EXHIBIT 7.3
SERIES B PREFERRED STOCK INVESTMENT AGREEMENT
AGREEMENT dated as of February 27, 1997 between Xxx Xxx Roo, Inc. (the
"Company") and the investor whose name is set forth at the foot of this
Agreement (the "Investor").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Preferred Stock
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Section 1.1 Purchase and Sale of Preferred Stock. Upon the following
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terms and conditions, the Company shall issue and sell to the Investor, and the
Investor shall purchase from the Company, shares of the Company's 6% Adjustable
Convertible Preferred Stock designated Series B Preferred Stock (the "Shares")
having the rights, designations and preferences set forth in Schedule I hereto.
The number of Shares to be purchased by Investor is set forth on the signature
page hereof.
Section 1.2 Purchase Price. The purchase price for the Shares (the
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"Purchase Price") shall be $100 per share.
Section 1.3 The Closing.
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(a) The closing of the purchase and sale of the Shares (the
"Closing"), shall take place at the offices of the Company, at 10:00 a.m., local
time on the later of the following: (i) the date on which the last to be
fulfilled or waived of the conditions set forth in Article IV hereof and
applicable to the Closing shall be fulfilled or waived in accordance herewith,
or (ii) such other time and place and/or on such other date as the Investor and
the Company may agree. The date on which the Closing occurs is referred to
herein as the "Closing Date." There shall be one Closing Date for all Series B
Preferred Stock initially issued to Investors.
(b) On the Closing Date, the Company shall deliver to the Investor
certificates representing the number of Shares being purchased by the Investor,
registered in the name of the Investor, or deposit such Shares into accounts
designated by the Investor, and the Investor shall deliver to the Company the
Purchase Price for such Shares by cashier's check or wire transfer in
immediately available funds to such account as shall be designated in writing by
the Company. In case of a wire transfer, Investor shall concurrently advise the
Company direct, by facsimile transmission to (000) 000-0000, of the name of the
transmitting entity, the name of the transmitting bank, the confirmation number
and the account number. In addition, each party shall deliver all documents,
instruments and writings required to be delivered by such party pursuant to this
Agreement at or prior to the Closing.
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Section 1.4 Covenant to Register.
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(a) For purposes of this Section, the following definitions shall
apply:
(i) The terms "register," "registered," and "registration" refer
to a registration under the Securities Act of 1933, as amended (the "Act"),
effected by preparing and filing a registration statement or similar document in
compliance with the Act, and the declaration or ordering of effectiveness of
such registration statement, document or amendment thereto.
(ii) The term "Registrable Securities" means the stock issued or
issuable upon conversion of the Shares, or otherwise issued or issuable pursuant
to this Agreement or the provisions of Schedule I hereto, and any securities of
the Company or securities of any successor corporation issued as, or issuable
upon the conversion or exercise of any warrant, right or other security that is
issued as a dividend or other distribution with respect to, or in exchange for
or in replacement of the Shares (but not the Shares themselves), which (i) have
not been resold pursuant to an effective registration statement or pursuant to
Rule 144 under the Act and (ii) may not be resold pursuant to Rule 144(k) under
the Act. For purposes of this Agreement, securities will be considered
ineligible for resale pursuant to Rule 144(k) under the Act unless the Company's
transfer agent has accepted an instruction from the Company specifying that such
securities are eligible for sale pursuant to Rule 144(k).
(iii) The term "holder of Registrable Securities" includes the
Investor and any permitted assignee of registration rights pursuant to Section
1.4(h) who holds Shares which are convertible into Registrable Securities.
(b) (i) The Company shall, as expeditiously as possible following
the Closing, file a registration statement on Form S-3, or if Form S-3 is not
then available, another appropriate form, covering resales of the Registrable
Securities including sales thereof under Rule 415 or a successor rule regarding
delayed or continuous offerings, and shall use its best efforts to cause such
registration statement to become effective by the 90th calendar day after the
Closing Date (the "Initial Registration"). In the event such registration is
not so declared effective or does not include all Registrable Securities, a
holder of Registrable Securities shall have the right to require by notice in
writing that the Company register all or any part of the Registrable Securities
held by such holder (a "Demand Registration") and the Company shall thereupon
effect such registration in accordance herewith (which may include adding such
shares to an existing shelf registration). The parties agree that if the holder
of Registrable Securities demands registration of less than all of the
Registrable Securities, the Company, at its option, may nevertheless file a
registration statement covering all of the Registrable Securities. If such
registration statement is declared effective with respect to all Registrable
Securities, and the Company is in compliance with its obligations under
Subsection (d)(i) through (v) hereof, the demand registration rights granted
pursuant to this Subsection (b) (i) shall not be applicable. If such
registration statement is not declared effective with respect to all Registrable
Securities, or if the Company is not in compliance with said obligations, the
demand registration rights described herein shall remain in effect. The Company
shall provide
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holders of Registrable Securities a reasonable opportunity, but not in excess of
seven days, to review any such registration statement or amendment or supplement
thereto prior to the filing thereof. If the Registrable Securities are
registered initially on a form other than Form S-3, the Company shall register
the Registrable Securities on Form S-3 as soon as use of such form is
permissible.
(ii) The Company shall not be obligated to effect Demand Registration
under Subsection (b)(i) if all of the Registrable Securities held by the holder
of Registrable Securities which are demanded to be covered by the Demand
Registration are, at the time of such demand, included in an effective
registration statement and the Company is in compliance with its obligations
under Subsection (d) (i) through (v) hereof.
(iii) The Company may suspend the effectiveness of any such
registration effected pursuant to this Subsection (b) in the event, and for such
period of time as, such a suspension is required by the rules and regulations of
the Securities and Exchange Commission ("SEC"), and may suspend use of the
prospectus included in the Registration Statement if such prospectus ceases to
meet the requirements of Section 10 of the Act. The Company will immediately
advise the holders of the registered securities of any such suspension, and will
use its best efforts to cause such suspension to terminate at the earliest
possible date.
(iv) If the registration statement covering all Registrable Securities
is not effective by the 90th calendar day after the Closing Date, then the
Company shall pay the Investor in cash an amount equal to 3% of the total
Purchase Price of Shares and any Registrable Securities then held by the
Investor for each 30 day period thereafter until such registration statement is
effective (pro-rata as to a period of less than 30 days); provided, however,
that if said Registration Statement is filed not later than ten business days
after the Closing, and the Securities and Exchange Commission is unwilling to
declare such Registration Statement effective until after the Commission has
reviewed the Company's annual report on Form 10K for calendar year 1996, then
the period of 90 days referred to in the opening phrase of this sentence shall
be extended by 30 days to the 120th calendar day after the Closing Date. An
amount equal to 3% of the total Purchase Price of Shares and any Registrable
Securities then held by Investor shall also be paid to the Investor in cash
during any period in excess of 30 days that the effectiveness of the
Registration Statement or use of the prospectus is suspended as set forth in
Section 1.4 (b)(iii) or the prospectus in otherwise unavailable for use by
sellers of Registrable Securities, provided that if such suspension or non-
availability is occasioned by a material business combination involving the
Company, said period of 30 days shall be increased to 45 days. Any payment
hereunder shall be made not later than 5 business days after the end of the 30-
day period with respect to which such payment is due. The "Purchase Price" of
Registrable Securities shall be (i) in the case of Registrable Securities
derived from conversion or substitution of Shares, the Purchase Price of such
Shares, and (ii) in the case of Registrable Securities derived from dividend
payments, the original dollar amount of such dividends. This subsection is in
addition to the provisions of Section 7.2(a) hereof.
