-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Su+TqA0aBqv03XI3rSVeRpKWwNHOu3z5OOfHWTBMhYwm1Ow6RrVRaVJTfvTVyl9j T2+EDEvhtzF7cTZ606AftQ== 0000950135-97-004925.txt : 19971210 0000950135-97-004925.hdr.sgml : 19971210 ACCESSION NUMBER: 0000950135-97-004925 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971125 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19971209 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIGHT RESOURCE CORP CENTRAL INDEX KEY: 0000895651 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HEALTH SERVICES [8000] IRS NUMBER: 043181524 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-21068 FILM NUMBER: 97734424 BUSINESS ADDRESS: STREET 1: 67 SOUTH BEFORD ST CITY: BURLINGTON STATE: MA ZIP: 01803 BUSINESS PHONE: 6172291100 MAIL ADDRESS: STREET 1: 67 SOUTH BEDFORD ST CITY: BURLINGTON STATE: MA ZIP: 01803 FORMER COMPANY: FORMER CONFORMED NAME: NEWVISION TECHNOLOGY INC DATE OF NAME CHANGE: 19940224 8-K 1 SIGHT RESOURCE CORPORATION CURRENT REPORT 1 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): November 25, 1997 - -------------------------------------------------------------------------------- SIGHT RESOURCE CORPORATION (Exact name of Registrant as specified in charter) Delaware 1-1196 ###-##-#### - -------------------------------------------------------------------------------- (State or other jurisdiction of (Commission file number) (I.R.S. Employer incorporation) Identification No.) - -------------------------------------------------------------------------------- 100 Jeffrey Avenue, Holliston, MA 01746 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (508) 429-6916 - -------------------------------------------------------------------------------- Registrant's Telephone number, including area code ================================================================================ 2 ITEM 5. OTHER EVENTS On November 25, 1997, Sight Resource Corporation (the "Registrant") completed the closing under the Series B Convertible Preferred Stock ("Series B") Purchase Agreement by and between the Registrant and Carlyle Venture Partners, L.P., C/S Venture Investors, L.P., Carlyle U.S. Venture Partners, L.P. and Carlyle Venture Coinvestment, L.L.C. (collectively the "Purchasers"), dated October 9, 1997, pursuant to which the Registrant issued to the Purchasers an aggregate of 1,452,119 shares of Series B Convertible Preferred Stock as well as Class I and Class II Warrants for a purchase price of $5,082,417. The following is a description of material facts related to the transaction: - - The Class I (Mirror) Warrants entitle the Purchasers to purchase an amount of shares of the Registrant's Common Stock, par value $.01 per share (the "Common Stock"), equal to an aggregate of up to 19.9% (presently 842,294 shares) of the shares of Common Stock purchasable under the Registrant's outstanding warrants and options on the same terms and conditions of existing warrant and option holders. The Purchasers are obligated to exercise these warrants at the same time the options and warrants of existing holders are exercised, subject to certain limitations. - - The Class II Warrants entitle the Purchasers to purchase an aggregate of 290,424 shares of the Registrant's Common Stock at an exercise price of $7.00 for a term of five years. - - If the Registrant proposes to sell any shares of its Common Stock in the future, other than in certain permitted circumstances, the Purchasers shall be entitled to preemptive rights to purchase an amount of shares of such sale or issuance which would enable the Purchasers to maintain the same proportionate percentage of ownership as was held by the Purchasers immediately prior to such issuance or sale, calculated as if the Series B had been converted and the Class II Warrants had been exercised. - - The Purchasers are entitled to "shelf" registration rights and "piggyback" registration rights with respect to the shares of Common Stock underlying the Series B, the Class I Warrants and the Class II Warrants. - - The Registrant is required to hire, as soon as practical, an individual reasonably satisfactory to it and the Purchasers to become the Registrant's new President. - - Each share of Series B is convertible into one share of Common Stock, subject to adjustment, at the Purchaser's option at any time and at the Registrant's option if the average price per share of Common Stock during any period of thirty consecutive trading days equals or exceeds $7.00 at any time during the first three years or $9.00 at any time thereafter. - - The holders of the Series B have the right to appoint one director to the Registrant's Board of Directors immediately and a second director at the Registrant's 1998 Annual Meeting of Stockholders. In connection with the closing of this transaction, the holders appointed Richard Darman to the Board of Directors of the Registrant. - - Upon a change of control of the Registrant, defined as (i) a change in any person or group obtaining a majority of the securities ordinarily having the right to vote in an election of Directors; (ii) during any two year period, the individuals who at the beginning of the period constituted the Registrant's Board of Directors no longer constitute a majority of the Board of Directors; (iii) any merger, consolidation, recapitalization, reorganization, dissolution or 3 liquidation of the Registrant which results in the current stockholders no longer owning more than 50% of the voting securities of the Registrant; (iv) any sale, lease, exchange or other transfer of all, or substantially all, of the assets of the Registrant; or (v) the adoption of a plan leading to the liquidation or dissolution of the Registrant, at the option of the Purchasers, the Registrant would have to redeem the Series B at a price of 105% of the offering price, subject to certain adjustments, plus accrued and unpaid dividends. - - The Registrant filed a Certificate of Designation, Preferences and Rights to designate the Series B and to provide its rights and terms. - - The Registrant amended the Rights Agreement between it and American Stock Transfer & Trust Company, dated as of May 15, 1997, to revise the definition of "Acquiring Person" contained therein to permit the sale of the Series B to the Purchasers. The Registrant presently intends to use the net proceeds to implement its plan for consolidating primary eye care centers. 4 ITEM 7. EXHIBITS EXHIBIT NUMBER TITLE - -------------- ----- 4.1 Certificate of Designation, Preferences, and Rights of Series B Convertible Preferred Stock of Sight Resource Corporation 4.2 Form of Class I (Mirror) Warrant to Purchase Shares of Common Stock, Par Value $0.01 per Share, of Sight Resource Corporation 4.3 Form of Class II Warrant to Purchase up to 290,424 Shares of Common Stock, Par Value $0.01 per Share, of Sight Resource Corporation 4.4 Amendment to Rights Agreement 10.1 Series B Convertible Preferred Stock Purchase Agreement 99.1 News Release regarding Series B Convertible Preferred Stock Purchase Agreement 5 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. SIGHT RESOURCE CORPORATION Date: December 8, 1997 /s/ ALAN MACDONALD ---------------- ------------------ Alan MacDonald,Vice President of Finance & Administration (principal financial and chief accounting officer) EX-4.1 2 CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS 1 Exhibit 4.1 CERTIFICATE OF DESIGNATION, PREFERENCES, AND RIGHTS OF SERIES B CONVERTIBLE PREFERRED STOCK OF SIGHT RESOURCE CORPORATION SIGHT RESOURCE CORPORATION, a Delaware corporation (the "Corporation"), DOES HEREBY CERTIFY: That, pursuant to authority conferred on the Board of Directors of the Corporation by the Certificate of Incorporation of the Corporation and pursuant to the provisions of Section 151 of Title 8 of the Delaware Code, the Board of Directors, at a meeting of its members held on September 2, 1997, adopted a resolution providing for the designation, preferences and relative, participating, optional or other rights, and qualifications, limitations or restrictions thereof, of one million four hundred fifty two thousand one hundred nineteen (1,452,119) shares of the Corporation's Preferred Stock, par value $.01 per share, which resolution is as follows: RESOLVED: That pursuant to the authority granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of the Certificate of Incorporation of the Corporation, the Board hereby designates a series of Preferred Stock of the Corporation, par value $.01 per share (the "Preferred Stock"), consisting of 1,452,119 shares of the authorized unissued Preferred Stock, as Series B Convertible Preferred Stock (the "Series B Preferred"), and hereby fixes such designation and number of shares, and the powers, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof as set forth below, and that the officers of the Corporation, and each acting singly, are hereby authorized, empowered and directed to file with the Secretary of State of the State of Delaware a Certificate of Designation, Preferences and Rights of the Series B Convertible Preferred Stock, as such officer or officers shall deem necessary or advisable to carry out the purposes of this Resolution. Series B Convertible Preferred Stock. The preferences, privileges and restrictions granted to or imposed upon the Corporation's Series B Convertible Preferred Stock, par value $.01 per share, or the holders thereof, are as follows: 1. Designation and Amount. The shares of such series shall be designated as "Series B Convertible Preferred Stock" (the "Series B Preferred") and the number of shares constituting the Series B Preferred shall be one million four hundred fifty two thousand one hundred nineteen (1,452,119). Such number of shares may be increased or decreased by resolution of the Board of Directors, provided, however, that no decrease shall reduce the number of shares of Series B Preferred to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation and convertible into Series B Preferred. 2 2. Dividends and Distributions. 2.1 Preferred Stock Dividends. Subject to the provisions of law and this Certificate of Incorporation, the holders of shares of Series B Preferred, in preference to the holders of shares of Common Stock and of any other capital stock of the Corporation ranking junior to the Series B Preferred as to payment of dividends, shall be entitled to receive, out of funds legally available therefor, cumulative dividends at the annual rate of ten percent (10%) times the Liquidation Preference, as defined in Section 3.1, commencing on and after the third anniversary of the date of original issuance of each share of Series B Preferred and thereafter such dividends on the Series B Preferred shall accrue daily and shall be payable quarterly in arrears in cash or in additional shares of Series B Preferred, at the holder's option. The amount of dividends payable for the initial dividend period and any period shorter than a full quarterly period during which shares are outstanding shall be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed in the period in which payable. The number of shares of Series B Preferred issuable in payment of any dividends shall be calculated by dividing the cumulative dividends then payable by the Liquidation Preference. No dividends shall accrue or be payable prior to the third anniversary of the date of original issuance of each share of Series B Preferred. 2.2 Dividend Restrictions. Unless all accrued dividends on the Series B Preferred pursuant to this Section 2 shall have been paid or declared and a sum sufficient for the payment thereof set apart, no dividend shall be paid or declared, and no distribution shall be made on any Common Stock or any class or series of capital stock ranking junior to the Series B Preferred. If dividends are declared with respect to the Common Stock or any class or series of capital stock ranking junior to the Series B Preferred and the foregoing condition is satisfied, then holders of Series B Preferred shall be entitled to receive a dividend equivalent to that which would have been payable had the Series B Preferred been converted into shares of Common Stock immediately prior to the record date for payment of the dividends on the Common Stock. No dividends or other distributions shall be authorized, declared, paid or set apart for payment on any class or series of the Corporation's stock heretofore or hereafter issued ranking, as to dividends, on a parity with or junior to the Series B Preferred for any period unless full cumulative dividends have been, or contemporaneously are, authorized, declared, paid or set apart in trust for such payment on the Series B Preferred. 3. Liquidation, Dissolution or Winding-Up. 3.1 Series B Preferred Preference. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, after payment of all amounts owing to holders of capital stock ranking senior to the Series B Preferred, the holders of shares of Series B Preferred then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, before any payment shall be made to the holders of the Common Stock or any class or series of capital stock ranking junior to the Series B Preferred by reason of their ownership thereof, an amount equal to $3.50 per share (the "Liquidation Preference") of Series B Preferred (subject to equitable adjustment in the event of any stock dividend, stock split, combination, reorganization, recapitalization, reclassification, or other similar event affecting such shares) plus all accrued but unpaid dividends, if any, to the date of winding up, whether or not declared, on the Series B Preferred. -2- 3 If upon such liquidation, distribution or winding-up of the Company, whether voluntary or involuntary, the assets to be distributed are insufficient to permit payment in full to the holders of Series B Preferred, then the entire assets of the Corporation to be distributed, after distribution to capital stock ranking senior to the Series B Preferred, shall be distributed ratably among the holders of Series B Preferred. 3.2 Remaining Liquidating Distribution. After payment has been made in full pursuant to Section 3.1 above, and to holders of capital stock of the Corporation ranking senior to the Series B Preferred, or the Corporation shall have set aside funds sufficient for such payments in trust for the account of such holders so as to be available for such payment, all remaining assets available for distribution (after payment or provision for payment of all debts and liabilities of the Corporation) shall be distributed to the respective holders of any capital stock ranking junior to the Series B Preferred but senior to the Common Stock ratably in proportion to the number of shares of such stock they then hold, if any such stock is then outstanding, and thereafter to the respective holders of the Common Stock ratably in proportion to the number of shares of Common Stock they then hold. 3.3 Other Distributions. The amount deemed distributed to the holders of Series B Preferred upon any liquidation, dissolution, or winding-up shall be the cash or the fair market value of the property, rights, or securities distributed to such holders by the acquiring person, firm, or other entity. The value of such property, rights, or other securities shall be determined in good faith by the Board of Directors of the Corporation. 4. Voting Rights. Except as otherwise required by law or, with respect to any series of Preferred Stock, as otherwise provided by the Board of Directors, the holders of the Series B Preferred shall have the following respective voting rights: 4.1 Series B Preferred Voting Rights. Each holder of shares of Series B Preferred shall be entitled to notice of any stockholders' meeting and to vote on any matters on which the Common Stock may be voted. Each share of Series Preferred shall be entitled to a number of votes equal to the number of whole shares of Common Stock into which such share of Series B Preferred is then convertible (as adjusted from time to time in the manner set forth herein). Unless otherwise required by law, holders of Series B Preferred shall vote together with holders of Common Stock as a single class on all matters submitted to a vote of the Company's stockholders. 4.2 Series B Director Representation. Commencing on the date of issuance of the Series B Preferred, the holders of Series B Preferred, voting as a separate class, shall have the right to elect one director to the Board of Directors of the Corporation (the "Series B Director"). Commencing on the earlier to occur of (i) a vacancy on the Board of Directors due to the resignation, death, retirement or non-election of any member other than the Series B Director, or (ii) the date of the Corporation's 1998 annual meeting of stockholders, the holders of Series B Preferred, voting as a separate class, shall have the right to elect a second member of the Board of Directors of the Corporation. Thereafter, the holders of Series B Preferred shall have the right, voting as a separate class, to elect two members of the Board of Directors of the Corporation (including the Series B Director) until such time as at least one-half but less than all of the outstanding shares of Series B Preferred have been redeemed, repurchased, retired or converted into shares of Common Stock of the Corporation, in which case the holders of Series B Preferred shall have the right, voting as a separate class, to elect only one member to the Board of Directors of the -3- 4 Corporation until such time as all of the outstanding shares of Series B Preferred have been redeemed, repurchased, retired or converted into shares of Common Stock of the Corporation. In the event that the Corporation is unable to provide the holders of the Series B Preferred with the foregoing right to elect two members to the Board of Directors on or before May 31, 1998, then thereafter and until such right is provided by the Corporation, the holders of Class B Preferred shall be entitled to receive, out of funds legally available therefor, cumulative dividends at the annual rate of twelve percent (12%) times the Liquidation Preference. 4.3 Matters Requiring Class Vote. So long as any shares of Series B Preferred are outstanding, the Corporation shall not, without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series B Preferred given in writing or by a vote at a meeting, consenting or voting (as the case may be) as a single class: (a) create, authorize or issue any shares of any other security or class of stock ranking senior to, or pari passu with, the Series B Preferred with respect to dividend rights, liquidation preference or otherwise; (b) amend, alter or repeal, whether by merger, consolidation or otherwise, the Certificate of Incorporation or By-Laws of the Corporation, if such amendment, alteration or repeal adversely affects the powers, preferences or special rights of the Series B Preferred; (c) redeem any security ranking junior to the Series B Preferred for cash, stock or other consideration of any kind (other than the redemption, pursuant to that certain Rights Agreement between the Corporation and American Stock Transfer & Trust Company, of the Rights issued thereby and as defined therein); (d) enter into any transaction with any officer, director, employee or affiliate of the Corporation or any relative thereof, other than a transaction in the ordinary course of the Corporation's business, and on terms and conditions at least as favorable to the Corporation as could be negotiated with a third party; or (e) increase the size of the Board of Directors of the Corporation (except as contemplated hereunder). 5. Conversion of Series B Preferred. The holders of Series B Preferred and the Corporation shall have conversion rights as follows (the "Series B Conversion Rights"): 5.1 Right of Holder to Convert Series B Preferred. Each issued and outstanding share of Series B Preferred shall be convertible, at the option of the holder thereof, at any time after the date of issuance and without the payment of any additional consideration therefor, into that number of fully paid and nonassessable shares of Common Stock as is determined by dividing $3.50 by the Series B Conversion Price (as defined below) in effect at the time of conversion. The "Series B Conversion Price" at which shares of Common Stock shall be deliverable upon conversion of Series B Preferred shall initially be $3.50 per share. Such initial Series B Conversion Price shall be subject to adjustment (in order to adjust the number of shares of Common Stock into which the Series B Preferred is convertible) as herein provided. -4- 5 5.2 Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series B Preferred. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to the product of such fraction multiplied by the then effective Series B Conversion Price (rounded to the nearest whole cent). 5.3 Mechanics of Conversion. (a) In order for a holder of Series B Preferred to convert shares of Series B Preferred into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of Series B Preferred, at the office of the transfer agent for the Series B Preferred (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Series B Preferred represented by such certificate or certificates. Such notice shall state such holder's name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued and the number of shares of Series B Preferred to be converted. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney duly authorized in writing. The date of receipt of such certificates and notice by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) shall be the conversion date (the "Conversion Date") and the conversion shall be deemed effective as of the close of business on the Conversion Date. The Corporation shall, as soon as practicable after the Conversion Date, issue and deliver at such office to such holder of Series B Preferred, or to his or its nominees, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled, together with cash in lieu of any fraction of a share. In case the number of Series B Preferred represented by the certificate or certificates surrendered pursuant to Section 5.1 exceeds the number of shares converted, the Corporation shall, upon such conversion, execute and deliver to the holder, at the expense of the Corporation, a new certificate or certificates for the number of shares of Series B Preferred represented by such certificate or certificates surrendered but not converted. (b) The Corporation shall at all times when the Series B Preferred shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the Series B Preferred, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Series B Preferred. Before taking any action that would cause an adjustment reducing the Series B Conversion Price below the then-existing par value of the shares of Common Stock issuable upon conversion of the Series B Preferred, the Corporation shall take any corporate action that may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Series B Conversion Price. (c) Upon any such conversion, no adjustment to the Series B Conversion Price shall be made for any accrued and unpaid dividends on the Series B Preferred surrendered for conversion or on the Common Stock delivered upon conversion. (d) All shares of Series B Preferred surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices, to vote and to accrual of dividends shall immediately cease and terminate at the close of business on the Conversion Date (except only the right of the -5- 6 holders thereof to receive shares of Common Stock in exchange therefor) and any shares of Series B Preferred so converted shall be retired and canceled and shall not be reissued, and the Corporation from time to time shall take appropriate action to reduce the authorized Preferred Stock accordingly. 5.4 Adjustments to Series B Conversion Price for Diluting Issues: (a) Special Definitions. For the purposes of this Section 5, the following definitions shall apply: (1) "Option" means any outstanding right, option or warrant to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities excluding any rights, warrants and options granted or to be granted by the Corporation or any subsidiary thereof pursuant to any stock option plan or agreement which was adopted by the Board of Directors on or before the date hereof. (2) "Original Issue Date" with respect to the Series B Preferred means the date on which any shares of Series B Preferred first were issued. (3) "Convertible Securities" means any evidences of indebtedness, shares (other than Common Stock or Series B Preferred), or other securities directly or indirectly convertible into or exchangeable for Common Stock. (4) "Additional Shares of Common Stock" means, as to the Series B Preferred, all shares of Common Stock issued (or, pursuant to Section 5.4(c), deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable: (i) upon conversion of shares of Series B Preferred; (ii) as a dividend or distribution on Preferred Stock; (iii) by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock; (iv) upon the exercise of any right, warrant or option granted or to be granted pursuant to any stock option plan or agreement, as excluded from the definition of "Option" in Section 5.4(a)(1); or (v) under a registration statement pursuant to the Securities Act of 1933, as amended, which is declared effective by the Securities and Exchange Commission. (5) "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 issuable at such time upon conversion of Preferred Stock, and any other Convertible Securities then outstanding, plus the number of shares of Common Stock issuable at any time upon the exercise of all then outstanding Options. -6- 7 (b) No Adjustment of Series B Conversion Price. No adjustment shall be made in the Series B Conversion Price as the result of the issuance of Additional Shares of Common Stock or otherwise, unless the consideration per share determined pursuant to Section 5.4(e) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the Series B Conversion Price in effect on the date of, and immediately prior to, the issue of such Additional Shares of Common Stock. (c) Issue of Options and Convertible Securities Deemed Issue of Additional Shares of Common Stock. If the Corporation at any time or from time to time shall issue any Options or Convertible Securities, or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided, that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share determined pursuant to Section 5.4(e) of such Additional Shares of Common Stock would be less than the Series B Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided, further, that in any such case in which Additional Shares of Common Stock are deemed to be issued: (1) no further adjustment in the Series B Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Series B Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such options or the right of conversion or exchange under such Convertible Securities. (3) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Series B Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon shall, upon such expiration, be recomputed as if: (A) In the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the -7- 8 consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange; and (B) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation determined pursuant to Section 5.4(f) upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (4) no recomputation pursuant to the preceding clauses (2) and (3) shall have the effect of increasing the Series B Conversion Price to an amount that exceeds the lower of (i) the applicable Series B Conversion Price on the original adjustment date, or (ii) the Series B Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such recomputation date; (5) in the case of any Options which expire by their terms not more than thirty (30) days after the date of issue thereof, no adjustment of the Series B Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (3) above; and (6) if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Series B Conversion Price which became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the Series B Conversion Price shall be adjusted pursuant to this Section 5.4(c) as of the actual date of their issuance. (d) Stock Dividends, Stock Distributions and Subdivisions. In the event the Corporation at any time or from time to time after the Original Issue Date shall declare or pay any dividend or make any other distribution on the Common Stock payable in Common Stock, or effect a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then and in any such event, Additional Shares of Common Stock shall be deemed to have been issued: (1) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend or distribution, or (2) in the case of any such subdivision, at the close of business on the date immediately prior to the date upon which such corporate action becomes effective. If such record date shall have been fixed and such dividend shall not have been fully paid on the date fixed therefor, the adjustment previously made in the Conversion Price which became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this Section 5.4(d) as of the time of actual payment of such dividend. -8- 9 (e) Adjustment of Conversion Price Upon Certain Events. If the Corporation shall issue Additional Shares of Common Stock, including Additional Shares of Common Stock deemed to be issued pursuant to Section 5.4(c) hereof, but excluding Additional Shares of Common Stock issued pursuant to Section 5.4(d), which event is dealt with in Section 5.4(g), without consideration or for a consideration per share less than the Series B Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, such Series B Conversion Price shall be reduced, concurrently with such issue in order to increase the number of shares of Common Stock into which the Series B Preferred is convertible, to a price (calculated to the nearest cent) determined by multiplying such Series B Conversion Price by a fraction (x) the numerator of which shall be (A) the number of shares of Common Stock outstanding immediately prior to such issue (including shares of Common Stock issuable upon conversion of any outstanding Options or Convertible Securities), plus (B) the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common stock so issued would purchase at such Conversion Price, and (y) the denominator of which shall be (A) the number of shares of Common Stock outstanding immediately prior to such issue (including shares of Common Stock issuable upon conversion of any outstanding Options or Convertible Securities), plus (B) the number of such Additional Shares of Common Stock so issued, provided that the Series B Conversion Price shall not be so reduced at such time if the amount of such reduction would be an amount less than $0.05, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amounts so carried forward, shall aggregate $0.05 or more. (f) Determination of Consideration. For purposes of this Section 5.4, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (1) Cash and Property: Such consideration shall: (A) insofar as it consists of cash, be computed at the aggregate of cash received by the Corporation, excluding amounts paid or payable for accrued interest or accrued dividends; (B) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (C) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors. (2) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 5.4(c), relating to Options and Convertible Securities, shall be determined by dividing: -9- 10 (A) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration until such subsequent adjustment occurs) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (B) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number until such subsequent adjustment occurs) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (g) Adjustment for Stock Splits, Stock Dividends, Subdivisions, Combinations or Consolidation of Common Stock. In the event the outstanding shares of Common Stock shall be split, subdivided, combined or consolidated, by reclassification or otherwise, into a greater or lesser number of shares of Common Stock, and in the event that the Corporation shall issue shares of Common Stock by way of a stock dividend or other distribution to the holders of Common Stock, the Series B Conversion Price in effect immediately prior to such split, subdivision, stock dividend, combination or consolidation shall, concurrently with the effectiveness of such split, subdivision, stock dividend, combination or consolidation, be increased or decreased proportionately. 