LITIGATION ECONOMICS INC.
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
THIS SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT is made as of
March 16, 1998, by and between Litigation Economics, Inc., a Nevada corporation
(the "Company"), and the persons listed on Exhibit 1 who are signatories to this
Agreement (the "Investors").
The Parties Hereby Agree as Follows:
1. Purchase and Sale.
1.1 Sale and Issuance of Series A Preferred Stock. Subject to the terms and
conditions of this Agreement, each of the Investors agrees to purchase at the
Closing, and the Company agrees to sell and issue to each of the investors at
the Closing, severally and not jointly, against cash payment, cancellation of
indebtedness or cancellation of interest owed, the number of shares of Series A
Preferred Stock (the "Series A Shares") of the Company set forth opposite each
Investor's name in Exhibit 1 to this Agreement at a purchase price of $0.64 per
share.
1.2 Closing. The purchase and sale of the Series A Shares being purchased by
the Investors shall take place at the offices of Company Counsel, Xxx Xxxxxxx &
Xxxxxxx, 7th Floor, 00 Xxxxx Xxxx Xxxxxx, Xxxx Xxxx Xxxx, Xxxx 00000, at 10:00
o'clock a.m. on March 16, 1998, or at such other time and place as the Company
and the Investors mutually agree upon (which time and place are designated the
"Closing"). At the Closing, the Company shall deliver to each of the Investors a
certificate representing the number of Series A Shares which each such Investor
is purchasing against delivery to the Company by each such Investor of cash or a
certified bank cashier's or other instrument reasonably acceptable to the
Company. The Company may not issue additional Series A Shares or warrants,
options or other rights to acquire Series A Shares without the prior written
approval of holders of at least two-thirds of the outstanding Series A Shares
purchased under this Agreement.
1.3 Use of Proceeds. The Company agrees to use the proceeds from the sale of
the Series A Shares for the planned PaperDirect and Current Social Expressions
acquisition and for working capital purposes.
2. Representations and Warranties of the Company.
Except as set forth on Exhibit 2, the Company hereby represents and warrants
to the Investors that:
2.1 Incorporation. The Company and each of the Subsidiaries (as defined in
paragraph 2.3) is a corporation duly organized and validly existing, is in good
standing under the laws of the state or other place of its incorporation, has
all requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted, and the Company and each of the
Subsidiaries is qualified as a foreign corporation in each jurisdiction where
the failure so to qualify would have a material adverse effect on its business
or operations. True and accurate copies of the Company's Articles of
Incorporation, all amendments thereto, and Bylaws as presently in effect are
attached hereto as Exhibit 2.1.
2.2 Capitalization. The authorized capital of the Company consists of
50,000,000 shares of Common Stock, of which at Closing not more than 2,000,000
shares will be issued and outstanding, and 5,000,000 shares of Preferred Stock
(the "Preferred Shares"). Of the Preferred Shares, 2,350,000 shares have been
designated Series A Preferred Stock (the "Series A Preferred"), none of which
are issued and outstanding as of the Closing. Immediately prior to the Closing,
2,350,000 shares of Common Stock will be reserved for issuance upon conversion
of the Series A Preferred (subject to adjustment as a result of this
transaction).
2.3 Subsidiaries. Except as set forth on Exhibit 2 attached hereto, the
Company does not presently control, directly or indirectly, any other
corporation, association or business entity. The entities listed on Exhibit 2
are referred to herein as the "Subsidiaries." Each of the Subsidiaries is wholly
owned by the Company.
2.4 Authorization. All corporate action on the part of the Company, its
officers and directors necessary for the authorization, execution, delivery and
performance of all obligations of the Company under this Agreement and for the
authorization, issuance and delivery of the Series A Shares being sold hereunder
has been or shall be taken prior to the Closing, and this Agreement, when
executed and delivered, shall constitute a valid and legally binding obligation
of the Company. Issuance of the Series A Shares is not, and issuance of the
Common Stock issuable upon conversion of the Series A Shares will not be subject
to preemptive rights or other preferential rights of any present or future
stockholders in the Company.
2.5 Validity of Securities. The Series A Shares to be purchased and sold
pursuant to this Agreement, when issued, sold and delivered in accordance with
its terms for the consideration expressed herein, shall be duly and validly
issued. The Common Stock issuable upon conversion of the Series A Shares has
been duly and validly reserved and upon issuance will be duly and validly
issued, fully paid and nonassessable.
2.6 Governmental Consents. All consents, approvals, orders, authorizations or
registration, qualification, designation and declaration or filing with and
federal or state governmental authority on the part of the Company and the
Subsidiaries required in connection with the consummation of the transactions
contemplated herein shall have been obtained prior to, and be effective as of,
the Closing or will be timely filed thereafter.
