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Preferred Stock Exchange Agreement - R2 Funding

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Sectors: Computer Software and Services
Governing Law: Texas, View Texas State Laws
Effective Date: January 01, 2001
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PREFERRED STOCK EXCHANGE AGREEMENT


This Preferred Stock Exchange Agreement (this "Agreement"), effective as of January ___, 2001, is by and between TELESCAN, INC., a Delaware corporation (the "Company"), and R2 FUNDING, LTD., a Cayman Islands Exempted Company (the "Investor").


WHEREAS, Investor is the owner of 60,000 shares of Class A 5% Convertible Preferred Stock (the "Class A Preferred Stock"), of the Company; and


WHEREAS, Investor and the Company have agreed to exchange such shares of Class A Preferred Stock for a new class of preferred stock from the Company entitled "Class B 4% Convertible Preferred Stock" pursuant to a "recapitalization" within the meaning of Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended.


NOW, THEREFORE, in consideration of the premises and the agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:


1. Return of Class A Preferred Stock and Cancellation; Exchange for Class B Preferred Stock. On the date hereof, Investor shall deliver the certificate representing its shares of Class A Preferred Stock to the Company. In exchange for Investor's delivery of the certificate representing its shares of Class A Preferred Stock, the Company shall issue and deliver to Investor 60,000 shares of the Company's Class B 4% Convertible Preferred Stock (the "Shares" or "Convertible Preferred") having the rights, designations and preferences set forth in Schedule I hereto.


2. Release of Claims. Investor hereby waives any claims and rights which it ever had, now has or hereafter can, shall or may have against the Company arising out of, relating to or in connection with the acquisition or ownership of the Class A Preferred Stock.


3. Representations and Warranties of the Investor. Investor hereby makes the following representations and warranties to the Company:


(a) Authorization, Enforcement. (i) Investor has the requisite power and authority to enter into and perform this Agreement and to acquire the Shares hereunder, (ii) the execution and delivery of this Agreement by Investor and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary partnership action, and (iii) this Agreement constitutes a valid and binding obligation of Investor enforceable against Investor in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.


(b) No Conflicts. The execution, delivery and performance of this Agreement and the consummation by Investor of the transactions contemplated hereby do not and will not


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(i) result in a violation of Investor's organizational documents , (ii) conflict with any agreement, indenture or instrument to which Investor is a party, or (iii) result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to Investor. Investor is not required to obtain any consent or authorization of any governmental agency in order for it to perform its obligations under this Agreement


(c) Status of Class A Preferred Stock and Investor. Investor is not, and never has been, an "affiliate" of the Company (as such term is defined in the Securities Act of 1933, as amended (the "Act"), and the rules thereunder) and has held the shares of Class A Preferred Stock for more than two years as prescribed by, and in accordance with, Rule 144 under the Act.


4. Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to Investor:


(a) Organization and Qualification. The Company is a corporation duly incorporated and existing in good standing under the laws of the State of Delaware and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company does not have any subsidiaries except as listed in Exhibit A hereto. The Company and each such subsidiary, if any, is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary other than those in which the failure so to qualify would not have a Material Adverse Effect. "Material Adverse Effect" means any adverse effect on the business, operations, properties, prospects, or financial condition of the entity with respect to which such term is used and which is material to such entity and other entities controlled by such entity taken as a whole.


(b) Authorization; Enforcement. (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement and to issue the Shares in accordance with the terms hereof, (ii) the execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action, and no further consent or authorization of the Company or its Board of Directors or stockholders is required except for any stockholder approval required by the terms of the Company's listing agreement with Nasdaq or the rules of such organization, (iii) this Agreement has been duly executed and delivered by the Company, (iv) this Agreement constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application, and (v) prior to the date hereof a Certificate of Designations which authorizes the Convertible Preferred as provided in Schedule I will have been filed with the Delaware Secretary of State and will be in full force and effect, enforceable against the Company in accordance with its terms.


(c) Capitalization. The authorized capital stock of the Company consists of 30,000,000 shares of Common Stock and 10,000,000 shares of preferred stock; there are


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approximately 16,296,026 shares of Common Stock and 120,000 shares of Class A Preferred Stock issued and outstanding; and, upon issuance of the Shares in accordance with the terms hereof and pursuant to similar agreements of like tenor, there will be approximately 16,296,026 shares of Common Stock and 120,000 shares of Class B 4% Convertible Preferred Stock issued and outstanding. All of the outstanding shares of the Company's capital stock have been validly issued and are fully paid and nonassessable. Except as set forth in Exhibit A hereto and as described in the SEC Documents (as hereinafter defined), no shares of Common Stock are entitled to preemptive rights or registration rights and there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the
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