AGREEMENT AND PLAN OF MERGER
BY AND AMONG
EXECUTONE INFORMATION SYSTEMS, INC.,
EXECUTONE NEWCO, INC.,
AND
UNISTAR GAMING CORP.
December 19, 1995
TABLE OF CONTENTS
Page
RECITALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
DEFINITIONS
1.1 Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Coeur d'Alene Tribe. . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 Conversion Period. . . . . . . . . . . . . . . . . . . . . . . . 3
1.11 DGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.12 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.13 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . 3
1.14 Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.15 GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.16 Interim Balance Sheet. . . . . . . . . . . . . . . . . . . . . . 3
1.17 Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.18 Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.19 Management Agreement . . . . . . . . . . . . . . . . . . . . . . 4
1.20 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.21 National Indian Lottery. . . . . . . . . . . . . . . . . . . . . 4
1.22 Newco. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.23 Opinion of Executone's Counsel . . . . . . . . . . . . . . . . . 4
1.24 Opinion of Unistar's Counsel . . . . . . . . . . . . . . . . . . 5
1.25 Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.26 Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . 5
1.27 Registration Statement . . . . . . . . . . . . . . . . . . . . . 5
1.28 Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.29 Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.30 SSSD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.31 Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.32 Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.33 UEI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.34 Unistar. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.35 Unistar Group. . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.36 VSCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.37 VSCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE II
BASIC TRANSACTION
2.1 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 The Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Actions at the Closing . . . . . . . . . . . . . . . . . . . . . 7
2.4 Effect of Merger . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Conversion of Stock. . . . . . . . . . . . . . . . . . . . . . . 8
2.6 Surrender of Certificates. . . . . . . . . . . . . . . . . . . . 8
2.7 Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.8 Nomination of Director . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF UNISTAR
3.1 Organization of Unistar. . . . . . . . . . . . . . . . . . . . . 10
3.2 Authorization; Enforceability . . . . . . . . . . . . . . . . . 10
3.3 No Violation or Conflict by Unistar. . . . . . . . . . . . . . . 11
3.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5 Title to Assets. . . . . . . . . . . . . . . . . . . . . . . . . 12
3.6 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.7 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . 13
3.8 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
3.9 Financial Statements . . . . . . . . . . . . . . . . . . . . . . 14
3.10 No Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . 14
3.11 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.12 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . 17
3.13 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . .17
3.14 No Broker. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.15 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.16 Approval of Gaming Agency . . . . . . . . . . . . . . . . . . . .18
3.17 Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.18 Stock of The Xxxxxx Companies, Inc. . . . . . . . . . . . . . . .19
3.19 Management Agreement . . . . . . . . . . . . . . . . . . . . . . 19
3.20 Information True and Correct. . . . . . . . . . . . . . . . . . .20
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EXECUTONE
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.2 Authorization; Enforceability. . . . . . . . . . . . . . . . . . 20
4.3 No Violation or Conflict . . . . . . . . . . . . . . . . . . . . 21
4.4 SEC Documents. . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.5 Absence of Certain Changes. . . . . . . . . . . . . . . . . . . .23
4.6 Executone Stock. . . . . . . . . . . . . . . . . . . . . . . . . 23
4.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.8 No Broker. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE V
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF EXECUTONE
5.1 Compliance with Agreement. . . . . . . . . . . . . . . . . . . . 24
5.2 Proceedings and Instruments Satisfactory . . . . . . . . . . . . 25
5.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.4 Representations and Warranties . . . . . . . . . . . . . . . . . 25
5.5 Deliveries at Closing. . . . . . . . . . . . . . . . . . . . . . 25
5.6 Dissenter's Rights . . . . . . . . . . . . . . . . . . . . . . . 26
5.7 Cancellation of Options. . . . . . . . . . . . . . . . . . . . . 26
5.8 Letter from the Coeur d'Alene Tribe. . . . . . . . . . . . . . . 26
ARTICLE VI
CONDITIONS PRECEDENT
TO THE OBLIGATIONS OF UNISTAR
6.1 Compliance with Agreement. . . . . . . . . . . . . . . . . . . . 26
6.2 Proceedings and Instruments Satisfactory . . . . . . . . . . . . 26
6.3 No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.4 Representations and Warranties . . . . . . . . . . . . . . . . . 27
6.5 Deliveries at Closing. . . . . . . . . . . . . . . . . . . . . . 27
6.6 Delivery of Executone Options. . . . . . . . . . . . . . . . . . 27
ARTICLE VII
ADDITIONAL COVENANTS
7.1 Meeting of Shareholders. . . . . . . . . . . . . . . . . . . . . 27
7.2 Sales Transactions Between Executone and Unistar . . . . . . . . 28
7.3 Certain Distributions or Loans . . . . . . . . . . . . . . . . . 29
7.4 Corporate Overhead . . . . . . . . . . . . . . . . . . . . . . . 29
7.5 Nonsurvival. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.6 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VIII
TERMINATION
8.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.2 Rights on Termination. . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE IX
MISCELLANEOUS
9.1 Registration of Common Stock.. . . . . . . . . . . . . . . . . . .31
9.1.1 Registration Procedures. . . . . . . . . . . . . . . . . . . . . .31
9.1.2 Allocation of Expenses . . . . . . . . . . . . . . . . . . . . . .34
9.1.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . .35
9.1.4 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . .37
9.1.5 Listing on Securities Exchange . . . . . . . . . . . . . . . . . .39
9.2 Entire Agreement; Amendment. . . . . . . . . . . . . . . . . . . .39
9.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
9.4 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . .40
9.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
9.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
9.7 Counterparts; Headings . . . . . . . . . . . . . . . . . . . . . .41
9.8 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . .42
9.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . .42
9.10 No Reliance. . . . . . . . . . . . . . . . . . . . . . . . . . . .42
EXHIBITS
Exhibit 1.23 Opinion of Executone's Counsel
Exhibit 1.24 Opinion of Seller's Counsel
Exhibit 1.25 Permits
Exhibit 1.26 Articles of Amendment
Exhibit 2.3 Certificate of Merger and Articles of Merger
Exhibit 2.4 Directors and Officers of Unistar Following the Merger
Exhibit 2.7 Outstanding Options; Form of Exchange Option
Exhibit 3.3 No Violation or Conflict by Unistar
Exhibit 3.6 Litigation
Exhibit 3.8 Contracts
Exhibit 3.9 Financial Statements
Exhibit 3.10 No Adverse Change
Exhibit 3.11 Taxes
Exhibit 3.12 Employee Benefit Plans
Exhibit 3.13 Compliance with Law
Exhibit 3.16 Approval of Gaming Agency
Exhibit 3.17 Shareholders
Exhibit 3.19 Management Agreement
Exhibit 5.5 Restricted Securities Agreement
Exhibit 5.8 Letter from Coeur d'Alene Tribe
AGREEMENT AND PLAN OF MERGER
THIS MERGER AGREEMENT, made as of the 19th
day of December, 1995, by and among EXECUTONE
INFORMATION SYSTEMS, INC., a Virginia corporation
("Executone"), EXECUTONE NEWCO, INC., a Virginia
corporation and a wholly-owned subsidiary of Executone
("Newco"), and UNISTAR GAMING CORP., a Delaware
corporation ("Unistar"), provides:
RECITALS
WHEREAS, Executone wishes to acquire Unistar through a
reverse subsidiary merger of Newco with and into Unistar (the
"Merger"); and
WHEREAS, for Federal income tax purposes, it is intended that
the Merger will qualify as a reorganization, within the meaning
of Section 368(a) of the Code;
NOW, THEREFORE, in consideration of the Recitals and of
the mutual covenants, conditions and agreements set forth herein
and for other good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the
meanings specified:
1.1 Affiliate. "Affiliate" shall mean, with respect to a person,
any person that directly or indirectly controls, is controlled by, or is
under common control with, the person in question.
1.2 Agreement. "Agreement" shall mean this Agreement and Plan of
Merger, together with the Exhibits attached hereto, as the same
may be amended from time to time in accordance with the terms hereof.
1.3 Balance Sheet. "Balance Sheet" shall mean the consolidated
audited balance sheet of Unistar as of December 31, 1994.
1.4 Closing. "Closing" shall have the meaning ascribed thereto in
Section 2.2.
1.5 Closing Date. "Closing Date" shall have the meaning ascribed
thereto in Section 2.2.
1.6 Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.7 Coeur d'Alene Tribe. "Coeur d'Alene Tribe" shall mean the
Coeur d'Alene tribe, a federally recognized Indian tribe.
1.8 Common Stock. "Common Stock" shall mean the common stock
of Executone, par value $.01 per share.
1.9 Contracts. "Contracts" shall mean all contracts, agreements,
leases, relationships and commitments, written or oral, to which
Unistar or UEI is a party or by which Unistar or UEI is bound.
1.10 Conversion Period. "Conversion Period" shall mean the period
commencing at the Effective Time and ending upon the later of
(i) the last day of the four year period commencing on the date
that the first lottery ticket for participation in the National Indian
Lottery is sold by UEI pursuant to the Management Agreement,
and (ii) the last day of the five year period commencing at the
Effective Time.
1.11 DGCL. "DGCL" shall mean the Delaware General Corporation
Law.
1.12 Effective Time. "Effective Time" shall mean 12:01 a.m., local
time, on the later of the date that the Certificate of Merger is
filed with the SSSD and the date that the VSCC issues a
certificate of merger confirming that the Articles of Merger filed
with the VSCC are effective.
1.13 Employee Benefit Plans. "Employee Benefit Plans" shall mean
the employee benefit plans of Unistar and UEI listed on
Exhibit 3.12 attached hereto.
1.14 Exchange Act. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
1.15 GAAP. "GAAP" shall mean generally accepted accounting
principles.
1.16 Interim Balance Sheet. "Interim Balance Sheet" shall mean the
consolidated unaudited balance sheet of Unistar as of November 30, 1995.
1.17 Knowledge. "Knowledge" shall mean, with reference to any
natural person, the actual knowledge of such person, without
investigation, or, in the case of a corporation or partnership, the
actual knowledge, without investigation, of any executive officer
or general partner of such entity.
1.18 Law. "Law" shall mean any federal, state, local or other law or
governmental requirement of any kind, and the rules, regulations
and orders promulgated thereunder.
1.19 Management Agreement. "Management Agreement" shall mean
that certain Management Agreement for the National Indian
Lottery, dated January 16, 1995, by and between the Coeur
d'Alene and UEI, as amended from time to time.
1.20 Merger. "Merger" shall have the meaning ascribed thereto in the
first "WHEREAS" clause of this Agreement.
1.21 National Indian Lottery. "National Indian Lottery" shall mean
the tele-lottery gaming enterprise to be known as the National
Indian Lottery pursuant to the Indian Gaming Regulatory Act of
1988 ("IGRA"), the 1992 Class III Gaming Compact by and
between the Coeur D'Alene Tribe and the State of Idaho and the
Coeur D'Alene Tribal Charitable Gaming Code, Chapter 30-1.01
- 14.01.
1.22 Newco. "Newco" shall mean Executone Newco, Inc., a Virginia
corporation.
1.23 Opinion of Executone's Counsel. "Opinion of Executone's
Counsel" shall mean the opinion of Hunton & Xxxxxxxx, counsel
to Executone, in the form of Exhibit 1.23 attached hereto.
1.24 Opinion of Unistar's Counsel. "Opinion of Unistar's Counsel"
shall mean the opinion of Xxxxxx Xxxxxxxxxx LLP, counsel to
Unistar, in the form of Exhibit 1.24 attached hereto.
1.25 Permits. "Permits" shall mean all permits, licenses and
governmental authorizations, registrations and approvals used in
the conduct of Unistar's or UEI's business, including, but not
limited to, those permits listed on Exhibit 1.25 attached hereto.
1.26 Preferred Stock. "Preferred Stock" shall mean the aggregate of
the 250,000 shares of Cumulative Convertible Preferred Stock,
Series A, $0.01 par value per share, and the 100,000 shares of
Cumulative Contingently Convertible Preferred Stock, Series B,
$0.01 par value per share, of Executone to be received by the
Shareholders as a result of the Merger, the rights and preferences
of which are set forth in the Articles of Amendment comprising
Exhibit 1.26 attached hereto.
1.27 Registration Statement. "Registration Statement" shall mean the
Registration Statement on Form SB-2 under the Securities Act, as
filed by Unistar with the Securities and Exchange Commission on
March 6, 1995.
1.28 Securities Act. "Securities Act" shall mean the Securities
Act of 1933, as amended.
1.29 Shareholders. "Shareholders" shall mean the persons and
entities listed on Exhibit 3.17 attached hereto.
1.30 SSSD. "SSSD" shall mean the Secretary of State for the State of
Delaware.
1.31 Stock. "Stock" shall mean all of the issued and outstanding
capital stock of Unistar, consisting of 8,702,526 shares of
common stock, $0.01 par value.
1.32 Subsidiary. "Subsidiary" of any person shall mean any
corporation or other entity of which a majority of the voting
power of the voting equity securities or equity interest is owned,
directly or indirectly, by such person.
1.33 UEI. "UEI" shall mean Unistar Entertainment, Inc., a Colorado
corporation.
1.34 Unistar. "Unistar" shall mean Unistar Gaming Corp., a
Delaware corporation.
1.35 Unistar Group. "Unistar Group" shall mean Unistar and all its
Subsidiaries, including, but not limited to, UEI, as they may
exist from time to time.
1.36 VSCA. "VSCA" shall mean the Virginia Stock Corporation Act.
1.37 VSCC. "VSCC" shall mean the Virginia State Corporation
Commission.
ARTICLE II
BASIC TRANSACTION
2.1 Merger. Subject to all of the terms and conditions of this
Agreement, Newco will merge into Unistar at the Effective Time
pursuant to and upon the terms set forth in this Article II.
2.2 The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of
Hunton & Xxxxxxxx, 000 Xxxx Xxxxxx, Xxx Xxxx, xx the
business day following satisfaction or waiver of all conditions to
the obligations of the parties to consummate the transactions
contemplated hereby (other than conditions with respect to
actions which the respective parties will take at the Closing itself)
or such other date as the parties may mutually elect (the "Closing Date").
2.3 Actions at the Closing. At the Closing, (i) Unistar will
deliver to Executone and Newco the various certificates, instruments and
documents referred to in Section 5.5 below; (ii) Executone will
deliver to Unistar the various certificates, instruments and
documents referred to in Section 6.5 below; (iii) Unistar and
Newco will file with the SSSD and VSCC a Certificate of Merger
and Articles of Merger in the forms attached hereto as Exhibit 2.3.
2.4 Effect of Merger. The Merger shall become effective at the
Effective Time and shall have the effect set forth in the DGCL
and the VSCA. Unistar, as the surviving corporation, may at
any time after the Effective Time, take any action (including
executing and delivering any document) in the name and on
behalf of either Newco or Unistar in order to carry out and
effectuate the transactions contemplated by this Agreement. The
Certificate of Incorporation and the Bylaws of Unistar shall be
the Certificate of Incorporation and Bylaws of the Surviving
Corporation following the Merger. The persons who shall
become the officers and directors of the surviving corporation at
the Effective Time are set forth on Exhibit 2.4.
2.5 Conversion of Stock. At and as of the Effective Time, each
share of the Stock shall be automatically converted into a unit
consisting of the following securities of Executone: (i)
.425163912 of a share of Common Stock, (ii) .028727291 of a
share of Cumulative Convertible Preferred Stock, Series A, and
(iii) .011490916 of a share of Cumulative Contingently
Convertible Preferred Stock, Series B, in each case rounded to
the nearest whole share. The aggregate number of such
securities to be received by each Shareholder is set forth on
Exhibit 3.17 hereto. Each issued and outstanding share of
Newco shall be automatically converted at and as of the Effective
Time into one share of common stock of Unistar.
2.6 Surrender of Certificates. At and after the Effective Time,
each Shareholder who surrenders his certificates theretofore
representing his shares of Stock to Executone shall receive in
exchange therefor certificates representing the number of shares
of Common Stock and Preferred Stock to which such Shareholder
is entitled under this Agreement. Until surrendered in
accordance with the provisions of this Section, each certificate
theretofor representing shares of Stock shall be deemed to
represent the number of shares of Common Stock and Preferred
Stock into which said Stock shall have been converted as a result
of the Merger.
2.7 Options. Each outstanding option to purchase a share of the
stock of Unistar shall be exchanged on the Closing Date for an
option to purchase shares of Common Stock of Executone, at an
option price of $3.10 per share, in accordance with the allocation
of options set forth on Exhibit 2.7 attached hereto. Each such
option shall be in substantially the form of Exhibit 2.7 attached hereto.
2.8 Nomination of Director. At the Effective Time, Executone shall
have created an additional seat on its Board of Directors which
shall be occupied immediately after the Effective Time by a
person designated immediately after the Effective Time by the
holders of a majority of the outstanding Preferred Stock, said
designee to hold office until the annual meeting of shareholders
of Executone next following the Effective Time. At each annual
meeting of the shareholders of Executone held while any of the
Preferred Stock is outstanding, the holders of a majority of the
Preferred Stock, voting as a separate class, will be entitled to
nominate one director for election to Executone's Board of
Directors. Executone shall use its best efforts to cause each such
nominee to be elected as a member of its Board of Directors.
Any designee of the holders of the Preferred Stock on
Executone's Board of Directors may be removed, and may only
be removed, with or without cause, by the holders of a majority
of the outstanding Preferred Stock, voting as a separate class. In
the event that any such nominee ceases to be a member of
Executone's Board of Directors by reason of death, resignation,
retirement, disqualification, removal from office or otherwise,
then, in such event, the vacancy created thereby shall be, as soon
as is practicable, filled by a person who is designated by the
holders of a majority of the Preferred Stock. Executone shall
also cause each member of the Unistar Group to extend an
invitation (with reasonable notice) to said designee to attend, as
an observer, each meeting of its Board of Directors (and
committees thereof). Such observer shall not, as such, have any
right to participate in the management of the Unistar Group.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF UNISTAR
Unistar hereby represents and warrants to Executone that:
3.1 Organization of Unistar. Unistar and UEI are corporations
duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and State of Colorado,
respectively. Each of Unistar and UEI is duly qualified as a
foreign corporation in each jurisdiction in which a failure to so
qualify would have a material adverse effect upon the business or
properties of such person. Each of Unistar and UEI has all
requisite authority to conduct its business as now being conducted
and to own and operate its properties.
3.2 Authorization; Enforceability. The execution, delivery and
performance by Unistar of this Agreement and of all of the
documents and instruments delivered by Unistar pursuant hereto
are within the corporate power of Unistar and have been duly
authorized by its Board of Directors and the Shareholders. This
Agreement is, and the other documents and instruments delivered
by Unistar pursuant hereto will be, when executed and delivered
by Unistar, the valid and binding obligations of Unistar,
enforceable against Unistar in accordance with their respective
terms.
3.3 No Violation or Conflict by Unistar. Except as set forth on
Exhibit 3.3 hereto, the execution, delivery and performance of
this Agreement by Unistar (a) does not conflict with or violate
any Law, judgment, order or decree binding on Unistar or the
Certificate or Articles of Incorporation or Bylaws of Unistar or
UEI or any contract or agreement to which Unistar or UEI is a
party or by which either of them is bound, the breach of which
could have a material adverse effect on the ability of either of
them to consummate the transactions contemplated hereby, or on
the business, financial condition or results of operations of
Unistar or UEI, and (b) will not require the consent or approval
of any other party or give any party to any Contract any right of
termination, cancellation, acceleration or modification
thereunder. Except as set forth on Exhibit 3.3 hereto, no notice
to, filing or registration with, or authorization, consent or
approval of, any governmental, regulatory or self-regulatory
agency is necessary or is required to be made or obtained by
Unistar or UEI in connection with the execution and delivery of
this Agreement or the consummation by Unistar and UEI of the
transactions contemplated hereby.