2.7 Compliance With Other Instruments. The Company and each of the
Subsidiaries is not in violation of any provisions of its respective Articles of
Incorporation, its Bylaws, any material mortgage, indenture, lease, agreement or
other instrument to which it is a party, or of any provision of any federal or
state judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company or the Subsidiaries. The execution, delivery and
performance of this Agreement will not result in any such violation or be in
conflict with or constitute a default under any such provision.
2.8 Litigation. There are no actions, proceedings or investigations pending,
or to the knowledge of the Company or the Subsidiaries threatened, which
question the validity of this Agreement or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
conditions, affairs or prospects of the Company or the Subsidiaries, nor, to the
knowledge of the Company and the Subsidiaries, has there occurred any event or
does there exist any condition which might properly be the basis therefor.
2.9 Financial Statements. The Company has previously furnished true and
complete copies of Statements of financial condition as of December 31, 1997 and
December 31, 1996 and the related statements of operations and statements of
changes in financial position for the years then ended, all certified by Xxxxx,
Xxxxxx & Co., independent accountants
All such financial statements have been prepared in conformity with generally
accepted accounting principles applied on a basis consistent with prior periods
(except for the omission of notes to the unaudited financial statements), fairly
present the consolidated financial condition of the Company and the Subsidiaries
as of dates thereof, and the consolidated results of operations of the Company
and the Subsidiaries for the periods indicated, and, in the case of unaudited
statements, subject to normal and recurring year-end adjustments. Specifically,
without limitation, such financial statements reflect, as of their respective
dates, all material accrued liabilities and adequate reserves for all material
unaccrued liabilities and for all reasonably anticipated material losses of the
Company and the Subsidiaries. The books of account of the Company and the
Subsidiaries fully and fairly reflect all of the transactions of such companies
and are complete and accurate. Neither the Company nor any of the Subsidiaries
is subject to any undisclosed material liability not (i) reflected in its
December 31, 1997 audited financial statements referred to above or in the notes
thereto, or (iii) incurred in the ordinary course of business since December 31,
1997. For purposes of this Agreement, all financial statements of the Company
shall be deemed to include any notes to such financial statements.
2.10 Absence of Certain Changes. Except as set forth on Exhibit 2 attached to
this Agreement, since December 31, 1997, whether or not in the ordinary course
of business, there has not occurred or arisen (a) any material adverse change in
the financial condition, operations, business or prospects of the Company or the
Subsidiaries considered as a whole, or (b) any event, condition or state of
facts of any character which materially or adversely affects, or may materially
or adversely affect, the financial condition, operations, business or prospects
of the Company and the Subsidiaries considered as a whole.
2.11 Tax Returns and Reports. All federal income tax and state franchise tax
returns and tax reports required to be filed by the Company and the Subsidiaries
have been filed with the appropriate governmental agencies in all jurisdictions
in which such returns or reports are required to be filed. All such returns and
reports constitute complete and accurate representations, in all material
respects, of the tax liabilities of the Company and the Subsidiaries. All
federal income tax and state franchise and other taxes (including interest and
penalties) due from the Company and the Subsidiaries have been fully paid or
adequately provided for on the books and financial statements of the Company or
the Subsidiaries. None of the federal income tax returns of the Company have
been audited by the Internal Revenue Service. The Company knows of no additional
assessments or adjustments pending or threatened for any period, nor of any
basis for any such assessment or adjustment. The Company and the Subsidiaries
and their affiliates have not entered into any agreements with federal and state
taxing authorities extending the statute of limitations with respect to the
assessment of federal and state taxes for any period.
2.12 Properties. The Company and the Subsidiaries have good and marketable
title to their respective real and personal properties and assets and valid
leasehold interests in their respective leased properties as and to the extent
carried on its books, including those reflected on the audited statements of
financial condition as of December 31, 1997 referred to in paragraph 2.9 above,
except properties and assets disposed of in the ordinary course of business
since December 31, 1997 or referred to on Exhibit 2 attached hereto, and none of
such properties or assets is subject to any mortgage, pledge, charge, lien,
security interest, encumbrance of joint ownership interest, except (a) liens for
taxes, assessments, or governmental charges or levies if the same shall not at
the time be delinquent or thereafter can be paid without penalty, or are being
contested in good faith and by appropriate proceedings, or (b) as shown on
Exhibit 2 attached hereto. The use of any property of the Company or the
Subsidiaries for the purpose for which it was acquired is not now, and, based
upon the laws, regulations and ordinances in effect on the date of Closing, in
the future will not be, curtailed to a material degree by any violations prior
to the Closing by the Company or any of the Subsidiaries of any law, regulation
or ordinance (including, without limitation, laws, regulations or ordinances
relating to zoning, environmental protection, city planning, or similar
matters). The Company and the Subsidiaries enjoy peaceful and undisturbed
possession under all leases under which they are operating, and all said lease
are valid and subsisting and in full force and effect.
