-----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, J5xOVIabkXYTivGOsNvYXpSF1vPbP2OJg0tFifcB4T3fCshV1dxDuitpGjiowDZg XGBeUQBiWypsqSdCNk98Tg== 0001193125-03-048968.txt : 20030912 0001193125-03-048968.hdr.sgml : 20030912 20030912162715 ACCESSION NUMBER: 0001193125-03-048968 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20030912 GROUP MEMBERS: SCP PRIVATE EQUITY II, LLC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: INSCI CORP CENTRAL INDEX KEY: 0000878612 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 061302773 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-47998 FILM NUMBER: 03894218 BUSINESS ADDRESS: STREET 1: TWO WESTBOROUGH BUSINESS PARK CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5088704000 MAIL ADDRESS: STREET 1: TWO WESTBOROUGH BUSINESS PARK CITY: WESTBOROUGH STATE: MA ZIP: 01581 FORMER COMPANY: FORMER CONFORMED NAME: INSCI STATEMENTS COM CORP DATE OF NAME CHANGE: 19991222 FORMER COMPANY: FORMER CONFORMED NAME: INSCI CORP DATE OF NAME CHANGE: 19940411 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SCP PRIVATE EQUITY PARTNERS II LP CENTRAL INDEX KEY: 0001118995 IRS NUMBER: 233037972 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 435 DEVON PARK DRIVE STREET 2: BLDG 300 CITY: WAYNE STATE: PA ZIP: 19087 BUSINESS PHONE: 6109952900 MAIL ADDRESS: STREET 1: BUILDING 300 435 DEVON PARK DRIVE CITY: WAYNE STATE: PA ZIP: 19087 SC 13D 1 dsc13d.htm SCHEDULE 13D Schedule 13D

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 13D

 

 

Under The Securities Exchange Act of 1934

(Amendment No.            )*

 

 

 

 

INSCI CORP.

(Name of Issuer)

 

 

Common Stock, $.01 Par Value Per Share

(Title of Class of Securities)

 

 

45765T106

(CUSIP Number)

 

 

Charles C. Freyer, Esquire

General Counsel

SCP Private Equity Partners II, L.P.

435 Devon Park Drive, Building 300

Wayne, PA 19087

610-254-4242

(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)

 

 

copy to: Spencer W. Franck, Jr.

Saul Ewing LLP

1200 Liberty Ridge Drive, Suite 200

Wayne, PA 19087-5055

215-610-5082

 

 

September 5, 2003

(Date of Event which Requires Filing of this Statement)

 

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box.  ¨

 

NOTE:  Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 240.13d-7 for other parties to whom copies are to be sent.

 

*   The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter the disclosures provided in a prior cover page.

CUSIP No. 45765T106

   Page 2 of 12

 

 

The information required in the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

CUSIP No. 45765T106

   Page 3 of 12

 

 

  1.  

Name of Reporting Person.

I.R.S. Identification No. of above person (entities only)

 

            SCP Private Equity Partners II, L.P.

23-3037972

    
  2.  

Check the Appropriate Box if a Member of a Group

(See Instructions)

(a)  ¨

(b)  ¨

    
  3.  

SEC Use Only

 

    
  4.  

Source of Funds (See Instructions)

 

    WC

    
  5.  

Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e)

 

   ¨
  6.  

Citizenship or Place of Organization

 

    Delaware

    

NUMBER OF

SHARES

BENEFICIALLY

OWNED BY

EACH

REPORTING

PERSON

WITH

  

  7.    Sole Voting Power

 

                0

  8.    Shared Voting Power

 

                4,124,580

  9.    Sole Dispositive Power

 

                0

10.    Shared Dispositive Power

 

                4,124,580

11.  

Aggregate Amount Beneficially Owned by Each Reporting Person

 

            4,124,580

    
12.  

Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions)

 

  

¨

 

13.  

Percent of Class Represented by Amount in Row (11)

 

            7.25%*

    
14.  

Type of Reporting Person (See Instructions)

 

            PN

    

 

*   Based on 52,761,299 shares of the Issuer’s common stock outstanding as of August 8, 2003.

CUSIP No. 45765T106

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  1.  

Name of Reporting Person.

I.R.S. Identification No. of above person (entities only)

 

             SCP Private Equity II, LLC

            23-3047235

    
  2.  

Check the Appropriate Box if a Member of a Group (See Instructions)

(a)  ¨

(b)  ¨

    
  3.  

SEC Use Only

 

    
  4.  

Source of Funds (See Instructions)

 

            AF

    
  5.  

Check Box if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e)

 

   ¨
  6.  

Citizenship or Place of Organization

 

            Delaware

    

NUMBER OF

SHARES

BENEFICIALLY

OWNED BY

EACH

REPORTING

PERSON

WITH

  

  7.    Sole Voting Power

 

                0

  8.    Shared Voting Power

 

                4,124,580

  9.    Sole Dispositive Power

 

                0

10.    Shared Dispositive Power

 

                4,124,580

11.  

Aggregate Amount Beneficially Owned by Each Reporting Person

 

            4,124,580

    
12.  

Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions)

 

  

¨

 

13.  

Percent of Class Represented by Amount in Row (11)

 

            7.25%*

    
14.  

Type of Reporting Person (See Instructions)

 

            CO

    

 

*   Based on 52,761,299 shares of the Issuer’s common stock outstanding as of August 8, 2003.

CUSIP No. 45765T106   Page 5 of 12

 

Item 1.   Security and Issuer

 

This Statement on Schedule 13D relates to Common Stock, par value $.01 per share (“Common Stock”) of INSCI Corp. (the “Issuer”), whose principal executive office is located at Two Westborough Business Park, Westborough, MA 01581. The Issuer’s Common Stock is currently traded on the Over the Counter Bulletin Board (OTCBB) under the symbol “INSS.”

 

Item 2.   Identity and Background

 

(a)-(c) This Schedule 13D is filed jointly on behalf of SCP Private Equity Partners II, L.P. (“SCP L.P.”) and SCP Private Equity II, LLC (“SCP LLC”) (collectively, the “Reporting Persons”). SCP L.P. is a private investment fund. SCP LLC’s principal business is to serve as the manager of the General Partner of SCP L.P. (SCP Private Equity II General Partner, L.P. – the “General Partner”) with respect to the operation and management of SCP L.P. Pursuant to a management agreement, SCP LLC exercises voting and investment powers on behalf of SCP L.P.

 

The General Partner and the Reporting Persons are organized under the laws of the State of Delaware. The principal business of the General Partner is to serve as the general partner of SCP L.P.

 

The address of the principal office and principal place of business of the General Partner and both of the Reporting Persons is 435 Devon Park Drive, Building 300, Wayne, PA 19087.

 

The members of SCP LLC (collectively the “Members” and each a “Member”), and certain information with respect to the Members are set forth in Appendix I hereto, which is incorporated herein by reference.

 

(d) During the past five years, neither the General Partner, nor either Reporting Person, nor, to the best of each Reporting Person’s knowledge, any Member has been convicted in a criminal proceeding.

 

(e) During the past five years, neither the General Partner nor either Reporting Person, nor, to the best of each Reporting Person’s knowledge, any Member has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.

 

(f) Each of the natural persons named as a Member in Appendix I is a United States citizen.

 

Item 3.   Source and Amount of Funds or Other Consideration

 

SCP L.P. will fund the acquisition of securities as set forth in Item 4.

CUSIP No. 45765T106   Page 6 of 12

 

Item 4.   Purpose of Transaction

 

On September 5, 2003, SCP L.P. acquired 206,229 shares of the Issuer’s Series C Convertible Preferred Stock, par value $.01 per share (“Series C Preferred”) at a purchase price per share of $1.9396, pursuant to the Series C Convertible Preferred Stock Purchase Agreement dated September 4, 2003, between SCP L.P. and the Issuer which is attached hereto as Exhibit 1 and the terms of which are incorporated herein by reference (the “Series C Agreement”). SCP L.P. purchased an additional 309,342 shares of Series C Preferred at the same price per share (the “Escrowed Shares”), and SCP L.P. agreed to place the Escrowed Shares in escrow in accordance with a letter agreement dated September 4, 2003 among SCP L.P., the Issuer, Selway Partners, LLC, a New Jersey limited liability company (“Selway LLC”), Selway Management, Inc. (“Selway Inc.”), a Delaware corporation and CIP Capital L.P., a Delaware limited partnership (“CIP L.P.”), which is attached hereto as Exhibit 2 and the terms of which are incorporated herein by reference (the “Letter Agreement”). Under the Series C Agreement and subject to certain conditions set forth therein, SCP L.P. is also obligated to purchase additional shares of Series C Preferred as follows: (a) 257,785 shares of Series C Preferred against payment of $500,000 by SCP L.P. thirty days after the date of the closing of SCP L.P.’s initial purchase of Series C Preferred (the “Closing” or the “Closing Date”); (b) 257,785 shares of Series C Preferred against payment of $500,000 by SCP L.P. sixty days after the Closing Date; (c) 257,785 shares of Series C Preferred against payment of $500,000 by SCP L.P. ninety days after the Closing Date; and (d) 257,785 shares of Series C Preferred against payment of $500,000 by SCP L.P. one hundred twenty days after the Closing Date. Each share of Series C Preferred is initially convertible into twenty shares of the Issuer’s Common Stock.

 

In accordance with the terms of the Series C Agreement, the Issuer’s Board of Directors (“Board of Directors”) filed a Certificate of Designation for the Series C Preferred, which is attached hereto as Exhibit 3 and the terms of which are incorporated herein by reference (the “Certificate”), pursuant to which SCP L.P. is entitled to designate two directors to the Board of Directors for so long as it holds shares of Series C Preferred. Effective as of the Closing Date, the Board of Directors elected SCP L.P.’s two designees, Winston J. Churchill and Robert G. Yablunsky to the Board of Directors.

 

The Certificate also provides that to the extent permitted by law, each committee of the Board of Directors shall include at least one director designated for election by SCP L.P. If any law prohibits or otherwise restricts service by any director designated by SCP L.P. on a Board of Directors committee, SCP L.P. shall be entitled to have a representative of SCP L.P. present at all meetings of such committee to the extent permitted by law.

 

The Certificate also grants the holders of Series C Preferred certain voting rights in the event that the Issuer liquidates, reorganizes or engages in similar change of control transactions. The Certificate provides that, in addition to any other vote or consent required by the Certificate or by law, the vote of the holders of at least a majority of the outstanding Series C Preferred shall be necessary for effecting or validating the following actions: (a) any authorization or issuance of any other capital stock having rights, preferences or privileges senior to or pari passu with the Series C Preferred; (b) any amendment, alteration, waiver or repeal of any provision of the Certificate of Incorporation (including the Certificate) or the bylaws of the Issuer (including any fil-

CUSIP No. 45765T106   Page 7 of 12

 

ing of a Certificate of Designation), that alters or changes or adversely affects the voting or other powers, preferences, or other special rights or privileges, or restrictions of the Series C Preferred; (c) any increase or decrease in the number of authorized or outstanding shares of Series C Preferred; (d) any reclassification or recapitalization of any outstanding shares of securities of the Issuer into shares having rights, preferences or privileges senior to or pari passu with the Series C Preferred, or otherwise effecting any change to the rights, preferences and privileges of the Series C Preferred, or any other class or series of capital stock of the Corporation, which would adversely affect the Series C Preferred; (e) any increase or decrease in the number of directors constituting the entire Board of Directors; (f) any redemption, purchase or other acquisition by the Issuer, either direct or indirect, of any capital stock other than the Series C Preferred; (g) any transaction with any related party or affiliate, including but not limited to any transaction that would result in the repayment of a stockholder loan; (h) any action that would permit any subsidiary or affiliate of the Issuer to sell or issue shares of capital stock to any party other than the Issuer; (i) any action that would increase the number of shares of capital stock available for issuance by the Issuer to employees, consultants or other third-parties; or in connection with acquisitions; or (j) any action that would result in the Issuer incurring or assuming more than $3,000,000 of indebtedness, either on an individual or cumulative basis.

 

Under the Letter Agreement, Selway LLC, Selway Inc. and CIP L.P. agreed to take all reasonable action after the Closing to amend (a) the Certificate of Designations, Number, Powers, Conversion Rights, Preferences and Relative, Participating, Optional, and Other Special Rights and Qualifications, Limitations and Restrictions of Series A Convertible Preferred Stock (the “Series A Designation”) and other related documents to change the conversion price of the Issuer’s Series A Preferred Convertible Preferred Stock, par value $.01 per share (“Series A Preferred”) to $0.11; (b) the Certificate of Designations, Number, Powers, Conversion Rights, Preferences and Relative, Participating, Optional, and Other Special Rights and Qualifications, Limitations and Restrictions of Series B Convertible Preferred Stock (“Series B Designation”) and other related documents in accordance with the terms set forth in the Proposed Series C Preferred Stock Term Sheet dated August 22, 2003, between the Issuer and SCP L.P., which is attached hereto as Exhibit 4 and the terms of which are incorporated herein by reference (“Term Sheet”); and (c) the Series A Designation and the Series B Designation to effectuate such other modifications to such designations for purposes of clarifying the rights and preferences of the Series A Preferred and the Issuer’s Series B Convertible Preferred Stock, par value $.01 per share (the “Series B Preferred”). Under the Letter Agreement, SCP L.P. agreed to cooperate with such parties in good faith to ensure the timely filing of such amendments. The Letter Agreement provides that these changes include, but are not limited to (i) waiver of rights of first refusal, participation and all other preemptive rights as described in the Series A and Series B Investment Agreements for future transactions; (ii) provision of anti-dilution protection as described in the Term Sheet and in the Certificate; (iii) modification of the Series B Preferred Stock conversion price to .09698; (iv) stock split of the Series B Preferred of 35:1, resulting in a total of 4,317,040 shares of Series B Preferred following such stock split. The parties to the Letter Agreement also agreed to negotiate in good faith to amend various operating related restrictions in the Series A and Series B Investment Agreements in recognition of the Issuer’s current business status.

 

In accordance with the terms of the Series C Agreement, the Registration Rights Agreement dated June 21, 2003, by and among the Issuer, Selway LLC and Selway Inc. was amended

CUSIP No. 45765T106   Page 8 of 12

 

and restated under the Amended and Restated Registration Rights Agreement dated September 4, 2003, by and among the Issuer, Selway LLC, Selway Inc., CIP L.P. and SCP L.P., which is attached hereto as Exhibit 5 and the terms of which are incorporated herein by reference (“Amended and Restated Registration Rights Agreement”). The Amended and Restated Registration Rights Agreement provides SCP L.P. with certain registration rights with respect to the Issuer’s Common Stock held by SCP L.P. upon conversion of the Series C Preferred. The Amended and Restated Registration Rights Agreement also provides SCP L.P. with certain information rights with respect to the Issuer.

 

In connection with the Closing, SCP L.P. also entered into a letter agreement dated September 4, 2003, which is attached as Exhibit 6 and the terms of which are incorporated herein by reference, pursuant to which SCP L.P., among other things, agreed to enter into an agreement with the Issuer to vote shares of the Issuer which it owns and is entitled to vote, in favor of nominees Mitchell Klein and Frank Murphy at the Issuer’s scheduled October 2003 annual meeting, for such terms not to exceed one year for which they may be subject to election at such meeting.

 

On September 5, 2003, SCP L.P. executed a Secured Party Consent which is attached as Exhibit 7, the terms of which are incorporated herein by reference (“Consent”), in connection with the Issuer’s purchase of certain assets. In consideration of its consent to the sale of such assets to the Issuer free and clear of its liens thereon, SCP L.P. will receive 4,476,276 shares of the Issuer’s Common Stock upon satisfaction or waiver of the conditions to effectiveness of such consent.

 

The Reporting Persons have and are acquiring the securities of the Issuer described in this Schedule 13D as an investment. Except as set forth above, the Reporting Persons have not formulated any plans or proposals of the types referred to in clauses (a) through (j) of Item 4 of Schedule 13D. However, all of SCP L.P.’s investments are made with the intention of exiting within a matter of a few years. Accordingly, a future proposal or plan for the sale of the Issuer or of SCP L.P.’s interest in the Issuer by the Reporting Persons is possible. The Reporting Persons reserve the right to change their plans at any time.

 

Item 5.   Interest in Securities of the Issuer

 

(a)-(b) Both Reporting Persons may be deemed to be the beneficial owners with shared power to vote and dispose of a total of 4,124,580 shares of the Issuer’s Common Stock (or 7.25% of the outstanding Common Stock of the Issuer). SCP LLC is deemed to be such a beneficial owner as described herein because of an agreement with SCP L.P. granting SCP LLC the power to make voting and investment decisions regarding the securities held by SCP L.P.

 

(c) Not applicable.

 

(d) Not applicable.

 

(e) Not applicable.

CUSIP No. 45765T106

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Item 6.   Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer

 

Except as otherwise set forth in Item 4, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the Reporting Persons, the General Partner or any of the Members, with respect to any securities of the Issuer, including but not limited to transfer or voting of any securities of the Issuer, finder’s fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies.

 

Item 7.   Material to be Filed as Exhibits

 

The following documents are filed as exhibits to this Schedule 13D:

 

  1.   Series C Convertible Preferred Stock Purchase Agreement dated September 4, 2003, by and between SCP Private Equity Partners II, L.P. and INSCI Corp.

 

  2.   Letter agreement dated September 4, 2003, by and among SCP Private Equity Partners II, L.P., INSCI Corp., Selway Partners, LLC, Selway Management, Inc. and CIP Capital L.P.

 

  3.   Certificate of Designation of Series C Convertible Preferred Stock.

 

  4.   Proposed Series C Preferred Stock Term Sheet dated August 22, 2003, by and between SCP Private Equity Partners II, L.P. and INSCI Corp.

 

  5.   Amended and Restated Registration Rights Agreement dated September 4, 2003 by and among SCP Private Equity Partners II, L.P., INSCI Corp., Selway Partners, LLC, Selway Management, Inc. and CIP Capital L.P.

 

  6.   Letter agreement dated September 4, 2003, by and between SCP Private Equity Partners II, L.P. and INSCI Corp.

 

  7.   Secured Party Consent dated September 5, 2003.

 

  8.   Joint Filing Agreement, dated September 11, 2003 between SCP Private Equity Partners II, L.P. and SCP Private Equity II, LLC.

CUSIP No. 45765T106

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SIGNATURES

 

After reasonable inquiry and to the best of our knowledge and belief, we certify that the information set forth in this statement is true, complete and correct.

 

SCP PRIVATE EQUITY PARTNERS II, L.P.

By:

  

SCP Private Equity II General Partner, L.P.,

its General Partner

By:

  

SCP Private Equity II, LLC,

By:

  

/s/    WINSTON J. CHURCHILL

Name:

  

Winston J. Churchill

Title:

  

a Manager

 

SCP PRIVATE EQUITY II, LLC

     
By:  

/s/    WINSTON J. CHURCHILL

Name:

  

Winston J. Churchill

Title:

  

a Manager

CUSIP No. 45765T106

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APPENDIX I

 

SCP Private Equity II, LLC Members

 

The following are the members of SCP Private Equity II, LLC:

 

Safeguard Fund Management, Inc.

103 Springer Building

3411 Silverside Road

P.O. Box 7048

Wilmington, DE 19803

 

Winston J. Churchill

197 Mine Road

Malvern, PA 19355

 

James W. Brown

1602 Sorrel Road

Malvern, PA 19355

 

Thomas G. Rebar

547 Carriage House Lane

Harleysville, PA 19438

 

Wayne B. Weisman

2 Saw Grass Lane

Malvern, PA 19355

 

SFMI, a holding corporation organized under the laws of Delaware, is a wholly owned subsidiary of Safeguard Delaware, Inc. It is the sole general partner of Safeguard Fund Management, L.P., a Delaware limited partnership, which is the sole general partner of SCP Management II, L.P., the general partner of SCP Private Equity II General Partner, L.P., which is the general partner of SCP Private Equity Partners II, L.P. Messrs. Churchill, Brown, Rebar and Weisman are also principals of the following entities, all of which have the principal address of 435 Devon Park Drive, Building 300, Wayne, PA 19087:

 

SCP Private Equity II, LLC

SCP Private Equity Management, L.P.