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(c) If the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Investor)
any of its stock or other securities under the Act in connection with a public
offering of such securities (other than a registration on Form X-0, Xxxx X-0 or
other limited purpose form) and all Registrable Securities have not theretofore
been included in a registration statement under Subsection (b) which remains
effective, the Company shall, at such time, promptly give all holders of
Registrable Securities written notice of such registration. Upon the written
request of any holder of Registrable Securities given within twenty (20) days
after receipt of such notice by the holder of Registrable Securities, the
Company shall use its best efforts to cause to be registered under the Act all
Registrable Securities that such holder of Registrable Securities requests to be
registered. However, the Company shall have no obligation under this Subsection
(c) to the extent that, with respect to a public offering registration, the
managing underwriter of such public offering reasonably notifies such holder(s)
in writing of its determination that the Registrable Securities or a portion
thereof should be excluded therefrom.
(d) Whenever required under this Section to effect the registration of
any Registrable Securities, including, without limitation, the Initial
Registration, the Company shall, as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration to become effective as provided in Section 1.4(b)(i), and upon the
request of any holder of Registrable Securities keep such registration statement
effective for so long as any holder of Registrable Securities desires to dispose
of the securities covered by such registration statement, or, if earlier, until
such Registrable Securities may be sold under Rule 144(k) (provided that the
Company's transfer agent has accepted an instruction from the Company to such
effect).
(ii) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement and notify the holders of the filing and effectiveness of
such Registration Statement and any amendments or supplements.
(iii) Furnish to each holder of Registrable Securities such
numbers of copies of a current prospectus conforming with the requirements of
the Act, copies of the registration statement, any amendment or supplement
thereto and any documents incorporated by reference therein and such other
documents as such holder of Registrable Securities may reasonably require in
order to facilitate the disposition of Registrable Securities owned by such
holder of Registrable Securities.
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or "Blue Sky"
laws of such jurisdictions in the United States as shall be reasonably requested
by a holder of Registrable Securities, provided that the Company shall not be
required in connection therewith or as a
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condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(v) Notify each holder of Registrable Securities immediately of
the happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and use its best efforts to promptly update and/or
correct such prospectus.
(vi) Furnish, at the request of any holder of Registrable
Securities, (1) an opinion of counsel of the Company, dated the effective date
of the registration statement, in form and substance reasonably satisfactory to
the holder and its counsel and covering, without limitation, such matters as the
due authorization and issuance of the securities being registered and compliance
with securities laws by the Company in connection with the authorization,
issuance and registration thereof and (2) a letter or letters of the Company's
independent public accountants in form and substance reasonably satisfactory to
the holder and its counsel.
(vii) Use its best efforts to list the Registrable Securities
covered by such registration statement with any national market or securities
exchange on which the Common Stock is then listed;
(viii) Make available for inspection by the holder of Registrable
Securities, upon request, all SEC Documents (as defined below) filed subsequent
to the Closing and (subject to Section 7.13) require the Company's officers and
employees to supply all information reasonably requested by any holder of
Registrable Securities in connection with such registration statement, subject
to appropriate arrangements for confidentiality.
(e) Each holder of Registrable Securities will furnish to the Company
in connection with any registration under this Section such information
regarding itself, the Registrable Securities and other securities of the Company
held by it, and the intended method of disposition of such securities as shall
be reasonably required to effect the registration of the Registrable Securities
held by such holder of Registrable Securities. The Investor shall provide such
data on the Closing Date. The intended method of disposition (Plan of
Distribution) of such securities as so provided by Investor shall be included
without substantial alteration in the Registration Statement covering the
Registrable Securities and shall not be changed in any material respect without
written consent of the Investor.
(f) (i) The Company shall indemnify, defend and hold harmless each
holder of Registrable Securities which are included in a registration statement
pursuant to the provisions of Subsections (b) or (c) (each, a "Selling
Shareholder") and each of its officers, directors, employees, agents, partners
or controlling persons (within the meaning of the Act) (each, an "indemnified
party") from and against, and shall reimburse such indemnified party with
respect to, any and all claims, suits, demands, causes of action, losses,
damages, liabilities,
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costs or expenses ("Liabilities") to which such indemnified party may become
subject under the Act or otherwise, arising from or relating to (A) any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or (B) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
provided, however, that the Company shall not be liable in any such case to the
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extent that any such Liability arises out of or is based upon an untrue
statement or omission so made in strict conformity with information furnished by
such indemnified party in writing specifically for use in the preparation
thereof; provided further, that the Company shall not be liable in any such case
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to the extent that any such Liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any preliminary prospectus if (i) a Selling Shareholder under an obligation to
send or deliver a copy of the prospectus with or prior to the delivery of
written confirmation of the sale of Registrable Securities to the person
asserting such Liability who purchased such Registrable Securities which are the
subject thereof from such Selling Shareholder failed to do so and (ii) the
prospectus would have completely corrected such untrue statement or omission;
and provided further, that the Company shall not be liable in any such case to
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the extent that any Liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission in the prospectus,
if such untrue statement or alleged untrue statement, omission or alleged
omission is completely corrected in an amendment or supplement to the prospectus
and if, having previously been furnished by or on behalf of the Company with
copies of the prospectuses so amended or supplemented and having been obligated
to deliver such prospectuses, the Selling Shareholder thereafter failed to
deliver such prospectus as so amended or supplemented, prior to or concurrently
with the sale of Registrable Securities to the person asserting such Liability
who purchased such Registrable Securities which are the subject thereof from
such Selling Shareholder.
(ii) In the event of any registration under the Act of Registrable
Securities pursuant to Subsections (b) or (c), each holder of such Registrable
Securities hereby severally agrees to indemnify, defend and hold harmless the
Company, and its officers, directors, employees, agents, partners, or
controlling persons (within the meaning of the Act) (each, an "indemnified
party") from and against, and shall reimburse such indemnified party with
respect to, any and all Liabilities to which such indemnified party may become
subject under the Act or otherwise, arising from or relating to (A) any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or (B) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
provided, that such holders will be liable in any such case to the extent, and
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only to the extent, that any such Liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, prospectus or amendment or supplement
thereto in reliance upon and in strict conformity with written information
furnished in an instrument duly executed by such holder specifically for use in
the preparation thereof.
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(iii) Promptly after receipt by any indemnified party of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against another party (the "indemnifying party")
hereunder, notify such party in writing thereof, but the omission so to notify
shall not relieve the indemnifying party from any Liability which it may have to
the indemnified party other than under this section and shall only relieve it
from any Liability which it may have to the indemnified party under this section
if and to the extent it is actually prejudiced by such omission. In case any
such action shall be brought against any indemnified party and such indemnified
party shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the indemnifying
party to the indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to the indemnified
party under this section for any legal expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
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however, that if the defendants in any such action include both the indemnifying
party and such indemnified party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of such separate counsel and other reasonable expenses related
to such participation to be reimbursed by the indemnifying party as incurred.
In clarification of the foregoing, if the Company is the indemnifying party it
shall pay the reasonable expenses and fees of one separate counsel whose
selection is approved by the largest group of similarly situated indemnified
parties as measured by the aggregate par value of such Registrable Securities
owned by such group. Any indemnified party who chooses not to be represented by
the foregoing separate counsel shall be entitled, at its own expense, to be
represented by counsel of its own selection.