5.5 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Series B Conversion Price pursuant to this Section 5, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series B Preferred a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series B Preferred, furnish or cause to be furnished to such holder a similar certificate setting forth (i) such adjustments and readjustments, (ii) the Series B Conversion Price then in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property that then would be received upon the conversion of Series B Preferred. 5.6 Notice of Record Date. In the event that there occurs any of the following events: (a) the Corporation declares a dividend (or any other distribution) on its Common Stock payable in Common Stock or other securities of the Corporation; (b) the Corporation subdivides or combines its outstanding shares of Common Stock; (c) there occurs or is proposed to occur any reclassification of the Common Stock of the Corporation (other than a subdivision or combination of its outstanding shares of Common Stock or a stock dividend or stock distribution thereon), or of any consolidation -10- 11 or merger of the Corporation into or with another corporation, or of the sale of all or substantially all of the assets of the Corporation; (d) the involuntary or voluntary liquidation, dissolution, or winding-up of the Corporation; or (e) a Conversion Event (as defined in Section 5.7); then the Corporation shall cause to be filed at its principal office or at the office of the transfer agent of the Preferred Stock, and shall cause to be mailed to the holders of the Series B Preferred at their addresses as shown on the records of the Corporation or such transfer agent, at least fifteen days prior to the record date specified in (1) below or thirty days before the date specified in (2) below, a notice stating the following information: (1) the record date of such dividend, distribution, subdivision or combination, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, subdivision, or combination are to be determined, or (2) the date on which such reclassification, consolidation, merger, sale, liquidation, dissolution, winding-up or Conversion Event is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, liquidation, dissolution, winding-up or Conversion Event. 5.7 Right of Corporation to Convert Series B Preferred. (a) At any time after the date of issuance and at the option of the Corporation, upon fifteen (15) days prior written notice to the holders, all of the issued and outstanding shares of Series B Preferred shall be converted automatically, without the payment of any additional consideration therefor and without any action by any other person or entity, into shares of Common Stock at the then effective Series B Conversion Price, provided that (i) the Average Price Per Share, as defined below, of the Common Stock during the three year period commencing on the Original Issue Date and ending on the third anniversary of the Original Issue Date shall have been equal to or greater than $7.00, or (ii) the Average Price Per Share at any time following the third anniversary of the Original Issue Date shall have been equal to or greater than $9.00 (in each case, a "Conversion Event"). The "Average Price Per Share" shall mean the quotient derived by calculating a fraction (y) the numerator of which is the sum of the closing prices of the Common Stock as provided on the NASDAQ Stock Market, Inc. (or, if the Common Stock is then traded on any other exchange, the closing prices on such other exchange) during any period of thirty (30) consecutive trading days, and (z) the denominator of which is thirty (30). Notwithstanding the foregoing, with respect to the condition regarding the $7.00 minimum stock price set forth in subsection (a)(i) of Section 5.7 hereof (the "Minimum Price Condition"), a Conversion Event shall be deemed not to have occurred unless a person reasonably satisfactory to the Purchaser, as defined in that certain Series B Convertible Preferred Stock Purchase Agreement, dated October 9, 1997, has been employed by the Company -11- 12 as its President (the "Employment Condition"). Therefore, if the Employment Condition has been satisfied at the time that the Minimum Price Condition is satisfied, then the Conversion Event shall be deemed to have occurred on the date that such Minimum Price Condition is satisfied; if the Employment Condition has not been satisfied at the time that the Minimum Price Condition is satisfied, then the Conversion Event shall be deemed to have been postponed until the date that the Employment Condition is satisfied. (b) On or after the date of occurrence of an Conversion Event, and in any event within twenty (20) days after receipt of notice, by mail, postage prepaid from the Corporation of the occurrence of such event, each holder of record of shares of Series B Preferred being converted shall surrender such holder's certificates evidencing such shares at the principal office of the Corporation or at such other place as the Corporation shall designate, and shall thereupon be entitled to receive certificates evidencing the number of shares of Common Stock into which such shares of Series B Preferred are automatically converted and cash as provided in Section 5.2 in respect of any fraction of a share of Common Stock otherwise issuable upon such conversion. On the date of the occurrence of a Conversion Event, each holder of record of shares of Series B Preferred shall be deemed to be the holder of record of the Common Stock issuable upon such conversion and all shares of Series B Preferred shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices, to vote and to accrual of dividends shall immediately cease and terminate at the close of business on the Conversion Date (except only the right of the holders thereof to receive shares of Common Stock in exchange therefor), notwithstanding that the certificates representing such shares of Series B Preferred shall not have been surrendered at the office of the Corporation, that notice from the Corporation shall not have been received by any holder of record of shares of Series B Preferred, or that the certificates evidencing such shares of Common Stock shall not then be actually delivered to such holder. (c) All certificates evidencing shares of Series B Preferred that are required to be surrendered for automatic conversion in accordance with the provisions hereof, from and after the date such certificates are so required to be surrendered shall be deemed to have been retired and canceled and the shares of Series B Preferred represented thereby converted into Common Stock for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates on or prior to such date. The Corporation from time to time thereafter shall take appropriate action to reduce the authorized Preferred Stock accordingly. 5.8 Reorganization, Reclassification, Recapitalization, Consolidation, Merger or Sale. If any capital reorganization, reclassification or recapitalization of the capital stock of the Corporation, or consolidation or merger of the Corporation, or sales of all or substantially all of its assets to another entity, shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, cash or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, recapitalization, consolidation, sale or merger, lawful and adequate provisions shall be made whereby each holder of Series B Preferred shall thereupon have the right and option to receive, upon the basis and upon the terms and conditions specified herein and in lieu of conversion of the Series B Preferred into Common Stock, such shares of stock, securities, cash or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of Common Stock as would have been received upon conversion of the Series B Preferred at the Series B Conversion Price then in effect immediately before such reorganization, reclassification, -12- 13 recapitalization, consolidation, sale or merger, and in any such case appropriate provisions shall be made with respect to the rights and interests of the holders to the end that the provisions hereof (including without limitation provisions for adjustments of the applicable Series B Conversion Price) shall thereafter be applicable, as nearly as may be practicable, in relation to any shares of stock or securities delivered to holders in connection with such reorganization, reclassification, recapitalization, consolidation, sale or merger. Prior to the consummation of any consolidation or merger or sale of assets of the Corporation, the successor corporation resulting from such consolidation or merger, or the purchaser of such assets, shall agree in writing to be bound by the provisions hereof. 6. Reacquired Shares. Any shares of Series B Preferred converted, redeemed, purchased, or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof, and shall not be reissued and the Corporation from time to time shall take such action as may be necessary to reduce the authorized Series B Preferred accordingly. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be signed by and attested by its duly authorized officers this 24th day of November, 1997. SIGHT RESOURCE CORPORATION /s/ William G. McLendon By:________________________________ William G. McLendon President ATTEST: Alan B. MacDonald ________________________________ Secretary -13- EX-4.2 3 CLASS I WARRANT TO PURCHASE SHARES OF COMMON STOCK 1 Exhibit 4.2 THESE SECURITIES HAVE BEEN ISSUED PURSUANT TO EXEMPTIONS FOR NONPUBLIC OFFERINGS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, THESE SECURITIES MAY NOT BE RESOLD OR OTHERWISE DISPOSED OF UNLESS, IN THE OPINION OF COUNSEL FOR OR REASONABLY SATISFACTORY TO THE ISSUER, REGISTRATION UNDER THE APPLICABLE FEDERAL OR STATE SECURITIES LAWS IS NOT REQUIRED OR COMPLIANCE IS MADE WITH SUCH REGISTRATION REQUIREMENTS. THIS LEGEND SHALL BE ENDORSED UPON ANY MIRROR WARRANT ISSUED IN EXCHANGE FOR THIS MIRROR WARRANT. CLASS I (MIRROR) WARRANT TO PURCHASE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF SIGHT RESOURCE CORPORATION No.:___ ____________ __, 1997 THIS CERTIFIES THAT, _______________("Holder"), for value received, or its registered assigns, is entitled to purchase, on the terms and subject to the conditions hereinafter set forth, from Sight Resource Corporation, a Delaware corporation (the "Company"), at any time, and from time to time, during the period beginning on the date hereof and ending on the earlier of (i) the date that all of the warrants set forth in Schedule A attached hereto and incorporated herein by reference (the "Warrants") have been exercised for the full number of shares issuable thereunder, or (ii) the date that all of the Warrants shall have expired or otherwise terminated (the "Exercise Period"), such aggregate number of shares of Common Stock, par value $.01 per share, of the Company, that constitute 19.9% of the shares of Common Stock of the Company issued upon exercise of the Warrants. The aggregate number of such shares ("Mirror Warrant Shares") currently is 842,294 shares of Common Stock, which is subject to adjustment from time to time pursuant to Section 4 hereof. The Company and the Holder acknowledge and agree that the intent of the parties is that Holder be granted and have the right to exercise this Mirror Warrant to purchase the number of Mirror Warrant Shares equal to 19.9% of the number of shares of Common Stock issued upon the exercise of any Warrant from time to time in the future. SECTION 1. EXERCISE PRICE. The exercise price per each Mirror Warrant Share at which this Class I (Mirror) Warrant (the "Mirror Warrant") may be exercised shall be equal to the exercise price per share (the "Mirror Warrant Exercise Price") pursuant to that Warrant, the exercise of which gave rise to the right to acquire Mirror Warrant Shares hereunder (the "Counterpart Warrant"), as adjusted from time to time in accordance with the provisions of Section 4 hereof. SECTION 2. MIRROR WARRANT SHARES. 2.1 Grant and Exercise of Mirror Warrant Shares. For purposes hereof, each exercise of a Counterpart Warrant shall constitute a separate grant of Mirror Warrant Shares subject to this Mirror Warrant (a "Mirror Grant"). Holder agrees that it shall be obligated to and shall exercise this Mirror Warrant to purchase the Mirror Warrant Shares pursuant to the Mirror Grant no later than 60 days following the date of each Mirror Grant, provided, however, that Holder shall not be 1 2 required to purchase Mirror Warrant Shares until the applicable aggregate Mirror Warrant Exercise Price, from time to time, equals or exceeds One Million Dollars ($1,000,000). Notwithstanding anything herein to the contrary, Holder shall have no obligations to exercise this Mirror Warrant and fund the purchase of Mirror Warrant Shares on or after June 30, 1998 if the Certificate of Incorporation of the Company has not been amended by such date to provide that the holders of Series B Convertible Preferred Stock, par value $.01 per share, of the Company, voting as a separate class, have the right to elect two members to the Board of Directors of the Company. 2.2 Terms and Conditions of Mirror Warrant Shares. Except as otherwise provided herein, each Mirror Grant shall have terms identical to the Counterpart Warrant from which it arose, such that each and every term and condition applicable to the Mirror Warrant Shares pursuant to any Mirror Grant, including, but not limited to, the manner of exercise of the Mirror Warrant, the payment of the exercise price of the Mirror Warrant Shares, the anti-dilution provisions, the lock-up provisions and the registration rights applicable thereto, shall be identical to the terms and conditions applicable to the warrant shares issuable under the Counterpart Warrant, and such terms and conditions shall be incorporated by reference herein. 2.3. Counterpart Warrant. The Company shall attach copies of each Counterpart Warrant hereto as Schedule B. Upon each exercise of any Counterpart Warrant, the Company shall promptly provide Holder with written notice of the (i) the number of shares issued pursuant to such exercise of a Counterpart Warrant, (ii) the date of exercise, (iii) the applicable exercise price, (iv) the number of Mirror Warrant Shares granted pursuant to the Mirror Warrant Grant, (iv) the identity of the Counterpart Warrant, (v) the aggregate number of Mirror Warrant Shares issuable pursuant to this Mirror Warrant, and (vi) the aggregate exercise price for issuance of Mirror Warrant Shares then issuable upon exercise of this Mirror Warrant. 2.4. Transfer Restriction Legend. This Mirror Warrant and each certificate for Mirror Warrant Shares initially issued upon exercise of this Mirror Warrant, unless at the time of exercise such Warrant Shares are registered under the Securities Act of 1933, as amended (the "Act"), shall bear the following legend (and any additional legend required by any securities exchange upon which such Warrant Shares may, at the time of such exercise, be listed and any applicable state securities administration or commission) on the face thereof: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF SUCH LAWS, OR IF, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO SIGHT RESOURCE CORPORATION, AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. 2.5. Acknowledgment of Continuing Obligation. The Company will, at the time of the exercise of this Mirror Warrant, in whole or in part, upon request of the Holder, acknowledge in writing its continuing obligation to the Holder in respect of any rights to which the Holder shall continue to be entitled after such exercise in accordance with this Mirror Warrant, provided, that the failure of the Holder to make any such request shall not affect the continuing obligation of the Company to the Holder in respect of such rights. 2 3 2.6. Investment Representation. The Holder of this Mirror Warrant, by acceptance hereof, acknowledges that this Mirror Warrant and, upon exercise, the Mirror Warrant Shares, are being acquired solely for the Holder's own account and not as a nominee for any other party, and for investment and that the Holder will not offer, sell, transfer, assign or otherwise dispose of this Mirror Warrant or the Mirror Warrant Shares issued upon exercise hereof, unless registered under the Act and applicable state securities laws or pursuant to an opinion of counsel reasonably satisfactory to the Company that an exemption from registration under such laws is available. Upon exercise of this Mirror Warrant, the Holder shall, if requested by the Company, confirm, in writing, in a form reasonably satisfactory to the Company, that the Mirror Warrant Shares so purchased are being acquired solely for the Holder's own account and not as a nominee for any party for investment. 2.7. Accredited Investor; Experience; Risk. The Holder is an accredited investor within the definition of Regulation D of the Act. The Holder has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of purchase of the Mirror Warrants and the Mirror Warrant Shares. SECTION 3. OWNERSHIP, TRANSFER. 3.1. Ownership of this Mirror Warrant. The Company may deem and treat the person in whose name this Mirror Warrant is registered as the Holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Mirror Warrant for registration of transfer as provided in this Section 3. 3.2. Exchange, Transfer and Replacement. This Mirror Warrant is exchangeable upon the surrender hereof by the Holder to the Company at its office or agency for new Mirror Warrants of like tenor and date representing in the aggregate the right to purchase the number of Mirror Warrant Shares purchasable hereunder, each of such new Mirror Warrants to represent the portion of this Mirror Warrant exchanged as shall be designated by the Holder at the time of such surrender. Subject to the terms of this Mirror Warrant, this Mirror Warrant and all rights hereunder are transferable in whole or in part upon the books of the Company by the Holder in person or by duly authorized attorney, and a new Mirror Warrant shall be made and delivered by the Company, of the same tenor as this Mirror Warrant but registered in the name of the transferee, upon surrender of this Mirror Warrant duly endorsed at said office or agency of the Company. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Mirror Warrant, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and upon surrender and cancellation of this Mirror Warrant, if mutilated, the Company will make and deliver a new Mirror Warrant of like tenor, in lieu of this Mirror Warrant. This Mirror Warrant shall be promptly canceled by the Company upon the surrender hereof in connection with any exchange, transfer or replacement. The Company shall pay all expenses, taxes (other than stock transfer taxes and income taxes) and other charges payable in connection with the preparation, execution and delivery of Mirror Warrant Shares pursuant to this Section 3. 3 4 3.3 Restricted Transfer of Securities. The Holder agrees that, for a period of two (2) years commencing on the date of this Mirror Warrant (the "Restricted Period"), the securities issued or to be issued pursuant to this Mirror Warrant (collectively, the "Issued Securities"), may not be sold, assigned or otherwise transferred to a Restricted Person without the prior written consent of the Company. For purposes of this Section 3.3, "Restricted Person" means any Person engaged in or intending to be engaged in, either directly or indirectly (including, without limitation, through an Affiliate or in concert with another Person), any business in which the Company is operating on the date of the proposed sale, assignment or transfer of the Issued Securities. Following the Restricted Period, the Issued Securities may be sold, assigned or otherwise transferred without limitation if the average closing price for the Common Stock quoted on the Nasdaq National Market System (or on any exchange on which the Common Stock is then listed) for the thirty (30) trading days immediately prior to the last day of the Restricted Period (the "Benchmark Price") is equal to or less than $12.00 per share. If the Benchmark Price is greater than $12.00 per share, then the restrictions on the Issued Securities set forth in the first sentence of this Section 3.3 shall continue after the Restricted Period. Notwithstanding anything contained in this Section to the contrary, the Holder may assign any or all of the Issued Securities to partners or Affiliates of the Holder or officers or directors of partners or Affiliates of the Holder without consent of the Company so long as such partner, Affiliate, officer or director agrees in writing to be bound by the terms of this Mirror Warrant. SECTION 4. ADJUSTMENT OF EXERCISE PRICE. 4.1. Adjustment of Exercise Price. The Mirror Warrant Exercise Price shall be adjusted, if and whenever the Company shall issue, grant or sell, or is, deemed to have issued, granted or sold any shares of Common Stock of the Company, or options, rights or warrants exercisable for, or convertible securities convertible into, Common Stock of the Company, for no consideration or for a consideration per share less than the applicable Mirror Warrant Exercise Price in effect immediately prior to the time of such issuance or sale (such issuance being referred to as a "Dilutive Issuance"), in the same manner and in accordance with the same terms as the exercise price of warrant shares issuable upon exercise of the Counterpart Warrant shall be adjusted pursuant to the terms of the Counterpart Warrant, if such terms so provide. 4.2 Adjustment of Number or Type of Mirror Warrant Shares. The number or type of Mirror Warrant Shares shall be adjusted, if and whenever the Company shall (i) make a Dilutive Issuance, (ii) subdivide or combine its securities, (iii) declare a stock dividend, or (iv) effect a reorganization, reclassification, recapitalization, consolidation or merger, in the same manner and in accordance with the same terms as the number or type of warrant shares issuable upon exercise of the Counterpart Warrant shall be adjusted pursuant to the terms of the Counterpart Warrant, if such terms so provide. 4.3 Other Adjustments.Notwithstanding anything herein to the contrary, the number or type of Mirror Warrant Shares or the Mirror Warrant Exercise Price, as the case may be, will be adjusted for any other event that shall cause an adjustment to the number or type of warrant shares or exercise price of warrant shares under a Counterpart Warrant in the manner and in accordance 4 5 with the terms set forth therein, if such terms so provide. SECTION 5. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees that: 5.1. Reservation of Mirror Warrant Shares. The Company will reserve and set apart and have at all times, free from pre-emptive rights, a number of shares of authorized but unissued Common Stock deliverable upon the exercise of this Mirror Warrant or of any other rights or privileges provided for herein sufficient to enable it at any time to fulfill all its obligations hereunder. 5.2. Avoidance of Certain Actions. The Company will not, by amendment of its organizational documents or through any reorganization, transfer of assets, consolidation, merger, issue or sale of securities or otherwise, avoid or take any action which would have the effect of avoiding the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in carrying out all of the provisions of this Mirror Warrant and in taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Mirror Warrant against dilution or other impairment. 5.3. Governmental Approvals. If any shares of Common Stock required to be reserved for the purposes of exercise of this Mirror Warrant require registration with or approval of any governmental authority under any Federal law (other than the Act) or under any state law before such shares may be issued upon exercise of this Mirror Warrant, the Company will, at its expense, as expeditiously as possible, use its best efforts to cause such shares to be duly registered or approved, as the case may be. 5.4. Binding on Successors. This Mirror Warrant shall be binding upon any corporation succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. 5.5 Right of Holder. The Company covenants and agrees that it is bound by all the duties and obligations under, and the Holder of any Mirror Warrant or Mirror Warrant Shares issued pursuant thereto, has all the rights under, the applicable Counterpart Warrant, to the same extent as if those terms had been set forth herein. SECTION 6. COVENANTS OF HOLDER. The Holder of any Mirror Warrant or Mirror Warrant Shares issued pursuant thereto, covenants and agrees that it will be bound by, and comply with, the terms of the applicable Counterpart Warrant, to the same extent as if those terms had been set forth herein in full. SECTION 7. NOTICES. Any notice or other document required or permitted to be given or delivered to the Holder shall be delivered at, or sent by certified or registered mail to each Holder at the address listed in the stock records of the Company or to such other address as shall have been furnished to the Company in writing by such Holder. Any notice or other document required or 5 6 permitted to be given or delivered to the Company shall be delivered at, or sent by certified or registered mail to, the principal office of the Company, at 100 Jeffrey Avenue, Holliston, Massachusetts 01746, Attention: William McLendon or such other name or address as shall have been furnished to the Holder by the Company. SECTION 8. LIMITATION OF LIABILITY. No provision hereof, in the absence of affirmative action by the Holder to purchase Mirror Warrant Shares, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the Mirror Warrant Exercise Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. SECTION 9. GOVERNING LAW. This Mirror Warrant shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without giving effect to its conflicts of laws provisions. SECTION 10. MISCELLANEOUS. No term of this Mirror Warrant may be amended, except with the joint written consent of the Holder and the Company. The headings in this Mirror Warrant are for purposes of reference only and shall not affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, Sight Resource Corporation has caused this Mirror Warrant to be signed by its duly authorized officer under its corporate seal, attested by its duly authorized officer, on the date first above written. ATTEST: SIGHT RESOURCE CORPORATION By:_______________________ By:__________________________________ Name:_____________________ Name:________________________________ Title:____________________ Title:_______________________________ (SEAL) 6 7 ASSIGNMENT TO BE EXECUTED BY THE REGISTERED HOLDER IF IT DESIRES AND IS PERMITTED TO TRANSFER THE WITHIN MIRROR WARRANT OF SIGHT RESOURCE CORPORATION FOR VALUE RECEIVED____________________________ hereby sells, assigns and transfers unto ______________________ the right to purchase ___ of the number of shares of Common Stock covered by the within Mirror Warrant, and does hereby irrevocably constitute and appoint ________________ Attorney to transfer the said Mirror Warrant on the books of the Company (as defined in said Mirror Warrant) with full power of substitution. Signature:________________________________(SEAL) Address: _________________________________ _________________________________ Dated:_________________ In the presence of: [Name of Institution] _________________ By:________________________ NOTICE The signature to the foregoing Assignment must correspond to the name as written upon the face of the within Mirror Warrant in every particular, without alteration or enlargement or any change whatsoever. 