3.4 Capitalization. The authorized capital stock of Unistar
consists of 25,000,000 shares of common stock, par value $.01 per share,
and 10,000,000 shares of preferred stock, par value $.01 per
share. The Stock represents all of the issued and outstanding
capital stock of Unistar, has been duly and validly authorized and
issued and is fully paid and non-assessable. Except for the
options to purchase up to 1,020,000 shares of common stock
listed on Exhibit 2.7, there are no options, warrants or other
rights to subscribe for or purchase from Unistar any capital stock
of Unistar or securities convertible into or exchangeable for, or
which otherwise confer on the holder any right to acquire, any
capital stock of Unistar, nor is Unistar committed to issue any
such option, warrant or other right. Unistar owns all of the
outstanding capital stock of UEI free and clear of any and all
mortgages, liens, encumbrances, charges, claims, restrictions,
pledges, security interests or impositions. There are no options,
warrants or other rights to subscribe for or purchase from UEI
any capital stock of UEI or securities convertible into or
exchangeable for, or which otherwise confer on the holder any
right to acquire, any capital stock of UEI, nor is UEI committed
to issue any such option, warrant or other right.
3.5 Title to Assets. Unistar and UEI each owns good and
marketable title to all of the assets and properties that are used in its
business, or that are reflected in the Balance Sheet (except as
disposed of in the ordinary course of business since December
31, 1994), free and clear of any and all mortgages, liens,
encumbrances, charges, claims, restrictions, pledges, security
interests or impositions.
3.6 No Litigation. Except as listed in Exhibit 3.6 or referred
to in the Registration Statement, there is no litigation, arbitration
proceeding, governmental investigation, citation or action of any
kind pending or, to the Knowledge of Unistar, threatened, against
Unistar or UEI or relating to the business, assets or properties of
Unistar or UEI or the National Indian Lottery.
3.7 Books and Records. All of the books and records of Unistar
and UEI have been made available to Executone. To the Knowledge
of Unistar, such books and records are true, complete and correct
in all material respects.
3.8 Contracts. Exhibit 3.8 attached hereto is a true and
complete list of all material Contracts. Except as is set forth on Exhibit
3.8 attached hereto, (a) each of Unistar and UEI has performed each
material term, covenant and condition of each of the Contracts
which is to be performed by either of them at or before the date
hereof, (b) no event has occurred that would, with the passage of
time or compliance with any applicable notice requirements,
constitute a default by Unistar or UEI or, to the Knowledge of
Unistar, any other party under any of the Contracts, and, (c) to
the Knowledge of Unistar, no party to any of the Contracts
intends to cancel, terminate or exercise any option under any of
the Contracts, the result of which could have a material adverse
effect on the business or financial condition of Unistar or UEI.
3.9 Financial Statements. The Balance Sheet and the Interim
Balance Sheet, including the notes thereto, copies of which are included
in Exhibit 3.9 hereto, are true and correct in all material
respects, present fairly the consolidated financial position of
Unistar as of their respective dates, and were prepared, except as
set forth therein and except for the absence of footnotes to the
Interim Balance Sheet, in accordance with GAAP applied on a
basis consistent with Unistar's past practice (subject to year end
adjustments, in the case of the Interim Balance Sheet). Unistar's
consolidated unaudited income statements for the year-to-date
ended November 30, 1995, which are included in Exhibit 3.9
hereto, are true and correct in all material respects, present fairly
the results of operations for such period, and were prepared,
except as set forth therein, in accordance with GAAP applied on
a basis consistent with Unistar's past practice (subject to year end
adjustments and except for the absence of footnotes). Except as
reflected on the Balance Sheet and the Interim Balance Sheet,
neither Unistar nor UEI was, at the dates thereof, subject to any
liability not reflected thereon that in accordance with GAAP is
required to be disclosed thereon (except for any liabilities that
would be disclosed in footnotes to the Interim Balance Sheet).
3.10 No Adverse Change. Except as set forth in Exhibit 3.10,
since November 30, 1995, there has not been: (a) any material adverse
change in the business, financial condition or results of
operations of Unistar or UEI; (b) any material loss or damage to
the assets of Unistar or UEI; (c) any event or condition of any
character that could materially adversely affect Unistar's or
UEI's business; (d) any borrowings by Unistar or UEI; (e) any
mortgage, pledge, lien or encumbrance made on any of the
properties or assets of Unistar or UEI; or (f) any sale, transfer or
other disposition of assets of Unistar or UEI other than in the
ordinary course of business.
3.11 Taxes. None of Unistar, UEI, nor, to the Knowledge of Unistar,
any entity to whose liabilities Unistar or UEI has succeeded, has
filed or been included in a consolidated, unitary, or combined tax
return with any person other than Unistar and UEI. Except as
disclosed on Exhibit 3.11 hereto: (a) Unistar and UEI have filed
all tax returns and reports required to have been filed by or for
each of them; (b) all material information set forth in such
returns or reports is accurate and complete; (c) Unistar and UEI
have paid or made adequate provision for all taxes, additions to
tax, penalties, and interest payable by Unistar or UEI; (d) no
unpaid tax deficiency has been asserted against or with respect to
Unistar or UEI by any taxing authority; (e) Unistar and UEI have
collected or withheld all amounts required to be collected or
withheld by them for any taxes, and all such amounts have been
paid to the appropriate governmental agencies or set aside in
appropriate accounts for future payment when due; (f) Unistar
and UEI are in compliance with, and their records contain all
information and documents necessary to comply with, all
applicable information reporting and tax withholding
requirements; (g) the Balance Sheet and the Interim Balance
Sheet fully and properly reflect, as of the dates thereof, the
liabilities of Unistar and UEI for all accrued taxes, additions to
tax, penalties, and interest; (h) for periods ending after the date
of the Interim Balance Sheet, the books and records of Unistar
and UEI fully and properly reflect their respective liabilities for
all accrued taxes, additions to tax, penalties and interest; (i)
Unistar and UEI have not granted, nor is either of them subject
to, any waiver of the period of limitations for the assessment of
tax for any currently open taxable period; (j) Unistar and UEI
have not made or entered into, and hold no asset subject to, a
consent filed pursuant to Section 341(f) of the Code and the
regulations thereunder or a "safe harbor lease" subject to former
Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended before the Tax Reform Act of 1986, and the regulations
thereunder; and (k) Unistar and UEI are not required to include
in income any amount for an adjustment pursuant to Section 481
of the Code or the regulations thereunder. Exhibit 3.11 describes
all material tax elections, consents, and agreements affecting
Unistar and UEI, and lists all types of taxes paid and tax returns
filed by Unistar and UEI. Except for Watermark, none of the
Shareholders is a "foreign person" for purposes of Section 1445
of the Code. Unistar is not, and at all times during the last five
years has not been, a United States real property holding
corporation within the meaning of Section 897 of the Code.
3.12 Employee Benefit Plans. Except for the Employee Benefit Plans
listed on Exhibit 3.12 attached hereto, neither Unistar nor UEI
has any accrued obligations pursuant to any bonus, deferred
compensation, profit sharing, pension, retirement or stock option
plan or agreement, or any other type of employee benefit plan.
All Employee Benefit Plans maintained by Unistar or UEI have
been maintained in compliance with ERISA and neither Unistar
nor UEI has any liability with respect to any such plans.
3.13 Compliance with Law. To the Knowledge of Unistar, except as
set forth in Exhibit 3.13 or as referred to in the Registration
Statement, (a) the conduct of Unistar's and UEI's business and
each such corporation's use of its assets does not violate or
conflict with any Law, which violation or conflict could have a
material adverse effect on the assets or properties of Unistar or
UEI or could result in a material impairment of the business of
Unistar or UEI, and (b) all governmental approvals,
authorizations, and Permits required by Unistar or UEI to
conduct its business, the absence of which could result in a
material impairment of the business of Unistar or UEI have been
obtained, are in full force and effect and are being complied with
in all material respects.
3.14 No Broker. Except for Resource Holdings Associates, neither
Unistar nor UEI has had any dealings, negotiations or
communications with any broker or other intermediary in
connection with the transactions contemplated by this Agreement
and is not committed to any liability for any brokers' or finders'
fees or any similar fees in connection with the merger. A portion
of the transaction fees of Resource Holdings Associates in the
amount of $200,000, plus accrued management fees of $90,000,
shall be paid by Unistar at the Closing. The balance of the
transaction fees, calculated at 2% of the value of the Preferred
Stock given in the Merger, will be paid as soon as the amount
thereof is established.
3.15 Subsidiaries. Except for UEI and as disclosed in Section 3.18
hereof, and except for Lottery Satellite Network, Inc., a
Colorado corporation which is wholly-owned by UEI and which
has no material assets, liabilities and operations, neither UEI nor
Unistar owns any class of capital stock of any corporation or has
any ownership interest in any partnership or other entity, or has
the right or obligation to acquire any ownership interest in any
corporation, partnership or other entity.
3.16 Approval of Gaming Agency. The State of Idaho has approved
the compact with the Coeur d'Alene Tribe authorizing the Coeur
d'Alene Tribe's operation of class III gaming and the National
Indian Gaming Commission has approved the management
agreement between the Coeur d'Alene Tribe and UEI. To the
Know-ledge of Unistar, except as set forth on Exhibit 3.16 or as
re-ferred to in the Registration Statement, no further consents or
approvals are required from any governmental agency with
respect to the Management Agreement or the establishment of the
National Indian Lottery under IGRA. To the Knowledge of
Unistar, except as described on Exhibit 3.16 or as referred to in
the Registration Statement, with the exception of the challenges
to the National Indian Lottery which have been threatened or
asserted by various states, there are no other impediments or
challenges which have been asserted against the National Indian
Lottery or the marketing of the National Indian Lottery in the
thirty seven states and the District of Columbia where UEI
intends to market tickets for the National Indian Lottery.
3.17 Shareholders. Exhibit 3.17 attached hereto sets forth a
complete list of all holders of record of the Stock (the "Shareholders") and
all other securities issued by Unistar. All distributions and other
issuances of shares of Unistar common stock, notes and other
securities by Unistar were effected in compliance with all
applicable federal and state securities laws.
3.18 Stock of The Xxxxxx Companies, Inc. Any shares of common
stock of The Xxxxxx Companies, Inc. which are owned by
Unistar as of the date hereof are owned by it free and clear of
any and all mortgages, liens, encumbrances, charges, claims,
restrictions, pledges, security interests or impositions, and may
be freely sold and transferred by Unistar without the need for
compliance with the registration provisions of the Securities Act.
3.19 Management Agreement. A true complete and correct copy of
the Management Agreement (A) together with all amendments
thereto is attached to this Agreement as Exhibit 3.19, and (B)
together with all amendments and Exhibits thereto has heretofore
been delivered to Executone by Unistar. The Management
Agreement is in full force and effect based upon the letter
referred to in Section 5.8, and there are no qualifications,
requirements, obligations or other conditions precedent to the
effectiveness of the Management Agreement except as set forth
therein and all such requirements, obligations and conditions
precedent which are required by the terms of the Management
Agreement to be performed or fulfilled by the date of this
Agreement have been satisfied.
3.20 Information True and Correct. Each representation or
warranty made by Unistar in this Agreement, or in any written statement,
certificate or other instrument furnished by it to Executone
pursuant to this Agreement, is true, complete and correct in all
material respects.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EXECUTONE
Executone hereby represents and warrants to Unistar that:
4.1 Organization. Each of Executone and Newco is a corporation
duly incorporated, validly existing and in good standing under
the laws of Virginia. Executone has all requisite power and
authority to own, operate and lease its properties and carry on its
business as now conducted.
4.2 Authorization; Enforceability. The execution, delivery and
performance by Executone and Newco of this Agreement and of
all of the documents and instruments delivered by Executone or
Newco pursuant hereto, including, but not limited to, the Articles
of Amendment creating the Preferred Stock, are within the
corporate power of Executone and Newco, respectively, and have
been duly authorized by all necessary corporate action of
Executone or Newco, respectively. This Agreement is, and the
other documents and instruments delivered by Executone or
Newco pursuant hereto will be, when executed and delivered by
Executone or Newco (or, in the case of the Articles of
Amendment, when duly filed in the office of the VSCC), the
valid and binding obligation of Executone or Newco, as
appropriate, enforceable against such corporation in accordance
with their respective terms.
4.3 No Violation or Conflict. The execution, delivery and
performance of this Agreement by Executone and Newco do not
conflict with or violate any Law, judgment, order or decree
binding on Executone or Newco or the Articles of Incorporation
or Bylaws of Executone or Newco or any contract or agreement
to which Executone or Newco is a party or by which it is bound,
the breach of which could have a material adverse effect on
Executone's or Newco's ability to consummate the transactions
contemplated hereby, or on the business, financial condition or
results of operations of Executone or Newco, or the businesses of
Unistar and UEI following the Merger. No notice to, filing or
registration with, or authorization, consent or approval of, any
governmental, regulatory or self-regulatory agency is necessary
or is required to be made or obtained by Executone or Newco in
connection with the execution and delivery of this Agreement by
Executone or Newco or the consummation by Executone or
Newco of the transactions contemplated hereby.
4.4 SEC Documents. Executone has delivered to Unistar each
registration statement, report, proxy statement and information
statement (as defined in Regulation 14C under the Exchange Act)
prepared by it since December 31, 1994 including, without
limitation, its (i) Annual Report on Form 10-K for the year ended
December 31, 1994, (ii) Quarterly Reports on Form 10-Q for the
periods ended March 31, 1995, June 30, 1995 and September 30,
1995 and (iii) definitive proxy statement relating to its annual
meeting of stockholders held on June 27, 1995, each in the form
(including exhibits and any amendments thereto) filed with the
Securities and Exchange Commission (the "SEC") (collectively,
the "Executone Reports"). As of their respective dates, the
Executone Reports (i) complied in all material respects with the
applicable requirements of the Securities Act, the Exchange Act,
and the rules and regulations thereunder and (ii) did not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under
which they were made, not misleading. Each of the consolidated
balance sheets of Executone included in or incorporated by
reference into the Executone Reports (including the related notes
and schedules) fairly presents the consolidated financial position
of Executone as of its date, and each of the consolidated
statements of income or operations, stockholders' equity and cash
flows of Executone included in or incorporated by reference into
the Executone Reports (including any related notes and
schedules) fairly presents the results of operations, stockholders'
equity or cash flows, as the case may be, of Executone for the
periods set forth therein (subject, in the case of unaudited
statements, to normal year-end adjustments which would not be
material in amount or effect), in each case in accordance with
GAAP consistently applied during the periods involved, except as
may be noted therein. Except as and to the extent set forth on
the consolidated balance sheet of Executone as of December 31,
1994, including the notes thereto, or as set forth in the Executone
Reports, neither Executone nor any of the Executone's
Subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) that would
be required to be reflected on, or reserved against in, a
consolidated balance sheet of Executone or in the notes thereto,
prepared in accordance with GAAP consistently applied, except
liabilities arising in the ordinary course of business since such
date.
4.5 Absence of Certain Changes. Since December 31, 1994, there
has not been any material adverse change in the assets, liabilities,
condition (financial and other), business or prospects of
Executone.
4.6 Executone Stock. All of the issued and outstanding capital
stock of Executone is, and the Common Stock and Preferred Stock to
be received by the Shareholders in connection with the Merger
(including, but not limited to, any Common Stock which may be
issued upon conversion of the Preferred Stock or upon exercise
of the options referred to in subparagraph 2.7 hereof, which
shares of Common Stock have been duly reserved for issuance)
will be, (a) duly and validly issued, (b) fully paid and nonasses-
sable, and (c) free of preemptive rights and any personal liability.
4.7 Capitalization. The authorized capital stock of Executone
consists of 80,000,000 shares of Common Stock, par value $.01
per share, and 1,000,000 shares of preferred stock, par value
$.01 per share, of which as of November 30, 1995, (A)
46,478,000 shares of Common Stock were issued and
outstanding, and (B) no shares of preferred stock were issued and
outstanding.
4.8 No Broker. Neither Executone nor Newco has had any dealings,
negotiations or communications with any broker or other
intermediary in connection with the transactions contemplated by
this Agreement.
ARTICLE V
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF EXECUTONE
Each and every obligation of Executone to be performed on the
Closing Date shall be subject to the satisfaction prior to or at the
Closing of the following express conditions precedent:
5.1 Compliance with Agreement. Unistar and UEI shall have
performed and complied in all material respects with all of their
obligations under this Agreement which are to be performed or
complied with by them prior to or on the Closing Date.
5.2 Proceedings and Instruments Satisfactory. All proceedings,
corporate or other, to be taken by Unistar and UEI in connection
with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be reasonably satisfactory in
form and substance to Executone and Executone's counsel, and
Unistar and UEI shall have made available to Executone for
examination the originals or true and correct copies of all
documents which Executone may reasonably request in
connection with the transactions contemplated by this Agreement.
5.3 No Litigation. No investigation, suit, action or other proceeding
shall be threatened or pending before any court or governmental
agency that seeks restraint, prohibition, damages or other relief
in connection with this Agreement or the consummation of the
transactions contemplated hereby.
5.4 Representations and Warranties. The representations and
warranties made by Unistar in this Agreement shall be true and
correct in all material respects as of the Closing Date.
5.5 Deliveries at Closing. Unistar shall have delivered to Executone
the following documents, each properly executed and dated as of
the Closing Date: (a) the Opinion of Unistar's Counsel; (b) a
Restricted Securities Agreement executed by each of the
Shareholders relating to the Common Stock and Preferred Stock
to be received by such Shareholder as a result of the Merger, in
substantially the form of Exhibit 5.5 attached hereto; and (c) a
form W-9 executed by each of the Shareholders that is a natural
person.
5.6 Dissenter's Rights. None of the Shareholders shall have
exercised dissenter's rights with respect to the transactions
contemplated by this Agreement.
5.7 Cancellation of Options. Each person holding an option to
purchase shares of Unistar shall have delivered to Executone
evidence satisfactory to Executone that such option has been
cancelled effective as of the Effective Time.
5.8 Letter from the Coeur d'Alene Tribe. Unistar shall have
delivered to Executone a letter from the Coeur d'Alene Tribe in
substantially the form attached hereto as Exhibit 5.8.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF UNISTAR
Each and every obligation of Unistar to be performed on the
Closing Date shall be subject to the satisfaction prior to or at the
Closing of the following express conditions precedent:
6.1 Compliance with Agreement. Executone shall have performed
and complied in all material respects with all of its obligations
under this Agreement which are to be performed or complied
with by it prior to or on the Closing Date.
6.2 Proceedings and Instruments Satisfactory. All proceedings,
corporate or other, to be taken by Executone or Newco in
connection with the transactions contemplated by this Agreement,
and all documents incident thereto, shall be reasonably
satisfactory in form and substance to Unistar and its counsel, and
Executone shall have made available to Unistar for examination
the originals or true and correct copies of all documents which
Unistar may reasonably request in connection with the
transactions contemplated by this Agreement.
6.3 No Litigation. No investigation, suit, action or other proceeding
shall be threatened or pending before any court or governmental
agency that seeks restraint, prohibition, damages or other relief
in connection with this Agreement or the consummation of the
transactions contemplated hereby.
6.4 Representations and Warranties. The representations and
warranties made by Executone in this Agreement shall be true
and correct in all material respects as of the Closing Date.
6.5 Deliveries at Closing. Executone shall have delivered to Unistar
the Opinion of Executone's Counsel, properly executed and dated
as of the Closing Date.
6.6 Delivery of Executone Options. Each person referred to in
Section 5.7 above shall have received a duly executed option to
purchase shares of Executone Common Stock, as contemplated
by Section 2.7 above.
ARTICLE VII
ADDITIONAL COVENANTS
7.1 Meeting of Shareholders. Executone shall, at its cost and
expense, take all action that is necessary in accordance with
applicable law and its Articles of Incorporation and Bylaws to
convene a meeting of its shareholders as promptly as practicable
following the Effective Time, but in no event later than July 31,
1996, to consider and vote upon a single proposal to permit the
issuance of such additional number of shares of Common Stock
as may be necessary to permit the conversion and redemption
rights relating to the Cumulative Contingently Convertible
Preferred Stock, Series B, as set forth in the Articles of
Amendment comprising Exhibit 1.26, to be exercised by
Executone or the Shareholders (the "Shareholder Approval").
