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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 3, 1998
EXCELSIOR-HENDERSON
MOTORCYCLE MANUFACTURING COMPANY
(Exact Name of Registrant as Specified in Charter)
Minnesota 0-19986 41-1771946
- ------------------------------- ---------------- -------------------
(State or Other Jurisdiction of (Commission File (I.R.S. Employer
Incorporation) Number) Identification No.)
805 Hanlon Drive
Belle Plaine, Minnesota 56011
(Address of principal executive offices, including zip code)
(612) 873-7000
(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS
On September 3, 1998, Excelsior-Henderson Motorcycle Manufacturing
Company (the "Company") sold and issued 10,000 shares of Series B Convertible
Preferred Stock (the "Series B Preferred Stock") at a purchase price of $1,000
per share in the aggregate amount of $10,000,000 to a single institutional
investor (the "Investor"). The Series B Preferred Stock is convertible into
Common Stock of the Company at an initial conversion price of $7.47087 per
share, a 10% premium over the recent market price, and is fixed for at least the
first twelve months after closing. After September 3, 1999, the conversion
price may vary based upon the market price of the Company's Common Stock during
the period immediately preceding conversion. The Investor agreed to acquire
3,000 shares of Series C Convertible Preferred Stock (the "Series C Preferred
Stock") in a second closing (the "Second Closing") subject to certain closing
conditions. The Series C Preferred Stock will have substantially the same terms
as the Series B Preferred Stock except that the conversion price will be based
on the market price of the Company's Common Stock at the time of issuance. The
Company also issued a warrant to the Investor to acquire 250,000 shares of
Common Stock, and has agreed to issue an additional warrant to acquire 75,000
shares of Common Stock in connection with the Second Closing (collectively, the
"Warrants"). The issuance of the Series B Preferred Stock was made pursuant to
Regulation D of the Securities Act of 1933, as amended (the "Act"), and was
therefore exempt from registration under the Act.
At the closing of this transaction, the Company had approximately 13.0
million shares of Common Stock outstanding. Depending on the ultimate
conversion price, the number of shares issuable upon conversion of the Series B
Preferred Stock could range from a low of 1,338,532 shares to a high, without
obtaining prior shareholder approval, of 2,600,000 shares. The terms of the
Series B Preferred Stock provide for certain rights including antidilution and
redemption rights. The Company also has an option right to redeem the Series B
Preferred Stock, subject to certain limitations.
The Company has agreed to file a registration statement on Form S-3 for
the resale of the shares of Common Stock issuable upon conversion of the Series
B Preferred Stock and the Series C Preferred Stock and upon exercise of the
Warrants.
The foregoing discussion is qualified in its entirety by the
provisions of the documents filed as exhibits hereto. Such provisions are
incorporated herein by reference thereto.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
4.1 Securities Purchase Agreement dated as of September 3,
1998, by and among the Registrant and the Buyers listed
thereon.
4.2 Registration Rights Agreement dated as of September 3,
1998, by and between the Registrant and the Buyers listed
thereon.
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4.3 Amended Statement of Designation of Rights, Preferences and
Limitations of Series B Convertible Preferred Stock as
filed with the Secretary of State of the State of Minnesota
on September 3, 1998.
4.4 Form of Common Stock Purchase Warrant Certificate dated
September 3, 1998.
99.1 Press Release, issued September 8, 1998, announcing the
closing of the sale of shares of Series B Convertible
Preferred Stock of the Registrant pursuant to the
Securities Purchase Agreement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
Dated: September 18, 1998 By: /s/ Thomas M. Rootness
-------------------------------------
Thomas M. Rootness
Senior Vice President of Finance and
Administration and Chief Financial
Officer
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EXHIBIT INDEX
Exhibit No. Description
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4.1 Securities Purchase Agreement dated as of September 3, 1998, by
and among the Registrant and the Buyers listed thereon.
4.2 Registration Rights Agreement dated as of September 3, 1998, by
and between the Registrant and the Buyers listed thereon.