(general partner for SCP Private Equity Partners, L.P.)

SCP Private Equity Partners II, L.P.

SCP Private Equity Management Company, LLC

(management company for SCP Private Equity Partners II, L.P.)

SCP Private Equity II General Partner, L.P.

SCP Management II, L.P.

CUSIP No. 45765T106

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EXHIBIT INDEX

 

EXHIBIT 1    Series C Convertible Preferred Stock Purchase Agreement dated September 4, 2003, by and between SCP Private Equity Partners II, L.P. and INSCI Corp.
EXHIBIT 2.    Letter agreement dated September 4, 2003, by and among SCP Private Equity Partners II, L.P., INSCI Corp., Selway Partners, LLC, Selway Management, Inc. and CIP Capital L.P.
EXHIBIT 3    Certificate of Designation of Series C Convertible Preferred Stock.
EXHIBIT 4    Proposed Series C Preferred Stock Term Sheet dated August 22, 2003, by and between SCP Private Equity Partners II, L.P. and INSCI Corp.
EXHIBIT 5    Amended and Restated Registration Rights Agreement dated September 4, 2003, by and among SCP Private Equity Partners II, L.P., INSCI Corp., Selway Partners, LLC, Selway Management, Inc. and CIP Capital L.P.
EXHIBIT 6    Letter agreement dated September 4, 2003, by and between SCP Private Equity Partners II, L.P. and INSCI Corp.
EXHIBIT 7    Secured Party Consent dated September 5, 2003.
EXHIBIT 8    Joint Filing Agreement, dated September 11, 2003 between SCP Private Equity Partners II, L.P. and SCP Private Equity II, LLC.
 EX-1 3 dex1.txt SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT 1 SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT THIS SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT is made as of the 4th day of September, 2003, by and among INSCI Corp., a Delaware corporation (the "Company") and SCP Private Equity Partners II, L.P., a Delaware limited partnership (the "Investor"). IN CONSIDERATION OF THE MUTUAL PROMISES HEREINAFTER SET FORTH, THE PARTIES HERETO, EACH INTENDING TO BE LEGALLY BOUND HEREBY, AGREE AS FOLLOWS: 1. Purchase and Sale. 1.1 Sale and Issuance of Series C Convertible Preferred Stock. (a) The Company shall adopt and file with the Secretary of State of Delaware, on or before the Closing (as defined below), a Certificate of Designation in the form attached hereto as Exhibit A (the "Designation"). (b) Subject to the terms and conditions of this Agreement, the Investor agrees to purchase, and the Company agrees to sell and issue to the Investor, 1,546,711 shares of the Company's Series C Convertible Preferred Stock, par value $0.01 per share (the "Series C Preferred Stock") at a price per share of $1.9396, for an aggregate purchase price of $3,000,000 (the "Purchase Price"). The rights, privileges and preferences of the Series C Preferred Stock shall be as stated in the Designation. As used herein, the term "Securities" means the shares of Series C Preferred Stock to be issued and sold hereunder. 1.2 Closing. The initial purchase, sale and issuance of the Securities shall take place at the offices of Saul Ewing LLP, Centre Square West, 1500 Market Street, 38th Floor, Philadelphia PA 19102-2186 at 10:00 a.m. on September 4, 2003, or at such other place and time as the Company and the Investor mutually agree upon (which time is designated as the "Closing"). 1.3 Consideration. At the Closing, the Company shall deliver to the Investor, a certificate representing 515,571 shares of the Securities against payment of $1,000,000 of the Purchase Price by wire transfer. The remainder of the Securities shall be sold and issued to the Investor as follows: (a) 257,785 shares of the Securities against payment of $500,000 of the Purchase Price thirty days after the date of Closing (the "Closing Date"); (b) 257,785 shares of the Securities against payment of $500,000 of the Purchase Price sixty days after the Closing Date; (c) 257,785 shares of the Securities against payment of $500,000 of the Purchase Price ninety days after the Closing Date; and (d) 257,785 shares of the Securities against payment of $500,000 of the Purchase Price one hundred twenty days after the Closing Date (each such payment of the Purchase Price, a "Post-Closing Payment"). The due date of any Post-Closing Payment (and the corresponding sale and issuance of Securities) may be changed to an earlier date with the written consent of the Investor and the approval of a majority of the members of the Board of Directors of the Company (the "Board"). The Investor's obligation to make each Post-Closing Payment is conditioned upon the Investor's receipt of (i) a certificate, dated as of the date of such Post-Closing Payment, and signed by an executive officer of the Company, certifying that the representations contained in Section 2 of this Agreement, are true and correct at and as of such date; and (ii) a certificate representing the Securities being purchased on the date of such Post-Closing Payment. 2. Representations and Warranties regarding the Company. The Company hereby represents and warrants to the Investor that, except as set forth on the Disclosure Schedule attached hereto as Schedule A (the "Disclosure Schedule"), which exceptions shall be deemed to be representations and warranties as if made hereunder, and except with respect to certain subsidiaries which are inactive as set forth on the Disclosure Schedule: 2.1 Organization, Good Standing and Qualification. Each of the Company and its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the state of its formation and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. Each of the Company and its subsidiaries is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its assets, properties, financial condition, operating results, prospects or business (as such business is presently conducted and as it is proposed to be conducted). 2.2 SEC Reports; Financial Statements. The Company's Common Stock, $0.01 par value per share (the "Common Stock") is registered under Section 12(b) or (g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Company is in compliance with its reporting and filing obligations under the Exchange Act. The Company has made available to the Investor (a) its annual reports to stockholders and its Annual Reports on Form 10-KSB for its last two fiscal years and (b) all of its Quarterly Reports on Form 10-QSB and each other report, registration statement or definitive proxy statement filed with the Securities and Exchange Commission (the "SEC") since the beginning of such two fiscal years (collectively, the "SEC Reports"). The SEC Reports do not (as of their respective dates) 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 the light of the circumstances under which they were made, not misleading. The audited and unaudited financial statements of the Company included in the SEC Reports (the "Financial Statements") have been prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as stated in such Financial Statements or the notes thereto) and fairly present the financial position of the Company and its consolidated subsidiaries as of the dates thereof and the results of their operations and changes in financial position for the periods then ended. Since the end of the most recent accounting period for which an SEC Report has been filed, there has been no material adverse change in the assets, properties, financial condition, operating results, prospects or business (as such business is presently conducted and as it is proposed to be conducted) of the Company and its subsidiaries taken together, and there is no existing condition, event or series of events which reasonably would be expected to have a material adverse effect on the assets, properties, financial condition, operating results, prospects or business (as such business is presently conducted and as it is proposed to be conducted) of the Company and its subsidiaries taken together, or the ability of the Company to perform its obligations under this Agreement or -2- the Amended and Restated Registration Rights Agreement to be executed and delivered in connection herewith in the form attached hereto as Exhibit B (the "Amended and Restated Registration Rights Agreement"). 2.3 Capitalization and Voting Rights (a) As of the date hereof, the authorized capital of the Company is as set forth in Section 2.3 of the Disclosure Schedule. All of the issued and outstanding shares of capital stock of the Company are owned as set forth in Section 2.3 of the Disclosure Schedule. The capitalization of the Company on a fully-diluted basis is as set forth on Section 2.3 of the Disclosure Schedule. (b) All outstanding shares of capital stock of the Company's subsidiaries are owned beneficially and of record by the Company, free and clear of any liens, security interests, encumbrances, charges or other adverse claims ("Liens"). The Company and its subsidiaries do not presently own or control, directly or indirectly, any interest in any other corporation, association or other business entity. Neither the Company nor its subsidiaries are participants in any joint venture, partnership, or similar arrangement. (c) All outstanding shares of capital stock of the Company and its subsidiaries have been duly and validly authorized and issued, are fully paid and nonassessable and were issued in accordance with the registration or qualification provisions of the Securities Act of 1933, as amended (the "Securities Act"), and any relevant state securities laws or pursuant to valid exemptions therefrom. (d) There are no outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company or any of its subsidiaries of any shares of their capital stock, except as provided in Section 2.3 of the Disclosure Schedule. 2.4 Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery by the Company of this Agreement, the Independent Board of Directors Authorization, the Fairness Opinion, the Amended and Restated Registration Rights Agreement, the performance of all obligations of the Company hereunder and thereunder, and the authorization, issuance (or reservation for issuance) and delivery of the Securities and the Common Stock issuable upon conversion of the Securities (the "Conversion Shares"), has been taken, and this Agreement and the Amended and Restated Registration Rights Agreement constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, and (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. 2.5 Stockholder Approval. Approval by the stockholders of the Company is not required for the authorization, execution and delivery of this Agreement and the Amended and Restated Registration Rights Agreement, the performance of all obligations of the Company -3- hereunder and thereunder, and the authorization, issuance (or reservation for issuance) and delivery of the Securities and the Conversion Shares. 2.6 Valid Issuance of Stock. The Securities, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement, the Amended and Restated Registration Rights Agreement and under applicable state and federal securities laws. The Conversion Shares purchased under this Agreement have been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Designation, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement, the Amended and Restated Registration Rights Agreement and under applicable state and federal securities laws. 2.7 Governmental Consents. Other than those that have been duly obtained or filings which are required under applicable securities laws, which filings, if any, will be made within the applicable periods required by such laws, and other than the filing of the Designation, no consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any local, state or federal governmental authority, on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement and the Amended and Restated Registration Rights Agreement. 2.8 Offering. Subject in part to the truth and accuracy of the Investor representations set forth in Section 3 of this Agreement, the offer, sale and issuance of the Securities as contemplated by this Agreement are exempt from the registration requirements of the Securities Act and applicable state securities laws, and neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption. The issuance of the Conversion Shares upon conversion of the Securities will be exempt from the registration requirement of the Securities Act and applicable state securities laws. 2.9 Compliance with Certain Matters. Neither the Company nor any of its subsidiaries is in violation or default under or in breach of any provision of its Certificate of Incorporation, bylaws or other organizational document, any contract, covenant, agreement, instrument, document or Order to which it is a party or by which it is bound or any statute, law, rule or regulation applicable to it. The execution, delivery and performance of this Agreement and the Amended and Restated Registration Rights Agreement 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 and giving of notice, either a default under any such provision, contract, covenant, agreement, instrument, document, Order, statute, law, rule or regulation or an event that results in the creation of any Liens upon any assets of the Company or any of its subsidiaries or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Company or any of its subsidiaries, their business or operations or any of their assets or properties. -4- 2.10 Litigation. There is no action, suit, proceeding or investigation pending or, to the best of the Company's knowledge, currently threatened against the Company or any of its subsidiaries that questions the validity of this Agreement or the Amended and Restated Registration Rights Agreement or the right of the Company to enter into such agreements, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any material adverse changes in the assets, properties, financial condition, operating results, prospects or business of the Company or any of its subsidiaries (as such business is presently conducted and as it is proposed to be conducted), or any change in the current equity ownership of the Company or any of its subsidiaries, except as otherwise disclosed in the SEC Reports. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or, to the best of the Company's knowledge, threatened involving the prior employment of any of the Company's or any of its subsidiaries' employees or consultants, their use in connection with the Company's or any of its subsidiaries' business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. Neither the Company nor any of its subsidiaries is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or any administrative or governmental agency, authority or instrumentality ("Order"). There is no action, suit, proceeding or investigation by the Company or any of its subsidiaries currently pending or that the Company or any of its subsidiaries intends to initiate, except as otherwise disclosed in the SEC Reports. 2.11 Nondisclosure and Inventions Agreements. Each employee, officer and consultant of the Company or any of its subsidiaries has executed a Nondisclosure and Inventions Agreement in the form attached hereto as Exhibit C. The Company, after reasonable investigation, is not aware that any of the Company's or its subsidiaries' employees, officers or consultants are in violation of the agreements specified in this Section 2.11, and the Company and its subsidiaries will use their best efforts to prevent any such violation. 2.12 Patents and Trademarks. The Disclosure Schedule contains a complete and accurate list of all (a) patented or registered Intellectual Property Rights (as defined below) owned or used by the Company or any of its subsidiaries, (b) pending patent applications and applications for registrations of other Intellectual Property Rights filed by the Company or any its subsidiaries and (c) unregistered trade names and corporate names owned or used by the Company or any of its subsidiaries. The Disclosure Schedule also contains a complete and accurate list of all licenses and other rights granted by the Company or any of its subsidiaries to any third party with respect to any Intellectual Property Rights and all licenses and other rights granted by any third party to the Company or any of its subsidiaries with respect to any Intellectual Property Rights, in each case identifying the subject Intellectual Property Rights but not including licenses arising from the purchase of standard "off the shelf" products. The Company or a subsidiary of the Company owns all right, title and interest in and to all of the Intellectual Property Rights listed on the Disclosure Schedule free and clear of all Liens, except as otherwise disclosed in the SEC Reports. The Company or a subsidiary of the Company owns all right, title and interest to, or has the right to use pursuant to a valid license, all Intellectual Property Rights, as they currently exist, necessary for the operation of the business of the Company and its subsidiaries as presently conducted and as presently proposed to be conducted, free and clear of all Liens, except as otherwise disclosed in the SEC Reports. The Company and its subsidiaries have taken all necessary and desirable actions to maintain and protect the -5- Intellectual Property Rights that each of them own. To the best of the Company's knowledge, the owners of any Intellectual Property Rights licensed to the Company or any of its subsidiaries have taken all necessary and desirable actions to maintain and protect the Intellectual Property Rights that are subject to such licenses. There have been no claims made against the Company or any of its subsidiaries asserting the invalidity, misuse or unenforceability of any of such Intellectual Property Rights, and to the best of the Company's knowledge, there are no valid grounds for the same. Neither the Company nor any of its subsidiaries has received any notices of, and the Company is not aware of any facts which indicate a likelihood of, any infringement or misappropriation by, or conflict with, any third party with respect to such Intellectual Property Rights (including, without limitation, any demand or request that the Company or any of its subsidiaries license any rights from a third party). To the best of the Company's knowledge, the conduct of the Company's and each of its subsidiaries' business has not infringed, misappropriated or conflicted with and does not infringe, misappropriate or conflict with any Intellectual Property Rights of others, nor to the best of the Company's knowledge would any future conduct as presently contemplated infringe, misappropriate or conflict with any Intellectual Property Rights of others. To the best of the Company's knowledge, the Intellectual Property Rights owned by or licensed to the Company or any of its subsidiaries have not been infringed upon, or misappropriated by or conflict with others. The transactions contemplated by this Agreement will have no material adverse effect on the Company's or any of its subsidiaries' right, title and interest in and to the Intellectual Property Rights listed on the Disclosure Schedule. To the best of the Company's knowledge, none of the Company's nor any of its subsidiaries' employees is obligated under any contract, covenant, agreement, instrument or commitment or subject to any Order that would interfere with the use of his or her best efforts to promote the interests of the Company or any of its subsidiaries or that would conflict with the Company's or any of its subsidiaries' business as presently conducted and to the best of the Company's belief as presently proposed to be conducted. Neither the execution of this Agreement nor the transactions contemplated by this Agreement nor the carrying on of the Company's or each of its subsidiaries' business by the employees of the Company and each of its subsidiaries, nor the conduct of the Company's or each of its subsidiaries' business as presently conducted or presently proposed to be conducted, will, to the best of the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant, agreement or instrument under which any of such employees is now obligated. For purposes of this Agreement, "Intellectual Property Rights" means all (i) patents, patent applications, patent disclosures and inventions, (ii) trademarks, service marks, trade dress, trade names, logos and corporate names and registrations and applications for registration thereof together with all of the goodwill associated therewith, (iii) copyrights (registered and unregistered) and copyrightable works and registrations and applications for registration thereof, (iv) mask works and registrations and applications for registration thereof, (v) computer software, data, data bases and documentation thereof, (vi) trade secrets and other confidential information (including, without limitation, ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, financial and marketing plans and customer and supplier lists and information), (vii) other intellectual property rights and (viii) copies and tangible embodiments thereof (in whatever form or medium). -6- 2.13 Agreements; Action. (a) The SEC Reports list all material agreements, understandings, instruments and contracts, whether written or oral, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective assets and properties are bound. (b) There are no agreements, understandings or proposed transactions between the Company or any of its subsidiaries and any of their respective officers, directors, affiliates or any affiliate thereof, except as otherwise disclosed in the SEC Reports. (c) Except as otherwise disclosed in the SEC Reports, there are no agreements, understandings, instruments, contracts, proposed transactions or Orders to which the Company or any of its subsidiaries is a party or by which it is bound that may involve (i) obligations (contingent or otherwise) of, or payments to, the Company or any of its subsidiaries in excess of $50,000, (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company or any of its subsidiaries, other than licenses arising from the purchase of "off the shelf" or other standard products, (iii) provisions restricting or affecting the development, manufacture or distribution of the Company's or any of its subsidiaries' products or services, (iv) a warranty with respect to its services rendered or its products sold or leased other than in the ordinary course of business, or (v) indemnification by the Company or any of its subsidiaries with respect to infringements of proprietary rights. (d) Neither the Company nor 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, (ii) incurred any material indebtedness for money borrowed or any other liabilities, (iii) made any material loans or advances to any person, other than advances for travel expenses and other customary employment-related advances made in the ordinary course of business, or (iv) sold, exchanged or otherwise disposed of any material amount of its assets or rights, other than the sale of its inventory in the ordinary course of business, except as otherwise disclosed in the SEC Reports. (e) For the purposes of subsections (c) and (d) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections. (f) All of the contracts, agreements and instruments set forth on the Disclosure Schedule pursuant to this Section 2.13 are valid, binding and enforceable in accordance with their respective terms and there has been no material change to or amendment to a material contract, covenant, agreement or instrument by which the Company or any of its subsidiaries or any of their respective assets or properties is bound or subject. Each of the Company and each of its subsidiaries has performed all material obligations required to be performed by it and is not in material default under or in material breach of nor in receipt of any claim of default or breach under any contract, covenant, agreement or instrument and neither the Company nor any of its subsidiaries have any present expectation or intention of not fully -7- performing all such obligations. No event has occurred which with the passage of time or the giving of notice or both would result in a material default, breach or event of noncompliance by the Company or any of its subsidiaries under any contract, covenant, agreement or instrument. None of the Company nor any of its subsidiaries has knowledge of any breach or anticipated breach by the other parties to any contract, covenant, agreement or instrument, except as otherwise disclosed in the SEC Reports. (g) Neither the Company nor any of its subsidiaries is a party to or is bound by any contract, covenant, agreement or instrument or subject to any restriction under its charter, bylaws or other organizational document that materially adversely affects its assets, properties, financial condition, operating results, prospects or business (as such business is presently conducted and as it is proposed to be conducted). 2.14 Related-Party Transactions. No employee, consultant, officer, or director of the Company or any of its subsidiaries, or member of his or her immediate family is indebted to the Company or any of its the subsidiaries, nor is the Company or any of its subsidiaries indebted (or committed to make loans or extend or guarantee credit) to any of them except for compensation, wages and benefits and travel and customary expenses. Except for employment agreements, benefit plans, insurance policies and similar matters, no employee, consultant, officer, or director of the Company or any of its subsidiaries, or member of his or her immediate family is directly or indirectly interested in any material contract, covenant, agreement or instrument with the Company or any of its subsidiaries, except as otherwise disclosed in the SEC Reports. 2.15 Permits. Each of the Company and each of its subsidiaries has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect its assets, properties, financial condition, operating results, prospects or business (as such business is presently conducted and as it is proposed to be conducted), and the Company believes that each of the Company and each of its subsidiaries can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. Neither the Company nor any of its subsidiaries is in default in any material respect under any of such franchises, permits, licenses or other similar authority, except as otherwise disclosed in the SEC Reports. 2.16 Environmental and Safety Laws. To the Company's knowledge, neither the Company nor any of its subsidiaries is in violation of any applicable statute, law, rule or regulation relating to the environment or occupational health and safety, and to the Company's knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law, rule or regulation. 