The Board of Directors of Executone shall recommend such
approval and shall take all lawful action to solicit such approval
including, without limitation, timely mailing of the proxy
statement relating to such proposal (which proxy statement may
comprise Executone's proxy statement in connection with its
annual meeting of shareholders). Executone shall not at any time
seek the approval of its shareholders for any such conversion and
redemption rights other than as a single proposal (viz., Executone
shall not at any time seek approval of redemption rights without
conversion rights, and vice versa).
7.2 Sales Transactions Between Executone and Unistar. Executone
covenants that, as long as any Preferred Stock is outstanding, all
transactions involving sales of goods or services between
Executone or any of its other Affiliates on the one hand, and any
members of the Unistar Group, on the other hand, shall be
consummated on terms equal to or better than that (A) offered to
any other customer of Executone or any of its Affiliates (other
than the Unistar Group) under substantially similar circumstances
(e.g., taking into account development effort, nature of products
and services, volume, etc.), or (B) which is available to UEI or
Unistar from a third party. No transaction or series of related
transactions of a type described in this Section 7.3 which
involves or may be anticipated to involve the receipt or payment
of $750,000 or more (or the equivalent) shall be entered into,
without the prior written consent of the member of Executone's
Board of Directors who is the designee of the holders of the
Preferred Stock pursuant to Section 2.8 hereof, acting in his
individual capacity and not in his capacity as a member of
Executone's Board of Directors.
7.3 Certain Distributions or Loans. Executone covenants that as long
as any Preferred Stock is outstanding, it shall not cause or permit
any member of the Unistar Group to make any distribution or
loans to Executone or any of its other Affiliates of any proceeds
of any loans or advances made to any member of the Unistar
Group by third parties.
7.4 Corporate Overhead. Executone covenants that, as long as any
Preferred Stock is outstanding, neither it nor any of its other
Affiliates shall charge any member of the Unistar Group with any
corporate overhead, administrative or similar charges. The
provisions of this Section 7.4 shall not be deemed to prohibit or
restrict Executone or any of its Affiliates from charging any
member of the Unistar Group for services actually rendered and
products actually purchased, provided that such charges are
imposed in accordance with the provisions of Section 7.2 above.
7.5 Nonsurvival. The representations and warranties of the parties
hereto which are contained in this Agreement or in any
instrument delivered pursuant hereto shall not survive the
Effective Time.
7.6 Further Assurances. Each of the parties hereto shall from time to
time after the Effective Time, at its cost and expense, take all
such actions as any other party hereto may reasonably request in
order to more fully perfect or protect the rights intended to be
granted to the requesting party pursuant hereto.
ARTICLE VIII
TERMINATION
8.1 Termination. Either party may terminate this Agreement if the
conditions to its obligations to close have not been satisfied or
waived by December 19, 1995.
8.2 Rights on Termination. If this Agreement is terminated pursuant
to Section 8.1, except as otherwise provided in Section 9.3 and
the Nondisclosure Agreement referred to in Section 9.2, all
further obligations of the parties under or pursuant to this
Agreement shall terminate without further liability of any party to
any other party.
ARTICLE XLVIII
MISCELLANEOUS
9.1 Registration of Common Stock. Executone shall, as soon as
practicable after April 1, 1996, but in no event later than June
30, 1996, prepare and file with the Securities and Exchange
Commission ("SEC") a registration statement (the "Resale
Registration Statement") covering the resale by each Shareholder
or option holder or its assignee (a "Selling Shareholder") of all of
the Common Stock (i) initially received by such Selling
Shareholder, (ii) issuable to such Selling Shareholder upon
exercise of any of the options described in Section 2.7 hereof, or
(iii) issuable to such Selling Shareholder upon the conversion or
redemption of the Preferred Stock (all of said shares of Common
Stock being collectively referred to in this Article IX as the
"Registrable Securities"). Executone shall use its best efforts to
cause its Resale Registration Statement to become effective and to
remain effective until all of the Registrable Securities have been
disposed of pursuant to such effective Resale Registration
Statement or sold pursuant to Rule 144 under the Securities Act
(or any similar provisions then in force).
9.1.1 Registration Procedures. With respect to the registration of
the Registrable Securities referred to in Section 9.1 above, the
following procedures shall apply:
(a) Executone will, prior to filing the Resale Registration
Statement or prospectus or any amendment or supplement thereto,
furnish to each Selling Shareholder, copies of such registration
statement or prospectus as proposed to be filed, together with
exhibits thereto, which documents will be subject to review by the
foregoing, and thereafter furnish to such Selling Shareholder,
such number of copies of the Resale Registration Statement, each
amendment and supplement thereto, the prospectus included in
the Resale Registration Statement (including each preliminary
prospectus) and such other documents as such Selling
Shareholder may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Selling
Shareholder.
(b) Executone will use its reasonable best efforts to (i)
register or qualify the Registrable Securities under such other
securities or blue sky laws of such jurisdictions in the United
States as any Selling Shareholder reasonably (in light of such Selling
Shareholder's intended plan of distribution) requests and (ii)
cause such Registrable Securities to be registered with or
approved by such other governmental agencies or authorities as
may be necessary by virtue of the business and operations of
Executone and do any and all other acts and things that may be
reasonably necessary to enable such Selling Shareholder to
consummate the disposition of the Registrable Securities owned
by such Selling Shareholder; provided, that Executone will not be
required to (A) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify,
(B) subject itself to taxation in any such jurisdiction or (C)
consent to general service of process in any such jurisdiction.
(c) Executone will immediately notify each Selling Shareholder, at
any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the occurrence of an event
requiring the preparation of a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus will not contain an
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading and promptly make available to
each Selling Shareholder any such supplement or amendment.
(d) Executone will otherwise use its reasonable best efforts to
comply with all applicable rules and regulations of the SEC.
(e) Executone shall promptly notify the Selling Shareholders (i)
when the prospectus or any prospectus supplement has been filed, and,
with respect to the Resale Registration Statement or any post-
effective amendment, when the same has been declared effective,
(ii) of any request by the SEC for amendments or supplements to
the Registration Statement or the prospectus or for additional
information, (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the Resale Registration Statement
or the initiation of any proceedings for that purpose, and (iv) of
the receipt by Executone of any notification with respect to the
suspension of the qualification of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose.
(f) Executone shall use its best efforts to cause the Registrable
Securities to be registered (if not already registered) on each
securities exchange or national association on which the Common
Stock is listed or admitted for trading.
9.1.2 Allocation of Expenses. Executone shall pay all expenses in
connection with the registration of the Registrable Securities,
including without limitation, all (i) registration and filing fees,
(ii) printing expenses, (iii) accounting and legal fees and expenses
of the accountants and attorneys engaged by Executone; and (iv)
blue sky fees and expenses; provided, however, Executone shall
not be liable for (A) any commissions to any broker attributable
to the sale of any of the Registrable Securities, or (B) any fees or
expenses incurred by any Selling Shareholder.
9.1.3 Indemnification.
(i) In connection with the registration of the Registrable
Securities, Executone agrees to indemnify each Selling Shareholder, its
officers, directors, partners and agents, and any person who
controls a Selling Shareholder within the meaning of Section 15
of the Securities Act, against all losses, claims, damages,
liabilities and expenses (including reasonable costs of
investigation) caused by any untrue, or alleged untrue, statement
of a material fact contained in the Resale Registration Statement
or related prospectus (as amended or supplemented if Executone
shall have furnished any amendments or supplements thereto) or
caused by any omission, or alleged omission, to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses are caused by any
untrue statement, alleged untrue statement, omission, or alleged
omission based upon information furnished to Executone by any
Selling Shareholder expressly for use therein. Executone also
agrees to indemnify and hold harmless any persons who may be
deemed to be underwriters with respect to the sale of the
Registrable Securities, their officers and directors and each
person who controls such underwriters to the same extent as
provided above with respect to the indemnification of each
Selling Shareholder. Executone and each officer, director and
controlling person of Executone shall be indemnified by each
Selling Shareholder, severally, for all such losses, claims,
damages, liabilities and expenses (including reasonable costs of
investigation) caused by any such untrue, or alleged untrue,
statement or any such omission, or alleged omission, based upon
information furnished to Executone by such Selling Shareholder
expressly for use therein in a writing signed by such Selling
Shareholder.
(ii) Promptly upon receipt by a party indemnified under this
Section of notice of the commencement of any action against such
indemnified party in respect of which indemnity or
reimbursement may be sought against any indemnifying party
under this Section, such indemnified party shall notify the
indemnifying party in writing of the commencement of such
action, but the failure to so notify the indemnifying party shall
not relieve it of any liability which it may have to any
indemnified party unless such failure shall materially adversely
affect the defense of such action. In case notice of
commencement of any such action shall be given to an
indemnifying party as above provided, such party shall be
entitled to participate in and, to the extent it may wish, jointly
with any other indemnifying party similarly notified, to assume
the defense of such action at its own expense, with counsel
chosen by it and reasonably satisfactory to such indemnified
party. The indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the indemnified
party unless (i) the indemnifying party agrees to pay the same,
(ii) the indemnifying party fails to assume the defense of such
action with counsel reasonably satisfactory to the indemnified
party or (iii) the named parties to any such action (including any
impleaded parties) have been advised by such counsel that
representation of such indemnified party and the indemnifying
party by the same counsel would be inappropriate under
applicable standards of professional conduct (in which case the
indemnifying party shall not have the right to assume the defense
of such action on behalf of such indemnified party). No
indemnifying party shall be liable for any settlement entered into
without its consent.
9.1.4 Contribution.
(i) If for any reason the indemnification provisions contemplated
by this Section are either unavailable or insufficient to hold harmless
an indemnified party in respect of any losses, claims, damages or
liabilities referred to therein, then the party that would otherwise
be required to provide indemnification or the indemnifying party
(in either case, for purposes of this Section, the "Indemnifying
Party") in respect of such losses, claims, damages or liabilities,
shall contribute to the amount paid or payable by the party that
would otherwise be entitled to indemnification or the indemnified
party (in either case, for purposes of this Section, the
"Indemnified Party") as a result of such losses, claims, damages,
liabilities or expense, in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party and the
Indemnified Party, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and
Indemnified Party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material
fact related to information supplied by the Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as
a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party. In no event
shall any Selling Shareholder covered by the Resale Registration
Statement be required to contribute an amount greater than the
dollar amount of the proceeds received by such Selling
Shareholder from the sale of Common Stock pursuant to the
registration giving rise to the liability.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section were determined by
pro rata allocation (even if the Selling Shareholders were treated as one
entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. No person
or entity determined to have committed a fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person
or entity who was not guilty of such fraudulent
misrepresentation.
(iii) The contribution provided for in this Section shall
survive the termination of this Agreement and shall remain in full force
and effect regardless of any investigation made by or on behalf of
any Indemnified Party.
9.1.5 Listing on Securities Exchange. Subject to the provisions of
Section 9.1, if Executone shall list or maintain the listing of any
shares of Common Stock on any securities exchange or national
market system, it will at its expense and as necessary to permit
the registration and sale of the Common Stock hereunder, list
thereon, maintain and, when necessary, increase such listing to
include such Common Stock.
9.2 Entire Agreement; Amendment. This Agreement, the
Nondisclosure Agreement dated July 31, 1995, and the
documents referred to herein and to be delivered pursuant hereto
constitute the entire agreement among the parties pertaining to
the subject matter hereof, and supersede all prior and contempo-
raneous agreements, understandings, negotiations and discussions
of the parties, whether oral or written, and there are no warran-
ties, representations or other agreements between the parties in
connection with the subject matter hereof. No amendment,
supplement, modification, waiver or termination of this
Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of
any other provision of this Agreement, whether or not similar,
nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided. The representations and
warranties of each party hereto shall be deemed to be material
and to have been relied upon by the other party, notwithstanding
any investigation heretofore or hereafter made by the other party.
9.3 Expenses. Whether or not the transactions contemplated by
this Agreement are consummated, each of the parties hereto shall pay
the fees and expenses of their respective counsel, accountants and
other experts and the other expenses incident to the negotiation
and preparation of this Agreement and consummation of the
transactions contemplated hereby.
9.4 Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of New York,
without regard to the conflicts of law rules thereof.
9.5 Assignment. This Agreement and each party's respective
rights hereunder may not be assigned at any time except as expressly
set forth herein without the prior written consent of the other
parties.
9.6 Notices. All communications, notices and disclosures required
or permitted by this Agreement shall be in writing and shall be
deemed to have been given when delivered personally or by
messenger or by overnight delivery service, or when mailed by
registered or certified United States mail, postage prepaid, return
receipt requested, or when received via telecopy, telex or other
electronic transmission, in all cases addressed to the person for
whom it is intended at his address set forth below or to such
other address as a party shall have designated by notice in writing
to the other party in the manner provided by this Section:
If to Unistar: Unistar Gaming Corp.
000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
(Fax No: (000) 000-0000)
Attention: Vice Chairman
With a copy to: Xxxxxx Xxxxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
(Fax No: (000) 000-0000)
Attention: Xxxxxx X. Xxxxxxxxx, Esq.
If to Executone: Executone Informations Systems, Inc.
000 Xxxxxxxx Xxxxx Xxxx
Xxxxxxx, Xxxxxxxxxxx 00000
(Fax No: (000) 000-0000)
Attention: Xxxx Xxxxxxx
With a copy to: Hunton & Xxxxxxxx
000 Xxxx Xxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000-0000
(Fax No: (000) 000-0000)
Attention: Xxxxxxxx X. Xxxxx, Esq.
9.7 Counterparts; Headings. This Agreement may be executed in
several counterparts, each of which shall be deemed an original,
but such counterparts shall together constitute but one and the
same Agreement. The Table of Contents and Article and Section
headings in this Agreement are inserted for convenience of
reference only and shall not constitute a part hereof.
9.8 Interpretation. Unless the context requires otherwise, all
words used in this Agreement in the singular number shall extend to and
include the plural, all words in the plural number shall extend to
and include the singular, and all words in any gender shall extend
to and include all genders. All references to contracts,
agreements, leases, employee benefit plans or other
understandings or arrangements shall refer to oral as well as
written matters.
9.9 Severability. If any provision, clause or part of this
Agreement, or the application thereof under certain circumstances, is held
invalid, the remainder of this Agreement, or the application of
such provision, clause or part under other circumstances, shall
not be affected thereby.
9.10 No Reliance. Except as otherwise provided in Sections
3.14 and 9.1 (9.1 through 9.1.5, inclusive), and except for the holders
of the Preferred Stock and Common Stock, no third party is entitled
to rely on any of the representations, warranties and agreements
contained in this Agreement. Except as otherwise provided in
Sections 3.14 and 9.1 (9.1 through 9.1.5, inclusive), and except
for the holders of the Preferred Stock and Common Stock, none
of Executone, Newco or Unistar assumes any liability to any
third party because of any reliance on the representations,
warranties and agreements of Executone and Unistar contained in
this Agreement.
IN WITNESS WHEREOF, the parties have caused this
Agreement and Plan of Merger to be duly executed as of the day
and year first above written.
EXECUTONE INFORMATION SYSTEMS, INC.
By: ______________________________
Its: ______________________________
UNISTAR GAMING CORP.
By: ______________________________
Xxxxxx X. Xxxxxx
Its: Vice Chairman
EXECUTONE NEWCO, INC.
By: ______________________________
Its: _____________________________
EXHIBIT 1.26
ARTICLES OF AMENDMENT
As used in these Articles, unless defined herein,
capitalized terms shall have the meanings set forth on
Exhibit A attached hereto.
Section A. Cumulative Convertible Preferred Stock, Series A
1. Designation.
a. The shares of this Series shall be designated
"Cumulative Convertible Preferred Stock, Series A" (the
"Series A Preferred Stock") and the number of shares
initially constituting the Series A Preferred Stock shall be
Two Hundred Fifty Thousand (250,000). Shares of the
Series A Preferred Stock shall have a par value of $0.01
per share.
b. The Series A Preferred Stock shall, with respect to
dividend rights and rights on liquidation, dissolution or
winding up, rank prior to any other class or series of
preferred stock of the Corporation (except the Series B
Preferred Stock, which as to the foregoing rights shall
rank pari passu with the Series A Preferred Stock) and the
Common Stock of the Corporation.
2. Voting Rights. The holders of Series A Preferred Stock
shall have the following voting rights:
a. Except as otherwise provided in the second and third
sentences of Section A.2.b, Section B.2.a, the second and
third sentences of Section B.2.b and Sections A.2.c.,
B.2.c., H., or the Virginia Stock Corporation Act, (i)
each share of Series A Preferred Stock shall entitle the
holder thereof to vote on all matters voted on by the
holders of Common Stock, voting together with the shares
of Common Stock and the shares of Series B Preferred
Stock as a single voting group or class at all meetings of
shareholders, and (ii) with respect to any such vote, each
share of Series A Preferred Stock shall entitle the holder
thereof to cast one vote per share.
b. Except as otherwise provided in Section A.2.a, the second
and third sentences of Section A.2.b, Section B.2.a, the
second and third sentences of Section B.2.b and Sections
A.2.c., B.2.c., H., or the Virginia Stock Corporation
Act, the Series A Preferred Stock shall not be considered
as a separate class of shares for any voting purpose, and
the holders of the Series A Preferred Stock shall have no
separate voting rights and their separate consent shall not
be required for the taking of any corporate action. The
holders of the shares of the Series A Preferred Stock shall
vote together as a separate voting group or class, to the
exclusion of the holders of Junior Stock and any other
series of Preferred Stock, with respect to the following
matters. The affirmative vote of the holders of 66-2/3%
of the outstanding shares of the Series A Preferred Stock
taken at a meeting, or by written consent without a
meeting, in accordance with the procedures set forth in
Section A.2.c and A.2.d, shall be required to approve any
of the following matters:
(1) A proposed amendment of these Articles if the
amendment would: (I) increase or decrease the aggregate number
of authorized shares of the Series A Preferred Stock; (II)
effect an exchange or reclassification of all or part of the
shares of the Series A Preferred Stock into shares of another
class; (III) effect an exchange or reclassification, or create
the right of exchange, of all or part of the shares of another
class into shares of the Series A Preferred Stock; (IV)
change the designation, rights, preferences or limitations
of all or part of the shares of the Series A Preferred
Stock, but the Series A Preferred Stock shall not be
entitled to vote as a separate voting group on an
amendment increasing the number of authorized shares of
a Junior Stock solely because both such classes vote on
some or all matters as a single voting group; (V) change
the shares of all or part of the Series A Preferred Stock
into a different number of shares of the Series A Preferred
Stock; (VI) create a new class of shares, or change a
Junior Stock into a class of shares having rights or
preferences with respect to dividends, distributions or to
dissolution, liquidation or winding up of the Corporation
that are prior, superior, or substantially equal to the
shares of the Series A Preferred Stock, or increase the
rights, preferences, or number of authorized shares of any
class having rights or preferences with respect to
distributions or to dissolution that are prior, superior, or
substantially equal to the shares of the Series A Preferred
Stock; (VII) limit or deny an existing preemptive right of
all or part of the shares of the Series A Preferred Stock;
or (VIII) cancel or otherwise affect rights to distributions
or dividends that have accumulated but not yet been
declared on all or part of the shares of the Series A
Preferred Stock.
(2) An authorization or increase in the number of shares or
other units of any security convertible into, or
exchangeable for, or evidencing the right to purchase,
shares of the Series A Preferred Stock or any class of
stock ranking prior to, or on a parity with, the Series A
Preferred Stock as to dividend rights and rights on
liquidation, dissolution or winding up, and
(3) The amendment or repeal of the second and third
sentences of this Section A.2.b.
c. If at any time there exists a Dividend Payment Default on
the Series A Preferred Stock or the Series B Preferred
Stock, then
(i) without further action, the number of directors
constituting the entire Board of Directors shall be
increased by one, and the holders of shares of the Series
A Preferred Stock and the holders of shares of the Series
B Preferred Stock shall have, in addition to the other
voting rights set forth herein, the right to vote together as
a single voting group or class, to the exclusion of the
holders of Junior Stock and any other series of Preferred
Stock, to elect one director of the Corporation to fill such
newly created directorship, which director shall be in
addition to the A/B Director elected by such holders
pursuant to Section H. of these Articles, and the
remaining directors elected or to be elected by the other
classes of stock entitled to vote therefor at a meeting of
stockholders held for the purpose of electing directors.
