then, as
partial relief (which remedy shall not be exclusive of any other remedies
available at law or in equity), the Company shall pay to each holder of
Convertible Notes an amount in cash equal to the product of (i) outstanding
principal amount of such Convertible Note multiplied by (ii) .025 multiplied
by (iii) the quotient of (x) the number of days after the such default or
defaults have occurred, divided by (y) 30. The Company shall make the payments
referred to in the immediately preceding sentence within ten days of the date
such payment accrued. In the event the Company fails to make such payments
in a timely manner, such payments shall bear interest at the rate of 2.5% per
month (pro rated for partial months) until paid in full.
Section 6.16. Transactions With Affiliates. So long as (i) any shares of
Convertible Notes or Substitute Warrants are outstanding or (ii) any Investor
owns Conversion Shares and/or Warrant Shares with a market value equal to or
greater than $500,000, the Company shall not, and shall cause each of its
Subsidiaries not to, enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, persons who were officers or directors at any time during
the previous two years, stockholders who beneficially own 5% or more of the
Common Stock, or affiliates or with any individual related by blood, marriage
or adoption to any such individual or with any entity in which any such entity
or individual owns a 5% or more beneficial interest (each a "Related Party"),
except for (a) customary employment arrangements and benefit programs on
reasonable terms, (b) any agreement, transaction, commitment or arrangement
on an arm's-length basis on terms no less favorable than terms which would
have been obtainable from a person other than such Related Party, or (c) any
agreement, transaction, commitment or arrangement which is approved by a
majority of the disinterested directors of the Company. For purposes hereof,
any director who is also an officer of the Company or any Subsidiary of the
Company shall not be a disinterested director with respect to any such
agreement, transaction, commitment or arrangement. "Affiliate" for purposes
of this Section means, with respect to any Person, another Person that,
directly or indirectly, (i) has a 5% or more equity interest in that Person,
(ii) has 5% or more common ownership with that Person, (iii) controls that
Person, or (iv) shares common control with that Person. "Control" or
"controls" for purposes of this Agreement means that a Person has the power,
direct or indirect, to conduct or govern the policies of another Person.
Section 6.17. Filing of Form 8-K. On or before the second (2nd) business day
following the Closing Date, the Company shall file a Form 8-K with the SEC
attaching the Transaction Documents and otherwise in the form required by the
Exchange Act.
ARTICLE VII
Survival; Indemnification
Section 7.1. Survival. The representations, warranties and covenants made
by each of the Company and each Investor in this Agreement, the annexes,
schedules and exhibits hereto and in each instrument, agreement and
certificate entered into and delivered by them pursuant to this Agreement,
shall survive the Closing and the consummation of the transactions contemplated
hereby. In the event of a breach or violation of any of such representations,
warranties or covenants, the party to whom such representations, warranties
or covenants have been made shall have all rights and remedies for such breach
or violation available to it under the provisions of this Agreement,
irrespective of any investigation made by or on behalf of such party on or
prior to the Closing Date.
Section 7.2. Indemnity. The Company shall indemnify and hold harmless the
Investors, their respective Affiliates and their respective officers,
directors, partners and members (each an "Indemnified Party"), from and
against any and all Damages, and shall reimburse the Indemnified Parties for
all reasonable out-of-pocket expenses (including the reasonable fees and
expenses of legal counsel), in each case promptly as incurred by such
Indemnified Party and to the extent arising out of or in connection with:
(i) any misrepresentation, omission of fact or breach of any of the Company's
representations or warranties contained in any of the Transaction
Documents or the Convertible Notes, the annexes, schedules or exhibits
thereto or any instrument, agreement or certificate entered into or
delivered by the Company pursuant hereto or thereto; or
(ii) any failure by the Company to perform in any material respect any of
its covenants, agreements, undertakings or obligations set forth in any
of the Transaction Documents or the Convertible Notes, the annexes,
schedules or exhibits thereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant hereto or
thereto; or
(iii) any action instituted against the Investors, or any of them, by any
stockholder of the Company who is not an Affiliate of an Investor, with
respect to any of the transactions contemplated by the Transaction
Documents.
Section 7.3. Notice. Promptly after receipt by an Indemnified Party
seeking indemnification pursuant to Section 7.2 of written notice of any
investigation, claim, proceeding or other action in respect of which
indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the Company of the commencement thereof; but the
omission so to notify the Company shall not relieve it from any liability
that it otherwise may have to the Indemnified Party, except to the extent
that the Company is actually prejudiced by such omission or delay. In
connection with any Claim as to which both the Indemnified Party and the
Company are parties, the Company shall be entitled to assume the defense
thereof. Notwithstanding the assumption of the defense of any Claim by the
Company, the Indemnified Party shall have the right to employ separate legal
counsel and to participate in the defense of such Claim, and the Company shall
bear the reasonable fees, out-of-pocket costs and expenses of such separate
legal counsel to the Indemnified Party if (and only if): (x) the Company shall
have agreed to pay such fees, out-of-pocket costs and expenses, (y) the
Indemnified Party reasonably shall have concluded that representation of the
Indemnified Party and the Company by the same legal counsel would not be
appropriate due to actual or, as reasonably determined by legal counsel to
the Indemnified Party, potentially differing interests between such parties in
the conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Company, or (z) the Company shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within
a reasonable period of time after notice of the commencement of such Claim.
If the Indemnified Party employs separate legal counsel in circumstances other
than as described in clauses (x), (y) or (z) above, the fees, costs and
expenses of such legal counsel shall be borne exclusively by the Indemnified
Party. Except as provided above, the Company shall not, in connection with
any Claim in the same jurisdiction, be liable for the fees and expenses of
more than one firm of legal counsel for the Indemnified Party (together with
appropriate local counsel). The Company shall not, without the prior written
consent of the Indemnified Party (which consent shall not unreasonably be
withheld), settle or compromise any Claim or consent to the entry of any
judgment that does not include an unconditional release of the Indemnified
Party from all liabilities with respect to such Claim or judgment.
Section 7.4. Direct Claims. In the event an Indemnified party should have
a claim for indemnification that does not involve a claim or demand being
asserted by a third party, the Indemnified Party promptly shall deliver notice
of such claim to the Company. If the Company disputes the claim, such dispute
shall be resolved by mutual agreement of the Indemnified Party and the Company
or by binding arbitration conducted in accordance with the procedures and
rules of the American Arbitration Association as set forth in Article X.
Judgment upon any award rendered by any arbitrators may be entered in any
court having competent jurisdiction thereof.
ARTICLE VIII
Due Diligence Review; Non-Disclosure of Non-Public Information.
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company
shall make available for inspection and review by the Investors, advisors to
and representatives of the Investors (who may or may not be affiliated with
the Investors and who are reasonably acceptable to the Company), any
underwriter participating in any disposition of the Registrable Securities on
behalf of the Investors pursuant to the Registration Statement, any such
registration statement or amendment or supplement thereto or any blue sky,
Nasdaq or other filing, all SEC Documents and other filings with the SEC,
and all other publicly available corporate documents and properties of the
Company as may be reasonably necessary for the purpose of such review, and
cause the Company's officers, directors and employees to supply all such
publicly available information reasonably requested by the Investors or any
such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investors and
such representatives, advisors and underwriters and their respective
accountants and attorneys to conduct initial and ongoing due diligence with
respect to the Company and the accuracy of the amendment to the Registration
Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose material non-public information to the
Investors, advisors to or representatives of the Investors unless prior
to disclosure of such information the Company identifies such information
as being non-public information and provides the Investors, such advisors
and representatives with the opportunity to accept or refuse to accept
such non-public information for review. Other than disclosure of any
comment letters received from the SEC staff with respect to an amendment
to the Registration Statement, the Company may, as a condition to
disclosing any non-public information hereunder, require the Investors'
advisors and representatives to enter into a confidentiality agreement
in form and content reasonably satisfactory to the Company and the
Investors.
(b) Nothing herein shall require the Company to disclose material non-public
information to the Investors or their advisors or representatives, and
the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a
public offering, to money managers or to securities analysts; provided,
however, that notwithstanding anything herein to the contrary, the
Company will, as hereinabove provided, promptly notify the advisors and
representatives of the Investors and, if any, underwriters, of any event
or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware,
constituting material non-public information (whether or not requested
of the Company specifically or generally during the course of due
diligence by such persons or entities), which, if not disclosed in the
prospectus included in the amendment to the Registration Statement would
cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the
statements therein, in light of the circumstances in which they were
made, not misleading. Nothing contained in this Section 8.2 shall be
construed to mean that such persons or entities other than the Investors
(without the written consent of the Investors prior to disclosure of such
information as set forth in Section 8.2(a)) may not obtain non-public
information in the course of conducting due diligence in accordance with
the terms of this Agreement and nothing herein shall prevent any such
persons or entities from notifying the Company of their opinion that
based on such due diligence by such persons or entities, that the
Registration Statement contains an untrue statement of a material fact or
omits a material fact required to be stated in the Registration Statement
or necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading.
ARTICLE IX
Legends; Transfer Agent Instructions
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or
equivalent (the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE
DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH
REGISTRATION.
Section 9.2. Transfer Agent Instructions. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock
(and shall issue to any substitute or replacement transfer agent for its
Common Stock upon the Company's appointment of any such substitute or
replacement transfer agent) Irrevocable Transfer Agent Instructions
substantially in the form of Exhibit F hereto. Such Irrevocable Transfer
Agent Instructions shall be irrevocable by the Company from and after the
date hereof or from and after the issuance thereof to any such substitute or
replacement transfer agent, as the case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in Section 9.1 has been or shall be placed on
the share certificates representing the Registrable Securities and no
instructions or "stop transfer orders," "stock transfer restrictions," or
other restrictions have been or shall be given to the Company's transfer
agent with respect thereto other than as expressly set forth in this Article
IX.
Section 9.4. Investors' Compliance. Nothing in this Article shall affect
in any way each Investor's obligations to comply with all applicable
securities laws upon resale of the Common Stock.
Section 9.5. Transfers without Registration. If an Investor provides the
Company with an opinion of counsel, in generally acceptable form, that
registration of a resale by such Investor of any Securities is not required
under the Securities Act, the Company shall permit the transfer and, in the
case of the Conversion Shares, promptly instruct its transfer agent to issue
one or more certificates in such name and in such denominations as specified
by such Investor and, if such opinion provides that such legends can be
removed, without any restrictive legends.
Section 9.6. Injunctive Relief. The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the Investors
by vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of
its obligations under this Article IX will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of
this Article IX, that the Investors shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic
loss and without any bond or other security being required.
ARTICLE X
Choice of Law; Arbitration
Section 10.1. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws ; provided, however, that the
corporate laws of the State of Delaware shall govern all issues concerning
the relative rights of the Company and its stockholders.
Section 10.2. Arbitration. Any dispute under this Agreement shall be
submitted to arbitration under the rules of the American Arbitration
Association (the "AAA") in New York, New York, and shall be finally and
conclusively determined by the decision of a board of arbitration consisting
of three (3) members (hereinafter referred to as the "Board of Arbitration")
selected according to the rules governing the AAA. The Board of Arbitration
shall meet on consecutive business days in New York, New York, and shall reach
and render a decision in writing (concurred in by a majority of the members of
the Board of Arbitration) with respect to the amount, if any, which the losing
party is required to pay to the other party in respect of a claim filed. In
connection with rendering its decisions, the Board of Arbitration shall adopt
and follow the laws of the State of New York unless the matter at issue is the
corporation law of the company's state of incorporation, in which event the
corporation law of such jurisdiction shall govern such issue. To the extent
practical, decisions of the Board of Arbitration shall be rendered no more
than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision
to be delivered to all parties involved in the dispute. Any decision made by
the Board of Arbitration (either prior to or after the expiration of such
thirty (30) calendar day period) shall be final, binding and conclusive on the
parties to the dispute, and entitled to be enforced to the fullest extent
permitted by law and entered in any court of competent jurisdiction. The Board
of Arbitration shall be authorized and is hereby directed to enter a default
judgment against any party failing to participate in any proceeding hereunder
within the time periods set forth in the AAA rules. The non-prevailing party
to any arbitration (as determined by the Board of Arbitration) shall pay the
expenses of the prevailing party, including reasonable attorneys' fees, in
connection with such arbitration. Any party shall be entitled to obtain
injunctive relief from a court in any case where such relief is available, and
the non-prevailing party to any such injunctive proceeding shall pay the
expenses of the prevailing party, including reasonable attorneys' fees, in
connection with such proceeding.
ARTICLE XI
Assignment
Neither this Agreement nor any rights of the Investors or the Company
hereunder may be assigned by either party to any other person. Notwithstanding
the foregoing, (a) the provisions of this Agreement shall inure to the benefit
of, and be enforceable by, any permitted transferee of any Securities, and
(b) upon the prior written consent of the Company, which consent shall not
unreasonably be withheld or delayed, each Investor's interest in this Agreement
may be assigned at any time, in whole or in part, to any other Person
(including any Affiliate of the Investor) who agrees to make the
representations and warranties contained in Article III and who agrees to be
bound by the terms of this Agreement.
ARTICLE XII
Notices
All notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) hand delivered, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or
(iv) transmitted by facsimile, addressed as set forth below or to such other
address or facsimile number as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted
to be given hereunder shall be deemed effective (a) upon hand delivery or
delivery by facsimile, with accurate confirmation generated by the transmitting
facsimile machine, at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice
is to be received) or (b) on the first business day following the date of
sending by reputable courier service, fully prepaid, addressed to such
address, or (c) upon actual receipt of such mailing, if mailed. The addresses
for such communications shall be:
If to the Company: Ultradata Systems, Inc.
9375 Dielman Industrial Drive
St. Louis, MO 63132
Attn: Mr. Monte Ross
Tel: (314) 997-2250
Fax: (314) 997-1281
with a copy to
(shall not constitute notice): Robert Brantl, Esq.
322 Fourth Street
Brooklyn, New York 11215
Tel: (718) 768-6045
Fax: (718) 965-4042
if to the Investors: As set forth on the signature pages hereto
with a copy to: Eric Honick, Esq.
(shall not constitute notice) Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158-0125
Telephone: (212) 687-3860
Facsimile: (212) 949-7052
e-mail: ehonick@sbklaw.com
Either party hereto may from time to time change its address or facsimile
number for notices under this Article XII by giving written notice of such
changed address or facsimile number to the other party hereto as provided in
this Article XII.
ARTICLE XIII
Miscellaneous
Section 13.1. Counterparts/Facsimile/Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by fewer than
all of the parties and shall be deemed to be an original instrument that shall
be enforceable against the parties actually executing such counterparts and
all of which together shall constitute one and the same instrument. Except
as otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2. Entire Agreement. This Agreement, the other Transaction
Documents, which include, but are not limited to, the Substitute Warrants,
the Escrow Agreement, the Registration Rights Agreement and the Irrevocable
Transfer Agent Instructions, and the Convertible Notes set forth the entire
agreement and understanding of the parties relating to the subject matter
hereof and supersede all prior and contemporaneous agreements, negotiations
and understandings between the parties, both oral and written, relating to
the subject matter hereof. The terms and conditions of all Exhibits to this
Agreement are incorporated herein by this reference and shall constitute part
of this Agreement as is fully set forth herein.
Section 13.3. Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force
and effect without such provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement
to any party.
Section 13.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting
this Agreement.
Section 13.5. Number and Gender. There may be one or more Investors parties
to this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if
there is only one Investor, and all references to an Investor as "it" shall
apply equally to a natural person.
Section 13.6. Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of
the Common Stock on any given Trading Day for the purposes of this Agreement
shall be Bloomberg, L.P. or any successor thereto. If, however, Bloomberg
L.P. does not report trades or bid prices for the Common Stock in the over-
the-counter market, then the reporting entity shall be the National Quotation
Bureau, Inc. The written agreement of the Investors and the Company shall be
required to employ any other reporting entities.
Section 13.7. Replacement of Convertible Notes or Certificates. Upon (i)
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of a Convertible Note or a certificate representing
any Securities and (ii) in the case of any such loss, theft or destruction of
such Convertible Note or certificate, upon delivery of an indemnity agreement
or security reasonably satisfactory in form to the Company (which shall not
include the posting of any bond) or (iii) in the case of any such mutilation,
on surrender and cancellation of such Convertible Note or certificate, the
Company at its expense will execute and deliver, in lieu thereof, a new
Convertible Note or certificate of like tenor.
Section 13.8. Fees and Expenses. Each of the Company and the Investors
agrees to pay its own expenses incident to the performance of its obligations
hereunder.
Section 13.9. Brokerage. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party. The
Company on the one hand, and the Investors, on the other hand, each agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 13.10. Publicity. The Company agrees that it will not issue any
press release or other public announcement of the transactions contemplated
by this Agreement without the prior consent of the Investors, which shall not
be unreasonably withheld nor delayed by more than two (2) Trading Days from
their receipt of such proposed release. No release shall name the Investors
without their express consent.
Section 13.11. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out
the intent and accomplish the purposes of this Agreement and the consummation
of the transactions contemplated hereby.
Section 13.12. Termination. If the Closing shall not have occurred on or
before five (5) business days from the date hereof due to the Company's or an
Investor's failure to satisfy the conditions set forth in Article II above
(and the nonbreaching party's failure to waive such unsatisfied condition(s)),
the nonbreaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party.
Section 13.13. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their
mutual intent, and no rules of strict construction will be applied against
any party.
Section 13.14. Remedies. Each Investor and each holder of Securities shall
have all rights and remedies set forth in this Agreement, the other Transaction
Documents and the Convertible Notes and all rights and remedies which such
holders have been granted at any time under any other agreement or contract
and all of the rights which such holders have under any law. Any person or
entity having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement or the other Transaction Documents and to exercise all other rights
granted by law.
Section 13.15. Payment Set Aside. To the extent that the Company makes a
payment or payments to the Investors hereunder or pursuant to the Convertible
Notes or the Investors enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement
or exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a
trustee, receiver or any other person or entity under any law (including,
without limitation, any bankruptcy law, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not
been made or such enforcement or setoff had not occurred.
Signature Page Follows
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first
set forth above.
Ultradata Systems, Incorporated
By:
Monte Ross
Chief Executive Officer
Address: Investor: BH Capital Investments, L.P.