2.13 Agreements. Except as set forth in Exhibit 2, neither the Company nor
any of the Subsidiaries has breached, nor has any such entity received oral or
written notice of any claim or threatened claim that the Company or any of the
Subsidiaries has breached, any of the terms or conditions of any agreement,
contract, lease, commitment or understanding, whether oral or written, the
breach or breaches of which singly or in the aggregate could materially or
adversely affect the financial condition, operations, business or prospects of
the Company and the Subsidiaries considered as a whole.
2.14 Pension Benefit Plan. The Company does not have or make contributions to
any pension, defined benefit or defined contribution plans which are subject to
the Federal Employee Retirement Income Security Act of 1974, as amended
("ERISA").
2.15 Registration Rights. Except as set forth in this Agreement, no person or
entity has demand or other rights to cause the Company to file any registration
statement under the Securities Act of 1933, as amended (the "Act") relating to
any securities of the Company or any right to participate in any such
registration statement.
2.16 Disclosure. To the best of the Company's knowledge and belief, neither
this Agreement, the financial statements referred in paragraph 2.09, nor any
other agreement, document, certificate or written statement furnished to the
Purchasers or their special counsel by or on behalf of the Company in connection
with the transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading. Most of the Company's
executive officers have only been employed by the Company for a very short
period of time. To the best knowledge of the Company's executive officers, but
without having made any independent investigation, there is no fact within the
special knowledge of any of the executive officers of the Company which has not
been disclosed herein or in writing by them to the Investors and which
materially adversely affects, or in the future in their opinion may, insofar as
they can now foresee, materially adversely affect the business, properties,
assets or condition, financial or other, of the Company and the Subsidiaries.
Without limiting the foregoing, the Company has no knowledge or belief that
there exists, or there is pending or planned, any patent, invention, device,
application or principle or any statute, rule, law, regulation, standard or code
which would materially adversely affect the condition, financial or other, or
the operations of the Company and the Subsidiaries.
3. Representations and Warranties of the Investors.
Each of the Investors represents and warrants to the Company as follows:
3.1 Authorization. When executed and delivered by such Investor, this
Agreement will constitute the valid and legally binding obligation of such
Investor.
3.2 Accredited Investor. Such investor (other than those identified in
writing to counsel for the Company prior to the Closing) is an "accredited
investor" as that term is defined in Rule 501 promulgated under the Act.
4. Securities Act of 1933.
4.1 Investment Representation.
(a) This Agreement is made with each of the Investors in reliance upon their
respective representations to the Company, which by its acceptance hereof each
of the Investors hereby confirms, that the Series A Shares to be received will
be acquired for investment for an indefinite period for its own account and not
with a view to the sale or distribution of any part thereof, and that it has no
present intention of selling or otherwise distributing the same, but subject,
nevertheless, to any requirement of law that the disposition of its property
shall at all times be within its control. By executing this Agreement, each of
the Investors further represents that it does not have any contract,
undertaking, agreement or arrangement with any person to sell or transfer to
such person any of the Series A Shares or any Common Stock acquired on
conversion of the Series A Shares (all of such securities are hereinafter
collectively referred to as the "Securities").
(b) Each of the Investors understands that the Securities are not and may
never be registered under the Act on the ground that the sale provided for in
this Agreement and the issuance of securities is exempt pursuant to Section 4(2)
of the Act and Rule 506 of Regulation D thereunder, and that the Company's
reliance on such exemption is predicated on its representations set forth
herein.
(c) Each of the Investors agrees that in no event will it make a disposition
of any of the Securities, unless the Securities shall have been registered under
the Act, unless and until (i) it shall have notified the Company with a
statement of the circumstances surrounding the proposed disposition and (ii) it
shall have furnished the Company with an opinion of counsel reasonably
satisfactory to the Company to the effect that (A) such disposition will not
require registration of such securities under the Act, and (B) that appropriate
action necessary for compliance with the Act has been taken. Notwithstanding the
foregoing, each Investor may distribute any of the Securities to the owners of
its equity.
(d) Each of the Investors represents that it is able to fend for itself in
the transactions contemplated by this Agreement, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment, has the ability to bear the economic risks
of its investment and has been furnished with and has had access to such
information as would be made available in the form of a registration statement
together with such additional information as is necessary to verify the accuracy
of the information supplied and to have all questions which have been asked by
the Investors answered by the Company.