Each director elected by the holders of shares of Series A
Preferred Stock and the Series B Preferred Stock pursuant
to this Section A.2.c. (herein, a "Preferred Director")
shall serve as such director until the next annual meeting
of shareholders of the Corporation and until his successor
is elected and qualified or until his earlier resignation,
death or removal, notwithstanding that during the term of
office of such Preferred Director any Dividend Payment
Default shall have been remedied. Any Preferred
Director may be removed, with or without cause, by, and
shall not be removed except by, the vote of the holders of
a majority of the outstanding shares of Series A Preferred
Stock and the Series B Preferred Stock, voting together as
a single voting group or class, at an annual or special
meeting of the shareholders of the Corporation, or at a
special meeting of the holders of shares of Series A
Preferred Stock and Series B Preferred Stock called for
that purpose. So long as a Dividend Payment Default on
the Series A Preferred Stock or the Series B Preferred
Stock shall be continuing, (i) any vacancy in the office of
the Preferred Director may be filled only by the majority
vote of the holders of the shares of Series A Preferred
Stock and the shares of Series B Preferred Stock, voting
together as a single voting group or class, and (ii) in the
case of the removal of the Preferred Director, the vacancy
may be filled by the majority vote of the holders of the
outstanding shares of Series A Preferred Stock and Series
B Preferred Stock, voting together as a single voting
group or class, at the same meeting at which such removal
is voted. Each director elected as aforesaid shall be
deemed, for all purposes hereof, to be a Preferred
Director. Whenever the term of office of the Preferred
Director shall expire or terminate and if no Dividend
Payment Default with respect to the Series A Preferred
Stock or the Series B Preferred Stock shall have occurred
or be continuing, the number of directors constituting the
entire Board of Directors of the Corporation shall be
reduced by one without further action.
(ii) Each outstanding share of Series A Preferred Stock
shall entitle the holder thereof to vote on all matters voted
on by the holders of Common Stock, voting together with
the Common Stock and the Series B Preferred Stock as a
single voting group or class, at all meetings of
shareholders and each share of Series Class A Preferred
Stock shall be entitled to four votes per share.
(iii) The additional voting rights specified in Sections
A.2.c.(i) and (ii) shall continue at each succeeding annual
or special meeting of shareholders until such time as the
outstanding Dividend Payment Defaults shall have been
remedied, subject to revesting upon the occurrence of a
further Dividend Payment Default.
d. The rights of the holders of shares of Series A
Preferred Stock and Series B Preferred Stock to vote as
provided by Section A.2.c. may be exercised at any
annual or special meeting of shareholders or, in the case
of the voting rights specified in Section A.2.c.(i), at any
special meeting of the holders of shares of Series A
Preferred Stock and the Series B Preferred Stock.
(i) So long as such voting rights set forth in Section
A.2.c continue, the Chairman of the Board of the
Corporation may call, and if the holders of shares of
Series A Preferred Stock and Series B Preferred Stock are
to vote together as a single voting group or class
separately from the holders of shares of Junior Stock,
upon the written request of the holders of record of 20%
of the total number of outstanding shares of Series A
Preferred Stock and Series B Preferred Stock, addressed
to the Secretary of the Corporation, at the principal office
of the Corporation, the Chairman of the Board shall call,
a special meeting of the holders of shares entitled to vote
as provided herein. If a special meeting of the holders of
shares of Series A Preferred Stock and Series B Preferred
Stock is so requested, the Corporation shall hold such
meeting promptly after delivery of such request to the
Secretary, at the place and upon the notice provided by
law and in the By-laws of the Corporation for the holding
of meetings of shareholders, provided that the
Corporation shall not be required to call such a special
meeting if such request is received less than 90 days
before the date fixed for the next ensuing annual meeting
of shareholders of the Corporation. If at the time of such
meeting the Dividend Payment Default shall be
continuing, such newly created directorship shall be filled
by the holders of the Series A Preferred Stock and Series
B Preferred Stock voting together as a single voting group
or class separately from the holders of shares of Common
Stock or any shares of stock of the Corporation.
(ii) At each meeting of shareholders at which the holders
of shares of Series A Preferred Stock and Series B
Preferred Stock shall have the right, voting together as a
single voting group or class, separately from the holders
of shares of Common Stock or any shares of stock of the
Corporation, to elect a Preferred Director as provided in
Section A.2. or to take other action, the presence in
person or by proxy of the holders of record of one-third
of the total number of shares of Series A Preferred Stock
and Series B Preferred Stock then outstanding and entitled
to vote on the matter shall be necessary and sufficient to
constitute a quorum. At any such meeting or at any
adjournment thereof:
(1) the absence of a quorum of the holders of shares of
Series A Preferred Stock and the shares of Series B
Preferred Stock shall not prevent the election or removal
of directors other than those to be elected or removed
separately by the vote of the holders of shares of Series A
Preferred Stock and Series B Preferred Stock and the
absence of a quorum of the holders of shares of any other
class or series of capital stock of the Corporation shall not
prevent the election or removal of the Preferred Director
to be elected or removed by the separate vote of the
holders of shares of Series A Preferred Stock and Series B
Preferred Stock or the taking of any other action as
permitted by Section A.2.c.; and
(2) in the absence of a quorum of the holders of
shares of Series A Preferred Stock and Series B Preferred Stock, a
majority of the holders of such shares present in person or
by proxy shall have the power to adjourn the meeting as
to the actions to be taken separately by the holders of
shares of Series A Preferred Stock and Series B Preferred
Stock voting together as a single voting group or class
from time to time and place to place without notice other
than announcement at the meeting until a quorum shall be
present.
For the taking of any action as provided in the
second and third sentences of Section A.2.b. by the holders of
shares of Series A Preferred Stock voting as a separate voting
group, and as provided in Section A.2.c by the holders of
shares of Series A Preferred Stock and shares of Series B
Preferred Stock, voting together as a separate voting
group, each such holder shall have with respect to any
matter to be voted upon pursuant to the second and third
sentences of Section A.2.b. and to the election or removal
of a Preferred Director pursuant to Section A.2.c, one
vote for each share of such stock, and with respect to any
other matter to be voted upon pursuant to Section A.2.c,
four votes for each such share of such stock, standing in
his or its name on the transfer books of the Corporation as
of any record date fixed for such purpose or, if no such
date be fixed, at the close of business on the business day
next preceding the day on which notice is given, or if
notice is waived, at the close of business on the business
day next preceding the day on which the meeting is held.
(iii) Any action which may be taken pursuant to Section
A.2.a., the second and third sentences of Section A.2.b,
Section B.2.a, the second and third sentences of Section
B.2.b or Section A.2.c. or B.2.c., at an annual or special
meeting of shareholders may be taken, in lieu of any such
meeting, by written consent of the holders of Series A
Preferred Stock and Series B Preferred Stock, acting
separately or together as required by the particular
provision, provided that such consent shall be in
accordance with the Virginia Stock Corporation Act and
the Corporation's By-laws.
3. Dividend Rights.
a. Accrued Preferred Dividends. The dividends provided in
these Articles shall be cumulative, whether or not
declared. On any date, the cumulative accrued dividend
with respect to the Series A Preferred Stock (the
"Accrued Preferred Dividend") shall be an amount equal
to (i) 18.5% of the consolidated Retained Earnings of the
Unistar Group as of the end of the Corporation's fiscal
quarter immediately preceding the fiscal quarter in which
occurs the date with respect to which the determination is
being made, plus (ii) any Additional Participation Amount
accrued with respect to the Series A Preferred Stock
pursuant to Section A.3.d. as of the end of the
Corporation's fiscal quarter immediately preceding the
fiscal quarter in which occurs the date with respect to
which the determination is being made, less (iii) any
amounts paid to the holders of the Series A Preferred
Stock prior to such date pursuant to Sections A.3.b.,
A.4.d. and A.5.e. At any time, the Accrued Preferred
Dividend with respect to each share of this Series
outstanding shall be an amount equal to the Accrued
Preferred Dividend divided by 250,000. Any payments of
Accrued Preferred Dividends with respect to the Series A
Preferred Stock shall be applied first to the payment of the
Additional Participation Amount.
b. Payment of Accrued Preferred Dividend. Dividends are
payable in cash (except as otherwise provided in Section
A.4.c. and subject to the applicable provisions of the
Virginia Stock Corporation Act) (i) when and as declared
by the Board of Directors, (ii) upon conversion or
redemption of the shares of Series A Preferred Stock or
(iii) upon liquidation, as provided herein. The declaration
and payment of dividends on the Series A Preferred
Stock, the amount thereof and the record date shall at all
times be solely within the discretion of the Board of
Directors, except upon conversion or redemption of such
shares and upon liquidation, dissolution or winding up of
the Corporation. Notwithstanding the foregoing, no
Accrued Preferred Dividend shall be paid (except upon
conversion or redemption of shares of the Series A
Preferred Stock or liquidation, dissolution or winding up
of the Corporation or a Dividend Distribution) unless at
the time of the proposed payment:
(i) there is no outstanding balance of loans and advances
made by the Corporation to the Unistar Group for start-up
costs,
(ii) the cumulative Retained Earnings of the Unistar Group is
positive, and
(iii) the Net Income of the Unistar Group exceeds $1,000,000
in respect of the fiscal year immediately preceding the
fiscal year of the Corporation in which the dividends are
to be paid.
c. (i) Whenever Accrued Preferred Dividends are not paid in
full, thereafter and until all Accrued Preferred Dividends
shall have been paid in full (determined as of the end of
the Corporation's fiscal quarter immediately preceding the
fiscal quarter in which such payment shall be made), the
Corporation shall not: (1) declare or pay dividends, or
make any other distributions, on any shares of Junior
Stock, other than dividends or distributions payable in
Junior Stock; or (2) declare or pay dividends, or make
any other distributions, on any shares of Series B
Preferred Stock, except dividends or distributions paid
ratably on the Series A Preferred Stock and Series B
Preferred Stock, in proportion to the total amounts to
which the holders of all shares of the Series A Preferred
Stock and Series B Preferred Stock are then entitled.
(ii) Whenever a Dividend Payment Default exists, thereafter
and until such Dividend Payment Default is remedied, the
Corporation shall not redeem, purchase or otherwise
acquire for consideration any shares of Junior Stock;
provided, however, that (1) the Corporation may at any
time redeem, purchase or otherwise acquire shares of
Junior Stock in exchange for any shares of Junior Stock,
and (2) the Corporation may accept shares of any Junior
Stock for (I) conversion, or (II) for payment of the
exercise price of employee stock options, or (III) for
redemptions, purchases or other acquisitions of shares
acquired by exercise of employee stock options to the
extent that the aggregate amount paid for such
redemptions, purchases, or other acquisitions in any fiscal
year of the Corporation, pursuant to this Section
A.3.c.(ii)(2)(III), does not exceed $750,000.
(iii) The Corporation shall not permit any Subsidiary of the
Corporation to purchase or otherwise acquire for
consideration any shares of capital stock of the
Corporation, unless the Corporation could pursuant to
Section A.3.c.(ii) purchase such shares at such time and
in such manner.
d. Dividend Payment Default. In addition to any other
remedy available to the holders of the Series A Preferred
Stock, upon the occurrence of and during the continuation
of each Dividend Payment Default on the Series A
Preferred Stock, an additional amount (the "Additional
Participation Amount") shall be added upon the Series A
Preferred Stock, on any date, equal to the product of (i)
the amount which, if paid, would remedy the Dividend
Payment Default, times (ii) the Additional Participation
Percentage applicable to the 30-day period in which
occurs the date for which the determination is being
made.
e. No Dividend Distribution shall be made except from
Retained Earnings, calculated net of Dividend
Distributions.
f. Notwithstanding anything to the contrary provided in
these Articles, no Dividend Distribution shall be made.
unless the Board of Directors shall declare a dividend
with respect to the Series A Preferred Stock payable on or
before the end of the Corporation's fiscal quarter in which
the Dividend Distribution will occur, in an amount equal
to the lesser of (i) 18.5% of the amount of such Dividend
Distribution, or (ii) the amount of the Accrued Preferred
Dividend.
g. For all purposes of these Articles, Retained Earnings as of
the end of any quarter shall be determined on the basis of
the Unaudited Financial Statements for such quarter,
except if such quarter is the fourth quarter in which case
the determination shall be made based on the Certified
Financial Statements of the Unistar Group for the fiscal
year ended with the end of such fourth quarter.
4. Conversion Rights.
a. Conversion. Subject to the provisions for adjustment set
forth in, and upon compliance with the provisions of, this
Section A.4., each share of this Series shall be convertible
into a number of fully paid and nonassessable shares of
Common Stock, determined as set forth below (said
number of shares of Common Stock (as adjusted from
time to time pursuant to the provisions of Section A.4.)
being hereinafter referred to as the "Conversion Ratio");
provided, however, that the right to convert shall
terminate at the close of business on the fifth business day
prior to the date fixed by the Corporation for redemption
pursuant to Section A.5.
(i) At any time during the Conversion Period and provided
that at such time as the conversion right is exercised the
Unistar Group has Net Income, in respect of the fiscal
year immediately preceding the fiscal year in which the
conversion is being made, equal to or exceeding
$1,000,000, the Conversion Ratio shall equal, for each
share of Series A Preferred Stock, the quotient of (1) the
product of (I) the excess of such Net Income over
$1,000,000 and (II) .46, divided by (2) 250,000,
provided, however, that the maximum number of shares of
Common Stock into which a share of Series A Preferred
Stock may be convertible shall be 19.7 ("Maximum
Number"); or
(ii) At any time during the Conversion Period and provided
that at such time as the conversion right is exercised the
sum, calculated from the Effective Date, of (1) 100% of
the cumulative Net Revenues of the Unistar Group and (2)
25% of the cumulative Lottery Revenues, exceeds
$50,000,000, the Conversion Ratio shall equal 19.7
shares of Common Stock for each share of Series A
Preferred Stock; or
(iii) At any time during the Conversion Period after the sale or
transfer of a controlling interest in Unistar or UEI or the
sale or assignment of substantially all of the business or
assets of Unistar or UEI to a third party that is not a
wholly-owned Subsidiary of the Corporation, the
Conversion Ratio shall equal 19.7 shares of Common
Stock for each share of Series A Preferred Stock.
b. Conversion Procedure.
(i) Conversion Based on Financial Statements. Not later
than 5 days after the date of publication of (1) the
Corporation's audited consolidated financial statements
for each fiscal year ending prior to the end of the
Conversion Period and (2) the Corporation's Form 10-Q
for each fiscal quarter ending prior to the expiration of the
Conversion Period, the Corporation shall deliver to the
holders of the Series A Preferred Stock a notice together
with a copy of the certificate referred to in Section E of
these Articles prepared with respect to such fiscal period
(a "Certificate Notice"). Each Certificate Notice shall
state: (I) that during the relevant Election Period, each
holder may elect to convert all, but not less than all, his
shares of Series A Preferred Stock in accordance with the
provisions of Section A.4.a.(i) or (ii): (II) that in order to
exercise such conversion right, the holder must, within
the Election Period, surrender the certificate representing
such shares at the office of the Corporation and give
written notice to the Corporation that such holder elects to
convert the same, specifying the name or names and
denominations in which such holder wishes the certificate
or certificates for the Common Stock to be issued; and
(III) the address of the office of the Corporation where
certificates for such shares are to be surrendered.
Notwithstanding anything to the contrary provided in this
Section A.4., no conversion may be elected within the
first quarter of any fiscal year of the Corporation.
In order to exercise the conversion privilege, the holder of
shares of this Series to be converted shall, within the
Election Period, surrender the certificate representing
such shares at the office of the Corporation designated in
such notice and give written notice to the Corporation at
said office that such holder elects to convert the same.
From and after the making of the election provided
herein, all rights of a holder of shares of this Series shall
cease except for the right, upon surrender of the
certificate representing such shares, to receive certificates
representing shares of Common Stock and/or any Accrued
Preferred Dividend as contemplated by this Section A.4.
(ii) Conversion Based upon Consummation of a Sale.
Not later than 15 days prior to the consummation of any
event referred to in Section A.4.a.(iii) (a "Sale"), the
Corporation shall notify the holders of the Series A
Preferred Stock of the occurrence of such Sale (a "Sale
Advance Notice"). Each Sale Advance Notice shall state
(1) the anticipated date of consummation of such Sale, (2)
that all shares of Series A Preferred Stock owned by each
holder shall be automatically converted in accordance with
Section A.4.a.(iii) as a result of such Sale. Not later than
10 days following the consummation of a Sale referred to
in a Sale Advance Notice, the Corporation shall notify the
holders of the Series A Preferred Stock of the
consummation of such Sale (a "Sale Notice"). Each Sale
Notice shall state (I) the date of consummation of such
Sale (the "Sale Date"); (II) that all shares of Series A
Preferred Stock owned by each holder have been
automatically converted in accordance with Section
A.4.a.(iii) as a result of such Sale; (III) that, in order to
receive the Common Stock and other consideration
payable to such holder as a result of such conversion,
such holder must surrender the certificate representing all
of his shares Series A Preferred Stock at the office of the
Corporation within thirty days following the date of
receipt of the Sale Notice, specifying the name or names
and denominations in which such holder wishes the
certificate or certificates for the Common Stock to be
issued; and (iii) the address of the office of the
Corporation where certificates for such shares are to be
surrendered.
In order to exercise the conversion privilege, the holder of
shares of this Series to be converted shall surrender the
certificate representing such shares at the office of the
Corporation designated in such Sale Notice within thirty
days following the receipt of the Sale Notice. From and
after the delivery of the Sale Notice, all rights of a holder
of shares of this Series shall cease except for the right
upon surrender of the certificate representing such shares
to convert such shares into certificates representing shares
of Common Stock and any Accrued Preferred Dividend as
contemplated by this Section A.4. The failure of a holder
of shares of Series A Preferred Stock to submit the
certificate representing his shares of Series A Preferred
Stock to the Corporation in accordance with the Sale
Notice shall not terminate such holder's right to receive
the Common Stock for which such shares were converted
or any Accrued Preferred Dividend payable with respect
to such shares, but the Corporation shall not be obligated
to pay interest or any other allowance for the delay in
payment of any Accrued Preferred Dividend or any other
amounts or consideration payable to such holder.
(iii) Upon submission of his shares of Series A Preferred
Stock pursuant to Section A.4.b.(i) or (ii), each holder
shall specify the name or names and denominations in
which such holder wishes the certificate or certificates for
the Common Stock to be issued (which notice may be in
the form of a notice of election to convert which may be
printed on the reverse of the certificates for the shares of
this Series). Unless the shares issuable on conversion are
to be issued in the same name as the name in which such
shares of this Series are registered, the shares surrendered
for conversion shall be accompanied by instruments of
transfer, in form reasonably satisfactory to the
Corporation, duly executed by the holder or his duly
authorized attorney, and by an amount sufficient to pay
any transfer or similar tax. Other than transfer taxes, the
Corporation shall pay all expenses in connection with the
conversion and issuance of Common Stock thereupon,
other than personal expenses of the converting holder
(including, without limitation, income taxes).
(iv) Notice Delivery. Any notice delivered pursuant to
this Section A.4.b, shall be sent by facsimile, personal
delivery, overnight courier or certified mail return receipt
requested, in each case notice being effective on receipt.
c. Accrued Preferred Dividend. The holders of shares of
this Series shall be entitled to receive any unpaid Accrued
Preferred Dividend payable with respect to such shares
calculated:
(i) In the case of a conversion under Section A.4.(b).(i) or
(ii)., as of the end of the Corporation's fiscal quarter
immediately preceding the fiscal quarter in which occurs
the date on which the shares of Common Stock issuable
with respect to a conversion of such shares are issued in
accordance with Section A.4.d. (the "Conversion Date"),
without further action, based upon the Unaudited
Financial Statements for such immediately preceding
fiscal quarter. At the sole option of the Corporation and
provided that the issuance of such additional shares of
Common Stock has been approved by a majority of the
holders of the Common Stock, in the event that less than a
majority of the then outstanding shares of this Series are
converted in any fiscal year of the Corporation, the
Accrued Preferred Dividend may be paid in the form of
Common Stock. In such event, the number of shares of
Common Stock to be issued to a holder of shares of this
Series shall be determined by dividing the amount of the
Accrued Preferred Dividend payable to such holder by the
Current Market Price of the Common Stock on the date of
such holder's notice delivered to the Corporation pursuant
to Section A.4.b. Such payment in shares shall be made
at the time that the shares of Common Stock into which
the Series A Preferred Stock is converted are issued
pursuant to Section A.4.d.