4.3 Amended Statement of Designation of Rights, Preferences and
Limitations of Series B Convertible Preferred Stock as filed with
the Secretary of State of the State of Minnesota on September 3,
1998.
4.4 Form of Common Stock Purchase Warrant Certificate dated September
3, 1998.
99.1 Press Release, issued September 8, 1998, announcing the closing of
the sale of shares of Series B Convertible Preferred Stock of the
Registrant pursuant to the Securities Purchase Agreement.
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Exhibit 4.1
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of
September 3, 1998, by and among EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING
COMPANY, a Minnesota corporation, with headquarters located at 805 Hanlon
Drive, Belle Plaine, Minnesota 56011 (the "COMPANY"), and the Buyers set
forth on the signature page hereto, together with their permitted transferees
(the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration
afforded by Section 4(2) of the Securities Act of 1933, as amended (the
"1933 ACT"), and Rule 506 under Regulation D ("REGULATION D") as promulgated
by the United States Securities and Exchange Commission (the "SEC") under the
1933 Act;
B. Buyers desire, upon the terms and conditions stated in this
Agreement, to purchase (i) shares of the Company's Series B Convertible
Preferred Stock (the "SERIES B PREFERRED STOCK"), convertible into shares of
the Company's common stock, par value $0.01 per share (the "COMMON STOCK" ),
for an aggregate purchase price of Ten Million U.S. Dollars ($10,000,000),
and (ii) shares of the Company's Series C Convertible Preferred Stock (the
"SERIES C PREFERRED STOCK" and, collectively with the Series B Preferred
Stock, the "PREFERRED STOCK"), convertible into shares of the Common Stock,
for an aggregate purchase price of Three Million U.S. Dollars ($3,000,000).
In consideration for each such purchase, the Buyers will receive Stock
Purchase Warrants (the "WARRANTS"), to acquire additional shares of Common
Stock. The Warrants to be issued in connection with the Series B Preferred
Stock shall be in the form attached hereto as EXHIBIT A-1, and the Warrants
to be issued in connection with the Series C Preferred Stock shall be in the
form attached hereto as EXHIBIT A-2. The purchase price per share of the
Preferred Stock shall be $1,000. The purchase of the Series B Preferred
Stock will be funded in an initial closing (the "FIRST CLOSING"), subject to
the terms and conditions stated in this Agreement. The purchase of the Series
C Preferred Stock will be funded in a second closing (the "SECOND CLOSING"),
subject to the terms and conditions stated in this Agreement. The Preferred
Stock purchased by the Buyers hereunder is sometimes referred to herein as
the "PREFERRED SHARES." The shares of Common Stock issuable upon conversion
of the Preferred Shares or otherwise pursuant to the terms of the
Certificates of Designation (as defined below) or the Registration Rights
Agreement (as defined below) are referred to herein as the "COMMON SHARES".
The shares of Common Stock issuable upon exercise of or otherwise pursuant to
the Warrants are referred to herein as "WARRANT SHARES". The Preferred
Shares, Common Shares, Warrants, and Warrant Shares are collectively referred
to herein as the "SECURITIES".
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C. The Series B Preferred Stock has the voting powers, preferences,
and rights set forth in the Amended Statement of Designation of Rights,
Preferences and Limitations of Series B Convertible Preferred Stock attached
hereto as EXHIBIT G(1) (the "SERIES B CERTIFICATE OF DESIGNATION"), and the
Series C Preferred Stock shall have substantially the same voting powers,
preferences and rights as set forth in the Series B Certificate of
Designation (except that (i) the "Closing Price" of the Series C Preferred
Stock (as such term is defined in the Series B Certificate of Designation)
shall be based on the average closing bid price for the three trading days
immediately preceding the Second Closing, and (ii) the "Anniversary Date"
and "Maturity Date" for the Series C Preferred Stock shall be the same date
as the Anniversary Date and Maturity Date specified in the Series B
Certificate of Designation) (the "SERIES C CERTIFICATE OF DESIGNATION" and,
collectively with the Series B Certificate of Designation, the "CERTIFICATES
OF DESIGNATION") .
D. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement in the form attached hereto as EXHIBIT B (the "REGISTRATION
RIGHTS AGREEMENT"), pursuant to which the Company has agreed to provide
certain registration rights under the 1933 Act, the rules and regulations
promulgated thereunder and applicable state securities laws.
NOW THEREFORE, the Company and each Buyer hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF COMMON STOCK
1.1 (a) First CLOSING. Subject to the terms and satisfaction or
waiver of the conditions of this Agreement, the issuance, sale and purchase
of the Series B Preferred Stock shall be consummated at the First Closing. On
the date of the First Closing, subject to the satisfaction or waiver of the
conditions set forth in Article VI, the Company shall issue and sell to the
Buyers, and each Buyer agrees, on a several and not a joint basis, to
purchase from the Company, the number of shares of Series B Preferred Stock
set forth under such Buyer's name on the signature page hereto executed by
each Buyer.
(b) Second CLOSING. Subject to the terms and satisfaction or
waiver of the conditions of this Agreement, the issuance, sale and purchase
of the Series C Preferred Stock shall be consummated at the Second Closing.
On the date of the Second Closing, subject to the satisfaction or waiver of
the conditions set forth in Article VII, the Company shall issue and sell to
the Buyers, and each Buyer agrees, on a several and not a joint basis, to
purchase from the Company, the number of shares of Series C Preferred Stock
set forth under such Buyer's name on the signature page hereto executed by
each Buyer.
1.2 FORM OF PAYMENT. The Buyers shall pay their respective purchase
price for each Series of Preferred Shares by wire transfer to the account
designated
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pursuant to the Escrow Agreement by and among the Company, the Buyers, and
the escrow agent ("ESCROW AGENT") designated therein in the form attached
hereto as EXHIBIT C (the "ESCROW AGREEMENT"), upon delivery by the Company to
the Escrow Agent of the applicable Preferred Shares and Warrants, all in
accordance with the terms of the Escrow Agreement, and upon satisfaction of
the other conditions to the First Closing and Second Closing, respectively.
1.3 CLOSING DATE. Subject to the satisfaction or waiver of the
conditions thereto set forth in Article VI below, and further subject to the
terms and conditions of the Escrow Agreement, the date and time of the First
Closing shall be 10:00 a.m. Pacific Standard Time on September 3, 1998, or
such other mutually agreed upon date or time. Subject to the satisfaction or
waiver of the conditions thereto set forth in Article VII below, and further
subject to the terms and conditions of the Escrow Agreement, the date and
time of the Second Closing shall be on a mutually agreed upon date or time as
soon as practicable following the satisfaction or waiver of each of the
conditions set forth in Article VII, but in any event within four (4)
business days after the last of such conditions has been satisfied or waived.
1.4 WARRANTS. In consideration of the purchase by Buyers of the
Preferred Shares, the Company shall upon the First Closing and the Second
Closing, respectively, issue Warrants to each Buyer to acquire, in the
aggregate, Twenty-five Thousand (25,000) Common Shares for each One Million
Dollars ($1,000,000) of Preferred Shares purchased by such Buyer at each such
Closing, and each such Warrant shall have an exercise price per share equal
to (i) for the First Closing, 125% of the Closing Price as defined in the
Series B Certificate of Designation, and (ii) for the Second Closing, 125% of
the Closing Price as such term shall be defined in the Series C Certificate
of Designation.
ARTICLE II
BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants to the Company as of the date hereof
and as of the date of the First Closing, severally and solely with respect to
itself and its purchase hereunder and not with respect to any other Buyer, as
set forth in this Article II. Each Buyer makes no other representations or
warranties, express or implied, to the Company in connection with the
transactions contemplated hereby and any and all prior representations and
warranties, if any, which may have been made by the Buyers to the Company in
connection with the transactions contemplated hereby shall be deemed to have
been merged in this Agreement and any such prior representations and
warranties, if any, shall not survive the execution and delivery of this
Agreement.