7 8 MIRROR WARRANT CERTIFICATE TO BE EXECUTED BY THE REGISTERED HOLDER IF IT DESIRES TO EXERCISE THE WITHIN MIRROR WARRANT OF SIGHT RESOURCE CORPORATION The undersigned hereby irrevocably exercises the right to purchase _______shares of Common Stock obtainable by exercise of the within Mirror Warrant, according to the conditions thereof and herewith makes payment of the Mirror Warrant Exercise Price for such shares in full. Signature___________________(SEAL) Address:____________________ ____________________ Dated:_____________________ In the presence of: [Name of Institution] ___________________________ By:____________________ 8 9 SCHEDULE A SCHEDULE OF COUNTERPART WARRANTS 9 10 SCHEDULE B COPIES OF ALL COUNTERPART WARRANTS 10 EX-4.3 4 CLASS II WARRANT TO PURCHASE COMMON STOCK 1 Exhibit 4.3 THESE SECURITIES HAVE BEEN ISSUED PURSUANT TO EXEMPTIONS FOR NONPUBLIC OFFERINGS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, THESE SECURITIES MAY NOT BE RESOLD OR OTHERWISE DISPOSED OF UNLESS, IN THE OPINION OF COUNSEL FOR OR REASONABLY SATISFACTORY TO THE ISSUER, REGISTRATION UNDER THE APPLICABLE FEDERAL OR STATE SECURITIES LAWS IS NOT REQUIRED OR COMPLIANCE IS MADE WITH SUCH REGISTRATION REQUIREMENTS. THIS LEGEND SHALL BE ENDORSED UPON ANY WARRANT ISSUED IN EXCHANGE FOR THIS WARRANT. CLASS II WARRANT TO PURCHASE UP TO 290,424 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF SIGHT RESOURCE CORPORATION No.:___ ____________ __, 1997 THIS CERTIFIES THAT,__________________("Holder"), for value received, or its registered assigns, is entitled to purchase, on the terms and subject to the conditions hereinafter set forth, from Sight Resource Corporation, a Delaware corporation (the "Company"), at any time, and from time to time, during the period beginning on the date hereof and ending on the fifth anniversary of the date hereof, that number of shares (the "Warrant Shares") of common stock, par value One Cent ($0.01) per share, of the Company (the "Common Stock"), as determined in accordance with the provisions of Section 2 hereof. SECTION 1. EXERCISE PRICE. The exercise price per Warrant Share at which this Class II Warrant (the "Warrant") may be exercised shall be equal to Seven Dollars ($7.00) per share of Common Stock (the "Exercise Price"), as adjusted from time to time in accordance with the provisions of Section 4.4 hereof. SECTION 2. EXERCISE OF WARRANT. 2.1. Number of Warrant Shares for Which Warrant is Exercisable. The number of Warrants Shares for which this Warrant may be exercised at any time prior to its expiration shall be determined by (a) multiplying Two Hundred Ninety Thousand Four Hundred Twenty-Four (290,424) by the Exercise Price and (b) dividing the result by the reference price (the "Reference Price") initially equal to the Exercise Price or, in case an adjustment of the Reference Price has taken place pursuant to the provisions of Section 4 of this Warrant, then by the Reference Price as last adjusted and in effect at the date of any partial or full exercise of this Warrant. 2.2. Procedure for Exercise of Warrant. (a) To exercise this Warrant in whole or in part, the Holder shall deliver to the Company, at its principal executive office (or such other office of the Company in the United States as the Company may designate by notice in writing to the Holder), (i) the Warrant Certificate attached 1 2 hereto completed to specify the fraction of the Warrant which the Holder is electing to exercise, (ii) consideration in an amount equal to the aggregate Exercise Price of the Warrant Shares being purchased, consisting of (A) cash or a certified or official bank check, payable to the order of the Company, (B) cancellation by the Holder of indebtedness of the Company to the Holder, or (C) a combination of (A) and (B) above, and (iii) if this Warrant is being exercised in whole or the last fraction of this Warrant is being exercised, this Warrant. (b) Notwithstanding any provisions herein to the contrary, if the fair market value of one share of Common Stock is greater than the Exercise Price for one share of Common Stock (at the date of calculation, as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares of Common Stock equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company, together with the properly endorsed Warrant Certificate, substantially in the form as attached hereto, in which event the Company shall issue to the Holder that number of shares of Common Stock computed using the following formula: WS = WCS (FMV-EP) ----------- FMV WHERE: WS equals the number of Warrant Shares to be issued to the Holder WCS equals the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation) FMV equals the fair market value of one share of Common Stock (at the date of such calculation) EP equals the per share Exercise Price (as adjusted to the date of such calculation) of the Warrant For purposes of the above calculation, the fair market value ("FMV") of one share of Common Stock shall be determined in accordance with the provisions of Section 2.3 hereof. Notwithstanding the foregoing, where there exists a public market for the Common Stock at the time of such exercise, the FMV per share shall be equal to the average of the closing bid and asked prices of the Common Stock quoted in the Over-The-Counter Market Summary or the average of the last reported sale price of the Common Stock or the closing price quoted on the Nasdaq National Market System or on any exchange on which the Common Stock is listed, whichever is applicable, as published in The Wall Street Journal for the five (5) trading days prior to the date of determination of the FMV. Upon receipt of the Warrant Certificate, the Warrant, or both, as applicable, the Holder shall be deemed to be the holder of record of the Warrant Shares issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such 2 3 Warrant Shares shall not then be actually delivered to the Holder, and the Company shall, as promptly as practicable, and in any event within five (5) business days thereafter, execute or cause to be executed and delivered to the Holder, or as the Holder may direct, a certificate or certificates representing the aggregate number of shares of Common Stock specified in said Warrant Certificate. Each stock certificate so delivered shall be in such denomination as may be requested by the Holder. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of said stock certificate or certificates, deliver to the Holder a certificate evidencing the fraction of this Warrant which remains exercisable. The Company shall pay all expenses, taxes and other charges payable in connection with the preparation, execution and delivery of stock certificates pursuant to this Section 2.2, except that, in case such stock certificates shall be registered in a name or names other than the name of the Holder, funds sufficient to pay all stock transfer taxes, which shall be payable upon the execution and delivery of such stock certificate or certificates, shall be paid by the Holder to the Company at the time of delivering this Warrant to the Company as mentioned above. 2.3 Fair Market Value. Except as set forth above, for determining the FMV of one share of Common Stock in connection with a "net exercise" pursuant to the provisions of Section 2.2 hereof, the following shall apply: (a) Agreement of the Company and the Holder. If the Company and the Holder can agree in writing as to the FMV, such agreed value shall be the FMV. If no agreement on the FMV can be reached within five (5) days from the date of the exercise of this Warrant, then the FMV shall be determined pursuant to subsection (b) below. (b) Third Party Appraisal. If the FMV is not agreed upon as provided in subsection (a) above within the period therein stated, then five (5) days thereafter, an appraiser or appraisers shall be jointly selected by the Company and the Holder, and the determination of such jointly selected appraiser or appraisers as to the FMV shall be binding and conclusive upon all parties. If the Company and the Holder are unable to reach an agreement as to an appraiser, the provisions of subsection (c) below shall apply. For purposes of this subsection (b), the FMV shall take into account, among other things, earnings and book value of the Company, but shall not take into account any minority stockholder, marketability or other such discount. (c) Additional Appraiser. If the Company and the Holder do not agree upon the selection of an appraiser or appraisers, as provided in subsection (b) within the period therein stated, then, within three (3) days after the expiration of the five (5) day period provided for in subsection (b) above, each of the Company and the Holder shall deliver, by written notice to the other, a list of three appraisers and each of the Company and the Holder shall select one (1) appraiser from the list delivered by the other. In the event either party falls to deliver a list of appraisers or to select an appraiser from such list within said three (3) day period, the other party may select an appraiser from its list and such appraiser shall serve as the sole appraiser. Each of the appraisers so selected shall, within ten (10) days of being selected, determine the FMV. In 3 4 the event the lower of the two (2) appraisals is at least ninety percent (90%) of the higher appraisal, then the FMV shall be equal to the average of the two (2) appraisals. In the event that the lower of the two (2) appearances is less than ninety percent (90%) of the higher appraisal, then the two (2) appraisers shall appoint a third appraiser within three (3) days after the end of said ten (10) day period, and such third appraiser shall, within ten (10) days of being selected, determine the FMV. The FMV shall be equal to the average of (x) the third appraisal and (y) whichever of the first two appraisals is closest in dollars to the third appraisal or equal to the third appraisal if such appraisal is mid-way between the first two appraisals. The determination of such appraiser shall be determinative of the FMV and shall be binding, final and conclusive on the Company and the Holder. (d) Costs of Appraisals. The parties shall share equally the entire cost of any appraisals hereunder. 2.4. Transfer Restriction Legend. This Warrant and each certificate for Warrant Shares initially issued upon exercise of this Warrant, unless at the time of exercise such Warrant Shares are registered under the Securities Act of 1933, as amended (the "Act"), shall bear the following legend (and any additional legend required by any securities exchange upon which such Warrant Shares may, at the time of such exercise, be listed and any applicable state securities administration or commission) on the face thereof THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF SUCH LAWS, OR IF, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO SIGHT RESOURCE CORPORATION, AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. 2.5. Acknowledgment of Continuing Obligation. The Company will, at the time of the exercise of this Warrant, in whole or in part, upon request of the Holder, acknowledge in writing its continuing obligation to the Holder in respect of any rights to which the Holder shall continue to be entitled after such exercise in accordance with this Warrant, provided, that the failure of the Holder to make any such request shall not affect the continuing obligation of the Company to the Holder in respect of such rights. 2.6. Investment Representation. The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant and, upon exercise, the Warrant Shares, are being acquired solely for the Holder's own account and not as a nominee for any other party, and for investment and that the Holder will not offer, sell, transfer, assign or otherwise dispose of this Warrant or the Warrant Shares issued upon exercise hereof, unless registered under the Act and applicable state securities laws or pursuant to an opinion of counsel reasonably satisfactory to the Company that an exemption from registration under such laws is available. Upon exercise of this Warrant, the Holder shall, if requested by the Company, confirm, in writing, in a form reasonably satisfactory to the Company, that the Warrant Shares so purchased are being acquired solely for 4 5 the Holder's own account and not as a nominee for any party for investment. 2.7. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current FMV of a share, determined in accordance with the provisions of Section 2.3 hereof. 2.8 Accredited Investor; Experience; Risk. The Holder is an accredited investor within the definition of Regulation D of the Act. The Holder has such knowledge and experience in financial and business matters that its capable of evaluating the merits and risks of purchase of the Warrants and the Warrant Shares. SECTION 3. OWNERSHIP, TRANSFER. 3.1. Ownership of this Warrant. The Company may deem and treat the person in whose name this Warrant is registered as the Holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer as provided in this Section 3. 3.2. Exchange, Transfer and Replacement. This Warrant is exchangeable upon the surrender hereof by the Holder to the Company at its office or agency for new Warrants of like tenor and date representing in the aggregate the right to purchase the number of Warrant Shares purchasable hereunder, each of such new Warrants to represent the portion of this Warrant exchanged as shall be designated by the Holder at the time of such surrender. Subject to the terms of this Warrant, this Warrant and all rights hereunder are transferable in whole or in part upon the books of the Company by the Holder in person or by duly authorized attorney, and a new Warrant shall be made and delivered by the Company, of the same tenor as this Warrant but registered in the name of the transferee, upon surrender of this Warrant duly endorsed at said office or agency of the Company. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a new Warrant of like tenor, in lieu of this Warrant. This Warrant shall be promptly canceled by the Company upon the surrender hereof in connection with any exchange, transfer or replacement. The Company shall pay all expenses, taxes (other than stock transfer taxes and income taxes) and other charges payable in connection with the preparation, execution and delivery of Warrant Shares pursuant to this Section 3. 3.3. Restricted Transfer of Securities. The Holder agrees that, for a period of two (2) years commencing on the date of this Warrant (the "Restricted Period"), the securities issued or to be issued pursuant to this Warrant (collectively, the "Issued Securities"), may not be sold, assigned or otherwise transferred to a Restricted Person without the prior written consent of the Company. For purposes of this Section 3.3, "Restricted Person" means any Person engaged in or intending to 5 6 be engaged in, either directly or indirectly (including, without limitation, through an Affiliate or in concert with another Person), any business in which the Company is operating on the date of the proposed sale, assignment or transfer of the Issued Securities. Following the Restricted Period, the Issued Securities may be sold, assigned or otherwise transferred without limitation if the average closing price for the Common Stock quoted on the Nasdaq National Market System (or on any exchange on which the Common Stock is then listed) for the thirty (30) trading days immediately prior to the last day of the Restricted Period (the "Benchmark Price") is equal to or less than $12.00 per share. If the Benchmark Price is greater than $12.00 per share, then the restrictions on the Issued Securities set forth in the first sentence of this Section 3.3 shall continue after the Restricted Period. Notwithstanding anything contained in this Section to the contrary, the Holder may assign any or all of the Issued Securities to partners or Affiliates of the Holder or officers or directors of partners or Affiliates of the Holder without consent of the Company so long as such partner, Affiliate, officer or director agrees in writing to be bound by the terms of this Warrant. SECTION 4. ADJUSTMENT OF REFERENCE PRICE. 4.1. Adjustment of Reference Price. If and whenever the Company shall issue or sell, or is, in accordance with Section 4.2(a) through 4.2(h) hereof, deemed to have issued or sold any Securities of the Company for no consideration or for a consideration per share less than the applicable Reference Price in effect immediately prior to the time of such issuance or sale (such issuance being referred to as a "Dilutive Issuance"), then, forthwith upon such issue or sale, the Reference Price shall be adjusted by multiplying the Reference Price in effect immediately prior to the Dilutive Issuance by the fraction: X+Y --- X+Z WHERE: X equals the number of shares of Common Stock issued and outstanding immediately prior to the Dilutive Issuance; Y equals the number of shares of Common Stock of the Company which the aggregate net consideration received by the Company in the Dilutive Issuance would have purchased at the Reference Price in effect immediately before the Dilutive Issuance; and Z equals the number of shares of Common Stock of the Company issued or deemed issued in the Dilutive Issuance. By way of illustration, but not limitation, of the foregoing, assume that (a) Eight Million Five Hundred Thousand (8,500,000) shares of Common Stock are issued and outstanding as of the date of the Dilutive Issuance, (b) the Reference Price is equal to Seven Dollars ($7.00). If the Company were to issue One Hundred Thousand (100,000) shares of Common Stock at a per share price of Five Dollars ($5.00), then the Reference Price and the number of Warrant Shares evidenced by this 6 7 certificate would be adjusted as follows: 71,429 equals the number of shares of Common Stock which the aggregate net consideration received by the Company in the Dilutive Issuance would have purchased at the Reference Price in effect immediately before the Dilutive Issuance, calculated as follows: 100,000 shares x ($5.00 / $7.00) = 71,429 shares. 100,000 equals the number of shares of Common Stock issued or deemed issued in the Dilutive Issuance. Therefore, the new Reference Price is equal to $6.976 calculated as follows: ($7.00) x [(8,500,000 + 71,429) / (8,500,000 + 100,000] = $6.976. For purposes of this Section 4.1, "Securities" means shares of Common Stock of the Company and any securities or other rights convertible or exchangeable into or exercisable for shares of Common Stock; provided, however, "Securities" shall not include (i) Common Stock issued or issuable upon conversion of the Convertible Preferred Stock issued to Purchaser; (ii) Common Stock issued or issuable upon exercise of the Warrants issued to Holder, (iii) securities issued by the Company as part of any public offering pursuant to an effective registration statement under the Securities Act; (iv) securities issued in connection with any stock split, stock dividend or recapitalization of the Company; (v) equity securities and options to purchase equity securities issued to management, directors or employees of or consultants to the Company pursuant to plans outstanding as of the date hereof; (vi) equity securities and options to purchase equity securities issued in accordance with additional stock option or similar plans approved by the Board or any class of stockholders, as required; (vii) securities issued in connection with any merger or acquisition by the Company; and (viii) Common Stock or other securities issued or issuable upon conversion of rights, options, warrants or convertible securities issued and outstanding prior to the date hereof. 4.2 For purposes of Section 4.1 hereof, the following Sections 4.2(a) through 4.2(h) shall also be applicable: (a) Issuance of Rights or Options. In case at any time after the date of this Warrant the Company shall in any manner grant (whether directly or by assumption in a merger or otherwise) any Warrants or other rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or security convertible into or exchangeable for Common Stock (such warrants, rights or options being called "Options" and such convertible or exchangeable stock or securities being called "Convertible Securities") whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the effective price per share for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities (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 7 8 Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of all such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than the Reference Price in effect immediately prior to such Dilutive Issuance, 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 have been issued for such effective price per share as of the date of granting of such Options or the issuance of such Convertible Securities and thereafter shall be deemed to be outstanding. Except as otherwise provided in Section 4.2(c) hereof, no adjustment of the Reference Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. (b) Issuance of Convertible Securities. In case after the date of this Warrant the Company shall in any manner issue (whether directly or by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert any such Convertible Securities are immediately exercisable, and the effective price per share for which Common Stock is issuable upon such conversion or exchange (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) shall be less than the Reference Price in effect immediately prior to such Dilutive Issuance, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such effective price per share as of the date of the issuance or sale of such Convertible Securities and thereafter shall be deemed to be outstanding. Except as otherwise provided in Section 4.2(c) hereof, no adjustment of the Reference Price shall be made upon the actual issuance 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 to purchase any such Convertible Securities for which adjustments of the Reference Price have been or are to be made pursuant to other provisions of this Section 4.2, no further adjustment of the Reference Price shall be made by reason of such issuance or sale. (c) Change in Option Price or Conversion Rate. Upon the happening of any of the following events, after the date of this Warrant, namely, if the purchase price provided for in any Option referred to in Section 4.2(a) hereof, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in Section 4.2(a) or 4.2(b) hereof, or the rate at which Convertible Securities referred to in Section 4.2(a) or 4.2(b) are convertible into or exchangeable for Common Stock shall change at any time (including, but not limited to, changes under or by reason of provisions designed to protect against dilution), the Reference Price at the time of such event shall forthwith be readjusted upward or downward to the Reference Price which would 8 9 have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. (d) Consideration for Stock. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Company therefor. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be deemed to be the net fair value of such consideration as determined in good faith unanimously by the Board of Directors. In case any Options shall be issued in connection with the issue and sale of other securities of the Company, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued for such consideration as determined in good faith unanimously by the Board. (e) Subdivision or Combination of Shares. If the Company, at any time while this Warrant is outstanding, shall subdivide or combine any class or classes of its Common Stock, the Reference Price shall be proportionately reduced, in case of subdivision of shares, to reflect the increase in the total number of shares of Common Stock outstanding as a result of such subdivision, as at the effective date of such subdivision, or shall be proportionately increased, in the case of combination of shares, to reflect the reduction in the total number of shares of Common Stock outstanding as a result of such combination, as at the effective date of such combination. (f) Stock Dividends. If the Company, at any time while this Warrant is outstanding, shall pay a dividend in, or make any other distribution of, Common Stock, the Reference Price shall be adjusted, (as at the date of such payment or other distribution), to that price determined by multiplying the Reference Price in effect immediately prior such payment or other distribution, by a fraction (i) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution (plus in the event that the Company paid cash for fractional shares, the number of additional shares which would have been outstanding had the Company issued fractional shares in connection with said dividends). (g) Treasury Shares. The disposition of any shares of Common Stock owned or held by or for the account of the Company shall be considered an issue or sale of Common Stock for the purpose of this Section 4.2. 4.3 Reorganization, Reclassification, Recapitalization Consolidation, Merger or Sale. If any capital reorganization, reclassification or recapitalization of the capital stock of the Company, or consolidation or merger of the Company, or sales of all or substantially all of its assets to another entity, shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, cash or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, recapitalization, consolidation, sale or merger, 9 10 lawful and adequate provisions shall be made whereby each holder of Warrants shall thereupon have the right and option to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the Warrant Shares, such shares of stock, securities, cash or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of Warrant Stock as would have been received upon exercise of the Warrants at the Reference Price then in effect immediately before such reorganization, reclassification, recapitalization, consolidation, sale or merger, and in any such case appropriate provisions shall be made with respect to the rights and interests of the holders to the end that the provisions hereof (including without limitation provisions for adjustments of the applicable Reference Price) shall thereafter be applicable, as nearly as may be practicable, in relation to any rights to acquire or shares of stock or securities delivered to holders in connection with such reorganization, reclassification, recapitalization, consolidation, sale or merger. Prior to the consummation of any consolidation or merger or sale of assets of the Company, the successor corporation resulting from such consolidation or merger, or the purchaser of such assets, shall agree in writing to be bound by the provisions hereof. 4.4 Adjustment of the Exercise Price. Upon any adjustment in the number of Warrant Shares purchasable pursuant to this Warrant as the result of the provisions of this Section 4, the Exercise Price per share shall be adjusted so that the adjusted Exercise Price shall be equal to the aggregate Exercise Price payable with respect to all Warrant Shares on the date hereof divided by the adjusted number of Warrant Shares then purchasable hereunder as determined pursuant to the provisions of this Section 4. 4.5 Minimum Level for Adjustments. Notwithstanding any provision to the contrary contained herein, no adjustment of the Reference Price shall be made if the amount of said adjustment shall aggregate less than three cents ($.03); provided however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall aggregate at least three cents ($.03). SECTION 5. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees that: 5.1. Reservation of Shares. The Company will reserve and set apart and have at all times, free from pre-emptive rights, a number of shares of authorized but unissued Common Stock deliverable upon the exercise of the Warrants or of any other rights or privileges provided for herein sufficient to enable it at any time to fulfill all its obligations hereunder. 5.2. Avoidance of Certain Actions. The Company will not, by amendment of its organizational documents or through any reorganization, transfer of assets, consolidation, merger, issue or sale of securities or otherwise, avoid or take any action which would have the effect of avoiding the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in carrying out all of the provisions of this Warrant and in taking of all such action as may be necessary or appropriate in order to protect the 10 11 rights of the Holder of this Warrant against dilution or other impairment. 5.3. Governmental Approvals. If any shares of Common Stock required to be reserved for the purposes of exercise of this Warrant require registration with or approval of any governmental authority under any Federal law (other than the Act) or under any state law before such shares may be issued upon exercise of this Warrant, the Company will, at its expense, as expeditiously as possible, use its best efforts to cause such shares to be duly registered or approved, as the case may be. 5.4. Binding on Successors. This Warrant shall be binding upon any corporation succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. SECTION 6. SHELF REGISTRATION. 6.1 Right to Shelf Registration. From and after any exercise of this Warrant, in whole or in part, within 45 days after receipt of written notice from the Holder, the Company shall effect a Shelf Registration (the "Initial Shelf Registration") for all or a portion of the Warrant Shares which have been theretofore issued to Holder; provided, however, that (A) the number of Warrant Shares sought to be included in any Shelf Registration shall not be less than 50% of the shares of Common Stock or other securities for which the Warrant is exercisable and (B) in no event shall the Company be obligated to effect a Shelf Registration pursuant to this Section 6.1 on more than one occasion in any 12-month period. For purposes hereof, the term "Shelf Registration" means the preparation and filing with the Securities and Exchange Commission (the "SEC") of a registration statement for an offering to be made on a delayed or continuous basis pursuant to Rule 415 of the Act. The registration statement for any Shelf Registration shall be on Form S-3 or another appropriate form permitting registration of such Warrant Shares for resale by each Holder in the manner or manners designated by them, including an underwritten offering, the underwriter to be mutually agreeable to the Company and the Holders. The Company shall use its best efforts to cause the Initial Shelf Registration to become effective under the Act as promptly as is practicable and to keep the Initial Shelf Registration continuously effective under the Act until the end of the Effectiveness Period. For purposes of this Section 6, the term "Effectiveness Period" means the period commencing on the date of this Warrant and ending on the date that all Warrant Shares that have been registered are disposed of pursuant to an effective registration statement under the Act. 6.2 Subsequent Shelf Registration.If the Initial Shelf Registration or any Subsequent Shelf Registration (as defined below) ceases to be effective for any reason at any time during the Effectiveness Period (other than because all Warrant Shares shall have been sold or shall have ceased to be Warrant Shares), the Company shall use its best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within thirty days of such cessation of effectiveness amend the Shelf Registration in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional Shelf Registration covering all of the Warrant Shares included in the Initial Shelf Registration or Subsequent Shelf that ceased to be effective as described in this Section 6.2 (a 11 12 "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the Company shall use all reasonable efforts to cause the Subsequent Shelf Registration to become effective as promptly as is practicable after such filing and to keep such registration statement continuously effective until the end of the Effectiveness Period. 