(ii) In the case of a conversion under Section A.4.b.(iii).,
as of the Sale Date, without further action. In such event,
the Accrued Preferred Dividend shall be determined based
upon the Retained Earnings of the Unistar Group as of the
last day of the quarter of the Corporation's fiscal year
ending immediately prior to the Sale Date, plus or minus
(2) the product of (I) the number of days between the end
of the immediately preceding quarter and the Sale Date,
times the (II) quotient of (A) the difference between the
Retained Earnings as of the end of the immediately
preceding fiscal quarter and the end of the second
immediately preceding quarter, divided by (B) the number
of days in the first immediately preceding quarter. The
Retained Earnings for such immediately preceding quarter
shall be based upon the figures contained in the Certified
Financial Statements of the Unistar Group, where such
quarter is the Corporation's fourth quarter and such
Certified Financial Statements are available or Unaudited
Financial Statements of the Unistar Group, if such quarter
is any quarter other than the fourth quarter of the
Corporation's fiscal year.
(iii) Except as provided above, the Corporation shall
make no payment or allowance for unpaid dividends,
whether or not in arrears, on converted shares or for
dividends on the shares of Common Stock issued upon
such conversion.
d. Issuance of Common Stock and payment of Accrued
Preferred Dividend. As promptly as practicable after the surrender of
the certificates for shares of this Series as aforesaid, but in no
event later than five business days after the holder's
compliance with the requirements in this Section A.4. for
conversion, the Corporation shall issue and shall deliver
to such holder, or according to his written instructions, (i)
a certificate or certificates for the number of full shares of
Common Stock issuable upon the conversion of such
shares in accordance with the provisions of this Section
A.4., and with respect to an Accrued Preferred Dividend
settled in shares of Common Stock pursuant to Section
A.4.c., and (ii) a certified or bank check in the amount of
the Accrued Preferred Dividend payable with respect to
such shares of Series A Preferred Stock pursuant to
Section A.4.c., and any amount payable in lieu of
fractional shares. Each conversion shall be deemed to
have been effected immediately prior to the close of
business on the day prior to (i) the Conversion Date, in
the case of a conversion under Section A.4.a.(i) or (ii),
and (ii) the Sale Date, in the case of a conversion pursuant
to Section A.4.a.(iii), and the person or persons in whose
name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of
record of the shares represented thereby at such time on
such date. All shares of Common Stock delivered upon
conversion of the shares of this Series will upon delivery
be duly and validly issued and fully paid and
nonassessable, free of all liens and charges of the
Corporation and not subject to any preemptive rights.
e. Fractional Interests. No fractional shares or scrip
representing fractions of shares of Common Stock shall be
issued upon conversion of shares of this Series. Instead
of any fractional interest in a share of Common Stock that
would otherwise be deliverable upon the conversion of a
share of this Series, the Corporation shall pay to the
holder of such share of this Series an amount in cash
(computed to the nearest cent, with one-half cent being
rounded upward) equal to the Current Market Price of the
Common Stock on the trading day immediately preceding
the day of conversion multiplied by the fraction of a share
of Common Stock represented by such fractional interest.
If more than one share of this Series shall be surrendered
for conversion at one time by the same holder, the
number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the
aggregate number of the shares of this Series so
surrendered.
f. Adjustments to Conversion Ratio. The Conversion Ratio
for each share of Series A Preferred Stock set forth in
Section A.4.a. and the Maximum Number, shall be
subject to adjustments, from time to time, which shall be
made to the nearest one-thousandth of a share of Common
Stock or, if none, to the next lower one-thousandth and
which shall be made, from time to time, upon the
occurrence of the following events:
(i) If the Corporation shall pay to the holders of its Common
Stock a dividend in shares of Common Stock or in
securities convertible into Common Stock other than the
shares of this Series, the Conversion Ratio and the
Maximum Number shall be proportionately increased,
effective at the opening of business on the next full
business day after the record date fixed for the
determination of the holders of Common Stock entitled to
such dividend.
(ii) If the Corporation shall subdivide the outstanding shares
of its Common Stock into a greater number of shares or
combine the outstanding shares into a smaller number, the
Conversion Ratio and the Maximum Number shall be
proportionately increased in the case of a subdivision or
decreased in the case of a combination, effective at the
opening of business on the next full business day after the
day such action becomes effective.
(iii) If the Corporation shall issue to the holders of its
Common Stock rights or warrants to subscribe for or
purchase shares of its Common Stock at a price less than
the Current Market Price of the Corporation's Common
Stock at the record date fixed for the determination of the
holders of Common Stock entitled to such rights or
warrants, the Conversion Ratio and the Maximum
Number shall be increased, effective at the opening of
business on the next full business day after such record
date, to the respective amounts determined by multiplying
such Conversion Ratio and the Maximum Number by a
fraction, the numerator of which is the number of shares
of Common Stock of the Corporation outstanding
immediately prior to such record date plus the number of
additional shares of its Common Stock offered for
subscription or purchase and the denominator of which is
said number of shares outstanding immediately prior to
such record date plus the number of shares of Common
Stock of the Corporation which the aggregate subscription
or purchase price of the total number of shares so offered
would purchase at the Current Market Price of the
Corporation's Common Stock at such record date.
(iv) If the Corporation shall distribute to the holders of its
Common Stock any evidences of its indebtedness, any
other security not convertible into Common Stock other
than Common Stock, or any rights or warrants to
subscribe for any security other than its Common Stock,
or any other assets (excluding dividends and distributions
in cash to the extent permitted by law), the Conversion
Ratio and the Maximum Number shall be increased,
effective at the opening of business on the next full
business day after the record date fixed for the
determination of the holders of Common Stock entitled to
such distribution, to the respective amounts determined by
multiplying such Conversion Ratio and the Maximum
Number by a fraction, the numerator of which is the
Current Market Price of one share of the Corporation's
Common Stock at such record date and the denominator
of which is such Current Market Price less the fair market
value (as determined by the Board of Directors, whose
good faith determination shall be conclusive) of such
evidences of indebtedness, securities, rights, warrants or
other assets (excluding dividends and distributions in cash
as aforesaid) so distributed which is applicable to one
share of Common Stock.
(v) Anything in this Section A.4.f. to the contrary
notwithstanding, the Corporation shall not be required to
make any adjustment of the Conversion Ratio and the
Maximum Number in any case in which the amount by
which such Conversion Ratio and the Maximum Number
would be adjusted in accordance with the foregoing
provisions would be less than 3% of such Conversion
Ratio and the Maximum Number, as the case may be,
before such adjustment, but in such case any adjustment
that would otherwise be required then to be made will be
carried forward and made at the time of, and together
with, the next subsequent adjustments which, together
with any and all such adjustments so carried forward,
shall amount to 3% or more of such Conversion Ratio and
the Maximum Number before such adjustments.
(vi) For purposes of this Section A.4.f., the number of shares
of Common Stock at any time outstanding shall not
include any shares of Common Stock then owned or held
by or for the account of the Corporation.
Whenever the Conversion Ratio is adjusted pursuant to
this Section A.4.f. the Corporation shall promptly after
the adjustment (1) place on file at its offices and at the
offices of each of its transfer agents, if any, for the Series
A Preferred Stock, a statement signed by the Chairman of
the Board, the President, or a Vice President of the
Corporation and by its Treasurer or an Assistant
Treasurer showing in detail the facts requiring such
adjustment, the method by which the adjustment is
calculated, and the Conversion Ratio and the Maximum
Number after such adjustment, and shall make such
statement available for inspection by shareholders of the
Corporation, and (2) mail or cause to be mailed by its
transfer agent to each holder of record of the Series A
Preferred Stock a notice stating the adjustment, the
method by which the adjustment is calculated, and the
adjusted Conversion Ratio and the Maximum Number,
with a statement of any firm of independent certified
public accountants of nationally recognized standing
(which may be the firm regularly retained by the
Corporation) to the effect that such adjustment is in
accordance with this Section A.4.
g. In case of any reclassification or change of the outstanding
shares of Common Stock of the Corporation (except a
subdivision or combination of shares), effective provision
shall be made by the Corporation (i) that the holder of
each share of Series A Preferred Stock then outstanding
shall thereafter have the right to convert such share into
the kind and amount of stock or other securities, upon
such reclassification or change, by a holder of the number
of shares of Common Stock of the Corporation into which
such share of Series A Preferred Stock might have been
converted immediately prior thereto, and (ii) that there
shall be subsequent adjustments of the Conversion Ratio
and the Maximum Number which shall be equivalent, as
nearly as practicable, to the adjustments provided for in
Section A.4.f., above. The provisions of this Section
A.4.g. shall similarly apply to successive reclassifications
or changes. Any provision that shall be made for the
purposes specified hereinbefore in this Section A.4.g. that
shall be approved by a resolution or resolutions of the
Board of Directors of the Corporation, and that shall, in
the written opinion of a firm of independent certified
public accountants of nationally recognized standing
selected by the Corporation (which may be the firm
regularly retained by the Corporation), be fair and
equitable, shall be binding and conclusive upon all holders
of shares of Series A Preferred Stock then outstanding. In
the event that securities or property other than Common
Stock shall be issuable or deliverable upon any of the
events referred to in this Section A.4.g., all references in
this Section A.4.g. shall be deemed to apply, so far as
appropriate and nearly as may be, to such other securities
or property.
h. In case of any consolidation or merger of the Corporation
with or into another corporation, or in case of any sale or
conveyance to another corporation of all or substantially
all of the assets or property of the Corporation (each of
the foregoing being referred to as a "Transaction"), each
share of Series A Preferred Stock then outstanding shall
thereafter be convertible into, in lieu of the Common
Stock issuable upon such conversion prior to
consummation of such Transaction, the kind and amount
of shares of stock and other securities and property
(including cash) receivable upon the consummation of
such Transaction by a holder of that number of shares of
Common Stock into which one share of Series A
Preferred Stock was convertible immediately prior to such
Transaction (including, on a pro rata basis, the cash,
securities or property received by holders of Common
Stock in any tender or exchange offer that is a step in
such Transaction). The number of shares of stock and
other consideration into which each share of Series A
Preferred Stock shall be converted shall be determined
according to the Conversion Ratio and Maximum Number
set forth in Section A.4.a. In case securities or property
other than Common Stock shall be issuable or deliverable
upon conversion as aforesaid, then all references in this
Section A.4.h. shall be deemed to apply, so far as
appropriate and nearly as may be, to such other securities
or property.
i. Shares of Series A Preferred Stock converted as provided
herein shall become authorized and unissued shares of
Preferred Stock which may thereafter be designated as
shares of any other series.
j. The Corporation shall at all times reserve and keep
available for issuance upon the conversion of the Series A
Preferred Stock, such number of its authorized but
unissued shares of Common Stock as will from time to
time be sufficient to permit the conversion of all
outstanding shares of Series A Preferred Stock, and shall
take all action required to increase the authorized number
of shares of Common Stock if necessary to permit the
conversion of all outstanding shares of Series A Preferred
Stock.
5. Redemption Rights.
a. Redemption. All, but not less than all, the Series A
Preferred Stock shall be subject to redemption in whole at
the sole and absolute discretion of the Corporation at any
time after the date of issuance of the Series A Preferred
Stock, provided, however, that such redemption right may
not be exercised by the Corporation if on the date that the
Corporation elects to exercise its redemption rights the
Current Market Price of the Common Stock is less than
$2.00 per share as appropriately adjusted with respect to
any subdivisions, stock dividends, or combinations of the
Common Stock.
b. Redemption Notice. In the event that the Corporation
shall redeem all shares of this Series, notice of such
redemption (the "Redemption Notice") shall be given by
personal delivery, overnight courier or certified mail,
return receipt requested not less than 30 nor more than 60
days prior to the redemption date, to each holder of the
Series A Preferred Stock at his address on the transfer
books of the Corporation. Such notice shall be effective
upon receipt and shall state: (i) the date on which such
redemption shall take place (the "Redemption Date"); (ii)
that all shares in this Series are to be redeemed; (iii) the
office of the Corporation where certificates for such
shares are to be surrendered; and (iv) that Accrued
Preferred Dividends on the shares to be redeemed will be
determined as of and payable on the Redemption Date.
On the Redemption Date, each share of Series A
Preferred Stock then outstanding shall be converted,
without the necessity of any action by the Board of
Directors, into a right to receive 19.7 shares of Common
Stock. The redemption ratio set forth in this Section
A.5.b. shall be adjusted in the same manner as the
Conversion Ratio and Maximum Number are adjusted
pursuant to Section A.4.f. From and after the
Redemption Date, all rights of a holder of shares of this
Series shall cease except for the right, upon surrender of
the certificate representing such shares, to receive
certificates representing shares of Common Stock for
which such shares were redeemed together with any
payment in lieu of a fractional share of Common Stock
and of any Accrued Preferred Dividend as contemplated
by this Section. Each holder of Series A Preferred Stock
shall be deemed to be a holder of Common Stock on the
Redemption Date.
c. Timing of Redemption. Within 30 business days after
receipt of the Redemption Notice, the holder of each share
of this Series shall surrender the certificate representing
such share at the office of the Corporation and shall give
written notice to the Corporation at said office specifying
the name or names and denominations in which such
holder wishes the certificate or certificates for the
Common Stock to be issued (which notice may be printed
on the reverse of the certificates for the shares of this
Series). Unless the shares issuable on redemption are to
be issued in the same name as the name in which such
share of this Series is registered, each share surrendered
for redemption shall be accompanied by instruments of
transfer, in form reasonably satisfactory to the
Corporation, duly executed by the holder or his duly
authorized attorney, and by an amount sufficient to pay
any transfer or similar tax. The Corporation shall pay all
other expenses in connection with the redemption and
issuance of Common Stock.
d. Accrued Preferred Dividend. The holders of shares of
this Series shall be entitled to receive any Accrued
Preferred Dividend payable with respect to such shares
calculated as of the Redemption Date in accordance with
Section A.3.a. and b. (based, however, on the Retained
Earnings of the Unistar Group as of the Redemption Date,
determined in accordance with the next sentence of this
Section A.5.d.), without the necessity of any action by the
Board of Directors. For purposes of this Section A.5.,
the consolidated Retained Earnings of the Unistar Group
as of the Redemption Date shall be the sum of (1) the
consolidated Retained Earnings of the Unistar Group (I) if
the Redemption Date occurs within the first quarter of the
Corporation's fiscal year, as of the end of the immediately
preceding fiscal year of the Corporation (based on the
Certified Financial Statements of the Unistar Group), or
(II) if the Redemption Date occurs within any of the last
three quarters of the Corporation's fiscal year, as of the
end of the Corporation's fiscal quarter immediately
preceding the quarter in which the Redemption Date
occurs (based on the Unaudited Financial Statements of
such immediately preceding quarter), plus or minus (2)
the product of (I) the number of days between the end of
the immediately preceding quarter and the Redemption
Date, times the (II) quotient of (A) the difference between
the Retained Earnings as of the end of the immediately
preceding fiscal quarter and the end of the second
immediately preceding quarter, divided by (B) the number
of days in the first immediately preceding quarter,
provided, however, that in the event that the Corporation
delivers its Redemption Notice within five business days
following the date that the Corporation's Certified
Financial Statements of the Unistar Group or Unaudited
Financial Statements for the immediately preceding fiscal
quarter are published, the consolidated Retained Earnings
shall be determined as of the end of such immediately
preceding fiscal quarter and no adjustment shall be made
with respect to the period between the last day of such
immediately preceding fiscal quarter and the Redemption
Date. Except as provided above, the Corporation shall
make no payment or allowance for unpaid dividends,
whether or not in arrears, on redeemed shares or for
dividends on the shares of Common Stock issued upon
such redemption.
e. Issuance of Common Stock and Payment of Accrued
Preferred Dividend. As promptly as practicable after the surrender
of the certificates for shares of this Series as aforesaid, the
Corporation shall issue and shall deliver at the office of
any transfer agent for the Common Stock to such holder,
or according to such holder's written instruction, (i) a
certificate or certificates for the number of full shares of
Common Stock issuable upon the redemption of such
shares in accordance with the provisions of this Section
and (ii) a certified or bank check in the amount of the
Accrued Preferred Dividend payable with respect to such
shares and any amount in lieu of fractional shares. Any
fractional interest in respect of a share of Common Stock
arising upon such redemption shall be settled as provided
in Section A.5.f.
The redemption shall be deemed to have been effected
immediately prior to the close of business on the
Redemption Date and the person or persons in whose
name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such redemption
shall be deemed to have become the holder or holders of
record of the shares represented thereby at such time on
such date. All shares of Common Stock delivered upon
redemption of the Series A Preferred Stock will upon
delivery be duly and validly issued and fully paid and
nonassessable, free of all liens and charges of the
Corporation and not subject to any preemptive rights.
f. Fractional Shares. No fractional shares or scrip
representing fractions of shares of Common Stock shall be
issued upon redemption of shares of this Series. Instead
of any fractional interest in a share of Common Stock that
would otherwise be deliverable upon the redemption of a
share of this Series, the Corporation shall pay to the
holder of such share of this Series an amount in cash
(computed to the nearest cent, with one-half cent being
rounded upward) equal to the Current Market Price of the
Common Stock on the trading day next preceding the day
of Redemption Date multiplied by the fraction of a share
of Common Stock represented by such fractional interest.
If more than one share of this Series shall be surrendered
for redemption at one time by the same holder, the
number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the
aggregate number of the shares of this Series so
surrendered.
6. Liquidation Rights.
a. Upon any voluntary or involuntary dissolution, liquidation
or winding up of the Corporation, the holder of each
share of this Series then outstanding shall be entitled to
receive and to be paid out of the assets of the Corporation
available for distribution to its shareholders, before any
payment or distribution shall be made on any class of
Junior Stock upon liquidation, an amount equal to 100%
of the fair market value of the Series A Preferred Stock
on the Effective Date, such value as determined by the
investment banking firm engaged by the Corporation,
divided by 250,000, together with any Accrued Preferred
Dividend as of the date of the distribution, determined in
accordance with the method set forth in Section A.5.d.
Notwithstanding the foregoing, the holders of the shares
of Series A Preferred Stock shall have no direct claim on
the assets of the Unistar Group.
b. After the payment to the holders of the shares of this
Series of the full preferential amounts provided for in this
Section A.6., the holders of this Series as such shall have
no right or claim to any of the remaining assets of the
Corporation.
c. If, upon any voluntary or involuntary dissolution,
liquidation, or winding up of the Corporation, the
amounts payable with respect to the shares of this Series
and any other shares of stock of the Corporation ranking
as to any such distribution on a parity with the shares of
this Series are not paid in full, the holders of the shares of
this Series and of such other shares will share ratably in
any such distribution of assets of the Corporation in
proportion to the full respective preferential amounts to
which they are entitled.
d. Neither the sale of all or substantially all the property or
business of the Corporation, nor the merger or consolidation of the
Corporation into or with any other corporation or the merger or
consolidation of any other corporation into or with the Corporation,
shall be deemed to be a dissolution, liquidation or winding up,
voluntary or involuntary, for the purposes of this Section A.6.
Section B. Cumulative Contingently Convertible Preferred Stock,
Series B
1. Designation.
a. The shares of this Series shall be designated "Cumulative
Contingently Convertible Preferred Stock, Series B" (the "Series B
Preferred Stock") and the number of shares initially constituting the
Series B Preferred Stock shall be One Hundred Thousand (100,000).
Shares of the Series B Preferred Stock shall have a par value of $0.01
per share.
b. The Series B Preferred Stock shall, with respect to dividend rights
and rights on liquidation, dissolution or winding up, rank prior to any
other class or series of preferred stock of the Corporation (except the
Series A Preferred Stock, which as to the foregoing rights shall rank pari
passu with the Series B Preferred Stock) and the Common Stock of the
Corporation.