2.1 INVESTMENT PURPOSE. Buyer is purchasing the Securities for its own
account and not with a present view towards the public sale or distribution
thereof,
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except pursuant to sales registered or exempted from registration under the
1933 Act; provided, however, that by making the representation herein, the
Buyer does not agree to hold any of the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time
in accordance with or pursuant to a registration statement or an exemption
under the 1933 Act.
2.2 ACCREDITED INVESTOR STATUS. The Buyer is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D. Buyer has delivered
an Investor Questionnaire in the form of EXHIBIT D to the Company and
Shoreline Pacific Institutional Finance, the Institutional Division of
Financial West Group ("SHORELINE PACIFIC").
2.3 RELIANCE ON EXEMPTIONS. The Buyer understands that the Securities
are being offered and sold to it in reliance upon specific exemptions from
the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the
Buyer to acquire the Securities.
2.4 INFORMATION. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by the Buyer or its advisors. The Buyer
and its advisors, if any, have been afforded the opportunity to ask questions
of the Company. Neither such inquiries nor any other due diligence
investigation conducted by Buyer or any of its advisors or representatives
shall modify, amend or affect Buyer's right to rely on the Company's
representations and warranties contained in Article III below. The Buyer
acknowledges and understands that its investment in the Securities involves a
significant degree of risk, including the risks reflected in the SEC
Documents (as defined below).
2.5 GOVERNMENTAL REVIEW. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
2.6 TRANSFER OR RESALE. The Buyer understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been
and are not being registered under the 1933 Act or any applicable state
securities laws and consequently the Buyer may have to bear the risk of
owning the Securities for an indefinite period of time, and the Securities
may not be transferred unless (a) the resale of the Securities is registered
pursuant to an effective registration statement under the 1933 Act; (b) the
Buyer shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions) to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an exemption from
such
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registration; (c) the Securities are sold or transferred pursuant to Rule 144
promulgated under the 1933 Act (or a successor rule) ("RULE 144") or (d) the
Securities are sold or transferred to an affiliate (as defined in Rule 144)
of the Buyer; (ii) any sale of such Securities made in reliance on Rule 144
may be made only in accordance with the terms of said Rule and further, if
said Rule is not applicable, any resale of such Securities under
circumstances in which the seller (or the person through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the 1933
Act) may require compliance with some other exemption under the 1933 Act or
the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register such
Securities under the 1933 Act or any state securities laws or to comply with
the terms and conditions of any exemption thereunder (in each case, other
than pursuant to the Registration Rights Agreement). The Buyer covenants it
will not make any sale, transfer or other disposition of the Securities in
violation of federal or state securities laws.
2.7 LEGENDS. The Buyer understands that until (i) the Preferred
Shares and the Warrants may be sold by the Buyer under Rule 144(k) or any
successor rule that would permit sale of such Securities without restriction
as to the number of securities that can then be immediately sold ("RULE
144(k)") and (ii) such time as the resale of the Common Shares and the
Warrant Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, or otherwise may be sold by the Buyer under
Rule 144(k), the certificates representing the Securities will bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Securities):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES MAY
NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES
LAWS, OR UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any certificate upon which
it is stamped in accordance with the terms specified in the Transfer Agent
Instructions referred to in Article V hereof, and otherwise in accordance
with the terms of Article V.
2.8 AUTHORIZATION; ENFORCEMENT. This Agreement, the Registration
Rights Agreement and the Escrow Agreement have been duly and validly
authorized,
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executed and delivered on behalf of the Buyer and are valid and binding
agreements of the Buyer enforceable in accordance with their terms, subject
to the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the rights of creditors generally and
the application of general principles of equity.