175 Bloor Street East, 7th Floor By: HB and Co., Inc. its General Partner
Toronto, Ontario Canada M4W 3R8
Fax: 416-929-5314
e-mail: hbrachfeld@ridc.com
Total shares of Series A By:
Stock to be exchanged at Closing: Name: Henry Brachfeld
704 Authorized Signatory
Address: Investor: Excalibur Limited Partnership
33 Prince Arthur Avenue By: Excalibur Capital Management, Inc.
Toronto, Ontario, Canada M5R 1B2 its General Partner
Fax: 416-964-8868
e-mail: willhechter@hotmail.com
Total shares of Series A
Stock to be exchanged at Closing: By:
704 Name: William Hechter
Authorized Signatory
* * * * * * * * * * * * * * * * * *
EXHIBIT 10-b
11.25% SENIOR SUBORDINATED SECURED CONVERTIBLE PROMISSORY NOTE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"). THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED,
RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
[No. ___] [US $___________]
ULTRADATA SYSTEMS, INCORPORATED
11.25% SENIOR SUBORDINATED SECURED CONVERTIBLE PROMISSORY NOTE
THIS PROMISSORY NOTE ("Note") is issued by ULTRADATA SYSTEMS,
INCORPORATED, a Delaware corporation (the "Company"), and is designated as
its 11.25% Senior Subordinated Secured Convertible Promissory Note. This Note
has been issued by the Company pursuant to the terms of an Exchange Agreement,
dated as of August ___, 2001 (the "Exchange Agreement"), between the Company
and certain holders of the Company's Series A Convertible Preferred Stock (the
"Series A Stock"). All 11.25% Senior Subordinated Secured Convertible
Promissory Notes issued by the Company pursuant to the Exchange Agreement are
referred to herein as the "Convertible Notes". Capitalized terms used in this
Note and not otherwise defined herein shall have the meanings ascribed to them
in the Exchange Agreement.
FOR VALUE RECEIVED, the Company promises to pay to the order of __________,
or permitted assigns (the "Holder"), the principal sum of ______________ (US
$__________) Dollars, in equal monthly installments of principal and interest
of Thirty-Five Thousand US Dollars (US$35,000) each on September 1, 2001,
September 7, 2001, and October 1, 2001, and the Company shall pay installments
of Forty-Five Thousand US Dollars (US$45,000) each on the first day of each
month commencing November 1, 2001, until the principal balance of this Note
plus all accrued and unpaid interest and other amounts due hereunder are less
than the amount of such installment, and in one final installment payable on
the first day of the next month thereafter equal to the outstanding principal
balance of this Note, plus all accrued and unpaid interest thereon, plus all
other amounts due hereunder. Interest shall accrue on the principal balance
outstanding from time to time at the rate of 11.25% per annum. In addition,
one installment of interest equal to 10% of the outstanding principal balance
of this Note on June 1, 2002 shall accrue and be payable on June 1, 2002;
provided, however, that if the Company does not pay such installment of
interest on such date, the amount so accrued shall be added to the principal
balance of this Note and interest thereafter shall accrue on the principal
balance as so increased. Except for the installment of interest that will
accrue on June 1, 2002, accrual of interest shall commence on the first day
after the date of initial issuance of this Note (the "Issuance Date") and
continue daily on the basis of a 360-day year until payment in full of the
principal amount of this Note has been made or duly provided for. If any
payment date is not a business day in the State of New York, then such payment
shall be made on the next succeeding business day. The principal amount of
this Note outstanding from time to time (the "Principal Amount") and accrued
interest on this Note is payable in United States dollars by wire transfer of
immediately available funds in such amount in accordance with the Holder's
written wire transfer instructions provided by the Holder to the Company from
time to time or, if no such instructions are provided, by delivery of a bank
check in such amount to the Holder at the address of the Holder appearing on
the Note Register required to be maintained under Section 14 hereof, or at
such other address as designated by the Holder in writing to the Company.
Such cash payments and the issuance of the required number of shares of Common
Stock upon conversion of this Note determined pursuant to the provisions of
Section 3 or Section 4 below shall constitute a payment of principal and
interest hereunder and shall satisfy and discharge the liability for principal
and interest on this Note to the extent of the sum represented by such cash
payment or the equivalent Conversion Amount (as defined in Section 3 below)
of such shares of Common Stock. The Company may prepay all or any part of
the Principal Amount of this Note and accrued and unpaid interest thereon in
cash in increments of not less than $10,000 at any time at an amount equal to
110% of the amount to be prepaid, it being understood that each $11,000 paid
shall be applied to pay $10,000 of principal and accrued and unpaid interest.
The Company shall have the right to apply any amounts so prepaid in cash to
reduce pro tanto any installment of interest and principal subsequently due
after such prepayment by giving written notice thereof by facsimile to the
Holder not later than the business day before the day on which such
installment is due and payable. All payments, whether in cash or by
application of the Conversion Amount to make such payment, shall be applied
first to amounts payable hereunder other than principal or interest, then to
accrued and unpaid interest on the Principal Amount of this Note, and then to
reduce the Principal Amount of this Note. Notwithstanding the Holder's
conversion of any portion of the Principal Amount of this Note, the Company
shall continue to pay the monthly cash installments due hereunder until
payment in full of the entire Principal Amount of this Note.
This Note is subject to the following additional provisions:
1. Withholding and Issuance Taxes. The Company shall be entitled to
withhold from all payments of principal of, and interest on, this Note
any amounts required to be withheld under the applicable provisions of
the United States income tax laws or other applicable laws at the time
of such payments, and Holder shall execute and deliver all required
documentation in connection therewith. The issuance of certificates
for shares of Common Stock upon conversion of this Note shall be made
without charge to the Holder for any United States issuance tax in
respect thereof, provided that the Company shall not be required to
pay any tax that may be payable in respect of any transfer involved in
the issuance and delivery of any certificate in a name other than that
of the Holder of this Note.
2. Transfer of Note. This Note has been issued subject to investment
representations of the original purchaser hereof and may be transferred
or exchanged only in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), and other applicable state and foreign
securities laws. The Holder shall deliver written notice to the Company
of any proposed transfer of this Note. In the event of any proposed
transfer of this Note, the Company may require, prior to issuance of a
new Note in the name of such other person, that it receive reasonable
transfer documentation including legal opinions that the issuance of the
Note in such other name does not and will not cause a violation of the
Securities Act or any applicable state or foreign securities laws.
Prior to due presentment for transfer of this Note, the Company and any
agent of the Company may treat the person in whose name this Note is duly
registered on the Company's Note Register as the owner hereof for the
purpose of receiving payment as herein provided and for all other
purposes, whether or not this Note be overdue, and neither the Company
nor any such agent shall be affected by notice to the contrary.
3. Conversion. The Holder of this Note is entitled, at its option, to
convert at any time, the Principal Amount of this Note or any portion
thereof, together with accrued and unpaid interest on such Principal
Amount, into shares of Common Stock at any time as follows:
(a) Right to Convert.
(i) Subject to the terms, conditions, and restrictions of this
Section 3, at any time after the Issuance Date, the Holder of this
Note shall have the right to convert all or any portion of the
Principal Amount of this Note, together with the accrued and unpaid
interest on such Principal Amount so converted, into that number of
fully paid and nonassessable shares of Common Stock (rounded to the
nearest whole share in accordance with Subsection 3(e)), at the
Conversion Rate (as defined below).
(ii) Anything in Subsection 3(a)(i) to the contrary notwithstanding,
in no event shall any Holder be entitled to convert all or any
portion of the Principal Amount of this Note in excess of that
amount of the Principal Amount of this Note that, upon giving effect
to such conversion, would cause the aggregate number of shares of
Common Stock beneficially owned by the Holder and its "affiliates"
(as defined in Rule 405 under the Securities Act) to exceed 9.99% of
the outstanding shares of the Common Stock following such conversion.
For purposes of this Subsection, the aggregate number of shares of
Common Stock beneficially owned by the Holder and its affiliates
shall include the number of shares of Common Stock issuable upon
conversion of this Note with respect to which the determination is
being made, but shall exclude the number of shares of Common Stock
that would be issuable upon (i) conversion of the remaining,
nonconverted portion of the Principal Amount of this Note
beneficially owned by the Holder and its affiliates and (ii)
exercise or conversion of the unexercised or unconverted portion of
any other securities of the Company (including, without limitation,
any warrants or convertible preferred stock) subject to a limitation
on conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder and its affiliates. Except
as set forth in the preceding sentence, for purposes of this
Subsection 3(a)(ii), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). For purposes of this
Subsection, in determining the number of outstanding shares Common
Stock, the Holder may rely on the number of outstanding shares of
Common Stock as reflected in (1) the Company's most recent Form
10-QSB or Form 10-KSB, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company
or its transfer agent setting forth the number of shares of Common
Stock outstanding. For any reason at any time, upon the written or
oral request of a Holder, the Company shall immediately confirm
orally and in writing to any such Holder the number of shares Common
Stock then outstanding. In any case, the number of outstanding
shares Common Stock shall be determined after giving effect to
conversions of this Note by such Holder since the date as of which
such number of outstanding shares of Common Stock was reported. To
the extent that the limitation contained in this Subsection 3(a)
(ii) applies, the determination of whether such portion of the
Principal Amount of this Note is convertible (in relation to other
securities owned by a Holder) and of what portion of the Principal
Amount of this Note is convertible shall be in the sole discretion
of such Holder, and the submission of this Note for conversion shall
be deemed to be such Holder's determination of whether such portion
of the Principal Amount of this Note is convertible (in relation to
other securities owned by such Holder) and of what portion of this
Note is convertible, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation or
right to verify or confirm the accuracy of such determination.
Nothing contained herein shall be deemed to restrict the right of a
Holder to convert such portion of the Principal Amount of this Note
at such time as such conversion will not violate the provisions of
this Subsection. A Holder of this Note may waive the provisions of
this Subsection 3(a)(ii) as to itself (and solely as to itself)
upon not less than 75 days' prior notice to the Company, and the
provisions of this Subsection 3(a)(ii) shall continue to apply until
such 75th day (or such later date as may be specified in such notice
of waiver). No conversion in violation of this Subsection 3(a)(ii),
but otherwise in accordance with this Note, shall affect the status
of the Common Stock issued upon such conversion as validly issued,
fully-paid and nonassessable. Subsection 3(i) below set forth
additional limitations on the Company's obligation to issue shares
of Common Stock upon conversion of this Note.
(b) Conversion Rate and Other Definitions. The number of shares of
Common Stock issuable upon conversion of all or any portion of the
Principal Amount of this Note pursuant to Subsection (3)(a) shall be
determined according to the following formula (the "Conversion Rate"):
Conversion Amount
Conversion Price
For purposes of this Note, the following terms shall have the following
meanings:
"Base Price" means, with respect to any portion of this Note, $3.50,
as adjusted from time to time in accordance with Section 3(f) below.
"Closing Bid Price" or "Closing Ask Price" means, for any security
as of any date, the last closing bid or ask price, as the case may
be, for such security on the Principal Market as reported by
Bloomberg Financial Markets ("Bloomberg"), or, if the Principal
Market is not the principal securities exchange or trading market
for such security, the last closing bid or ask price of such
security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last closing bid or ask price
of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if
no closing bid or ask price is reported for such security by
Bloomberg, the last closing trade price of such security as
reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid
or ask prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price or Closing Ask Price cannot be calculated for
such security on such date on any of the foregoing bases, the
Closing Bid Price or Closing Ask Price of such security on such
date shall be the fair market value as mutually determined by the
Company and the holders of a majority of the currently outstanding
Principal Amount of all Convertible Notes. If the Company and the
Holders of the Convertible Notes are unable to agree upon the fair
market value of the Common Stock, then such dispute shall be
resolved pursuant to Subsection 3(h). (All such determinations to
be appropriately adjusted for any stock dividend, stock, split or
other similar transaction during such period).
"Conversion Amount" means the amount of interest accrued on the
outstanding Principal Amount of this Note plus any portion of the
outstanding Principal Amount being converted as specified in a
Conversion Notice (as defined in Subsection 3(c)).
"Conversion Price" means, as of any Conversion Date or other date
of determination, the lower of the (x) Base Price, and (y) 70% of
the average of the Closing Bid Prices in the five (5) Trading Days
immediately preceding such Conversion Date or 75% of such average
at any time hereafter when the Common Stock is listed on the Nasdaq
Stock Market.
"Principal Market" means the over-the-counter market.
"Registration Rights Agreement" means that certain registration
rights agreement between the Company and the initial holders of the
Convertible Notes concerning the registration of the resale of the
shares of Common Stock issuable upon conversion of such Convertible
Notes.
"Trading Day" means any day during which the Principal Market shall
be open for business.
(c) Conversion Notice. The Holder of this Note may exercise its
conversion right by giving a written conversion notice in the form of
Exhibit A hereto (the "Conversion Notice") (x) by facsimile to the
Company confirmed by a telephone call or (y) by registered mail or
overnight delivery service, with a copy by facsimile to the Company's
transfer agent for its Common Stock, as designated by the Company from
time to time (the "Transfer Agent") and to its counsel, as designated
by the Company from time to time. If such conversion will result in
the conversion of all of all remaining amounts due under this Note,
the Holder shall also surrender this Note to the Company at its
principal office (or such other office or agency of the Company may
designate by notice in writing to the Holder) at any time during its
usual business hours on the date set forth in the Conversion Notice.
(d) Issuance of Certificates; Time Conversion Effected.
(i) Promptly, but in no event more than three (3) Trading Days,
after the receipt of the Conversion Notice referred to in
Subsection 3(c) and surrender of this Note (if required), the
Company shall issue and deliver, or the Company shall cause to be
issued and delivered, to the Holder, registered in such name or
names as the Holder may direct, a certificate or certificates for
the number of whole shares of Common Stock into which this Note
has been converted. In the alternative, if the Company's Transfer
Agent is a participant in the electronic book transfer program, the
Transfer Agent shall credit such aggregate number of shares of
Common Stock to which the Holder shall be entitled to the Holder's
or its designee's balance account with The Depository Trust Company.
Such conversion shall be deemed to have been effected, and the
Conversion Date shall be deemed to have occurred, on the date on
which such Conversion Notice shall have been received by the Company
and at the time specified stated in such Conversion Notice, which
must be during the calendar day of such notice. The rights of the
Holder of this Note shall cease, and the person or persons in whose
name or names any certificate or certificates for shares of Common
Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented
thereby, on the Conversion Date. Issuance of shares of Common Stock
issuable upon conversion that are requested to be registered in a
name other than that of the registered Holder shall be subject to
compliance with all applicable federal and state securities laws.
(ii) The Company understands that a delay in the issuance of the
shares of Common Stock beyond three (3) Trading Days after the
Conversion Date could result in economic loss to the Holder of this
Note. As compensation to the Holder for such loss, the Company
agrees to pay late payments to the Holder for late issuance of shares
of Common Stock upon conversion in accordance with the following
schedule (where "No. Trading Days Late" means the number of Trading
Days after three (3) Trading Days from the date of receipt by the
Company of the Conversion Notice with electronic book entry transfer
instructions if the Company's Transfer Agent participates in the DWAC
System of the Depository Trust Company, or without electronic book
entry transfer instructions if the Company's Transfer Agent does not
participate in such DWAC System) to and including the date of the
Holder's or its designees' receipt of such shares):
No. Trading Days Late Late Payment For Each $5,000 of
Conversion Amount of Principal
Amount Being Converted
---------------------------------------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $100 for each
Trading Day
late after 10
Calendar Days
The Company shall make all payments due under this Subsection
3(d)(ii) in immediately available funds upon demand. Nothing
herein shall limit the Holder's right to pursue injunctive relief
and/or actual damages for the Company's failure to issue and
deliver Common Stock to the Holder as required by Subsection
3(d)(i), including, without limitation, the Holder's actual losses
occasioned by any "buy-in" of Common Stock necessitated by such
late delivery. Furthermore, in addition to any other remedies that
may be available to the Holder, if the Company fails for any reason
to effect delivery of such shares of Common Stock within five (5)
Trading Days after the Conversion Date, the Holder will be entitled
to revoke the relevant Conversion Notice by delivering a notice to
such effect to the Company. Upon delivery of such notice of
revocation, the Company and the Holder shall each be restored to
their respective positions immediately prior to delivery of such
Conversion Notice, except that the Holder shall retain the right
to receive both the late payment amounts set forth above plus the
actual cost of any "buy-in."
(iii) If, at any time (a) the Company challenges, disputes or denies
the right of the Holder to effect the conversion of this Note into
Common Stock or otherwise dishonors or rejects, or causes the
Transfer Agent to dishonor or reject, any Conversion Notice properly
delivered in accordance with this Section 3 or (b) any third party
who is not and has never been an affiliate of the Holder obtains a
judgment or order from any court or public or governmental authority
that denies, enjoins, limits, modifies, or delays the right of the
Holder to effect the conversion of this Note into Common Stock, then
the Holder shall have the right, by written notice to the Company,
to require the Company to promptly redeem this Note in accordance
with Section 4. Under any of the circumstances set forth above, the
Company shall indemnify the Holder against and hold it harmless from,
and be responsible for the payment of, all costs and expenses of the
Holder, including its reasonable legal fees and expenses, as and when
incurred in disputing any such action or pursuing its rights
hereunder (in addition to any other rights of the Holder). The
Company shall not refuse to honor, or cause the Transfer Agent to
refuse to honor, any Conversion Notice unless the Company or the
Transfer Agent, as the case may be, has actually been enjoined by a
court of competent jurisdiction from doing so, and if so enjoined,
the Company shall post with such court a performance bond equal to
150% of the Conversion Amount of this Note sought to be converted by
the Holder that are the subject of such injunction.
(iv) The Holder of this Note shall be entitled to exercise its
conversion privilege notwithstanding the commencement of any case
under 11 U.S.C. Sec 101 et seq. (the "Bankruptcy Code"). The Company
hereby waives to the fullest extent permitted any rights to relief it
may have under 11 U.S.C. Sec 362 in respect of the Holder's
conversion privilege, if the Company becomes a debtor under the
Bankruptcy Code. The Company agrees to take or consent to any
and all action necessary to effectuate relief under 11 U.S.C.
Sec 362 without cost or expense to the Holder.
(e) Fractional Shares. The Company shall not, nor shall it cause the
Transfer Agent to, issue any fraction of a share of Common Stock
upon any conversion. All shares of Common Stock (including
fractions thereof) issuable upon conversion of any portion of
the Principal Amount of this Note by the Holder shall be aggregated
for purposes of determining whether the conversion would result in
the issuance of a fraction of a share of Common Stock. If, after
such aggregation, the issuance would result in the issuance of a
fraction of a share of Common Stock, the Company shall round, or
cause the Transfer Agent to round, such fraction of a share of
Common Stock up to the nearest whole share.
(f) Adjustment to Conversion Price; Dilution and Other Events. In
order to prevent dilution of the rights granted under this Note,
the Conversion Price will be subject to adjustment from time to
time as provided in this Subsection 3(f).