2.17 Manufacturing and Marketing Rights. Except in the ordinary course of business, neither the Company nor any of its subsidiaries has granted rights to manufacture, produce, assemble, license, market, or sell its products to any other person and is not bound by any agreement that affects its exclusive right to develop, manufacture, assemble, distribute, market or sell its products. -8- 2.18 Disclosure. The Company has fully provided the Investor with all the information that the Investor has requested for deciding whether to purchase the Securities and to consummate the transactions contemplated by this Agreement. To the best of the Company's knowledge, none of this Agreement, the Amended and Restated Registration Rights Agreement, any other statements or certificates made or delivered in connection herewith or therewith or any other information supplied by the Company with respect to the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. 2.19 Registration Rights. Neither the Company nor any of its subsidiaries has granted or agreed to grant any registration rights, including piggyback rights, to any person or entity, except as set forth in Section 2.19 of the Disclosure Schedule. 2.20 Corporate Documents. The Company's Certificate of Incorporation and bylaws and each of its subsidiaries' charter, bylaws and other organization documents are in the form previously provided to the Investor. 2.21 Title to Property and Assets. Each of the Company and each of its subsidiaries owns its property and assets free and clear of all Liens, except such Liens that arise in the ordinary course of business and do not materially impair its ownership or use of such property or assets. With respect to the property and assets it leases, each of the Company and each of its subsidiaries is in compliance with such leases and holds a valid leasehold interest free and clear of any Liens. 2.22 Tax Returns, Payments and Elections. Each of the Company and each of its subsidiaries have filed all tax returns and reports or have filed the necessary extensions as required by law. These returns and reports are true and correct in all material respects. Each of the Company and each of its subsidiaries has paid all taxes and other assessments due, except those contested by it in good faith that are listed in the Disclosure Schedule. 2.23 Insurance. Each of the Company and each of its subsidiaries has in full force and effect or will obtain in a reasonable amount of time after the Closing, fire and casualty insurance policies, with extended coverage in amounts customary for companies similarly situated. Each of the Company and each of its subsidiaries has in full force and effect or will obtain in a reasonable amount of time after the Closing a quote for products liability and errors and omissions insurance in amounts customary for companies similarly situated. The parties will use reasonable business judgment in determining whether to effectuate such policies. Each of the Company and each of its subsidiaries shall have or will obtain in a reasonable amount of time after the Closing, directors' and officers' insurance in amounts consistent with past practice; provided that in no event shall the Company carry less than an aggregate of $1,000,000 in directors' and officers' insurance coverage for the entire Board. 2.24 Minute Books. The minute books of the Company and each of its subsidiaries made available to the Investor contain a complete summary of all meetings of directors and stockholders since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects. -9- 2.25 Labor Agreements and Actions. Neither the Company nor any of its subsidiaries is bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, covenant, agreement, instrument, commitment or arrangement with any labor union, and no labor union has requested or, to the Company's knowledge, requested or sought to represent any of its employees, consultants, representatives or agents. There is no strike or other labor dispute involving the Company or any of its subsidiaries pending, or to the Company's knowledge, threatened, that could have a material adverse effect on the assets, properties, financial condition, operating results, prospects or business of the Company or any of its subsidiaries (as such business is presently conducted and as it is proposed to be conducted), nor is the Company aware of any labor organization activity involving the employees or consultants of the Company or any of its subsidiaries. The Company is not aware that any officer or key employee or key consultant, or that any group of key employees or key consultants, intends to terminate their employment or consulting relationship with the Company or any of its subsidiaries, nor does the Company or any of its subsidiaries have a present intention to terminate the employment or consulting relationship of any of the foregoing nor has there been any material change in any compensation arrangement or agreement with any employee or consultant. With the exception of those officers and employees that have executed employment contracts with the Company or any subsidiary of the Company as listed in the Disclosure Schedule, the employment of each officer and employee of the Company and each of its subsidiaries is terminable at the will of the Company or a subsidiary of the Company, as applicable, and without any required severance payment. The consulting relationship of each consultant of the Company or any of its subsidiaries is terminable at the will of the Company or a subsidiary of the Company, as applicable, and without any required severance payment. To the knowledge of the Company, each of the Company and each of its subsidiaries have complied in all material respects with all applicable local, state and federal equal employment opportunity and other laws related to employment. 2.26 Damage; Loss. Neither the Company nor any of its subsidiaries has experienced any damage, destruction or loss, whether or not covered by insurance, that would materially and adversely affect the assets, properties, financial condition, operating results, prospects or business of the Company (as such business is presently conducted and as it is proposed to be conducted). 2.27 Liens. There has not been any satisfaction or discharge of any Lien or payment of any obligation by the Company or any of its subsidiaries, except in the ordinary course of business and that is material to its assets, properties, financial condition, operating results or business (as such business is presently conducted and as it is proposed to be conducted). 2.28 Real Property Holding Company. Neither the Company nor any of its subsidiaries is a real property holding company within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended. -10- 3. Representations and Warranties of the Investor. The Investor hereby represents and warrants to the Company that: 3.1 Authorization. The Investor has full power and authority to enter into this Agreement and the Amended and Restated Registration Rights Agreement, and each of them constitutes the valid and legally binding obligation of the Investor enforceable against the Investor in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally; and (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. 3.2 Purchase Entirely for Own Account. The Securities are being acquired for investment for the Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof or the Conversion Shares, and the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. The Investor does not have any contract, covenant, agreement, undertaking or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities or the Conversion Shares. 3.3 Disclosure of Information. The Investor has received all the information it considers necessary or appropriate for deciding whether to purchase the Securities. The Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the representations and warranties in Section 2 of this Agreement or the right of the Investor to rely thereon. 3.4 Investment Experience. The Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities. The Investor also represents it has not been organized for the purpose of acquiring the Securities. 3.5 Accredited Investor. The Investor is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, as presently in effect. 3.6 Restricted Securities. The Investor understands that the Securities it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act, only in certain limited circumstances. In this connection, the Investor represents that it is familiar with Rule 144 promulgated under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. -11- 3.7 Further Limitations on Disposition. Without in any way limiting the representations set forth above, the Investor further agrees not to make any disposition of all or any portion of the Securities or the Conversion Shares unless and until the transferee has agreed in writing for the benefit of the Company to be bound by this Section 3 and the applicable provisions of the Amended and Restated Registration Rights Agreement and: (a) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (b) Such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition and, if requested by the Company, such Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company that such disposition will not require registration of such shares under the Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances or unless required by a transfer agent. Notwithstanding the provisions of subsections (a) and (b) above, no such registration statement or opinion of counsel shall be necessary for a transfer by an Investor that is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or the transfer by gift, will or intestate succession of any partner to his or her spouse or to the siblings, lineal descendants or ancestors of such partner or his or her spouse, if the transferee agrees in writing to be subject to the terms hereof to the same extent as if he or she were an original Investor hereunder. 3.8 Legends. It is understood that the certificates evidencing the Securities and the Conversion Shares, may bear one or all of the following legends: (a) "These securities have not been registered under the Securities Act of 1933, as amended. They may not be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in effect with respect to the securities under such Act or an opinion of counsel satisfactory to the issuer thereof that such registration is not required or unless sold pursuant to Rule 144 of such Act." (b) Any legend required by the securities laws of any applicable jurisdictions. (c) Any legend required by the Amended and Restated Registration Rights Agreement or other applicable agreement. 4. Conditions of Investor's Obligations at Closing. The obligations of the Investor under Sections 1.1 and 1.2 of this Agreement are subject to the fulfillment on or before the Closing of each of the conditions hereinafter set forth. 4.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true in all material respects on and as of the Closing -12- with the same effect as though such representations and warranties had been made on and as of the Closing Date, unless another date is specified therein. 4.2 Performance. The Company shall have performed and complied in all material respects with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 4.3 Compliance Certificate. An executive officer of the Company shall deliver to the Investor at the Closing a certificate on behalf of the Company, stating that the conditions specified in Sections 4.1 and 4.2 have been fulfilled. 4.4 Secretary's Certificate. The Investor shall have received a certificate or certificates, dated the Closing Date and signed by the corporate secretary of the Company (or other authorized officer or representative of the Company), certifying the truth and correctness of attached copies of the Company's Certificate of Incorporation, and all amendments thereto, the Company's bylaws, and all amendments thereto, and resolutions of the Board approving the Company entering into this Agreement and the consummation of the transactions contemplated hereby and certifying as to the incumbency of the officers authorized to execute this Agreement, the Amended and Restated Registration Rights Agreement, the Designation and other related documents and agreements. 4.5 Good Standing Certificates. The Company shall have delivered to the Investor good standing certificates duly issued by the Secretaries of State of Delaware, Massachusetts and Missouri. 4.6 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities and the other transactions contemplated by this Agreement shall be duly obtained and effective as of the Closing. 4.7 Proceedings and Documents. All corporate approvals, stockholder approvals and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Investor and their special counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. 4.8 Amended and Restated Registration Rights Agreement. The Company, Selway Partners, LLC, a New Jersey limited liability company and Selway Management, Inc., a Delaware corporation shall have entered into the Amended and Restated Registration Rights Agreement. 4.9 Written Consent and Waiver. Selway Partners, LLC, a New Jersey limited liability company, Selway Management, Inc., a Delaware corporation and CIP Capital, L.P., a Delaware limited partnership shall have executed the Written Consent and Waiver in the form attached hereto as Exhibit D. 4.10 Stock Certificate. The Company shall have delivered to the Investor an executed certificate representing the Securities. -13- 4.11 Nondisclosure and Inventions Agreements. Each employee, officer and consultant of the Company or any of its subsidiaries shall have entered into Nondisclosure Agreements as specified in Section 2.11 hereof. 4.12 Board of Directors. Effective as of the Closing, (a) the following designees of the Investor shall have been elected by the Board to serve as directors on the Board: Winston J. Churchill and Robert G. Yablunsky; and (b) any existing observer rights shall have been terminated. 4.13 Legal Opinion. The Investor shall have received an opinion of counsel to the Company, in the form attached hereto as Exhibit E. 4.14 Designation. The Company shall have adopted and filed with the Secretary of State of Delaware the Designation. 4.15 Due Diligence. Completion of the Investor's due diligence investigation, to the Investor's satisfaction. 5. Conditions of the Company's Obligations at Closing. The obligations of the Company to the Investor under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions by the Investor: 5.1 Representations and Warranties. The representations and warranties of the Investor contained in Section 3 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing Date. 5.2 Performance. The Investor shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 5.3 Payment of Purchase Price. The Investor shall have delivered to the Company the portion of the Purchase Price payable at the Closing pursuant to Section 1.3. 5.4 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities and the other transactions contemplated by this Agreement shall be duly obtained and effective as of the Closing. 6. Post-Closing Covenants. 6.1 Reverse Stock Split. The Company agrees to take all necessary action to effectuate the reverse stock split of the Common Stock previously approved by the stockholders of the Company and immediately thereafter reserve a sufficient number of shares of Common Stock to validly issue the Conversion Shares as contemplated hereunder and under the Designation or to take all such other action as is necessary to reserve a sufficient number of shares of the Common Stock for such purposes as soon as possible after the Closing. -14- 7. Miscellaneous. 7.1 Survival of Warranties. The warranties, representations and covenants of the Company and the Investor contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing. 7.2 Use of Proceeds. The Company shall use the proceeds from the sale of the Securities to the Investor hereunder for general corporate purposes. 7.3 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Securities or any Conversion Shares). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 7.4 Governing Law. The construction, validity and interpretation of this Agreement will be governed by the internal laws of the State of Delaware without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. 7.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.6 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 7.7 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial overnight courier (with confirmation of receipt) or sent via facsimile (with confirmation of receipt), (a) in case of the Company, to the Company at Two Westborough Business Park, 200 Friberg Parkway, Suite 2000, Westborough, MA 01581 (Fax: (508) 870-5585), Attn: President, with a copy to Baratta & Goldstein, 597 Fifth Avenue, New York, NY 10017and (b) in the case of SCP Private Equity Partners II, L.P., to SCP Private Equity Partners II, L.P. at 435 Devon Park Drive, Building 300, Wayne, Pennsylvania 19087 (Fax: (610) 975-9546), Attention: General Counsel (or at such other address for a party as shall be specified by like notice), with a copy to Saul Ewing LLP, Centre Square West, 1500 Market Street, 38th Floor, Philadelphia PA 19102-2186 (Fax: (215) 972-1934), Attention: Charles C. Zall Notice given by facsimile shall be confirmed by appropriate answer back and shall be effective upon actual receipt if received during the recipient's normal business hours, or at the beginning of the recipient's next business day after receipt if not received during the recipient's normal business hours. All notices by facsimile shall be confirmed promptly after -15- transmission in writing by certified mail or personal delivery. Any party may change any address to which notice is to be given to it by giving notice as provided above of such change of address. 7.8 Finder's Fee. Each party represents that it neither is nor will be obligated for any finders' fee or commission in connection with this transaction. 7.9 Expenses. Irrespective of whether the Closing is effected, the Company shall pay all costs and expenses incurred by the Investor with respect to the negotiation, execution, delivery and performance of this Agreement and any schedules or exhibits hereto (including, but not limited to, all costs and expenses related to the Investor's due diligence investigation and all of the Investor's out-of-pocket expenses); provided that the Company shall not be obligated to reimburse the Investor for legal fees in excess of $20,000. 7.10 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investor. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Securities at the time outstanding, any securities into or for which such Securities are convertible or exchangeable, each future holder of all such securities, and the Company. 7.11 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 7.12 Publicity. Neither the Company nor the Investor shall take any action, or permit any of its employees, consultants, officers, directors or stockholders to take any action, which may result in the public disclosure of the transactions effected hereby or the identity of the Investor, except pursuant to the Company's filing obligations under applicable securities laws or unless otherwise required by law. Other than with respect to filing obligations under applicable securities laws, if the Company determines that it is required by law to disclose these transactions or the identity of the Investor, it shall, at a reasonable time before making any such disclosure, consult with the Investor regarding such disclosure. 7.13 Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein. [Signature Page Follows] -16- IN WITNESS WHEREOF, the parties have executed this Series C Convertible Preferred Stock Purchase Agreement as of the date first above written. COMPANY: INSCI CORP. By: /s/ Henry F. Nelson --------------------------------------------- Name: Henry F. Nelson Title: President, Chief Executive Officer, Chief Financial Officer and Secretary INVESTOR: SCP PRIVATE EQUITY PARTNERS II, L.P. By: SCP Private Equity II General Partner, L.P., its General Partner By: SCP Private Equity II LLC By: /s/ Winston J. Churchill --------------------------------------------- Name: Winston J. Churchill Title: a Manager SCHEDULE A DISCLOSURE SCHEDULE EXHIBIT A Certificate of Designation [Attached] EXHIBIT B Amended and Restated Registration Rights Agreement [Attached] EXHIBIT C Form of Nondisclosure Agreement [Attached] EXHIBIT D Written Consent and Waiver EXHIBIT E Opinion of Counsel [Attached] EX-2 4 dex2.txt LETTER AGREEMENT DATED SEPTEMBER 24, 2003 EXHIBIT 2 SCP PRIVATE EQUITY PARTNERS II, L.P. September 4, 2003 INSCI Corp. Two Westborough Business Park 200 Friberg Parkway, Suite 2000 Westborough, MA 01581 Attn: Mr. Henry F. Nelson, President and Chief Executive Officer Selway Partners, LLC Selway Management, Inc. 52 Forest Avenue Paramus, NJ 07652 Attn: Mr. Yaron Eitan CIP Capital L.P. 435 Devon Park Drive, Building 300 Wayne, Pennsylvania 19087 Gentleman: This letter agreement confirms our agreement that following the closing of the transactions contemplated by the Series C Convertible Preferred Stock Purchase Agreement of even date herewith (the "Purchase Agreement"), by and among SCP Private Equity Partner II, L.P. ("SCP") and INSCI Corp. (the "Company"), the Company, Selway Partners, LLC, Selway Management, Inc. and CIP Capital L.P. will take all reasonable action to amend (a) the Certificate of Designations, Number, Powers, Conversion Rights, Preferences and Relative, Participating, Optional, and Other Special Rights and Qualifications, Limitations and Restrictions of Series A Convertible Preferred Stock (the "Series A Designation") and other related documents to change the conversion price of the Series A Preferred Convertible Preferred Stock to $0.11; (b) the Certificate of Designations, Number, Powers, Conversion Rights, Preferences and Relative, Participating, Optional, and Other Special Rights and Qualifications, Limitations and Restrictions of Series B Convertible Preferred Stock (the "Series B Designation") and other related documents in accordance with the terms set forth in the Proposed Series C Preferred Stock Term Sheet dated August 22, 2003 between the Company and SCP; and (c) the Series A Designation and the Series B Designation to effectuate such other modifications to such designations for purposes of clarifying the rights and preferences of the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock. SCP will cooperate with such parties in good faith to ensure the timely filing of such amendments. These changes shall include, but are not limited to the following: Right of first refusal, participation and all other preemptive rights as are described in the Series A and Series B Investment Agreements shall be waived for future transactions. Anti-dilution protection shall be as described in the Series C Term Sheet and in the Series C Designation. The revised Series B Preferred Conversion Price shall be .096980 in the amended Series B Certificate of Designation. A stock split of the Series B Preferred of 35:1 will result in a total of 4,317,040 Series B Preferred post closing under the amended Certificate of Designation. Such shares are convertible into 86,340,800 shares of common stock. The parties agree to negotiate in good faith to amend various operating related restrictions in the Series A and Series B Investment Agreements in recognition of the Company's current business status. SCP also agrees that the Securities (as defined in the Purchase Agreement) will be issued to SCP as set forth in the Purchase Agreement; provided that SCP agrees that 309,342 shares (representing 20% of the total number of Securities being purchased by SCP under the Purchase Agreement) of the 515,571 shares of the Securities that will be issuable to SCP on the Closing Date upon payment of $1,000,000 of the Purchase Price (as defined in the Purchase Agreement), will be held in escrow pursuant to an escrow agreement mutually agreeable to SCP and the Company and will be released in accordance with the terms of such escrow agreement upon amendment of the Series A Designation and the Series B Designation as provided herein. -2- If this letter agreement accurately reflects your understanding of our agreement, please sign where indicated below. This letter agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. Sincerely, SCP PRIVATE EQUITY PARTNERS II, L.P. By: SCP Private Equity II General Partner, L.P., its General Partner By: SCP Private Equity II LLC By: /s/ Winston J. Churchill ------------------------------------------------- Name: Winston J. Churchill Title: a Manager Acknowledged and Agreed: INSCI CORP. By: /s/ Henry F. Nelson --------------------------------------- Name: Henry F. Nelson Title: President, Chief Executive Officer, Chief Financial Officer and Secretary SELWAY PARTNERS, LLC By: /s/ Yaron Eitan --------------------------------------- Name: Yaron Eitan Title: Chief Executive Officer SELWAY MANAGEMENT, INC. By: /s/ Yaron Eitan --------------------------------------- Name: Yaron Eitan Title: Chief Executive Officer CIP CAPITAL L.P. -3- By: /s/ Edward J. Carry --------------------------------------- Name: Edward J. Carry Title: President, CIP Capital Management, Inc. General Partner -4- EX-3 5 dex3.txt CERTIFICATE OF DESIGNATION OF SERIES C CONVERTIBEL PREFERRED STOCK EXHIBIT 3 CERTIFICATE OF DESIGNATION OF SERIES C CONVERTIBLE PREFERRED STOCK OF INSCI CORP. INSCI CORP. a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify that pursuant to the authority vested in the Board of Directors of the Corporation by its Certificate of Incorporation, as amended, and pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, said Board of Directors adopted the following resolution at a meeting duly called and held on August 27, 2003, which resolution remains in full force and effect as of the date hereof: RESOLVED, that pursuant to the authority vested in the Board of Directors of the Corportion (the "Board") by its Certificate of Incorporation, as amended, the Board does hereby create, authorize and provide for the issuance of "Series C Convertible Preferred Stock" with a par value of $.01 per share, consisting of 2,300,000 shares (the "Series C Preferred Stock"), having the following rights, preferences, privileges, qualifications and restrictions: (a) Dividend Rights. (i) Dividend. The holders of Series C Preferred Stock, in preference to the holders of the Common Stock, the Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock, and any other series of Preferred Stock or other capital stock that may from time to time come into existence (together, "Junior Stock"), shall be entitled to receive cumulative dividends, but only out of funds that are legally available therefor, at the rate of 8% of the Series C Original Issue Price (as defined below) per annum (the "Series C Dividend