(e) Each of the investors understands that if a registration statement
covering the Securities under the Act is not in effect when it desires to sell
any of the Securities, it may be required to hold such Securities for an
indeterminate period. Each of the Investors also acknowledges that it
understands that any sale of the Securities which might be made by it in
reliance upon Rule 144 under the Act may be made only in limited amounts in
accordance with the terms and conditions of that Rule.
4.2 Legends. All certificates for the Securities shall bear substantially the
following legend:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED BY THE ISSUEE FOR
INVESTMENT PURPOSES. SAID SHARES MAY NOT BE SOLD OR TRANSFERRED UNLESS (A)
THEY HAVE BEEN REGISTERED UNDER SAID ACT, OR (B) THE TRANSFER AGENT (OR THE
COMPANY IF THEN ACTING AS ITS TRANSFER AGENT) IS PRESENTED WITH EITHER A
WRITTEN OPINION SATISFACTORY TO COUNSEL FOR THE COMPANY OR A "NO-ACTION' OR
INTERPRETIVE LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE CIRCUMSTANCES OF SUCH SALE
OR TRANSFER."
4.3 Rule 144. The Company covenants and agrees that: (i) at all times while
it is subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934 it will use its best efforts to comply with the
current public information requirements of Rule 144(c)(1) under the Act; and
(ii) it will furnish the Investors upon request with all information about the
Company required for the preparation and filing of Form 144.
5. Conditions to Investors' Obligations at Closing.
The obligations of the Investors under paragraphs 1.1 and 1.2 of this
Agreement are subject to the fulfillment at or before the Closing of each of the
following conditions:
5.1 Representations and Warranties. The representations and warranties
contained in paragraph 2 hereof, subject to the disclosures contained in Exhibit
2, shall be true on and as of the Closing.
5.2 Performance. The Company shall have performed and complied with all
agreements and conditions contained herein required to be performed or complied
with by it on or before the Closing.
5.3 Reservation of Shares. The Company shall have reserved 2,350,000 shares
of its Common Stock for issuance upon the conversation of the Series A Shares.
5.4 State Securities Laws. The Company will have complied with all
requirements under all applicable state securities laws with respect to the
offer and sale of the Series A Shares and the Common Stock to be issued upon the
conversion thereto.
5.5 Compliance Certificate. There shall have been delivered to each of the
Investors a certificate, dated the Closing Date, signed by the Company's
president, certifying that the conditions specified in paragraphs 5.1, 5.2, 5.3,
5.4, and 5.8 have been fulfilled.
5.6 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing hereby and all
documents and instruments incident to such transactions will be reasonably
satisfactory in substance and form to the Investors and their counsel, and the
Investors and their counsel will have received all such counterpart originals or
certified or other copies of such documents as they may reasonably request.
5.7 Adopted Certificate of Determination of Preferences. An adopted
Certificate of Designation in substantially the form attached hereto as an
Exhibit shall have been adopted by the Board of Directors of the Company, been
filed with the State of Nevada, and shall have become effective.
6. Conditions of the Company's Obligations at Closing.
The obligations of the Company under paragraphs 1.1 and 1.2 of this Agreement
are subject to the fulfillment at or before the Closing of each of the following
conditions:
6.1 Warranties True on the Closing Date. The representations and warranties
of each of the Investors contained in paragraphs 3 and 4 hereof shall be true on
and as of the Closing with the same effect as though said representations and
warranties had been made on and as of the Closing.
7. Registration Rights.
There are no registration rights connected to the Series A Shares.
8. Covenants.
8.1 Financial Statements. The Company promptly shall deliver to each holder
of Series A Shares annual and quarterly financial statements.
8.2 Reservation of Shares. The Company shall reserve sufficient additional
shares of Common Stock for issuance upon conversion of all Series A Shares then
outstanding.
8.3 Adoption of Certificate of Determination of Preferences. The Company
covenants to use its best efforts to adopt and file a Certificate of
Determination of Preferences on or prior to March 16, 1998, the authorized
number of shares of Series A Preferred to be a number equal to the number of
Series A Shares sold pursuant to this Agreement and the Investors hereby
authorize, approve and consent to all actions taken or to be taken by the
Company in connection with the adoption and filing of such Certificate of
Determination of Preferences.
9. Miscellaneous.
9.1 Agreement is Entire Contract. Except as specifically referenced herein,
this Agreement constitutes the entire contract between the parties hereto
concerning the subject matter hereof and no party shall be liable or bound to
the other in any manner by any warranties, representations or covenants except
as specifically set forth herein. Any previous agreement among the parties
related to the transactions described herein is superseded hereby. 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 hereto. Nothing in this
Agreement, express or implied, is intended to confer upon any party, other than
the parties hereto, and their respective successors and assigns, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided herein.