(i) Adjustment of Base Price upon Issuance of Common Stock. If the
Company issues or sells, or is deemed to have issued or sold, any
shares of Common Stock (other than Conversion Shares (as defined in
the Exchange Agreement) and shares of Common Stock deemed to have
been issued by the Company in connection with Approved Issuances
(as defined below)) for a consideration per share less than the
Base Price (an "Offering") as in effect immediately prior to such
time (the "Applicable Price"), then immediately after such issue or
sale, the Base Price shall be reduced to an amount equal to (x) the
product of the Base Price in effect immediately prior to such issue
or sale and (y) the quotient determined by dividing (1) the sum of
(I) the product of the Applicable Price and the number of shares of
Common Stock Deemed Outstanding (as defined below) immediately prior
to such issue or sale, and (II) the consideration, if any, received
by the Company upon such issue or sale by (2) the product of (I) the
Applicable Price and (II) the number of shares of Common Stock
Deemed Outstanding immediately after such issuance or sale. For
purposes of determining the adjusted Base Price under this
Subsection 3(f)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any manner grants any
rights or options to subscribe for or to purchase Common Stock
(other than in connection with an Approved Issuance or upon
conversion of this Note) or any stock or other securities
convertible into or exchangeable for Common Stock (such rights
or options being herein called "Options" and such convertible or
exchangeable stock or securities being herein called "Convertible
Securities") and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon conversion
or exchange of such Convertible Securities is less than the
Applicable Price, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or
upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such
Options shall be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For
purposes of this Subsection 3(f)(i)(A), the "price per share
for which Common Stock is issuable upon exercise of such
Options or upon conversion or exchange of such Convertible
Securities" is determined by dividing (I) the total amount, if
any, received or receivable by the Company as consideration
for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon
the exercise of all such Options, plus in the case of such
Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable
to the Company upon the issuance or sale of such Convertible
Securities and the conversion or exchange thereof, by (II) the
total maximum number of shares of Common Stock issuable upon
exercise of such Options or upon the conversion or exchange of
all such Convertible Securities issuable upon the exercise of
such Options. No adjustment of the Base Price shall be made
upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or
upon the actual issuance of such Common Stock upon conversion
or exchange of such Convertible Securities. Notwithstanding
the foregoing, no adjustment shall be made pursuant to this
Subsection 3(f)(i)(A) to the extent that such adjustment is
based solely on the fact that the Convertible Securities
issuable upon exercise of such Option are convertible into or
exchangeable for Common Stock at a price that varies with the
market price of the Common Stock.
(B) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the price
per share for which Common Stock is issuable upon such conversion
or exchange is less than the Applicable Price, then the maximum
number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company for
such price per share. For the purposes of this Subsection
3(f)(i)(B), the "price per share for which Common Stock is
issuable upon such conversion or exchange" is determined by
dividing (I) the total amount received or receivable by the
Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon
the conversion or exchange thereof, by (II) the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No adjustment
of the Base Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which
adjustment of the Base Price had been or are to be made
pursuant to other provisions of this Subsection 3(f)(i), no
further adjustment of the Base Price shall be made by reason
of such issue or sale. Notwithstanding the foregoing, no
adjustment shall be made pursuant to this Subsection 3(f)(i)(B)
to the extent that such adjustment is based solely on the fact
that such Convertible Securities are convertible into or
exchangeable for Common Stock at a price that varies with the
market price of the Common Stock.
(C) Change in Option Price or Rate of Conversion. If the purchase
price provided for in any Options, the additional consideration,
if any, payable upon the issue, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock
change at any time, the Base Price in effect at the time of such
exchange shall be readjusted to the Base Price that would have
been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase
price, additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold;
provided that no adjustment shall be made if such adjustment
would result in an increase of the Base Price then in effect.
(D) Certain Definitions. For purposes of determining the adjusted
Base Price under this Subsection 3(f)(i), the following terms
have meanings set forth below:
(I) "Approved Issuances" shall mean (i) the issuance of
securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the
date hereof, or (ii) the grant of additional options or warrants,
or the issuance of additional securities, under any Company
stock option plan, restricted stock plan, stock purchase plan
or other plan or written compensation contract for the benefit
of the Company's employees, directors or consultants in effect
on the date hereof.
(II) "Common Stock Deemed Outstanding" means, at any given time,
the number of shares of Common Stock actually outstanding at
such time, plus the number of shares of Common Stock deemed to
be outstanding pursuant to Subsections 3(f)(i)(A) and 3(f)(i)(B)
hereof regardless of whether the Options or Convertible
Securities are actually exercisable at such time, but excluding
any shares of Common Stock issuable upon conversion of the
Convertible Notes.
(E) Effect on Base Price of Certain Events. For purposes of
determining the adjusted Base Price under this Section 3(f),
the following shall be applicable:
(I) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed
to have been issued or sold for cash, the consideration received
therefor will be deemed to be the amount received by the Company
therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable
expenses paid or incurred by the Company in connection with
such issuance or sale. In case any Common Stock, Options or
Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash
received by the Company will be the fair value of such
consideration, except where such consideration consists of
securities, in which case the amount of consideration received
by the Company will be the arithmetic average of the Closing
Bid Prices of such security for the five consecutive Trading
Days immediately preceding the date of receipt. In case any
Common Stock, Options or Convertible Securities are issued to
the owners of the non-surviving entity in connection with any
merger in which the Company is the surviving entity the amount
of consideration therefor will be deemed to be the fair value
of such portion of the net assets and business of the non-
surviving entity as is attributable to such Common Stock,
Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities
will be determined jointly by the Company and the holders
constituting more than sixty-six and two-thirds percent
(66-2/3%) of the Principal Amount of all Convertible Notes
then outstanding. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such
consideration will be determined within forty-eight (48) hours
of the tenth (10th) day following the Valuation Event by an
independent, reputable appraiser selected by the Company. The
determination of such appraiser shall be deemed binding upon
all parties absent manifest error.
(II) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in
which no specific consideration is allocated to such Options
by the parties thereto, the Options will be deemed to have
been issued for a consideration of $0.01.
(III) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or
held by or for the account of the Company, and the disposition of
any shares so owned or held will be considered an issue or sale
of Common Stock.
(IV) Record Date. If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (1) to receive
a dividend or other distribution payable in Common Stock, Options
or Convertible Securities or (2) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record
date will be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ii) Adjustment of Base Price upon Subdivision or Combination of
Common Stock. If the Company at any time subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater
number of shares, the Base Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any
time combines (by combination, reverse stock split or otherwise) one
or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Base Price in effect immediately
prior to such combination will be proportionately increased.
(iii) Adjustment of Variable Conversion Price upon Issuance of
Convertible Securities. If the Company in any manner issues or
sells Convertible Securities that are convertible into Common Stock
at a price that varies with the market price of the Common Stock
(the formulation for such variable price being herein referred to
as, the "Variable Price") and such Variable Price is not calculated
using the same formula used to calculate the Variable Conversion
Price in effect immediately prior to the time of such issue or
sale, the Company shall provide written notice thereof via facsimile
and overnight courier to the Holder of this Note ("Variable Notice")
on the date of issuance of such Convertible Securities. If the
Holder of this Note provides written notice via facsimile and
overnight courier (the "Variable Price Election Notice") to the
Company within five (5) business days of receiving a Variable
Notice that the Holder desires to replace the Conversion Price
then in effect with the Variable Price described in such Variable
Notice, then from and after the date of the Company's receipt of
the Variable Price Election Notice, the Conversion Price will
automatically be replaced with the Variable Price (together with
such modifications to this Note as may be required to give full
effect to the substitution of the Variable Price for the Variable
Conversion Price). The Holder's delivery of a Variable Price
Election Notice shall serve as the consent required to amend this
Note. In the event that the Holder delivers a Conversion Notice
at any time after the Company's issuance of Convertible Securities
with a Variable Price but before the Holder's receipt of the
Company's Variable Notice, then such Holder shall have the option
by written notice to the Company to rescind such Conversion Notice
or to have the Conversion Price be equal to such Variable Price for
the conversion effected by such Conversion Notice.
(iv) Reorganization, Reclassification, Consolidation, Merger or Sale.
Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the
Company's assets to another Person (as defined below) or other
transaction which is effected in such a way that holders of Common
Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic
Change." Prior to the consummation of any Organic Change, the
Company will make appropriate provision (in form and substance
reasonably satisfactory to the Holder) to insure that the Holder
will thereafter have the right to acquire and receive in lieu of
or in addition to (as the case may be) the shares of Common Stock
otherwise acquirable and receivable upon the conversion of this
Note, such shares of stock, securities or assets as would have been
issued or payable in such Organic Change with respect to or in
exchange for the number of shares of Common Stock that would have
been acquirable and receivable had this Note been converted into
shares of Common Stock immediately prior to such Organic Change
(without taking into account any limitations or restrictions on
the timing or amount of conversions). In any such case, the
Company will make appropriate provision (in form and substance
reasonably satisfactory to the Holder) with respect to the Holder's
rights and interests to insure that the provisions of this Section
3(f) will thereafter be applicable to this Note (including, in the
case of any such consolidation, merger or sale in which the
successor entity or purchasing entity is other than the Company,
an immediate adjustment of the Base Price in accordance with
Subsection 3(f)(i) using the value for the Common Stock reflected
by the terms of such consolidation, merger or sale, if the value
so reflected is less than the Base Price in effect immediately
prior to such consolidation, merger or sale). The Company will
not effect any such consolidation, merger or sale, unless prior
to the consummation thereof, the successor entity (if other than
the Company) resulting from consolidation or merger or the entity
purchasing such assets assumes, by written instrument (in form and
substance reasonably satisfactory to the holders of a more than
sixty-six and two-thirds percent (66-2/3%) of Principal Amount of
the Convertible Notes then outstanding), the obligation to deliver
to each holder of Convertible Notes such shares of stock, securities
or assets as, in accordance with the foregoing provisions, such
holder may be entitled to acquire. "Person" shall mean an
individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and
a government or any department or agency thereof.
(v) Certain Events. If any event occurs of the type contemplated by
the provisions of this Subsection 3(f) but not expressly provided
for by such provisions (including, without limitation, the granting
of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Company's Board of Directors will
make an appropriate adjustment in the Conversion Price so as to
protect the rights of the Holder of this Convertible Note and the
other holders of Convertible Notes; provided, however, that no such
adjustment will increase the Conversion Price as otherwise determined
pursuant to this Section 3(f).
(g) Intentionally Omitted.
(h) Dispute Resolution. In the case of a dispute as to the determination
of the Closing Ask Price or Closing Bid Price of any security or the
arithmetic calculation of the Conversion Rate, the Company shall,
or shall cause the Transfer Agent to, promptly issue to the Holder
the number of shares of Common Stock that is not disputed and shall
submit the disputed determinations or arithmetic calculations to
the Holder via facsimile within one (1) business day of receipt of
the Holder's Conversion Notice. If the Holder and the Company are
unable to agree upon the determination of such Closing Ask Price
or Closing Bid Price, as the case may be, or arithmetic calculation
of the Conversion Rate within one (1) business day of such disputed
determination or arithmetic calculation being submitted to the
Holder, then the Company shall within one (1) business day following
such date of delivery submit via facsimile (A) the disputed
determination of the Closing Ask Price or Closing Bid Price, as the
case may be, to an independent, reputable investment bank or (B)
the disputed arithmetic calculation of the Conversion Rate to its
independent certified public accounting firm. The Company shall
cause the investment bank or the accounting firm, as the case may
be, to perform the determinations or calculations and notify the
Company and the Holder of the results no later than forty-eight
(48) hours from the time it receives the disputed determinations
or calculations. Such investment bank's or accounting firm's
determination or calculation, as the case may be, shall be binding
upon all parties absent manifest error.
(i) Conversion Cap. Except as otherwise provided herein, the
Company shall not be required to issue any shares of Common Stock
upon conversion of the Convertible Notes in any rolling 90-calendar
day period, collectively and in the aggregate, in excess of 20%
of the cumulative trading volume of the Corporation's Common Stock
for the sixty-six (66) Trading Days prior to and including the date
of conversion as reported by Bloomberg (the "Conversion Cap"). The
Holder shall not be issued, upon conversion of its Note, shares of
Common Stock in an amount greater than the product of (x) the
Conversion Cap amount multiplied by (y) a fraction, the numerator
of which is the Principal Amount of this Note and the denominator
of which is the aggregate Principal Amount of all Convertible Notes
issued to the holders thereof pursuant to the Exchange Agreement
(the "90-Day Cap Allocation Amount"). In the event that the Holder
shall sell or otherwise transfer this Note, or any interest therein,
the transferee shall be allocated a pro rata portion of such
Holder's 90-Day Cap Allocation Amount. In the event that the Holder
shall convert the entire Principal Amount of this Note into a number
of shares of Common Stock that, in the aggregate, is less than such
holder's 90-Day Cap Allocation Amount, then the difference between
such holder's 90-Day Cap Allocation Amount and the number of shares
of Common Stock actually issued to such Holder shall be allocated
to the respective 90-Day Cap Allocation Amounts of the remaining
holders of the Convertible Notes on a pro rata basis in proportion
to the Principal Amount of Convertible Notes then held by each
such holder.
4. Redemption of this Note.
(a) Intentionally Omitted.
(b) Mandatory Redemption.
(i) Holder's Option if Company Cannot Fully Convert or Holder Cannot
Sell Without Restriction. If upon the Company's receipt of a
Conversion Notice, the Company fails to issue shares of Common Stock
as contemplated by Subsection 3(d)(iii) or cannot issue shares of
Common Stock registered for resale under the registration statement
required to be filed under the Registration Rights Agreement with
respect to the shares of Common Stock issuable upon conversion of
this Note (the "Registration Statement") (or which are exempt
from the registration requirements under the Securities Act
pursuant to Rule 144(k) under the Securities Act) for any reason,
including, without limitation, because the Company (x) does not
have a sufficient number of shares of Common Stock authorized and
available, (y) is otherwise prohibited by applicable law or by the
rules or regulations of any stock exchange, interdealer quotation
system or other self-regulatory organization with jurisdiction over
the Company or its securities, including without limitation the
Exchange Cap, from issuing all of the Common Stock that is to be
issued to the Holder of this Note pursuant to a Conversion Notice
or (z) fails to have a sufficient number of shares of Common Stock
registered for resale under the Registration Statement, then (A)
the Company shall, or shall cause the Transfer Agent to, issue as
many shares of Common Stock as it is able to issue in accordance
with such holder's Conversion Notice (if the Holder shall have
given such a Conversion Notice) and pursuant to Section 3(d), and
(B) with respect to all or any part of the unconverted Principal
Amount of this Note plus accrued and unpaid interest thereon, the
Holder, solely at such Holder's option, can elect to:
(A) require the Company to redeem from such Holder all or any part
of its remaining Principal Amount of this Note plus accrued
and unpaid interest thereon ("Redemption") at an amount equal
to the greater of (I) the sum of: (a) 100% of such Principal
Amount plus (b) the accrued and unpaid interest thereon or
(II) the product of (a) the Conversion Rate on the date of
such Holder's delivery of an Election Response Notice (as
defined below) and (b) the greater of (i) the 5 day average
Closing Ask Price of the Common Stock on the Trading Day
immediately preceding the event giving rise to Redemption or
(ii) the Closing Ask Price of the Common Stock on the date of
the Holder's delivery to the Company of an Election Response
Notice or a Notice of Redemption (as such terms are defined
below) or, if such date of delivery is not a Trading Day,
the next date on which the exchange or market on which the
Common Stock is traded is open (the "Redemption Price");
(B) if the Company's inability to fully convert this Note is
pursuant to clause (z) above of this Subsection 4(b)(i), require
the Company to, or cause the Transfer Agent to, issue restricted
shares of Common Stock in accordance with such Holder's
Conversion Notice and pursuant to Section 3(d);
(C) void its Conversion Notice and retain the Principal Amount of
this Note plus accrued and unpaid interest thereon that was to be
converted pursuant to such Holder's Conversion Notice (provided
that the Holder's voiding its Conversion Notice shall not affect
the Company's obligations to make any payments which have
accrued prior to the date of such notice); or
(D) if the Company's inability to fully convert this Note is
pursuant to clause (y) above of this Subsection 4(b)(i),
require the Company to, or cause the Transfer Agent to, issue
shares of Common Stock in accordance with such Holder's
Conversion Notice and pursuant to Section 4(d) at a Conversion
Price equal to the average of the Closing Bid Prices of the
Common Stock for the five consecutive trading days preceding
such Holder's Election Response Notice or such other market
price that satisfies the applicable exchange or trading market.
(ii) Mechanics of Fulfilling Holder's Election. The Company shall
within one (1) business day send via facsimile to the Holder of
this Note, upon receipt of a facsimile copy of a Conversion Notice
from such Holder that cannot be fully satisfied as described in
Subsection 3(a), a notice of the Company's inability to fully
satisfy such Holder's Conversion Notice (the "Inability to Fully
Convert Notice"). Such Inability to Fully Convert Notice shall
indicate (i) the reason why the Company is unable to fully satisfy
such Holder's Conversion Notice, (ii) the Principal Amount of this
Note plus accrued and unpaid interest thereon that cannot be
converted and (iii) the applicable Redemption Price. The Holder
shall notify the Company of its election pursuant to Subsection
4(b)(i) above by delivering written notice via facsimile to the
Company ("Election Response Notice").
(iii) Holder's Option upon Company Defaults. If a Registration
Default (as defined in the Registration Rights Agreement) shall
have occurred and be continuing, an Event of Default under this
Note or the Security Agreement shall have occurred and be
continuing, or the Company shall have defaulted in the payment
of any Funded Debt (as hereinafter defined) for a period in
excess of any cure period thereunder (regardless of whether the
creditor of such Funded Debt shall have declared a default), then
with respect to all or any part of the unconverted Principal Amount
of this Note plus accrued and unpaid interest thereon, the Holder,
solely at such Holder's option, can demand Redemption at the
Redemption Price; provided, however, that in the event of a
Redemption after the occurrence of a Registration Default, the
Company shall be required to redeem not more than the maximum
amount of accrued interest on the Principal Amount of this plus
any of such Principal Amount that the Holder could have converted
into Common Stock due to the restriction imposed by Subsection 3(i);
and provided, further, that the Holder shall have no right to demand
Redemption upon the occurrence and continuance of a default in the
payment of any Funded Debt in the amount of $10,000 or less
individually or in the aggregate. A Holder may demand Redemption
as provided in this Subsection 4(b)(iii) by giving a written notice
(a "Redemption Notice") by facsimile to the Company at any time
after the occurrence and during the continuance of a default that
would permit a Holder to demand Redemption hereunder. For purposes
hereof, "Funded Debt" means all (a) indebtedness for borrowed money
or for the deferred purchase price of property or services (other
than trade liabilities and accrued expenses incurred in the ordinary
course of business and payable in accordance with customary
practices), whether on open account or evidenced by a note, bond,
debenture or similar instrument or otherwise, (b) obligations under
capital leases, (c) reimbursement obligations for letters of credit,
banker's acceptances or other credit accommodations, (d) contingent
obligations and (e) obligations secured by any lien on the Company's
property, even if the Company has not assumed such obligations.
(iv) Payment of Redemption Price. If the Holder shall elect to
have this Note redeemed pursuant to Subsection 4(b)(i)(A) or
Subsection 4(b)(iii), the Company shall pay the Redemption Price
to such Holder in cash by wire transfer of immediately available
funds in accordance with such Holder's written wire transfer
instructions within five (5) days after the Company's receipt of
the Holder's Election Response Notice or Redemption Notice, as the
case may be. If the Company shall fail to pay the applicable
Redemption Price to such Holder within such five (5) day period
(other than pursuant to a dispute as to the determination of the
arithmetic calculation of the Redemption Price), in addition to
any remedy the Holder of this Note may have hereunder, or under
the Exchange Agreement, the Registration Rights Agreement, or the
Security Agreement, such unpaid amount shall bear interest at the
rate of 3.0% per month (prorated for partial months) until paid in
full. Until the Redemption Price is paid in full to such Holder,
such Holder may void the Redemption with respect to the portion of
the Principal Amount of this Note plus accrued and unpaid interest
thereon for which the full Redemption Price has not been paid and
receive back a Note representing such Principal Amount.