Rate") on each outstanding share of Series C Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). Such dividends shall accrue and be payable semi-annually on September 1 and March 1 of each year, and, at the option of the Corporation shall be payable either (A) in cash or (B) in additional shares of Series C Preferred Stock (valued at the Series C Original Issue Price, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). Such additional shares of Series C Preferred Stock issued in lieu of the cash dividend are sometimes referred to as "PIK Shares". Upon any conversion of the Series C Preferred Stock, all declared but unpaid dividends on the Series C Preferred Stock shall be paid immediately prior to such shares being surrendered for conversion. The original issue price of the Series C Preferred Stock shall be $1.9396 (the "Series C Original Issue Price"). (ii) Consent of Series C Preferred Stock Holders. So long as any shares of Series C Preferred Stock shall be outstanding, without the prior written consent of the holders of a majority of the then issued and outstanding shares of Series C Preferred Stock, until all dividends (set forth in Section (a)(i) above) on the Series C Preferred Stock shall have been paid or declared and set apart: (A) no dividend, whether in cash or property, shall be paid or declared, nor shall any other distribution be made, on any Junior Stock; and (B) no shares of any Junior Stock shall be purchased, redeemed, or otherwise acquired for value by the Corporation. (iii) Common Stock Dividends. Each holder of the Series C Preferred Stock shall also be entitled to receive, when, as and if declared by the Board of Directors of the Corporation, out of the assets of the Corporation legally available therefor, dividends and distributions on parity and pro rata with the holders of the Common Stock calculated based on the number of shares as shall be equal to the whole number of shares of Common Stock into which such holder's aggregate number of shares of Series C Preferred Stock, are convertible pursuant to Section (d) hereof immediately after the close of business on the record date fixed for the determination of the holders of the Common Stock entitled to receive such dividend or distribution. (b) Voting Rights. (i) General Rights. Except as otherwise provided herein or as required by law, the Series C Preferred Stock shall be voted equally with the shares of the Common Stock of the Corporation and not as a separate class, at any annual or special meeting of stockholders of the Corporation, upon the following basis: each holder of shares of Series C Preferred Stock shall be entitled to such number of votes as shall be equal to the whole number of shares of Common Stock into which such holder's aggregate number of shares of Series C Preferred Stock, are convertible pursuant to Section (d) hereof immediately after the close of business on the record date fixed for such meeting or the effective date of such written consent. (ii) Separate Vote of Series C Preferred Stock. In addition to any other vote or consent required herein or by law, the vote of the holders of at least a majority of the outstanding Series C Preferred Stock shall be necessary for effecting or validating the following actions: (A) any authorization or issuance of any other capital stock having rights, preferences or privileges senior to or pari passu with the Series C Preferred Stock; 2 (B) any amendment, alteration, waiver or repeal of any provision of the Certificate of Incorporation (including this Certificate of Designation) or the Bylaws of the Corporation (including any filing of a Certificate of Designation), that alters or changes or adversely affects the voting or other powers, preferences, or other special rights or privileges, or restrictions of the Series C Preferred Stock; (C) any increase or decrease the number of authorized or outstanding shares of Series C Preferred Stock; (D) any reclassification or recapitalization of any outstanding shares of securities of the Corporation into shares having rights, preferences or privileges senior to or pari passu with the Series C Preferred Stock, or otherwise effecting any change to the rights, preferences and privileges of the Series C Preferred Stock, or any other class or series of capital stock of the Corporation, which would adversely affect the Series C Preferred Stock; (E) any increase or decrease in the number of directors constituting the entire Board of Directors; (F) any redemption, purchase or other acquisition by the Corporation, either direct or indirect, of any Junior Stock; (G) any transaction with any related party or affiliate, including but not limited to any transaction that would result in the repayment of a stockholder loan; (H) any action that would permit any subsidiary or affiliate of the Corporation to sell or issue shares of capital stock to any party other than the Corporation; (I) any action that would increase the number of shares of capital stock available for issuance by the Corporation (x) to employees, consultants or other third-parties; or (y) in connection with acquisitions; or (J) any action that would result in the Corporation incurring or assuming more than $3,000,000 of indebtedness, either on an individual or cumulative basis. (iii) Board of Directors. Notwithstanding subsections (i) and (ii) above or any provision to the contrary contained herein, the holders of the Series C Preferred Stock shall be entitled, voting together as a separate single class, to elect two (2) members of the Board at each election of directors. The two (2) directors to be designated for election by the holders of Series C Preferred Stock shall be designated by 3 SCP Private Equity Partners II, L.P., a Delaware limited partnership ("SCP"), so long as SCP holds any shares of Series C Preferred Stock. SCP shall notify the Corporation in writing of the identities of its designees for election to the Board, which notice shall be conclusive evidence of the consent of such designees to serve as directors of the Corporation. In the event SCP fails to provide such notice, the SCP designees serving on the Board shall be deemed to be the applicable designees. In the event SCP has no designee serving (or otherwise designated to serve in the event of the resignation, death, removal or inability to serve of a designee, as provided in the last sentence of this subsection) on the Board, the Board shall be entitled to make the nomination for which such notice was required. In the event SCP fails to hold any Series C Preferred Stock, the holders of Series C Preferred Stock, voting together as a separate single class, shall be entitled to the director election rights previously held by SCP. In the event of any vacancy arising by reason of the resignation, death, removal (which may include a removal by the holders of Series C Preferred Stock, with or without cause or at the written request of SCP, as the party designating such director) or inability to serve of the SCP designee, SCP (provided SCP then holds Series C Preferred Stock) shall notify the Corporation of its choice to fill such vacancy, and the Board shall appoint such person to fill such vacancy and serve until the next meeting of the Corporation's stockholders for the election of directors. The class voting rights granted to the holders of Series C Preferred Stock pursuant to this subsection (iii) shall be in addition to, and not in lieu of, the voting rights granted to such holders under subsections (i) and (ii) above. Accordingly, the holders of Series C Preferred Stock shall be entitled to vote together with the holders of shares of the Common Stock as a single class with respect to the election of those directors for which the holders of the Series C Preferred Stock do not have class voting rights. (iv) Board Committees. To the extent permitted by law, each committee of the Board shall include at least one director designated for election as set forth in subsection (iii) above. If any law prohibits or otherwise restricts service by any director designated by SCP on a Board committee, SCP shall be entitled to have a representative of SCP present at all meetings of such committee to the extent permitted by law. (c) Liquidation Rights. (i) Liquidation Preference. Upon any liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of any Junior Stock, the holders of Series C Preferred Stock shall be entitled to be paid out of the assets of the Corporation an amount per share of Series C Preferred Stock equal to the greater of (A) 200% of the Series C Original Issue Price (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) plus an amount equal to all accrued and unpaid dividends for each share of Series C Preferred Stock held by each such holder; or (B) the price per share a holder of Series C Preferred Stock would have 4 been entitled to receive had all shares of outstanding Preferred Stock and Series C Preferred Stock been converted into Common Stock immediately preceding such liquidation, dissolution or winding up of the Corporation. If, upon any such liquidation, dissolution, or winding up, the assets of the Corporation shall be insufficient to make payment in full to all holders of Series C Preferred Stock, then such assets shall be distributed among the holders of Series C Preferred Stock at the time outstanding, ratably in proportion to the full amounts to which they would otherwise be respectively entitled. (ii) Deemed Liquidation. The following events shall be considered a liquidation under this Section, unless by vote or written consent of the holders of at least a majority of the Series C Preferred Stock then outstanding, such holders waive the right to treat any of the following events as a deemed liquidation: (A) any consolidation or merger of the Corporation with or into any other corporation or other entity or person (or any other corporate reorganization), resulting in the stockholders of the Corporation immediately prior to such consolidation, merger or reorganization, owning less than 50% of the Corporation's voting power immediately after such consolidation, merger or reorganization; or any transaction or series of related transactions to which the Corporation is a party in which in excess of 50% of the Corporation's voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Corporation (an "Acquisition"); (B) any transaction or a series of related transactions, other than transactions involving a holder of Series C Preferred Stock, in which a majority of the voting power is transferred to a third party (or group of affiliated third parties) who were not previously stockholders of the Corporation; or (C) any sale, lease or other disposition of all or substantially all of the assets of the Corporation (an "Asset Transfer"). (iii) Non-Cash Consideration. In any of the events set forth in subparagraph (ii), if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value as determined in good faith by the Board of Directors. Any securities shall be valued as follows: (A) Securities not subject to restrictions on free marketability covered by subparagraph (B) below: (1) If traded on a securities exchange or through the Nasdaq National Market (or a similar national quotation system), the value shall be deemed to be the average of the closing prices of the secu- 5 rities on such quotation system over the 30 day period ending three days prior to the closing; (2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the 30 day period ending three days prior to the closing; and (3) If there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors. (B) The method of valuation of securities subject to restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in subparagraphs (iii)(A)(1), (2) or (3) to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors. (iv) Notice. Written notice of any such liquidation, dissolution or winding up (or deemed liquidation, dissolution or winding up) of the Corporation within the meaning of this Section, which states the payment date, the place where said payments shall be made and the date on which conversion rights as set forth herein terminate as to such shares (which shall be not less than 10 days after the date of such notice), shall be given by first class mail, postage prepaid, or by telecopy or facsimile, not less than 20 days prior to the payment date stated therein, to the then holders of record of Series C Preferred Stock, such notice to be addressed to each such holder at its address as shown on the records of the Corporation. (d) Conversion Rights. The holders of the Series C Preferred Stock shall have the following rights with respect to the conversion of the Series C Preferred Stock into shares of Common Stock: (i) Optional Conversion. Subject to and in compliance with the provisions of this Section (d), any shares of Series C Preferred Stock may, at the option of the holder, be converted at any time into fully-paid and nonassessable shares of Common Stock. The number of shares of Common Stock to which a holder of Series C Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the "Series C Preferred Conversion Rate" then in effect (determined as provided in subsection (ii)) by the number of shares of Series C Preferred Stock being converted. (ii) Series C Preferred Conversion Rate. The conversion rate in effect at any time for conversion of the Series C Preferred Stock (the "Series C Preferred 6 Conversion Rate") shall be the quotient obtained by dividing the Series C Original Issue Price by the "Series C Preferred Conversion Price," calculated as provided in subsection (iii) below. (iii) Series C Preferred Conversion Price. The conversion price for the Series C Preferred Stock shall initially be $.096980 (the "Series C Preferred Conversion Price"). Such initial Series C Preferred Conversion Price shall be adjusted from time to time in accordance with this Section (d). All references to the Series C Preferred Conversion Price herein shall mean the Series C Preferred Conversion Price as so adjusted. (iv) Mechanics of Conversion. Each holder of Series C Preferred Stock who desires to convert the same into shares of Common Stock pursuant to this Section (d) shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or any transfer agent for the Series C Preferred, Stock and shall give written notice to the Corporation at such office that such holder elects to convert the same. Such notice shall state the number of shares of Series C Preferred Stock being converted. Thereupon, the Corporation shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled and shall promptly pay in cash (at the Common Stock's fair market value determined by the Board of Directors as of the date of conversion) the value of any fractional share of Common Stock otherwise issuable to any holder of Series C Preferred Stock. Such conversion shall be deemed to have been made at the close of business on the date of such surrender of the certificates representing the shares of Series C Preferred Stock to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date. (v) Adjustment Upon Common Stock Event. Upon the happening of a Common Stock Event (as hereinafter defined) at any time or from time to time after the date that the first share of Series C Preferred Stock is issued (the "Series C Original Issue Date"), the Series C Preferred Conversion Price shall, simultaneously with the happening of such Common Stock Event, be adjusted by multiplying the Series C Preferred Conversion Price in effect immediately prior to such Common Stock Event by a fraction, (i) the numerator of which shall be the number of shares of Common Stock issued and outstanding immediately prior to such Common Stock Event, and (ii) the denominator of which shall be the number of shares of Common Stock issued and outstanding immediately after such Common Stock Event, and the product so obtained shall thereafter be the Series C Preferred Conversion Price. The Series C Preferred Conversion Price shall be readjusted in the same manner upon the happening of each subsequent Common Stock Event. As used in this Section (d), the term "Common Stock Event" shall mean (i) the issue by the Corporation of additional shares of Common Stock as a dividend or other distribution on outstanding Common Stock, (ii) a subdivision of the outstanding shares of Common Stock into a greater number of shares of 7 Common Stock (by stock split, reclassification or otherwise), or (iii) a combination or consolidation, by reclassification or otherwise, of the outstanding shares of Common Stock into a smaller number of shares of Common Stock. (vi) Adjustment for Other Dividends and Distributions. If at any time or from time to time after the Series C Original Issue Date the Corporation pays a dividend or makes another distribution to the holders of the Common Stock (or fixes a record date for the determination of holders of Common Stock entitled to receive such dividend or other distribution) payable in securities of the Corporation or any of its subsidiaries, then in each such event provision shall be made so that the holders of Series C Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable upon conversion thereof, the amount of securities of the Corporation which they would have received had their Series C Preferred Stock been converted into Common Stock on the date of such event (or such record date, as applicable) and had they thereafter, during the period from the date of such event (or such record date, as applicable) to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section (d) with respect to the rights of the holders of the Series C Preferred Stock or with respect to such other securities by their terms. (vii) Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Series C Original Issue Date, the Common Stock issuable upon the conversion of the Series C Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than an Acquisition or Asset Transfer as defined in Section (c) or a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section (d)), in any such event each holder of Series C Preferred Stock shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the maximum number of shares of Common Stock into which such shares of Series C Preferred Stock could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. (viii) Adjustment for Reorganizations, Mergers or Consolidations. If at any time or from time to time after the Series C Original Issue Date, there is a capital reorganization of the Common Stock or the merger or consolidation of the Corporation with or into another corporation or another entity or person (other than an Acquisition or Asset Transfer as defined in Section (c) or a recapitalization, subdivision, combination, reclassification, exchange or substitution of shares provided for elsewhere in this Section (d)), as a part of such capital reorganization, provision shall be made so 8 that the holders of the Series C Preferred Stock shall thereafter be entitled to receive upon conversion of the Series C Preferred Stock the number of shares of stock or other securities or property of the Corporation to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, subject to adjustment in respect of such stock or securities by the terms thereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section (d) with respect to the rights of the holders of Series C Preferred Stock after the capital reorganization to the end that the provisions of this Section (d) (including adjustment of the Series C Preferred Conversion Price then in effect and the number of shares issuable upon conversion of the Series C Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable. (ix) Sale of Shares Below Series C Preferred Conversion Price. (A) If at any time or from time to time after the Series C Original Issue Date, the Corporation issues or sells, or is deemed by the express provisions of this subsection (ix) to have issued or sold Additional Shares of Common Stock (as defined in subsection (ix)(B)(1) below), other than (w) as a dividend or distribution on the Series C Preferred Stock, (x) in connection with a Common Stock Event as provided in subsection (v) above, (y) as a dividend or other distribution on any class of stock as provided in subsection (vi) above, and (z) a subdivision or combination of shares of Common Stock as provided in subsection (vii) above, for an Effective Price (as defined in subsection (ix)(B)(4) below) less than the then effective Series C Preferred Conversion Price, then and in each such case the then existing Series C Preferred Conversion Price shall be reduced, as of the opening of business on the date of such issue or sale, to a price equal to the price paid per share for such Additional Shares of Common Stock. (B) For the purpose of making any adjustment required under this subsection (ix): (1) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to this Section, deemed to be issued) by the Corporation, whether or not subsequently reacquired or retired by the Corporation, other than: (A) upon conversion of shares of Series C Preferred Stock and (B) shares of Common Stock issued or issuable by the Corporation or any subsidiary to employees, officers, directors or consultants pursuant to stock option plans that are approved by the Board ("Incentive Stock"), provided the number of shares of Incentive Stock does not exceed an aggregate of 30,000,000 shares (as adjusted for any stock dividends, combinations, splits or similar events) regardless of whether issued by the Corporation prior to the date hereof. 9 (2) The "Aggregate Consideration Received" by the Corporation for any issue or sale (or deemed issue or sale) of securities shall (i) (A) to the extent it consists of cash, be computed at the gross amount of cash received by the Corporation before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Corporation in connection with such issue or sale and without deduction of any expenses payable by the Corporation; (B) to the extent it consists of property other than cash, be computed at the fair value of that property at the time of such issue as determined in good faith by the Board; and (C) if Additional Shares of Common Stock, Convertible Securities or Rights or Options are issued or sold together with other stock or securities or other assets of the Corporation for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board to be allocable to such Additional Shares of Common Stock, Convertible Securities or Rights or Options or (ii) if no consideration is received by the Corporation, be considered zero; (3) "Convertible Securities" shall mean any evidence of indebtedness, stock or other securities directly or indirectly convertible into or exchangeable for shares of Common Stock; (4) The "Effective Price" of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold by the Corporation by the provisions of clause (1), into the Aggregate Consideration Received, or deemed to have been received by the Corporation by the provisions of this clause (4), for such issue or sale of such Additional Shares of Common Stock; and (5) "Rights or Options" shall mean warrants, options or other rights to purchase or otherwise acquire shares of Common Stock or Convertible Securities. (C) For the purpose of making any adjustment to the Series C Preferred Conversion Price required under this subsection (ix), if the Corporation issues or sells any Rights or Options or Convertible Securities (or shall fix a record date for the determination of holders of any class of securities then entitled to receive any such Rights or Options or Convertible Securities), then the Corporation shall be deemed (x) to have issued, at the time of the issuance of such Rights or Options or Convertible Securities, that number of Additional Shares of Common Stock that is equal to the maximum number of shares of Common Stock issuable upon exercise of such Rights or Options or conversion or exchange of such Convertible Securities upon their issuance (or, in the case 10 such a record date shall have been fixed, as of the close of business on such record date) and (y) to have received, as the Aggregate Consideration Received for the deemed issuance of such additional shares of Common Stock, an amount equal to the total amount of the consideration, if any, received by the Corporation for the issuance of such Rights or Options or Convertible Securities, plus, in the case of such Rights or Options, the minimum total amount of consideration, if any, payable to the Corporation upon the exercise in full of such Rights or Options (including, with respect to Rights or Options for Convertible Securities, the minimum aggregate amount of consideration payable to the Corporation (other than by cancellation of liabilities or obligations evidenced by such Rights or Options) upon the conversion or exchange of such underlying Convertible Securities), plus, in the case of Convertible Securities, the minimum total amount of consideration, if any, payable to the Corporation (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion or exchange thereof; provided that: (1) if the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, then the Corporation shall be deemed to have received the minimum amounts of consideration without reference to such clauses; (2) if the minimum amount of consideration payable to the Corporation upon the exercise of such Rights or Options or the conversion or exchange of such Convertible Securities is reduced or the maximum number of shares of Common Stock issuable upon the exercise of such Rights or Options or the conversion or exchange of such Convertible Securities is increased over time or upon the occurrence or non-occurrence of specified events, other than by reason of antidilution or similar protective adjustments, then the Series C Preferred Conversion Price computed upon the original issue or deemed issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such decrease or increase becoming effective, be recomputed to reflect such decrease or increase, as the case may be (provided, however, that no such adjustment of the Series C Preferred Conversion Price shall affect Common Stock previously issued upon conversion of the Series C Preferred Stock); and (3) if the minimum amount of consideration payable to the Corporation upon the exercise of such Rights or Options or the conversion or exchange of such Convertible Securities is subsequently increased or the maximum number of shares of Common Stock issuable upon the exercise of such Rights or Options or the conversion or exchange of such Convertible Securities is subsequently decreased, then the Series C Preferred Conversion Price computed upon the original issue or deemed is- 11 sue 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, as the case may be, (provided, however, that no such adjustment of the Series C Preferred Conversion Price shall affect Common Stock