6.3 Covenants of the Company. (a) The Company shall supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration, if required by the Act or the SEC, or if reasonably requested by a majority of Holders or by any managing underwriter, if any, of such Warrant Shares with respect to the offer and sale or other disposition of the Warrant Shares during the Effectiveness Period. (b) From time to time, the Company shall (i) prepare and file with the SEC a post-effective amendment to the Shelf Registration or a supplement to the related prospectus or a supplement or amendment to any document incorporated therein by reference or any other required document, so that such registration statement will 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 not misleading, so that, as thereafter delivered to purchasers of the Warrant Shares being sold thereunder, such prospectus will 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; (ii) provide the Holders with copies of any registration statement, prospectus, document incorporated by reference therein, or such other documents filed with the SEC in such numbers as the Holders shall reasonably request; and (iii) inform the Holders that the Company has complied with its obligations and that the registration statement and related prospectus may be used for the purpose of selling all or any of such Warrant Shares (or that, if the Company has filed a post-effective amendment to the Shelf Registration which has not yet been declared effective, the Company will notify the Holders to that effect, will use its best efforts to secure the effectiveness of such post-effective amendment and will immediately so notify Holders when the amendment has become effective). (c) The Company shall cause the Warrant Shares covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the Holder to consummate the disposition of such Warrant Shares. (d) The Company shall cause all Warrant Shares covered by the registration statement to be listed with The Nasdaq Stock Market, Inc., or on each securities exchange on which similar securities issued by the Company are then listed and, unless the same already exists, provide a transfer agent, registrar and CUSIP number for all such Warrant Shares not later than the effective date of the registration statement. (e) The Company shall enter into such customary agreements (including an underwriting agreement in customary form, if applicable) and take all such other actions as the 12 13 Holder or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Warrant Shares pursuant to the registration statement. (f) The Company shall make available for inspection by the Holders and any underwriter participating in any disposition pursuant to such registration statement, and any attorney, accountant or other agent retained by the Holders or underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and agreements and access to properties and management and other information of the Company as shall be necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information reasonably requested by any Inspector in connection with such registration statement, provided that any Inspector shall have first executed and delivered to the Company a confidentiality agreement in customary form protecting the confidentiality of such information, except as otherwise required to be disclosed by law. (g) If the shares are to be sold in an underwritten offering or in a private transaction involving at least forty percent (40%) of the Warrant Shares, the Company shall obtain "cold comfort" letters and updates thereof from the Company's independent public accountants and an opinion from the Company's counsel in customary form and covering such matters of the type customarily covered by "cold comfort" letters and opinion of counsel, respectively, as the Holders or managing underwriter, as the case may be, may reasonably request, and one copy of such "cold comfort" letter and opinion letter shall be provided to the Holders. (h) The Holders shall upon receipt of any notice from the Company of the happening of any event of the kind described in Section 6.3(k), discontinue disposition of its Warrant Shares pursuant to the registration statement covering such Warrant Shares until receipt of the copies of the supplemented or amended prospectus and, if so directed by the Company, Holders will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in the Holders' possession, of the prospectus covering such Warrant Shares current at the time of receipt of such notice. (i) All fees and expenses incident to the Company's performance of or compliance with a shelf registration requirement pursuant to this Warrant shall be borne by the Company whether or not any of the registration statements become effective, other than commissions, and underwriter's discounts, if any, and transfer taxes payable by the Holders. Such fees and expenses shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (x) with respect to filings required to be made with the National Association of Securities Dealers, Inc. and (y) of compliance with federal securities or Blue Sky laws (including, without limitation, fees and disbursements of one counsel to the Holders in connection with Blue Sky qualifications of the Warrant Shares under the laws of such jurisdictions as the managing underwriter, if any, or the Holders may designate)), (ii) printing expenses, (iii) messenger, telephone and delivery expenses, (iv) reasonable fees and disbursements of counsel for the Company and one counsel for the Holders in connection with the registration, (v) fees and disbursements of all independent certified public accountants (including the expenses of any special audit and "comfort" letters required by or incident to such performance) and (vi) the Act liability 13 14 insurance obtained by the Company in its sole discretion. In addition, the Company shall pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the Warrant Shares on any securities exchange or the Nasdaq Stock Market, as the case may be, on which similar securities issued by the Company are then listed and the fees and expenses of any Person, including special experts, retained by the Company. Notwithstanding the provisions of this subsection, the Holders, shall pay all registration expenses to the extent the Company is prohibited by applicable Blue Sky laws from paying for or on their behalf. (j) Blue Sky Laws. The Company shall use its reasonable best efforts to register or qualify the Warrant Shares under such securities or Blue Sky laws in such jurisdictions as the Holders may reasonably request; provided, however, that the Company shall not be required in connection therewith or as a condition thereof to (i) qualify or register as a foreign corporation in any such jurisdiction, (ii) execute a general or limited consent to service of process in any such jurisdiction, (iii) make any undertaking with respect to the conduct of its business, (iv) subject itself to taxation as a foreign corporation in any such jurisdiction, or (v) enter into any agreement with any state securities or "blue sky" commission or agency, including, without limitation, any agreement to escrow shares of its capital stock. (k) Delay of Offering.If, in the reasonable judgment of the Company, it is advisable to suspend use of the prospectus for a period of time due to pending material corporate developments or similar material events that have not yet been publicly disclosed and as to which the Company believes public disclosure will be prejudicial to the Company, the Company shall deliver a certificate in writing, signed by its Chief Executive Officer, Chief Financial Officer or General Counsel, to Holders and the managing underwriter, if any, to the effect of the foregoing and, upon receipt of such certificate, the Holders' selling period will not commence until the Holders or managing underwriter, if any, has received copies of the supplemented or amended prospectus, or until it is or they are advised in writing by the Company that the prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such prospectus. The Company will use all reasonable efforts to ensure that the use of the prospectus may be resumed, and the selling period may commence, upon the earlier of (x) public disclosure of such pending material corporate development or similar material event or (y) a determination by the Company that, in the judgment of the Company, public disclosure of such material corporate development or similar material event would not be prejudicial to the Company. Notwithstanding the foregoing, the Company shall not under any circumstances be entitled to exercise its right under this Section 6.3(k) to defer the selling period more than one time in any 12-month period or two times in any 24-month period, and the period in which a selling period is suspended shall not exceed ninety (90) days. (l) Indemnity. (i) In the event of the registration or qualification of any Warrant Shares pursuant to a Shelf Registration, the Company agrees to indemnify and hold harmless 14 15 Holders and each officer, partner, employee, agent and representative of Holders, each underwriter, broker or dealer, if any, of such Warrant Shares, and each other Person, if any, who controls Holders, underwriter, broker or dealer within the meaning of the Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any other applicable securities laws, from and against any and all losses, claims, damages or liabilities (or actions in respect thereof) (collectively, the "Losses") , joint or several, to which any of them may become subject under the Act or any other applicable securities laws or otherwise, insofar as such Losses arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Warrant Shares were registered or qualified under the Act or any other applicable securities laws, any preliminary prospectus or final prospectus relating to such Warrant Shares, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of any rule or regulation under the Act or any other applicable securities laws applicable to the Company or relating to any action or inaction required by the Company in connection with any such registration or qualification and will reimburse Holders, each officer, director, employee, agent and representative of Holders, underwriter, broker or dealer and each such controlling Person for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending any such Loss; provided, however, that the Company will not be liable in any such case to the extent that any such Loss arises out of or is based upon an untrue statement of a material fact or omission of a material statement necessary to make the statements, in light of the circumstances under which they were made in such registration statement, such preliminary prospectus, such final prospectus or such amendment or supplement thereto, not misleading, in reliance upon and in conformity with written information furnished to the Company by Holders, or any officer, partner, employee, agent and representative thereof specifically and expressly for use in the preparation thereof, or any violation of any rule or regulation under the Securities Act or applicable securities laws, in which case such person agrees to indemnify and hold harmless the Company and its Affiliates from and against any and all Losses, joint or several, to which any of them may become subject under the Act or any other applicable securities laws or otherwise; and provided, further, that the Company shall not be liable to any Person who participates as an underwriter in the offering or sale of Warrant Shares or any other Person, if any, who controls such underwriter within the meaning of the Act, in any such case to the extent that any such Loss (or action or proceeding in respect thereof) or expense arises out of such Person's failure to send or give a copy of the prospectus, as the same may be then supplemented or amended, to the Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Warrant Shares to such Person if such statement or omission was corrected in such prospectus so long as such prospectus, and any amendments or supplements thereto, have been furnished to such underwriter in sufficient numbers and in a timely-manner to permit distribution thereof. (ii) Promptly after receipt by a Person entitled to indemnification under this Section (an "Indemnified Party") of notice of the commencement of any action or claim relating to any registration statement filed pursuant to a Shelf Registration or as to which indemnity may be sought hereunder, such Indemnified Party will, if a claim for indemnification hereunder in respect thereof is to be made against any other party hereto (an "Indemnifying Party"), give written 15 16 notice to such Indemnifying Party of the commencement of such action or claim, but the omission to so notify the Indemnifying Party will not relieve the Indemnifying Party from any liability that it may have to any Indemnified Party except to the extent that the Indemnifying Party is actually prejudiced thereby. In case any such action is brought against an Indemnified Party, and it notifies an Indemnifying Party of the commencement thereof, the Indemnifying Party will be entitled (at its own expense) to participate in and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense, with counsel reasonably satisfactory to such Indemnified Party, of such action provided that the Indemnifying Party shall not settle or compromise such action, except upon the prior written consent of the Indemnified Party and, after notice from the Indemnifying Party to such Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party will not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof, other than the reasonable cost of investigation; provided, however, that the assumption of such defense shall not give rise in the reasonable opinion of the Indemnified Party or its counsel to any conflict. Notwithstanding the foregoing, the Indemnified Party shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (A) the employment of such counsel shall have been authorized in writing by the Indemnifying Party in connection with the defense of such suit, action, claim or proceeding, (B) the Indemnifying Party shall not have employed counsel (reasonably satisfactory to the Indemnified Party) to take charge of the defense of such action, suit, claim or proceeding, or (C) such Indemnified Party shall have reasonably concluded, based upon the advice of counsel, that there may be defenses available to it that are different from or additional to those available to the Indemnifying Party which, if the Indemnifying Party and the Indemnified Party were to be represented by the same counsel, could result in a conflict of interest for such counsel or materially prejudice the prosecution of the defenses available to such Indemnified Party. If any of the events specified in clauses (A), (B) or (C) of the preceding sentence shall have occurred or shall otherwise be applicable, then the reasonable fees and expenses of one counsel or firm of counsel selected by the Indemnified Party (and reasonably acceptable to the Indemnifying Party) shall be borne by the Indemnifying Party. If, in any such case, the Indemnified Party employs separate counsel, the Indemnifying Party shall not have the right to direct the defense of such action, suit, claim or proceeding on behalf of the Indemnified Party and the Indemnified Party shall assume such defense and/or settle or compromise such action; provided, however, that an Indemnifying Party shall not be liable for the settlement or compromise of any action, suit, claim or proceeding effected without its prior written consent, which consent shall not be unreasonably withheld. (iii) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with any underwritten public offering contemplated by this Agreement are in conflict with the foregoing provisions, the provisions in such underwriting agreement shall be controlling. (m) Information by the Holders. Each Holder holding securities included in any registration shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to 16 17 in this Section 6.3. (n) Mergers, Etc. The Company shall not, directly or indirectly, enter into any merger, consolidation, or reorganization in which the Company shall not be the surviving corporation unless the proposed surviving corporation shall, prior to such merger, consolidation, or reorganization, agree in writing to assume the obligations of the Company under this Section, and for that purpose references hereunder to "Warrant Shares" shall be deemed to be references to the securities that the Holders, as the case may be, would be entitled to receive in exchange for Warrant Shares under any such merger, consolidation, or reorganization; provided, however, that the provisions of this Section shall not apply in the event of any merger, consolidation, or reorganization in which the Company is not the surviving corporation if Holders are entitled to receive in exchange for their Warrant Shares consideration consisting solely of (i) cash, (ii) securities of the acquiring corporation that may be immediately sold to the public without registration under the Act, or (iii) securities of the acquiring corporation that the acquiring corporation has agreed to register within 90 days of completion of the transaction for resale to the public pursuant to the Act. SECTION 7. NOTIFICATIONS BY THE COMPANY. In case at any time: (a) the Company shall declare any dividend payable in stock upon Common Stock or make any distribution (other than cash dividends which are not in a greater amount per share than the most recent cash dividend) to the holders of the Common Stock; (b) the Company shall propose to make an offer for subscription pro rata to the holders of its Common Stock of any additional shares of stock of any class or other rights; (c) there shall be proposed any other transaction of a type referred to in Section 4 hereof, and (d) there shall be proposed 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 written notice to the Holder of the date on which (i) the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights, or other transaction, and (ii) such reorganization, reclassification, consolidation, merger, sale, dissolution, other transaction, liquidation or winding-up shall take place, as the case may be. Such notice shall also specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Stock for, or receive in respect of their Common Stock, securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, other transaction, liquidation, or winding-up, as the case may be. Such written notice shall be given not less than five (5) Business days prior to the taking of the action in question. SECTION 8. NOTICES. Any notice or other document required or permitted to be given 17 18 or delivered to the Holder shall be delivered at, or sent by certified or registered mail to each Holder at the address listed in the stock records of the Company or to such other address as shall have been furnished to the Company in writing by such Holder. Any notice or other document required or permitted to be given or delivered to the Company shall be delivered at, or sent by certified or registered mail to, the principal office of the Company, at 100 Jeffrey Avenue, Holliston, Massachusetts 01746, Attention: William McLendon or such other name or address as shall have been furnished to the Holder by the Company. SECTION 9. LIMITATION OF LIABILITY. No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the Exercise Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. SECTION 10. GOVERNING LAW. This Warrant shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without giving effect to its conflicts of laws provisions. SECTION 11. MISCELLANEOUS. No term of this Warrant may be amended, except with the joint written consent of the Holder and the Company. The headings in this Warrant are for purposes of reference only and shall not affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, Sight Resource Corporation has caused this Warrant to be signed by its duly authorized officer under its corporate seal, attested by its duly authorized officer, on the date first above written. ATTEST: SIGHT RESOURCE CORPORATION By:_____________________ By:________________________________ Name:___________________ Name:______________________________ Title:____________________ Title:_______________________________ (SEAL) 18 19 ASSIGNMENT TO BE EXECUTED BY THE REGISTERED HOLDER IF IT DESIRES AND IS PERMITTED TO TRANSFER THE WITHIN WARRANT OF SIGHT RESOURCE CORPORATION FOR VALUE RECEIVED____________________________ hereby sells, assigns and transfers unto ______________________ the right to purchase ___ of the number of shares of Common Stock covered by the within Warrant, and does hereby irrevocably constitute and appoint ________________ Attorney to transfer the said Warrant on the books of the Company (as defined in said Warrant) with full power of substitution. Signature:________________________________(SEAL) Address: _________________________________ _________________________________ Dated:_________________ 19 20 In the presence of: [Name of Institution] _________________ By:________________________ NOTICE The signature to the foregoing Assignment must correspond to the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever. 20 21 WARRANT CERTIFICATE TO BE EXECUTED BY THE REGISTERED HOLDER IF IT DESIRES TO EXERCISE THE WITHIN WARRANT OF SIGHT RESOURCE CORPORATION The undersigned hereby irrevocably exercises the right to purchase shares of Common Stock obtainable by exercise of ___________ % of the within Warrant, according to the conditions thereof and herewith makes payment of the Exercise Price for such shares in full. Signature___________________(SEAL) Address:____________________ ____________________ Dated:_____________________ In the presence of : [Name of Institution] ___________________________ By:____________________ 21 EX-4.4 5 AMENDMENT TO SHAREHOLDER RIGHTS AGREEMENT 1 Exhibit 4.4 AMENDMENT TO RIGHTS AGREEMENT This AMENDMENT is entered into as of November 24, 1997 by and between SIGHT RESOURCE CORPORATION, a Delaware corporation (the "Company"), and AMERICAN STOCK TRANSFER & TRUST COMPANY (the "Rights Agent"). WHEREAS, the Company and the Rights Agent have entered into that certain Rights Agreement, dated as of May 15, 1997 (the "Rights Agreement"); WHEREAS, the Board of Directors of the Company has authorized and directed the Company to execute and deliver this Amendment to the Rights Agreement; and WHEREAS, the Company and the Rights Agent are authorized to execute and deliver this Amendment pursuant to the provisions of Section 27 of the Rights Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: Section 1. Amendment to Rights Agreement. The definition of "Acquiring Person" as set forth in Section 1 of the Rights Agreement is amended by deleting the first sentence thereof and substituting in lieu thereof the following: "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding, but shall not include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan of the Company or any Subsidiary of the Company, or (iv) any entity holding Common Shares for or pursuant to the terms of any such employee benefit plan. Notwithstanding the foregoing, (1) no Person shall become an "Acquiring Person" as the result of an acquisition of Common Shares by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 15% or more of the Common Shares of the Company then outstanding; provided, however, that if a Person shall so become the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding by reason of an acquisition of Common Shares by the Company and shall, after such share purchases by the Company, become the Beneficial Owner of an additional 1% of the outstanding Common Shares of the Company, then such Person shall be deemed to be an "Acquiring Person"; (2) if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an "Acquiring Person," as defined pursuant to the foregoing provisions of this paragraph, has become such inadvertently, and such Person divests as promptly as practicable a sufficient number of Common Shares so that such Person would no longer be an "Acquiring Person," as defined pursuant to the foregoing provisions of this paragraph, then such Person shall not be deemed to have become an "Acquiring Person" for any purposes of this Agreement; and (3) neither The Carlyle Group nor any of its Affiliates shall be deemed to have become an "Acquiring Person" for any purposes of this Agreement solely as the result of the consummation of the transactions contemplated by the Series B Convertible Preferred Stock Purchase Agreement dated as of October 9, 1997 (the "Purchase Agreement"), including, without 2 limitation, the purchase of the Series B Preferred Stock and the issuance of shares of Common Stock upon the conversion of the Series B Preferred Stock and upon the exercise of the warrants issued pursuant to the Purchase Agreement, provided, however, that the foregoing exception shall not apply if The Carlyle Group or any of its Affiliates becomes the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding in any manner other than as contemplated by the Purchase Agreement. Section 2. Rights Agent. In accordance with the provisions of Section 27 of the Rights Agreement, upon the delivery of a certificate from an appropriate officer of the Company that states that this Amendment is in compliance with the terms of Section 27 of the Rights Agreement, the Rights Agent shall execute this Amendment, shall be under no obligation to investigate such compliance, and shall be fully protected hereunder and thereunder by so doing. Section 3. Effect of Amendment. The parties hereby ratify and confirm all of the provisions of the Rights Agreement, as amended hereby, and agree and acknowledge that the Rights Agreement as so amended remains in full force and effect. Section 4. Governing Law. This Amendment shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State. Section 5. Counterparts. This Amendment may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. [THE NEXT PAGE IS THE SIGNATURE PAGE] 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and attested, all as of the day and year first above written. Attest: SIGHT RESOURCE CORPORATION Alan B. MacDonald William G. McLendon By:____________________________ By:_______________________________ Title: VP/CFO Title: CEO Attest: AMERICAN STOCK TRANSFER & TRUST COMPANY Susan Silber Herbert J. Lemmer By:____________________________ By:______________________________ Title: Assistant Secretary Title: Vice President EX-10.1 6 SERIES B CONVERTIBLE PREFERRED PURCHASE AGREEMENT 1 EXHIBIT 10.1 SIGHT RESOURCE CORPORATION SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT DATED OCTOBER 9, 1997 2 TABLE OF CONTENTS
Page ---- SECTION 1. DEFINITIONS.....................................................................................1 1.1 Defined Terms...................................................................................1 1.2 Other Defined Terms.............................................................................6 1.3 Other Definitional Provisions...................................................................7 SECTION 2. AUTHORIZATION AND SALE OF CONVERTIBLE PREFERRED STOCK; WARRANTS AND WARRANT SHARES..............................................................7 2.1 Authorization of Convertible Preferred Stock; Warrants and Warrant Shares.....................................................................7 2.2 Sale and Purchase of Convertible Preferred Stock; Issuance of Warrants............................................................................7 2.3 Use of Proceeds.................................................................................7 SECTION 3. CLOSING DATE; DELIVERY..........................................................................8 3.1 Closing Date....................................................................................8 3.2 Delivery........................................................................................8 SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................................8 4.1 Organization, Good Standing and Qualification...................................................8 4.2 Capitalization..................................................................................8 4.3 Subsidiaries....................................................................................8 4.4 Partnerships, Joint Ventures...................................................................10 4.5 Authorization..................................................................................10 4.6 Governmental Consents..........................................................................10 4.7 Absence of Litigation..........................................................................10 4.8 Insurance......................................................................................10 4.9 Patents and Trademarks.........................................................................11 4.10 Compliance with Other Instruments and Legal Requirements.......................................11 4.11 Material Agreements; Action....................................................................11 4.12 Broker's Fees..................................................................................12 4.13 Registration Rights............................................................................12 4.14 Corporate Documents............................................................................12 4.15 Real Property..................................................................................13 4.16 Tangible Personal Property.....................................................................14 4.17 Environmental Matters..........................................................................14 4.18 Company SEC Reports and Financial Statements...................................................15 4.19 Changes........................................................................................16 4.20 Employee Benefit Plans.........................................................................17 4.21 Taxes..........................................................................................20