9.2 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Nevada.
9.3 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.
9.4 Title and Subtitles. The titles of the paragraphs and subparagraphs of
this Agreement are for convenience and are not to be considered in construing
this Agreement.
9.5 Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail,
addressed to a party at its address hereinafter shown below its signature or at
such other address as such party may designate by ten (10) days advance written
notice to the other party.
9.6 Finder's Fee. Each party hereto represents that it is not, and will not
be, obligated for any finder's fee or commission payable in cash in connection
with this transaction. Each of the Investors hereby agrees to indemnity and to
hold harmless the Company from any liability for any commission or compensation
in the nature of a finder's fee ( and the costs and expenses of defending
against such liability or asserted liability) for which any such Investor or any
of its employees or representatives is responsible).
The Company agrees to indemnify and hold harmless the Investors from any
liability for any commission and compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
9.7 Survival of Warranties. The warranties and representations of the Company
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing hereunder.
9.8 Amendment of Agreement. Except as expressly provided herein, any
provision of this Agreement may be amended or waived on behalf of all Investors
by a written instrument signed by the Company and by Investors holding at least
a majority of the aggregate of the shares of Common Stock issuable and issued
upon conversion of the Series A Shares.
In Witness Whereof, the undersigned have executed this Agreement on March
13, 1998, effective as of the day and year first written above.
Litigation Economics, Inc. Empire Financial Investments LLC
By: /s/ Xxxxxxxxx X. Xxxxxx XX By: /s/ Xxxxx X. Xxxxxx, Xx.
----------------------------- ---------------------------
Authorized Officer Managing Member
Managing Member
Exhibit 1
LIST OF PURCHASERS
Empire Financial Investments LLC 2,350,000 shares $1,500,000
00000 Xxxxx Xxxxxxx Xxxxxxxxxx
Xxxxx 000
Xxxxxx, Xxxxx 00000
Exhibit 2
Disclosures
NONE
Exhibit 3
Certificate of Designation of Series A Preferred Stock
CERTIFICATE OF DESIGNATION
OF SERIES A PREFERRED STOCK
OF
LITIGATION ECONOMICS, INC.
The undersigned President of LITIGATION ECONOMICS, INC., a
corporation duly organized and existing under the laws of the State of Nevada,
does hereby certify that complete and proper Board of Directors action has taken
place to create and designate a new series of preferred stock, as permitted by
the Corporation's Articles of Incorporation, as follows:
Number of Shares. The series of preferred
stock created hereby shall comprise 2,350,000 shares
designated as Series A Convertible Preferred Stock
("Series A Stock"). The Series A Stock has a stated
value of $0.50 per share. The number of authorized
shares of the Series A Stock may be reduced by
further resolution duly adopted by or pursuant to
authority conferred by the Board of Directors of the
Company and by the filing of a Certificate Of
Designations pursuant to the provisions of the Act
stating that such reduction has been so authorized,
but (i) the number of authorized shares of the Series
A Stock shall not be increased; and (ii) the number
of shares of Series A Stock may not be reduced below
that number of shares which are issued and
outstanding at the time.
Liquidation Rights.
a. Payment Upon Liquidation. In the event of
any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of
the Company, the holders of outstanding
shares of the Series A Stock shall be
entitled, before any payment or distribution
shall be made on the Common Stock or any
other class of stock ranking junior to the
Series A Stock upon liquidation, to be paid
in full an amount equal to $0.50 per share.
After payment of the full amount of such
liquidation distribution, the holders of the
Series A Stock shall not be entitled to any
further participation in any distribution of
assets of the Company.
b. Insufficient Assets. If, upon any
liquidation, dissolution or winding up of
the Company, the assets of the Company, or
proceeds thereof, distributable among the
holders of the shares of the Series A Stock
and the holders of shares of all other stock
of the Company ranking, as to liquidation,
dissolution or winding up, on a parity with
the Series A Stock, shall be insufficient
to pay in full the preferential amount
set forth in Section (a) and liquidating
payments on all such other stock ranking, as
to liquidation, dissolution or winding up,
on a parity with the Series A Stock, then
such assets, or the proceeds thereof, shall
be distributed among the holders of the
Series A Stock and all such other stock
ratably in accordance with the respective
amounts which would be payable on such
shares of the Series A Stock and any such
other stock if all amounts payable thereon
were paid in full.
c. Payments on Stock Ranking Junior. In the
event of any such liquidation, dissolution
or winding up of the Company, whether
voluntary or involuntary, unless and until
payment in full is made to the holders of
all outstanding shares of the Series A Stock
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of the liquidation distribution to which
they are entitled pursuant to Section (a),
no dividend or other distribution shall be
made to the holders of the Common Stock or
any other class of stock ranking upon
liquidation junior to the shares of the
Series A Stock and no purchase, redemption
or other acquisition for any consideration
by the Company shall be made in respect of
the shares of the Common Stock or such other
class of stock.
d. Definition. Neither the consolidation nor
merger of the Company into or with another
corporation or corporations shall be deemed
to be a liquidation, dissolution or winding
up of the Company within the meaning of this
resolution.