2. Voting Rights. The holders of Series B Preferred Stock shall have the
following voting rights:
a. Except as otherwise provided in the second and third sentences of
Section A.2.b, Section B.2.a, the second and third sentences of Section
B.2.b and Sections A.2.c., B.2.c., H., or the Virginia Stock Corporation
Act, (i) each share of Series B Preferred Stock shall entitle the holder
thereof to vote on all matters voted on by the holders of Common Stock,
voting together with the shares of Common Stock and the shares of
Series A Preferred Stock as a single voting group or class at all meetings
of shareholders, and (ii) with respect to any such vote, each share of
Series B Preferred Stock shall entitle the holder thereof to cast one vote
per share.
b. Except as otherwise provided in Section A.2.a, the second and third
sentences of Section A.2.b, Section B.2.a, the second and third
sentences of Section B.2.b and Sections A.2.c., B.2.c., H., or the
Virginia Stock Corporation Act, the Series B Preferred Stock shall not
be considered as a separate class of shares for any voting purpose, and
the holders of the Series B Preferred Stock shall have no separate voting
rights and their separate consent shall not be required for the taking of
any corporate action. The holders of the shares of the Series B
Preferred Stock shall vote together as a separate voting group or class,
to the exclusion of the holders of Junior Stock and any other series of
Preferred Stock, with respect to the following matters. The affirmative
vote of the holders of 66-2/3% of the outstanding shares of the Series B
Preferred Stock taken at a meeting, or by written consent without a
meeting, in accordance with the procedures set forth in Section B.2.c
and B.2.d, shall be required to approve any of the following matters:
(1) A proposed amendment of these Articles if the amendment would:
(I)increase or decrease the aggregate number of authorized shares of the
eries B Preferred Stock; (II) effect an exchange or reclassification of all
or part of the shares of the Series B Preferred Stock into shares of
another class; (III) effect an exchange or reclassification, or create the
right of exchange, of all or part of the shares of another class into
shares of the Series B Preferred Stock; (IV) change the designation,
rights, preferences or limitations of all or part of the shares of the
Series B Preferred Stock, but the Series B Preferred Stock shall not be
entitled to vote as a separate voting group on an amendment increasing
the number of authorized shares of a Junior Stock solely because both
such classes vote on some or all matters as a single voting group; (V)
change the shares of all or part of the Series B Preferred Stock into a
different number of shares of the Series B Preferred Stock; (VI) create
a new class of shares, or change a Junior Stock into a class of shares
having rights or preferences with respect to dividends, distributions or to
dissolution, liquidation or winding up of the Corporation that are prior,
superior, or substantially equal to the shares of the Series B Preferred
Stock, or increase the rights, preferences, or number of authorized
shares of any class having rights or preferences with respect to
distributions or to dissolution that are prior, superior, or substantially
equal to the shares of the Series B Preferred Stock; (VII) limit or deny
an existing preemptive right of all or part of the shares of the Series B
Preferred Stock; or (VIII) cancel or otherwise affect rights to
distributions or dividends that have accumulated but not yet been
declared on all or part of the shares of the Series B Preferred Stock,
(2) An authorization or increase in the number of shares or other
units of any security convertible into, or exchangeable for, or
evidencing the right to purchase, shares of the Series B Preferred Stock
or any class of stock ranking prior to, or on a parity with, the Series
B Preferred Stock as to dividend rights and rights on liquidation,
dissolution or winding up, and
(3) The amendment or repeal of the second and third sentences of
this Section B.2.b.
c. If at any time there exists a Dividend Payment Default on the
Series A Preferred Stock or the Series B Preferred Stock, then
(i) without further action, the number of directors constituting
the entire Board of Directors shall be increased by one, and the holders
of shares of the Series A Preferred Stock and the holders of shares of
the Series B Preferred Stock shall have, in addition to the other voting
rights set forth herein, the right to vote together as a single voting
group or class, to the exclusion of the holders of Junior Stock and any
other series of Preferred Stock, to elect one director of the
Corporation to fill such newly created directorship, which director
shall be in addition to the
A/B Director elected by such holders pursuant to Section H. of these
Articles, and the remaining directors elected or to be elected by the other
classes of stock entitled to vote therefor at a meeting of stockholders
held for the purpose of electing directors. Each director elected by the
holders of shares of Series A Preferred Stock and the Series B Preferred
Stock pursuant to this Section B.2.c. (herein, a "Preferred Director")
shall serve as such director until the next annual meeting of shareholders
of the Corporation and until his successor is elected and qualified or
until his earlier resignation, death or removal, notwithstanding that
during the term of office of such Preferred Director any Dividend
Payment Default shall have been remedied. Any Preferred Director may
be removed, with or without cause, by, and shall not be removed except
by, the vote of the holders of a majority of the outstanding shares of
Series A Preferred Stock and the Series B Preferred Stock, voting
together as a single voting group or class, at an annual or special
meeting of the shareholders of the Corporation, or at a special meeting
of the holders of shares of Series A Preferred Stock and Series B
Preferred Stock called for that purpose. So long as a Dividend Payment
Default on the Series A Preferred Stock or the Series B Preferred Stock
shall be continuing, (i) any vacancy in the office of the Preferred
Director may be filled only by the majority vote of the holders of the
shares of Series A Preferred Stock and the shares of Series B Preferred
Stock, voting together as a single voting group or class, and (ii) in the
case of the removal of the Preferred Director, the vacancy may be filled
by the majority vote of the holders of the outstanding shares of Series A
Preferred Stock and Series B Preferred Stock, voting together as a single
voting group or class, at the same meeting at which such removal is
voted. Each director elected as aforesaid shall be deemed, for all
purposes hereof, to be a Preferred Director. Whenever the term of
office of the Preferred Director shall expire or terminate and if no
Dividend Payment Default with respect to the Series A Preferred Stock
or the Series B Preferred Stock shall have occurred or be continuing, the
number of directors constituting the entire Board of Directors of the
Corporation shall be reduced by one without further action.
(ii) Each outstanding share of Series B Preferred Stock shall
entitle the holder thereof to vote on all matters voted on by the
holders of Common Stock, voting together with the Common Stock and the
Series A Preferred Stock as a single voting group or class, at all
meetings of shareholders and each share of Series Class B Preferred
Stock shall be entitled to four votes per share.
(iii) The additional voting rights specified in Sections B.2.c.(i)
and (ii) shall continue at each succeeding annual or special meeting of
shareholders until such time as the outstanding Dividend Payment
Defaults shall have been remedied, subject to revesting upon the
occurrence of a further Dividend Payment Default.
d. The rights of the holders of shares of Series A Preferred Stock and
Series B Preferred Stock to vote as provided by Section B.2.c. may be
exercised at any annual or special meeting of shareholders or, in the case
of the voting rights specified in Section B.2.c.(i), at any special meeting
of the holders of shares of Series A Preferred Stock and the Series B
Preferred Stock.
(i) So long as such voting rights set forth in Section B.2.c
continue, the Chairman of the Board of the Corporation may call, and if
the holders of shares of Series A Preferred Stock and Series B Preferred
Stock are to vote together as a single voting group or class separately
from the holders of shares of Junior Stock, upon the written request of
the holders of record of 20% of the total number of outstanding shares
of Series A Preferred Stock and Series B Preferred Stock, addressed to
the Secretary of the Corporation, at the principal office of the
Corporation, the Chairman of the Board shall call, a special meeting of
the holders of shares entitled to vote as provided herein. If a special
meeting of the holders of shares of Series A Preferred Stock and Series
B Preferred Stock is so requested, the Corporation shall hold such
meeting promptly after delivery of such request to the Secretary, at the
place and upon the notice provided by law and in the By-laws of the
Corporation for the holding of meetings of shareholders, provided that
the Corporation shall not be required to call such a special meeting if
such request is received less than 90 days before the date fixed for the
next ensuing annual meeting of shareholders of the Corporation. If at
the time of such meeting the Dividend Payment Default shall be
continuing, such newly created directorship shall be filled by the
holders of the Series A Preferred Stock and Series B Preferred Stock
voting together as a single voting group or class separately from the
holders of shares of Common Stock or any shares of stock of the
Corporation.
(ii) At each meeting of shareholders at which the holders of
shares of Series A Preferred Stock and Series B Preferred Stock shall
have the right, voting together as a single voting group or class,
separately from the holders of shares of Common Stock or any shares of
stock of the Corporation, to elect a Preferred Director as provided in
Section B.2. or to take other action, the presence in person or by proxy
of the holders of record of one-third of the total number of shares of
Series A Preferred Stock and Series B Preferred Stock then outstanding
and entitled to vote on the matter shall be necessary and sufficient to
constitute a quorum. At any such meeting or at any adjournment thereof:
(1) the absence of a quorum of the holders of shares of Series A
Preferred Stock and the shares of Series B Preferred Stock shall not
prevent the election or removal of directors other than those to be
elected or removed separately by the vote of the holders of shares of
Series A Preferred Stock and Series B Preferred Stock and the absence
of a quorum of the holders of shares of any other class or series of
capital stock of the Corporation shall not prevent the election or
removal of the Preferred Director to be elected or removed by the
separate vote of the holders of shares of Series A Preferred Stock
and Series B Preferred Stock or the taking of any other action as
permitted by Section B.2.c.; and
(2) in the absence of a quorum of the holders of shares of
Series A Preferred Stock and Series B Preferred Stock, a majority
of the holders of such shares present in person or by proxy shall
have the power to adjourn the meeting as to the actions to be taken
separately by the holders of shares of Series A Preferred Stock and
Series B Preferred Stock voting together as a single voting group
or class from time to time and place to place without notice other
than announcement at the meeting until a quorum shall be present.
For the taking of any action as provided in the second and third
sentences of Section B.2.b. by the holders of shares of Series B
Preferred Stock voting as a separate voting group, and as provided in
Section B.2.c by the holders of shares of Series A Preferred Stock and
shares of Series B Preferred Stock, voting together as a separate voting
group, each such holder shall have with respect to any matter to be voted
upon pursuant to the second and third sentences of Section B.2.b. and to
the election or removal of a Preferred Director pursuant to Section
B.2.c, one vote for each share of such stock, and with respect to any
other matter to be voted upon pursuant to Section B.2.c, four votes for
each such share of such stock, standing in his or its name on the transfer
books of the Corporation as of any record date fixed for such purpose
or, if no such date be fixed, at the close of business on the business day
next preceding the day on which notice is given, or if notice is waived,
at the close of business on the business day next preceding the day on
which the meeting is held.
(iii) Any action which may be taken pursuant to Section A.2.a.,
the second and third sentences of Section A.2.b, Section B.2.a, the
second and third sentences of Section B.2.b or Section A.2.c. or B.2.c.,
at an annual or special meeting of shareholders may be taken, in lieu
of any such meeting, by written consent of the holders of Series A
Preferred Stock and Series B Preferred Stock, acting separately or
together as required by the particular provision, provided that such
consent shall be in accordance with the Virginia Stock Corporation Act
and the Corporation's By-laws.
3. Dividend Rights.
a. Accrued B Preferred Dividends. The dividends provided in these
Articles shall be cumulative, whether or not declared. On any date, the
cumulative accrued dividend with respect to the Series B Preferred Stock
(the "Accrued B Preferred Dividend") shall be an amount equal to (i)
31.5% of the consolidated Retained Earnings of the Unistar Group as of
the end of the Corporation's fiscal quarter immediately preceding the
fiscal quarter in which occurs the date with respect to which the
determination is being made, plus (ii) any Additional B Participation
Amount accrued with respect to the Series B Preferred Stock pursuant to
Section B.3.d. as of the end of the Corporation's fiscal quarter
immediately preceding the fiscal quarter in which occurs the date with
respect to which the determination is being made, less (iii) any amounts
paid to the holders of the Series B Preferred Stock prior to such date
pursuant to Sections B.3.b., B.4.d. and B.5.e. At any time, the Accrued
B Preferred Dividend with respect to each share of this Series
outstanding shall be an amount equal to the Accrued B Preferred
Dividend divided by 100,000. Any payments of Accrued B Preferred
Dividends with respect to the Series B Preferred Stock shall be applied
first to the payment of any Additional B Participation Amount.
b. Payment of Accrued B Preferred Dividend. Dividends are payable in
cash (except as otherwise provided in Section B.4.c. and subject to the
applicable provisions of the Virginia Stock Corporation Act) (i) when
and as declared by the Board of Directors, (ii) upon conversion or
redemption of the shares of Series B Preferred Stock or (iii) upon
liquidation, as provided herein. The declaration and payment of
dividends on the Series B Preferred Stock, the amount thereof and the
record date shall at all times be solely within the discretion of the Board
of Directors, except upon conversion or redemption of such shares and
upon liquidation, dissolution or winding up of the Corporation.
Notwithstanding the foregoing, no Accrued B Preferred Dividend shall
be paid (except upon conversion or redemption of shares of the Series B
Preferred Stock or liquidation, dissolution or winding up of the
Corporation or a Dividend Distribution) unless at the time of the
proposed payment:
(i) there is no outstanding balance of loans and advances made
by the Corporation to the Unistar Group for start-up costs,
(ii) the cumulative Retained Earnings of the Unistar Group is
positive, and
(iii) the Net Income of the Unistar Group exceeds $1,000,000 in
respect of the fiscal year immediately preceding the fiscal year of the
Corporation in which the dividends are to be paid.
c. (i) Whenever Accrued B Preferred Dividends are not paid in
full, thereafter and until all Accrued B Preferred Dividends shall have
been paid in full (determined as of the end of the Corporation's fiscal
quarter immediately preceding the fiscal quarter in which such payment
shall be made), the Corporation shall not: (1) declare or pay dividends,
or make any other distributions, on any shares of Junior Stock, other
than dividends or distributions payable in Junior Stock; or (2) declare
or pay dividends, or make any other distributions, on any shares of
Series A Preferred Stock, except dividends or distributions paid ratably
on the Series A Preferred Stock and Series B Preferred Stock, in
proportion to the total amounts to which the holders of all shares of
the Series A Preferred Stock and Series B Preferred Stock are then
entitled.
(ii) Whenever a Dividend Payment Default exists, thereafter and
until such Dividend Payment Default is remedied, the Corporation shall not
redeem, purchase or otherwise acquire for consideration any shares of
Junior Stock; provided, however, that (1) the Corporation may at any
time redeem, purchase or otherwise acquire shares of Junior Stock in
exchange for any shares of Junior Stock, and (2) the Corporation may
accept shares of any Junior Stock for (I) conversion, or (II) for payment
of the exercise price of employee stock options, or (III) for redemptions,
purchases or other acquisitions of shares acquired by exercise of
employee stock options to the extent that the aggregate amount paid for
such redemptions, purchases, or other acquisitions in any fiscal year of
the Corporation, pursuant to this Section B.3.c.(ii)(2)(III), does not
exceed $750,000.
(iii) The Corporation shall not permit any Subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of capital stock of the Corporation, unless the Corporation could
pursuant to Section B.3.c.(ii) purchase such shares at such time and in
such manner.
d. Dividend Payment Default. In addition to any other remedy
available to the holders of the Series B Preferred Stock, upon the
occurrence of and during the continuation of each Dividend Payment
Default on the Series B Preferred Stock, an additional amount (the
"Additional B Participation Amount") shall be added upon the Series B
Preferred Stock, on any date, equal to the product of (i) the amount
which, if paid, would remedy the Dividend Payment Default, times (ii)
the Additional Participation Percentage applicable to the 30-day period
in which occurs the date for which the determination is being made.
e. No Dividend Distribution shall be made except from Retained
Earnings, calculated net of Dividend Distributions.
f. Notwithstanding anything to the contrary provided in these
Articles, no Dividend Distribution shall be made. unless the Board of
Directors shall declare a dividend with respect to the Series B
Preferred Stock payable on or before the end of the Corporation's fiscal
quarter in which the Dividend Distribution will occur, in an amount
equal to the lesser of (i) 31.5% of the amount of such Dividend
Distribution, or (ii) the amount of the Accrued B Preferred Dividend.
g. For all purposes of these Articles, Retained Earnings as of the
end of any quarter shall be determined on the basis of the Unaudited
Financial Statements for such quarter, except if such quarter is the
fourth quarter in which case the determination shall be made based on
the Certified Financial Statements of the Unistar Group for the fiscal
year ended with the end of such fourth quarter.
4. Conversion Rights.
a. Conversion. Subject to and upon compliance with the provisions for
adjustment set forth in, and upon compliance with the provisions of, this
Section B.4. and following the approval of this Section B.4. by the
holders of a majority of the Common Stock, each share of this Series
shall be convertible into a number of fully paid and nonassessable shares
of Common Stock, determined as set forth below (said number of shares
of Common Stock (as adjusted from time to time pursuant to the
provisions of Section B.4.) being hereinafter referred to as the "B
Conversion Ratio"); provided, however, that the right to convert shall
terminate at the close of business on the fifth business day prior to the
date fixed by the Corporation for redemption pursuant to Section B.5.
(i) At any time during the Conversion Period and provided that
at such time as the conversion right is exercised the Unistar Group has
Net Income, in respect of the fiscal year immediately preceding the
fiscal year in which the conversion is being made, equal to or exceeding
$1,000,000, the B Conversion Ratio shall equal, for each share of Series
B Preferred Stock, the quotient of (1) the product of (I) the excess of
such Net Income over $1,000,000 and (II) .79, divided by (2) 100,000,
provided, however, that the maximum number of shares of Common Stock into
which a share of Series B Preferred Stock may be convertible shall be
83.75 ("Maximum B Number"); or
(ii) At any time during the Conversion Period and provided that
at such time as the conversion right is exercised the sum, calculated
from the Effective Date, of (1) 100% of the cumulative Net Revenues of the
Unistar Group and (2) 25% of the cumulative Lottery Revenues, exceeds
$50,000,000, the B Conversion Ratio shall equal 83.75 shares of
Common Stock for each share of Series B Preferred Stock; or
(iii) At any time during the Conversion Period after the sale
or transfer of a controlling interest in Unistar or UEI or the sale or
assignment of substantially all of the business or assets of Unistar or
UEI to a third party that is not a wholly-owned Subsidiary of the
Corporation, the B Conversion Ratio shall equal 83.75 shares of Common
Stock for each share of Series B Preferred Stock.
b. Conversion Procedure.
(i) Conversion Based on Financial Statements. Following the
approval of the provisions of this Section B.4. by the holders of a
majority of the Common Stock, not later than 5 days after the date of
publication of (1) the Corporation's audited consolidated financial
statements for each fiscal year ending prior to the end of the
Conversion Period and (2) the Corporation's Form 10-Q for each fiscal
quarter ending prior to the expiration of the Conversion Period, the
Corporation shall deliver to the holders of the Series B Preferred Stock
a notice together with a copy of the certificate referred to in Section
E of these Articles prepared with respect to such fiscal period (a
"Certificate Notice"). Each Certificate Notice shall state: (I) that
during the relevant Election Period, each holder may elect to convert
all, but not less than all, his shares of Series
B Preferred Stock in accordance with the provisions of Section B.4.a.(i)
or (ii): (II) that in order to exercise such conversion right, the holder
must, within the Election Period, surrender the certificate representing
such shares at the office of the Corporation and give written notice to the
Corporation that such holder elects to convert the same, specifying the
name or names and denominations in which such holder wishes the
certificate or certificates for the Common Stock to be issued; and (III)
the address of the office of the Corporation where certificates for such
shares are to be surrendered. Notwithstanding anything to the contrary
provided in this Section B.4., no conversion may be elected within the
first quarter of any fiscal year of the Corporation.
In order to exercise the conversion privilege, the holder of
shares of this Series to be converted shall, within the Election Period,
surrender the certificate representing such shares at the office of the
Corporation designated in such notice and give written notice to the
Corporation at said office that such holder elects to convert the same.
From and after the making of the election provided herein, all rights of
a holder of shares of this Series shall cease except for the right, upon
surrender of the certificate representing such shares, to receive
certificates representing shares of Common Stock and/or any Accrued B
Preferred Dividend as contemplated by this Section B.4.