(g) (i) With respect to the inclusion of Registrable Securities in a
registration statement pursuant to Subsections (b) or (c), all fees, costs and
expenses of and incidental to such registration, inclusion and public offering
shall be borne by the Company; provided, however, that any Selling Shareholders
participating in such registration shall bear their pro-rata share of the
underwriting discounts and commissions, if any, incurred by them in connection
with such registration.
(ii) The fees, costs and expenses of registration to be borne by
the Company as provided in this Subsection (g) shall include, without
limitation, all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, and all legal fees and
disbursements and other expenses of complying with state securities or Blue Sky
laws of any jurisdiction or jurisdictions in the United States in which
securities to be offered are to be registered and qualified. Subject to
appropriate agreements as to confidentiality, the Company shall make available
to counsel for the holders
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of Registrable Securities its documents and personnel for due diligence
purposes. Except as otherwise provided herein, fees and disbursements of counsel
and accountants for the Selling Shareholders shall be borne by the respective
Selling Shareholders.
(h) The rights to cause the Company to register all or any portion of
Registrable Securities pursuant to this Section may be assigned by Investor to a
transferee or assignee of 20% or more, in the aggregate, of its Shares or the
Registrable Securities derived from such Shares. Within a reasonable time after
such transfer the Investor shall notify the Company of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned and will furnish or cause such transferee
to furnish to the Company the information provided for in subsection (e) of this
Section including information reasonably required by the Company to facilitate
inclusion of such transferee or assignee as a Selling Shareholder. Such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act. Any transferee asserting registration rights hereunder
shall be bound by the applicable provisions of this Agreement.
(i) From and after the date of this Agreement, the Company shall not
agree to allow the holders of any securities of the Company to include any of
their securities in any registration statement filed by the Company pursuant to
Subsection (b) unless such inclusion will not reduce the amount of the
Registrable Securities included therein.
(j) If the Company elects to require conversion of the Shares in
connection with a registered public offering of Common Stock by the Company, the
shares issued upon such conversion shall be included in such public offering (if
and to the extent that the holders so elect) and such shares shall have priority
over shares offered by the Company or by any other selling shareholders in the
event that a reduction in the total number of shares so offered shall be
required.
ARTICLE II
Representations and Warranties
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Section 2.1 Representations and Warranties of the Company. The Company
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hereby makes the following representations and warranties to the Investor:
(a) Organization and Qualification. The Company is a corporation duly
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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 or in the SEC Documents (as
hereinafter defined). 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
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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 controlling or controlled by such entity taken as a
whole.
(b) Authorization; Enforcement. (i) The Company has the requisite
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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,
(iii) this Agreement has been duly executed and delivered by the Company and
(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.
(c) Capitalization. The authorized capital stock of the Company
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consists of 50,000,000 shares of Common Stock and 5,000,000 shares of preferred
stock; there are approximately 15,800,000 shares of Common Stock and up to
1,030,000 shares of 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 15,800,000 shares of
Common Stock and approximately 1,400,000 shares of preferred stock issued and
outstanding. All of the outstanding shares of the Company's Common 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, 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 Company, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company or
options, warrants, scrip, rights to subscribe to, or commitments to purchase or
acquire, any shares, or securities or rights convertible into shares, of capital
stock of the Company. Anti-dilution provisions in the Company's outstanding
options, warrants or convertible securities will not operate to require issuance
of additional Common Stock upon exercise or conversion thereof, because of the
issuance or conversion of the shares. The Company has furnished or made
available to the Investor true and correct copies of the Company's Certificate
of Incorporation as in effect on the date hereof (the "Charter"), and the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").
(d) Issuance of Shares. The issuance of the Shares has been duly
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authorized and, when paid for or issued in accordance with the terms hereof, the
Shares shall be validly issued, fully paid and non-assessable and entitled to
the rights and preferences set forth in Schedule I hereto. The Common Stock
issuable upon conversion of the Shares will be duly
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authorized and reserved for issuance and, upon conversion in accordance with the
Certificate of Designation to be filed by the Company to establish the rights
and preferences of the Shares, will be validly issued, fully paid and non-
assessable and not subject to any preemptive rights or adverse claims created by
the Company, and the holders shall be entitled to all rights and preferences
accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of this
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Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby do not and will not (i) result in a violation of the
Company's Charter or By-Laws or (ii) conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any federal,
state, local or foreign law, rule, regulation, order, judgment or decree
(including Federal and state securities laws and regulations) applicable to the
Company or any of its subsidiaries or by which any property or asset of the
Company or any of its subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect); provided that, for purposes of such representation as to
Federal, state, local or foreign law, rule or regulation, no representation is
made herein with respect to any of the same applicable solely to the Investor
and not to the Company. The business of the Company is not being conducted in
violation of any law, ordinance or regulations of any governmental entity,
except for violations which either singly or in the aggregate do not and will
not have a Material Adverse Effect. The Company is not required under Federal,
state or local law, rule or regulation in the United States to obtain any
consent, authorization or order of, or make any filing (other than the filing of
the Certificate of Designation with the Delaware Secretary of State) or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or issue and sell
the Shares in accordance with the terms hereof (other than any SEC, NASD or
state securities filings which may be required to be made by the Company and any
registration statement which may be filed pursuant hereto); provided that, for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Investor herein.
(f) SEC Documents, Financial Statements. The Common Stock of the
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Company is registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Exchange Act, including
material filed pursuant to Section 13(a) or 15(d), in addition to one or more
registration statements and amendments thereto heretofore filed by the Company
with the SEC (all of the foregoing including filings incorporated by reference
therein being referred to herein as the "SEC Documents"). The Company has
delivered or made available to the Investor true and complete copies of the
quarterly and annual (including, without limitation, proxy information and
solicitation materials) SEC Documents filed with the SEC since January 1, 1995.
The Company has not provided to the
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Investor any information which, according to applicable law, rule or regulation,
should have been disclosed publicly by the Company but which has not been so
disclosed, other than with respect to the transactions contemplated by this
Agreement except as set forth on Exhibit A. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC promulgated thereunder
except as set forth on Exhibit A and other federal, state and local laws, rules
and regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(g) No Material Adverse Change. Since September 30, 1996, the date
--------------------------
through which the most recent quarterly report of the Company on Form 10-Q has
been prepared and filed with the SEC, a copy of which is included in the SEC
Documents, no event which would have a Material Adverse Effect has occurred or
exists with respect to the Company or its subsidiaries, except as otherwise
disclosed or reflected in other SEC Documents filed as of a date subsequent to
September 30, 1996.
(h) No Undisclosed Liabilities. The Company and its subsidiaries have
--------------------------
no liabilities or obligations not disclosed in the SEC Documents, other than
those incurred in the ordinary course of the Company's or its subsidiaries'
respective businesses since September 30, 1996 or which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on the Company or
its subsidiaries.
(i) No Undisclosed Events or Circumstances. No event or circumstance
--------------------------------------
has occurred or exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.
(j) No General Solicitation. Neither the Company, nor any of its
-----------------------
affiliates, or, to its knowledge, any person acting on its or their behalf
(including Xxxxxxxx & Xxxxxx Capital Corp. (the "Placement Agent")), has engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D under the Act) in connection with the offer or sale of the
Shares.
11
(k) No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Shares under the Act.
(l) Standoff Commitments. The Company has received binding assurances
--------------------
from Xxxxxxx Xxxx and Xxx Xxxxxx that neither of them nor any of their
controlled affiliates will sell any shares of Common Stock during the fourteen
months following the Closing Date without the prior written consent of Xxxxxxxx
& Laffer Capital Corp., the placement agent, except that each of them may sell
up to ten percent (10%) of his or her holdings of Common Stock as of the Closing
Date. "Controlled affiliate" for purposes of this Section does not include the
Company.