2.9 RESIDENCY. The Buyer is a resident of the jurisdiction set forth
immediately below such Buyer's name on the signature pages hereto.
2.10 SHORT SALES. Neither the Buyer nor its affiliates, as of the date
of the First Closing, have a short position in the Common Stock of the
Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Buyers that:
3.1 ORGANIZATION AND QUALIFICATION. The Company is duly incorporated,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other)
to own, lease, use and operate its properties and to carry on its business as
and where now owned, leased, used, operated and conducted. The Company has
no subsidiaries. The Company is duly qualified to do business and is in good
standing in every jurisdiction in which the nature of the business conducted
by it makes such qualification necessary except where the failure to be so
qualified or in good standing would not have a Material Adverse Effect.
"MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the
business, operations, assets or financial condition of the Company, or (ii)
on the ability of the Company to perform its obligations pursuant to the
transactions contemplated hereby or under the agreements or instruments to be
entered into or filed in connection herewith, or (iii) the Securities.
3.2 AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite
corporate power and authority to file and perform its obligations under the
Certificates of Designation, to enter into and to perform its obligations
under this Agreement, the Registration Rights Agreement, the Escrow Agreement
and to consummate the transactions contemplated hereby and thereby and to
issue the Securities, in accordance with the terms hereof and thereof, (ii)
the execution, delivery and performance of this Agreement, the Registration
Rights Agreement and the Warrants by the Company and the consummation by it
of the transactions contemplated hereby and thereby (including without
limitation the filing of the Certificates of Designation, issuance of the
Preferred Shares, and the issuance and reservation for issuance of the Common
Shares in accordance with the Certificates of Designation and the Warrant
Shares issuable in accordance with the terms of the Warrants) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board or Directors, or its
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shareholders is required, (iii) this Agreement, the Registration Rights
Agreement, the Escrow Agreement and the Warrants have been duly executed and
the Series B Certificate of Designation has been duly filed by the Company,
and (iv) each of this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Certificates of Designation and the Warrants
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, subject to the effect of
any applicable bankruptcy, insolvency, reorganization, or moratorium or
similar laws affecting the rights of creditors generally and the application
of general principles of equity.
3.3 CAPITALIZATION. As of the date hereof, the authorized capital stock
of the Company consists of (i) 25,000,000 shares of $.01 par value Common
Stock of which 13,068,454 shares are issued and outstanding, 1,200,000 shares
are reserved for issuance pursuant to the Company's employee and director
stock option plans, 300,000 shares are reserved for issuance pursuant to the
Company's employee stock purchase plan, 564,403 shares are reserved for
issuance pursuant to securities (other than securities issued under the
foregoing plans) exercisable for, or convertible into or exchangeable for
shares of Common Stock; and (ii) 7,000,000 shares of preferred stock, par
value $0.01 per share, of which 654,000 shares are designated as Series A
Preferred Stock, and of which no shares of preferred stock are outstanding.
All of such outstanding shares of capital stock are, or upon issuance will
be, duly authorized, validly issued, fully paid and nonassessable. No shares
of capital stock of the Company, including the Preferred Shares, the Common
Shares and the Warrant Shares issuable pursuant to this Agreement, are
subject to preemptive rights or any other similar rights of the stockholders
of the Company or any liens or encumbrances imposed through the actions or
failure to act of the Company. Except as disclosed in SCHEDULE 3.3 and except
for the transactions contemplated hereby, as of the date of this Agreement,
(i) there are no outstanding options, warrants, scrip, rights to subscribe
for, puts, calls, rights of first refusal, agreements, understandings, claims
or other commitments or rights of any character whatsoever relating to, or
securities or rights convertible into, exercisable for, or exchangeable for
any shares of capital stock of the Company, or arrangements by which the
Company is or may become bound to issue additional shares of capital stock of
the Company, and (ii) there are no agreements or arrangements under which the
Company is obligated to register the sale of any of its or their securities
under the 1933 Act (except the Registration Rights Agreement) and (iii) there
are no anti-dilution or price adjustment provisions contained in any security
issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Securities. The
Company has furnished to the Buyers true and correct copies of the Company's
Articles of Incorporation, as amended, as in effect on the date hereof
("ARTICLES OF INCORPORATION"), the Company's By-laws as in effect on the date
hereof (the "BY-LAWS"), and the terms of all securities convertible into or
exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto.