(ii) Conversion Based upon Consummation of a Sale. Following the
approval of the provisions of this Section B.4. by the holders of a
majority of the Common Stock, not later than 15 days prior to the
consummation of any event referred to in Section B.4.a.(iii) (a "Sale"),
the Corporation shall notify the holders of the Series B Preferred Stock
of the occurrence of such Sale (a "Sale Advance Notice"). Each Sale
Advance Notice shall state (1) the anticipated date of consummation of
such Sale, (2) that all shares of Series B Preferred Stock owned by each
holder shall be automatically converted in accordance with Section
B.4.a.(iii) as a result of such Sale. Not later than 10 days following the
consummation of a Sale referred to in a Sale Advance Notice, the
Corporation shall notify the holders of the Series B Preferred Stock of
the consummation of such Sale (a "Sale Notice"). Each Sale Notice
shall state (I) the date of consummation of such Sale (the "Sale Date");
(II) that all shares of Series B Preferred Stock owned by each holder
have been automatically converted in accordance with Section B.4.a.(iii)
as a result of such Sale; (III) that, in order to receive the Common Stock
and other consideration payable to such holder as a result of such
conversion, such holder must surrender the certificate representing all of
his shares Series B Preferred Stock at the office of the Corporation
within thirty days following the date of receipt of the Sale Notice,
specifying the name or names and denominations in which such holder
wishes the certificate or certificates for the Common Stock to be issued;
and (iii) the address of the office of the Corporation where certificates
for such shares are to be surrendered.
In order to exercise the conversion privilege, the holder of
shares of this Series to be converted shall surrender the certificate
representing such shares at the office of the Corporation designated in
such Sale Notice within thirty days following the receipt of the Sale
Notice. From and after the delivery of the Sale Notice, all rights of
a holder of shares of this Series shall cease except for the right upon
surrender of the certificate representing such shares to convert such
shares into certificates representing shares of Common Stock and any
Accrued B Preferred Dividend as contemplated by this Section B.4. The
failure of a holder of shares of Series B Preferred Stock to submit the
certificate representing his shares of Series B Preferred Stock to the
Corporation in accordance with the Sale Notice shall not terminate such
holder's right to receive the Common Stock for which such shares were
converted or any Accrued B Preferred Dividend payable with respect to
such shares, but the Corporation shall not be obligated to pay interest
or any other allowance for the delay in payment of any Accrued B Preferred
Dividend or any other amounts or consideration payable to such holder.
(iii) Upon submission of his shares of Series B Preferred Stock
pursuant to Section B.4.b.(i) or (ii), each holder shall specify the
name or names and denominations in which such holder wishes the
certificate or certificates for the Common Stock to be issued (which
notice may be in the form of a notice of election to convert which may
be printed on the reverse of the certificates for the shares of this
Series). Unless the shares issuable on conversion are to be issued in
the same name as the name in which such shares of this Series are
registered, the shares surrendered for conversion shall be accompanied
by instruments of transfer, in form reasonably satisfactory to the
Corporation, duly executed by the holder or his duly authorized attorney
and by an amount sufficient to pay any transfer or similar tax. Other
than transfer taxes, the Corporation shall pay all expenses in
connection with the conversion and issuance of Common Stock thereupon,
other than personal expenses of the converting holder (including, without
limitation, income taxes).
(iv) Notice Delivery. Any notice delivered pursuant to this
Section B.4.b, shall be sent by facsimile, personal delivery, overnight
courier or certified mail return receipt requested, in each case notice
being effective on receipt.
3. Accrued B Preferred Dividend. The holders of shares of this Series
shall be entitled to receive any unpaid Accrued B Preferred Dividend
payable with respect to such shares calculated:
(i) In the case of a conversion under Section B.4.(b).(i) or
(ii), as of the end of the Corporation's fiscal quarter immediately
preceding the fiscal quarter in which occurs the date on which the
shares of Common Stock issuable with respect to a conversion of such
shares are issued in accordance with Section B.4.d. (the "Conversion
Date"), without further action, based upon the Unaudited Financial
Statements for such immediately preceding fiscal quarter.
At the sole option of the Corporation and provided that the
issuance of such additional shares of Common Stock has been
approved by the holders of a majority of the Common Stock, in
the event that less than a majority of the then outstanding
shares of this Series are converted in any fiscal year of the
Corporation, the Accrued B Preferred Dividend may be paid in the form
of Common Stock. In such event, the number of shares of Common
Stock to be issued to a holder of shares of this Series shall be determined
by dividing the amount of the Accrued B Preferred Dividend payable to
such holder by the Current Market Price of the Common Stock on the
date of such holder's notice delivered to the Corporation pursuant to
Section B.4.b. Such payment in shares shall be made at the time that the
shares of Common Stock into which the Series B Preferred Stock is
converted are issued pursuant to Section B.4.d.
(ii) In the case of a conversion under Section B.4.b.(iii).
as of the Sale Date, without further action. In such event, the
Accrued B Preferred Dividend shall be determined based upon
the Retained Earnings of the Unistar Group as of the last day
of the quarter of the Corporation's fiscal year ending immediately
prior to the Sale Date, plus or minus (2) the product of (I)
the number of days between the end of the immediately
preceding quarter and the Sale Date, times the (II) quotient of (A) the
difference between the Retained Earnings as of the end of the
immediately preceding fiscal quarter and the end of the second
immediately preceding quarter, divided by (B) the number of days in the
first immediately preceding quarter. The Retained Earnings for such
immediately preceding quarter shall be based upon the figures contained
in the Certified Financial Statements of the Unistar Group, where such
quarter is the Corporation's fourth quarter and such Certified Financial
Statements are available or Unaudited Financial Statements of the
Unistar Group, if such quarter is any quarter other than the fourth
quarter of the Corporation's fiscal year.
(iii) Except as provided above, the Corporation shall make no
payment or allowance for unpaid dividends, whether or not in arrears, on
converted shares or for dividends on the shares of Common Stock issued
upon such conversion.
d. Issuance of Common Stock and payment of Accrued B Preferred Dividend.
As promptly as practicable after the surrender of the certificates for
shares of this Series as aforesaid,but in no event later than five business
days after the holder's compliance with the requirements in this Section
B.4. for conversion, the Corporation shall issue and shall deliver to such
holder, or according to his written instructions, (i) a certificate or
certificates for the number of full shares of Common Stock issuable upon
the conversion of such shares in accordance with the provisions of this
Section B.4., and with respect to an Accrued B Preferred Dividend
settled in shares of Common Stock pursuant to Section B.4.c., and (ii) a
certified or bank check in the amount of the Accrued B Preferred
Dividend payable with respect to such shares of Series B Preferred Stock
pursuant to Section B.4.c., and any amount payable in lieu of fractional
shares. Each conversion shall be deemed to have been effected
immediately prior to the close of business on the day prior to (i) the
Conversion Date, in the case of a conversion under Section B.4.a.(i) or
(ii), and (ii) the Sale Date, in the case of a conversion pursuant to
Section B.4.a.(iii), and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares represented thereby at such
time on such date. All shares of Common Stock delivered upon
conversion of the shares of this Series will upon delivery be duly and
validly issued and fully paid and nonassessable, free of all liens and
charges of the Corporation and not subject to any preemptive rights.
e. Fractional Interests. No fractional shares or scrip representing
fractions of shares of Common Stock shall be issued upon conversion of
shares of this Series. Instead of any fractional interest in a share of
Common Stock that would otherwise be deliverable upon the conversion of
a share of this Series, the Corporation shall pay to the holder of such
share of this Series an amount in cash (computed to the nearest cent,
with one-half cent being rounded upward) equal to the Current Market
Price of the Common Stock on the trading day immediately preceding the
day of conversion multiplied by the fraction of a share of Common Stock
represented by such fractional interest. If more than one share of this
Series shall be surrendered for conversion at one time by the same
holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate
number of the shares of this Series so surrendered.
f. Adjustments to B Conversion Ratio. The B Conversion Ratio for each
share of Series B Preferred Stock set forth in Section B.4.a. and the
Maximum B Number, shall be subject to adjustments, from time to time,
which shall be made to the nearest one-thousandth of a share of Common
Stock or, if none, to the next lower one-thousandth and which shall be
made, from time to time, upon the occurrence of the following events:
(i) If the Corporation shall pay to the holders of its Common Stock a
dividend in shares of Common Stock or in securities convertible into
Common Stock other than the shares of this Series, the B Conversion
Ratio and the Maximum B Number shall be proportionately increased,
effective at the opening of business on the next full business day
after the record date fixed for the determination of the holders of
Common Stock entitled to such dividend.
(ii) If the Corporation shall subdivide the outstanding shares of
its Common Stock into a greater number of shares or combine the
outstanding shares into a smaller number, the B Conversion Ratio and
the Maximum B Number shall be proportionately increased in the case
of a subdivision or decreased in the case of a combination,
effective at the opening of business on the next full business day
after the day such action becomes effective.
(iii) If the Corporation shall issue to the holders of its
Common Stock rights or warrants to subscribe for or purchase
shares of its Common Stock at a price less than the
Current Market Price of the Corporation's Common
Stock at the record date fixed for the determination of the holders of
Common Stock entitled to such rights or warrants, the B Conversion
Ratio and the Maximum B Number shall be increased, effective at the
opening of business on the next full business day after such record
date, to the respective amounts determined by multiplying such
B Conversion Ratio and the Maximum B Number by a fraction,
the numerator of which is the number of shares of Common
Stock of the Corporation outstanding immediately prior
to such record date plus the number of additional shares
of its Common Stock offered for subscription or
purchase and the denominator of which is said number of shares
outstanding immediately prior to such record date plus the number of
shares of Common Stock of the Corporation which the aggregate
subscription or purchase price of the total number of shares so offered
would purchase at the Current Market Price of the Corporation's
Common Stock at such record date.
(iv) If the Corporation shall distribute to the holders
of its Common Stock any evidences of its indebtedness, any
other security not convertible into Common Stock other
than Common Stock, or any rights or warrants to subscribe
for any security other than its Common Stock, or any assets
(excluding dividends and distributions in cash to the extent permitted
by law), the B Conversion Ratio and the Maximum B Number shall be
be increased, effective at the opening of business on the next full
business day after the record date fixed for the determination of the
holders of Common Stock entitled to such distribution, to the
respective amounts determined by multiplying such B Conversion Ratio
and the Maximum B Number by a fraction, the numerator of which is the
Current Market Price of one share of the Corporation's Common Stock
at such record date and the denominator of which is such Current
Market Price less the fair market value (as determined by the Board of
Directors, whose good faith determination shall be conclusive) of such
evidences of indebtedness, securities, rights, warrants or other assets
(excluding dividends and distributions in cash as aforesaid) so
distributed which is applicable to one share of Common Stock.
(v) Anything in this Section B.4.f. to the contrary notwithstanding,
the Corporation shall not be required to make any adjustment of the B
Conversion Ratio and the Maximum B Number in any case in which the
amount by which such B Conversion Ratio and the Maximum B Number
would be adjusted in accordance with the foregoing provisions would be
less than 3% of such B Conversion Ratio and the Maximum B Number,
as the case may be, before such adjustment, but in such case any
adjustment that would otherwise be required then to be made will be
carried forward and made at the time of, and together with, the next
subsequent adjustments which, together with any and all such
adjustments so carried forward, shall amount to 3% or more of such B
Conversion Ratio and the Maximum B Number before such adjustments.
(vi) For purposes of this Section B.4.f., the number of shares of
Common Stock at any time outstanding shall not include any
shares of Common Stock then owned or held by or for the
account of the Corporation.
Following the approval of the provisions of this Section B.4. by the
holders of a majority of the Common Stock, whenever the B Conversion
Ratio is adjusted pursuant to this Section B.4.f. the Corporation shall
promptly after the adjustment (1) place on file at its offices and at the
offices of each of its transfer agents, if any, for the Series B Preferred
Stock, a statement signed by the Chairman of the Board, the President,
or a Vice President of the Corporation and by its Treasurer or an
Assistant Treasurer showing in detail the facts requiring such
adjustment, the method by which the adjustment is calculated, and the B
Conversion Ratio and the Maximum B Number after such adjustment,
and shall make such statement available for inspection by shareholders of
the Corporation, and (2) mail or cause to be mailed by its transfer agent
to each holder of record of the Series B Preferred Stock a notice stating
the adjustment, the method by which the adjustment is calculated, and
the adjusted B Conversion Ratio and the Maximum B Number, with a
statement of any firm of independent certified public accountants of
nationally recognized standing (which may be the firm regularly retained
by the Corporation) to the effect that such adjustment is in accordance
with this Section B.4.
g. In case of any reclassification or change of the
outstanding shares of Common Stock of the Corporation (except
a subdivision or combination of shares), effective provision
shall be made by the Corporation (i) that
the holder of each share of Series B Preferred Stock then outstanding
shall thereafter have the right to convert such share into the kind and
amount of stock or other securities, upon such reclassification or change,
by a holder of the number of shares of Common Stock of the
Corporation into which such share of Series B Preferred Stock might
have been converted immediately prior thereto, and (ii) that there shall
be subsequent adjustments of the B Conversion Ratio and the Maximum
B Number which shall be equivalent, as nearly as practicable, to the
adjustments provided for in Section B.4.f., above. The provisions of this
Section B.4.g. shall similarly apply to successive reclassifications or
changes. Any provision that shall be made for the purposes specified
hereinbefore in this Section B.4.g. that shall be approved by a resolution
or resolutions of the Board of Directors of the Corporation, and that
shall, in the written opinion of a firm of independent certified public
accountants of nationally recognized standing selected by the
Corporation (which may be the firm regularly retained by the
Corporation), be fair and equitable, shall be binding and conclusive upon
all holders of shares of Series B Preferred Stock then outstanding. In the
event that securities or property other than Common Stock shall be
issuable or deliverable upon any of the events referred to in this Section
B.4.g., all references in this Section B.4.g. shall be deemed to apply, so
far as appropriate and nearly as may be, to such other securities or
property.
h. In case of any consolidation or merger of the
Corporation with or into another corporation, or in case
of any sale or conveyance to another corporation of
all or substantially all of the assets or property of the
Corporation (each of the foregoing being referred to as a "Transaction"),
each share of Series B Preferred Stock then outstanding shall thereafter
be convertible into, in lieu of the Common Stock issuable upon such
conversion prior to consummation of such Transaction, the kind and
amount of shares of stock and other securities and property (including
cash) receivable upon the consummation of such Transaction by a holder
of that number of shares of Common Stock into which one share of
Series B Preferred Stock was convertible immediately prior to such
Transaction (including, on a pro rata basis, the cash, securities or
property received by holders of Common Stock in any tender or
exchange offer that is a step in such Transaction). The number of shares
of stock and other consideration into which each share of Series B
Preferred Stock shall be converted shall be determined according to the
B Conversion Ratio and Maximum B Number set forth in Section B.4.a.
In case securities or property other than Common Stock shall be issuable
or deliverable upon conversion as aforesaid, then all references in this
Section B.4.h. shall be deemed to apply, so far as appropriate and nearly
as may be, to such other securities or property.
i. Shares of Series B Preferred Stock converted as provided herein
shall become authorized and unissued shares of Preferred Stock which may
thereafter be designated as shares of any other series.
j. The Corporation shall at all times reserve and keep available for
issuance upon the conversion of the Series B Preferred Stock, such
number of its authorized but unissued shares of Common Stock as will
from time to time be sufficient to permit the conversion of all
outstanding shares of Series B Preferred Stock, and shall take all action
required to increase the authorized number of shares of Common Stock
if necessary to permit the conversion of all outstanding shares of Series
B Preferred Stock.
5. Redemption Rights.
a. Redemption. If the holders of a majority of the Common Stock shall
have approved the provisions of this Section B.5., all, but not less than
all, the Series B Preferred Stock shall be subject to redemption in whole
at the sole and absolute discretion of the Corporation at any time after
the date of issuance of the Series B Preferred Stock, provided, however,
that such redemption right may not be exercised by the Corporation if on
the date that the Corporation elects to exercise its redemption rights the
Current Market Price of the Common Stock is less than $2.00 per share
as appropriately adjusted with respect to any subdivisions, stock
dividends, or combinations of the Common Stock.
b. Redemption Xxxxxx.Xx the event that the Corporation shall redeem all
shares of this Series, notice of such redemption (the "B Redemption
Notice") shall be given by personal delivery, overnight courier or
certified mail, return receipt requested not less than 30 nor more than 60
days prior to the redemption date, to each holder of the Series B Preferred
Stock at his address on the transfer books of the Corporation. Such notice
shall be effective upon receipt and shall state: (i) the date on
which such redemption shall take place (the "Redemption B Date"); (ii)
that all shares in this Series are to be redeemed; (iii) the office of the
Corporation where certificates for such shares are to be surrendered; and
(iv) that Accrued B Preferred Dividends on the shares to be redeemed
will be determined as of and payable on the Redemption B Date. On the
Redemption B Date, each share of Series B Preferred Stock then
outstanding shall be converted, without the necessity of any action by the
Board of Directors, into a right to receive 83.75 shares of Common
Stock. The redemption ratio set forth in this Section B.5.b. shall be
adjusted in the same manner as the B Conversion Ratio and Maximum B
Number are adjusted pursuant to Section B.4.f. From and after the
Redemption Date, all rights of a holder of shares of this Series shall
cease except for the right, upon surrender of the certificate representing
such shares, to receive certificates representing shares of Common Stock
for which such shares were redeemed together with any payment in lieu
of a fractional share of Common Stock and of any Accrued B Preferred
Dividend as contemplated by this Section. Each holder of Series B
Preferred Stock shall be deemed to be a holder of Common Stock on the
Redemption B Date.
c. Timing of Redemption. Within 30 business days after receipt of the
Redemption B Notice, the holder of each share of this Series shall
surrender the certificate representing such share at the office of the
Corporation and shall give written notice to the Corporation at said
office specifying the name or names and denominations in which such
holder wishes the certificate or certificates for the Common Stock to be
issued (which notice may be printed on the reverse of the certificates for
the shares of this Series). Unless the shares issuable on redemption are
to be issued in the same name as the name in which such share of this
Series is registered, each share surrendered for redemption shall be
accompanied by instruments of transfer, in form reasonably satisfactory
to the Corporation, duly executed by the holder or his duly authorized
attorney, and by an amount sufficient to pay any transfer or similar tax.
The Corporation shall pay all other expenses in connection with the
redemption and issuance of Common Stock.
d. Accrued B Preferred Dividend. The holders of shares of this Series
shall be entitled to receive any Accrued B Preferred Dividend payable
with respect to such shares calculated as of the Redemption B Date in
accordance with Section B.3.a. and b. (based, however, on the Retained
Earnings of the Unistar Group as of the Redemption B Date, determined
in accordance with the next sentence of this Section B.5.d.), without the
necessity of any action by the Board of Directors. For purposes of this
Section B.5., the consolidated Retained Earnings of the Unistar Group as
of the Redemption B Date shall be the sum of (1) the consolidated
Retained Earnings of the Unistar Group (I) if the Redemption B Date
occurs within the first quarter of the Corporation's fiscal year, as of the
end of the immediately preceding fiscal year of the Corporation (based
on the Certified Financial Statements of the Unistar Group), or (II) if the
Redemption B Date occurs within any of the last three quarters of the
Corporation's fiscal year, as of the end of the Corporation's fiscal
quarter immediately preceding the quarter in which the Redemption B
Date occurs (based on the Unaudited Financial Statements of such
immediately preceding quarter), plus or minus (2) the product of (I) the
number of days between the end of the immediately preceding quarter
and the Redemption B Date, times the (II) quotient of (A) the difference
between the Retained Earnings as of the end of the immediately
preceding fiscal quarter and the end of the second immediately preceding
quarter, divided by (B) the number of days in the first immediately
preceding quarter, provided, however, that in the event that the
Corporation delivers its Redemption B Notice within five business days
following the date that the Corporation's Certified Financial Statements
of the Unistar Group or Unaudited Financial Statements for the
immediately preceding fiscal quarter are published, the consolidated
Retained Earnings shall be determined as of the end of such immediately
preceding fiscal quarter and no adjustment shall be made with respect to
the period between the last day of such immediately preceding fiscal
quarter and the Redemption B Date. Except as provided above, the
Corporation shall make no payment or allowance for unpaid dividends,
whether or not in arrears, on redeemed shares or for dividends on the
shares of Common Stock issued upon such redemption.
e. Issuance of Common Stock and Payment of Accrued B Preferred
Dividend. As promptly as practicable after the surrender of the
certificates for shares of this Series as aforesaid, the Corporation
shall issue and shall deliver at the office of any transfer agent
for the Common Stock to such holder, or according to
such holder's written instruction, (i) a certificate
or certificates for the number of full shares of Common Stock issuable
upon the redemption of such shares in accordance with the provisions of
this Section and (ii) a certified or bank check in the amount of the
Accrued B Preferred Dividend payable with respect to such shares and
any amount in lieu of fractional shares. Any fractional interest in
respect of a share of Common Stock arising upon such redemption shall
be settled as provided in Section B.5.f.