(m) Shareholder Approval. The Company has received binding assurances
--------------------
from its executive officers and directors, addressed to the several Investors,
substantially in the form and to the effect set forth in Schedule II hereto,
regarding shareholder approval.
Section 2.2 Representations and Warranties of the Investor. The Investor
----------------------------------------------
hereby makes the following representations and warranties to the Company:
(a) Authorization, Enforcement. (i) Such Investor has the requisite
--------------------------
power and authority to enter into and perform this Agreement and to purchase the
Shares being sold hereunder, (ii) the execution and delivery of this Agreement
by the Investor and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary corporate or partnership
action, and (iii) this Agreement constitutes a valid and binding obligation of
the Investor enforceable against the 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 the Investor of the transactions contemplated
hereby do not and will not (i) result in a violation of the Investor's charter
documents or By-Laws or (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. The business of the Investor is not
being conducted in violation of any law or regulation of any governmental
entity, except for possible violations which either singly or in the aggregate
do not and will not have a Material Adverse Effect. The 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. The data to be provided by
the Investor in connection with registering the Registrable Securities under the
Act will be true and correct in all material respects.
12
(c) Investment Representation. The Investor is purchasing the Shares
-------------------------
for its own account for investment and not with a view to distribution otherwise
than in compliance with the Act. Investor has no present intention to sell the
Shares and Investor has no present arrangement (whether or not legally binding)
to sell the Shares to or through any person or entity; provided, however, that
by making the representations herein, the Investor does not agree to hold the
Shares for any minimum or other specific term and reserves the right to dispose
of the Shares at any time in accordance with Federal and state securities laws
applicable to such disposition.
(d) Accredited Investor. The Investor is an accredited investor as
-------------------
defined in Rule 501 promulgated under the Act. The Investor has such knowledge
and experience in financial and business matters in general, and investments in
particular, so that the Investor is able to evaluate the merits and risks of an
investment in the Shares and to protect its own interests in connection with
such investment. In addition (but without limiting the effect of the Company's
representations and warranties contained herein), the Investor has received such
information as it considers necessary or appropriate for deciding whether to
purchase the Shares pursuant hereto. The Investor acknowledges that no
representation or warranty is made by the Placement Agent or any persons
representing the Placement Agent with respect to the Company or sale of the
Shares.
(e) Rule 144. The Investor understands that there is no public
--------
trading market for the Shares, that none is expected to develop, and that the
Shares must be held indefinitely unless such Shares or securities into which the
Shares are converted are registered under the Act or an exemption from
registration is available. The Investor has been advised or is aware of the
provisions of Rule 144 promulgated under the Act.
ARTICLE III
Covenants
---------
Section 3.1 Securities Compliance.
---------------------
(a) The Company shall notify the SEC and NASD, in accordance with
their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Shares and Common Stock issuable upon conversion thereof to the
Investor or subsequent holder.
(b) The Investor understands that the Shares are being offered and
sold in reliance on a transactional exemption from the registration requirements
of Federal and state securities laws and that the Company is relying upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Investor
13
set forth herein in order to determine the applicability of such exemptions and
the suitability of the Investor to acquire the Shares.
Section 3.2 Registration and Listing. Until three (3) years after all
------------------------
Shares have been converted into Common Stock, the Company will cause its Common
Stock (or other securities into which the Shares are convertible) to continue to
be registered under Sections 12(b) or 12(g) of the Exchange Act, will comply in
all respects with its reporting and filing obligations under said act, will
comply with all requirements related to any registration statement filed
pursuant to this Agreement and will not take any action or file any document
(whether or not permitted by the Act or the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Acts, except as permitted
herein. Until three (3) years after all Shares have been converted into Common
Stock the Company will take all action within its power to continue the listing
or trading of its Common Stock on the Nasdaq National Market and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and Nasdaq.
Section 3.3 Stockholder Approval. Following the Closing, the Company will
--------------------
use its best efforts to promptly notice and hold a stockholders meeting before
May 15, 1997 to obtain all stockholder approvals required by the Company
(including those required by all applicable agreements between the Company and
the NASD or Nasdaq) to allow for issuance of Common Stock upon conversion of the
Shares. If and so long as the Company has or may have a redemption obligation
under Section 4(m) of Schedule I hereto, the Company will declare and pay all
dividends (including any accrued dividends) on its outstanding shares of 5%
Convertible Preferred Stock.
Section 3.4 Sale Restrictions. Following conversion of the Shares into
-----------------
Common Stock of the Company, Investor will not on any trading day offer or sell
publicly on NASDAQ or on the principal exchange on which the Common Stock is
traded, more than the following number of such shares of Common Stock: the
greatest of (i) 10% of the average daily trading volume of the Common Stock for
the five trading days preceding such sale as reported by NASDAQ or by such
principal exchange, (ii) 20,000 shares, and (iii) 10% of the trading volume for
the Common Stock on such day.
Section 3.5 Conversion Rights. Investor shall not be entitled to convert
-----------------
any Share into Common Stock of the Company if following conversion of such Share
the Investor and its affiliates (within the meaning of the Exchange Act) shall
be the beneficial owners (as defined in Rule 13d-3 under the Exchange Act) of
10% or more of the Common Stock of the Company, or if a lesser percentage is set
forth after the name of the Investor on the signature page hereof, such lesser
percentage.
Section 3.6 Short Sale Restrictions. Investor agrees not to sell Common
-----------------------
Stock of the Company "short" except for (i) sales of shares issuable to Investor
upon conversion, made within 72 hours prior to the time notice of conversion is
given, (ii) sales against shares of Common Stock owned the day the short
position is established, (iii) sales against shares of
14
Common Stock which could be obtained upon conversion of the Company's
outstanding 5% Convertible Preferred Stock, or (iv) sales made more than
fourteen months after the Closing Date if the sale price is higher than the
Conversion Cap. The provisions of this Section shall be binding upon any
transferee of the Shares, and Investor and each such transferee shall be
obligated to notify any transferee of 5,000 or more of the Shares that such
transferee is bound by the provisions of this Section. This Section shall not be
applicable to sales in which Investor has no direct or indirect beneficial
interest made on behalf of third-party clients who are not holders of Shares.
Section 3.7 Notice of Conversion Cap. No later than the 15 days after the
------------------------
end of the 14th month after the Closing Date, the Company will deliver notice to
the Investor specifying the amount of the Conversion Cap (as defined in Schedule
I hereto) and the calculation thereof.
Section 3.8 Increase in Authorized Stock. The Company will immediately
----------------------------
adopt and submit to its shareholders for approval a charter amendment increasing
the authorized number of shares of Common Stock of the Company to an amount
deemed reasonable by the Company and the placement agent, if on any day the
total number of shares of Common Stock which are available (after giving effect
to all outstanding shares, warrants, options, convertible securities and other
commitments) for issuance upon conversion of the Shares and the 5% Convertible
Preferred Stock is less than the number of shares which would be required for
such conversions if the market price of the Common Stock were to be 30% less
than the closing price of the Common Stock on the immediately preceding trading
day in the principal market in which the Common Stock is traded.
ARTICLE IV
Conditions
----------
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
-------------------------------------------------------------
the Shares. The obligation hereunder of the Company to issue and/or sell the
----------
Shares to the Investor is subject to the satisfaction, at or before the Closing,
of each of the conditions set forth below. These conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) Accuracy of the Investor's Representations and Warranties. The
---------------------------------------------------------
representations and warranties of the Investor shall be true and correct in all
material respects.