previously issued upon conversion of the Series C Preferred Stock, and further provided that no readjustment pursuant to this clause (3) shall have the effect of increasing the Series C Preferred Conversion Price to an amount which exceeds the lower of (A) the Series C Preferred Conversion Price on the original adjustment date, or (B) the Series C Preferred Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date). No further adjustment of the Series C Preferred Conversion Price, adjusted upon the issuance of such Rights or Options or Convertible Securities, shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such Rights or Options or the conversion or exchange of any such Convertible Securities. If any such Rights or Options or the conversion rights represented by any such Convertible Securities shall expire without having been fully exercised, then the Series C Preferred Conversion Price as adjusted upon the issuance of such Rights or Options or Convertible Securities (or upon the occurrence of the record date with respect thereto), and any subsequent adjustments based thereon, shall be readjusted to the Series C Preferred Conversion Price which would have been in effect had an adjustment been made on the basis that (x) the only Additional Shares of Common Stock so issued were the shares of Common Stock, if any, that were actually issued or sold on the exercise of such Rights or Options or rights of conversion or exchange of such Convertible Securities and (y) the consideration received with respect to Additional Shares of Common Stock was the consideration actually received by the Corporation upon such exercise of such Rights or Options, plus the consideration, if any, actually received by the Corporation for the granting of all such Rights or Options, whether or not exercised, plus the consideration received for issuing or selling all such Convertible Securities actually converted or exchanged, plus the consideration, if any, actually received by the Corporation (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion or exchange of such Convertible Securities provided, however, that no such adjustment of the Series C Preferred Conversion Price shall affect Common Stock previously issued upon conversion of the Series C Preferred Stock. In the case of any Rights or Options which expire by their terms not more than 30 days after the date of issue thereof, no adjustment of the Series C Preferred Conversion Price shall be made (except as to shares of Series C Preferred Stock converted in such period) until the expiration or exercise of all such Rights or Options, whereupon such adjustment shall be made in the same man 12 ner provided above. If any such record date shall have been fixed and such Rights or Options or Convertible Securities are not issued on the date fixed thereof, the adjustment previously made in the Series C Preferred Conversion Price which became effective on such record date shall be canceled as of the close of business on such record date, and shall instead be made on the actual date of issuance, if any. (x) Preferred Stock Warrants. Notwithstanding anything contained herein, in the event that any warrants for the Corporation's Series A Convertible Preferred Stock, par value $0.01 per share outstanding as of the date of the first issuance of Series C Preferred Stock are exercised (a "Warrant Exercise"), the Corporation shall immediately issue to each holder of Series C Preferred Stock such additional shares of Series C Preferred Stock so that such holder's percentage ownership of the Corporation's Common Stock on a fully-diluted basis after such Warrant Exercise is equal to its percentage ownership of the Corporation's Common Stock on a fully-diluted basis immediately prior to such Warrant Exercise. The holders of Series C Preferred Stock shall be entitled to receive additional shares of Series C Preferred Stock pursuant to this subsection (x) upon each Warrant Exercise. (xi) Certificate of Adjustment. In each case of an adjustment or readjustment of the Series C Preferred Conversion Price for the number of shares of Common Stock or other securities issuable upon conversion of the Series C Preferred Stock, if the Series C Preferred Stock is then convertible pursuant to this Section (d), the Corporation, at its expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of Series C Preferred Stock at the holder's address as shown in the Corporation's books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or deemed to be received by the Corporation for any Additional Shares of Common Stock issued or sold or deemed to have been issued or sold, (ii) the Series C Preferred Conversion Price at the time in effect, (iii) the number of Additional Shares of Common Stock and (iv) the type and amount, if any, of other property which at the time would be received upon conversion of the Series C Preferred Stock. (xii) Notices of Record Date. Upon (i) any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or (ii) any Acquisition (as defined in Section (c)) or other capital reorganization of the Corporation, any reclassification or recapitalization of the capital stock of the Corporation, any merger or consolidation of the Corporation with or into any other corporation, or any Asset Transfer (as defined in Section (c)), or any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, the Corporation shall mail to each holder of Series C Preferred Stock at least 10 days prior to the record date specified therein 13 (or such shorter period approved by a majority of the outstanding Series C Preferred Stock) a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such Acquisition, reorganization, reclassification, transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or winding up is expected to become effective, and (C) the date, if any, that is to be fixed as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such Acquisition, reorganization, reclassification, transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or winding up. (xiii) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Series C Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series C Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of any fractional share, the Corporation shall, in lieu of issuing any fractional share, pay cash equal to the product of such fraction multiplied by the Common Stock's fair market value (as determined by the Board of Directors) on the date of conversion. (xiv) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series C Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series C Preferred Stock. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series C Preferred Stock, the Corporation will take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (xv) Notices. Any notice required by the provisions of this Section (d) shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) 1 day after deposit with a nationally recognized overnight courier, specifying next day delivery, with verification of receipt. All notices shall be addressed to each holder of record at the address of such holder appearing on the books of the Corporation. (xvi) Payment of Taxes. The Corporation will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with 14 respect to the issue or delivery of shares of Common Stock upon conversion of shares of Series C Preferred Stock, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the shares of Series C Preferred Stock so converted were registered. (xvii) No Impairment. The Corporation shall not avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but shall at all times in good faith assist in carrying out all such actions as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of the Series C Preferred Stock against impairment. (e) Mandatory Redemption. (i) Request by Holders of Series C Preferred Stock. Upon the prior written request of holders of a majority in interest of the Series C Preferred Stock, on September 1, 2009 (the "Series C Redemption Date"), the Corporation shall redeem for cash, out of legally available funds, all of the issued and outstanding shares of the Series C Preferred Stock. (ii) Redemption Price of Series C Preferred Stock. The price at which the Series C Preferred Stock shall be redeemed (the "Series C Redemption Price") shall be equal to the Series C Original Issue Price (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) for each share of Series C Preferred Stock plus an amount equal to all unpaid dividends which shall have accrued for each share of Series C Preferred Stock so redeemed. (iii) Payment of Redemption Price. To receive the Series C Redemption Price, the holder of shares of Series C Preferred Stock must present and surrender the certificate or certificates representing such shares (duly endorsed for transfer) to the Corporation at the principal executive offices of the Corporation no later than three business days prior to the Series C Redemption Date. The Corporation shall pay the Series C Redemption Price to, or to the order of, the person whose name appears on such certificate or certificates as the owner thereof. The Corporation shall pay the entire Series C Redemption Price on the Series C Redemption Date. (iv) Effect of Redemption. From and after the Series C Redemption Date, unless the Corporation shall default in providing for the payment of the Series C Redemption Price, all dividends on such shares as are accepted for redemption pursuant to this Section (e) shall cease to accrue, and all rights of the holders of any such shares subject to redemption as stockholders of the Corporation with respect to such shares, except the right to receive the Series C Redemption Price, shall cease and terminate. 15 Any shares of Series C Preferred Stock that are redeemed by the Corporation shall be retired and shall not be reissued. (f) Waiver. Any rights of the holders of Series C Preferred Stock set forth herein may be waived by the affirmative vote or consent of the holders of a majority of the shares of Series C Preferred Stock then outstanding. IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Corporation by its President, Chief Executive Officer, Chief Financial Officer and Secretary on August 28, 2003. By: /s/ Henry F. Nelson ------------------------------------------------ Name: Henry F. Nelson Title: President, Chief Executive Officer, Chief Financial Officer and Secretary 16 EX-4 6 dex4.txt PROPOSED SERIES C PREFERRED STOCK TERM SHEET 08/22/03 EXHIBIT 4 INSCI Corp. PROPOSED SERIES C PREFERRED STOCK TERM SHEET August 22, 2003 This non-binding summary of principal terms and conditions summarizes the principal terms of a proposed private placement of equity securities of INSCI Corp. Investor's obligations hereunder shall be subject to execution of a definitive purchase agreement and related documents and satisfactory completion of due diligence. SUMMARY OF TERMS Issuer: INSCI Corp. (the "Company") Amount of Total Financing: Up to $3,000,000 of new Series C Preferred Stock ("Series C Preferred"). Form of Financing: Financing will be in the form of an equity line of credit payable by the following schedule: Closing Date $1,000,000 Thirty Days after Closing Date $ 500,000 Sixty Days after Closing Date $ 500,000 Ninety Days after Closing Date $ 500,000 One Hundred Twenty Days after Closing Date $ 500,000 The Company may accelerate payments without penalty upon majority vote by the Board of Directors. All payments under the equity line are contingent upon the completion of the recapitalization of the Series B Preferred (as hereinafter defined) as described in "Recapitalization" below. Investor: SCP Private Equity Partners II, L.P. ("SCP" or the "Investor") will commit up to $3,000,000 of new investment into Series C Preferred. Securities Issued: Up to 1,546,711 shares of Series C Preferred convertible into 30,934,213 shares of Common Stock. Price: $1.9396 per share (the "Series C Purchase Price") representing a pre-money valuation for the Company of $16,000,000. Capitalization As set forth in Schedule A attached hereto, upon conversion the Series C Preferred will represent 15.8% of the Company determined on a fully diluted basis. Schedule A depicts the Company's pre-money and post-money capitalization as adjusted for the anti-dilution protection of the existing preferred stock as specified in the Company's Certificate of Incorporation. The attached Schedule A anticipates that the holders of rights to Series A Preferred Stock waive all anti-dilution provisions with respect to the issuance of Common Stock for the anticipated acquisition of assets of WebWare Corp. Closing Date: Anticipated closing not later than August 26, 2003. Parties to use their best efforts to close as soon as possible. Use of Proceeds: To fund a) continued product development efforts and b) working capital requirements and general corporate purposes. TERMS OF SERIES C PREFERRED Rights, Preferences, Privileges, and Restrictions of Preferred: Dividends: Cumulative preferred dividends will accrue at an annual rate of 8% payable in either cash or additional shares of Series C Preferred. The Series C Preferred will also share pari passu on an as converted basis in any dividends declared on the Common Stock. Preferred dividends will be payable semi-annually. Liquidation Preference: In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company (a "Liquidation Event"), the holders of the Series C Preferred, shall be entitled to receive, in preference to the holders of the Common Stock and the existing preferred stock, a per share amount equal to the greater of: (i) two times (2x) the Series C Purchase Price plus accrued but unpaid dividends, or (ii) the price per share they would have received had all shares of existing preferred stock and Series C Preferred been converted into Common Stock immediately preceding the Liquidation Event. Upon the vote of a majority of the holders of Series C Preferred, a consolidation or merger of the Company or sale of all or substantially all of its assets shall be treated as a Liquidation Event with respect to the Series C Preferred. Conversion: The holders of the Series C Preferred shall have the right to convert, including in connection with a Liquidation Event, their Series C Preferred, at any time, into shares of Common Stock. The conversion price of the Series C Preferred shall initially be $0.096980 per share (the "Conversion Price"). The 2 initial conversion ratio shall be the quotient obtained by dividing the Series C Purchase Price by the Conversion Price (the "Conversion Ratio"). The Conversion Ratio is subject to anti-dilution adjustment as provided herein (see Anti-dilution Provisions below). Anti-dilution Provisions: Proportional anti-dilution protection for stock splits, stock dividends, combinations, recapitalizations, etc. In the event that the Company issues additional shares of Common Stock or securities convertible into Common Stock ("Common Stock Equivalents") at a purchase price less than the applicable Conversion Price then in effect, the Conversion Price shall be adjusted on a "full-ratchet basis" to the lowest price per share at which such Common Stock Equivalents were deemed to be issued, other than Common Stock issued to the Company's employees, officers, directors or consultants pursuant to stock options (subject to a [15.0%] cap). In the case that any of the current Preferred Stock Warrants are exercised for the purchase of Series A Preferred Stock, the Series C Preferred holders will receive additional shares of Series C Preferred such that their ownership of the Company on an as converted basis after such exercise is equal to its ownership of the Company on an as converted basis. prior to such exercise. Redemption: With the approval of the holders of a majority interest of the Series C Preferred, voting together as a single class, on September 1, 2009, the Company shall have the obligation to redeem for cash, out of legally available funds, all of the issued and outstanding shares of Series C Preferred at a price per share equal to the Series C Purchase Price plus accrued but unpaid dividends. Voting Rights: The Series C Preferred will vote on an as-if-converted basis and not as a separate class, except as specifically provided herein under "Board of Directors", "Protective Provisions", "Liquidation Preference" or as otherwise required by law. Each share of the Series C Preferred shall have a number of votes equal to the number of shares of Common Stock then issuable upon conversion of such shares. Registration Rights: Investor shall have the right to demand two registrations of the Series C Preferred at the Company's expense on Form S-1 or other appropriate form. In addition, the Company, at its own expense, will provide to Investor unlimited registrations on Form S-3, provided the anticipated aggregate offering price to the public for such registration would be at least $250,000. Investor shall also be granted unlimited piggyback registration rights at the Company's expense. Investor's registration rights hereunder shall be senior to the rights of all 3 other stockholders in connection with any underwriter cutback. Representations and Warranties: Standard representations and warranties for transactions of this type. Board of Directors: The Board of Directors of the Company (the "Board") will consist in aggregate of no more than ten (10) Directors initially designated as follows: 1.) Two (2) Directors to be elected by the Series C Preferred; 2.) Two (2) Directors to be elected by the Series B Preferred; 3.) Two (2) independent Directors; 4.) One (1) Director who shall be the CEO. Existing observer rights (if any) will be eliminated. All committees of the Board will consist of a majority of non-employee directors. Each committee of the Board must also include at least one director selected by the Investor. If any applicable securities law or regulation, or any other law or regulation prohibits the Investor from having a representative on any such committee, the Investor shall have observer rights with respect to all meetings of such committee to the extent permitted by law. Protective Provisions: For so long as any shares of Series C Preferred remain outstanding, consent of a majority of the Series C Preferred voting together as a single class shall be required for any action that: i) Alters or changes the rights, preferences, or privileges of the Series C Preferred; ii) Amends or waives any provision of the Company's Certificate of Incorporation or Bylaws that adversely affects the rights of the Series C Preferred; iii) Creates (by reclassification or otherwise) any new class or series of shares having rights, preferences, or privileges senior to on or a parity with the Series C Preferred; iv) Results in the repayment of shareholder loans or any related party or affiliate transaction; v) Permits any subsidiary or affiliate of the Company to sell or issue any shares to any party other than the Company; vi) Changes the Board size; vii) Increases the size of the pool of shares available for options to employees, acquisitions, consultants or others; and 4 viii) Results in the Company incurring or assuming more than $3,000,000 of indebtedness, either on an individual or cumulative basis. Information Rights: So long as an Investor continues to own 10% or more of the Series C Preferred purchased by such Investor, or Common Stock issued upon conversion thereof, the Company shall provide Investor: 1.) Audited annual financial statements; 2.) Quarterly financial and operating statements; 3.) Annual operating plan; 4.) Standard inspection and visitation rights; 5.) Monthly reports of operations. Increase of Authorized Shares: The Corporation shall from time to time in accordance with the laws of the State of Delaware increase the authorized amount of its Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance is not sufficient to permit conversion of the Series C Preferred. Stock Purchase Agreement: The investment shall be made pursuant to a Stock Purchase Agreement reasonably acceptable to the Company and the Investor, which agreement shall contain, among other things, appropriate representations and warranties of the Company with respect to patents and litigation, covenants of the Company reflecting the provisions set forth herein, and appropriate conditions to the closing, including an opinion of counsel for the Company and the filing of a Certificate of Designation for the Series C Preferred. The Stock Purchase Agreement shall provide that it may only be amended and any waivers thereunder shall only be made with the approval of the holders of the majority of the Series C Preferred. RECAPITALIZATION Adjustments to the Series B Preferred Stock Immediately following the Financing, the Company will make appropriate amendments to its charter to enact the following: i. A stock split of the Series B Preferred of [35] : 1. The post-stock split purchase price for each share of Series B Preferred shall be $1.9396. ii. Cumulative preferred dividends will accrue at an annual rate of 13% payable in either cash or shares of Series C Preferred at the option of the holder of the Series B Preferred. iii. The Series B Preferred will also share pari passu on an as converted basis in any dividends declared on the Common Stock. 5 iv. Preferred dividends will be payable monthly. Conversion: The conversion price of the Series B Preferred shall initially be $0.096980 per share (the "Series B Conversion Price"). The initial conversion ratio shall be the quotient obtained by dividing the Series B Purchase Price by the Series B Conversion Price (the "Series B Conversion Ratio"). The Series B Conversion Ratio is subject to full-ratchet anti-dilution protection. Anti-dilution Provisions: Proportional anti-dilution protection for stock splits, stock dividends, combinations, recapitalizations, etc. In the event that the Company issues Common Stock Equivalents at a purchase price less than the applicable Series B Conversion Price then in effect, the Series B Conversion Price shall be adjusted on a "full-ratchet basis" to the lowest price per share at which such Common Stock Equivalents were deemed to be issued, other than Common Stock issued to the Company's employees, officers, directors or consultants pursuant to stock options (subject to a [15.0%] cap). OTHER MATTERS Other Conditions: The Company shall take any and all necessary actions with respect to amending its Certificate of Incorporation to permit the issuance of the Series C Preferred with its attendant rights, preferences, privileges and restrictions. Co-Sale Agreement: Will be provided with customary provisions acceptable to Investor and the Company. Conditions Precedent: The following conditions to the Series C Preferred closing must be satisfied prior to the closing date: i) Completion of all due diligence to the satisfaction of the Investor; ii) Completion of mutually satisfactory legal documentation; iii) No material adverse change in the Company's business prospects shall have occurred prior to the Closing Date; iv) Satisfaction of other customary closing conditions as set forth in the Stock Purchase Agreement. The proposed Financing is subject to approval by the SCP Investment Committee. SCP shall be under no obligation to continue with its due diligence investigation or to extend the financing contemplated herein if, at any time, the results of its due diligence investigation are not satisfactory to SCP for any reason at its sole discretion. 