- i - 3 4.22 Labor and Employment Matters...................................................................20 4.23 No Pending Transactions........................................................................21 4.24 Disclosure.....................................................................................21 SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER......................................................................................22 5.1 Accredited Investor; Experience; Risk..........................................................22 5.2 Investment.....................................................................................22 5.3 Authorization..................................................................................22 5.4 Governmental Consents..........................................................................22 5.5 Broker's Fees..................................................................................22 5.6 Unregistered Shares............................................................................22 5.7 Access to Information..........................................................................23 5.8 Restricted Transfer of Securities .............................................................23 SECTION 6. CONDITIONS TO CLOSING OF PURCHASER.............................................................24 6.1 Representations and Warranties Correct.........................................................24 6.2 Covenants......................................................................................24 6.3 Opinion of Company's Counsel...................................................................24 6.4 No Material Adverse Change.....................................................................24 6.5 Certificate of Designation.....................................................................24 6.6 Consents.......................................................................................24 6.7 Issuance of Shares.............................................................................24 6.8 Certificates...................................................................................24 6.9 Warrants; Reservation of Common Stock..........................................................24 6.10 Appointment of Director........................................................................25 6.11 Bank Credit Facility...........................................................................25 SECTION 7. CONDITIONS TO CLOSING OF THE COMPANY...........................................................25 7.1 Representations................................................................................25 7.2 Covenants......................................................................................25 7.3 Purchase Price.................................................................................25 7.4 Certificate....................................................................................25 SECTION 8. COVENANTS OF THE COMPANY.......................................................................25 8.1 Information....................................................................................25 8.2 Preemptive Rights..............................................................................26 8.3 Company Registration...........................................................................27 8.4 Shelf Registration.............................................................................28 8.5 Certain Registration Matters...................................................................29 8.6 Regulatory Matters.............................................................................34 8.7 Access.........................................................................................34 8.8 Confidentiality................................................................................35 8.9 Amendment to NASD Listing Application..........................................................35
- ii - 4 8.10 Reservation of Warrant Shares..................................................................35 8.11 Bank Credit Facility...........................................................................35 8.12 Repurchase Rights .............................................................................36 8.13 Directors' and Officers' Insurance ............................................................36 8.14 Selection of President ........................................................................36 SECTION 9. MISCELLANEOUS..................................................................................36 9.1 Amendment; Waiver..............................................................................36 9.2 Notices........................................................................................36 9.3 Severability...................................................................................37 9.4 Successors and Assigns.........................................................................37 9.5 Survival of Representations, Warranties and Covenants..........................................38 9.6 Entire Agreement...............................................................................38 9.7 Choice of Law..................................................................................38 9.8 Counterparts...................................................................................38 9.9 Costs and Expenses.............................................................................38 9.10 No Third-Party Beneficiaries...................................................................38 9.11 Indemnification................................................................................38
- iii - 5 SIGHT RESOURCE CORPORATION SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT dated as of October 9, 1997 (this "Agreement"), by and between SIGHT RESOURCE CORPORATION, a Delaware corporation (the "Company"), and the purchasers listed on the signature page hereto (collectively herein the "Purchaser"). W I T N E S S E T H WHEREAS, the Company has issued and outstanding the shares of capital stock described in Section 4.2 hereof and the Company has reserved for issuance additional shares of capital stock upon the exercise of the outstanding convertible securities, including rights, options and warrants, identified in Section 4.2; and WHEREAS, the Company proposes to issue and sell, and the Purchaser desires to purchase, shares of the Company's Series B Convertible Preferred Stock, par value $.01 per share, on the terms and conditions set forth herein; and WHEREAS, the Company proposes to issue, and the Purchaser desires to acquire, the Class I Warrants and the Class II Warrants (each as hereafter defined). NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein, the parties hereto agree as follows: SECTION 1 Definitions 1.1. Defined Terms. The following terms are defined as follows: "Affiliate" means, with respect to any Person, (i) any Person that holds direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of voting securities or other voting interests representing at least 10% of the outstanding voting power of a Person or equity securities or other equity interests representing at least 10% of the outstanding equity securities or equity interests in a Person, (ii) any brother, sister, parent, child or spouse of such Person or any Person described in clause (i), and (iii) any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such entity. "Benefit Arrangement" means any benefit arrangement, obligation, custom, or practice, whether or not legally enforceable, to provide benefits, other than salary, as compensation for services rendered, to present or former directors, employees, agents, or independent contractors, other than any obligation, arrangement, custom or practice that is an Employee Benefit Plan, 6 including, without limitation, employment agreements, severance agreements, executive compensation arrangements, incentive programs or arrangements, sick leave, vacation pay, severance pay policies, plant closing benefits, salary continuation for disability, consulting, or other compensation arrangements, workers' compensation, retirement, deferred compensation, bonus, stock option or purchase, hospitalization, medical insurance, life insurance, tuition reimbursement or scholarship programs, employee discounts, any plans subject to Section 125 of the Code, and any plans providing benefits or payments in the event of a change of control, change in ownership, or sale of a substantial portion (including all or substantially all) of the assets of any business or portion thereof, in each case with respect to any present or former employees, directors, or agents. "Change of Control" for the purpose of Section 8.12 of this Agreement only, means any event or series of events by which (i) any Person or group obtains a majority (by voting or otherwise) of the securities of the Company ordinarily having the right to vote in the election of directors; (ii) during any two year period, individuals who at the beginning of any such two year period constituted the Board of Directors of the Company (together with any new directors whose election by such Board or whose nomination for election by the stockholders of the Company was approved by a vote of the majority of the directors then still in office who were either directors at the beginning of such period or whose election, recommendation, or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; (iii) the merger, consolidation, reorganization, recapitalization, dissolution or liquidation of the Company if as a result the current stockholders no longer own more than 50% of the voting securities of the Company; (iv) any sale, lease, exchange or other transfer of all, or substantially all, of the assets of the Company; or (v) the adoption of a plan leading to the liquidation or dissolution of the Company. "Class I Warrants" means the Class I Warrants in the form attached hereto as Exhibit A. "Class II Warrants" means the Class II Warrants in the form attached hereto as Exhibit B. "Code" means the Internal Revenue Code of 1986 (or any successor thereto), as amended from time to time. "Common Stock" means the Common Stock, par value $.01 per share, of the Company. "Company Benefit Arrangement" means any Benefit Arrangement sponsored or maintained by the Company or its Subsidiaries or with respect to which the Company or a Subsidiary has or may have any liability (whether actual, contingent, with respect to any of its assets or otherwise) as of the Closing Date, in each case with respect to any present or former directors, employees, or agents of the Company or the Subsidiaries. "Company Plan" means, as of the Closing Date, any Employee Benefit Plan for which the Company or any Subsidiary is the "plan sponsor" (as defined in Section 3(16)(B) of ERISA) or any Employee Benefit Plan maintained by the Company or any Subsidiary or to which the Company or any Subsidiary is obligated to make payments, in each case with respect to any present or former - 2 - 7 employees of the Company or the Subsidiaries. "Company's Knowledge" or derivations thereof shall mean the knowledge of the officers of the Company and each Subsidiary, and, with respect to Sections 4.20 and 4.22, each person who conducts human resource and employee benefits management functions for the Company or any Subsidiary, whether or not an officer of the Company or such Subsidiary. "Convertible Preferred Stock" means the Series B Convertible Preferred Stock, par value $.01 per share, of the Company. "Effectiveness Period" means the period commencing on the Closing Date and ending on the date that all Registrable Securities shall have ceased to be Registrable Securities. "Employee Benefit Plan" has the meaning given in Section 3(3) of ERISA. "Environmental Law" means any applicable foreign, federal, state or local statute, regulation, ordinance or rule of common law as now in effect in any way relating to the protection of human health and the environment including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Sections 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. App. Sections 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Sections 6901 et seq.), the Clean Water Act (33 U.S.C. Sections 1251 et seq.), the Clean Air Act (42 U.S.C. Sections 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Sections 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Sections 136 et seq.), and the Occupational Safety and Health Act (29 U.S.C. Sections 651 et seq.), regulations promulgated pursuant to these statutes, and common law principles of tort liability. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any regulation or rule issued thereunder. "ERISA Affiliate" means any Person that together with the Company, would be or was at any time treated as a single employer under Section 414 of the Code or Section 4001 of ERISA and any general partnership of which the Company is or has been a general partner. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Hazardous Material" means any substance, material or waste that is regulated by the United States, the foreign jurisdictions in which the Company or its Subsidiaries conducts business, or any applicable state or local governmental authority including, without limitation, petroleum and its by-products, asbestos, and any material or substance that is defined as a "hazardous waste," "hazardous substance," "hazardous material," "restricted hazardous waste," "industrial waste," "solid waste," - 3 - 8 "contaminant," "pollutant," "toxic waste" or "toxic substance" under any provision of Environmental Law. "Holder" means, individually, a general or limited partner of the Purchaser who shall acquire Registrable Securities, and, collectively, the general or limited partners of the Purchaser who shall acquire Registrable Securities. "Lien" means any lien, pledge, mortgage, deed of trust, security interest, claim, lease, charge, option, right of first refusal, easement, servitude, transfer restriction under any shareholder or similar agreement, encumbrance or any other restriction or limitation whatsoever. "Material Adverse Effect" means a material adverse change to the business, operations, financial condition, prospects (insofar as can reasonably be foreseen), liabilities, assets or properties of any Person taken as whole. "Multiemployer Plan" means any Employee Benefit Plan described in Section 3(37) of ERISA. "New Securities" means shares of Common Stock of the Company and any securities or other rights convertible or exchangeable into or exercisable for shares of Common Stock; provided, however, "New Securities" shall not include (i) Common Stock issued or issuable upon conversion of the Convertible Preferred Stock issued to Purchaser; (ii) Common Stock issued or issuable upon exercise of the Warrants issued to Purchaser, (iii) securities issued by the Company as part of any public offering pursuant to an effective registration statement under the Securities Act; (iv) securities issued in connection with any stock split, stock dividend or recapitalization of the Company; (v) equity securities and options to purchase equity securities issued to management, directors or employees of or consultants to the Company pursuant to plans outstanding as of the date hereof; (vi) equity securities and options to purchase equity securities issued in accordance with additional stock option or similar plans approved by the Board or any class of stockholders, as required; (vii) securities issued in connection with any merger or acquisition by the Company, and (viii) Common Stock or other securities issued or issuable upon conversion of rights, options, warrants or convertible securities issued and outstanding prior to the date hereof. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permits" means any approvals, authorizations, consents, licenses, permits or certificates. "Permitted Exceptions" means (i) all defects, exceptions, restrictions, easements, rights of way and encumbrances disclosed in policies of title insurance that have been made available to the Company; (ii) statutory Liens for current taxes, assessments or other governmental charges not yet delinquent or the amount or validity of which is being contested in good faith by appropriate proceedings, provided an appropriate reserve is established therefor; (iii) mechanics', carriers', workers', repairers' and similar Liens arising or incurred in the ordinary course of business that - 4 - 9 would not result in a Material Adverse Effect on the Company or its Subsidiaries; (iv) zoning, entitlement and other land use and environmental regulations by any governmental body, provided that such regulations have not been violated; and (v) such other imperfections in title, charges, easements, restrictions and encumbrances that would not result in a Material Adverse Effect on any Company Property subject thereto or affected thereby. "Person" means an individual, partnership, limited liability company, corporation, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Qualified Plan" means any Employee Benefit Plan that meets, purports to meet, or is intended to meet the requirements of Section 401(a) of the Code. "Registrable Securities" means (i) shares of Common Stock or other securities issued or issuable upon conversion of the Convertible Preferred Stock; (ii) shares issued in connection with the exercise of the Preemptive Rights as set forth in Section 8.2; (iii) shares of Common Stock issued or issuable upon exercise of the Warrants, and (iv) any other shares of Common Stock or securities issued in respect of such shares (because of stock splits, stock dividends, reclassifications, recapitalization, mergers, consolidation, share exchange or similar events); provided, however, that the foregoing shall cease to be Registrable Securities upon the earlier of (x) the date that the same are registered and disposed of pursuant to an effective registration statement under the Securities Act and (y) the date upon which the Purchaser or Holder has sold such Registrable Securities held by such Person without registration pursuant to Rule 144 promulgated under the Securities Act. "Release" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal or leaching into the indoor or outdoor environment, or into or out of any property; "Remedial Action" means all actions to (x) clean up, remove, treat or in any other way address any Hazardous Material; (y) prevent the Release of any Hazardous Material so it does not endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; or (z) perform pre-remedial studies and investigations or post-remedial monitoring and care. "SEC" means the United States Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Subsidiaries" means each corporation in which the Company owns or controls, directly or indirectly, capital stock or other equity interests representing at least 50% of the outstanding voting stock or other equity interests. "Warrants" means (i) the Class I Warrants and (ii) the Class II Warrants. "Welfare Plan" means any Employee Benefit Plan described in Section 3(1) of ERISA. - 5 - 10 1.2 Other Defined Terms. The following terms shall have the meanings assigned to them in the identified Sections of this Agreement. "Balance Sheet" as defined in Section 4.18. "Balance Sheet Date" as defined in Section 4.18. "Bank Credit Facility" as defined in Section 6.11. "Certificate of Designation" as defined in Section 2.1. "Closing" as defined in Section 3.1. "Closing Date" as defined in Section 3.1. "Company 401(k) Plan" as defined in Section 4.20. "Company Property" as defined in Section 4.16. "Company SEC Reports" as defined in Section 4.18. "GAAP" as defined in Section 4.18. "Indemnified Party" as defined in Section 8.3. "Indemnifying Party" as defined in Section 8.3. "Initial Shelf Registration" as defined in Section 8.3. "Inspectors" as defined in Section 8.3. "Intellectual Property" as defined in Section 4.9. "IRS" as defined in Section 4.20. "Leased Properties" as defined in Section 4.15. "Lock-up Period" as defined in Section 8.3(n). "Losses" as defined in Section 8.3. "Offer Period" as defined in Section 8.2. "Owned Properties" as defined in Section 4.15. - 6 - 11 "Personal Property Leases" as defined in Section 4.16. "Preferred Stock" as defined in Section 4.2. "Proportionate Percentage" as defined in Section 8.2. "Real Property Leases" as defined in Section 4.15(a). "Shelf Registration" as defined in Section 8.3. "Subsequent Shelf Registration" as defined in Section 8.3. "Transaction Documents" as defined in Section 4.5. 1.3. Other Definitional Provisions. Terms defined in the singular shall have a comparable meaning when used in the plural and vice versa. SECTION 2 Authorization and Sale of Convertible Preferred Stock; Warrants and Warrant Shares 2.1. Authorization of Convertible Preferred Stock; Warrants and Warrant Shares. At Closing, the Company will have authorized the issuance and sale to the Purchaser of 1,452,119 shares of Convertible Preferred Stock, having the rights, preferences, privileges and restrictions set forth in the Certificate of Designation attached to this Agreement as Exhibit 2.1 hereto (the "Certificate of Designation"). In addition, the Company will have authorized the issuance of the Class I Warrants and the Class II Warrants, and shall have reserved for issuance the number of shares of Common Stock issuable, from time to time, upon exercise thereof. 2.2. Sale and Purchase of Convertible Preferred Stock; Issuance of Warrants. In reliance on the representations and warranties of the Company contained herein and subject to the terms and conditions hereof, the Purchaser agrees to purchase from the Company, and the Company agrees to sell to the Purchaser, 1,452,119 shares of Convertible Preferred Stock, the Class I Warrants and the Class II Warrants for the aggregate purchase price of Five Million Eighty-Two Thousand Four Hundred Seventeen Dollars ($5,082,417). The aggregate number of shares of Common Stock issuable upon conversion of the Convertible Preferred Stock and upon exercise of the Class II Warrants represents approximately 19.9% of the issued and outstanding Common Stock of the Company at the date of Closing. 2.3 Use of Proceeds. The Company agrees to use the full proceeds from the sale of the Convertible Preferred Stock (after deduction of the expenses of this transaction) for acquisitions and related costs, fees and expenses and for working capital purposes. - 7 - 12 SECTION 3 Closing Date; Delivery 3.1. Closing Date. The closing of the purchase and sale of the Convertible Preferred Stock and the issuance of the Class I Warrants and Class II Warrants hereunder (the "Closing") shall be held at the offices of Wilmer, Cutler & Pickering, 2445 M Street, N.W., Washington, D.C. 20037 on the earlier of (i) November 24, 1997, (ii) the date on which the Company and the Company's new President, which individual shall be reasonably acceptable to both the Company and Purchaser, shall have executed an employment agreement, which employment agreement shall be reasonably acceptable to both the Company and the Purchaser, or (iii) on such other date or at such other place as the Purchaser and the Company shall mutually agree (the date of the Closing being referred to herein as the "Closing Date"). 3.2. Delivery. At the Closing, the Company shall deliver to Purchaser a certificate or certificates evidencing the shares of Convertible Preferred Stock and the Class I Warrants and the Class II Warrants being purchased by it registered in the Purchaser's name against delivery to the Company of payment in an amount equal to the full purchase price of the shares of Convertible Preferred Stock and the Class I Warrants and the Class II Warrants being purchased by the Purchaser by certified check or wire transfer to an account designated by the Company. SECTION 4 Representations and Warranties of the Company The Company hereby represents and warrants to, and agrees with, the Purchaser as follows: 4.1. Organization, Good Standing and Qualification. Each of the Company and its Subsidiaries (i) is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) has all requisite power and authority to carry on its business, (iii) is duly qualified to transact business and is in good standing in all jurisdictions where its ownership, lease or operation of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not, and reasonably could not be expected to, have a Material Adverse Effect on the Company and its Subsidiaries taken as a whole. The Company has the corporate power and authority and is in possession of all franchises, grants, authorizations, licenses, permits, easements, consents, certificates, approvals and orders to (i) own, lease and operate its properties and to carry on its business as now being conducted and (ii) execute and deliver this Agreement and the documents and instruments contemplated hereby and to consummate the transactions contemplated hereby. 4.2. Capitalization. (a) The authorized capital stock of the Company is 25,000,000 shares, consisting of 20,000,000 shares of common stock, par value $.01 per share ("Common Stock") of which 8,756,500 shares are issued and outstanding and 30,600 shares are held in treasury, and 5,000,000 shares of preferred stock, par value $.01 per share ("Preferred Stock"), none of which are issued and outstanding. Schedule 4.2 lists the options, rights and warrants of the Company issued and outstanding prior to Closing. The Company has reserved for issuance 3,548,281 shares of Common - 8 - 13 Stock upon exercise or conversion of currently outstanding shares of convertible preferred stock and rights, options, warrants and other convertible securities. The Company has reserved for issuance 1,500,000 shares of Common Stock under employee stock purchase plans, stock option plans or other Employee Benefit Plans. The Company has reserved for issuance 2,584,837 shares of Common Stock upon conversion of the authorized shares of Convertible Preferred Stock and the Warrants. Except as set forth in this Section or listed on Schedule 4.2, there are outstanding (a) no shares of capital stock or other voting stock of the Company, (b) no securities of the Company or any Subsidiary convertible into or exchangeable for shares of capital stock or voting securities of the Company, (c) no options, warrants or other rights to acquire from the Company or any Subsidiary (including any rights issuable or issued under any shareholder rights plan or similar arrangement), and no obligations, contingent or otherwise, of the Company or any Subsidiary to issue any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company or any Subsidiary, (d) no equity equivalent in the earnings or ownership of the Company or any Subsidiary or any similar rights to share earnings or ownership, and (e) no outstanding obligations of the Company to repurchase, redeem or otherwise acquire any of its securities or to make any investment (by loan, capital contribution or otherwise) in any entity. All outstanding options, rights and warrants have been duly and validly issued and are in full force and effect. All shares of capital stock subject to issuance upon exercise of any options, rights or warrants or otherwise, upon issuance pursuant to the instruments under which they are issuable, shall be duly authorized, validly issued, fully paid for and non-assessable and free of all preemptive rights. No outstanding options, warrants or other securities exercisable for or convertible into shares of capital stock of the Company require anti-dilution adjustments by reason of the consummation of the transactions contemplated hereby. (b) The issued and outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and non-assessable. The shares of Convertible Preferred Stock to be issued pursuant to this Agreement, upon delivery to the Purchaser of certificates therefor against payment in accordance with the terms of this Agreement, and the shares of Common Stock issuable upon conversion of the Convertible Preferred Stock and exercise of the Warrants when issued upon conversion of such Convertible Preferred Stock or upon exercise of such Warrants, (i) will be validly issued, fully paid and non-assessable, (ii) will be free and clear of all Liens, and (iii) based upon applicable federal and state securities laws presently in effect and assuming that the representations of the Purchaser in Section 5 hereof are true and correct, will be issued in compliance with all applicable federal and state securities laws. 4.3. Subsidiaries. Schedule 4.3 sets forth a complete and accurate list of all Subsidiaries of the Company, showing (as to each such Subsidiary) the date of its incorporation, the jurisdiction of its incorporation, the number of shares of its authorized capital stock, the number and class of shares thereof duly issued and outstanding, the names of all stockholders of such Subsidiaries and the number and percentage of the outstanding shares of each such class owned, directly or indirectly, by all such stockholders, including the Company. All of the outstanding capital stock of, or other ownership interests in, each Subsidiary, is owned by the Company, directly or indirectly, free and clear of any Lien. All outstanding shares of the capital stock of the Company and any Subsidiary have been duly authorized and validly issued and are fully paid and non-assessable and are free of - 9 - 14 any preemptive rights. There are no outstanding securities of any Subsidiary convertible into or evidencing the right to purchase or subscribe for any shares of capital stock of any Subsidiary, there are no outstanding or authorized options, warrants, calls, subscriptions, rights, commitments or any other agreements of any character obligating any Subsidiary to issue any shares of its capital stock or any securities convertible into or evidencing the right to purchase or subscribe for any shares of such stock, and there are no agreements or understandings with respect to the voting, sale, transfer or registration of any shares of capital stock of any Subsidiary. 