(b) Performance by the Investor. The Investor shall have performed
---------------------------
all agreements and satisfied all conditions required to be performed or
satisfied by the Investor at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
-------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or
15
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
Section 4.2 Conditions Precedent to the Obligation of the Investor to
---------------------------------------------------------
Purchase the Shares. The obligation hereunder of the Investor to acquire and
-------------------
pay for the Shares is subject to the satisfaction, at or before the Closing, of
each of the conditions set forth below. These conditions are for the Investor's
sole benefit and may be waived by the Investor at any time in its sole
discretion.
(a) Accuracy of the Company's Representations and Warranties. The
--------------------------------------------------------
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date).
(b) Performance by the Company. The Company shall have performed all
--------------------------
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing.
(c) Nasdaq. From the date hereof to the Closing Date, trading in the
------
Company's Common Stock shall not have been suspended by the SEC or the Nasdaq
National Market (except for any suspension of trading of limited duration agreed
to between the Company and the Nasdaq National Market solely to permit
dissemination of material information regarding the Company), and trading in
securities generally as reported by Nasdaq shall not have been suspended or
limited or minimum prices shall not have been established on securities whose
trades are reported by Nasdaq.
(d) No Injunction. No statute, rule, regulation, executive order,
-------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) Opinion of Counsel, Etc. At the Closing the Investor shall have
-----------------------
received an opinion of counsel to the Company in the form attached hereto and
such other certificates and documents as the Investor or its counsel shall
reasonably require incident to the Closing.
ARTICLE V
Legend on Stock
---------------
Each certificate representing the Shares and, if appropriate,
securities issued upon conversion thereof, shall be stamped or otherwise
imprinted with a legend substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY
16
MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
The Company agrees to reissue certificates representing the Shares or, if
applicable, the securities issued upon conversion thereof without the legend set
forth above at such time as (i) the holder thereof is permitted to dispose of
such Shares (or securities issued upon conversion thereof) pursuant to Rule
144(k) under the Act, (ii) the securities are sold to a purchaser or purchasers
who (in the opinion of counsel to such purchasers, in form and substance
reasonably satisfactory to the Company and its counsel) are able to dispose of
such shares publicly without registration under the Act, or (iii) such
securities are sold pursuant to an effective registration statement under the
Act.
ARTICLE VI
Termination
-----------
Section 6.1 Termination by Mutual Consent. This Agreement may be
-----------------------------
terminated at any time prior to the Closing by the mutual written consent of the
Company and the Investor.
Section 6.2 Other Termination. This Agreement may be terminated by action
-----------------
of the Board of Directors or other governing body of the Investor or the Company
at any time if the Closing shall not have been consummated by the fifth business
day following the date of this Agreement.
Section 6.3 Automatic Termination. This Agreement shall automatically
---------------------
terminate without any further action of either party hereto if the Closing shall
not have occurred by the tenth business day following the date of this
Agreement.
ARTICLE VII
Miscellaneous
-------------
Section 7.1 Fees and Expenses. Except as otherwise set forth in Section
-----------------
1.4 hereof, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement, provided that the Company shall pay, at the
Closing, all due diligence fees and attorneys' fees and expenses incurred by the
Investor and the Placement Agent, up to the maximums stated in the final letter
agreement dated December 10, 1996 between the Company and Xxxxxxxx & Xxxxxx
Capital Corp., in connection with the preparation, negotiation, execution and
delivery of this Agreement and the transactions contemplated hereunder. The
Company shall compensate the
17
Placement Agent and shall indemnify it as set forth in said letter agreement.
The Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Shares pursuant hereto. As set forth in the December
10, 1996 letter agreement, the Placement Agent's compensation includes a cash
payment in an amount equal to 6.75% of the Purchase Price of Shares sold by the
Company, and the issuance of a warrant to the Placement Agent to purchase that
number of Shares equal to 10% of the number of Shares sold.
Section 7.2 Specific Enforcement, Consent to Jurisdiction.
---------------------------------------------
(a) The Company and the Investor acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.
(b) Each of the Company and the Investor (i) hereby irrevocably
submits to the jurisdiction of the United States District Court and other courts
of the United States sitting in California for the purposes of any suit, action
or proceeding arising out of or relating to this Agreement and (ii) hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Each of the Company and the
Investor consents to process being served in any such suit, action or proceeding
by mailing a copy thereof to such party at the address in effect for notices to
it under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this paragraph
shall affect or limit any right to serve process in any other manner permitted
by law.
Section 7.3 Entire Agreement: Amendment. This Agreement contains the
---------------------------
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein, neither the Company nor the
Investor makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or
amended other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought.
Section 7.4 Notices. Any notice or other communication required or
-------
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
18
to the Company: Xxx Xxx Roo, Inc.
Xxxxxxx Xxxx, Chairman
00000 Xxxxx Xxxxxx Xxxx., Xxxxx 000
Xxx Xxxxxxx, XX 00000
Fax: (000) 000-0000
to the Investor: At the address set forth at the foot of
this Agreement, with copies to
Investor's counsel as set forth at the
foot of this Agreement or as specified
in writing by Investor
with a copy to: Xxxxxx X. Xxxxxxxx
Xxxxxxxx & Xxxxxx Capital Corp.
0000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other party
hereto.
Section 7.5 Waivers. No waiver by either party of any default with
-------
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
Section 7.6 Headings. The headings herein are for convenience only, do
--------
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
Section 7.7 Successors and Assigns. Except as otherwise provided herein,
----------------------
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns. The parties hereto may amend this Agreement
without notice to or the consent of any third party. Except as herein provided,
neither the Company nor the Investor shall assign this Agreement or any rights
or obligations hereunder (other than to an affiliate) without the prior written
consent of the other (which consent may be withheld for any reason in the sole
discretion of the party from whom consent is sought); provided, however, that
the Company may assign its rights and obligations hereunder to any acquirer of
substantially all of the assets or a controlling equity interest of the Company.
The assignment by a party to this Agreement of any rights hereunder shall not
affect the obligations of such party under this Agreement.
19
Section 7.8 No Third Party Beneficiaries. This Agreement is intended for
----------------------------
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the internal laws of California
without regard to such state's principles of conflict of laws.
Section 7.10 Survival. The representations and warranties of the Company
--------
and the Investor contained in Article II and the agreements and covenants set
forth in Articles I, III, V and VII shall survive the Closing.
Section 7.11 Execution. This Agreement may be executed in two or more
---------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event any signature is delivered by facsimile
transmission, the party using such means of delivery shall cause the manually
executed signature page(s) to be physically delivered to the other party within
five days of the execution hereof.
Section 7.12 Publicity. The Company agrees that it will not disclose, and
---------
will not include in any public announcement, the name of the Investor without
its consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
Section 7.13 Contact with directors and personnel. Investor agrees not
-------------------------------------
to make direct contact with Company personnel or any director of the Company
without first advising the Chief Executive Officer or the Chief Financial
Officer of the Company, indicating the purpose of such contact, and allowing
such officer a reasonable opportunity to make appropriate arrangements to avoid
selective disclosure of inside information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
XXX XXX ROO, INC.