Voting Rights.
a. Generally. Holders of the Series A Stock
shall not have any voting rights except as
hereinafter provided or as otherwise from
time required by law. Notwithstanding the
foregoing, at any duly called meeting of
the shareholders of the Company or upon any
vote validly taken by consent as permitted
by the Act or the Company's Articles of
Incorporation, each share of Series A Stock
shall have three (3) common share votes in
any vote of common shareholders, and shall
have one (1) preferred share vote in
any vote of preferred shareholders.
b. Ranking. So long as any shares of Series A
Stock remain outstanding, the Company shall
not, without the affirmative vote or consent
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of the holders of at least a majority of the
shares of Series A Stock outstanding at the
time, given in person or by proxy, either in
writing or at a meeting (voting separately
as a class), (i) authorize, create or issue,
or increase the authorized or issued amount
of, any class or series of stock ranking
prior to the Series A Stock with respect to
the distribution of assets on liquidation,
or reclassify any authorized stock of the
Company into any such shares, or create,
authorize or issue any obligation or
security convertible into or evidencing the
right to purchase any such shares; or (ii)
amend, alter or repeal the provisions of the
Company's Articles of Incorporation, as
amended, or of the resolutions contained in
the Certificate of Designations for Series A
Stock, whether by merger, consolidation or
otherwise, so as to materially and adversely
affect any right, preference, privilege or
voting power of such Series A Stock or the
holders thereof; provided, however, that any
creation or issuance of other series of
preferred stock, or any increase in the
amount of authorized shares of such series
or of any other series of Preferred Stock,
in each case ranking on a parity with or
junior to the Series A Stock shall not be
deemed to materially and adversely affect
such rights, preferences, privileges or
voting powers.
c. Applicability. The foregoing voting
provisions will not apply if, at or prior to
the time when the act with respect to which
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such vote would otherwise be required shall
be effected, all outstanding shares of the
Series A Stock shall have converted or
called for conversion.
Conversion of Series A Stock
a. Shares of Series A Stock may be converted by
the registered holders thereof into shares
of common stock on a one for one basis at
any time after December 31, 2000, provided
that presentation of Series A Stock takes
place prior to a call for the redemption of
the Series A Stock by the Company.
b. As promptly as practicable after the
conversion and cancellation of the Series A
Stock as provided in (a), above, the Company
shall deliver, or cause to be delivered to
the former holders of the Series A Stock
certificates representing the number of
shares of common stock issuable upon such
conversion, issued in such name or names as
such holder shall direct.
c. The conversion rate shall be subject to
adjustment from time to time as follows:
(i) In case the Company shall at any time
(A) pay a dividend with or make a
distribution of shares of its common stock
(whether shares of common stock or of
capital stock of any other class) other than
the 2-for-1 forward split in the form of a
100% stock dividend paid to shareholders of
record on Xxxxx 0, 0000, (X) subdivide or
reclassify its outstanding shares of common
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stock into a greater number of securities
(including shares of common stock), or (C)
combine or reclassify its outstanding shares
of common stock into a smaller number of
shares (including shares of common stock),
the conversion rate in effect immediately
prior thereto shall be adjusted so that the
holder of record of any shares of Series A
Stock thereafter cancelled for conversion
shall be entitled to receive the number of
shares of the Company which he would have
owned or have been entitled to receive after
the happening of any of the events described
above had such shares of Series A Stock been
converted immediately prior to the happening
of such event. An adjustment made pursuant
to this subparagraph (i) shall become
effective immediately after the record date
in the case of a dividend and shall become
effective immediately after the effective
date in the case of a subdivision or
combination. If, as a result of an
adjustment made pursuant to this
subparagraph (i), the holder of any Series A
Stock thereafter converted shall become
entitled to receive shares of two or more
classes of capital stock of the Company, the
Board of Directors of the Company (whose
determination shall be conclusive) shall
determine the allocation of the adjusted
conversion rate between or among shares of
such classes of capital stock. In the event
that at any time, as a result of an
adjustment made pursuant to this
subparagraph (i), the holder of any Series A
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stock thereafter converted shall become
entitled to receive any shares or other
securities of the Company other than shares
of common stock, thereafter the number of
such other shares so received upon
conversion of any Series A Stock shall be
subject to adjustment from time to time in a
manner and on terms as nearly equivalent as
practicable to the provisions with respect
to the shares of common stock contained in
this Section 4(d), and other provisions of
this Section 4 with respect to the shares of
common stock shall apply on like term to any
such other shares or other securities. (ii)
In case the Company shall fix a record date
for making a distribution to all holders of
its common stock evidences of its
indebtedness or assets (excluding regular
quarterly or other periodic or recurring
cash dividends or distributions and cash
dividends or distributions paid from
retained earnings) or rights or warrants to
subscribe or purchase, then in each such
case the conversion rate shall be adjusted
so that the same shall equal the rate
determined by multiplying the conversion
rate in effect immediately prior to such
record date by a fraction of which the
numerator shall be the current market price
(as defined in subparagraph (iv) below) per
share of the common stock on such record
date, and the denominator of which shall be
such current market price per share of
common stock, less the then fair market
value (as determined in good faith by the
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Board of directors, whose determination
shall be conclusive) of the portion of the
assets or evidences of indebtedness so
distributed or of such rights or warrants
applicable to one share of common stock.