4.4. Partnerships, Joint Ventures. Except as set forth on Schedule 4.4, the Company is not a party to, and does not hold, any equity interests in any partnership, limited partnership, limited liability company or other joint venture of any kind. 4.5. Authorization. The Company has all requisite corporate power and authority to execute and deliver this Agreement and each agreement, document or instrument adopted, entered into or delivered by it as contemplated herewith (the "Transaction Documents") and to perform its obligations hereunder and thereunder. The execution, delivery and performance of the Agreement and the transactions contemplated hereby have been duly authorized by all necessary corporate, including shareholder (if required), action on the part of the Company. Each Transaction Document to which it is a party has been duly and validly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity) and except to the extent that rights to indemnification and contribution under this Agreement may be limited by federal or state securities laws or public policy relating thereto. 4.6. Governmental Consents. Except as set forth on Schedule 4.6, no consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state, or local governmental authority on the part of the Company is required in connection with the valid execution and delivery by the Company of the Transaction Documents to which it is a party, or the consummation by the Company of the transactions contemplated by the Transaction Documents to which it is a party. 4.7. Absence of Litigation. There are no claims, actions, suits, proceedings or investigations pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries, or any properties or rights of the Company or its Subsidiaries, before any court, arbitrator or administrative, governmental or regulatory authority or body, domestic or foreign, that could reasonably be expected to have a Material Adverse Effect on the Company and its Subsidiaries taken as a whole. 4.8. Insurance. The Company and its Subsidiaries maintain insurance of the type and in the amount described in Schedule 4.8, and that is customary in their industries, from time to time, - 10 - 15 with respect to their respective businesses and are in compliance with all material requirements and provisions thereof. 4.9. Patents and Trademarks. The Company and its Subsidiaries have sufficient title and ownership of (or rights under license agreements to use) all patents, trademarks, service marks, trade names, copyrights, trade secrets, proprietary rights and processes ("Intellectual Property") necessary for their businesses. There are no outstanding options, licenses or agreements of any kind relating to the foregoing, nor is the Company or any of its Subsidiaries bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, proprietary rights and processes of any other Person. A list of all patents, patent applications, registered trademarks, trademark applications, registered copyrights and copyright applications owned by the Company or any of its Subsidiaries is set forth on Schedule 4.9. Within the past five years, the Company has not received any communications alleging that the Company or any of its Subsidiaries has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights, trade secrets, proprietary rights and processes of any other Person, nor is the Company aware of any such violations. 4.10. Compliance with Other Instruments and Legal Requirements. (a) None of the Company or any of its Subsidiaries is in violation or default of any provisions of its certificate of incorporation, by-laws, or comparable organizational documents. None of the Company or any of its Subsidiaries is in violation or default in any material respect under any provision, instrument, judgment, order, writ, decree, contract or agreement to which it is a party or by which it is bound or of any provision of any federal, state or local statute, rule or regulation applicable to the Company or any of its Subsidiaries (including, without limitation, any law, rule or regulation relating to protection of the environment and the maintenance of safe and sanitary premises), which could reasonably be expected to have a Material Adverse Effect on the Company and its Subsidiaries taken as a whole. Except as set forth on Schedule 4.10, the execution, delivery and performance of each Transaction Document and the consummation of the transactions contemplated hereby and thereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time or giving of notice, either a default under or give rise to any obligations under, the Certificate of Incorporation or By-Laws of the Company, or any note, bond, mortgage, indenture, lease, license, permit, contract, agreement or other instrument or obligation, decree or order to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or its properties or assets is or may be bound, or violate any law, order, rule or regulation applicable to the Company or any Subsidiary, except for conflicts, breaches and violations which could not result in a Material Adverse Effect on the Company and its Subsidiaries taken as a whole, and does not require any consent, waiver or approval thereunder, or constitute an event that results in the creation of any material Lien upon any assets of the Company or any of its Subsidiaries. (b) The Company and its Subsidiaries have all material Permits of all governmental entities required to conduct their respective businesses as currently conducted by the - 11 - 16 Company and its Subsidiaries. (c) Except as set forth on Schedule 4.10, the transactions contemplated by this Agreement and the Transaction Documents will not constitute a change of control under any Employee Benefit Plan, rights plan, contract or agreement to which it is a party, or under any law, rule or regulation to which it is subject. 4.11. Material Agreements; Action. Except as set forth on Schedule 4.11, there are no material contracts, agreements, commitments, understandings or proposed transactions, whether written or oral, to which the Company or any of its Subsidiaries is a party or by which it is bound that involve or relate to: (i) any of their respective officers, directors, stockholders or partners or any Affiliate thereof; (ii) the sale of any of the assets of the Company or any of its Subsidiaries other than in the ordinary course of business; (iii) covenants of the Company or any of its Subsidiaries not to compete in any line of business or with any Person in any geographical area; (iv) the acquisition by the Company or any of its Subsidiaries of any operating business or the capital stock of any other Person; (v) the borrowing of money; (vi) the expenditure of more than $50,000 in the aggregate or the performance by the Company or any Subsidiary extending for a period more than one year from the date hereof, other than in the ordinary course of business, or (vii) the license of any Intellectual Property or other material proprietary right to or from the Company or any of its Subsidiaries. There have been made available to the Purchaser and its representatives true and complete copies of all such agreements. All such agreements are in full force and effect and are the legal, valid and binding obligation of the Company or its Subsidiaries, enforceable against them in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). None of the Company or any of its Subsidiaries is in default in any material respect under any such agreements nor, to the Company's Knowledge, is any other party to any such agreements in default thereunder in any material respect. 4.12. Brokers' Fees. Except as set forth on Schedule 4.12, no broker, finder, investment banker or other Person is entitled to any brokerage fee, finder's fee or other commission in connection with the transactions contemplated by this Agreement based upon arrangements made by the Company. 4.13. Registration Rights. Except as set forth in Schedule 4.13 or pursuant to this Agreement, the Company has not granted or agreed to grant any registration rights, including piggyback registration rights, to any Person. Schedule 4.13 sets forth the name of the persons granted such registration rights and a description of such registration rights. 4.14. Corporate Documents. True and correct copies of the Certificate of Incorporation and the By-laws of the Company, as amended, have been delivered to the Purchaser. - 12 - 17 4.15. Real Property. (a) Schedule 4.15(a) sets forth a complete list of all real property and interests in real property owned (the "Owned Properties") or leased (the "Leased Properties") by the Company and its Subsidiaries as lessee or lessor (the Leased Properties together with the Owned Properties, being referred to herein individually as a "Company Property" and collectively as the "Company Properties"). The Company Property constitutes all interests in real property currently used or currently held for use in connection with the businesses of the Company and its Subsidiaries and which are necessary for the continued operation of the businesses of the Company and its Subsidiaries as such businesses are currently conducted. The Company and its Subsidiaries have a valid and enforceable leasehold interest under each of the leases for Leased Property (the "Real Property Leases"), and none of the Company or any of its Subsidiaries has received any written notice of any default or event which, with notice or lapse of time, or both, would constitute a default by the Company or any of its Subsidiaries under any of the Real Property Leases. All of the Company Property, buildings, fixtures and improvements thereon owned or leased by the Company and its Subsidiaries are in good operating condition and repair (subject to normal wear and tear) except for deficiencies which do not have a Material Adverse Effect. The Company has delivered or otherwise made available to the Purchaser true, correct and complete copies of the Real Property Leases, together with all amendments, modifications or supplements, if any, thereto. (b) The Company and its Subsidiaries have all material certificates of occupancy and Permits of any governmental body necessary or useful for the current use and operation of each Company Property, and the Company and its Subsidiaries have fully complied with all material conditions of the Permits applicable to them. No default or violation, or event which, with the lapse of time or giving of notice or both would become a default or violation, has occurred in the due observance of any such Permit, which could reasonably be expected to have a Material Adverse Effect on the Company and its Subsidiaries taken as a whole. (c) There does not exist any actual, or, to the Company's Knowledge, threatened or contemplated condemnation or eminent domain proceedings that affect any Company Property or any part thereof, and none of the Company or any of its Subsidiaries has received any notice, oral or written, of the intention of any governmental body or other Person to take or use all or any part thereof. (d) None of the Company or any of its Subsidiaries has received any written notice from any insurance company that has issued a policy with respect to any Company Property requiring performance of any structural or other repairs or alterations to such Company Property. (e) Except as set forth in Schedule 4.15(e) none of the Company or any of its Subsidiaries owns or holds, and is obligated under or a party to, any option, right of first refusal or other contractual right to purchase, acquire, sell, assign or dispose of any real estate or any portion thereof or interest therein. - 13 - 18 4.16. Tangible Personal Property. (a) Schedule 4.16(a) sets forth all leases of personal property ("Personal Property Leases") involving annual payments in excess of $50,000 relating to personal property used in the business of the Company and its Subsidiaries or to which the Company or any of its Subsidiaries is a party or by which the properties or assets of the Company or any of its Subsidiaries is bound. The Company has delivered or otherwise made available to the Purchaser true, correct and complete copies of the Personal Property Leases, together with all amendments, modifications or supplements, if any, thereto. (b) Each of the Company and its Subsidiaries has a valid leasehold interest under each of the Personal Property Leases under which it is a lessee, and there is no material default under any Personal Property Lease by the Company or any of its Subsidiaries, or, to the Company's Knowledge, by any other party thereto, and no event has occurred which, with the lapse of time or the giving of notice or both would constitute a default thereunder. (c) Except as set forth on Schedule 4.16(c), each of the Company and its Subsidiaries has good and marketable title to all of the items of tangible personal property reflected in the balance sheets referred to in Section 4.18 (except as sold or disposed of subsequent to the date thereof in the ordinary course of business consistent with past practice), free and clear of any and all Liens other than the Permitted Exceptions. All such items of tangible personal property that, individually or in the aggregate, are material to the operation of the business of the Company and its Subsidiaries are in good condition and in a state of good maintenance and repair (ordinary wear and tear excepted). (d) All of the items of tangible personal property used by the Company and its Subsidiaries under the Personal Property Leases are in good condition and repair (ordinary wear and tear excepted) and are suitable for the purposes used except for deficiencies which could not reasonably be expected to have a Material Adverse Effect. 4.17. Environmental Matters. Except as set forth on Schedule 4.17: (a) The operations of each of the Company and its Subsidiaries are in compliance in all material respects with all applicable Environmental Laws and all Permits issued to them pursuant to Environmental Laws or otherwise; (b) Each of the Company and its Subsidiaries has obtained all material Permits required under all applicable Environmental Laws necessary to operate its business; (c) None of the Company or any of its Subsidiaries is the subject of any outstanding written order, agreement or arrangement with any governmental authority or Person respecting (i) Environmental Laws, (ii) Remedial Action or (iii) any Release or threatened Release - 14 - 19 of a Hazardous Material; (d) None of the Company or any of its Subsidiaries has received any written communication alleging either or both that the Company or any of its Subsidiaries may be in violation of any Environmental Law, or any Permit issued pursuant to Environmental Law, or may have any liability under any Environmental Law; (e) None of the Company or any of its Subsidiaries, to the Company's Knowledge, has any current contingent liability in connection with any Release of any Hazardous Materials into the indoor or outdoor environment (whether on-site or off-site); (f) None of the Company or any of its Subsidiaries has received notice of any investigations of the business, operations, or currently or previously owned, operated or leased property of the Company or its Subsidiaries, and to the Company's Knowledge, there are no pending or threatened investigations that could lead to the imposition of any liability pursuant to Environmental Law; (g) There is not located at any of the properties owned, or to the Company's Knowledge, at any of the properties leased or operated by the Company or any of its Subsidiaries any (i) underground storage tanks, (ii) asbestos-containing material, (iii) equipment containing polychlorinated biphenyls, any (iv) Hazardous Materials located at any Company Property (other than for Hazardous Materials used or stored by the Company or any Subsidiary in the ordinary course of business and in material compliance with applicable Environmental Laws and Permits); and (h) The Company has provided to the Purchaser all environmentally related audits, studies, reports, analyses and results of investigations, if any, to the Company's Knowledge, that have been performed with respect to the currently or previously owned, leased or operated properties of the Company or any of its Subsidiaries. 4.18. Company SEC Reports and Financial Statements. (a) The Company has delivered to Purchaser true and complete copies of all periodic reports, statements and other documents that the Company has filed with the SEC under the Exchange Act since December 31, 1996 (collectively, the "Company SEC Reports"), each in the form (including exhibits and any amendments thereto) required to be filed with the SEC. Except as set forth on Schedule 4.18, as of their respective dates, each of the Company's SEC Reports (i) complied in all material respects with all applicable requirements of the Securities Act and the Exchange Act, and the rules and regulations promulgated thereunder, respectively, (ii) were filed in a timely manner, and (iii) 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. None of the Subsidiaries is required to file any forms, reports or other documents with the SEC. - 15 - 20 (b) Each of the audited consolidated financial statements of the Company (including any related notes and schedules thereto) included (or incorporated by reference) in its Annual Report on Form 10-K for the fiscal year ended December 31, 1996, are accurate and complete and fairly presents, in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved (except as may be noted therein), and in conformity with the SEC's Regulation S-X, the consolidated financial position of the Company and its consolidated subsidiaries as of its date and the consolidated results of operations and changes in financial position for the period then ended. (c) Except as and to the extent set forth (or incorporated by reference) in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (the "Balance Sheet Date") or as set forth on Schedule 4.18, none of the Company or any of its Subsidiaries has incurred any liability or obligation of any nature whatsoever (whether due or to become due, accrued, fixed, contingent, liquidated, unliquidated or otherwise) that would be required by GAAP to be accrued on, reflected on, or reserved against it, on a consolidated balance sheet (the "Balance Sheet") (or in the applicable notes thereto) of the Company or any of its Subsidiaries prepared in accordance with GAAP consistently applied, other than liabilities or obligations which arose in the ordinary course of business and consistent with past practices since such date and which do not or could not individually or in the aggregate have a Material Adverse Effect. 4.19. Changes. Except as set forth on Schedule 4.19, since December 31, 1996, there has not been: (a) any change in the assets, liabilities, financial condition or operating results of the Company or any of its Subsidiaries, except changes in the ordinary course of business that could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; (b) any damage, destruction or loss, whether or not covered by insurance that could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; (c) any waiver by the Company or any of its Subsidiaries of a valuable right or of a material debt owed to it outside of the ordinary course of business or that otherwise could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; (d) any satisfaction or discharge of any Lien or payment of any obligation by the Company or any of its Subsidiaries that could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; (e) any change or amendment to a contract or arrangement by which the Company or any of its Subsidiaries or any of their respective assets or properties is bound or subject that could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; - 16 - 21 (f) other than in the ordinary course of business, any material increase in excess of $25,000 annually in any compensation arrangement or agreement with any employee of the Company or any of its Subsidiaries receiving compensation; (g) any events or circumstances that otherwise could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; and (h) none of the Company or any of its Subsidiaries has (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock or equity interests, (ii) incurred any indebtedness for money borrowed in excess of $20,000, (iii) made any loans or advances to any Person, other than ordinary advances for travel expenses not exceeding $20,000, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights for consideration in excess of $20,000 in any one transaction or series of related transactions. 4.20. Employee Benefit Plans (a) Schedule 4.20(a) contains a complete and accurate list of all Company Plans and Company Benefit Arrangements. Schedule 4.20(a) specifically identifies all Company Plans (if any) that are Qualified Plans. (b) With respect, as applicable, to Employee Benefit Plans and Benefit Arrangements: (i) true, correct, and complete copies of all of the following documents with respect to each Company Plan and Company Benefit Arrangement, to the extent applicable, have been delivered to the Purchaser: (A) all documents constituting the Company Plans and Company Benefit Arrangements, including, but not limited to, trust agreements, insurance policies, service agreements, and formal and informal amendments thereto; (B) the most recent applicable Forms 5500 or 5500 C/R and any financial statements attached thereto for the prior three years; (C) the most recent Internal Revenue Service (the "IRS") determination letter and the latest IRS determination letter that covered the qualification of the entire Company Plan (if different), and copies of the materials submitted by the Company to obtain those letters; (D) the most recent summary plan descriptions (if required by ERISA); (E) the most recent written descriptions of all non-written agreements relating to any such plan or arrangement (if such documents or writings exist), (F) all material reports submitted within the two years preceding the date of this Agreement by third-party administrators, actuaries, investment managers, consultants, or other independent contractors; (G) all material notices that were given to the Company within the two years preceding the date of this Agreement by the IRS, Department of Labor, or any other governmental agency or entity with respect to any plan or arrangement; and (H) employee manuals or handbooks containing personnel or employee relations policies; (ii)the Sight Resource 401(k) Plan (the "Company 401(k) Plan") is the only Qualified Plan. The Company and its Subsidiaries have never maintained or contributed - 17 - 22 to another Qualified Plan. The Company 401(k) Plan qualifies in all material respects under Section 401(a) of the Code, and any trusts maintained pursuant thereto are exempt from federal income taxation under Section 501 of the Code, and no material event has occurred with respect to the design or operation of any of the Company's Qualified Plans that could cause the loss of such qualification or exemption or the imposition of any liability, lien, penalty, or tax under ERISA or the Code; (iii) the Company and the Subsidiaries have never sponsored or maintained, had any obligation to sponsor or maintain, or had any liability (whether actual or contingent, with respect to any of its assets or otherwise) with respect to any Employee Benefit Plan subject to Section 302 of ERISA or Section 412 of the Code or Title IV of ERISA (including any Multiemployer Plan); (iv) each Company Plan and each Company Benefit Arrangement has been operated in material compliance with its constituent documents and with all applicable provisions of the Code, ERISA and other laws, including federal and state securities laws; (v) to the Company's Knowledge, there are no pending claims or lawsuits by, against, or relating to any Employee Benefit Plans or Benefit Arrangements that are Company Plans or Company Benefit Arrangements that would, if successful, result in liability of the Company or any Stockholder, and no claims or lawsuits have been asserted, instituted or, to the Company's Knowledge, threatened by, against, or relating to any Company Plan or Company Benefit Arrangement, against the assets of any trust or other funding arrangement under any such Company Plan, by or against the Company or the Subsidiaries with respect to any Company Plan or Company Benefit Arrangement, or by or against the plan administrator or any fiduciary of any Company Plan or Company Benefit Arrangement. No notice has been received of a pending or potential audit or examination by the IRS, Department of Labor, or any other governmental agency or entity of any Company Plan or Company Benefit Arrangement, and, to the Company's Knowledge, no such audit or examination is presently being conducted. No matters are pending with respect to the Company 401(k) Plan under the IRS's Voluntary Compliance Resolution Program, its Closing Agreement Program, or any other governmental compliance programs; (vi) no Company Plan or Company Benefit Arrangement contains any provision or is subject to any law that would prohibit the transactions contemplated by this Agreement or that would give rise to any vesting of benefits, severance, termination, or other payments or liabilities as a result of the transactions contemplated by this Agreement; (vii) with respect to each Company Plan, there has occurred no non- exempt "prohibited transaction" (within the meaning of Section 4975 of the Code) or transaction prohibited by Section 406 of ERISA or breach of any fiduciary duty described in Section 404 of ERISA that would, if successfully litigated, result in any material liability for the Company or any Stockholder, officer, director, or employee of the Company; - 18 - 23 (viii) the Company has complied, in all material respects, with all reporting, disclosure, and notice requirements of ERISA and the Code with respect to each Company Plan and each Company Benefit Arrangement; (ix) all amendments and actions required to bring the Company Benefit Plans into conformity with the applicable provisions of ERISA, the Code, and other applicable laws have been made or taken except to the extent such amendments or actions (A) are not required by law to be made or taken until after the Effective Date and (B) are disclosed on Schedule 4.20(b)(ix); (x) arrangements for payment have been made of all amounts that the Company and each Subsidiary is required to pay as contributions to the Company Benefit Plans as of the last day of the most recent fiscal year of each of the plans ended before the date of this Agreement; all benefits accrued under any unfunded Company Plan or Company Benefit Arrangement will have been paid, accrued, or otherwise adequately reserved in accordance with GAAP as of the Balance Sheet Date; and all monies withheld from employee paychecks with respect to Company Plans have been transferred to the appropriate plan within 30 days of such withholding; (xi) except as disclosed on Schedule 4.20(b)(xi), the Company and the Subsidiaries have not prepaid or prefunded any Welfare Plan through a trust, reserve, premium stabilization, or similar account, nor do they provide benefits through a voluntary employee beneficiary association as defined in Section 501(c)(9); (xii) to the Company's Knowledge, no statement, either written or oral, has been made by the Company or the Subsidiaries to any Person with regard to any Company Plan or Company Benefit Arrangement that was not in accordance with the Company Plan or Company Benefit Arrangement and that could have an adverse economic consequence to the Company or the Subsidiaries; (xiii) the Company and the Subsidiaries have no liability (whether actual, contingent, with respect to any of its assets or otherwise) with respect to any Employee Benefit Plan or Benefit Arrangement that is not a Company Benefit Arrangement or with respect to any Employee Benefit Plan sponsored or maintained (or which has been or should have been sponsored or maintained) by any ERISA Affiliate; (xiv) all group health plans of the Company and its ERISA Affiliates have been operated in material compliance with the requirements of Sections 4980B (and its predecessor) and 5000 of the Code; and (xv) no employee or former employee of the Company or beneficiary of any such employee or former employee is, by reason of such employee's or former employee's employment, entitled to receive any benefits, including, without limitation, death or medical benefits (whether or not insured) beyond retirement or other termination of employment as described in Statement of Financial Accounting Standards No. 106, other than (i) death or retirement benefits under a Qualified Plan, (ii) deferred compensation benefits accrued as liabilities on the Closing - 19 - 24 Statement or (iii) continuation coverage mandated under Section 4980B of the Code or other applicable law. (c) Schedule 4.20(c) hereto sets forth an accurate list, as of the date hereof, of all officers, directors, and key employees of the Company and lists all employment agreements with such officers, directors, and key employees and the rate of compensation (and the portions thereof attributable to salary, bonus, and other compensation respectively) of each such Person as of (a) December 31, 1996 and (b) the date hereof. (d) The Company has not declared or paid any bonus compensation in contemplation of the transactions contemplated by this Agreement. 4.21. Taxes. Except as set forth on Schedule 4.21, all federal and state and all material local and foreign tax returns, reports and statements required to be filed by the Company and its Subsidiaries have been filed or have been caused to be filed with the appropriate governmental agencies in all jurisdictions in which such returns, reports and statements are required to be filed and all such returns, reports and statements are true, complete and correct in all material respects. All taxes, charges and other impositions due and payable by the Company and its Subsidiaries have been paid in full on a timely basis except where contested in good faith and by appropriate proceedings if adequate reserves therefor have been established on the books and records of the Company or Subsidiary in accordance with GAAP. The provision for taxes of each of the Company and its Subsidiaries as shown in the Company SEC Reports is sufficient for all unpaid taxes, charges and other impositions of any nature due or accrued as of the date of the financial statements contained in such Company SEC Report, whether or not assessed or disputed. Proper and accurate amounts have been withheld by the Company and its Subsidiaries from their respective employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective governmental agencies. The Company has not received notice of any audit or of any proposed deficiencies from any governmental authority, and no controversy with respect to taxes of any type is pending or threatened. Except for routine filing extensions granted as a matter of right under applicable law, none of the Company or any of its Subsidiaries has executed or filed with the IRS or any other governmental authority any agreement or other document extending, or having the effect of extending, the period of assessment or collection of any taxes, charges or other impositions. None of the Company or any of its Subsidiaries has agreed or is required to make any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise. Further, none of the Company or any of its Subsidiaries has any obligation under any tax-sharing agreement. 