By: __________________________________________
Name: Xxxxxxx Xxxx
Its: Chairman and Chief Executive Officer
Number of Shares THE INVESTOR
20
________________________ By: ________________________
Name:
Dollar Amount at Its:
$100 per share Investor's address:
$_______________ Percentage limitation, if desired: _______
Name and address of Investor's counsel:
21
SCHEDULE I
RESOLUTION ESTABLISHING PREFERENCES
OF
SERIES B PREFERRED STOCK
RESOLVED that there shall be a series of shares of the Preferred Stock
of the Corporation designated "Series B Convertible Preferred Stock"; that the
number of shares of such series shall be 400,000 and that the rights and
preferences of such series (the "Series B Preferred") and the limitations or
restrictions thereon, shall be as follows:
1. Dividends.
---------
(a) The holders of the Series B Preferred shall be entitled to receive
out of any assets legally available therefor cumulative dividends at the rate of
$6.00 per share per annum, payable commencing August 1, 1997 and thereafter
quarterly on November 1, February 1, May 1 and August 1 of each year, when and
as declared by the Board of Directors, in preference and priority to any payment
of any dividend on the Common Stock or any other class or series of stock of the
Corporation ranking junior to the Series B Preferred. Such dividends shall
accrue on any given share from the day of original issuance of such share and
shall accrue from day to day whether or not earned or declared. If at any time
dividends on the outstanding Series B Preferred at the rate set forth above
shall not have been paid or declared and set apart for payment with respect to
all preceding periods, the amount of the deficiency shall be fully paid or
declared and set apart for payment, but without interest, before any
distribution, whether by way of dividend or otherwise, shall be declared or paid
upon or set apart for the shares of any other class or series of stock of the
Corporation except the 5% Convertible Preferred Stock and any other class or
series which is entitled to priority over the Series B Preferred.
(b) Any dividend may be paid, at the option of the Corporation, either
(i) in cash or (ii) in shares of Series B Preferred valued at $100 per share, if
the Common Stock issuable upon conversion of such Series B Preferred has been
registered for resale under the Securities Act of 1933, as amended (the "Act"),
and the registration statement including a current prospectus with respect
thereto remains in effect at the date of delivery of such shares or if such
shares may be sold pursuant to Rule 144(k) under the Act and the Corporation's
transfer agent has accepted an instruction from the Corporation to that effect,
and if the Corporation shall have given written notice of its intention to pay
such dividend in stock to all holders of the Series B Preferred at least 10 days
before the record date for such dividend.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of the Series B
Preferred shall be entitled to receive, prior and in preference to any
distribution of any assets of the Corporation to the holders of the Common Stock
or any other class or series of shares except the 5% Convertible Preferred Stock
and any other class or series which is entitled to priority over the Series B
Preferred, the amount of $100 per share plus any accrued but unpaid dividends
(the "Liquidation Preference").
(b) A consolidation or merger of the Corporation with or into any
other corporation or corporations, or a sale of all or substantially all of the
assets of the Corporation, shall, at the option of the holders of the Series B
Preferred, be deemed a liquidation, dissolution or winding up within the meaning
of this Section 2 if the shares of stock of the Corporation (along with all
derivative securities) outstanding immediately prior to such transaction
represent immediately after such transaction less than a majority of the voting
power of the
1
surviving corporation (or of the acquirer of the Corporation's assets in the
case of a sale of assets). Such option may be exercised by the vote or written
consent of holders of a majority of the Series B Preferred at any time within
thirty calendar days after written notice of the essential terms of such
transaction shall have been given to the holders of the Series B Preferred in
the manner provided by law for the giving of notice of meetings of shareholders.
Such notice shall be given by the Corporation immediately following
determination of such essential terms.
3. Redemption; Automatic Conversion.
--------------------------------
(a) The Series B Preferred shall be redeemed in whole or in part if
and to the extent required by the provisions of Section 4(m) hereof, and in
accordance with such provisions.
(b) At least 10 days prior to the Redemption Date, written notice (the
"Redemption Notice") shall be mailed, first class postage prepaid, by the
Corporation to each holder of record of the Series B Preferred, at the address
last shown on the records of the Corporation for such holder, notifying such
holder of the redemption which is to be effected, specifying the percentage of
shares which is to be redeemed from such holder, the Redemption Date, the
Redemption Price or, as the case may be, the Special Redemption Price, the place
at which payment may be obtained and calling upon each such holder to surrender
to the Corporation, in the manner and at the place designated, a certificate or
certificates representing the number of shares to be redeemed calculated by
multiplying the specified percentage of shares to be redeemed by the total
number of shares of Series B Preferred held by such holder. On or after the
Redemption Date, each holder of Series B Preferred shall surrender to the
Corporation the certificate or certificates representing the specified
percentage of shares of Series B Preferred owned by such holder as of the
Redemption Date, in the manner and at the place designated in the Redemption
Notice, and thereupon the Redemption Price or Special Redemption Price of such
shares shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(c) From and after the Redemption Date, unless there shall have been a
default in payment of the Redemption Price, all rights of the holders of shares
which have been redeemed (except the right to receive the Redemption Price
without interest upon surrender of the certificate or certificates representing
such shares) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. If less than all of the Series B
Preferred shares are to be redeemed, the Corporation shall select shares so to
be redeemed as nearly as practicable pro rata in such manner as the Board of
Directors may determine. The shares not redeemed shall remain outstanding and
entitled to all the rights and preferences provided herein.
(d) On the third anniversary of the date of issuance, all then
outstanding shares of Series B Preferred shall be automatically converted into
Common Stock at the Conversion Price and otherwise pursuant to the applicable
provisions set forth in Section 4 hereof.
(e) If the Corporation sells Common Stock for cash in a registered
underwritten public offering (other than stock issuable pursuant to a
registration statement on form S-8) the Corporation may require that the Series
B Preferred be converted at the time of such sale if (but only if) the
underwriters of such public offering agree to purchase from the holders of the
Series B Preferred all shares of Common Stock that such holders wish to sell, at
the same price and on the same terms as the underwriters are purchasing other
shares included in the public offering. In such event the Conversion Price shall
be the public offering price (or, for investors selling shares in the offering,
the public offering price less the underwriters' gross spread) reduced in either
case by the Applicable Percentage set forth in Section 4(d) hereof. The
Corporation shall give notice of such requirement in the same manner as set
forth above with respect to notices of redemption. If for any reason whatsoever
the underwriters do not purchase the shares which the converting Series B
Preferred holders wish to sell, any notice of conversion given by a holder of
Series B Preferred after the Corporation's notice was given pursuant to this
subsection shall be deemed to be withdrawn, and any certificates for Series B
Preferred which
2
have been surrendered for conversion shall be returned to the persons
surrendering the same; provided, however, that if a holder shall have received
shares of Common Stock upon conversion of Series B Preferred after such notice
was given but before the proposed effective date of the registration statement,
such holder may elect either to retain such Common Stock or rescind such
conversion by tendering such shares of Common Stock to the Corporation.
4. Conversion. The holders of the Series B Preferred shall have optional
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conversion rights as follows:
(a) Accrual of Conversion Rights. Commencing 91 days after the date
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of issuance, or (if earlier) the date that a Registration Statement covering the
underlying shares of Common Stock has been declared effective by the Securities
and Exchange Commission, 15% (or such larger percentage as is determined by the
Corporation in its sole discretion) of the number of Series B Preferred shares
held of record by each holder ("Original Holder") on such 91st day shall become
convertible, and thereafter on the successive monthly anniversaries of such 91st
day an equal number of the Series B Preferred shares held by the Original Holder
or his successors shall become convertible (on a cumulative basis). On and
after November 1, 1997 all the shares of Series B Preferred shall be
convertible. Monthly anniversaries shall be determined on the basis of calendar
days and months. In the case of transfers of shares by an Original Holder the
Company shall make such notations on its stock ownership records and on the
certificates for shares issued upon transfer so as to reflect the portion (if
any) of the transferred shares which have become convertible pursuant to this
provision, or the Company may at its election issue certificates representing
the Series B Preferred shares in such form, or with such annotations, as to
reflect the time or times at which the shares represented by such certificates
will become convertible.