6 Legal and Due Diligence Expenses: The Company agrees to pay reasonable fees and expenses of the legal counsel for the Investor, not to exceed $20,000, together with the Investor's other reasonable due diligence and out of pocket expenses. Exclusivity: For a period of 30 days from the date of acceptance of this letter, the Company and each principal shareholder of the Company (i) shall deal exclusively with the Investor in connection with the issue or sale of any equity or debt securities or assets of the Company or any merger or consolidation involving the Company, (ii) shall not solicit, or engage others to solicit (unless as part of this financing to parties acceptable to the Investor and under terms acceptable to the Investor) offers for the purchase or acquisition of any equity or debt securities or assets of the Company or for any merger or consolidation involving the Company, (iii) shall not negotiate with or enter into any agreements or understandings with respect to any such transaction without the approval of the Investor and (iv) shall inform the Investor of any such solicitation or offer. Other Terms: Other terms and conditions as the parties shall mutually agree. Expiration: This term sheet shall expire unless executed by the Company prior to 10:00pm EST on Friday, August 22, 2003. SCP Private Equity Partners II, L.P. INSCI Corp. By: Robert G. Yablunsky By: ------------------------------- Its: Venture Partner Its: ------------------------------- Date: August 22, 2003 Date: ------------------------------- 7 EX-5 7 dex5.txt AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT DATED 09/04/03 EXHIBIT 5 AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated as of September 4, 2003 (this "Agreement"), by and among INSCI Corp., a Delaware corporation (the "Company"), SCP Private Equity Partners II, L.P., a Delaware limited partnership ("SCP"), Selway Partners, LLC, a New Jersey limited liability company ("Selway") and Selway Management, Inc., a Delaware corporation ("Selway Management" and together with Selway, the "Original Investors") and CIP Capital L.P., a Delaware limited partnership ("CIP"). Selway, Selway Management, SCP and CIP are each an "Investor" and together are the "Investors". RECITALS WHEREAS, SCP and the Company are parties to that certain Series C Preferred Stock Purchase Agreement, dated as of even date herewith (the "Purchase Agreement"), by and between the Company and SCP; WHEREAS, the Original Investors are parties to that certain Registration Rights Agreement dated June 21, 2003 by and among the Original Investors and the Company (the "Original Agreement"); and WHEREAS, it is a condition precedent to the closing of the transactions contemplated by the Purchase Agreement that the Original Agreement be amended, restated and superceded as set forth herein; and WHEREAS, the Company and the Investors hereby agree that this Agreement shall amend, restate and supercede the Original Agreement and shall govern the rights of the Investors to cause the Company to register shares of Common Stock (as hereinafter defined) and certain other matters as set forth herein. NOW THEREFORE, in consideration of the foregoing and the covenants and agreements contained herein the parties hereto, intending to be legally bound hereby, agree as follows: 1. Definitions. As used herein, unless the context otherwise requires or unless otherwise defined, the following terms have the respective meanings set forth below: "Blue Sky Filing" has the meaning set forth in Section 2.10. "Commission" means the Securities and Exchange Commission or an agency at the time administering the Securities Act. "Common Stock" means the common stock of the Company with a par value $0.01 per share and shall include any stock into which such common stock shall have been changed or any stock resulting from any reclassification of such common stock, and all other stock of any class or classes (however designated) of the Company the holders of which have the right (without limitation as to amount), to all or a portion of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means United States generally accepted accounting principles. "Holder" or Holders" means any person or persons to whom Registrable Securities were originally issued or Qualifying Transferees. "Person" means a corporation, an association, a partnership, a limited liability company, an organization, a business, an individual, a government or political subdivision thereof or a governmental agency. "Qualifying Transferees" means assignees of any of the Investors in accordance with Section 7. "Registrable Securities" means the Series A Registrable Securities, the Series B Registrable Securities and the Series C Registrable Securities. "Registration Expenses" means all expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, all registration, filing and listing fees, all fees and expenses of complying with securities or blue sky laws, all fees and expenses of listing the Registrable Securities being registered on any securities exchange, all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "comfort" letters required by or incidental to such performance and compliance, the reasonable fees and disbursements of any one counsel retained by the Investors and any fees and disbursements of underwriters customarily paid by issuers or sellers of securities, but excluding underwriting discounts and commissions and transfer taxes, if any, attributable to securities sold by the Investors, provided that, in any case where Registration Expenses are not to be borne by the Company, such expenses shall not include salaries of Company personnel or general overhead expenses of the Company, auditing fees, premiums or other expenses relating to liability insurance required by underwriters of the Company or other expenses for the preparation of -2- financial statements or other data normally prepared by the Company in the ordinary course of its business or which the Company would have incurred in any event. "Securities Act" means the Securities Act of 1933, as amended. "Series A Preferred Stock" means the Company's Series A Convertible Preferred Stock with a par value $0.01 per share. "Series A Registrable Securities" means any shares of Common Stock issuable upon conversion of the Series A Preferred Stock, including shares of Common Stock issued or issuable with respect to any such Common Stock by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Series A Registrable Securities, such securities shall cease to be Series A Registrable Securities when (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) such securities may be sold pursuant to Rule 144(k) (or any successor provision) under the Securities Act, (c) such securities shall have been otherwise transferred, new certificates therefor not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of such securities shall not require registration or qualification of such securities under the Securities Act or any similar state law then in force, or (d) such securities shall have ceased to be outstanding. "Series B Preferred Stock" means the Company's Series B Convertible Preferred Stock with a par value $0.01 per share. "Series B Registrable Securities" means any shares of Common Stock issuable upon conversion of the Series B Preferred Stock, including shares of Common Stock issued or issuable with respect to any such Common Stock by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Series B Registrable Securities, such securities shall cease to be Series B Registrable Securities when (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) such securities may be sold pursuant to Rule 144(k) (or any successor provision) under the Securities Act, (c) such securities shall have been otherwise transferred, new certificates therefor not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of such securities shall not require registration or qualification of such securities under the Securities Act or any similar state law then in force, or (d) such securities shall have ceased to be outstanding. "Series C Preferred Stock" means the Company's Series C Convertible Preferred Stock with a par value $0.01 per share. -3- "Series C Registrable Securities" means any shares of Common Stock issuable upon conversion of the Series C Preferred Stock, including shares of Common Stock issued or issuable with respect to any such Common Stock by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Series C Registrable Securities, such securities shall cease to be Series C Registrable Securities when (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) such securities may be sold pursuant to Rule 144(k) (or any successor provision) under the Securities Act, (c) such securities shall have been otherwise transferred, new certificates therefor not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of such securities shall not require registration or qualification of such securities under the Securities Act or any similar state law then in force, or (d) such securities shall have ceased to be outstanding. 2. Registration under Securities Act. 2.1 Registrations for Holders . (a) Initial Registration. The Company shall (i) promptly effect the registration under the Securities Act of the Registrable Securities; (ii) give notice thereof to all other security holders of the Company, if any, that are entitled to participate in such registration; (iii) file the registration statement (the "Required Statement") required pursuant to this subsection (a) not later than October 1, 2003 (the "Required Filing Date"); (iv) subject to Section 2.4, use its reasonable best efforts to have such Required Statement declared effective as soon as possible after the filing thereof and (v) use its best efforts to keep such Required Statement effective for a period of at least three (3) years (the "Required Effective Period") from the date of filing thereof. (b) Demand Registration of Series B Registrable Securities. At any time after the Required Filing Date and upon the written request of the Original Investors and/or their Qualifying Transferees ("Series B Initiating Holders") holding not less than twenty-five percent (25%) of the outstanding Series B Registrable Securities (or securities that are convertible into or exercisable for Series B Registrable Securities), that the Company effect the registration under the Securities Act of all or part of the Series B Registrable Securities and the Series A Registrable Securities, the Company shall use its reasonable best efforts to effect the registration under the Securities Act of the Series B Registrable Securities and the Series A Registrable Securities that the Company has been so requested to register by the Series B Initiating Holders for disposition in accordance with the intended method of disposition stated in such request. Any such demand must request the registration of Series B Registrable Securities and Series A Registrable Securities having an estimated market value of at least $250,000. Promptly after receipt of such request, the Company shall give notice -4- thereof to all other security holders of the Company, if any, that are entitled to participate in such registration. The Company shall file the registration statement requested pursuant to this subsection (b) not later than sixty (60) days following such request, and subject to Section 2.4, shall use its reasonable best efforts to have such registration statement declared effective as soon as possible after the filing thereof. (c) Demand Registration of Series C Registrable Securities. At any time after the Required Filing Date and upon the written request of SCP and/or its Qualifying Transferees ("Series C Initiating Holders") holding not less than twenty-five percent (25%) of the outstanding Series C Registrable Securities (or securities that are convertible into or exercisable for Series C Registrable Securities), that the Company effect the registration under the Securities Act of all or part of the Series C Registrable Securities, the Company shall use its reasonable best efforts to effect the registration under the Securities Act of the Series C Registrable Securities that the Company has been so requested to register by the Series C Initiating Holders for disposition in accordance with the intended method of disposition stated in such request. Any such demand must request the registration of Series C Registrable Securities having an estimated market value of at least $250,000. Promptly after receipt of such request, the Company shall give notice thereof to all other security holders of the Company, if any, that are entitled to participate in such registration. The Company shall file the registration statement requested pursuant to this subsection (c) not later than sixty (60) days following such request, and subject to Section 2.4, shall use its reasonable best efforts to have such registration statement declared effective as soon as possible after the filing thereof. (d) Registration of Other Securities. Whenever the Company shall effect a registration pursuant to this Section 2.1 in connection with an underwritten offering by one or more Holders of the Registrable Securities, no securities other than Registrable Securities shall be included among the securities covered by such registration unless (i) the managing underwriter of such offering shall have advised the Series B Initiating Holders or Series C Initiating Holders, as applicable (the "Initiating Holders"), in writing that the inclusion of such other securities would not adversely affect such offering or (ii) the Initiating Holders participating in such offering shall have consented in writing to the inclusion of such other securities. (e) Registration Statement Form. Registrations under this Section 2.1 shall be on such appropriate registration form of the Commission (i) as shall be selected by the Company and as shall be reasonably acceptable to the Investors or the Initiating Holders, as is appropriate, and (ii) as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition. (f) Expenses. The Company shall pay all Registration Expenses in connection with any registration pursuant to this Section 2.1. -5- (g) Effective Registration Statement. A registration requested pursuant to this Section 2.1 shall not be deemed to have been effected and shall not be considered a Required Statement or a demand registration which may be requested pursuant to Section 2.1(b) and/or Section 2.1(c) (i) unless (A) a registration statement with respect thereto has become effective, (B) such registration statement has remained effective for the Required Effective Period in the case of the Required Statement or for so long as provided in Section 2.4 for demand registrations under Sections 2.1(b) and 2.1(c), and (C) such registration statement has not become subject to any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason, unless such registration statement has become effective within thirty (30) days thereafter, or (ii) if the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied or waived (other than in the case of a demand registration, by reason of the failure or refusal of the Initiating Holders of the Registrable Securities that are the subject of such demand registration, to satisfy or perform a condition to such closing). (h) Two Demand Registrations. Collectively, the Original Investors shall be entitled to demand one (1) registration pursuant to Section 2.1(b). SCP shall be entitled to demand one (1) registration pursuant to Section 2.1(c). 2.2 Incidental Registration. (a) Right to Include Registrable Securities. If the Company at any time proposes to register any of its securities under the Securities Act by registration on Forms S-1, S-2 or S-3 or any successor or similar form(s) of general application, whether or not for sale for its own account, it shall give prompt written notice to all Holders of Registrable Securities of its intention to do so and of such Holders' rights under this Section 2.2. Upon the written request of any such Holders specifying the Registrable Securities intended to be disposed of by such Holder, made within twenty (20) days after the receipt of any such notice (ten (10) days if the Company gives telephonic notice to all Holders of Registrable Securities, with written confirmation to follow promptly thereafter, stating that (i) such registration will be on Form S-3 and (ii) such shorter period of time is required because of a planned filing date), which request shall specify the Registrable Securities intended to be disposed of by such Holder, the Company shall use its reasonable best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holders thereof, to the extent requisite to permit the disposition (in accordance with the Company's intended method) of such Registrable Securities to be so registered. If the Company thereafter determines for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Holder of Registrable Securities and thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register such Registrable Securities in connection with such registration (but not from -6- its obligation to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights (if any) of the Investors or any Holder or Holders of Registrable Securities entitled to do so to request that such registration be effected as a registration under Section 2.1, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities for the same period as the delay in registering such other securities. No registration effected under this Section 2.2 shall relieve the Company of its obligation to effect any registration under Section 2.1, nor shall it be deemed to have been effected pursuant to Section 2.1. The Company shall pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2.2. (b) Priority in Incidental Registrations. In a registration pursuant to this Section 2.2 involving an underwritten offering, whether or not for sale for the account of the Company, if the managing underwriter of such underwritten offering shall inform the Company by letter of its belief that the number of securities requested by stockholders to be included in such registration would substantially interfere with its ability to effect such offering in accordance with the intended method thereof (such letter to state the basis of such belief and the approximate number of such securities that may be distributed without such effect), then the number of securities requested to be registered by the Holders of the Registrable Securities shall be allocated: (i) first, to any shares of Common Stock the Company wishes to include in any such registration; (ii) second, to the Registrable Securities held by Holders who have notified the Company of their intention to include Registrable Securities in such Registration, pro rata, based upon the number of Registrable Securities owned by each of such Holders at the time of Registration; and (iii) third, the Registrable Securities held by persons other than the Holders, pro rata, based upon the number of Registrable Securities owned by such others at the time of such registration. The Company shall so advise all Holders of Registrable Securities which would otherwise be registered and underwritten pursuant hereto, and of the number of shares of Registrable Securities that may be included in the registration and underwriting. If any Holder disapproves of the terms of the any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. 2.3 Form S-3 Registration. At any time upon the written request of the Original Investors or SCP that the Company effect the registration under the Securities Act on Form S-3, or any successor form of all or part of the Registrable Securities, the Company shall promptly give written notice of such request to all registered Holders of Registrable Securities, and thereupon the Company shall use its reasonable best efforts to effect the registration under the Securities Act of the Registrable Securities that the Company has been so requested to register by the Holders for disposition in accordance with the intended method of disposition stated in such request. Promptly after receipt of such request, the Company shall give notice thereof to all other security holders of the Company, if any, that are entitled to participate in -7- such registration. The Company shall file the registration statement requested pursuant to this section 2.3 not later than thirty (30) days following such request, subject to Section 2.8, and shall use its reasonable best efforts to have such registration statement declared effective as soon as possible after the filing thereof; provided, however, that (i) the Company shall not be obligated to effect any registration pursuant to this Section 2.3 if Form S-3, or any successor form, is not available for such registration, (ii) the market value of the Registrable Securities to be sold in any such registration shall be estimated to be at least $250,000 at the time of the request for registration and (iii) the Company shall not be required to effect more than two (2) such registrations pursuant to this Section 2.3 in any twelve (12) month period. Registrations effected pursuant to this Section 2.3 shall not be counted as demands for registration effected pursuant to Section 2.1. The Company shall pay all Registration Expenses in connection with any registration requested pursuant to this Section 2.3. 2.4 Registration Procedures. In connection with the Company's obligations pursuant to Sections 2.1, 2.2 and 2.3, the Company will use its best efforts to effect such registrations to permit the sale of Registrable Securities (and, in the case of Sections 2.1 and 2.3, in accordance with the intended method or methods of disposition thereof), and pursuant thereto the Company will as expeditiously as possible: (a) prepare and file with the Commission a registration statement or registration statements on any appropriate form under the Securities Act and use its best efforts to cause such registration statement to become effective, keep such registration statement effective for up to one hundred eighty (180) days (except in the case of a Required Statement which shall remain effective for the Required Effective Period), or until the distribution contemplated in the registration statement has been completed; provided, however, that (i) such Required Effective Period or one hundred eighty (180) day period shall be extended for a period of time equal to the period the Holders of Registrable Securities refrain from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Securities on Form S-3 that are intended to be offered on a continuous or delayed basis, such Required Effective Period or one hundred eighty (180) day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold; provided that Rule 415 or any successor rule under the Securities Act permits an offering on a continuous or delayed basis, and provided further that applicable rules under the Securities Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment that (A) includes any prospectus required by Section 10(a)(3) of the Securities Act or (B) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference in the registration statement of information required to be included in (A) and (B) above contained in periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act. (b) prepare and file with the Commission such amendments and post- -8- effective amendments to a registration statement as may be necessary to keep such registration statement effective for the applicable period; cause the related prospectus to be supplemented by and required prospectus supplement, and as so supplemented to be filed pursuant to the Securities Act; provided that prior to filing any such amendments or supplements or any documents that would be incorporated by reference in such registration statement, the Company shall furnish to the Investors, their counsel and the underwriters, if any, copies of all such documents proposed to be filed (other than documents filed under the Exchange Act), and the Company shall consider all reasonable requests by the Investors or the underwriters for modifications of any such amendments, supplements or documents incorporated by reference; and comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement or supplement to such prospectus; (c) notify the Investors and selling Holders of Registrable Securities, and the managing underwriters, if any, as promptly as practicable, and confirm such notice in writing, (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to a registration statement or any post-effective amendment, when it has become effective, (ii) of any request by the Commission for amendments or supplements to a registration statement or related prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a registration statement or the initiation of any proceedings for that purpose, (iv) if at any time the representations and warranties of the Company made as contemplated by subsection (k) below cease to be true and correct, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose, (vi) of the happening of any event that requires the making of any changes in a registration statement or related prospectus so that such documents will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (vii) of the Company's reasonable determination that a post-effective amendment to a registration statement would be appropriate; (d) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a registration statement, or the lifting of any suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction, as soon as practicable; (e) if requested in a timely manner by the managing underwriters, as promptly as practicable incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriters and the Holders of Registrable Securities being sold in connection with an underwritten offering agree -9- should be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Securities to be sold in such offering; make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment, and supplement or make amendments to any registration statement with respect to information relating to any Holder or the terms of the sale or offering of the Registrable Securities if requested in a timely manner in writing by any Holder of Registrable Securities covered by such registration statement or any underwriter of such Registrable Securities; (f) furnish to the lead managing underwriter and each Holder selling Registrable Securities thereunder, without charge, at least one (1) signed copy of the registration statement or statements and any post-effective amendment thereto, and to each other selling Holder of Registrable Securities, at least one (1) conformed copy thereof, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference); (g) deliver to each Holder of Registrable Securities and the underwriters, if any, without charge, as many copies of the prospectus or prospectuses (including each preliminary prospectus) and any amendment or supplement thereto as such persons may reasonably request. (h) prior to any public offering of Registrable Securities, use its best efforts to register or qualify or cooperate with the selling Holders of Registrable Securities, the underwriters, if any, and their respective counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any selling Holder or underwriter reasonably requests in writing, keep each such registration or qualification effective during the period such registration statement is required to be kept effective and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable registration statement; provided that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process in any such jurisdiction where it is not then so subject; (i) cooperate with the selling Holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends unless required by applicable law; and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters may -10- request at least two (2) business days prior to the closing of any sale of Registrable Securities to the underwriters; (j) upon the occurrence of any event contemplated by clause (c)(vi) above, prepare a supplement or post-effective amendment to the applicable registration statement or related prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the selling Holders of the Registrable Securities, such prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (k) enter into such agreements (including an underwriting agreement) and take all such other reasonable actions in connection therewith in order to expedite or facilitate the disposition of such Registrable Securities and in connection therewith, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, (i) make such representations and warranties to the Holders of such Registrable Securities with respect to the registration statement, prospectus and documents incorporated by reference, if any, in form, substance and scope as are customarily made by issuers in similar offerings and confirm the same if and when requested; (ii) obtain opinions of counsel to the Company (which may be the general counsel) and updates thereof in the form, scope and substance as are customary in similar offerings; (iii) in the case of an underwritten offering, enter into an underwriting agreement in form, scope and substance as is customary in underwritten offerings; (iv) furnish to each seller of Registrable Securities a signed counterpart, addressed to such seller (and the underwriters, if any) of a "comfort" letter, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), signed by the independent public accountants who have certified the Company's financial statements included in such registration statement, covering the matters with respect to such registration statement (and the prospectus included therein) and with respect to events subsequent to the date of such financial statements, as are customarily covered in accountants' letters delivered to the underwriters in underwritten public offerings of securities and such other financial matters as such seller or such Holder (or the underwriters, if any) may reasonably request; (v) if an underwriting agreement is entered into, it shall set forth in full the indemnification provisions and procedures of Section 2.10 with respect to all parties to be indemnified pursuant to such section, with such other indemnification provisions as are customary and acceptable to the underwriters, the Investors and the Company; and (vi) the Company shall deliver such documents and certificates as may be requested by the selling Holders of the Registrable Securities and the managing underwriters, if any, to evidence compliance with this paragraph (k) and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The above shall be done at each closing under such underwriting or similar agreement or as and to the extent required thereunder; -11- (l) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission and make generally available to its securityholders earnings statements satisfying the provisions of Section 11(a) of the Securities Act no later than ninety (90) days after the end of any twelve (12) month period (i) beginning with the first day of the Company's first fiscal quarter next succeeding each sale of Registrable Securities after the effective date of a registration statement and (ii) beginning with the first day of the Company's first fiscal quarter next succeeding any fiscal quarter in which Registrable Securities are sold to underwriters in a firm or best efforts underwritten offering, which statements shall cover such twelve (12) month periods, (m) use its best efforts to cause all such Registrable Securities to be listed on each securities exchange, if any, on which securities of the class then being registered are listed; and (n) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration statement. The Company may require each Holder of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such Holder and the distribution of such Registrable Securities as the Company may from time to time reasonably request in writing in order to comply with the Securities Act. Each Holder of Registrable Securities as to which any registration is being effected agrees to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished by such Holder to the Company or of the happening of any event as a result of which any prospectus relating to such registration contains an untrue statement of a material fact regarding such Holder or the distribution of such Registrable Securities or omits to state any material fact regarding such Holder or the distribution of such Registrable Securities required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and to promptly furnish to the Company any additional information required to correct and update any previously furnished information or required so that such prospectus shall not contain, with respect to such Holder or the distribution of such Registrable Securities, an 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. Each Holder of Registrable Securities agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.4(c)(ii), (iii), (v), (vi) or (vii), such Holder will forthwith discontinue disposition of such Registrable Securities covered by such registration statement or prospectus until such Holder's receipt of the copies of the supplemented or amended prospectus relating to such registration statement or prospectus, or until it is advised in writing by the Company that the use of the applicable prospectus may be resumed, and has received copies of any additional or supplemental filings -12- that are incorporated by reference in such prospectus, and, if so directed by the Company, such Holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession of the prospectus covering the Registrable Securities at the time of receipt of such notice. 