Notwithstanding the foregoing, if the Company fails to pay the
applicable Redemption Price within such period of five (5) days
due to a dispute as to the determination of the Redemption Price,
such dispute shall be resolved pursuant to Section 3(h) with the
term "Redemption Price" being substituted for the term "Conversion
Rate".
(v) Pro-rata Conversion and Redemption. If the Company or the
Transfer Agent receives a Conversion Notice or Election Response
Notice or a Redemption Notice electing Redemption from more than
one holder of Convertible Notes on the same day, and the Company
can convert and/or redeem some, but not all, of such Convertible
Notes pursuant to this Section 4, the Company shall convert and/or
redeem from each holder of Convertible Notes electing to have its
Convertible Notes converted and redeemed at such time an amount
equal to such holder's pro-rata amount (based on the Principal
Amount of Convertible Notes held by such holder relative to the
Principal Amount of all Convertible Notes sought to be converted)
of all Convertible Notes being converted and redeemed at such time.
5. Notices. In case at any time:
(a) The Company shall declare any dividend upon its Common Stock payable
in cash or stock or make any other pro rata distribution to the
holders of its Common Stock; or
(b) the Company shall offer for subscription pro rata to the holders of
its Common Stock any additional shares of stock of any class or
other rights; or
(c) there shall be any Organic Change;
then, in any one or more of such cases, the Company shall give, by
first class mail, postage prepaid, or by facsimile or by recognized
overnight delivery service to non-U.S. residents, addressed to the
Holder of this Note at the address of such Holder as shown on the
books of the Company, (i) at least twenty (20) Trading Days' prior
written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of
any such Organic Change and (ii) in the case of any such Organic Change,
at least twenty (20) Trading Days' prior written notice of the date
when the same shall take place. Such notice in accordance with the
foregoing clause (i) shall also specify, in the case of any such
dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and such notice in
accordance with clause (ii) shall also specify the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock
for securities or other property deliverable upon such Organic Change.
6. Stock to be Reserved. The Company has a sufficient number of shares of
Common Stock available to reserve for issuance upon the conversion of all
outstanding Convertible Notes, assuming immediate conversion. The Company
will at all times reserve and keep available out of its authorized Common
Stock, solely for the purpose of issuance upon the conversion of all of
its Convertible Notes as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of all Notes. The
Company covenants that all shares of Common Stock that shall be so
issued shall be duly and validly issued, fully paid and non-assessable.
The Company will take all such action as may be so taken without
violation of any applicable law or regulation to have a sufficient
number of authorized but unissued shares of Common Stock to issue upon
conversion of all Convertible Notes. The Company will not take any
action that results in any adjustment of the conversion rights if the
total number of shares of Common Stock issued and issuable after such
action upon conversion of the this Note would exceed the total number
of shares of Common Stock then authorized by the Company's Certificate
of Incorporation.
7. Default and Remedies.
(a) Event of Default. Each of the following shall constitute an
"Event of Default":
(i) the Company shall default (A) in the payment of the installment
of principal and interest due on September 7, 2001, or (B) in the
payment of any other installment of principal or interest due on
this Note and the default in the payment of such other installment
shall continue for a period of thirty (30) days; or
(ii) any of the representations or warranties made by the Company
herein, in the Exchange Agreement, the Registration Rights
Agreement, the Security Agreement or in any agreement, certificate
or financial or other written statements heretofore or hereafter
furnished by the Company in connection with the execution and
delivery of this Note or the Exchange Agreement shall be false or
misleading in any material respect at the time made; or
(iii) a default or an event of default shall have occurred and be
continuing with respect to any Funded Debt in excess of $10,000 in
the aggregate; or
(iv) the Company shall (A) admit in writing its inability to pay
its debts generally as they mature; (B) make an assignment for the
benefit of creditors or commence proceedings for its dissolution;
or (C) apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial part of its
property or business; or
(v) a trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty (60)
days after such appointment; or
(vi) any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties
or assets of the Company and shall not be dismissed within sixty
(60) days thereafter; or
(vii) any money judgment, writ or warrant of attachment, or similar
process in excess of One Hundred Thousand ($100,000) Dollars in
the aggregate shall be entered or filed against the Company or any
of its properties or other assets and shall remain unpaid,
unvacated, unbonded or unstayed for a period of sixty (60) days
or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
(viii) bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy
law or any law for the relief of debtors shall be instituted by or
against the Company and, if instituted against the Company, shall
not be dismissed within sixty (60) days after such institution or
the Company shall by any action or answer approve of, consent to,
or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any
such proceeding; or
(ix) termination of Monte Ross as Chairman of the Company (including
a change or diminution of his duties as such), whether by
resignation, termination, death, disability or otherwise, unless
the Holder shall have consented to such termination, except for a
termination in connection with a "Change of Control" (as defined on
Exhibit B hereto) of the Company; or
(x) the occurrence of any event that would result in a Material
Adverse Effect with respect to the Company; or
(xi) the Company's Common Stock ceases to be traded in the United
States over-the-counter market or on a national securities exchange
in the United States; or
(xii) the Common Stock ceases to be registered under the Exchange
Act.
(b) Remedies. Upon the occurrence and during the continuance of any
Event of Default, subject to the prior rights of the Senior Debt
(as defined in Section 16), the Holder may declare this Note
immediately due and payable, without presentment, demand, protest
or notice of any kind, all of which are hereby expressly waived,
anything herein or in any note or other instruments contained to
the contrary notwithstanding, and the Holder may immediately enforce
any and all of the Holder's rights and remedies provided herein or
in the Security Agreement or any other rights or remedies afforded
by law. Such payment shall be made within three (3) Trading Days
of such demand, and if not paid within such period, the Company
shall pay the holder liquidated damages of three percent (3%) per
month of such amount until paid, pro-rated for any partial months.
The Holder's rights under this Subsection 7(b) shall be in addition
to, and not in lieu of, the Holder's right to demand Redemption
pursuant to Section 4 hereof or to exercise any other rights or
remedies as contemplated by Section 15 hereof.
8. Payment Obligation Unconditional. No provision of this Note shall alter
or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, and interest on, this Note at
the time, place, and rate, and in the coin or currency or shares of
Common Stock, herein prescribed. This Note is a direct obligation of
the Company.
9. No Recourse to Stockholders, etc. No recourse shall be had for the
payment of the principal of, or the interest on, this Note, or for any
claim based hereon, or otherwise in respect hereof, against any
incorporator, shareholder, employee, officer or director, as such,
past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
10. No Rights as Stockholder. No provision of this Note shall be construed
as conferring upon the Holder the right to vote or to receive dividends
or to consent or receive notice as a stockholder in respect of any
meeting of stockholders or any rights whatsoever as a stockholder of
the Company, unless and to the extent converted in accordance with
the terms hereof.
11. Definition of Common Stock. As used in this Note, the term "Common
Stock" shall mean and include the Company's authorized Common Stock,
$0.01 par value, as constituted on the Issuance Date of this Note,
and shall also include any capital stock of any class of the Company
thereafter authorized which shall neither be limited to a fixed sum or
percentage of par value in respect of the rights of the holders thereof
to participate in dividends nor entitled to a preference in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company; provided that the shares of
Common Stock receivable upon conversion of this Note shall include
only shares designated as Common Stock of the Company on the Issuance
Date of this Note, or in case of any reorganization, reclassification,
or stock split of the outstanding shares thereof, the stock,
securities or assets provided for in Sections 3(f) and (g).
12. Loss, Theft, Destruction of Note. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of this
Note and, in the case of any such loss, theft or destruction, upon
receipt of indemnity reasonably satisfactory to the Company (which
shall not include the posting of any bond), or, in the case of any
such mutilation, upon surrender and cancellation of this Note, the
Company shall make, issue and deliver, in lieu of such lost, stolen,
destroyed or mutilated Note, one or more new Notes of like tenor.
This Note shall be held and owned upon the express condition that the
provisions of this Section 12 are exclusive with respect to the
replacement of mutilated, destroyed, lost or stolen Notes and shall
preclude any and all other rights and remedies notwithstanding any law
or statue existing or hereafter enacted to the contrary with respect
to the replacement of negotiable instruments or other securities without
the surrender thereof.
13. Record Owner. The Company may deem the person in whose name this Note
shall be registered upon the registry books of the Company to be, and
may treat it as, the absolute owner of this Note for the purpose of
conversion of this Note and for all other purposes, and the Company
shall not be affected by any notice to the contrary. All such payments
and such conversion shall be valid and effective to satisfy and
discharge the liability upon this Note to the extent of the sum or
sums so paid or the conversion so made.
14. Register. The Company shall maintain a transfer agent, which may be
the transfer agent for the Common Stock or the Company itself, for the
registration of the Convertible Notes. Upon any transfer of this Note
in accordance with the provisions hereof, the Company shall register
or cause the transfer agent to register such transfer on the Note
Register.
15. Remedies, Characterizations, Other Obligations, Breaches and Injunctive
Relief. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note, at law or in
equity (including a decree of specific performance and/or other
injunctive relief). No remedy contained herein shall be deemed a
waiver of compliance with the provisions giving rise to such remedy
and nothing herein shall limit a holder's right to pursue actual
damages for any failure by the Company to comply with the terms of
this Note. Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the Holder hereof and shall not,
except as expressly provided herein, be subject to any other obligation
of the Company (or the performance thereof). The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable
harm to the Holders of this Note and that the remedy at law for any
such breach may be inadequate. The Company therefore agrees that, in
the event of any such breach or threatened breach, the Holders of this
Note shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being
required.
16. Subordination to Senior Debt. The obligations of the Company under
this Note are secured by a security interest in substantially all of
the Company's assets, as set forth in a Security Agreement of even date
herewith from the Company to the initial holders of the Convertible
Notes. The Company has represented to the Holders that, except as
disclosed on Schedule C to the Security Agreement and except for other
Permitted Liens under the Security Agreement, the Company's assets are
not subject to any liens. In the event of any distribution, division
or application, partial or complete, voluntary or involuntary, by
operation of law or otherwise, of all or any part of the assets of
the Company, or the proceeds thereof, to creditors of the Company or
upon any indebtedness of the Company, by reason of the liquidation,
dissolution or other winding-up of the Company, or the Company's
business or affairs, or in the event of any sale, receivership,
insolvency or bankruptcy proceeding, assignment for the benefit of
creditors or any other proceeding by or against the Company for any
relief under any bankruptcy or insolvency law or laws relating to the
relief of debtors, readjustment of indebtedness, reorganizations,
compositions or extensions, then, and in each such event, each payment
or distribution of any kind or character, either in cash, securities
or other property, which shall be payable or deliverable upon or with
respect to any of the obligations of the Company evidenced by this
Note shall be paid, prior to any payment to the Holder, directly to
the holders of the Senior Debt, for application on account of the
Senior Debt until the Senior Debt is paid in full. In addition, upon
a written request from the Company, the Holder shall agree to
subordinate its rights under the Security Agreement and to payment
of the Convertible Notes to a holder of Senior Debt (as hereinafter
defined) in accordance with the terms of a subordination agreement
having customary terms and being reasonably acceptable to the
Holders. The Company acknowledges that the terms of such subordination
agreement will not be reasonably acceptable to the Holders unless,
among other things, (i) the Company will be required to pay installments
of principal and interest due under the Convertible Notes so long as
there is no default under the Senior Debt, (ii) upon the occurrence and
during the continuance of an Event of Default hereunder, the Holder
shall have the right, after 30 days from the occurrence of each such
Event of Default, to accelerate payment of this Note and to declare
that this Note is forthwith due and payable and to sue for payment of
the Note or join with any other creditor of the Company other than
holders of the Senior Debt or their agents to sue for such payment and
to exercise any rights it may have under the Security Agreement,
(iii) the proposed terms of such subordination agreement do not limit
or restrict the rights of the Holder under this Note or the Security
Agreement, other than to subordinate the right of payment hereunder
and thereunder to the holder of the Senior Debt, and (iv) in the case
of any proposed subordination agreement that is intended to be a
substitute for an existing subordination agreement, the proposed
subordination agreement does not expand the rights of the holder of
the Senior Debt with respect to collection of the Senior Debt.
"Senior Debt" shall mean all future obligations of the Company to a
licensed commercial lender in connection with a revolving credit
and/or term loan facility extended or to be extended by such licensed
commercial lender to the Company, the amount of loans under such
facility being determined by reference to the value of the Company's
accounts receivable, inventory and work in process and secured by the
Company's accounts receivable and/or inventory, and shall include the
outstanding principal amount of such Senior Debt from time to time,
whenever incurred. Anything herein to the contrary notwithstanding,
Senior Debt shall not include any indebtedness or other obligations
of the Company directly or indirectly convertible into or exchangeable
for equity securities of the Company.
17. Construction. This Note shall be deemed to be jointly drafted by the
Company and the initial holders of the Convertible Notes and shall
not be construed against any person as the drafter hereof.
18. Failure or Indulgence Not Waiver. No failure or delay on the part of
the Holder of this Note in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof (except to the
extent that such power, right or privilege must, in accordance with
the terms of this Note, be exercised within a specified period of time
and such period of time has lapsed without such power, right or
privilege being exercised), nor shall any single or partial exercise
of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
19. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Each of the
parties consents to the jurisdiction of the federal courts whose
districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing
of any such proceeding in such jurisdictions.
Signature Page Follows
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: August __, 2001 Ultradata Systems, Incorporated
By:____________________________
Name:____________________________
Title:____________________________
Attest:
_______________________
EXHIBIT A
To Convertible Note
ULTRADATA SYSTEMS, INCORPORATED
CONVERSION NOTICE
Reference is made to the 11.25% Senior Subordinated Secured Convertible
Promissory Notes dated August _____, 2001 (the "Convertible Notes"), of
Ultradata Systems, Incorporated, a Delaware corporation (the "Company").
In accordance with and pursuant to the Convertible Notes, the undersigned
hereby elects to convert the amount payable under the Convertible Notes
indicated below into shares of Common Stock, par value $0.01 per share (the
"Common Stock"), of the Company, specified below as of the date specified
below.
Date of Conversion:
Conversion Amount to be converted:
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock
to be issued:
Please issue the Common Stock into which the Convertible Notes are being
converted and, if applicable, any check drawn on an account of the Company
in the following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
By:
Title:
Dated:
Applicable only if the Transfer Agent is a participant in the electronic
book entry transfer program:
Account Number:
(if electronic book entry transfer):
Transaction Code Number
(if electronic book entry transfer):
Participant Code:
THIS NOTICE MUST BE DELIVERED TO COMPANY AND TRANSFER AGENT
EXHIBIT B
To Convertible Note
DEFINITION OF CHANGE OF CONTROL
For purposes of this Agreement, "Change of Control" means:
(a) The acquisition by any individual, entity, or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of
either (1) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (2) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this clause (A), the following
acquisitions of stock shall not result in a Change of Control: (1) any
acquisition directly from the Company, (2) any acquisition by the Company,
(3) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company, or (4) any acquisition by any corporation pursuant to a transaction
that complies with clauses (1), (2), and (3) of subsection (c) of this
definition; or
(b) Consummation of a reorganization, merger, or consolidation or sale or
other disposition of all or substantially all of the assets of the Company
(a "Business Combination"), in each case, unless following such Business
Combination, (1) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination, including, without
limitation, a corporation that as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries (any such corporation being referred
to herein as a "Resulting Corporation"), in substantially the same proportions
as their ownership of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, immediately prior to such
Business Combination, (2) no Person (excluding any employee benefit plan
(or related trust) of the Company or a Resulting Corporation) beneficially
owns, directly or indirectly, 50% or more of, respectively, the outstanding
shares of common stock of the Resulting Corporation or the combined voting
power of the then outstanding voting securities of such Resulting Corporation
except to the extent that such ownership existed prior to the Business
Combination, and (3) at least a majority of the members of the board of
directors of the Resulting Corporation were members of the Incumbent Board
at the time of the execution of the initial agreement, or of the action of
the Board, providing for such Business Combination.
* * * * * * * * * * * * * * * * * *
EXHIBIT 10-c
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE
HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS
OF THE SECURITIES ACT.
STOCK PURCHASE WARRANT
To Purchase 239,253 Shares of Common Stock of
Ultradata Systems, Incorporated
THIS CERTIFIES that, for value received, [_____________________] (the
"Holder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after the date hereof (the "Initial
Exercise Date") and on or prior to the close of business on May 16, 2003 (the
"Termination Date"), but not thereafter, to subscribe for and purchase from
Ultradata Systems, Incorporated, a corporation incorporated in Delaware (the
"Company"), up to Two Hundred Thirty-Nine Thousand Two Hundred Fifty-Three
(239,253) shares (the "Warrant Shares") of Common Stock, $.01 par value, of
the Company (the "Common Stock"). The purchase price of one share of Common
Stock (the "Exercise Price") under this Warrant shall be $1.50. The Exercise
Price and the number of shares for which the Warrant is exercisable shall be
subject to adjustment as provided herein. In the event of any conflict between
the terms of this Warrant and the Exchange Agreement, dated as of August ____,
2001, between the Company and, among others, the initial Holder of this
Warrant (the "Exchange Agreement"), the Exchange Agreement shall control.
Capitalized terms used and not otherwise defined herein shall have the
meanings set forth for such terms in the Exchange Agreement.
1. Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws, this Warrant and all rights hereunder
are transferable, in whole or in part, at the office or agency of the
Company by the Holder hereof in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed
hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented
by this Warrant will, upon exercise of the rights represented by this
Warrant, be duly authorized, validly issued, fully paid and nonassessable
and free from all taxes, liens and charges in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously
with such issue).
3. Exercise of Warrant.
(a) Except as provided in Section 3(b) or Section 4 herein, exercise of
the purchase rights represented by this Warrant may be made at any time
or times on or after the Initial Exercise Date, and before the close of
business on the Termination Date by the surrender of this Warrant and
the Notice of Exercise Form annexed hereto duly executed, at the office
of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered Holder hereof at the
address of such Holder appearing on the books of the Company) and upon
payment of the Exercise Price of the shares thereby purchased by wire
transfer or cashier's check drawn on a United States bank, the Holder
of this Warrant shall be entitled to receive a certificate for the
number of shares of Common Stock so purchased. This Warrant shall be
deemed to have been exercised and such certificate or certificates shall
be deemed to have been issued, and Holder or any other person so
designated to be named therein shall be deemed to have become a holder
of record of such shares for all purposes, as of the date the Warrant
has been exercised by payment to the Company of the Exercise Price and
all taxes required to be paid by Holder, if any, pursuant to Section 5
prior to the issuance of such shares, have been paid. If this Warrant
shall have been exercised in part, the Company shall, at the time of
delivery of the certificate or certificates representing Warrant Shares,
deliver to Holder a new Warrant evidencing the rights of Holder to
purchase the unpurchased shares of Common Stock called for by this
Warrant, which new Warrant shall in all other respects be identical with
this Warrant.