4.22. Labor and Employment Matters. With respect to employees of and service providers to the Company and the Subsidiaries: (a) the Company and the Subsidiaries are and have been in compliance in all material respects with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, including without limitation any such laws respecting employment discrimination, workers' compensation, family and medical leave, the Immigration Reform and Control Act, and occupational safety and health requirements, - 20 - 25 and have not and are not engaged in any unfair labor practice; (b) there is not now, nor within the past three years has there been, any unfair labor practice complaint against the Company or any Subsidiary pending or, to the Company's or any Subsidiary's Knowledge, threatened before the National Labor Relations Board or any other comparable authority; (c) there is not now, nor within the past three years has there been, any labor strike, slowdown or stoppage actually pending or, to the Company's or any Subsidiary's Knowledge, threatened against or directly affecting the Company or any Subsidiary; (d) to the Company's or any Subsidiary's Knowledge, no labor representation organization effort exists nor has there been any such activity within the past three years; (e) no grievance or arbitration proceeding arising out of or under collective bargaining agreements is pending and, to the Company's or any Subsidiary's Knowledge, no claims therefor exist or have been threatened; (f) the employees of the Company and the Subsidiaries are not and have never been represented by any labor union, and no collective bargaining agreement is binding and in force against the Company or any Subsidiary or currently being negotiated by the Company or any Subsidiary; and (g) to the Company's Knowledge, all Persons classified by the Company or its Subsidiaries as independent contractors do satisfy and have satisfied the requirements of law to be so classified, and the Company and its Subsidiaries have fully and accurately reported their compensation on IRS Forms 1099 when required to do so. To the Company's Knowledge, none of the employees of the Company or any of its Subsidiaries is obligated under any contract or other agreement (including licenses, covenants or commitments of any nature), or subject to any judgment, decree or order of any court or administrative agency, that materially interferes with the use of the employee's best efforts to promote the interests of the Company and its Subsidiaries or conflicts with the business as currently conducted by the Company or its Subsidiaries. 4.23 No Pending Transactions. Except for the transactions contemplated by this Agreement, neither the Company nor any Subsidiary is a party to or bound by or the subject of any agreement, undertaking, commitment or discussions or negotiations with any person that could result in (i) the sale, merger, consolidation or recapitalization of the Company or any Subsidiary, (ii) the sale of all or substantially all of the assets of the Company or any Subsidiary, or (iii) a change of control of more than five percent of the outstanding capital stock of the Company or any Subsidiary. 4.24 Disclosure. Neither this Agreement nor any of the Transaction Documents nor any Exhibit or Schedule hereto or thereto, nor any report, certificate or instrument furnished to the Purchaser or its counsel in connection with the transactions contemplated hereby or thereby, when read together, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. - 21 - 26 SECTION 5 Representations, Warranties and Covenants of the Purchaser The Purchaser hereby represents and warrants to and agrees with the Company, as follows: 5.1. Accredited Investor; Experience; Risk. The Purchaser is an accredited investor within the definition of Regulation D of the Securities Act. The Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of the Convertible Preferred Stock and Warrants. 5.2. Investment. The Purchaser is acquiring the Convertible Preferred Stock and Warrants for investment purposes only, for its own account and not as a nominee or agent for any other Person, and not with a view to, or for resale in connection with, any distribution thereof in violation of applicable law. 5.3. Authorization. The Purchaser represents that it has all requisite power and authority to enter into and perform its obligations under the Transaction Documents to which it is a party. The execution, delivery and performance of the Transaction Documents to which Purchaser is a party have been duly authorized by all necessary action on the part of Purchaser. Each Transaction Document to which the Purchaser is a party has been duly and validly executed and delivered by the Purchaser and constitutes the legal, valid and binding obligation of the Purchaser, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity) and except to the extent that rights to indemnification and contribution under this Agreement may be limited by federal or state securities laws or public policy relating thereto. 5.4. Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state, or local governmental authority on the part of Purchaser is required in connection with the valid execution and delivery by the Purchaser of the Transaction Documents to which it is a party, or the consummation by the Purchaser of the transactions contemplated by the Transaction Documents to which it is a party, except for such filings as have been made prior to the Closing. 5.5. Brokers' Fees. No broker, finder, investment banker or other Person is entitled to any brokerage fee, finder's fee or other commission in connection with the transactions contemplated by this Agreement based upon arrangements made by the Purchaser. 5.6. Unregistered Shares. The Purchaser understands and acknowledges that none of the Convertible Preferred Stock, the shares of Common Stock issuable upon conversion of the Convertible Preferred Stock, the Warrants or the shares of Common Stock issuable upon exercise - 22 - 27 of the Warrants have been registered under the Securities Act or any state securities laws and are therefore "unregistered securities" as that term is used in the Securities Act, and as such may not be offered for sale, sold or otherwise disposed of without such registration or an opinion of counsel reasonably satisfactory to the Company that such sale or disposition can be made pursuant to an exemption from registration under the Securities Act and any applicable state securities laws. Purchaser agrees a legend that reflects the foregoing shall be placed on any certificates evidencing the securities purchased herein and that, so long as the legend may remain on such certificates, that the Company may maintain appropriate "stop transfer" orders with respect to such securities on its books and records and with those to whom it may delegate registrar and transfer functions. Purchaser further agrees and acknowledges that, except as set forth in Section 8.3 of this Agreement, the Company does not have any obligation or other commitment to register any of the securities issued or to be issued pursuant to this Agreement. 5.7. Access to Information. The Purchaser acknowledges receipt of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and Quarterly Report on Form 10-Q for the fiscal period ended June 30, 1997. The Purchaser further represents and acknowledges that it has carefully read such reports and has been furnished by the Company during the course of this transaction with all additional information regarding the Company that it has requested; that Purchaser has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Company concerning the Company and the terms and conditions of this transaction and has utilized such opportunity to Purchaser's satisfaction. 5.8 Restricted Transfer of Securities. The Purchaser agrees that, for a period of two (2) years commencing on the date of this Agreement (the "Restricted Period"), the securities issued or to be issued pursuant to this Agreement, including without limitation the Registrable Securities (collectively, the "Issued Securities"), may not be sold, assigned or otherwise transferred to a Restricted Person without the prior written consent of the Company. For purposes of this Section 5.8, "Restricted Person" means any Person engaged in or intending to be engaged in, either directly or indirectly (including, without limitation, through an Affiliate or in concert with another Person), any business in which the Company is operating on the date of the proposed sale, assignment or transfer. Following the Restricted Period, the Issued Securities may be sold, assigned or otherwise transferred without limitation if the average closing price for the Common Stock quoted on the Nasdaq National Market System (or on any exchange on which the Common Stock is then listed) for the thirty (30) trading days immediately prior to the last day of the Restricted Period (the "Benchmark Price") is equal to or less than $12.00 per share. If the Benchmark Price is greater than $12.00 per share, then the restrictions on the Issued Securities set forth in the first sentence of this Section 5.8 shall continue after the Restricted Period. Notwithstanding anything contained in this Section to the contrary, the Purchaser may assign any or all of the Issued Securities to partners or Affiliates of the Purchaser or officers or directors of partners or Affiliates of the Purchaser without consent of the Company so long as such partner, Affiliate, officer or director agrees in writing to be bound by the terms of this Agreement. - 23 - 28 SECTION 6 Conditions to Closing of Purchaser The Purchaser's obligation to purchase the Convertible Preferred Stock at the Closing is, at the option of the Purchaser, subject to the fulfillment on or prior to the Closing Date of the following conditions: 6.1. Representations and Warranties Correct. The representations and warranties made by the Company in Section 4 hereof shall be true and correct when made, and shall be true and correct on the Closing Date with the same force and effect as if they had been made on and as of such date. 6.2. Covenants. All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the Closing Date shall have been performed or complied with in all material respects. 6.3. Opinion of Company's Counsel. The Purchaser shall have received from Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., counsel to the Company, an opinion addressed to the Purchaser, dated the Closing Date, in substantially the form of Exhibit 6.3 hereto. 6.4. No Material Adverse Change. Since December 31, 1996, there shall not have occurred any events or circumstances that could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. 6.5. Certificate of Designation. The Certificate of Designation shall have been duly adopted and executed by the Company and accepted for record by the Secretary of State of Delaware. 6.6. Consents. All consents, approvals, registrations, qualifications and Permits from, and all filings with, any third party or governmental authority necessary for the consummation of the transactions contemplated herein or in the Transaction Documents shall have been obtained. 6.7. Issuance of Shares. The Company shall have issued 1,452,119 shares of Convertible Preferred Stock at the Closing pursuant to this Agreement, and shall have delivered to the Purchaser a stock certificate representing such Convertible Preferred Stock. 6.8. Certificates. The Purchaser shall have received a certificate of the President or a Vice President of the Company to the effect set forth in Sections 6.1, 6.2, 6.4, and 6.5. 6.9 Warrants; Reservation of Common Stock. The Company shall have issued the Class I Warrant and the Class II Warrant in the forms attached hereto as Exhibits A and B, respectively, to the Purchaser, and shall have reserved for issuance a sufficient number of shares of Common Stock issuable to Purchaser or Holders upon exercise thereof. - 24 - 29 6.10 Appointment of Director. The directors of the Company shall have appointed the designee of Purchaser as a director of the Company effective as of the Closing. 6.11 Bank Credit Facility. The Company shall have secured from the lenders under the Credit Facility dated February 20, 1997 (the "Bank Credit Facility"), by and among the Company and Creditanstalt Corporate Finance, Inc. (the "Bank"), (i) appropriate amendments to the Bank Credit Facility modifying the covenants thereunder so that the Company shall be in full compliance with all of the covenants thereunder on the Closing Date, and (ii) waivers of all violations, breaches of covenants and events of default under the Bank Credit Facility, in form and substance acceptable to the Purchaser, in its sole discretion. SECTION 7 Conditions to Closing of the Company The Company's obligation to issue and sell the Convertible Preferred Stock at the Closing is, at the option of the Company, subject to the fulfillment of the following conditions: 7.1. Representations. The representations and warranties made by the Purchaser in Section 5 hereof shall be true and correct when made, and shall be true and correct on the Closing Date with the same force and effect as if they had been made on and as of such date. 7.2. Covenants. All covenants, agreements and conditions contained in this Agreement to be performed by the Purchaser on or prior to the Closing Date shall have been performed or complied with in all respects. 7.3. Purchase Price. The Purchaser shall have tendered the purchase price for the Convertible Preferred Stock and Warrants of Five Million Eighty-Two Thousand Four Hundred Seventeen Dollars ($5,082,417). 7.4. Certificate. The Company shall have received a certificate from the General Partner of the Purchaser to the effect set forth in Sections 7.1 and 7.2. SECTION 8 Covenants of the Company 8.1. Information. Commencing on the Closing Date and continuing so long as any shares of Convertible Preferred Stock remain outstanding, the Company shall deliver to the Purchaser the information specified in this Section 8.1 unless the Purchaser at any time specifically requests that such information not be delivered to it: - 25 - 30 (a) Monthly Financial Statements. As soon as available, but in any event not later than thirty (30) days after the end of each monthly fiscal period (other than the last monthly fiscal period of the fourth fiscal quarter of the Company), the unaudited consolidated balance sheet of the Company and its Subsidiaries as at the end of each such period and the related unaudited consolidated statements of income and cash flows of the Company and its Subsidiaries for such period and for the elapsed period in such fiscal year, all in reasonable detail and stating in comparative form the figures as of the end of and for the comparable periods of the preceding fiscal year. All such financial statements shall be prepared in accordance with GAAP on a consistent basis throughout the periods reflected therein except as stated therein and shall be accompanied by a certificate of the Company's President or Chief Financial Officer to such effect. (b) Board Materials. As soon as available, but in no event later than when delivered to members of the Company's Board of Directors, all materials which the Company distributes to the members of the Board of Directors. (c) Budget. The Company shall furnish the Purchaser as soon as available, but in no event later than 30 days following the end of each fiscal year, a consolidated and consolidating budget for the following fiscal year. (d) Other Reports and Statements. Promptly upon any distribution to its stockholders generally, to its directors or to the financial community of an annual report, quarterly report, proxy statement, registration statement or other similar report or communication, a copy of each such annual report, quarterly report, proxy statement, registration statement or other similar report or communication and promptly upon filing by the Company with the SEC or with The National Market System, Inc., the National Association of Securities Dealers, Inc. or any national securities exchange or other market system of any all regular and other reports or applications, a copy of each such report or application; and a copy of such report or statement and copies of all press releases and other statements made available generally by the Company to the public concerning material developments in the Company. 8.2 Preemptive Rights. (a) If, after the Closing Date but prior to the conversion of the Convertible Preferred Stock into Common Stock the Company shall propose to issue or sell New Securities or enters into any contracts, commitments, agreements, understandings or arrangements of any kind relating to the issuance or sale of any New Securities, the Purchaser shall have the right to purchase that number of New Securities at the same price and on the same terms proposed to be issued or sold by the Company so that the Purchaser would after the issuance and sale of all such New Securities, hold the same proportionate interest (the "Proportionate Percentage") of the then outstanding shares of Common Stock as was held by the Purchaser immediately prior to such issuance and sale (based upon the number of shares of Common Stock to be received upon conversion of the Convertible Preferred Stock and exercise of the Class II Warrants). - 26 - 31 (b) The Company shall give the Purchaser written notice of its intention to issue and sell New Securities, describing the type of New Securities, the price and the general terms and conditions upon which the Company proposes to issue the same. The Purchaser shall have fifteen (15) days (the "Offer Period") from the giving of such notice to agree to purchase all (or any part) of its Proportionate Percentage of New Securities for the price and upon the terms and conditions specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. (c) If the Purchaser fails to provide notice to the effect that Purchaser agrees to exercise in full such right within the Offer Period, the Company shall have 125 days thereafter to sell the New Securities in respect of which the Purchaser's rights were not exercised, at a price and upon general terms and conditions no more favorable to the buyers thereof than specified in the Company's notice to Purchaser pursuant to this Section. If the Company has not sold the New Securities within such 125-day period, the Company shall not thereafter issue or sell any New Securities, except by giving the Purchaser the right to purchase its Proportionate Percentage in the manner provided above. 8.3 Company Registration. (a) If the Company proposes to register any of its securities either for its own account or the account of a security holder or holders exercising their respective demand registration rights, other than a registration relating solely to employee benefit plans, or a registration relating to a corporate reorganization or other transaction under Rule 145, or a registration on any registration form that does not permit secondary sales, the Company will (i) promptly give to the Purchaser and to each Holder written notice thereof, and (ii) use its best efforts to include in such registration (and any related qualification under blue sky laws or other compliance), except as set forth in Section 8.3(b) below, and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made by the Purchaser and any Holder and received by the Company within fifteen (15) days after the written notice from the Company described in clause (i) above is delivered by the Company. (b) If the registration as to which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Purchaser and the Holders as a part of the written notice given pursuant to Section 8.3(a). In such event, the right of the Purchaser and any Holder to registration pursuant to this Section 8.3 shall be conditioned upon such participation in such underwriting and the inclusion of the Purchaser's and the Holder's Registrable Securities in the underwriting to the extent provided herein. The Purchaser and all Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders of securities of the Company with registration rights to participate therein distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company. - 27 - 32 Notwithstanding any other provision of this Section 8.3, if the underwriters advise the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the underwriters may (subject to the limitations set forth below) exclude all Registrable Securities from, or limit the number of Registrable Securities to be included in, the registration and underwriting. The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated first to the Company and to the Purchaser and thereafter to all other holders of securities requesting registration. If any person does not agree to the terms of any such underwriting, he shall be excluded therefrom by written notice from the Company or the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. 8.4. Shelf Registration. (a) As soon as practicable after Closing, the Company shall prepare and file with the SEC a registration statement for an offering to be made on a delayed or continuous basis pursuant to Rule 415 of the Securities Act (a "Shelf Registration") registering the resale from time to time by the Purchaser and each Holder of all of the Registrable Securities issuable upon conversion of the Convertible Preferred Stock (the "Initial Shelf Registration"). The registration statement for any Shelf Registration shall be on Form S-3 or another appropriate form permitting registration of such Registrable Securities for resale by the Purchaser and each Holder in the manner or manners designated by them, from time to time, which may include an underwritten offering, subject to the underwriter being reasonably acceptable to the Company and the Purchaser. The Company shall use its best efforts to cause the Initial Shelf Registration to become effective under the Securities Act as promptly as is practicable and to keep the Initial Shelf Registration continuously effective under the Securities Act until the end of the Effectiveness Period. (b) From and after the exercise of any Warrant, in whole or in part, within 45 days after receipt of written notice from the Purchaser or Holder, the Company shall effect a Shelf Registration for all or a portion of the Warrant shares which have been theretofore issued to Purchaser or Holder; provided, however, that (A) the number of Warrant shares sought to be included in any Shelf Registration shall not be less than 50% of the shares of Common Stock or other securities for which the Warrant is exercisable and (B) in no event shall the Company be obligated to effect a Shelf Registration pursuant to this paragraph on more than one occasion in any 12-month period. (c) If the Initial Shelf Registration or any Subsequent Shelf Registration (as defined below) ceases to be effective for any reason at any time during the Effectiveness Period (other than because all Registrable Securities shall have been sold or shall have ceased to be Registrable Securities), the Company shall use its best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within thirty (30) days of such cessation of effectiveness amend the Shelf Registration in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional Shelf Registration covering all of the Registrable Securities then outstanding (a "Subsequent Shelf - 28 - 33 Registration"). If a Subsequent Shelf Registration is filed, the Company shall use all reasonable efforts to cause the Subsequent Shelf Registration to become effective as promptly as is practicable after such filing and to keep such registration statement continuously effective until the end of the Effectiveness Period. (d) The Company shall supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration, if required by the Securities Act or the SEC, or if reasonably requested by the Purchaser or a majority of Holders or by any managing underwriter, if any, of such Registrable Securities with respect to the offer and sale or other disposition of the Registrable Securities during the Effective Period. (e) From time to time, the Company shall (i) prepare and file with the SEC a post-effective amendment to the Shelf Registration or a supplement to the related prospectus or a supplement or amendment to any document incorporated therein by reference or any other required document, so that such registration statement will 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 not misleading, so that, as thereafter delivered to purchasers of the Registrable Securities being sold thereunder, such prospectus will 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; (ii) provide the Purchaser and the Holders with copies of any registration statement, prospectus, document incorporated by reference therein, or such other documents filed with the SEC in such numbers as the Purchaser and the Holders shall reasonably request; and (iii) inform the Purchaser and the Holders that the Company has complied with its obligations and that the registration statement and related prospectus may be used for the purpose of selling all or any of such Registrable Securities (or that, if the Company has filed a post-effective amendment to the Shelf Registration which has not yet been declared effective, the Company will notify Purchaser to that effect, will use its best efforts to secure the effectiveness of such post-effective amendment and will immediately so notify Purchaser when the amendment has become effective). 