Such adjustment shall be made successfully
whenever such a record date is fixed and
shall become effective immediately after
such record date. Notwithstanding the
foregoing, in the event that the Company
shall distribute any rights or warrants to
acquire capital stock ("Rights") pursuant to
this subparagraph (ii), the distribution of
separate certificates representing such
Rights subsequent to their initial
distribution (whether or not such
distribution shall have occurred prior to
the date of the issuance of such Series A
Stock) shall be deemed to be the
distribution of such Rights for purposes of
this subparagraph (ii); provided that the
Company may, in lieu of making any
adjustment pursuant to this subparagraph
(ii) upon a distribution of separate
certificates representing such Rights, make
proper provision so that each holder of such
Series A Stock who converts such Series A
Stock (or any portion thereof) (A) before
the record date for such distribution of
separate certificates shall be entitled to
receive upon such conversion shares of
common stock issued with Rights and (B)
after such record date and prior to the
expiration, redemption or termination of
such Rights shall be entitled to receive
upon such conversion, in addition to the
shares of common stock that issuable upon
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such conversion, the same number of such
Rights as would a holder of the number of
shares of common stock that such Series A
Stock so converted would have entitled the
holder thereof to purchase in accordance
with the terms and provisions of and
applicable to the Rights if such Series A
Stock were converted immediately prior to
the record date for such distribution.
Common stock owned by or held for the
account of the Company or any majority owned
subsidiary shall not be deemed outstanding
for the purpose of any adjustment required
under this subparagraph (ii). (iii) For the
purpose of any computation under
subparagraph (ii), the current market price
per share of common stock at any date shall
be deemed to be the average of the daily
Closing Prices for the thirty consecutive
business days commencing forty-five business
days before the day in question. The Closing
Price for any day shall be the mean between
the closing high bid and low asked
quotations of common stock of the Company
Electronic Bulletin Board in the National
Association of Securities Dealers, Inc.,
Automated Quotation System, or any similar
system or automated dissemination of
quotations of securities prices then in
common use. (iv) Nothing contained herein
shall be construed to require an adjustment
in the conversion rate as a result of the
issuance of common stock pursuant to, or the
granting or exercise of any rights under,
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the Company's Long Term Equity-Based
Incentive Plan or any other plans providing
for the purchase of shares of common stock
by the Company's shareholders or employees
at a price not less than 90% of the "average
market price" during the "pricing period" as
such terms, or equivalent terms, are defined
in, and as calculated pursuant to, such
plans from time to time.
(d) No fractional shares of stock shall be
issued upon the conversion of any Series A
Stock. Fractions of shares of common stock
resulting from the conversion provisions
hereof shall be rounded up to the next whole
share.
(e) In case any of the following shall occur
while any Series A Stock is outstanding: (i)
any reclassification or change of the
outstanding shares of common stock
deliverable upon conversion of the Series A
Stock (other than a change in par value, or
from par value to no par value, or from no
par value to par value, or as a result of a
subdivision or combination, but including
any change in the shares of common stock
into two or more classes or series of
securities); or (ii) any consolidation or
merger to which the Company is a party
(other than a consolidation or a merger in
which the Company is the continuing
corporation and which does not result in any
reclassification of, or change other than a
change in par value, or from par value to no
par value, or from no par value to par
value, or as a result of a subdivision or
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combination) in, the outstanding shares of
common stock issuable upon conversion of the
Series A Stock); or (iii) any sale or
conveyance to another corporation of the
properties and assets of the Company as an
entirety or substantially as an entirety;
then the Company, or such successor or
purchasing corporation, as the case may be,
shall make appropriate provision in its
charter or otherwise so that the holders of
the Series A Stock then outstanding shall
have the right to any time thereafter to
convert such Series A Stock into the kind
and amount of shares of stock and other
securities and property receivable upon such
reclassification, change, consolidation,
merger, sale or conveyance by a holder of
the number shares of common stock issuable
upon conversion of such Series A Stock
immediately prior to such reclassification,
change, consolidation, merger, sale or
conveyance. Such provision shall provide for
adjustments which shall be as nearly
equivalent as may be practicable to the
adjustments provided for in this Section 5.