(b) Anything in Section 3(a) to the contrary notwithstanding, in no
event shall Holder be entitled to exercise this Warrant if, upon giving
effect to such exercise, the Holder and its "affiliates" (as defined in
Rule 405 under the 1933 Act) would beneficially own an aggregate number
of shares of Common Stock that would exceed 9.99% of the outstanding
shares of the Common Stock following such exercise. For purposes of
this Section, the aggregate number of shares of Common Stock
beneficially owned by the Holder and its affiliates shall include the
number of shares of Common Stock issuable upon exercise of the Warrants
with respect to which the determination is being made, but shall
exclude the number of shares of Common Stock which would be issuable
upon (i) conversion of any nonconverted Convertible Notes beneficially
owned by the Holder and its affiliates and (ii) exercise or conversion
of the unexercised or unconverted portion of any other securities of
the Company (including, without limitation, any other Warrants or
convertible preferred stock) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially
owned by the Holder and its affiliates. Except as set forth in the
preceding sentence, for purposes of this Section 3(b), beneficial
ownership shall be calculated in accordance with Section 13(d) of the
1934 Act. For purposes of this Section, in determining the number of
outstanding shares Common Stock the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's
most recent Form 10-QSB or Form 10-KSB, as the case may be, (2) a more
recent public announcement by the Company or (3) any other notice by
the Company or its transfer agent setting forth the number of shares
of Common Stock outstanding. For any reason at any time, upon the
written or oral request of the Holder, the Company shall immediately
confirm orally and in writing to the Holder the number of shares of
Common Stock then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to
conversions of Convertible Notes by the Holder since the date as of
which such number of outstanding shares of Common Stock was reported.
To the extent that the limitation contained in this Section 3(b)
applies, the determination of whether this Warrant is exercisable
(in relation to other securities owned by the Holder) and of which
portion of the Principal Amount of Convertible Notes is convertible
shall be in the sole discretion of the Holder, and the exercise of
this Warrant shall be deemed to be the Holder's determination of
whether this Warrant is exercisable (in relation to other securities
owned by the Holder) and of which portion of the Principal Amount of
Convertible Notes is convertible, in each case subject to such
aggregate percentage limitation, and the Company shall have no
obligation or right to verify or confirm the accuracy of such
determination. Nothing contained herein shall be deemed to restrict
the right of the Holder to exercise this Warrant at such time as such
exercise will not violate the provisions of this Section. This Holder
may waive the provisions of this Section 3(b) as to itself (and solely
as to itself) upon not less than 75 days' prior notice to the Company,
and the provisions of this Section 3(b) shall continue to apply until
such 75th day (or such later date as may be specified in such notice
of waiver). No exercise in violation of this Section, but otherwise in
accordance with this Warrant, shall affect the status of the Common
Stock issued upon such exercise as validly issued, fully-paid and
nonassessable.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be
entitled to purchase upon such exercise, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to the
Exercise Price.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without
charge to the Holder hereof for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of
which taxes and expenses shall be paid by the Company, and such
certificates shall be issued in the name of the Holder of this Warrant or
in such name or names as may be directed by the Holder of this Warrant;
provided, however, that in the event certificates for shares of Common
Stock are to be issued in a name other than the name of the Holder of
this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the
Holder hereof; and the Company may require, as a condition thereto, the
payment of a sum sufficient to reimburse it for any transfer tax incidental
thereto.
6. Closing of Books. The Company will not close its shareholder books or
records in any manner which prevents the timely exercise of this Warrant.
7. Transfer, Division and Combination.
(a) Subject to compliance with any applicable securities laws, transfer
of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such
purpose, upon surrender of this Warrant at the principal office of the
Company, together with a written assignment of this Warrant substantially
in the form attached hereto duly executed by Holder or its agent or
attorney and funds sufficient to pay any transfer taxes payable upon the
making of such transfer. Upon such surrender and, if required, such
payment, the Company shall execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denomination
or denominations specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this
Warrant not so assigned, and this Warrant shall promptly be cancelled.
A Warrant, if properly assigned, may be exercised by a new Holder for
the purchase of shares of Common Stock without having a new Warrant
issued.
(b) This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together
with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by Holder or its agent or
attorney. Subject to compliance with Section 7(a), as to any transfer
which may be involved in such division or combination, the Company
shall execute and deliver a new Warrant or Warrants in exchange for
the Warrant or Warrants to be divided or combined in accordance with
such notice.
(c) The Company shall prepare, issue and deliver at its own expense
(other than transfer taxes) the new Warrant or Warrants under this
Section 7.
(d) The Company agrees to maintain, at its aforesaid office, books for
the registration and the registration of transfer of the Warrants.
8. No Rights as Shareholder until Exercise. This Warrant does not entitle
the Holder hereof to any voting rights or other rights as a shareholder of
the Company prior to the exercise hereof. Upon the surrender of this
Warrant and the payment of the aggregate Exercise Price, the Warrant Shares
so purchased shall be and be deemed to be issued to such Holder as the
record owner of such shares as of the close of business on the later of
the date of such surrender or payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant certificate or any stock certificate relating to the Warrant
Shares, and in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it (which shall not include the posting of any
bond), and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant
or stock certificate of like tenor and dated as of such cancellation, in
lieu of such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may
be taken or such right may be exercised on the next succeeding day not a
Saturday, Sunday or legal holiday.
11. Adjustments of Exercise Price and Number of Warrant Shares.
(a) Stock Splits, etc. The number and kind of securities purchasable
upon the exercise of this Warrant and the Exercise Price shall be
subject to adjustment from time to time upon the happening of any of
the following. In case the Company shall (i) pay a dividend in shares
of Common Stock or make a distribution in shares of Common Stock to
holders of its outstanding Common Stock, (ii) subdivide its outstanding
shares of Common Stock into a greater number of shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital
stock in a reclassification of the Common Stock, then the number of
Warrant Shares purchasable upon exercise of this Warrant immediately
prior thereto shall be adjusted so that the Holder of this Warrant shall
be entitled to receive the kind and number of Warrant Shares or other
securities of the Company which he would have owned or have been
entitled to receive had such Warrant been exercised in advance thereof.
Upon each such adjustment of the kind and number of Warrant Shares or
other securities of the Company which are purchasable hereunder, the
Holder of this Warrant shall thereafter be entitled to purchase the
number of Warrant Shares or other securities resulting from such
adjustment at an Exercise Price per Warrant Share or other security
obtained by multiplying the Exercise Price in effect immediately prior
to such adjustment by the number of Warrant Shares purchasable pursuant
hereto immediately prior to such adjustment and dividing by the number
of Warrant Shares or other securities of the Company resulting from such
adjustment. An adjustment made pursuant to this paragraph shall become
effective immediately after the effective date of such event retroactive
to the record date, if any, for such event.
(b) Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its
capital, reclassify its capital stock, consolidate or merge with or
into another corporation (where the Company is not the surviving
corporation or where there is a change in or distribution with respect
to the Common Stock of the Company), or sell, transfer or otherwise
dispose of all or substantially all its property, assets or business to
another corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares
of common stock of the successor or acquiring corporation, or any cash,
shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in
addition to or in lieu of common stock of the successor or acquiring
corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Company, then Holder shall have
the right thereafter to receive, upon exercise of this Warrant, the
number of shares of common stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition
of assets by a holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event.
In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring
corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant
and condition of this Warrant to be performed and observed by the
Company and all the obligations and liabilities hereunder, subject to
such modifications as may be deemed appropriate (as determined in good
faith by resolution of the Board of Directors of the Company) in order
to provide for adjustments of shares of Common Stock for which this
Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 11. For
purposes of this Section 11, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class
which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to redemption
and shall also include any evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable for any
such stock, either immediately or upon the arrival of a specified date
or the happening of a specified event and any warrants or other rights
to subscribe for or purchase any such stock. The foregoing provisions
of this Section 11 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
12. Voluntary Adjustment by the Company. The Company may at any time during
the term of this Warrant, reduce the then current Exercise Price to
any amount and for any period of time deemed appropriate by the Board
of Directors of the Company.
13. Notice of Adjustment. Whenever the number of Warrant Shares or number
or kind of securities or other property purchasable upon the exercise
of this Warrant or the Exercise Price is adjusted, as herein provided,
the Company shall promptly mail by registered or certified mail,
return receipt requested, to the Holder of this Warrant notice of such
adjustment or adjustments setting forth the number of Warrant Shares
(and other securities or property) purchasable upon the exercise of
this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made. Such notice, in the
absence of manifest error, shall be conclusive evidence of the
correctness of such adjustment.
14. Notice of Corporate Action. If at any time:
(i) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences
of its indebtedness, any shares of stock of any class or any other
securities or property, or to receive any other right, or
(ii) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any
sale, transfer or other disposition of all or substantially all the
property, assets or business of the Company to, another corporation
or,
(iii) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of such cases, the Company shall give to
Holder (i) at least 20 days' prior written notice of the record date
for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up,
and (ii) in the case of any such reorganization, reclassification,
merger, consolidation, sale, transfer, disposition, dissolution,
liquidation or winding up, at least 20 days' prior written notice of
the date when the same shall take place. Such notice in accordance
with the foregoing clause also shall specify (i) the date on which
any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and
the amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place
and the time, if any such time is to be fixed, as of which the holders
of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such disposition,
dissolution, liquidation or winding up. Each such written notice shall
be sufficiently given if addressed to Holder at the last address of
Holder appearing on the books of the Company and delivered in
accordance with Section 16(d).
15. Authorized Shares.
(a) The Company covenants that during the period the Warrant is
outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this
Warrant. The Company further covenants that its issuance of this
Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and
issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant. The Company will
take all such reasonable action as may be necessary to assure that
such Warrant Shares may be issued as provided herein without violation
of any applicable law or regulation, or of any requirements of the
Principal Market upon which the Common Stock may be listed.
(b) The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any
of the terms of this Warrant, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights
of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (i) not increase the par value of any
shares of Common Stock receivable upon the exercise of this Warrant
above the amount payable therefor upon such exercise immediately prior
to such increase in par value, (ii) take all such action as may be
necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon
the exercise of this Warrant, and (iii) use its best efforts to obtain
all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Warrant.
(c) Upon the request of Holder, the Company will at any time during
the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this
Warrant and the obligations of the Company hereunder.
(d) Before taking any action which would cause an adjustment reducing
the current Exercise Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Warrants, the
Company shall take any corporate action which may be necessary in
order that the Company may validly and legally issue fully paid and
non-assessable shares of such Common Stock at such adjusted Exercise
Price.
(e) Before taking any action which would result in an adjustment in
the number of shares of Common Stock for which this Warrant is
exercisable or in the Exercise Price, the Company shall obtain all
such authorizations or exemptions thereof, or consents thereto, as
may be necessary from any public regulatory body or bodies having
jurisdiction thereof.
16. Miscellaneous.
(a) Jurisdiction. This Warrant shall be binding upon any successors or
assigns of the Company. This Warrant shall constitute a contract under
the laws of New York without regard to its conflict of law, principles
or rules, and be subject to arbitration pursuant to the terms set
forth in the Exchange Agreement.
(b) Restrictions. The Holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered,
will have restrictions upon resale imposed by state and federal
securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice Holder's
rights, powers or remedies, notwithstanding all rights hereunder
terminate on the Termination Date. If the Company fails to comply
with any provision of this Warrant, the Company shall pay to Holder
such amounts as shall be sufficient to cover any costs and expenses
including, but not limited to, reasonable attorneys' fees, including
those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder, unless the Company prevails in
such litigation in which event it will be entitled its reasonable
attorneys' fees and expenses.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder hereof by the Company
shall be delivered in accordance with the notice provisions of the
Exchange Agreement.
(e) Limitation of Liability. No provision hereof, in the absence of
affirmative action by Holder to purchase shares of Common Stock, and
no enumeration herein of the rights or privileges of Holder hereof,
shall give rise to any liability of Holder for the purchase price of
any Common Stock or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
(f) Remedies. Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled
to specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of
this Warrant and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(g) Successors and Assigns. Subject to applicable securities laws,
this Warrant and the rights and obligations evidenced hereby shall
inure to the benefit of and be binding upon the successors of the
Company and the successors and permitted assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of
all Holders from time to time of this Warrant and shall be enforceable
by any such Holder or holder of Warrant Shares.
(h) Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs,
attorneys' fees, expenses and disbursements of any kind which may be
imposed upon, incurred by or asserted against Holder in any manner
relating to or arising out of any failure by the Company to perform or
observe in any material respect any of its covenants, agreements,
undertakings or obligations set forth in this Warrant; provided, however,
that the Company will not be liable hereunder to the extent that any
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses or
disbursements are found in a final non-appealable judgment by a court
to have resulted from Holder's negligence, bad faith or willful
misconduct in its capacity as a stockholder or warrantholder of the
Company.
(i) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and
the Holder.
(j) Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be
prohibited by or invalid under applicable law, such provision shall
be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provisions or the remaining
provisions of this Warrant.
(k) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized.
Dated: August _____, 2001
ULTRADATA SYSTEMS, INCORPORATED
By:
Monte Ross
Chairman
NOTICE OF EXERCISE
To: Ultradata Systems, Incorporated
(1) The undersigned hereby elects to purchase ________ shares of
Common Stock (the "Common Stock"), of Ultradata Systems, Incorporated
pursuant to the terms of the attached Warrant, and tenders herewith
payment of the exercise price in full, together with all applicable
transfer taxes, if any.
(2) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such
other name as is specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
Dated:
______________________________
Signature
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: _____________________________
NOTE: The signature to this Assignment Form must correspond with the name
as it appears on the face of the Warrant, without alteration or enlargement
or any change whatsoever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in an fiduciary or other
representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
* * * * * * * * * * * * * * * * * *
EXHIBIT 10-d
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of August ___,
2001, by and among Ultradata Systems, Inc., a Delaware corporation, with
headquarters located at 9375 Dielman Industrial Drive, St. Louis, MO 63132
(the "Company"), and the undersigned buyers (each, a "Buyer" and collectively,
the "Buyers").
WHEREAS:
A. In connection with the Exchange Agreement by and among the parties
hereto, dated August _____, 2001 (the "Exchange Agreement"), the Company
has agreed, upon the terms and subject to the conditions of the Exchange
Agreement, to issue to the Buyers (i) the Company's 11.25% Senior
Subordinate Secured Convertible Promissory Notes (the "Convertible Notes"),
which will be convertible into shares of the Company's common stock, $0.01
par value per share (the "Common Stock") in accordance with the terms of
the Convertible Notes and (ii) warrants ("Warrants") to purchase shares of
Common stock (as issued upon exercise of the Warrants, the "Warrant
Shares"), in exchange for shares of the Company's Series A Convertible
Preferred Stock and certain warrants to purchase the Company's Common
Stock at an exercise price of $5.00 per share.
B. To induce the Buyers to execute and deliver the Exchange Agreement,
the Company has agreed to provide certain registration rights under the
Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "Securities
Act"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyers
hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
- "Conversion Shares" means shares of Common Stock issued or issuable on
conversion of the Convertible Notes.
- "Investor" means a Buyer, any transferee or assignee thereof to whom a
Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9
and any transferee or assignee thereof to whom a transferee or assignee
assigns its rights under this Agreement and who agrees to become bound by
the provisions of this Agreement in accordance with Section 9.
- "Person" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual,
a governmental or political subdivision thereof or a governmental agency.
- "Register," "registered," and "registration" refer to a registration
effected by preparing and filing one or more Registration Statements
(as defined below) in compliance with the Securities Act and pursuant to
Rule 415 under the Securities Act or any successor rule providing for
offering securities on a continuous basis ("Rule 415"), and the
declaration or ordering of effectiveness of such Registration Statement(s)
by the United States Securities and Exchange Commission (the "SEC").
- "Registrable Securities" means (i) the Conversion Shares issued or
issuable upon conversion of the Convertible Notes, respectively, (ii) the
Warrant Shares issued or issuable on exercise of the Warrants and (iii)
any shares of capital stock issued or issuable with respect to the
Conversion Shares, the Convertible Notes, the Warrant Shares or the
Warrants as a result of any stock split, stock dividend, recapitalization,
exchange or similar event or otherwise, without regard to any limitation
on conversions of the Convertible Notes or exercise in the Warrants.
- "Registration Statement" means a registration statement or registration
statements of the Company filed under the Securities Act.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, as soon as
practicable, but in no event later than 14 days after the date hereof
(the "Scheduled Filing Date"), file with the SEC a Registration
Statement or Registration Statements (as is necessary) on Form S-3
covering the resale of all of the Registrable Securities. In the event
that Form S-3 is unavailable for such a registration, the Company shall
use such other form as is available for such a registration, subject
to the provisions of Section 2(e). The initial Registration Statement
prepared pursuant hereto shall register for resale the lesser of (i) the
number of shares of Common Stock authorized, but unissued and unreserved
(but including shares reserved for issuance of Registrable Securities),
or (ii) at least that number of shares of Common Stock equal to the
product of (x) 2.0 and (y) the number of Registrable Securities as of
the date immediately preceding the date the Registration Statement is
initially filed with the SEC, subject to adjustment as provided in
Section 3(b). The Company shall use its best efforts to have the
Registration Statement declared effective by the SEC as soon as
practicable, but in no event later than sixty (60) days after the
Scheduled Filing Date, in the case of no review by the SEC, or seventy-
five (75) days after the Scheduled Filing Date, in the case of a review
by the SEC (the "Scheduled Effective Date"). The Company represents
that no Person other than the Investors has the right to include any
securities of the Company in the Registration Statement to be filed in
accordance with this Section 2(a). However, the Investors consent to
the inclusion of Thornhill Group, Inc. and Influence Concept L.L.C. as
selling securityholders in such Registration Statement to the extent of
shares of Common Stock beneficially owned by them and registered under
the Company's Registration Statement on Form SB-2, Registration No.