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3.4 ISSUANCE OF SECURITIES. The Preferred Shares, are duly authorized
and, upon issuance in accordance with the terms of this Agreement will be
validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims, encumbrances, and charges with respect to the issue thereof
and shall not be subject to preemptive rights or other similar rights of
stockholders of the Company and will not impose personal liability on the
holders thereof. The Common Shares and Warrant Shares are duly authorized
and reserved for issuance, and, upon conversion of the Preferred Shares and
exercise of the Warrants in accordance with the terms thereof, will be
validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances and will not be subject to preemptive rights
or other similar rights or stockholders of the Company and will not impose
personal liability upon the holder thereof.
3.5 ACKNOWLEDGEMENT OF COMPANY. The Company understands and
acknowledges that (i) prior to the Anniversary Date (as defined in the Series
B Certificate of Designation), up to 1,338,532 shares of Common Stock could
be issued upon conversion of the Series B Preferred Stock and up to 340,909
shares of Common Stock could be issued upon conversion of the Series C
Preferred Stock and (ii) on and after the Anniversary Date (as defined in the
Series B Certificate of Designation), the maximum number of shares that the
Company is obligated to issue upon conversion of all of the Preferred Shares
is 2,600,000 (the "MAXIMUM SHARE AMOUNT"). In addition, up to 325,000 shares
of Common Stock may be issued upon exercise of the Warrants issued or
issuable in connection with all of the Preferred Shares. Any Face Amount (as
defined in the Certificates of Designation) of the Preferred Shares remaining
when the Maximum Share Amount is reached will be redeemed in cash, or, if the
Company agrees to waive such limit after obtaining all necessary shareholder
approvals, such remaining Face Amount will be converted into a number of
additional shares of Common Stock determined by dividing the then-outstanding
Face Amount by the Conversion Price (as defined in the Certificates of
Designation) in effect from time to time. The Company acknowledges that,
subject to the limitations and the option to redeem for cash described above,
its obligation to issue shares of Common Stock upon conversion of the
Preferred Stock and exercise of the Warrants in accordance with the terms of
the Certificates of Designation and the Warrants is absolute and
unconditional.
3.6 SERIES OF PREFERRED STOCK. The terms, designations, powers,
preferences and relative, participating and optional or special rights, and
the qualifications, limitations and restrictions of each series of preferred
stock of the Company (other than the Preferred Shares) are as stated in the
Articles of Incorporation, filed on or prior to the date hereof, and the
Bylaws. The terms, designations, powers, preferences and relative,
participating and optional or special rights, and the qualifications,
limitations and restrictions of the Series B Preferred Stock are as stated in
the Series B Certificate of Designation, and at such time as the Company has
filed a Series C Certificate of Designation in connection with the Second
Closing as provided in Section 7.2(a), the terms, designations, powers,
preferences and relative, participating and optional or special rights, and
the qualifications,
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limitations and restrictions of the Series C Preferred Stock are as stated in
the Series C Certificate of Designation.