The above provisions of this paragraph (e)
shall similarly apply to successive
reclassification, changes, consolidations,
mergers, sales or conveyances.
(f) Following the issuance of the Series A
Stockholder the Company will promptly take
such actions as required to effect the
Recapitalization pursuant to which a
sufficient number of common shares shall be
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created to effect the conversion of all
outstanding Series A Stock.
(g) Before taking any action which would cause
an adjustment increasing the conversion rate
so that the conversion price is below the
then par value of the shares of common
stock, the Company will take any corporation
action which may, in the opinion of its
counsel, be necessary in order that the
Company may validly and legally issue fully
paid and nonassessable shares of common
stock at the conversion rate as so adjusted.
(h) The issuance of certificates for shares of
common stock upon conversion of Series A
Stock shall be made without charge to the
converting stockholder for such certificates
or for any tax in respect of the issuance of
such certificates, and such certificates
shall be issued in the name of, or in such
name or names as may be directed by, the
holder of the Series A Stock converted.
However, if any such certificates is to be
issued in a name other than that of the
holder of the converted Series A Stock, the
Company shall not be required to issue or
deliver any stock certificate or
certificates unless and until the holder has
paid to the Company the amount of any tax
which may be payable in respect of any
transfer involved in such issuance or shall
establish to the satisfaction of the Company
that such tax has been paid.
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(i) Whenever the conversion rate then in effect
is adjusted as herein provided, the Company
shall mail to each holder of the Series A
Stock at such holder's address as it shall
appear on the books of the Company a
statement setting forth the adjusted
conversion rate, then and thereafter
effective under the provisions hereof
together with the facts, in reasonable
detail, upon which such adjustment is based.
(j) In case (i) the Company shall declare a
dividend (or any other distribution) on its
common stock other than in cash out of its
current or retained earnings, or (ii) the
Company shall authorize the granting to the
holders of its common stock of rights or
warrants to subscribe for or purchase any
shares of capital stock of any class or of
any other rights or warrants, or (iii) of
any reclassification or change of the common
stock of the Company (other than a
subdivision or combination of its
outstanding shares of common stock, or a
change in par value, or from par value to no
par value, or from no par value to par
value), or of any consolidation or merger to
which the Company is a party and for which
approval of any stockholders of the Company
is required or the sale or transfer of all
or substantially all of the assets of the
Company, or (iv) of the voluntary or
involuntary dissolution, liquidation or
winding up of the Company; the Company shall
mail to each holder of Series A Stock at
such holder's address as it shall appear on
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the books of the Company, at least fifteen
days prior to the applicable record date
hereinafter specified, a notice stating (x)
the record date for such dividend,
distribution or rights, or, if a record is
not to be taken, the date as of which the
holders of common stock of record to be
entitled to such dividend, distribution or
rights are to be determined, or (y) the date
on which such reclassification,
consolidation, merger, dissolution,
liquidation or winding up is expected to
become effective, and the date as of which
it is expected that holders of common stock
of record shall be entitled to exchange
their shares of common stock for securities
or other property deliverable upon such
reclassification, consolidation, merger,
dissolution, liquidation or winding up. No
failure to mail such notice nor any defect
therein or in the mailing thereof shall
affect the legality or validity of any such
transaction or any adjustment in the
conversion rate or conversion price required
by this Section.
Redemption of Series A Stock.
a. The Company may redeem Shares of Series A
Stock at any time after December 31, 2000 at
the redemption call price of $1.00 per
share.
b. The Company must provide written notice of
its intent to redeem the Series A Stock at
least 20 business days prior to the
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designated redemption date, in order to give
holders of shares of Series A Stock an
opportunity to convert into common stock if
they desire.
c. Notice will be deemed adequate if mailed
first class postage prepaid to the addresses
of the registered holders appearing on the
transfer records of the Company.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate of Designation this 12th day of March, 1998.
LITIGATION ECONOMICS, INC
/s/ Xxxxxxxxx X. Xxxxxx XX
----------------------------
By: Xxxxxxxxx X. Xxxxxx XX
Its: President
Attest:
/s/ Xxxxxx X. Xxxxxx
---------------------
Xxxxxx X. Xxxxxx
Secretary
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