333-39434.
b. Piggy-Back Registrations. Unless a Registration Statement is
effective pursuant to 2(a) above, if at any time prior to the
expiration of the Registration Period (as hereinafter defined) the
Company proposes to file with the SEC a Registration Statement relating
to an offering for its own account or the account of others under the
Securities Act of any of its securities (other than a Registration
Statement on Form S-4 or Form S-8 (or their equivalents at such time)
relating to securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans) the
Company shall promptly send to each Investor written notice of the
Company's intention to file a Registration Statement and of such
Investor's rights under this Section 2(b) and, if within twenty (20)
days after receipt of such notice, such Investor shall so request in
writing, the Company shall include in such Registration Statement all
or any part of the Registrable Securities such Investor requests to be
registered, subject to the priorities set forth in this Section 2(b)
below. No right to registration of Registrable Securities under this
Section 2(b) shall be construed to limit any registration required
under Section 2(a). The obligations of the Company under this Section
2(b) may be waived by Investors holding a majority of the Registrable
Securities. If an offering in connection with which an Investor is
entitled to registration under this Section 2(b) is an underwritten
offering, then each Investor whose Registrable Securities are included
in such Registration Statement shall, unless otherwise agreed to by
the Company, offer and sell such Registrable Securities in an
underwritten offering using the same underwriter or underwriters and,
subject to the provisions of this Agreement, on the same terms and
conditions as other shares of Common Stock included in such underwritten
offering. If a registration pursuant to this Section 2(b) is to be an
underwritten public offering and the managing underwriter(s) advise the
Company in writing, that in their reasonable good faith opinion,
marketing or other factors dictate that a limitation on the number of
shares of Common Stock which may be included in the Registration
Statement is necessary to facilitate and not adversely affect the
proposed offering, then the Company shall include in such registration:
(1) first, all securities the Company proposes to sell for its own
account, (2) second, up to the full number of securities proposed to be
registered for the account of the holders of securities entitled to
inclusion of their securities in the Registration Statement by reason
of demand registration rights, and (3) third, the securities requested
to be registered by the Investors and other holders of securities
entitled to participate in the registration, as of the date hereof,
drawn from them pro rata based on the number each has requested to be
included in such registration.
c. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each
increase in the number of Registrable Securities included therein
shall be allocated pro rata among the Investors based on the number of
Registrable Securities held by each Investor at the time the
Registration Statement covering such initial number of Registrable
Securities or increase thereof is declared effective by the SEC. In
the event that an Investor sells or otherwise transfers any of such
Investor's Registrable Securities, each transferee shall be allocated
a pro rata portion of the then remaining number of Registrable
Securities included in such Registration Statement for such transferor.
Any shares of Common Stock included in a Registration Statement and
which remain allocated to any Person which ceases to hold any
Registrable Securities shall be allocated to the remaining Investors,
pro rata based on the number of Registrable Securities then held by
such Investors.
d. Legal Counsel. Subject to Section 5 hereof, the Buyers holding a
majority of the Registrable Securities shall have the right to select
one legal counsel to review and oversee any offering pursuant to this
Section 2 ("Legal Counsel"), which shall be Snow Becker Krauss P.C.
or such other counsel as thereafter designated by the holders of a
majority of Registrable Securities. The Company shall reasonably
cooperate with Legal Counsel in performing the Company's obligations
under this Agreement.
e. Ineligibility for Form S-3. In the event that Form S-3 is
unavailable for any registration of Registrable Securities hereunder,
the Company shall (i) register the sale of the Registrable Securities
on another appropriate form and (ii) undertake to register the
Registrable Securities on Form S-3 as soon as such form is available,
provided that the Company shall maintain the effectiveness of the
Registration Statement then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been
declared effective by the SEC.
f. Sufficient Number of Shares Registered. If the number of shares
available under a Registration Statement filed pursuant to Section 2(a)
is insufficient to cover all of the Registrable Securities which such
Registration Statement is required to cover or an Investor's allocated
portion of the Registrable Securities pursuant to Section 2(c), the
Company shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover at least 300% of such Registrable
Securities (based on the market price of the Common Stock), in each
case, as soon as practicable, but in any event not later than fifteen
(15) days after the necessity therefor arises (each such date, an
"Additional Scheduled Filing Date"). The Company shall use it best
efforts to cause such amendment and/or new Registration Statement to
become effective as soon as practicable following the filing thereof,
but in no event later than sixty (60) days after the Additional
Scheduled Filing Date (each such date, an "Additional Scheduled Effective
Date"). For purposes of the foregoing provision, the number of shares
available under a Registration Statement shall be deemed "insufficient
to cover all of the Registrable Securities" if at any time the number
of Registrable Securities issued or issuable upon conversion of the
Convertible Notes and exercise of the Warrants covered by such
Registration Statement is greater than the quotient determined by
dividing (i) the number of shares of Common Stock available for resale
under such Registration Statement by (ii) 1.5. For purposes of the
calculation set forth in the foregoing sentence, any restrictions on
the convertibility of the Convertible Notes or exercisability of Warrant
shall be disregarded and such calculation shall assume that the
Convertible Notes are then convertible and exercisable, respectively,
into shares of Common Stock at the then prevailing Conversion Rate (as
defined in the Company's Certificate of Designations or the terms of
the Convertible Notes) and the Warrants are exercisable at the then
prevailing Exercise Price (as defined in the Warrants).
3. RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(b) or at such time as the Company is
obligated to file a Registration Statement with the SEC pursuant to
Section 2(a) or 2(f), the Company will use its best efforts to effect
the registration of the Registrable Securities in accordance with the
intended method of disposition thereof and, pursuant thereto, the
Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on
or prior to the Scheduled Filing Date) for the registration of
Registrable Securities pursuant to Section 2(a) and use its best
efforts to cause such Registration Statement relating to the
Registrable Securities to become effective as soon as possible after
such filing (but, in no event later than sixty (60) days after such
Scheduled Filing Date). The Company shall not file any other
Registration Statement with respect to any of its securities between
the date hereof and the filing date of such Registration Statement
(other than a Registration Statement on Form S-8 (or its equivalent
at such time)). The Company shall keep the Registration Statement
required to be filed hereunder effective pursuant to Rule 415 at all
times until the earlier of (i) the date as of which the Investors may
sell all of the Registrable Securities covered by such Registration
Statement without restriction pursuant to Rule 144(k) promulgated under
the Securities Act (or successor thereto) or (ii) the date on which
(A) the Investors shall have sold all the Registrable Securities
covered by such Registration Statement and (B) none of the Convertible
Notes or Warrants is outstanding (the "Registration Period"), which
Registration Statement (including any amendments or supplements thereto
and prospectuses contained therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
The term "best efforts" shall mean, among other things, that the Company
shall submit to the SEC, within three business days after the Company
learns that no review of a particular Registration Statement will be
made by the staff of the SEC or that the staff has no further comments
on the Registration Statement, as the case may be, a request for
acceleration of effectiveness of such Registration Statement to a time
and date not later than 48 hours after the submission of such request.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the Securities Act, as may be necessary to keep such
Registration Statement effective at all times during the Registration
Period, and, during such period, comply with the provisions of the
Securities Act with respect to the disposition of all Registrable
Securities of the Company covered by such Registration Statement until
such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in such Registration Statement. In the
case of amendments and supplements to a Registration Statement which are
required to be filed pursuant to this Agreement (including pursuant to
this Section 3(b)) by reason of the Company filing a report on Form
10-KSB, Form 10-QSB or Form 8-K or any analogous report under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Company shall file such amendments or supplements with the SEC on the
same day on which the Exchange Act report is filed which created the
requirement for the Company to amend or supplement the Registration
Statement.
c. The Company shall (a) permit Legal Counsel to review and comment upon
(i) the Registration Statement at least seven (7) days prior to its
filing with the SEC and (ii) all other Registration Statements and all
amendments and supplements to all Registration Statements within a
reasonable number of days prior to the their filing with the SEC and
(b) not file any document in a form to which Legal Counsel reasonably
objects. The Company shall not submit a request for acceleration of
the effectiveness of a Registration Statement or any amendment or
supplement thereto without the prior approval of Legal Counsel, which
approval shall not be unreasonably withheld. The Company shall furnish
to Legal Counsel, without charge, (i) any correspondence from the SEC
or the staff of the SEC to the Company or its representatives relating
to any Registration Statement, (ii) promptly after the same is prepared
and filed with the SEC, one copy of any Registration Statement and any
amendment(s) thereto, including, upon request by counsel to the
Investors, financial statements and schedules, all documents
incorporated therein by reference and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus
included in such Registration Statement and all amendments and
supplements thereto.
d. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge,
(i) promptly after the same is prepared and filed with the SEC, at
least one copy of such Registration Statement and any amendment(s)
thereto, including, upon request by counsel to the Investors, financial
statements and schedules, all documents incorporated therein by
reference, all exhibits and each preliminary prospectus, (ii) upon the
effectiveness of any Registration Statement, ten (10) copies of the
prospectus included in such Registration Statement and all amendments
and supplements thereto (or such other number of copies as such
Investor may reasonably request) and (iii) such other documents,
including copies of any preliminary or final prospectus, as such
Investor may reasonably request from time to time in order to
facilitate the disposition of the Registrable Securities owned by such
Investor.
e. The Company shall use reasonable efforts to (i) register and qualify
the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the
United States as Legal Counsel or any Investor reasonably requests,
(ii) prepare and file in those jurisdictions, such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof
during the Registration Period, (iii) take such other actions as may be
necessary to maintain such registrations and qualifications in effect
at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable
Securities for sale in such jurisdictions; provided, however, that the
Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would
not otherwise be required to qualify but for this Section 3(e),
(y) subject itself to general taxation in any such jurisdiction, or
(z) file a general consent to service of process in any such
jurisdiction. The Company shall promptly notify Legal Counsel and
each Investor who holds Registrable Securities of the receipt by the
Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for
sale under the securities or "blue sky" laws of any jurisdiction in the
United States or its receipt of actual notice of the initiation or
threatening of any proceeding for such purpose.
f. In the event Investors who hold a majority of the Registrable
Securities being offered in the offering select underwriters for the
offering, the Company shall enter into and perform its obligations
under an underwriting agreement, in usual and customary form, including,
without limitation, customary indemnification and contribution
obligations, with the underwriters of such offering; provided, however,
that the Company shall have the right to consent to the selection of
such underwriter, which consent shall not be unreasonably withheld.
g. As promptly as practicable after becoming aware of such event, the
Company shall notify Legal Counsel and each Investor in writing of the
happening of any event as a result of which the prospectus included in
a Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading,
and promptly prepare a supplement or amendment to such Registration
Statement to correct such untrue statement or omission, and deliver
ten (10) copies of such supplement or amendment to Legal Counsel and
each Investor (or such other number of copies as Legal Counsel or such
Investor may reasonably request). The Company shall also promptly
notify Legal Counsel and each Investor in writing (i) when a prospectus
or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective amendment
has become effective (notification of such effectiveness shall be
delivered to Legal Counsel and each Investor by facsimile on the same
day of such effectiveness and by overnight mail), (ii) of any request
by the SEC for amendments or supplements to a Registration Statement
or related prospectus or related information, and (iii) of the Company's
reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
h. The Company shall use its best efforts to prevent the issuance of a
ny stop order or other suspension of effectiveness of a Registration
Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an
order or suspension is issued, to obtain the withdrawal of such order
or suspension at the earliest possible moment and to notify Legal
Counsel and each Investor who holds Registrable Securities being sold
(and, in the event of an underwritten offering, the managing
underwriters) of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any
proceeding for such purpose.
i. At the request of any Investor, the Company shall furnish to such
Investor, on the date of the effectiveness of the Registration Statement
and thereafter from time to time on such dates as an Investor may
reasonably request (i) if required by an underwriter, a letter, dated
such date, from the Company's independent certified public accountants
in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, and (ii) an opinion, dated as of such
date, of counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily
given in an underwritten public offering, addressed to the underwriters
and the Investors.
j. The Company shall make available for inspection by (i) any Investor,
(ii) Legal Counsel, (iii) any underwriter participating in any
disposition pursuant to a Registration Statement, (iv) one firm of
accountants or other agents retained by the Investors and (v) one firm
of attorneys retained by such underwriters (collectively, the
"Inspectors") all pertinent financial and other records, and pertinent
corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably deemed necessary by each Inspector,
and cause the Company's officers, directors and employees to supply all
information which any Inspector may reasonably request; provided,
however, that each Inspector shall hold in strict confidence and shall
not make any disclosure (except to an Investor) or use of any Records
or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified,
unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement or is
otherwise required under the Securities Act, (b) the release of such
Records is ordered pursuant to a final, non-appealable subpoena or order
from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the
public other than by disclosure in violation of this or any other
agreement of which the Inspector has knowledge. Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought
in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the
Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential.
k. The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal
or state securities laws, (ii) the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any
Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other final, non-appealable order from a court
or governmental body of competent jurisdiction, or (iv) such information
has been made generally available to the public other than by disclosure
in violation of this Agreement or any other agreement. The Company
agrees that it shall, upon learning that disclosure of such information
concerning an Investor is sought in or by a court or governmental body
of competent jurisdiction or through other means, give prompt written
notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, such information.
l. The Company shall use its best efforts either to (i) cause all the
Registrable Securities covered by a Registration Statement to be listed
on each securities exchange on which securities of the same class or
series issued by the Company are then listed, if any, if the listing of
such Registrable Securities is then permitted under the rules of such
exchange, (ii) secure the designation and quotation of all the
Registrable Securities covered by the Registration Statement on the
Nasdaq SmallCap Market, or (iii) secure the inclusion for quotation on
the over-the-counter market on the electronic bulletin board for such
Registrable Securities and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with
the National Association of Securities Dealers, Inc. ("NASD") as such
with respect to such Registrable Securities. The Company shall pay all
fees and expenses in connection with satisfying its obligation under
this Section 3(l).
m. The Company shall cooperate with the Investors who hold Registrable
Securities being offered and, to the extent applicable, any managing
underwriter or underwriters, to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legend)
representing the Registrable Securities to be offered pursuant to a
Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the managing
underwriter or underwriters, if any, or, if there is no managing
underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters,
if any, or the Investors may request.
n. The Company shall provide a transfer agent and registrar of all such
Registrable Securities not later than the effective date of such
Registration Statement.
o. If requested by the managing underwriters or an Investor, the Company
shall (i) immediately incorporate in a prospectus supplement or post-
effective amendment such information as the managing underwriters and
the Investors agree should be included therein relating to the sale and
distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being
sold to such underwriters, the purchase price being paid therefor by
such underwriters and any other terms of the underwritten (or best
efforts underwritten) offering of the Registrable Securities to be sold
in such offering; (ii) make all required filings of such prospectus
supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such prospectus supplement or post-
effective amendment; and (iii) supplement or make amendments to any
Registration Statement if requested by an Investor or any underwriter
of such Registrable Securities.
p. The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to consummate the disposition of such
Registrable Securities.
q. The Company shall make generally available to its security holders
as soon as practical, but not later than 90 days after the close of
the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a
twelve-month period beginning not later than the first day of the
Company's fiscal quarter next following the effective date of the
Registration Statement.
r. The Company shall otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC in connection with any
registration hereunder.
s. Within two (2) business days after a Registration Statement which
covers applicable Registrable Securities is ordered effective by the
SEC, the Company shall deliver, and shall cause legal counsel for the
Company to deliver, to the transfer agent for such Registrable
Securities (with copies to the Investors whose Registrable Securities
are included in such Registration Statement) confirmation that such
Registration Statement has been declared effective by the SEC in the
form attached hereto as Exhibit A.
t. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
u. Notwithstanding anything to the contrary in Section 3(g), at any
time after the Registration Statement has been declared effective,
the Company may delay the disclosure of material, non-public
information concerning the Company the disclosure of which at the
time is not, in the good faith opinion of the Board of Directors of
the Company and its counsel, in the best interest of the Company and,
in the opinion of counsel to the Company, otherwise required (a "Grace
Period"); provided, that the Company shall promptly (i) notify the
Investors in writing of the existence of material, non-public
information giving rise to a Grace Period and the date on which the
Grace Period will begin, and (ii) notify the Investors in writing of
the date on which the Grace Period ends; and, provided further, that
during any consecutive 365 day period, there shall be only one Grace
Period, such Grace Period not to exceed 20 days in the aggregate (an
"Allowable Grace Period"). For purposes of determining the length of
a Grace Period above, the Grace Period shall begin on and include the
date the Investors receive the notice referred to in clause (i) above
and shall end on and include the date the Investors receive the notice
referred to in clause (ii) above. During the length of any Grace
Period, the Investors will continue to be able to convert their
Convertible Notes into Common Stock pursuant to Section 3 of the
Convertible Notes, but shall not be able to sell the Conversion Shares.
The provisions of Section 4(b) of the Convertible Notes shall not be
applicable during the period of any Allowable Grace Period. Upon
expiration of the Allowable Grace Period, the Company shall again be
bound by the first sentence of Section 3(g) with respect to the
information giving rise thereto.
v. Each of the following events shall constitute a "Registration
Default" for purposes of this Agreement:
(i) the Company's failure to file a Registration Statement by the
Scheduled Filing Date or Additional Scheduled Filing Date thereof,
as appropriate;
(ii) the SEC's failure to declare a Registration Statement effective
on or before the Scheduled Effective Date or Additional Scheduled
Effective Date thereof, as appropriate, except where the failure to
meet such deadline is the result solely of actions by the holders of
Registrable Securities;
(iii) the Company's failure to request acceleration of the
effectiveness of a Registration Statement within three (3) business
days after the SEC has notified the Company that it may file such
an acceleration request as required by Section 3(a) hereof;
(iv) the Investors' inability to sell all Registrable Securities
pursuant to an effective Registration Statement (whether because
of a failure to keep the Registration Statement effective, to
disclose such information as is necessary for sales to be made
pursuant to the Registration Statement, to register sufficient
shares of Common Stock or otherwise); or
(v) the aggregate days of Grace Period exceed the Allowable Grace
Period.
Upon the occurrence of a Registration Default, the Company shall pay
each Investor an amount determined in accordance with the following
formula for each day of such Registration Default:
.0005 x P x N
where
P = the Closing Ask Price (as defined in the Convertible Notes) of
the Company's Common Stock on such day; and
N = the number of Registrable Securities that such Investor holds
or may acquire pursuant to conversion of the Convertible Notes
or exercise of in-the-money Warrants on such day (without giving
effect to any limitations on conversion or exercise).