2.5 Reports Under Exchange Act. With a view to making available to the Investors the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the Commission that may at any time permit an Investor to sell securities of the Company to the public without registration or pursuant to a registration statement on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public; (b) take such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Investors to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective; (c) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (d) furnish to any Investors, so long as the Investors own any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Investors of any rule or regulation of the Commission which permits the selling of any such securities without registration or pursuant to such form. 2.6 Underwritten Offerings. In the case of any underwritten offering pursuant to Section 2.1, the Investors shall select the investment banking firm or firms, which shall be reasonably satisfactory to the Company. The Company shall enter into an underwriting agreement which shall contain, without limitation, the terms and provisions -13- contemplated by Section 2.4(k) and shall be reasonably satisfactory in form and substance to the Investors. If the Company at any time proposes to register any of its securities under the Securities Act as contemplated by Section 2.2 and such securities are to be distributed by or through one (1) or more underwriters, the Holders of Registrable Securities to be distributed therein shall be parties to the underwriting agreement between the Company and the underwriters and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters also be made to and for the benefit of such Holders of Registrable Securities and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such Holders of Registrable Securities. 2.7 Preparation: Reasonable Investigation. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company shall give the selling Holders of Registrable Securities, their underwriters, and their respective counsel and accountants, a reasonable opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, each amendment thereof or supplement thereto (other than documents filed under the Exchange Act and incorporated by reference therein), and shall give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of such Holders' and such underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. 2.8 Limitations, Conditions and Qualifications to Obligations Under Registration Covenants. No Holder of Registrable Securities may participate in any underwritten offering hereunder unless such Holder (i) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 2.9 Restrictions on Sales. (a) Each Holder of Registrable Securities that are covered by a registration statement filed pursuant to Section 2.1, 2.2 or 2.3 agrees, if required by law, regulation or stock exchange rules or if requested by the managing underwriters in an underwritten offering and to the extent timely notified in writing by the Company or the managing underwriters, not to effect any public sale or distribution of any securities of the Company of the same class as the securities included in such registration statement, including a sale pursuant to Rule 144 under the Securities Act (except as part -14- of such underwritten registration), during the period commencing ten (10) days prior to the closing date of each underwritten offering made pursuant to such registration statement and ending on the earlier of (i) the termination of such offering and (ii) ninety (90) days after such closing in the case of any other offering, or, in each case, such shorter period offered to any other shareholder of the Company. (b) The Company agrees (i) without the written consent of the managing underwriters, not to effect any public or private sale or distribution of any securities of the Company of the same class as the securities included in a registration statement filed pursuant to Section 2.1 during the period commencing ten (10) days prior to the closing date of each underwritten offering made pursuant to such registration statement and ending on the earlier of (x) the termination of such offering and (y) ninety (90) days after such closing, to the extent timely notified in writing by the Investors or the managing underwriters and (ii) to use its best efforts to cause each holder of privately placed securities purchased from the Company (other than the Investors) at any time on or after the date of this Agreement to agree not to effect any public sale or distribution of any such securities during such period, including a sale pursuant to Rule 144 under the Securities Act (except as part of such underwritten offering, if permitted). 2.10 Indemnification. (a) Indemnification by the Company. In the event of any registration of Registrable Securities, the Company shall indemnify, defend and hold harmless the Holder of any Registrable Securities that are covered by such registration statement, each other Person who participates as an underwriter in the offering or sale of such securities and each Person who controls any such Holder or underwriter within the meaning of the Securities Act, and each of the respective partners, officers, directors, employees and agents of the foregoing in their respective capacities as such (the "Indemnitees"), to the full extent lawful, from and against any and all actions, suits, claims, proceedings, costs, damages, judgments, amounts paid in settlement and expenses (including, without limitation, reasonable attorneys' fees and disbursements), whether joint or several (collectively, a "Loss"), to which any such Indemnitee may become subject under the Securities Act or any other statute or common law, insofar as any such Loss may arise out of or be based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered, any preliminary, final or summary prospectus contained therein, or any amendment or supplement thereto, or in any filing made in connection with the qualification of the offering under blue sky or other securities laws of jurisdictions in which the Registrable Securities are offered ("Blue Sky Filing"), or the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading or (ii) any violation by the Company of any federal, state or common law, rule or regulation applicable to the Company and relating to action required of or inaction by the -15- Company in connection with any such registration, and the Company will reimburse each Indemnitee for any legal or other expenses reasonably incurred in connection with investigating or defending such Loss; provided, however, that such indemnification covenant shall not (i) apply to any Loss arising out of, or based upon, any such untrue statement or alleged untrue statement, or any such omission or alleged omission, if such statement or omission was made in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Indemnitee specifically stating that it is for use in connection with preparation of the registration statement, any preliminary prospectus or final prospectus contained in the registration statement, any such amendment or supplement thereto or any Blue Sky Filing or (ii) inure to the benefit of any underwriter or Person controlling such underwriter to the extent that any such Loss arises out of such Indemnitee's failure to send or give a copy of the final 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 final prospectus. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Indemnitee and shall survive the transfer of such securities by any Indemnitee. (b) Indemnification by the Sellers. As a condition to including any Registrable Securities in any registration statement filed pursuant to Section 2.1, 2.2 or 2.3, the Company shall have received an undertaking from the prospective seller of such Registrable Securities to indemnify, defend and hold harmless (in the same manner and to the same extent as set forth in subsection (a) of this Section 2.10) the Company, each director of the Company, each officer, employee and agent of the Company and each other Person, if any, who controls the Company within the meaning of the Securities Act, with respect to any untrue statement in, or omission from, such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein or any Blue Sky Filing, or any amendment or supplement thereto, if such statement or omission was made in reliance upon and in conformity with written information furnished to the Company by such seller specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling person and shall survive the transfer of such securities by such seller. In no event shall any indemnity paid by any seller to the Company pursuant to this Section 2.10(b) or otherwise exceed the proceeds received by such seller in such offering. (c) Notices of Claims. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim hereunder, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of -16- such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Section 2.10 unless the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and, unless a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that the indemnifying party may wish, with counsel reasonably satisfactory to such 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 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 the event that the indemnifying party advises an indemnified party that it will contest a claim for indemnification hereunder, or fails, within thirty (30) days of receipt of any indemnification notice to notify, in writing, such indemnified party of its election to defend, settle or compromise, at its sole cost and expense, any action, proceeding or claim (or discontinues its defense at any time after it commences such defense), then the indemnified party may, at its option, defend, settle or otherwise compromise or pay such action or claim with the consent of the indemnifying party, not to be unreasonably withheld. The indemnified party shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the indemnified party that relates to such action or claim. The indemnifying party shall keep the indemnified party fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. If the indemnifying party 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. If the indemnifying party does not assume such defense, the indemnified party shall keep the indemnifying party apprised at all times as is reasonably practicable as to the status of the defense; provided, however, that the failure to keep the indemnifying party so informed shall not affect the obligations of the indemnifying party hereunder. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its written consent; provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall without the consent of the indemnified party (not to be unreasonably withheld), consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (d) Indemnification Payments. The indemnification required by this Section 2.10 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or a Loss is incurred. -17- (e) Other Rights, Liabilities. The indemnity covenant, contained herein shall be in addition to (i) any cause of action or similar right of the indemnified party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to law. 2.11 Registration Expenses. All expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, all Registration Expenses, shall be borne by the Company whether or not any registration statement becomes effective. The Company shall, in any event, 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 securities to be registered on any securities exchange, rating agency fees and the fees and expenses of any Person, including special experts, retained by the Company. All underwriting discounts, fees and commissions applicable to the sale of Registrable Securities shall be borne by the Holders of such Registrable Securities pro-rata, on the basis of the number of shares sold in the respective offering. Notwithstanding anything to the contrary in this Agreement, the Company shall not be obligated to effect any registration pursuant to this Agreement: (i) within a period of ninety (90) days following the effective date of a previous registration of the Company's securities and (ii) if the Company shall furnish to the Holders of Registrable Securities a certificate signed by the Chairman of the Board of Directors of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration to be effected at such time, in which event the Company shall have the right to defer the filing of the registration statement for a period of not more than ninety (90) days after receipt of the request of such Holders under this Agreement; provided, however, that the Company shall not utilize this right more than once in any twelve (12) month period. 3. Information Rights. For so long as a Holder holds ten percent (10%) or more of the Series C Preferred Stock, the Company shall: (a) as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, deliver to such Holder an income statement for such fiscal year, a balance sheet of the Company as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be audited and prepared in accordance with GAAP and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail. Such financial statements shall be accompanied by a report and opinion thereon by independent public accountants of national standing selected by the Board of Directors of the Company. (b) as soon as practicable, but in any event within forty five (45) -18- days after the end of each quarter during the fiscal year of the Company (except for the fourth quarter), deliver to such Holder unaudited financial statements (or audited financial statements if available), including a balance sheet, income statement and statement of cash flows for and as of the end of each such quarter, and for the current fiscal year to date, including a comparison to plan figures for such period, prepared in accordance with GAAP; an instrument executed by the Chief Financial Officer or President of the Company certifying that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP), and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end adjustment; and a statement showing the number of shares of each class and series of capital stock and securities convertible into or exercisable for shares of capital stock outstanding at the end of the period, the number of common shares issuable upon conversion or exercise of any outstanding securities convertible into or exercisable for common shares and the exchange ratio or exercise price applicable thereto, all in sufficient detail as to permit the Holder to calculate its percentage equity ownership in the Company. (c) as soon as practicable, but in any event within fifteen (15) days after the end of each month, deliver to such Holder a monthly report of operations of the Company for and as of the end of such month, including balance sheets and sources and applications of funds statements for and as of the end of such month. (d) as soon as practicable, but in any event within thirty (30) days prior to the beginning of the Company's fiscal year, furnish such Holder with a budget and business plan for the next fiscal year, prepared on a monthly basis, including balance sheets and sources and applications of funds statements for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company. The Company's business plan shall include three-year projections. (e) permit such Holder or its representative to visit and inspect any of the properties of the Company or any of its subsidiaries, to examine books of account and records of the Company or any of its subsidiaries and to discuss the affairs, finances and accounts of the Company or any of its subsidiaries with its officers, all at such reasonable times as may be requested by such Holder. 4. Amendments and Waivers. This Agreement may not be amended without the prior written consent of the parties hereto. 5. Registration Rights. The Company shall not grant any right of registration under the Securities Act relating to any of its shares of capital stock or other securities to any Person other than pursuant to this Agreement unless the rights so granted to such other Person are junior to those of the Investors hereunder and do not limit or restrict the Investors' rights -19- hereunder. 6. Nominees for Beneficial Owners. In the event that any Registrable Securities are held by a nominee for the beneficial owner thereof, such beneficial owner may, at its election and upon notice to the Company, be treated as the Holder of such securities for purposes of any request or other action by any Holder or Holders of securities pursuant to this Agreement or any determination of any number or percentage of shares of securities held by any Holder or Holders of securities contemplated by this Agreement. If the beneficial owner of any Registrable Securities so elects, the Company may require assurances reasonably satisfactory to it of such owner's beneficial ownership of such Registrable Securities. 7. Notices. Any notice or demand that is required or provided to be given under this Agreement shall be deemed to have been sufficiently given and received for all purposes when delivered by hand, facsimile transmission or courier, or five (5) days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested, to the following addresses: If to the Company: INSCI Corp. Two Westborough Business Park Westborough, MA 01581 Attn: Chief Executive Officer If to the Investors, at the addresses listed on the signature pages hereto. If to any other Holder of Registrable Securities, at such address set forth in the Company's records, or with respect to any party hereto, at any other address designated in writing in accordance with the provisions of this Section 6. 8. Assignment. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. The rights or any portion thereof of the Investors herein may be assigned by the Investors in their sole discretion (and thereupon by such assignee) without the consent of the Company, provided that such assignee agrees in writing to be bound by the terms of this Agreement. 9. Descriptive Headings. The descriptive headings of the sections and paragraphs of this Agreement are inserted for reference only and shall not limit or otherwise affect the meaning hereof. 10. Governing Law; Jurisdiction; Venue. This Agreement shall be governed by the laws of the State of Delaware without regard to its conflicts of laws principles. The state and federal courts of the State of Delaware shall have exclusive jurisdiction to hear and determine any claims or disputes between the Investors and the other party or parties hereto pertaining directly or indirectly to this Agreement and all documents, instruments and agreements executed pursuant hereto, or to any matter arising therefrom (unless otherwise -20- expressly provided for therein). To the extent permitted by law, each party hereby expressly submits and consents in advance to such exclusive jurisdiction in any action or proceeding commenced in any of such courts, and agrees that service of such summons and complaint or other process or papers may be made by registered or certified mail addressed to such party at the address to which notices are to be sent pursuant to this Agreement. To the extent permitted by law, should any party, after being so served fall to appear or answer to any summons, complaint, or process or papers so served within thirty (30) days after the mailing thereof, such party shall be deemed in default and an order and/or judgment may be entered by such Investors against such party as demanded or prayed for in such summons, complaint, process or papers. The exclusive choice of forum set forth in this Section 9 shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action to enforce the same in any other appropriate jurisdiction. 11. Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof. 12. Counterparts. This Agreement may be executed by facsimile and in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. [REMAINDER OF PAGE INTENTIONALLY BLANK] -21- IN WITNESS WHEREOF, the undersigned has executed and delivered this counterpart signature page to the Amended and Restated Registration Rights Agreement as of the date first written above. INSCI Corp. By: /s/ Henry F. Nelson ------------------------------------------------- Name: Henry F. Nelson Title: President, Chief Executive Officer, Chief Financial Officer and Secretary -22- IN WITNESS WHEREOF, the undersigned has executed and delivered this counterpart signature page to the Amended and Restated Registration Rights Agreement as of the date first written above. SELWAY PARTNERS, LLC By: /s/ Yaron Eitan ------------------------------------------------- Name: Yaron Eitan Title: Chief Executive Officer Address for Notices: Selway Partners, LLC 52 Forest Avenue Paramus, NJ 07652 Attn: Mr. Yaron Eitan Facsimile: (973) 785-8628 With a copy to: Joseph F. Mazzella, Esq. Nutter, McClennen & Fish, LLP One International Place Boston, Massachusetts 02110 Facsimile: (617) 310-9485 -23- IN WITNESS WHEREOF, the undersigned has executed and delivered this counterpart signature page to the Amended and Restated Registration Rights Agreement as of the date first written above. SELWAY MANAGEMENT, INC. By: /s/ Yaron Eitan ------------------------------------------------- Name: Yaron Eitan Title: Chief Executive Officer Address for Notices: Selway Management, Inc. 52 Forest Avenue Paramus, NJ 07652 Attn: Mr. Yaron Eitan Facsimile: (973) 785-8628 With a copy to: Joseph F. Mazzella, Esq. Nutter, McClennen & Fish, LLP One International Place Boston, Massachusetts 02110 Facsimile: (617) 310-9485 -24- IN WITNESS WHEREOF, the undersigned has executed and delivered this counterpart signature page to the Amended and Restated Registration Rights Agreement as of the date first written above. SCP PRIVATE EQUITY PARTNERS II, L.P. By: SCP Private Equity II General Partner, L.P., its General Partner By: SCP Private Equity II LLC By: /s/ Winston J. Churchill ------------------------------------------------- Name: Winston J. Churchill Title: a Manager Address for Notices: SCP Private Equity Partners II, L.P., 435 Devon Park Drive, Building 300 Wayne, Pennsylvania 19087 Facsimile: (610) 975-9546 Attn: General Counsel With a copy to: Charles C. Zall, Esq. Saul Ewing LLP Centre Square West 1500 Market St., 38th Floor Philadelphia, PA 19102-2186 Facsimile: (215) 972-1934 -25- IN WITNESS WHEREOF, the undersigned has executed and delivered this counterpart signature page to the Amended and Restated Registration Rights Agreement as of the date first written above. CIP CAPITAL L.P. By: /s/ Edward J. Carry ------------------------------------------------- Name: Edward J. Carry Title: President, CIP Capital Management, Inc. General Partner Address for Notices: CIP Capital L.P. 435 Devon Park Drive, Building 300 Wayne, Pennsylvania 19087 Facsimile: With a copy to: -26- EX-6 8 dex6.txt LETTER OF AGREEMENT DATED 09/04/03 EXHIBIT 6 September 4, 2003 INSCI Corp. Two Westborough Business Park 200 Friberg Parkway, Suite 2000 Westborough, MA 01581 Attn: Mr. Henry F. Nelson, President and Chief Executive Officer This will confirm our agreement that following the closing of the transactions contemplated by the Series C Convertible Preferred Stock Purchase Agreement (the "Purchase Agreement"), by and among, inter alia, SCP Private Equity Partners II, L.P. ("SCP") and INSCI Corp. ("Insci"): SCP will indemnify Insci against any judgment against Insci or attachment upon the assets of Insci (and reasonable costs directly related thereto) obtained by Remington Partners, Inc ("Remington") based upon Remington having a lien on the assets of Webware Corporation ("Webware") which was perfected by the financing statement filing by Remington against Webware dated October 25, 2000, provided that SCP shall receive prompt notice from Insci of any such claim by Remington against Insci, and shall have the right to assume and/or direct the defense on behalf of Insci to such claim. Any obligation on SCP hereunder shall cease upon the termination or expiration of the said financing statement. SCP will also enter into an agreement with Insci to vote those Insci shares which it owns and is entitled to vote, in favor of nominees Mitchell Klein and Frank Murphy at Insci's scheduled October 2003 annual meeting, for such terms not to exceed one year for which they may be subject to election at such meeting. Sincerely, SCP PRIVATE EQUITY PARTNERS II, L.P. By: SCP Private Equity II General Partner, L.P., its General Partner By: SCP Private Equity II LLC By: /s/ Winston J. Churchill ---------------------------------------- Name: Winston J. Churchill -------------------------------------- Title: a Manager EX-7 9 dex7.txt SECURED PARTY CONSENT EXHIBIT 7 SECURED PARTY CONSENT This SECURED PARTY CONSENT (this "Consent") is made as of September 5, 2003, by and among, SCP Private Equity Investors II, L.P. (the "Secured Creditor"); the Diablo Management Group, a California corporation, solely in its capacity as assignee for the benefit of creditors of WebWare Corporation (referred to hereinafter as the "Assignee" or the "Seller"); WebWare Corporation, a Nevada Corporation (the "Company"); and WCORP, Inc., a Delaware corporation (the "Buyer"). RECITALS A. WHEREAS, Secured Creditor holds those certain Demand Promissory Notes listed on the Schedule of Secured Creditor Promissory Notes, annexed hereto as Exhibit A (collectively, the "Secured Notes"), for payment of the original principal amount as set forth on the schedule, along with interest and other fees and expenses, secured by a first priority lien in all of the Company's tangible and intangible personal property, including, but not limited to all: (i) accounts; (ii) chattel paper, including without limitation tangible chattel paper and electronic chattel paper; (iii) deposit accounts; (iv) documents; (v) general intangibles, including without limitation, payment intangibles and software; (vi) goods, including without limitation, equipment, inventory, fixtures and all accessions, additions, replacements, attachments, accretions, components and substitutes to or for any goods; (vii) and instruments, including without limitation, the promissory notes (collectively, the "Collateral"). B. WHEREAS, the Buyer has purchased from the Secured Creditor certain demand promissory notes listed on the Schedule of Acquired Secured Promissory Notes, attached hereto as Exhibit B (collectively, the "Acquired Secured Notes"), each secured by a first priority lien in the Collateral. C. WHEREAS, the Company has determined that a general assignment (the "General Assignment") of all of its assets, including the Collateral, as allowed by California statute and applicable law (the "Assigned Assets") to the Assignee for the benefit of the Company's creditors is in the best interest of its creditors and the Assignee has agreed to take the Assigned Assets pursuant to the General Assignment. D. WHEREAS, the Buyer has made a proposal for the purchase of substantially all of the Assigned Assets (collectively, the "Purchased Assets") from the Assignee pursuant to the proposed Asset Purchase Agreement dated as of September 5, 2003 by and between the Seller and the Buyer (the "Purchase Agreement"). E. WHEREAS, the Assignee is willing to sell the Purchased Assets to the Buyer pursuant to the Purchase Agreement, subject to certain conditions set forth in the Purchase Agreement, including the consent of the Secured Creditor to such sale free and clear of its liens, claims and encumbrances in the Collateral and of the Buyer's waiver and release of its lien, arising from the Acquired Secured Notes, in any proceeds of the Collateral by the Assignee, 1 including any proceeds from the sale of the Purchased Assets and the waiver and release of any claim in the proceeds from the sale of any of the Collateral. F. WHEREAS, for valuable consideration received as set forth herein and subject to the terms and conditions for effectiveness of this Consent, the Secured Creditor agrees to offer its consent to the General Assignment and to the sale of the Purchased Assets free and clear of its liens, claims and encumbrances in the Collateral and the Buyer agrees to offer its consent to the General Assignment and to the sale of the Purchased Assets and to waive and release an lien in and claim against the Collateral. AGREEMENT NOW, THEREFORE, in consideration of the recitals and of the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Secured Creditor, the Assignee, the Company and the Buyer hereby agree as follows: I. GENERAL ASSIGNMENT 1.1 Consent to General Assignment. The Secured Creditor as holder of the Secured Notes and the Buyer, as holder of the Acquired Secured Notes, hereby consent to the Company's execution and delivery of the Assigned Assets to the Assignee pursuant to the General Assignment for the benefit of creditors of the Company, including the Company's interests in the Collateral, subject to the terms and conditions in this Consent. 1.2 Reservation of Rights. Neither this Consent with respect to the General Assignment or the General Assignment shall void, release, terminate, subordinate, or disallow the Secured Creditor's or the Buyer's continuing lien upon and security interest in all of the Collateral and the proceeds thereof, which secures the Secured Debt (as defined below) or the Acquired Secured Debt (as defined below), all of which the Secured Creditor and the Buyer, each, expressly reserves and retains with respect to their respective secured debts. The Secured Creditor's and the Buyer's consent to the General Assignment does not waive, release, reduce, or terminate, the Secured Debt or the Acquired Secured Debt or any lien upon or security interest in the Collateral and the proceeds thereof, all of which shall continue in full force and effect notwithstanding the General Assignment. 1.3 Acknowledgment of Lien and Secured Debt. The Assignee and its counsel have reviewed the documents and public filings evidencing the Secured Creditor's and the Buyer's liens upon and security interests in the Collateral and proceeds thereof. The Assignee under the General Assignment and the Company, each, hereby acknowledge and agree that the Secured Creditor and the Buyer, each, have a valid, perfected and non-avoidable lien upon and security interest in the Collateral and the proceeds thereof, proportionate to the amounts of the Secured Debt and Acquired Secured Debt in relation to the aggregate thereof. (a) The Assignee, the Company and the Secured Creditor agree that the obligations evidenced by the Secured Notes and secured by the Collateral (the "Secured Debt") of the Secured Creditor shall total as of September 2, 2003 as set forth on Exhibit A, hereto. 2 (b) The Secured Creditor shall continue to accrue after September, 2 2003 interest, fees, and costs on the Secured Debt, until paid in full, pursuant to the terms and conditions set forth in the Secured Notes and related loan and security agreements and other agreements by and between the Secured Creditor and the Company. (c) The Assignee, the Company and the Buyer agree that the obligations evidenced by the Acquired Secured Notes and each secured by the Collateral (the "Acquired Secured Debt") of the Buyer shall total as of September 2, 2003 as set forth on Exhibit B, hereto. (d) The Buyer shall continue to accrue after September 2, 2003 interest, fees, and costs on the Acquired Secured Debt, until paid in full, pursuant to the terms and conditions set forth in the Acquired Secured Notes and related loan and security agreements and other agreements by and between the Secured Creditor and the Company. 1.4 Assignee Fees. Notwithstanding any provisions of the General Assignment concerning fees, expenses, or commissions for the Assignee, it is agreed that the Assignee will not be entitled to charge the Secured Creditor or the Buyer for purposes of paying the Assignee's fees or expenses under the General Assignment. In the event that the Collateral is either purchased by a buyer or returned to the Secured Creditor, the Assignee shall promptly remit and deliver any of the Collateral or proceeds of the Collateral to the Secured Creditor without any deduction or set off. II. SALE OF ASSETS 2.1 Consent to Sale of Assets. The Secured Creditor and the Buyer have reviewed (i) the proposed Purchase Agreement for the sale by the Seller to the Buyer of the Purchased Assets, (ii) the proposed schedule of documents for the transaction contemplated by and related to the Purchase Agreement, and (iii) the other related documents, schedules and agreements (collectively, the "Purchase Agreement Documents") describing the transaction whereby the Assignee will sell the Purchased Assets (including the Collateral) to the Buyer, subject to, among other things, this Consent (the "Proposed Sale"). (a) The Secured Creditor consents to the sale of the Purchased Assets, including the Collateral, subject to its liens, and the Secured Creditor further agrees that its liens, claims and encumbrances in the Collateral sold to the Buyer pursuant to the Purchase Agreement will be waived and released as of the date that all conditions in Section 4.2 are fulfilled, unless otherwise waived in writing by the Secured Creditor. (b) The Secured Creditor does not consent, and reserves the right to object to, any sale, lease, or disposition of the Collateral to any person other than the Buyer or on terms other than the terms substantially set forth in the Purchase Agreement Documents. (c) The Buyer, as holder of the Acquired Secured Notes, consents to the Proposed Sale of the Collateral to the Buyer on the terms substantially set forth in the Purchase Agreement Documents, subject to the terms and conditions set forth in this Consent. 3 2.2 Consideration. In consideration for the Secured Creditors' consent to the sale of the Collateral free and clear of its liens, claims and encumbrances and for the treatment of its secured claim on account of the Secured Debt (the "Secured Creditor Claim"), subject to the terms and conditions of this Consent, on or before the date of consummation of the Purchase Agreement the Secured Creditor will receive: (a) payment of $521,291 in cash (the "Cash Consideration") from the Assignee; and (b) delivery of 4,476,276 certificated common shares of Insci Corp. (INSS.OB) (the "Secured Creditor Shares") from the Assignee. 2.3 Reservation of Rights. Neither this Consent with respect to the Purchase Agreement or the Purchase Agreement Documents shall void, release, terminate, subordinate, or disallow the Secured Creditor's or the Buyer's continuing lien upon and security interest in all of the proceeds of the Collateral, which secures the Secured Debt or the Acquired Secured Debt, all of which the Secured Creditor and the Buyer, each, expressly reserves and retains with respect to their respective secured debts. The Secured Creditor's and the Buyer's consent to the Purchase Agreement does not waive, release, reduce, or terminate, the Secured Debt or the Acquired Secured Debt or any lien upon or security interest in the proceeds of the Collateral, all of which shall continue in full force and effect notwithstanding the sale of the Collateral. III. TREATMENT OF SECURED CLAIMS 3.1 Payment and Subordination of Secured Creditor's Claim. Subject to the conditions for effectiveness set forth below, the Secured Creditor and the Assignee agree that the Secured Creditor Claim will be treated as follows: (a) A portion of the Secured Creditor Claim equal in amount to (i) the attributed value of the Secured Creditor Shares delivered to the Secured Creditor and (ii) the Cash Consideration will be deemed satisfied and the Secured Creditor will agree that such portion of the Secured Creditor Claim will be reduced accordingly; and (b) The remaining outstanding and unpaid portion of the Secured Creditor Claim will be subordinated to all allowed claims of unsecured creditors of the Company. Notwithstanding the foregoing or any other provision of this Consent, the Secured Creditor retains its lien in cash (exclusive of cash proceeds of Collateral received in connection with the Purchase Agreement) except to the extent that $75,000, which is retained by the Assignee, is required to pay the administrative costs incurred by the Assignee, including fees and costs of the Assignee and its professionals. 3.2 Waiver of Acquired Secured Claim. Subject to the terms and conditions of this Consent, the Buyer, as holder of the Acquired Secured Notes, and the Assignee agree that the claim of the Buyer on account of the Acquired Secured Debt (the "Acquired Secured Claim") will be waived and released with respect to all proceeds of the Collateral paid to the Assignee in connection with the sale of Purchased Assets under the Purchase Agreement Documents. The Buyer further agrees that it will have no claim, right or title in the proceeds from the sale of any of the Collateral received by the Assignee, including the proceeds received in connection with the sale of the Purchased Assets, provided that each and all of the conditions for effectiveness of this Consent are fulfilled. Notwithstanding the foregoing, nothing in this Consent shall void, 4 release, terminate, subordinate, or disallow the Buyer's continuing lien upon and security interest in all of the Collateral acquired by the Buyer pursuant to the Purchase Agreement. IV. CONDITIONS TO EFFECTIVENESS 4.1 Conditions to Consent to General Assignment. The effectiveness of the consents to the General Assignment and the provisions in Article I are conditioned upon, unless waived by the Secured Creditor in writing, that no preliminary or permanent injunction, stay pending appeal or other order or decree by any federal or state court which prevents the liquidation of the claims of the Secured Debtor or the Acquired Secured Debtor (each party agreeing to use commercially reasonable efforts to have any such injunction, order or decree lifted) and no statute, rule or regulation shall have been enacted by any governmental authority which prohibits the liquidation of the Secured Debt and the Acquired Secured Debt and treatment of the Secured Creditor Claim and the Acquired Secured Claim. 4.2 Conditions to Consent to Sale and Treatment of Claims. The effectiveness of the consents to the sale of assets pursuant to the Purchase Agreement free and clear of the Secured Creditor's liens in the Collateral and the provisions in Article II and the treatment of secured claims and the provisions in Article III are subject to the fulfillment of the following conditions, unless waived by the Secured Creditor in writing: (a) Before the 151st day after the General Assignment, no preliminary or permanent injunction, stay pending appeal or other order or decree by any federal or state court which prevents the liquidation of the claims of the Secured Debt or the Acquired Secured Debt or the treatment of claims in Article III has been issued and remains in effect (each party agreeing to use commercially reasonable efforts to have any such injunction, order or decree lifted) and no statute, rule or regulation shall have been enacted by any governmental authority which prohibits the liquidation and treatment of claims; (b) Receipt of duly executed Purchase Agreement Documents in form and substance satisfactory to the Secured Creditor; (c) As of the 151st day after the General Assignment neither: (i) a voluntary or involuntary petition for relief under the United States Bankruptcy Code has been filed with respect to the Company, its assigns or successors; or (ii) any litigation has been commenced by any of the creditors of the Company against the Secured Creditor, the Assignee, the Company, or the Buyer; (d) The Buyer or the Assignee has delivered the Secured Creditor Shares to the Secured Creditor promptly upon the consummation of the Purchase Agreement; and (e) The Assignee has used its best efforts to transfer to the Secured Creditor the Cash Consideration pursuant to the wire transfer instructions attached hereto as Exhibit C, on 5 the same day such consideration is received by the Assignee pursuant to the Purchase Agreement, or in any event, within one business day from receipt of such funds. 4.3 Waiver of Conditions. Any condition specified in Sections 4.1 and 4.2 may be waived by the Secured Creditor, provided that no such waiver shall be effective unless it is set forth in a writing executed by the Secured Creditor. V. MISCELLANEOUS 5.1 Right to Credit Bid. In any sale, lease, or other disposition of the Collateral by the Assignee, other than the Proposed Sale to the Buyer on terms substantially as described in the Asset Purchase Documents, the Secured Creditor reserves its right to credit bid the amount of its Secured Debt, by bidding at any sale or disposition of the Collateral and offsetting the Secured Debt against the purchase price of the Collateral, which right to credit bid the Assignee expressly acknowledge and consent to. (a) The Assignee agrees that each sale of the Collateral by the Assignee, including the Proposed Sale to the Buyer, shall be and shall be deemed to constitute a public disposition of the Collateral in accordance with Section 9610(c)(1) of the California Commercial Code. (b) The Secured Party's exercise of its right to credit bid for the Collateral under this Section 5.1 will not be or be deemed to constitute acceptance of the Collateral in satisfaction of the Secured Debt, under Sections 9620, 9621 or 9622 of the California Commercial Code, or otherwise. 5.2 Redemption of Collateral. Nothing herein shall waive the Assignee's right to redeem the Collateral upon payment in full of the Secured Debt and the Acquired Secured Debt 5.3 Notice. Except as otherwise provided herein, any notice, demand, request, consent, approval, declaration, service of process or other communication (including the delivery of financial statements) that is required, contemplated, or permitted under this Consent or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given, delivered, and received upon the earlier of: (a) the first business day after transmission by facsimile or hand delivery or deposit with an overnight express service or overnight mail delivery service; or (b) the third calendar day after deposit in the United States mail, with proper first class postage prepaid, and shall be addressed to the party to be notified as follows: a. If to the Secured Creditor: SCP PRIVATE EQUITY PARTNERS II, L.P. 435 Devon Park Drive Building 300 Wayne, PA 19087 Telephone: (610) 995-2900 6 Facsimile: (610) 975-9546 Attention: Charles Freyer, Esq. b. If to the Assignee: THE DIABLO MANAGEMENT GROUP 2010 Crow Canyon Place Suite 280 P.O. Box 5124 San Ramon, CA 94583 Telephone: (925) 275-0215 Facsimile: (925) 275-0216 Attention: Richard G. Couch with a copy to: MURRAY & MURRAY, P.C. 19330 Stevens Creek Boulevard Suite 100 Cupertino, CA 95014-2526 Telephone: (650) 852-9000 Facsimile: (650) 852-9244 Attention: Craig M. Prim, Esq. c. If to the Company: WEBWARE CORPORATION 4000 Bridgeway, Suite 101 Sausalito, CA 94965 Telephone: (415) 339-8580 Facsimile: (415) 332-6658 Attention: Nicholas D. Troiano With a copy to: WINSTON & STRAWN LLP 101 California Street, 39th Floor San Francisco, CA 94111 Telephone: (415) 591-1000 Facsimile: (415) 591-1400 Attention: Keith A. McDaniels, Esq. 7 d. If to the Buyer: WCORP, Inc. Two Westborough Business Park 200 Friberg Parkway, Suite 2000 Westborough, MA 01581 Telephone: (508) 870-4100 Facsimile: (508) 870-4221 Attention: Henry F. Nelson with a copy to: BARATTA & GOLDSTIEN 597 Fifth Avenue New York, NY 10017 Telephone: (212) 750-9700 Facsimile: (212) 750-8297 Attention: Joseph P. Baratta, Esq. 5.4 Waiver. The failure of any party to enforce at any time, or for any period of time, any provision of this Consent shall not be construed to be a waiver of such provision or of the right of such party to enforce such provision or each and every other provision of this Consent. 5.5 Applicable Law; Jurisdiction. This Consent shall be governed by and construed and enforced in accordance with the laws of the state of California, excluding conflict of law rules and principles. All parties hereby waive personal service of the summons, complaint and other process issued in any action or suit and agrees that service of such summons, complaint and other process may be made by registered or certified mail addressed to such party at the address as designated in accordance with this Consent. 5.6 Waiver of Jury Trial. Each party to this Consent waives the right to trial by jury in any action, suit, proceeding, or counterclaim of any kind arising out of or related to this Consent or the transactions contemplated by this Consent. Each such party represents and warrants that it has reviewed the foregoing waivers with its legal counsel and has knowingly and voluntarily waived its jury trial rights following consultation with legal counsel. In the event of litigation, this Consent may be filed as a written consent to a trial by the court. 5.7 Severability. If any provision of this Consent shall be judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 5.8 Entire Agreement. This Consent constitutes the full and entire understanding and agreement between the parties with regard to the subject matter hereof, and supersedes any and all proposals, offers, and understandings with respect to such subject matter. Each party 8 understands and agrees that this Consent shall not be altered, amended, modified or otherwise changed in any respect whatsoever except by a writing duly executed by authorized representatives of each party. 5.9 Interpretation. (a) Section or paragraph headings used in this Consent are for reference purposes only and will not be used in the interpretation of this Consent. In construing or interpreting this Consent, the word "or" shall not be construed as exclusive, and the word "including" shall not be limiting. (b) The parties agree that this Consent shall be fairly interpreted in accordance with its terms without any strict construction in favor of or against either party and that ambiguities shall not be interpreted against the drafting party. The parties expressly waive the provisions of Section 1654 of the California Civil Code and the provisions of any similar statute or common law of any applicable jurisdiction that create a presumption of interpretation against a drafter. 5.10 Recitals. The parties hereto confirm the accuracy of the recitals hereto, which recitals are hereby incorporated herein and deemed to be a material part of this Consent. 5.11 Binding on Successors. This Consent is intended by the parties to be binding upon their successors, agents and assigns, including bankruptcy trustees and estate representatives and any parent, subsidiary and affiliated entity of each party. 5.12 Survival. All of the agreements, consents, representations, warranties and obligations of the parties set forth in this Consent shall survive the execution of this Consent. 5.13 Representation by Counsel. Each party hereto acknowledges and represents to the other that it has had the advice of attorneys of its own choosing in connection with the evaluation of the dispute and the negotiation and execution of this Consent. 5.14 Counterparts. This Consent may be executed in identical counterpart copies, each of which shall be an original, but all of which shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Consent by facsimile transmission shall be effective as delivery of a manually executed counterpart thereof. 5.15 Expenses. Each party shall be liable for his, her or its own expenses in connection with the preparation and negotiation of this Consent and all related documents and notices, including, without limitation, all fees and expenses for the employment of attorneys, accountants and other professionals. [Remainder of Page Intentionally Left Blank] 9 IN WITNESS WHEREOF, this Consent has been duly executed as of the date first above written. SCP PRIVATE EQUITY PARTNERS II, L.P. By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ THE DIABLO MANAGEMENT GROUP Solely, in its Capacity as Assignee for the Benefit of Creditors of WebWare Corporation By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ WEBWARE CORPORATION By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ 10 WCORP, INC. By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ 11 EXHIBIT A to Secured Party Consent SCHEDULE OF SECURED CREDITOR PROMISSORY NOTES (Attached) 12 EXHIBIT B to Secured Party Consent SCHEDULE OF ACQUIRED SECURED PROMISSORY NOTES (Attached) 13 EXHIBIT C to Secured Party Consent WIRE TRANSFER INSTRUCTIONS ABA # 031 000 053 PNC Bank Philadelphia, PA Acct. # 86 0580 5801 SCP Private Equity Partners II, L.P. Attn: Dennis P. Ferry: 610-254-4294 14 EX-8 10 dex8.txt JOINT FILING AGREEMENT DATED 09/11/03 EXHIBIT 8 JOINT FILING AGREEMENT The undersigned agree to the joint filing on behalf of each of them of a Schedule 13D (including any and all amendments thereto) with respect to the securities of INSCI Corp., and further agree that this Agreement shall be included as an Exhibit to such filings. The undersigned further agree that each party hereto is responsible for timely filing of such Schedule 13D and any amendments thereto, and for the completeness and accuracy of the information concerning such party contained therein, provided that neither party is responsible for the completeness or accuracy of the information concerning the other party, unless such party knows or has reason to believe that such information is inaccurate. IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed this 11th date of September, 2003. SCP Private Equity Partners II, L.P. By: SCP Private Equity II General Partner, L.P., its General Partner By: SCP Private Equity II, LLC, By: /s/ Winston J. Churchill --------------------------------------- Name: Winston J. Churchill ------------------------------------- Title: a Manager SCP Private Equity II, LLC By: /s/ Winston J. Churchill --------------------------------------- Name: Winston J. Churchill ------------------------------------- Title: a Manager -----END PRIVACY-ENHANCED MESSAGE-----