The redemption shall be deemed to have been effected immediately prior
to the close of business on the Redemption B Date and the person or
persons in whose name or names any certificate or certificates for shares
of Common Stock shall be issuable upon such redemption shall be
deemed to have become the holder or holders of record of the shares
represented thereby at such time on such date. All shares of Common
Stock delivered upon redemption of the Series B Preferred Stock will
upon delivery be duly and validly issued and fully paid and
nonassessable, free of all liens and charges of the Corporation and not
subject to any preemptive rights.
f. Fractional Shares. No fractional shares or scrip representing
fractions of shares of Common Stock shall be issued
upon redemption of shares of this Series. Instead of
any fractional interest in a share of Common Stock that
would otherwise be deliverable upon the redemption of a share
of this Series, the Corporation shall pay to the holder of such share
of this Series an amount in cash (computed to the nearest cent, with one-
half cent being rounded upward) equal to the Current Market Price of
the Common Stock on the trading day next preceding the day of
Redemption B Date multiplied by the fraction of a share of Common
Stock represented by such fractional interest. If more than one share of
this Series shall be surrendered for redemption at one time by the same
holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate
number of the shares of this Series so surrendered.
6. Liquidation Rights.
a. Upon any voluntary or involuntary dissolution, liquidation
or winding up of the Corporation, the holder of each share
of this Series then outstanding shall be entitled to
receive and to be paid out of the assets of the Corporation
available for distribution to its shareholders, before any
payment or distribution shall be made on any class of Junior Stock upon
liquidation, an amount equal to 100% of the fair market value of the
Series B Preferred Stock on the Effective Date, such value as determined
by the investment banking firm engaged by the Corporation, divided by
100,000, together with any Accrued B Preferred Dividend as of the date
of the distribution, determined in accordance with the method set forth
in Section B.5.d. Notwithstanding the foregoing, the holders of the
shares of Series B Preferred Stock shall have no direct claim on the
assets of the Unistar Group.
b. After the payment to the holders of the shares of this Series of the
full preferential amounts provided for in this Section B.6., the holders
of this Series as such shall have no right or claim to any of the
remaining assets of the Corporation.
c. If, upon any voluntary or involuntary dissolution, liquidation, or
winding up of the Corporation, the amounts payable with respect to the
shares of this Series and any other shares of stock of the Corporation
ranking as to any such distribution on a parity with the shares of this
Series are not paid in full, the holders of the shares of this Series
and of such other shares will share ratably in any such distribution of
assets of the Corporation in proportion to the full respective
preferential amounts to which they are entitled.
d. Neither the sale of all or substantially all the property or
business of the Corporation, nor the merger or consolidation of the
Corporation into or with any other corporation or the merger
or consolidation of any other corporation into or with the
Corporation, shall be deemed to be a dissolution, liquidation or
winding up, voluntary or involuntary, for the purposes of this Section B.6.
Section C. Books and Records
The Corporation shall assure that accurate books and records are
maintained by the Corporation and all its Affiliates (including, but not
limited to, the Unistar Group) sufficient to permit the holders of Series
A Preferred Stock and Series B Preferred Stock and their representatives
to verify any amounts which are due to them, the reports submitted to
them by the Corporation and the occurrence of the events which entitle
them to increased voting rights, dividends, conversion rights, and other
rights pursuant to these Articles, and will make available to the holders
of Series A Preferred Stock and Series B Preferred Stock and their
representatives, for inspection and copying upon reasonable notice to the
Corporation and during normal business hours, such books, records and
work papers as are reasonably deemed by such holders and their
representatives to be necessary in order to verify the foregoing amounts,
reports and events, during regular business hours, at the holders'
expense.
Section D. Dispute Resolution
1. If the holders of 25% or more of the then outstanding shares of
Series A Preferred Stock or Series B Preferred Stock disagree with the
Corporation's calculations of any amounts which affect such holders'
rights with respect to such stock, including but not limited to, the
Conversion Ratio and the B Conversion Ratio (and adjustments thereto),
Net Income and Net Revenues of the Unistar Group and Lottery
Revenues of the Corporation and its Affiliates, such holders may, within
60 days after delivery of any disputed amount, deliver a notice or notices
to the Corporation disagreeing with such calculation and setting forth
those items or amounts as to which they disagree.
2. If a notice or notices of disagreement shall be duly delivered
pursuant to Section D.1.a., such holders and the Corporation
shall, during the 15 days following such delivery, use their
best efforts to reach agreement on the disputed items or amounts.
If, during such period, such holders and the Corporation are
unable to reach such agreement, they shall
promptly thereafter mutually appoint Xxxxxx Xxxxxxxx & Co. (unless
either such holders or the Corporation object to such appointment, in
which case they shall mutually appoint other independent accountants of
nationally recognized standing who shall not have any material
relationship with the Corporation or its Affiliates and who shall be
satisfactory to both such holders and the Corporation) who shall
promptly review the disputed items or amounts for the purpose of
determining the correct amounts in accordance with this Agreement. In
making such calculation, such independent accountants shall consider
only those items or amounts as to which such holders have disagreed and
the Corporation's calculation of such amounts and the Corporation's and
such holders' reasons therefor. Such independent accountants shall
deliver to such holders and the Corporation, as promptly as practicable,
a report setting forth such calculation. In the absence of manifest error,
such report shall be final and binding upon such holders and the
Corporation. The cost of such review and report shall be borne by such
holders and the Corporation as follows: if the amount resulting from the
resolution of the dispute results in a change of more than 5% of the
amount reported earlier, the Corporation shall bear 100% of the cost,
but if the change resulting from the resolution of the dispute is less than
5% of the amount reported earlier, the Corporation shall bear 50% of
such cost and the disputing holders shall bear the other 50% pro rata to
the increase in the amounts they receive upon such resolution.
Section E. Calculation of Relevant Amounts
As long as any shares of Series A Preferred Stock or Series B Preferred
Stock are outstanding, the Corporation shall cause to be prepared (at its
expense) and delivered to each holder of record of Series A Preferred
Stock and each holder of record of Series B Preferred Stock, not later
than the date on which the Corporation's audited consolidated financial
statements are published for each fiscal year and not later than the date
on which the Corporation's Form 10-Q is published for each fiscal
quarter, detailed statements setting forth all calculations which are
relevant for purposes of determining the rights and privileges incident to
the Series A Preferred Stock or Series B Preferred Stock, as the case
may be, including, but not limited to, Current Market Price, Conversion
Ratio, B Conversion Ratio, Maximum Number, Maximum B Number,
Lottery Revenues, Net Income, Net Revenues, Accrued Preferred
Dividends, and Accrued B Preferred Dividends, based on the Certified
Financial Statements of the Unistar Group if the amounts relate to the
end of a fiscal year and the Unaudited Financial Statements if the
amounts relate to a fiscal quarter. Said calculations shall be
accompanied by a certification of both the chief financial officer of the
Corporation and a firm of independent certified public accountants of
nationally recognized standing (which may be the firm regularly retained
by the Corporation) to the effect that said statements accurately reflect
the items purported to be set forth therein and were prepared in
accordance with the terms of these Articles of Amendment. Any
disputes with respect to any of the calculations referred to in this
Section E shall be subject to the provisions of Section D above with
respect to Dispute Resolution.
Section F. Enforcement of Rights
Any holder of Series A Preferred Stock or Series B Preferred Stock may
proceed to protect and enforce his rights and the rights of such holders
by any available remedy by proceeding at law or in equity to protect and
enforce any such rights, whether for the specific enforcement of any
provision in these Articles or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.
Section G. Corporation's Sales of Services
All sales of services by the Corporation and its Affiliates (except for
sales to the Unistar Group and except sales of network services) which
(i) are primarily for use directly in connection with the operation of
gaming activities, and (ii) either (a) arise as a result of the relation-
ship between the National Indian Lottery or the Unistar Group and the
Corporation or its other Affiliates or (b) in which any of the Corporation
and its Affiliates or the Unistar Group participate directly in the design,
implementation or management of such gaming activities, shall be made
only through and by the Unistar Group; viz., with respect to such sales,
the seller of such services shall in all instances be a member of the
Unistar Group, which may arrange for such services to be provided by
the Corporation or one of its other Affiliates.
Section H. A/B Director
At each annual meeting of the shareholders, held while any of the Series
A Preferred Stock or Series B Preferred Stock is outstanding, the holders
of a majority of the outstanding Series A Preferred Stock and the Series
B Preferred Stock, voting together as a single voting group or class, to
the exclusion of holders of Junior Stock, shall have the right to nominate
one director for election to the Board of Directors ("A/B Director"), in
addition to the Preferred Director, if any. The Corporation shall use its
best efforts to cause each such nominee to be elected as a member of its
Board of Directors. The designee of the holders of the Series A
Preferred Stock and the Series B Preferred Stock on the Board of
Directors may be removed, and may only be removed, with or without
cause, by the holders of a majority of the outstanding shares of Series A
Preferred Stock and Series B Preferred Stock, voting together as a
separate group or class. Any vacancy in the position of A/B Director
shall be filled in the same manner as a vacancy is filled in the position
of Preferred Director in accordance with Sections A.2.c. and d. and B.2.c.
and d.
EXHIBIT A
"Accrued Preferred Dividend" shall have the meaning set forth in
Section A.3.a.
"Accrued B Preferred Dividend" shall have the meaning set forth in
Section B.3.a.
"Additional Participation Amount" shall have the meaning set forth in
Section A.3.d.
"Additional B Participation Amount" shall have the meaning set forth in
Section B.3.d.
"Additional Participation Percentage" shall mean 1%, which percentage
shall be increased by an additional 1% on the first day of each
succeeding thirty-day period during which a Dividend Payment Default
continues.
"Affiliate" shall mean, with respect to a person, any person that
directly or indirectly controls, is controlled by, or is under common
control with the person in question.
"B Conversion Ratio" shall have the meaning set forth in Section B.4.a.
"Certified Financial Statements of the Unistar Group" shall mean, the
consolidated balance sheet and consolidated profit and loss statement of
the Unistar Group for a fiscal year or part thereof, derived from the
published audited financial statements of the Corporation for the
corresponding accounting period (prepared in accordance with GAAP,
consistently applied with the published audited financial statements of the
Corporation for the fiscal year or part thereof for which such statements
for the Unistar Group are being prepared) and certified by the
accountants that prepared the Corporation's audited financial statements
as having been prepared in accordance with the terms of these Articles.
"Coeur d'Alene Tribe" shall mean the Coeur d'Alene tribe, a federally
recognized Indian tribe.
"Conversion Date" shall have the meanings set forth in Sections A.4.c.
and B.4.c.
"Conversion Period" shall mean the period commencing upon the
Effective Date and ending upon the later of (i) the last day of the four-
year period commencing on the date that the first lottery ticket for
participation in the National Indian Lottery is sold by UEI pursuant to
the Management Agreement and (ii) the last day of the five-year period
commencing on the Effective Date.
"Conversion Ratio" shall have the meaning set forth in Section A.4.a.
"Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
person, whether through ownership of voting securities, by contract or
otherwise.
"Current Market Price" shall mean, for any day, the average of the high
and low sales prices of the Corporation's Common Stock as quoted on
the NASDAQ NMS for the 30 consecutive business days preceding such
date.
"Dividend Distribution" shall mean a distribution made by the Unistar
Group of cash or other property (other than a repayment of advances or
loans made by the Corporation to the Unistar Group).
"Dividend Payment Default" shall mean:
(i) with respect to the Series A Preferred Stock, receipt by the
Corporation or any of its Affiliates of a Dividend Distribution from the
Unistar Group, and the failure of the Board of Directors to have
declared and paid, by the end of the quarter of the Corporation's fiscal
year in which the Corporation shall have received such Dividend
Distribution, a Preferred Dividend equal to the lesser of (I) 18.5% of the
amount of such Dividend Distribution or (II) the amount of the unpaid
Accrued Preferred Dividend; or
(ii) with respect to the Series B Preferred Stock, receipt by the
Corporation or any of its Affiliates of a Dividend Distribution from the
Unistar Group, and the failure of the Board of Directors to have
declared and paid, by the end of the quarter of the Corporation's fiscal
year in which the Corporation shall have received such Dividend
Distribution, a B Preferred Dividend equal to the lesser of (I) 31.5% of
the amount of such Dividend Distribution or (II) the amount of the
unpaid Accrued B Preferred Dividend; or
(iii) with respect to both the Series A Preferred Stock and the
Series B Preferred Stock, (1) the excess of (I) the cumulative aggregate
of the Accrued Preferred Dividend and Accrued B Preferred Dividends, over
(II) the sum of (A) the sum of all loans and advances then outstanding
made by the Corporation to the Unistar Group, and (B) the sum of all
capitalized lease payments falling due within a period of twelve months
(other than any included in clause (iii)(1)(II)(A), is equal to or exceeds
$3,000,000, and (2) the Board of Directors shall not have declared and
paid by the end of the quarter in which the amount of the excess of
clause (iii)(1)(I) over clause (iii)(1)(II) exceeds $3,000,000 a dividend
on the Series A Preferred Stock and/or the Series B Preferred Stock which
eliminates the excess over $3,000,000.
"Effective Date" shall mean the date on which the merger between
Unistar and Executone Newco, Inc. is effective.
"Election Period" shall mean (i) with respect to the exercise of the
conversion rights set forth in Sections A.4.a.(i). and B.4.a.(i), the last
three fiscal quarters of the fiscal year following the delivery of the
Corporation's audited consolidated financial statements for a fiscal year;
and (ii) with respect to the exercise of the conversion rights set forth in
Sections A.4.a.(ii). and B.4.a.(ii), the period between the delivery of the
Corporation's Form 10-Q for the immediately preceding fiscal quarter
and the delivery of the Corporation's Form 10-Q for the succeeding
fiscal quarter, provided, however, that, with respect to the Corporation's
fiscal year which includes the last day of the Conversion Period, (1) if
the Conversion Period ends within the first quarter thereof, the Election
Period shall not terminate until the close of business on the 60th day
after the receipt by the holders of the Series A Preferred Stock and the
Series B Preferred Stock of the detailed statements required by Section E
for the immediately preceding fiscal year, and (2) if the Conversion
Period ends within the last three quarters thereof, the Election Period
shall not terminate until the close of business on the 60th day after the
receipt by the holders of the Series A Preferred Stock and the Series B
Preferred Stock of the detailed statements required by Section E for the
fiscal quarter immediately preceding the fiscal quarter in which the
Conversion Period ends.
"GAAP" shall mean generally accepted accounting principles in the
United States.
"Junior Stock" shall mean any capital stock of the Corporation ranking
junior (either as to dividends, redemption or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock and the Series
B Preferred Stock.
"Lottery Revenues" shall mean Net Revenues derived by the
Corporation and its Affiliates (other than the Unistar Group) from sales
of equipment, other products or network services (i) that are to be used
primarily in connection with the operation of gaming activities, and (ii)
that either (a) arise as a result of the relationship between the National
Indian Lottery or the Unistar Group and the Corporation or its other
Affiliates, or (b) in which any of the Corporation and its Affiliates or
the Unistar Group participate directly in the design, implementation or
management of such gaming activities.
"Management Agreement" shall mean that certain Management
Agreement for the National Indian Lottery, dated January 16, 1995, by
and between the Coeur d'Alene Tribe and UEI, as amended from time to
time.
"Maximum Number" shall have the meaning set forth in Section
A.4.a.(i).
"Maximum B Number" shall have the meaning set forth in Section
B.4.a.(i).
"National Indian Lottery" shall mean the tele-lottery gaming enterprise
to be known as the National Indian Lottery pursuant to the Indian
Gaming Regulatory Act of 1988, the 1992 Class III Gaming Compact by
and between the Coeur D'Alene Tribe and the State of Idaho and the
Coeur D'Alene Tribal Charitable Gaming Code, Chapter 30 1.01 -
14.01.
"Net Income" shall mean net income determined in accordance with
GAAP, consistently applied in accordance with the published audited
financial statements of the Corporation for the fiscal year for which the
net income of the Unistar Group is determined, with the exceptions that
no deduction from gross income will be taken with respect to (i)
goodwill or (ii) any costs or expenses associated with the merger of
Unistar and Executone Newco, Inc. (except for the first fiscal year of the
Unistar Group in which all such costs and expenses will be deducted).
The costs of the Corporation in arranging credit to be used in financing
the operations of the Unistar Group and the National Indian Lottery in
an amount equal to the effective interest rate paid to the lender extending
such credit (reflecting, without limitation, all interest, fees and charges
imposed in connection with such financing, whether payable at the time
of closing of the financing or periodically thereafter, any equity issued
in connection with such financing and legal fees and expenses incurred in
connection with the arrangement of such financing) shall be charged or
amortized against the Net Income of the Unistar Group whether such
funds are direct obligations of the Unistar Group or the Corporation. In
calculating Net Income, income taxes shall be computed at the
appropriate statutory rates as if and in the manner in which they would
be determined if the Unistar Group filed a consolidated income tax
return, but did not file any consolidated income tax return with the
Corporation or any other Subsidiary of the Corporation, including, but
not limited to, the appropriate reflection of net operating loss and
capital loss and tax credit carrybacks and carryovers, to the extent such
carrybacks and carryovers may be used by the Corporation after the
Corporation's acquisition of all the stock of Unistar.
"Net Revenues" shall mean, with respect to any person, the gross
revenues of such person less returns and rebates, and without regard to
any excise, sales, franchise or other tax or imposition imposed upon
such revenues (other than any tax or imposition based on income).
"Preferred Director" shall have the meanings set forth in Section
A.2.c. and B.2.c.
"Redemption Date" shall have the meaning set forth in Section
A.5.b.(i).
"Redemption B Date" shall have the meaning set forth in Section
B.5.b.(i).
"Redemption Notice" shall have the meaning set forth in Section A.5.b.
"Redemption B Notice" shall have the meaning set forth in Section
B.5.b.
"Retained Earnings" shall mean the cumulative consolidated Net Income
of the Unistar Group from the Effective Date, determined without regard
to any distributions.
"Sale" shall have the meanings set forth in Sections A.4.b.(ii) and
B.4.b.(ii).
"Sale Advance Notice" shall have the meanings set forth in Sections
A.4.b.(ii) and B.4.b.(ii).
"Sale Date" shall have the meanings set forth in Sections A.4.b.(ii)
and B.4.b.(ii).
"Sale Notice" shall have the meanings set forth in Sections A.4.b.(ii)
and B.4.b.(ii).
"Series A Preferred Stock" shall have the meaning set forth in Section
A.1.a.
"Series B Preferred Stock" shall have the meaning set forth in Section
B.1.a.
"Subsidiary" of any person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such person.
"Transaction" shall have the meanings set forth in Sections A.4.h. and
B.4.h.
"Unaudited Financial Statements" shall mean, as applicable, the
unaudited consolidated balance sheet and consolidated profit and loss
statement of the Unistar Group prepared by the Corporation and derived
from the Corporation's most recently prepared Form 10-Q.
"UEI" shall mean Unistar Entertainment, Inc., a Colorado corporation.
"Unistar" shall mean Unistar Gaming Corp., a Delaware corporation.
"Unistar Group" shall mean Unistar and all its Subsidiaries, including,
but not limited to, UEI.