The Company shall pay such amount on demand by an Investor made at any
time during the continuance or after termination of such Registration
Default. If the Company does not remit payment of the amount due to
such Investor, the Company will pay the Investor's reasonable costs of
collection, including attorneys' fees. An Investor's right to demand
such payment shall be in addition to any other rights it may have
under this Agreement, the Exchange Agreement, the Convertible Notes,
the Security Agreement, or otherwise, including its rights of
Redemption under Section 4(b) of the Convertible Notes.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) business days prior to the first anticipated
filing date of a Registration Statement, the Company shall notify each
Investor in writing of the information the Company requires from each
such Investor if such Investor elects to have any of such Investor's
Registrable Securities included in such Registration Statement. It
shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor
shall furnish to the Company such information regarding itself, the
Registrable Securities held by it and the intended method of disposition
of the Registrable Securities held by it as shall be reasonably required
to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the
Company may reasonably request.
b. Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested
by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from such Registration Statement.
c. In the event any Investor elects to participate in an underwritten
public offering pursuant to Section 2(b), each such Investor agrees to
enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation,
customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as
are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section
3(h) or the first sentence of Section 3(g), such Investor will
immediately discontinue disposition of Registrable Securities pursuant
to any Registration Statement(s) covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(h) or the first sentence
of Section 3(g).
e. No Investor may participate in any underwritten registration hereunder
unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements
approved by the Investors entitled hereunder to approve such
arrangements, (ii) completes and executes all questionnaires, powers
of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements,
and (iii) agrees to pay its pro rata share of all underwriting discounts
and commissions.
f. Each Investor agrees not to take any action to cause such Investor to
become a registered broker dealer as defined under the Exchange Act or
to effect any change to such Investor's status that would preclude the
Company from using Form S-3 for the Registration Statement.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than expenses incurred pursuant to
Section 3(j)(iv) and (v) and underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications
pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting
fees, and fees and disbursements of counsel for the Company, shall be
paid by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and hereby
does, indemnify, hold harmless and defend each Investor who holds such
Registrable Securities, the directors, officers, partners, employees,
agents, representatives of, and each Person, if any, who controls any
Investor within the meaning of the Securities Act or the Exchange Act,
and any underwriter (as defined in the Securities Act) for the
Investors, and the directors and officers of, and each Person, if any,
who controls, any such underwriter within the meaning of the Securities
Act or the Exchange Act (each, an "Indemnified Person"), against any
losses, claims, damages, liabilities, judgments, fines, penalties,
charges, costs, attorneys' fees, amounts paid in settlement or expenses,
joint or several, (collectively, "Claims") incurred in investigating,
preparing or defending any action, claim, suit, inquiry, proceeding,
investigation or appeal taken from the foregoing by or before any court
or governmental, administrative or other regulatory agency or body or
the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("Indemnified Damages"), to which
any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise
out of or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or any post-
effective amendment thereto or in any filing made in connection with
the qualification of the offering under the securities or other "blue
sky" laws of any jurisdiction in which Registrable Securities are
offered ("Blue Sky Filing"), or the omission or alleged omission to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) any untrue statement
or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to
state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements
therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any
other law, including, without limitation, any state securities law, or
any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement or (iv) any
material violation of this Agreement (the matters in the foregoing
clauses (i) through (iv) being, collectively, "Violations"). The
Company shall reimburse the Investors and each such underwriter or
controlling person, promptly as such expenses are incurred and are due
and payable, for any legal fees or other reasonable expenses incurred
by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim by an Indemnified Person arising out of or based
upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by such Indemnified
Person or underwriter for such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or
any such amendment thereof or supplement thereto, if such prospectus
was timely made available by the Company pursuant to Section 3(d);
(ii) with respect to any preliminary prospectus, shall not inure to
the benefit of any such person from whom the person asserting any such
Claim purchased the Registrable Securities that are the subject thereof
(or to the benefit of any person controlling such person) if the untrue
statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the
Company pursuant to Section 3(d), and the Indemnified Person was
promptly advised in writing not to use the incorrect prospectus prior
to the use giving rise to a violation and such Indemnified Person,
notwithstanding such advice, used it; (iii) shall not be available to
the extent such Claim is based on a failure of the Investor to deliver
or to cause to be delivered the prospectus made available by the
Company, if such prospectus was timely made available by the Company
pursuant to Section 3(d); and (iv) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior
written consent of the Company, which consent shall not be unreasonably
withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by
the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to severally and not jointly
indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its
directors, each of its officers who signs the Registration Statement,
each Person, if any, who controls the Company within the meaning of the
Securities Act or the Exchange Act (collectively and together with an
Indemnified Person, an "Indemnified Party"), against any Claim or
Indemnified Damages to which any of them may become subject, under the
Securities Act, the Exchange Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based upon any Violation, in
each case to the extent, and only to the extent, that such Violation
occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and, subject to Section
6(d), such Investor will reimburse any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity
agreement contained in this Section 6(b) and the agreement with respect
to contribution contained in Section 7 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the
prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor
shall be liable under this Section 6(b) for only that amount of a Claim
or Indemnified Damages as does not exceed the net proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to
such Registration Statement. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if
the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus
and such prospectus was provided to Investors as required, as then
amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in any distribution, to the same
extent as provided above, with respect to information such persons so
furnished in writing expressly for inclusion in the Registration
Statement.
d. Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim
in respect thereof is to be made against any indemnifying party under
this Section 6, deliver to the indemnifying party a written notice of
the commencement thereof, and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed,
to assume control of the defense thereof with counsel mutually
satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain
its own counsel with the fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained
by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party
would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other
party represented by such counsel in such proceeding. The Company
shall pay reasonable fees for only one separate legal counsel for the
Investors, and such legal counsel shall be selected by the Investors
holding a majority of the issued or issuable Registrable Securities
included in the Registration Statement to which the Claim relates.
The Indemnified Party or Indemnified Person shall cooperate fully with
the indemnifying party in connection with any negotiation or defense
of any such action or claim by the indemnifying party and shall furnish
to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or
claim. The indemnifying party shall keep the Indemnified Party or
Indemnified Person fully apprised at all times as to the status of the
defense or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any action,
claim or proceeding effected without its written consent; provided,
however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without
the consent of the Indemnified Party or Indemnified Person, consent to
entry of any judgment or enter into any settlement or other compromise
which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified
Person of a release from all liability in respect to such claim or
litigation. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Indemnified
Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has
been made. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action
shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except
to the extent that the indemnifying party is prejudiced in its ability
to defend such action.
e. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified
Damages are incurred.
f. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and
(ii) any liabilities the indemnifying party may be subject to pursuant
to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise
be liable under Section 6 to the fullest extent permitted by law;
provided, however, that: (i) no seller of Registrable Securities
guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any
seller of Registrable Securities who was not guilty of fraudulent
misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the Securities Act or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration ("Rule
144"), during the Registration Period, the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act
so long as the Company remains subject to such requirements (it being
understood that nothing herein shall limit the Company's obligations
under Section 6.5 or 6.14 of the Exchange Agreement) and the filing of
such reports and other documents is required for the applicable
provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule
144, the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information
as may be reasonably requested to permit the investors to sell such
securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished
to the Company within a reasonable time after such assignment; (ii) the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to which
such registration rights are being transferred or assigned; (iii)
immediately following such transfer or assignment the further
disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities
laws; (iv) at or before the time the Company receives the written notice
contemplated by clause (ii) of this sentence the transferee or assignee
agrees in writing with the Company to be bound by all of the provisions
contained herein; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Exchange Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the
Company and Investors who then hold or have the right to acquire two-
thirds (?) of the Registrable Securities. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon each
Investor and the Company. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the
Registrable Securities. No consideration shall be offered or paid to
any Person to amend or consent to a waiver or modification of any
provision of any of this Agreement unless the same consideration also
is offered to all of the parties to this Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities whenever
such Person owns or is deemed to own of record such Registrable
Securities or derivatives of Registrable Securities. If the Company
receives conflicting instructions, notices or elections from two or more
Persons with respect to the same Registrable Securities, the Company
shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one business
day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
Ultradata Systems, Incorporated
9375 Dielman Industrial Drive
St. Louis, MO 63132
Telephone: (314) 997-2250
Facsimile: (314) 997-1281
Attention: Mr. Monte Ross
With a copy to:
Robert Brantl, Esquire
322 Fourth Street
Brooklyn, New York 11215
Telephone: 718-768-6045
Facsimile: 718-965-4042
If to the Investors:
As set forth on the signature pages to the Exchange
Agreement
With a copy to:
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158-1643
Telephone: 212-687-3860
Facsimile: 212-949-7052
Attention: Eric Honick, Esq.
If to a Buyer, to its address and facsimile number on the Schedule
of Buyers attached hereto, with copies to such Buyer's representatives
as set forth on the Schedule of Buyers or to such other address and/or
facsimile number and/or to the attention of such other person as the
recipient party has specified by written notice given to each other
party five days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically generated by
the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of such transmission or (C) provided by
a courier or overnight courier service shall be rebuttable evidence of
personal service, overnight or courier delivery or transmission by
facsimile in accordance with clause (i), (ii) or (iii) above,
respectively.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof.
d. The corporate laws of the State of Delaware shall govern all issues
concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by the internal
laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New
York or any other jurisdictions) that would cause the application of
the laws of any jurisdictions other than the State of New York. Each
party hereby irrevocably submits to the non-exclusive jurisdiction of
the state and federal courts sitting the City of New York, for the
adjudication of any dispute hereunder or in connection herewith or
with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action
or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action
or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party
at the address for such notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted
by law. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect the validity or enforceability of the remainder of
this Agreement in that jurisdiction or the validity or enforceability
of any provision of this Agreement in any other jurisdiction.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES
NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT
OR ANY TRANSACTION CONTEMPLATED HEREBY.
e. This Agreement, the Exchange Agreement, the Convertible Notes, and
the Security Agreement constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein and therein. This Agreement,
the Exchange Agreement, the Convertible Notes, and the Security
Agreement supersede all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall inure
to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may
be delivered to the other party hereto by facsimile transmission of a
copy of this Agreement bearing the signature of the party so delivering
this Agreement.
i. Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the
other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
j. All consents and other determinations to be made by the Investors
pursuant to this Agreement shall be made, unless otherwise specified in
this Agreement, by Investors holding a majority of the Registrable
Securities, determined as if all of the Convertible Notes, as
applicable, then outstanding have been converted into or exercised for
Registrable Securities without regard to any limitation on conversions
of the Convertible Notes.
k. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties hereto and
their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other
Person.
Signature Page Follows
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY BUYERS:
ULTRADATA SYSTEMS,
INCORPORATED Investor: BH Capital Investments, L.P.
By: HB and Co., Inc. its General Partner
By:
Name: Monte Ross
Its: Chairman By:
Name: Henry Brachfeld
Authorized Signatory
Investor: Excalibur Limited Partnership
By: Excalibur Capital Management, Inc.
its General Partner
By:
Name: William Hechter
Authorized Signatory
* * * * * * * * * * * * * * * * * *
EXHIBIT A
To Registration Rights Agreement
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Attn:
Ladies and Gentlemen:
Re: Ultradata Systems, Incorporated
We are counsel to Ultradata Systems, Incorporated., a Delaware corporation
(the "Company"), which has entered into that certain Exchange Agreement (the
"Exchange Agreement") by and among the Company and the buyers named therein
(collectively, the "Holders") pursuant to which the Company issued to the
Holders its 11.25% Senior Subordinate Secured Convertible Promissory Notes
(the "Convertible Notes"), each convertible into shares of the Company's
common stock, $0.01 par value per share (the "Common Stock"), and Warrants
to purchase Common Stock. Pursuant to the Exchange Agreement, the Company
also has entered into a Registration Rights Agreement with the Holders (the
"Registration Rights Agreement") pursuant to which the Company agreed, among
other things, to register the Registrable Securities (as defined in the
Registration Rights Agreement), including the shares of Common Stock issuable
upon conversion of the Preferred Shares or the Convertible Notes, under the
Securities Act of 1933, as amended (the "Securities Act"). In connection with
the Company's obligations under the Registration Rights Agreement, on ______ ,
2001, the Company filed a Registration Statement on Form S-3 (File No.
333-_______) (the "Registration Statement") with the Securities and Exchange
Commission (the "SEC") relating to the Registrable Securities which names
each of the Holders as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the Securities Act at
[ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have
no knowledge, after telephonic inquiry of a member of the SEC's staff, that
any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC
and the Registrable Securities are available for resale under the Securities
Act pursuant to the Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:
cc:
* * * * * * * * * * * * * * * * * *
EXHIBIT 10-e
SECURITY AGREEMENT
This SECURITY AGREEMENT (the "Agreement") is made and entered into as of
August ____, 2001, by and among BH Capital Investments, L.P. for itself and in
trust, as agent for Excalibur Limited Partnership (together, "Secured Party"),
and Ultradata Systems, Incorporated, a Delaware corporation (the "Debtor").
RECITALS
Pursuant to the terms of an Exchange Agreement, dated August ____, 2001
(the "Exchange Agreement"), the Debtor agreed to issue to the Secured Party
the Debtor's 11.25% Senior Subordinate Secured Convertible Promissory Notes
(collectively, the "Convertible Notes") in exchange for all shares of the
Debtor's Series A Convertible Preferred Stock held by the Secured Party.
Pursuant to the provisions of the Exchange Agreement and as a condition to
Secured Party's obligation to exchange shares of Series A Stock for the
Convertible Notes thereunder, the Debtor has agreed to provide certain
collateral to secure the Debtor's obligations to the Secured Party under the
Exchange Agreement and the Convertible Notes.
NOW, THEREFORE, in consideration of the foregoing and of the covenants
set forth herein, the Secured Party and the Debtor hereby agree as follows:
ARTICLE I
COLLATERAL
As security for the Debtor's obligations under the Exchange Agreement, the
Convertible Notes, the Registration Rights Agreement and this Agreement, the
Debtor, hereby grants to the Secured Party a continuing security interest in
the property of the Debtor, listed and described in Schedule A attached
hereto (the "Collateral"). Concurrently with the execution and delivery of
this Agreement, the Debtor has executed and delivered Form UCC-1 Financing
Statements suitable for filing and/or recording with the appropriate filing
offices as requested by the Secured Party, which the Secured Party may file
at any time after the date hereof. The grant of the security interest in the
Collateral under this Article I shall be effective as of the Issuance Date of
the Convertible Notes.
ARTICLE II
OBLIGATIONS SECURED
The Collateral and the power of collection pertaining thereto shall secure
the prompt and complete performance and payment of any and all obligations of
the Debtor to the Secured Party pursuant to this Agreement, the Exchange
Agreement, the Registration Rights Agreement or the Convertible Notes, whether
arising prior to, on or after the issuance date of the Convertible Notes, and
specifically the unpaid Principal Amount outstanding at any time under the
Convertible Notes, plus all accrued and unpaid interest thereunder, together
with all fees, expenses, commissions, charges, penalties, and other amounts
owing by or chargeable to the Debtor under this Agreement, the Exchange
Agreement, the Registration Rights Agreement or the Convertible Notes, whether
any of the foregoing are direct or indirect, joint or several, absolute or
contingent, due or to become due, now existing or hereafter arising, no matter
how or when arising and whether under any present or future agreement or
instrument or otherwise, whether or not evidenced by a writing (collectively,
the "Obligations").
ARTICLE III
DUTIES OF THE DEBTOR REGARDING COLLATERAL
Section 3.1 Duties of the Debtor Regarding Collateral. At all times
hereafter, the Debtor shall:
(a) preserve the Collateral in good condition and order and not permit it
to be abused or misused;
(b) not allow any of the Collateral to be affixed to real estate, except
for any property deemed to be fixtures, provided such property is included
in the Secured Party's security interest given hereunder;
(c) maintain good and complete title to the Collateral subject to Permitted
Liens;
(d) keep the Collateral free and clear at all times of all other security
interests, liens, or encumbrances of any kind, including, without limitation
any lien arising as a result of the Debtor's failure to pay any and all
taxes or governmental assessments or charges of any kind whatsoever, except
for liens securing Senior Debt hereafter incurred as permitted under Section
16 of the Convertible Notes and other Permitted Liens;
(e) except as otherwise expressly provided herein, refrain from selling,
assigning or otherwise disposing of any of the Collateral or moving or
removing any of the Collateral except in the ordinary course of the Debtor's
business, without the prior written consent of the Secured Party, or until
all of the Debtor's obligations have been paid in full; provided, however,
that Debtor shall have the right to sell its accounts to KBK Financial,
Inc., a Delaware corporation, in accordance with the terms of an Account
Transfer and Purchase Agreement, dated July 3, 2001, between the Company
and KBK Financial, Inc., free and clear of the security interest granted
under this Agreement;
(f) promptly provide to the Secured Party such financial statements,
reports, lists and schedules related to the Collateral and any other
information relating to the Collateral as the Secured Party from time
to time may reasonably request;
(g) permit the Secured Party to inspect all books and records of the
Debtor relating to the Collateral at such times, upon such notice and as
often as the Secured Party may reasonably request; and
(h) notify the Secured Party of any material change in any fact or
circumstance warranted or represented by the Debtor herein or furnished
in connection herewith to the Secured Party or if any Event of Default
occurs.
Anything in this Section 3.1 to the contrary notwithstanding, the Company
shall have the right to sell its shares in Talon Research & Development
Ltd., a New Zealand corporation, without the consent of the Secured
Party, provided that upon receipt of the proceeds of such sale, the
Company shall pay 50% of the proceeds of such sale (net of any amounts
accrued for payment of taxes payable as a result of such sale in
accordance with accounting principles generally accepted in the United
States) to prepay the Principal Amount of the Note and accrued and unpaid
interest thereon. Anything in the Convertible Notes to the contrary
notwithstanding, any such prepayment shall be applied to reduce the
accrued and unpaid interest and then the Principal Amount of such
Convertible Notes pro tanto without any prepayment premium.
Section 3.2 "Permitted Liens" means the following:
(a) purchase money security interests in specific items of equipment;
(b) leases of specific items of equipment, technology and intellectual
property, including capital leases;
(c) liens for taxes not yet payable;
(d) security interests existing as of the date hereof and set forth on
Schedule C, security interests hereafter created to secure Senior Debt as
permitted by Section 16 of the Convertible Notes, and additional security
interests and liens consented to in writing by Secured Party in its
absolute discretion;
(e) security interests being terminated substantially concurrently with
this Agreement and liens created hereunder;
(f) liens of materialmen, mechanics, warehousemen, carriers, or other
similar liens arising in the ordinary course of business and securing
obligations which are not delinquent;
(g) liens incurred in connection with the extension, renewal or refinancing
of the indebtedness secured by liens of the type described above in clauses
(a) or (b) above, provided that any extension, renewal or replacement lien
is limited to the property encumbered by the existing lien and the principal
amount of the indebtedness being extended, renewed or refinanced does not
increase; or
(h) liens in favor of customs and revenue authorities which secure payment
of customs duties in connection with the importation of goods.
Section 3.3 Consent to Additional Liens. Secured Party will have the right
to require, as a condition to any consent under clause (d) above, that the
holder of the additional security interest or lien sign an intercreditor
agreement on Secured Party's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of
Secured Party, and agree not to take any action to enforce its subordinate
security interest so long as any Obligations remain outstanding, and that
Debtor agrees that any uncured default in any obligation secured by the
subordinate security interest shall also constitute an Event of Default
under this Agreement.
ARTICLE IV
EVENTS OF DEFAULT
Section 4.1 Defined. The occurrence of any of the following events
shall constitute an event of default under this Agreement (each, an
"Event of Default"):
(i) the failure of the Debtor to perform or comply with any act, duty or
obligation required to be performed under this Agreement if such failure
is not remedied within ten (10) days following receipt by the Debtor of
notice of such failure from the Secured Party; or
(ii) if any of the representations or warranties of the Debtor set forth
in this Agreement shall prove to have been incorrect in any material
respect when made, or if they become incorrect, if not cured within thirty
(30) days of notice from Secured Party of such event; or
(iii) if any material portion of the Collateral shall be damaged, destroyed
or otherwise lost and such damage, destruction or loss is not covered by
insurance; or
(iv) if an Event of Default as defined in the Convertible Notes shall have
occurred; or
(v) if Monte Ross is terminated as Chairman of the Debtor (including a
change or diminution of his duties as such), whether by resignation,
termination, death, disability or otherwise, unless the Secured Party
shall have consented to such termination, except for a termination in
connection with a Change of Control (as defined in the Convertible Note).