8.5 Certain Securities Registration Matters. Whenever the Company is required under Section 8.3 or 8.4 to effect the registration with the SEC of any Registrable Securities, the following provisions shall apply: (a) The Company shall cause the Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable Purchaser or Holder to consummate the disposition of such Registrable Securities. (b) The Company shall cause all Registrable Securities covered by any registration statement to be listed with the Nasdaq Stock Market, or on each securities exchange on which similar securities issued by the Company are then listed and, unless the same already exists, provide a transfer agent, registrar and CUSIP number for all such Registrable Securities not later - 29 - 34 than the effective date of the registration statement. (c) The Company shall enter into such customary agreements (including an underwriting agreement in customary form, if applicable) and take all such other actions as the Purchaser or Holder or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities pursuant to the registration statement. (d) The Company shall make available for inspection by the Purchaser, Holder and any underwriter participating in any disposition pursuant to such registration statement, and any attorney, accountant or other agent retained by the Purchaser, Holder or underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and agreements and access to properties and management and other information of the Company as shall be necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information reasonably requested by any Inspector in connection with such registration statement, provided that any Inspector shall have first executed and delivered to the Company a confidentiality agreement in customary form protecting the confidentiality of such information, except as otherwise required to be disclosed by law. (e) If the Registrable Securities are to be sold in an underwritten offering or in a private transaction involving the sale or transfer of at least forty percent (40%) of the Registrable Securities issuable upon conversion of the Convertible Preferred Stock acquired pursuant to this Agreement, the Company shall obtain "cold comfort" letters and updates thereof from the Company's independent public accountants and an opinion from the Company's counsel in customary form and covering such matters of the type customarily covered by "cold comfort" letters and opinion letters as the managing underwriter or Purchaser, as the case may be, may reasonably request, and one copy of such "cold comfort" letter and opinion letter shall be provided to each of the Purchaser and the Holder. (f) The Purchaser and Holders shall, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 8.5(i), discontinue disposition of its Registrable Securities pursuant to the registration statement covering such Registrable Securities until receipt of the copies of the supplemented or amended prospectus and, if so directed by the Company, the Purchaser and Holders will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in the Purchaser's and Holders' possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. (g) All fees and expenses incident to the Company's performance of or compliance with a registration statement requirement pursuant to this Agreement shall be borne by the Company whether or not any of the registration statements become effective, other than commissions and underwriter's discounts, if any, and transfer taxes payable by Purchaser and/or the Holder. Such fees and expenses shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (x) with respect to filings required to be made with the National Association of Securities Dealers, Inc. and (y) of compliance with federal securities or - 30 - 35 Blue Sky laws (including, without limitation, fees and disbursements of one counsel to Purchaser in connection with Blue Sky qualifications of the Registrable Securities under the laws of such jurisdictions as the managing underwriter, if any, or the Purchaser may designate)), (ii) printing expenses, (iii) messenger, telephone and delivery expenses, (iv) reasonable fees and disbursements of counsel for the Company and one counsel for the Purchaser in connection with the registration, (v) fees and disbursements of all independent certified public accountants (including the expenses of any special audit and "comfort" letters required by or incident to such performance) and (vi) Securities Act liability insurance obtained by the Company in its sole discretion. In addition, the Company shall pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange or the Nasdaq Stock Market, as the case may be, on which similar securities issued by the Company are then listed and the fees and expenses of any Person, including special experts, retained by the Company. Notwithstanding the provisions of this subsection, the Purchaser or the Holders, as the case may be, shall pay all registration expenses to the extent the Company is prohibited by applicable Blue Sky laws from paying for or on their behalf. (h) The Company shall use its reasonable best efforts to register or qualify the Registrable Securities under such securities or Blue Sky laws in such jurisdictions as the Purchaser or the Holders may reasonably request; provided that the Company shall not be required in connection therewith or as a condition thereof to (i) qualify or register as a foreign corporation in any such jurisdiction, (ii) execute a general or limited consent to service of process in any such jurisdiction, (iii) make any undertaking with respect to the conduct of its business, (iv) subject itself to taxation as a foreign corporation in any such jurisdiction or (v) enter into any agreement with any state securities or "blue sky" commission or agency, including, without limitation, any agreement to escrow shares of its capital stock. (i) If, in the reasonable judgment of the Company, it is advisable to suspend use of the prospectus for a period of time due to pending material corporate developments or similar material events that have not yet been publicly disclosed and as to which the Company believes public disclosure will be prejudicial to the Company, the Company shall deliver a certificate in writing, signed by its Chief Executive Officer, Chief Financial Officer or General Counsel, to the Purchaser and Holders and the managing underwriter, if any, to the effect of the foregoing and, upon receipt of such certificate, the Purchaser's and Holders' selling period will not commence until the Purchaser, Holders or managing underwriter, if any, has received copies of the supplemented or amended Prospectus, or until it is or they are advised in writing by the Company that the Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus. The Company will use all reasonable efforts to ensure that the use of the Prospectus may be resumed, and the selling period may commence, upon the earlier of (x) public disclosure of such pending material corporate development or similar material event or (y) a determination by the Company that, in the judgment of the Company, public disclosure of such material corporate development or similar material event would not be prejudicial to the Company. Notwithstanding the foregoing, the Company shall not under any circumstances be entitled to exercise its right under this Section 8.5(i) to defer the selling period - 31 - 36 more than one time in any 12-month period or two times in any 24-month period; and provided, further, that the period in which a selling period is suspended shall not exceed ninety (90) days. (j) In the event of the registration or qualification of any Registrable Securities with the SEC pursuant to a registration statement, the Company agrees to indemnify and hold harmless Purchaser, Holders and each officer, partner, employee, agent and representative of Purchaser and Holders, each underwriter, broker or dealer, if any, of such Registrable Securities, and each other Person, if any, who controls Purchaser and Holder, underwriter, broker or dealer within the meaning of the Securities Act, Exchange Act or any other applicable securities laws, from and against any and all losses, claims, damages or liabilities (or actions in respect thereof) (collectively, the "Losses") joint or several, to which any of them may become subject under the Securities Act or any other applicable securities laws or otherwise, insofar as such Losses arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Registrable Securities were registered or qualified under the Securities Act or any other applicable securities laws, any preliminary prospectus or final prospectus relating to such Registrable Securities, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of any rule or regulation under the Securities Act or any other applicable securities laws applicable to the Company or relating to any action or inaction required by the Company in connection with any such registration or qualification and will reimburse Purchasers, each officer, director, employee, agent and representative of Purchaser, Holders, underwriter, broker or dealer and each such controlling Person for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending any such Loss; provided, however, that the Company will not be liable in any such case to the extent that any such Loss arises out of or is based upon untrue statement of a material fact or omission to state a material fact necessary to make the statements, in light of the circumstances under which they were made in such registration statement, such preliminary prospectus, such final prospectus or such amendment or supplement thereto, not misleading, in reliance upon and in conformity with written information furnished to the Company by Purchaser, Holders, or any officer, partner, employee, agent and representative thereof specifically and expressly for use in the preparation thereof,or any violation of any rule or regulation under the Securities Act or applicable securities laws, in which case such person agrees to indemnify and hold harmless the Company and its Affiliates from and against any and all Losses, joint or several, to which any of them may become subject under the Securities Act or any other applicable securities laws or otherwise; and provided, further, that the Company shall not be liable to any Person who participates as an underwriter in the offering or sale of Registrable Securities or any other Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such Loss (or action or proceeding in respect thereof) or expense arises out of such Person's failure to send or give a copy of the Prospectus, as the same may be then supplemented or amended, to the Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such Person if such statement or omission was corrected in such Prospectus so long as such Prospectus, and any amendments or supplements thereto, have been furnished to such underwriter in sufficient numbers and in a timely-manner to permit distribution thereof. - 32 - 37 Promptly after receipt by a Person entitled to indemnification under this Section 8.5(j) (an "Indemnified Party") of notice of the commencement of any action or claim relating to any registration statement as to which indemnity may be sought hereunder, such Indemnified Party will, if a claim for indemnification hereunder in respect thereof is to be made against any other party hereto (an "Indemnifying Party"), give written notice to such Indemnifying Party of the commencement of such action or claim, but the omission to so notify the Indemnifying Party will not relieve the Indemnifying Party from any liability that it may have to any Indemnified Party except to the extent that the Indemnifying Party is actually prejudiced thereby. In case any such action is brought against an Indemnified Party, and it notifies an Indemnifying Party of the commencement thereof, the Indemnifying Party will be entitled (at its own expense) to participate in and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense, with counsel reasonably satisfactory to such Indemnified Party, of such action provided that the Indemnifying Party shall not settle or compromise such action, except upon the prior written consent of the Indemnified Party and, after notice from the Indemnifying Party to such Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party will not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof, other than the reasonable cost of investigation; provided, however, that the assumption of such defense shall not give rise in the reasonable opinion of the Indemnified Party or its counsel to any conflict. Notwithstanding the foregoing, the Indemnified Party shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (A) the employment of such counsel shall have been authorized in writing by the Indemnifying Party in connection with the defense of such suit, action, claim or proceeding, (B) the Indemnifying Party shall not have employed counsel (reasonably satisfactory to the Indemnified Party) to take charge of the defense of such action, suit, claim or proceeding, or (C) such Indemnified Party shall have reasonably concluded, based upon the advice of counsel, that there may be defenses available to it that are different from or additional to those available to the Indemnifying Party which, if the Indemnifying Party and the Indemnified Party were to be represented by the same counsel, could result in a conflict of interest for such counsel or materially prejudice the prosecution of the defenses available to such Indemnified Party. If any of the events specified in clauses (A), (B) or (C) of the preceding sentence shall have occurred or shall otherwise be applicable, then the reasonable fees and expenses of one counsel or firm of counsel selected by the Indemnified Party (and reasonably acceptable to the Indemnifying Party) shall be borne by the Indemnifying Party. If, in any such case, the Indemnified Party employs separate counsel, the Indemnifying Party shall not have the right to direct the defense of such action, suit, claim or proceeding on behalf of the Indemnified Party and the Indemnified Party shall assume such defense and/or settle or compromise such action; provided, however, that an Indemnifying Party shall not be liable for the settlement or compromise of any action, suit, claim or proceeding effected without its prior written consent, which consent shall not be unreasonably withheld. (iii) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with any underwritten public offering contemplated by this Agreement are in conflict with the foregoing provisions, the provisions in such underwriting agreement shall be controlling. - 33 - 38 (k) The Purchaser and each Holder holding securities included in any registration shall furnish to the Company such information regarding the Purchaser or such Holder and the distribution proposed by the Purchaser or such Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Section 8. (l) The Company shall not, directly or indirectly, enter into any merger, consolidation, or reorganization in which the Company shall not be the surviving corporation unless the proposed surviving corporation shall, prior to such merger, consolidation, or reorganization, agree in writing to assume the obligations of the Company under this Section, and for that purpose references hereunder to "Registrable Securities" shall be deemed to be references to the securities that the Purchaser or Holders, as the case may be, would be entitled to receive in exchange for Registrable Securities under any such merger, consolidation, or reorganization; provided, however, that the provisions of this Section shall not apply in the event of any merger, consolidation, or reorganization in which the Company is not the surviving corporation if the Purchaser and Holders are entitled to receive in exchange for their Registrable Securities consideration consisting solely of (i) cash, (ii) securities of the acquiring corporation that may be immediately sold to the public without registration under the Securities Act, or (iii) securities of the acquiring corporation that the acquiring corporation has agreed to register within 90 days of completion of the transaction for resale to the public pursuant to the Securities Act. 8.6 Regulatory Matters. Each of the Company and Purchaser will (i) make on a prompt and timely basis all governmental or regulatory notifications, filings or submissions, as necessary for the consummation of the transactions contemplated hereby, including any filings required pursuant to the Hart-Scott-Rodino Antitrust Act, if required, (ii) use all reasonable efforts to cooperate with the other and its representatives in (A) determining which notifications, filings and submissions are required to be made prior to the Closing Date with, and which consents, approvals, permits or authorizations are required to he obtained prior to the Closing Date from, any governmental authority in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby, and (B) timely making of all such notifications, filings or submissions and timely seeking all such consents, approvals, permits or authorizations, and (iii) use all reasonable efforts to take, or cause to be taken, all other action and do, or cause to be done, all other reasonable things necessary or appropriate to consummate the transactions contemplated by this Agreement. The Purchaser shall have no obligation to expend any funds in connection with the action to be taken by the Company pursuant to this section. 8.7 Access. So long as the Purchaser holds at least fifteen percent (15%) of the Convertible Preferred Stock purchased hereunder, subject to the provisions of Section 8.8 hereof, upon the written request of the Purchaser, the Company shall afford the Purchaser and its accountants, counsel and other representatives, full access during normal business hours to all of its properties, books, contracts, commitments and records, permit them to copy or make extracts therefrom and, the Company shall furnish promptly to Purchaser all information concerning its business, properties and personnel as Purchaser may reasonably request; provided, however, that no investigation pursuant to this Section 8.7 shall affect any representations or warranties of either - 34 - 39 party hereunder. 8.8 Confidentiality. From and after the date of this Agreement, each of the Company and Purchaser agree to hold, and will cause its employees, agents and representatives to hold, in confidence, unless compelled to disclose by judicial or administrative process or, in the written opinion of their counsel, by other requirements of law, information furnished by the Company, on the one hand, to Purchaser and information furnished by Purchaser, on the other hand, to the Company in connection with the transactions contemplated by this Agreement, and each of such persons agree that they shall not release or disclose such information to any other person, except their respective officers, directors, partners, employees, auditors, attorneys, financial advisors and other consultants, advisors and representatives who need to know such information and who have been informed of the confidential nature of such information and have been directed to treat such information as confidential. The foregoing provisions of this Section 8.8 shall not apply to any such information which (i) becomes generally available to the public other than as a result of a disclosure by any person bound hereunder, (ii) was available to a person bound hereunder on a non-confidential basis prior to its disclosure hereunder, or (iii) becomes available to any person bound hereunder on a non-confidential basis by virtue of the disclosure thereof by a source other than the party providing such information in reliance upon the protection of confidentiality reposed hereby. Notwithstanding anything herein to the contrary, from and after the date of this Agreement, if either party to this Agreement or any agreement contemplated herein shall be required by law to file as part of any public record this Agreement or the agreements relating to any transactions contemplated hereby, both parties shall jointly identify those provisions, if any, of such agreements that shall remain confidential and shall request and seek confidential treatment of those provisions in accordance with the applicable provisions of any applicable law, rule or regulation, and shall take all reasonable actions necessary to secure such confidential treatment. 8.9 Amendment to NASD Listing Application. As soon as practical following the execution of this Agreement, the Company shall prepare and file with the NASD, and obtain the NASD's approval of, an amendment to the Company's Nasdaq National Market Listing Application reflecting the consummation of the transactions completed hereby, together with all documents, instruments and other materials which are or will be required to be filed or delivered under the Company's Nasdaq listing agreement and the NASD By-Laws. 8.10 Reservation of Warrant Shares. From and after the consummation of the transactions contemplated herein and under the Warrants, the Company shall at all times reserve for issuance the number of shares of Common Stock issuable upon exercise of the Warrant on a fully-diluted basis in accordance with the terms thereof. 8.11 Bank Credit Facility. At the Closing Date, the Company covenants and agrees that (i) the loan covenants under the Bank Credit Facility presently allows the Company and its Subsidiaries to conduct business as currently conducted without violating such covenants, and (ii) all past conflicts, violations or breaches of, or defaults under, the loan covenants have been cured or waived by the Bank. - 35 - 40 8.12 Repurchase Rights. If at any time there shall be a Change of Control of the Company, the Purchaser and Holders shall have the right (the "Repurchase Right"), at its or their sole option, upon ten days' prior written notice to the Company (the "Redemption Notice"), to require the Company to purchase from the Purchaser or Holders, all but not less than all, of the shares of the outstanding Convertible Preferred Stock held by the Purchaser or Holder (the "Repurchase Right"), at a price equal to 105% of the liquidation preference for the Convertible Preferred Stock (subject to adjustment in accordance with adjustments to the Series B Conversion Price provided for in the Certificate of Designation relating to the Convertible Preferred Stock), plus accrued and unpaid dividends to the date of redemption, whether or not declared. The Company shall deliver written notice to the Purchaser and Holders promptly upon the occurrence of an event of a Change of Control. 8.13 Directors' and Officers' Insurance. As soon as practical following the execution of this Agreement, but in no event later than December 1, 1997, the Company shall obtain a directors' and officers' liability insurance policy providing coverage in the amount of $5 million and having such other terms as are reasonably acceptable to Purchaser. 8.14 Selection of President. As soon as practical following the execution of this Agreement, the Company shall reach an agreement, which agreement shall be reasonably acceptable to both the Company and Purchaser, to hire an individual to become the Company's new President, which individual shall be reasonably acceptable to both the Company and Purchaser. SECTION 9 Miscellaneous 9.1. Amendment; Waiver. Neither this Agreement nor any provision hereof may be amended, modified, supplemented or waived, except by a written instrument executed by (i) the Company and (ii) the Purchaser. 9.2. Notices. Any notices or other communications required or permitted hereunder shall be sufficiently given if in writing and delivered in Person, transmitted by facsimile transmission (fax) or sent by registered or certified mail (return receipt requested) or recognized overnight delivery service, postage pre-paid, addressed as follows, or to such other address has such party may notify to the other parties in writing: (a) if to the Company: Sight Resource Corporation 100 Jeffrey Avenue Holliston, Massachusetts 01746 Attn: William G. McLendon, Chief Executive Officer Telephone No.: 508-429-6916 Facsimile No.: 508-429-6023 - 36 - 41 with a copy to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Boston, Massachusetts 02111 Attn: Lewis J. Geffen, Esq. Telephone No.: 617-542-6000 Facsimile No.: 617-542-2241 (b) if to the Purchaser: Carlyle Venture Partners, L.P. 1001 Pennsylvania Avenue, N.W. Suite 220 South Washington, D.C. 20004-2505 Attn: Brian D. Bailey Telephone No.: 202-347-2626 Facsimile No.: 202-347-1818 with a copy to: Wilmer, Cutler & Pickering 1445 M Street, N.W. Washington, D.C. 21202 Attn: John B. Watkins, Esq. Telephone No.: 202-663-6552 Facsimile No.: 202-663-6363 A notice or communication will be effective (i) if delivered in Person or by overnight courier, on the business day it is delivered, (ii) if transmitted by telecopier, on the business day of actual confirmed receipt by the addressee thereof, and (iii) if sent by registered or certified mail, three (3) business days after dispatch. 9.3. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 9.4. Successors and Assigns. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors and permitted assigns of the parties hereto. No party hereto may assign its rights or delegate its obligations under this Agreement without the prior written consent of the other parties hereto, except that Purchaser may assign its rights under this Agreement to the Holders. - 37 - 42 9.5 Survival of Representations, Warranties and Covenants. All representations, warranties and covenants made in, pursuant to, or in connection with, this Agreement shall survive the execution and delivery of this Agreement, any investigation at any time made by or on behalf of the Purchaser, and the sale and purchase of the Convertible Preferred Stock, and issuance of the Warrants for a period of eighteen (18) months commencing on the Closing Date. 9.6. Entire Agreement. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subject matter hereof and thereof and supersede and cancel all prior representations, alleged warranties, statements, negotiations, undertakings, letters, acceptances, understandings, contracts and communications, whether verbal or written, among the parties hereto and thereto or their respective agents with respect to or in connection with the subject matter hereof. 9.7. Choice of Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to principles of conflict of laws. 9.8. Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, with the same effect as if all parties had signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. 9.9. Costs and Expenses. The Company shall pay all reasonable fees and disbursements incurred in connection with the transactions contemplated hereby (including the fees and disbursements of the Purchaser's legal counsel) as well as other reasonable out-of-pocket expenses incurred by Purchaser in connection with the negotiation and execution of the Transaction Documents and the fees and expenses of any required governmental filings, not to exceed $75,000 if the Closing occurs, but not to exceed $25,000 if the Closing does not occur. 9.10. No Third-Party Beneficiaries. Nothing in this Agreement will confer any third party beneficiary or other rights upon any Person (specifically including any employees of the Company and its Subsidiaries) or entity that is not a party to this Agreement. 9.11. Indemnification. (a) The Company agrees to indemnify and hold harmless the Purchaser and its Affiliates, and their respective partners, co-investors, officers, directors, employees, agents, consultants, attorneys and advisers (each, an "Indemnified Party"), from and against any and all actual losses, claims, damages, liabilities, costs and expenses (including, without limitation, liabilities, costs and expenses and all reasonable fees, expenses and disbursements of counsel), joint or several (hereinafter collectively referred to as a "Loss"), which may be incurred by or asserted or awarded against any Indemnified Party in connection with or in any manner arising out of or relating to any investigation, litigation or proceeding or the preparation of any defense with respect thereto, arising out of or in connection with or relating to the transactions contemplated by this Agreement and the other Transaction Documents, except to the extent such Loss is found in a final - 38 - 43 judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. (b) An Indemnified Party shall give written notice to the Company of any claim with respect to which it seeks indemnification within ten (10) days after the discovery by such parties of any matters giving arise to a claim for indemnification pursuant to Section 9.11(a); provided that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Company of its obligations under this Section 9.11, except to the extent that the Company is actually prejudiced by such failure to give notice. In case any such action or claim is brought against any Indemnified Party, the Company shall be entitled to participate in and, unless in the reasonable good faith judgment of the Indemnified Party a conflict of interest between such Indemnified Party and the Company may exist in respect of such action or claim, to assume the defense thereof, with counsel reasonably satisfactory to the Indemnified Party and, after notice from the Company to the Indemnified Party of its election so to assume the defense thereof, the Company shall not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. In any event, unless and until the Company elects in writing to assume and does so assume the defense of any such action or claim the Indemnified Party's reasonable costs and expenses arising out of the defense, settlement or compromise of any such action or claim shall be Losses subject to indemnification hereunder. If the Company elects to defend any such action or claim, then the Indemnified Party shall be entitled to participate in such defense with counsel of its choice at its sole cost and expense. The Company shall not be liable for any settlement of any action or claim effected without its written consent. Anything in this Section 9.11 to the contrary notwithstanding, the Company shall not, without the Indemnified Party's prior written consent, settle or compromise any claim or consent to entry of any judgment in respect thereof that imposes any future obligation on the Indemnified Party or that does not include, as an unconditional term thereof, the giving by the claimant or the plaintiff to the Indemnified Party, a release from all liability in respect of such claim. [Remainder of Page Intentionally Left Blank] - 39 - 44 SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT SIGNATURE PAGE IN WITNESS WHEREOF, the Company and the Purchaser have caused this Agreement to be executed effective as of the date first above written. SIGHT RESOURCE CORPORATION By: /s/ William McLendon ----------------------------------------- Name: William McLendon --------------------------------------- Title: CEO -------------------------------------- CARLYLE VENTURE PARTNERS, L.P. By: /s/ J. Mitchell Reese ---------------------------------------- Authorized Signatory C/S VENTURE INVESTORS, L.P. By: /s/ J. Mitchell Reese ---------------------------------------- Authorized Signatory CARLYLE U.S. VENTURE PARTNERS, L.P. By: /s/ J. Mitchell Reese ---------------------------------------- Authorized Signatory CARLYLE VENTURE COINVESTMENT, L.L.C. By: /s/ J. Mitchell Reese ---------------------------------------- Authorized Signatory - 40 - EX-99.1 7 NEWS RELEASE 1 Exhibit 99.1 [SIGHT RESOURCE CORPORATION LOGO] NEWS RELEASE November 25, 1997 SIGHT RESOURCE COMPLETES $5.1 MILLION FINANCING WITH THE CARLYLE GROUP (Holliston, Massachusetts) - Sight Resource Corporation (NASDAQ: VISN), a leading provider of primary eye care services and managed primary eye care programs, announced today that it has completed a previously announced financing with The Carlyle Group, pursuant to which investment funds affiliated with The Carlyle Group purchased 1,452,119 shares of the Company's Series B Convertible Preferred Stock and a warrant to purchase 290,424 shares of the Company's common stock for an aggregate purchase price of $5,082,417. As previously announced, the Company presently expects to use the net proceeds of the financing to continue to implement its plans for consolidating primary eye care chains. In connection with the financing, The Carlyle Group immediately has the right to appoint one member to the Sight Resource Board of Directors. Also in connection with the financing, the Company amended its Shareholder Rights Plan in order to permit The Carlyle Group financing without triggering a distribution of the Rights issuable under the Plan. William G. McLendon, President and Chief Executive Officer of Sight Resource Corporation, stated "I would like to reiterate the comments I made at the time we signed the definitive purchase agreement with The Carlyle Group; we are excited to have such a distinguished partner assisting us and believe that their participation sends a strong message concerning the viability of our consolidation strategy." The Carlyle Group is a Washington, D.C. based investment group. Since its founding in 1987, Carlyle has served as lead investor in transactions with over $7 billion in market value. Among Carlyle's principal areas of focus are aerospace/defense, healthcare, telecommunications, environmental services and information services. Sight Resource provides a complete range of primary eye care products and services through its primary eye care centers, laser vision correction centers and integrated networks of opticians, optometrists and ophthalmologists. The Company's wholly-owned subsidiaries include Cambridge Eye Doctors in Massachusetts, E.B. Brown Opticians in Ohio, Vision Plaza in Louisiana, and Vision World in Rhode Island. CONTACT: Nils Bonde-Henriksen, Manager of Corporate Communications, 508-429-6916. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements contained in this news release which are not historical fact are forward-looking statements based upon management's current expectations that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. These risks and additional factors affecting the Company's business are described in the Company's Form 10-K for the fiscal year ended December 31, 1996 filed with the Securities and Exchange Commission. 100 Jeffrey Avenue - Holliston, Massachusetts 01746 USA - Tel: 508-429-6916 - FAX 508-429-6023 -----END PRIVACY-ENHANCED MESSAGE-----