(b) Right to Convert. At and after the time it has become
----------------
convertible, each share of Series B Preferred shall be convertible, at the
option of the holder thereof, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing (i) the liquidation
preference of the Series B Preferred determined pursuant to Section 2 hereof on
the date the notice of conversion is given, by (ii) the Conversion Price
determined as hereinafter provided in effect on said date; provided, however,
that a share of Series B Preferred which is converted into Common Stock prior to
August 1, 1997, shall receive no adjustment for accrued dividends and the
liquidation preference of such share, for conversion purposes, shall not include
any amount in respect of accrued dividends. No holder shall be entitled to
convert any share of Series B Preferred into shares of Common Stock if following
such conversion the holder and its affiliates (within the meaning of the
Securities Exchange Act of 1934) shall be the beneficial owners (as defined in
Rule 13d-3 under said Act) of 10% or more of the Common Stock of the
Corporation.
(c) Mechanics of Conversion. To convert shares of Series B Preferred
-----------------------
into shares of Common Stock, the holder shall give written notice to the
Corporation (which notice may be given by facsimile transmission) that such
holder elects to convert the same and shall state therein the number of shares
to be converted and the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. Promptly
thereafter the holder shall surrender the certificate or certificates
representing the shares to be converted, duly endorsed, at the office of the
Corporation or of any transfer agent for such shares, or at such other place
designated by the Corporation. The Corporation shall, immediately upon receipt
of such notice, issue and deliver to or upon the order of such holder, against
delivery of the certificates representing the shares which have been converted,
a certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled. The Corporation shall effect such issuance within
48 hours and shall transmit the certificates by messenger or overnight delivery
service to reach the address designated by such holder within 2 business days
after the receipt of such notice. Notice of conversion may be given by a holder
at any time of day up to 5:00 pm Los Angeles time, and such conversion shall be
deemed to have been made immediately prior to the close of business on the date
such notice of conversion is given. The person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock at
the close of business on such date.
(d) Determination of Conversion Price.
---------------------------------
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(i) At any date during the eight months following the date of
issuance, the Conversion Price shall be the lesser of (x) the actual selling
price at which the holder giving notice of conversion shall have sold shares of
Common Stock during the three trading days immediately preceding the date of
conversion, in a bona fide trade with an unaffiliated third party, as certified
to the Company by such holder, but not less than the lowest trading price on the
date of such trade as reported by NASDAQ, reduced by the Applicable Percentage
(as defined below), or (y) the average of the daily low trading prices of the
Common Stock for the three trading days immediately preceding such date, reduced
by the Applicable Percentage; provided, however, that clause (x) shall only
apply to the extent of shares of Common Stock actually so sold.
(ii) At any date more than eight months following the date of
issuance, through the 14th month following the date of issuance, the conversion
price shall be the lowest trading price of the Common Stock during the five
trading days immediately preceding the date of conversion, reduced by the
Applicable Percentage.
(iii) The Applicable Percentage shall be as follows:
3% through the last day of the 4th month after the date of issuance.
4% Starting on the 1st day of the 5th month after the date of issuance.
5% Starting on the 1st day of the 6th month after the date of issuance.
12% Starting on the 1st day of the 7th month after the date of issuance.
12.75% Starting on the 1st day of the 8th month after the date of issuance.
13.5% Starting on the 1st day of the 9th month after the date of issuance.
14.5% Starting on the 1st day of the 10th month after the date of issuance.
16% Starting on the 1st day of the 11th month after the date of issuance.
19% Starting on the 1st day of the 12th month after the date of issuance.
22% Starting on the 1st day of the 13th month after the date of issuance.
25% Starting on the 1st day of the 14th month after the date of issuance.
In the event that on any trading day either (a) the New York Stock Exchange
imposes a trading halt of one hour or more pursuant to Rule 80A or 80B of such
Exchange (or any successor to said Rules), or (b) the Dow Xxxxx Industrial
Average declines by 5% or more of its value immediately prior to the opening of
the market on such day, then such day and the two trading days immediately
following such day shall not be regarded as "trading days" for purposes of the
foregoing provisions.
For purposes of this resolution, the term "months" means calendar months, and
when months are measured after the date of issuance, the last day of each month
shall be a monthly anniversary of the date of issuance. For example, if the date
of issuance were January 10, 1997, the fifth month after the date of issuance
would end on and would include June 10, 1997, the sixth month after the date of
issuance would commence on June 11, 1997 and end on July 10, 1997, and the
thirteenth month after the date of issuance would commence on and would include
January 11, 1998.
(iv) At any date more than 14 months after the date of issuance, the
Conversion Price shall be the lesser of (x) 75% of the average of the daily low
trading prices of the Common Stock for all the trading days during such 14th
month (the "Conversion Cap"), or (y) 75% of the lowest trading price of the
Common Stock during the 5 trading days immediately preceding the date of
conversion.
(v) The "low trading price" of the Common Stock on any day shall be
(A) the lowest reported sale price of the Common Stock on the principal stock
exchange on which the Common Stock is listed, or (B) if the Common Stock is not
listed on a stock exchange, the lowest reported sale price of the Common Stock
on the principal automated securities price quotation system on which sale
prices of the Common Stock are reported, or (C) if the Common Stock is not
listed on a stock exchange and sale prices of the Common Stock
4
are not reported on an automated quotation system, the lowest bid price for the
Common Stock as reported by National Quotation Bureau Incorporated if at least
two securities dealers have inserted both bid and asked quotations for the
Common Stock on at least five of the ten preceding trading days. If none of the
foregoing provisions are applicable, the "low trading price" of the Common Stock
on a day will be the fair market value of the Common Stock on that day as
determined by a member firm of the New York Stock Exchange, Inc., selected by
the Board of Directors of the Corporation. Subject to the provisions of the
foregoing subsection (iii), the term "trading day" means (x) if the Common Stock
is listed on at least one stock exchange, a day on which there is trading on the
principal stock exchange on which the Common Stock is listed, (y) if the Common
Stock is not listed on a stock exchange but sale prices of the Common Stock are
reported on an automated quotation system, a day on which trading is reported on
the principal automated quotation system on which sales of the Common Stock are
reported, or (z) if the foregoing provisions are inapplicable, a day on which
quotations are reported by National Quotation Bureau Incorporated.
(vi) In the event that during any period of consecutive trading
days provided for above, the Corporation shall declare or pay any dividend on
the Common Stock payable in Common Stock or in rights to acquire Common Stock,
or shall effect a stock split or reverse stock split, or a combination,
consolidation or reclassification of the Common Stock, then the Conversion Price
and (if such event occurs during the 14th month after the date of issuance) the
Conversion Cap shall be proportionately decreased or increased, as appropriate,
to give effect to such event. If such an event occurs more than 14 months after
the date of issuance the Conversion Cap shall be proportionately decreased or
increased to give effect to such event.
(e) Distributions. In the event the Corporation shall at any time or
-------------
from time to time make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation or any of its subsidiaries other than
additional shares of Common Stock, then in each such event provision shall be
made so that the holders of Series B Preferred shall receive, upon the
conversion thereof, the securities of the Corporation which they would have
received had they been the owners on the date of such event of the number of
shares of Common Stock issuable to them upon conversion.