Section 4.2 Rights and Remedies Upon Default. If an Event of Default
shall have occurred and be continuing hereunder or under the Convertible
Notes, the Secured Party may, at its sole option, without notice or demand,
declare the Obligations to be immediately due and payable. As to any
Collateral, the Secured Party shall have the rights and remedies of any
secured creditor under the Uniform Commercial Code as in effect, from time
to time, in Missouri ("UCC"), such rights to be exercised in such order or
manner as the Secured Party may determine in its sole discretion against
the Debtor. If for any reason the Secured Party should be required by law
or otherwise to give notice to the Debtor of the sale of any Collateral,
the Debtor agrees that any written notice sent by overnight delivery service
not less than five (5) calendar days before the sale or mailed postage
prepaid to the Debtor's address listed below not less than ten (10) calendar
days before the sale shall be deemed reasonable and adequate.
ARTICLE V
ADDITIONAL REMEDIES
Section 5.1 Power of Collection. Upon the occurrence of an Event of
Default hereunder and subject to any prior rights of the holders of the
Senior Debt, the Debtor shall:
(a) endorse any and all documents evidencing any Collateral to the Secured
Party and notify any payor that said documents have been so endorsed and
that all sums due and owing pursuant to them should be paid directly to the
Secured Party;
(b) turn over to the Secured Party all documents evidencing any right to
collection of any sums due the Debtor arising from or in connection with
any of the Collateral;
(c) mark or stamp each of its accounting records pertaining to any of its
accounts, relating howsoever to this Agreement or the Convertible Notes,
with the legend "assigned to BH Capital Investments, L.P." and keep all of
its books, records, documents and instruments relating to the Collateral
in such manner as the Secured Party may require;
(d) mark or stamp all invoices with a similar legend satisfactory to the
Secured Party so as to indicate that the same must be now paid directly to
the Secured Party;
(e) take any action reasonably required by the Secured Party with reference
to the Federal Assignment of Claims Act; and
(f) assign to Secured Party any or all of Debtor's copyrights and patents
as demanded by Secured Party.
Section 5.2 Notification to Debtors. The Secured Party shall also have
the right, at any time, upon the occurrence of any Event of Default
hereunder or as defined in the Convertible Notes, directly to notify any
debtor or debtors of the Debtor to make payments of any and all amounts
directly to the Secured Party, and the Secured Party shall have the further
right to notify the U.S. postal authorities to change the address for
delivery of mail of the Debtor to an address designated by the Secured
Party and to receive, open and dispose of all mail addressed to the Debtor.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
The Debtor represents and warrants:
(a) that it is the owner of and, subject to the lien of the holders of the
Senior Debt and other Permitted Liens, has good and marketable ownership
of or title to the Collateral;
(b) that it has not granted, nor will grant, a security interest in the
Collateral to any other individual or entity other than the holders of the
Senior Debt and other Permitted Liens, and that such Collateral is otherwise
free and clear of any mortgage, pledge, lease, trust, bailment, lien,
security interest, encumbrance, charge or other arrangement;
(c) that it has the authority and capacity to perform its respective
obligations hereunder; and
(d) that its true and correct company name, any trade name(s) under which
it conducts its business, its chief executive office, its place(s) of
business and the locations of the Collateral or records relating to the
Collateral are set forth in Schedule B hereto.
ARTICLE VII
NEGATIVE COVENANTS
Section 7.1 Other Encumbrances. The Debtor shall defend, at Debtor's
sole cost and expense, its title to the Secured Party's interest in the
Collateral against all claims, take any action necessary to remove any
encumbrances other than those permitted hereunder and defend the right,
title and interest of the Secured Party in and to any of the Debtor's
rights in the Collateral.
Section 7.2 Change in Management. The Debtor shall not make a material
change in the management of the Debtor except in connection with a Change
of Control (as defined in the Convertible Notes).
Section 7.3 Change Name or Location. The Debtor shall not change its
company name or conduct its business under any name other than that set
forth herein or change its chief executive office, place of business or
location of the Collateral or records relating to the collateral from the
current location, unless it shall have given at least 30 day's prior
written notice of such change to Secured Party.
Section 7.4 Dissolution. The Debtor shall not dissolve or otherwise
terminate its company status or make any substantial change in the basic
type of business conducted by Debtor as of the date hereof (i.e., business
focused on electronics or travel data), other than pursuant to strategic
transactions which have been approved by Secured Party.
ARTICLE VIII
WAIVERS
Section 8.1 Waivers of Rights. The Debtor waives any right to
require the Secured Party to (a) proceed against any person, (b) proceed
against any other collateral under any other agreement, (c) pursue any
other remedy in the Secured Party's power, and (d) make presentment,
demand, dishonor, notice of dishonor, acceleration and/or notice of non-
payment.
Section 8.2 Waiver of Defense. The Debtor waives any defense that it
may have to the exercise by Secured Party of its rights under this
Agreement, other than payment in full of the Obligations.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Attorney-in-Fact. The Debtor appoints the Secured Party its
true attorney-in-fact to perform any of the following powers, which are
irrevocable until termination of this Agreement and may be exercised, from
time to time, by the Secured Party's officers and employees or any of them
in the event of a default hereunder or under the Convertible Notes or
either of them: (i) to perform any obligation of the Debtor hereunder in
the Debtor's name or otherwise; (ii) to collect by legal proceedings or
otherwise all dividends, interest, principal or other sums now or hereafter
payable upon or on account of the Collateral, to accept other property in
exchange for the Collateral, and any money or property received in exchange
for the Collateral may be applied to the Obligations to the Secured Party
or held by the Secured Party under this Agreement; (iii) to make any
compromise or settlement the Secured Party deems desirable or proper in
respect of the Collateral; (iv) to insure, process and preserve the
Collateral. The foregoing power of attorney shall take effect only upon
an Event of Default or upon failure by Debtor to perform any of its
obligations hereunder; and (v) to file Form UCC-1 Financing Statements
naming Debtor as the debtor thereunder without the signature of Debtor in
such jurisdictions as shall be necessary to perfect Secured Party's
security interest as contemplated by the Agreement. The power-of-attorney
granted hereunder shall be deemed to be the authorization required under
Section 9-509 of the UCC to file such Financing Statements without Debtor's
signature.
Section 9.2 Cross Default. Debtor agrees and acknowledges that default
under the terms of this Agreement shall constitute default under the
Convertible Notes, and default under the Convertible Notes shall constitute
default under this Agreement. The security interests, liens and other
rights and interests in and relative to any of the real or personal
property of the Debtor now or hereafter granted to the Secured Party by
the Debtor by or in any instrument or agreement, including but not limited
to this Agreement, the Exchange Agreement, the Registration Rights
Agreement or the Convertible Notes shall serve as security for any and
all liabilities of the Debtor to the Secured Party, including but not
limited to the liabilities described in this Agreement, the Exchange
Agreement, the Registration Rights Agreement and the Convertible Notes,
and, for the repayment thereof, the Secured Party may resort to any
security held by it in such order and manner as it may elect.
Section 9.3 Notices. All notices, requests or demand to or upon a party
to this Agreement shall be given or made by the other party hereto in
writing and by depositing in the mails postage prepaid, return receipt
requested, addressed to the addressee at the address set forth below.
If to the Secured Party: BH Capital Investments, L.P.
175 Bloor Street East
South Tower, 7th Floor
Toronto, Ontario M4W 3R8
Attention: Henry Brachfeld
Fax: (416) 929-5314
If to the Debtor: Ultradata Systems, Incorporated
9375 Dielman Industrial Drive
St. Louis, MO 63132
Attn: Mr. Monte Ross
Tel: (314) 997-2250
Fax: (314) 997-1281
No other method of giving any notice, request or demand is hereby precluded
provided such shall not be deemed given until such notice is actually
received at the address of the addressee.
Section 9.4 Fees and Expenses. On demand by the Secured Party, without
limiting any of the terms of the Exchange Agreement, the Registration
Rights Agreement or the Convertible Notes, the Debtor shall pay all
reasonable fees, costs, and expenses (including without limitation
reasonable attorneys' fees and legal expenses) incurred by the Secured
Party in connection with (a) filing or recording any documents (including
all taxes in connection therewith) in public offices; and (b) paying or
discharging any taxes, counsel fees, maintenance fees, encumbrances, or
other amounts in connection with protecting, maintaining, or preserving
the Collateral or defending or prosecuting any actions or proceedings
arising out of or related to the Collateral.
Section 9.5 No Waiver. No course of dealing between the Debtor and the
Secured Party, nor any failure to exercise nor any delay in exercising,
on the part of the Secured Party, any right, power, or privilege under
this Agreement or under the Exchange Agreement, the Registration Rights
Agreement or the Convertible Notes, or any other agreement, shall operate
as a waiver. No single or partial exercise of any right, power, or
privilege under this Agreement or under the Purchase Agreement or any
other agreement by the Secured Party shall preclude any other or further
exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege by the Secured Party.
Section 9.6 Rights Are Cumulative. All of the Secured Party's rights and
remedies with respect to the Collateral whether established by this
Agreement, the Exchange Agreement, the Convertible Notes or any other
documents or agreements, or by law shall be cumulative and may be exercised
concurrently or in any order.
Section 9.7 Indemnity. The Debtor shall protect, defend, indemnify, and
hold harmless the Secured Party and the Secured Party's assigns from all
liabilities, losses, and costs (including without limitation reasonable
attorneys' fees and expenses) incurred or imposed on the Secured Party
relating to the matters in this Agreement, including, without limitation,
in connection with the Secured Party's defense of any action brought by a
third party against the Secured Party relating to this Agreement or any of
the Collateral, but otherwise not arising from the Secured Party's gross
negligence or willful misconduct.
Section 9.8 Severability. The provisions of this Agreement are severable.
If any provision of this Agreement is held invalid or unenforceable in
whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such provision, or part thereof, in
such jurisdiction, and shall not in any manner affect such provision or
part thereof in any other jurisdiction, or any other provision of this
Agreement in any jurisdiction.
Section 9.9 Amendments; Entire Agreement. This Agreement is subject to
modification only by a writing signed by the parties. To the extent that
any provision of this Agreement conflicts with any provision of the Exchange
Agreement, the Registration Rights Agreement or the Convertible Notes, the
provision giving the Secured Party greater rights or remedies shall govern,
it being understood that the purpose of this Agreement is to add to, and
not detract from, the rights granted to Secured Party under the Exchange
Agreement, the Registration Rights Agreement and the Convertible Notes.
This Agreement, the Exchange Agreement, the Registration Rights Agreement,
the Convertible Notes and the documents relating thereto comprise the
entire agreement of the parties with respect to the matters addressed in
this Agreement.
Section 9.10 Further Assurances. At the Secured Party's request, Debtor
shall execute and deliver to the Secured Party any further instruments or
documentation, and perform any acts, that may be reasonably necessary or
appropriate to implement this Agreement, the Exchange Agreement, the
Registration Rights Agreement, or the Convertible Notes or any other
agreement, and the documents relating thereto, including without limitation
any instrument or documentation reasonably necessary or appropriate to
create, maintain, perfect, or effectuate the Secured Party's security
interests in the Collateral.
Section 9.11 Release. At such time as the Debtor shall completely satisfy
all of the Obligations and no Convertible Notes are outstanding, the
Secured Party shall execute and deliver to the Debtor all assignments and
other instruments as may be reasonably necessary or proper to terminate
this Agreement and the Secured Party's security interest in the Collateral,
subject to any disposition of the Collateral which may have been made by
the Secured Party pursuant to this Agreement. For the purpose of this
Agreement, the Obligations shall be deemed to continue if the Debtor enters
into any bankruptcy or similar proceeding at a time when any amount paid
to the Secured Party could be ordered to be repaid as a preference or
pursuant to a similar theory, and shall continue until it is finally
determined that no such repayment can be ordered.
Section 9.12 Successors. The benefits and burdens of this Agreement
shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties; provided, however, that
the Debtor may not transfer any of the Collateral or any rights hereunder,
without the prior written consent of the Secured Party, except as
specifically permitted hereby.
Section 9.13 Governing Law. THE VALIDITY, INTERPRETATION AND ENFORCEMENT
OF THIS AGREEMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE,
SHALL BE GOVERNED BY THE INTERNAL LAWS AND DECISIONS OF THE STATE OF
MISSOURI. ALL DISPUTES BETWEEN THE DEBTOR AND SECURED PARTY, WHETHER
SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY
BY STATE AND FEDERAL COURTS LOCATED IN ST. LOUIS COUNTY, MISSOURI AND THE
COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT
SECURED PARTY SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, TO PROCEED AGAINST THE DEBTOR OR ITS PROPERTY IN ANY LOCATION
REASONABLY SELECTED BY SECURED PARTY IN GOOD FAITH TO ENABLE SECURED PARTY
TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER
IN FAVOR OF SECURED PARTY. THE DEBTOR AGREES THAT IT WILL NOT ASSERT ANY
PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING
BROUGHT BY SECURED PARTY. THE DEBTOR WAIVES ANY OBJECTION THAT IT MAY
HAVE TO THE LOCATION OF THE COURT IN WHICH SECURED PARTY HAS COMMENCED A
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON FORUM NON CONVENES.
Section 9.14 Waiver of Right to Jury Trial. THE SECURED PARTY AND THE
DEBTOR EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO:
(I) THIS AGREEMENT; OR (II) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR
AGREEMENT BETWEEN THE SECURED PARTY AND THE DEBTOR; OR (III) ANY CONDUCT,
ACTS OR OMISSIONS OF THE SECURED PARTY OR THE DEBTOR OR ANY OF THEIR
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS
AFFILIATED WITH THE SECURED PARTY OR THE DEBTOR; IN EACH OF THE FOREGOING
CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
Section 9.15 Capitalized Terms. All terms capitalized herein and not
otherwise defined shall have the meaning set forth in the Exchange
Agreement, and in the UCC as in effect in the State of Missouri.
Signature Page Follows
IN WITNESS WHEREOF, the Debtor and the Secured Party have duly executed this
Agreement as of the day and year first written above.
SECURED PARTY:
BH Capital Investments, L.P., for itself and as
agent for Excalibur Limited Partnership
By: HB & Company, Inc., its general partner
By:______________________________________
Henry Brachfeld, President
DEBTOR:
Ultradata Systems, Incorporated
By:______________________________________
Monte Ross, Chairman
SCHEDULE A
To Security Agreement
Collateral
All Accounts, Deposit Accounts, Goods, Fixtures, Securities, Documents
of Title, Inventory, General Intangibles, Equipment and Records now owned or
acquired at any time hereafter by Debtor, wherever located or situated, and
the products and proceeds (including condemnation proceeds) of the foregoing.
The capitalized terms used herein shall have the meanings set forth below.
All other terms used herein are used as defined in the UCC.
- "Accounts" means any and all bank accounts, rights to payment for goods,
including Inventory, sold or leased or to be sold or leased or for
services rendered or to be rendered, whether or not evidenced by an
instrument or chattel paper, and no matter how evidenced, including
such rights in the form of accounts (as that term is defined in the
UCC), accounts receivable, exchange receivables, contract rights,
Instruments, Documents, Chattel Paper, purchase orders, notes, drafts,
acceptances and all other forms of obligations and receivables, including
all right, title and interest of the Debtor in the Inventory which gave
rise to any of the foregoing, including the right of stoppage in transit
and all returned, rejected, rerouted or repossessed Inventory.
- "Chattel paper" means "chattel paper" as that term is defined in the UCC.
- "Deposit Accounts" means "deposit accounts" as that term is defined in
the UCC.
- "Documents" means "documents" as that term is defined in the UCC.
- "Documents of Title" means "documents of title" as defined in the UCC.
- "Equipment" means "equipment" as defined in the UCC, and also all motor
vehicles, rolling stock, machinery, office equipment, plant equipment,
tools, dies, molds, store fixtures, furniture, and other goods,
property, and assets which are used and/or were purchased for use in
the operation of furtherance of the Debtor's business, and any and all
accessions, additions thereto, and substitutions therefore.
- "Fixtures" means "fixtures" as that term is defined in the UCC.
- "General Intangibles" means "general intangibles" as defined in the UCC
and also all books and records; customer lists; goodwill; causes of
action; judgments; literary rights; rights to performance; licenses,
permits, certificates of convenience and necessity, and similar rights
granted by any governmental authority; copyrights, trademarks, patents,
patent applications, proprietary processes, blueprints, drawings, designs,
diagrams, plans, reports, charts, catalogs, manuals, literature,
technical data, proposals, cost estimates and all other reproductions on
paper, or otherwise, of any and all the design, development, manufacture,
sale, marketing, lease or use of any or all goods produced or sold or
leased or credit extended, or service performed by the Debtor, whether
intended for an individual customer or the general business of Debtor.
- "Goods" means "goods" as that term is defined in the UCC.
- "Instruments" means "instruments" as that term is defined in the UCC.
- "Inventory" means any and all raw materials, supplies, work in process,
finished goods, goods returned by customers, and inventory (as that
term is defined in the UCC), including goods in transit, wherever
located, which are-held for sale (but excluding goods subject to leases
and goods not manufactured by the Debtor or an affiliate and which were
purchased for resale directly or indirectly by the Debtor from a non-
affiliate pursuant to a then existing agreement or arrangement with a
non-affiliate customer), including the right of stoppage in transit, or
goods which are or might be used in connection with the manufacturing
or packing of such goods, and all such goods, the sale or disposition
of which has given rise to an Account, which are returned to and/or
repossessed and/or stopped in transit by the Debtor or by the Secured
Party, or at any time hereafter in the possession or under the control
of the Debtor or the Secured Party or any agent or bailee of the Debtor
or the Secured Party, and any documents of title representing any of
the above.
- "Records" means all books, records, customer lists, ledger cards,
computer programs, computer tapes, disks, printouts and records and
other property and general intangibles at any time evidencing or
relating to any of the types (or items) of property covered by this
financing statement, whether now in existence or hereafter created.
- "Securities" means "securities" as that term is defined in the UCC.
- "UCC" means the Uniform Commercial Code as in effect in the State of
Missouri.
SCHEDULE B
To Security Agreement
List of Collateral Locations and Executive Offices of Debtor
Executive Offices:
9375 Dielman Industrial Drive
St. Louis, MO 63132
Collateral Locations:
9375 Dielman Industrial Drive
St. Louis, MO 63132
SCHEDULE C
To Security Agreement
List of Existing Security Interests
1. KBK Financial, Inc.
301 Commerce St., Suite 2200
Fort Worth, TX 76102
(Accounts, account and contract rights, proceeds of inventory,
contracts, drafts, acceptances, documents, instruments, chattel
paper, deposit accounts, general intangibles and all products and
proceeds therefrom, including all returned or repossessed goods, as
well as all books and records pertaining to all of the foregoing and
all money and other funds of Debtor now or hereafter in the
possession, custody or control of KBK, from whatever source.)
2. Suburban Business Products
P.O. Box 609
Cedar Rapids, IA 52406-0609
(Lease 121617)