(f) Certificates as to Adjustments. Upon the occurrence of any
------------------------------
adjustment or readjustment of the Conversion Price or the Conversion Cap
pursuant to this Section 4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
cause independent public accountants selected by the Corporation to verify such
computation and prepare and furnish to each holder of Series B Preferred a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Series B Preferred,
furnish or cause to be furnished to such holder a like certificate prepared by
the Corporation setting forth (i) such adjustments and readjustments, and (ii)
the number of other securities and the amount, if any, of other property which
at the time would be received upon the conversion of Series B Preferred with
respect to each share of Common Stock received upon such conversion.
(g) Notice of Record Date. In the event of 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 (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive additional
shares of Common Stock, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or property, or
to receive any other right, the Corporation shall mail to each holder of Series
B Preferred at least 10 days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution, security or right and the amount and character of
such dividend, distribution, security or right.
(h) Issue Taxes. The Corporation shall pay any and all issue and
-----------
other taxes, excluding any income, franchise or similar taxes, that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of Series B Preferred pursuant hereto; provided, however,
that the
5
Corporation shall not be obligated to pay any transfer taxes resulting from any
transfer requested by any holder in connection with any such conversion.
(i) 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 B Preferred, 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 B Preferred, subject to the limitation set
forth in subsection (m) below, and 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 B Preferred, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose, including, without limitation,
engaging in best efforts to obtain the requisite shareholder approval.
(j) Fractional Shares. No fractional shares shall be issued upon the
-----------------
conversion of any share or shares of Series B Preferred. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Series B Preferred 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 a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market value
of such fraction on the date of conversion (as determined in good faith by the
Board of Directors of the Corporation).
(k) Notices. Any notice required by the provisions of this Section to
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be given to the holders of shares of Series B Preferred shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at its address appearing on the books of the Corporation.
(l) Reorganization or Merger. In case of any reorganization or any
------------------------
reclassification of the capital stock of the Corporation or any consolidation or
merger of the Corporation with or into any other corporation or corporations or
a sale of all or substantially all of the assets of the Corporation to any other
person, and the holders of Series B Preferred do not elect to treat such
transaction as a liquidation, dissolution or winding up as provided in Section
2, then, as part of such reorganization, consolidation, merger or sale,
provision shall be made so that each share of Series B Preferred shall
thereafter be convertible into the number of shares of stock or other securities
or property (including cash) to which a holder of the number of shares of Common
Stock deliverable upon conversion of such share of Series B Preferred would have
been entitled upon the record date of (or date of, if no record date is fixed)
such event and, in any case, appropriate adjustment (as determined by the Board
of Directors) shall be made in the application of the provisions herein set
forth with respect to the rights and interests thereafter of the holders of the
Series B Preferred, to the end that the provisions set forth herein shall
thereafter be applicable, as nearly as equivalent as is practicable, in relation
to any shares of stock or the securities or property (including cash) thereafter
deliverable upon the conversion of the shares of Series B Preferred.
(m) Limitation on Number of Conversion Shares. The Corporation shall
------------------------------------------
not be obligated to issue, in the aggregate, more than 3,150,000 shares of
Common Stock as presently constituted (the "Nasdaq Cap") upon conversion of the
Series B Preferred, if issuance of a larger number of shares would constitute a
breach of the Corporation's obligations under its agreements with the NASD or
Nasdaq. Subject to the obligation to effect certain redemptions pursuant to the
last three sentences of this subsection (m), if further issuances of shares of
Common Stock upon conversion of the Series B Preferred would constitute a breach
of the Corporation's obligations under any applicable agreements with the NASD
or Nasdaq (i.e., all of the shares permitted to be issued under the Nasdaq Cap
shall have been so issued), then so long thereafter as such limitation shall
continue to be applicable and any shares of Series B Preferred are submitted for
conversion such shares shall receive in cash an amount equal to the greater of
(i) the liquidation preference of such shares divided by the difference between
100% and the Applicable Percentage set forth in subsection (d)(ii) of this
Section 4, as then
6
in effect, or (ii) the current value of the Common Stock which such shares would
otherwise be entitled to receive upon conversion (such value per share to be the
price per share used for purposes of determining the Conversion Price pursuant
to Section 4 hereof), in lieu of the Common Stock which such shares would
otherwise be entitled to receive upon conversion. Payment of said cash amount
shall be made no later than one business day after the time specified in Section
4(c) for the delivery of Common Stock upon conversion, and shall bear daily
interest thereafter at the rate of one-tenth of one percent per day until paid.
Such maximum number of shares of Common Stock shall be proportionately and
equitably adjusted in the event of stock splits, stock dividends, reverse stock
splits, reclassifications or other such events, in such manner as the Board of
Directors of the Corporation shall reasonably determine. If (A) the Corporation
is unable to obtain the requisite shareholder approval concerning the issuance
of shares of Common Stock upon conversion of the Series B Preferred to satisfy
all NASD and Nasdaq requirements prior to the earlier to occur of (i) rejection
by stockholders of a proposal considered at a duly noticed meeting of
stockholders to provide such approval, or (ii) May 31, 1997, then (B) the
Corporation shall immediately redeem, at a "Special Redemption Price" equal to
the liquidation preference of such shares divided by the difference between 100%
and the Applicable Percentage set forth in subsection (d)(ii) of this Section 4
as in effect on the date the Special Redemption Price is paid, the smallest
number of Shares which is sufficient, in the Corporation's reasonable judgment,
such that following such redemption, conversion of the remaining shares of
Series B Preferred would not constitute a breach of the Corporation's
obligations under any applicable agreements with the NASD or Nasdaq. Any
redemption effected pursuant to the preceding sentence shall require no more
than 10 days' notice and the Redemption Date shall be not more than 15 days
after the date specified in Clause (i), Clause (ii) or Clause (iii) of the
preceding sentence (whichever is applicable) and such redemption shall be made
pro-rata as set forth in Section 3(c) hereof. If there shall be a default in
payment of the Special Redemption Price, the amount so payable shall bear daily
interest from and after the Redemption Date at the rate of one-tenth of one
percent per day until paid.
5. Other Provisions. For all purposes of this Resolution, the term "date
-----------------
of issuance" or "closing" shall mean the day on which shares of the Series B
Preferred are first issued by the Corporation, and the terms "trading price",
"last trade price", and "trading days" shall have the meanings given them in
Section 4(d)(iv) hereof. Any provision herein which conflicts with or violates
any applicable usury law shall be deemed modified to the extent necessary to
avoid such conflict or violation.
6. Restrictions and Limitations. The Corporation shall not undertake the
----------------------------
following actions without the consent of the holders of a majority of the Series
B Preferred: (i) modify its Certificate of Incorporation or Bylaws so as to
amend or change any of the rights, preferences, or privileges of the Series B
Preferred, (ii) authorize or issue any other equity security senior to the
Series B Preferred, or (iii) purchase or otherwise acquire for value any Common
Stock or other equity security of the Corporation either junior or senior to or
on a parity with the Series B Preferred while there exists any arrearage in the
payment of cumulative dividends hereunder.
7. Voting Rights. Except as provided herein or as provided for by law,
--------------
the Series B Preferred shall have no voting rights.
8. Attorneys' Fees. Any holder of Series B Preferred shall be entitled to
---------------
recover from the Corporation the reasonable attorneys' fees and expenses
incurred by such holder in connection with enforcement by such holder of any
obligation of the Corporation hereunder.
7