3.7 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Warrants and the Escrow
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation,
the issuance and reservation for issuance of the Preferred Shares, Common
Shares, Warrants, and Warrant Shares) will not (i) conflict with or result in
a violation of any provision of the Articles of Incorporation or By-laws or
(ii) except as described in SCHEDULE 3.7, violate or conflict with, or result
in a breach of any provision of, or constitute a default (or an event which
with notice or lapse of time or both could become a default) under, or give
to others any rights of termination, amendment (including without limitation,
the triggering of any anti-dilution provision), acceleration or cancellation
of, any agreement, indenture, patent, patent license, or instrument to which
the Company is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including U.S. federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable
to the Company or by which any property or asset of the Company is bound or
affected (except for such conflicts, breaches, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). The
Company is not in violation of its Articles of Incorporation, By-laws or
other organizational documents and the Company is not in default (and no
event has occurred which with notice or lapse of time or both could put the
Company in default) under, and the Company has not taken any action or failed
to take any action that (and no event has occurred which, without notice or
lapse of time or both) would give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company is a party or by which any property or assets
of the Company is bound or affected, except for possible defaults as would
not, individually or in the aggregate, have a Material Adverse Effect. The
business of the Company is not being conducted, and shall not be conducted so
long as a Buyer owns any of the Securities, in violation of any law,
ordinance or regulation of any governmental entity, the failure to comply
with which would, individually or in the aggregate, have a Material Adverse
Effect. Except as specifically contemplated by this Agreement and as required
under the 1933 Act and any applicable state securities laws or any listing
agreement with any securities exchange or automated quotation system, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Warrants or the
Registration Rights Agreement, in each case in accordance with the terms
hereof or thereof or to issue and sell the Preferred Shares and Warrants in
accordance with the terms hereof and to issue the Conversion Shares upon
conversion of the Preferred Shares and the Warrant Shares upon exercise of
the Warrants. Except as set forth in SCHEDULE 3.7,
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all consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company is not in
violation of the listing requirements of Nasdaq (as defined below) and does
not reasonably anticipate that the Common Stock will be delisted by Nasdaq in
the foreseeable future. The Company is unaware of any facts or circumstances
which might give rise to the foregoing.
3.8 SEC DOCUMENTS, FINANCIAL STATEMENTS. Since the date of the
Company's initial public offering, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it
with the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 ACT") (all of the foregoing filed
prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being hereinafter referred to herein as
the "SEC DOCUMENTS"). The Company has delivered to each Buyer, or each Buyer
has had access to, true and complete copies of the SEC Documents, except for
such exhibits and incorporated documents. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
1934 Act or the 1933 Act, as the case may be, and the rules and regulations
of the SEC promulgated thereunder applicable to the SEC Documents, and none
of the SEC Documents, at the time they were filed with the SEC, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have
been prepared in accordance with U.S. generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the notes thereto,
or (ii) in the case of unaudited interim statements, to the extent they may
not include footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company as of
the dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). Except as set forth in the financial statements
included in the SEC Documents, and except pursuant to the $6,100,000 Loan
Agreement dated as of July 1, 1998, between the Company and the Economic
Development Authority of the City of Belle Plaine, Minnesota, the Company has
no liabilities, contingent or otherwise, other than liabilities incurred in
the ordinary course of business subsequent to January 3, 1998, and
liabilities of the type not required under generally accepted accounting
principles to be reflected in such financial statements. Such liabilities
incurred subsequent to January 3, 1998 are not, in the aggregate, material to
the financial condition or operating results of the Company.
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3.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the SEC
Documents, since January 3, 1998, there has been no material adverse change
and no material adverse development in the assets, liabilities, business,
properties, operations, financial condition, prospects or results of
operations of the Company.
3.10 ABSENCE OF LITIGATION. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company or any
of its officers or directors acting as such that could, individually or in
the aggregate, have a Material Adverse Effect. The Company is not aware of
any facts or circumstances which would reasonably be expected to give rise to
any action or proceeding described in the foregoing sentence. SCHEDULE 3.10
contains a complete list and summary description of any pending or, to the
knowledge of the Company, threatened litigation against the Company (or
litigation in which the Company is named), without regard to whether it could
have a Material Adverse Effect.
3.11 PATENTS, COPYRIGHTS, ETC. The Company owns or possesses the
requisite licenses or rights to use all patents, patent applications, patent
rights, inventions, know-how, trade secrets, trademarks, trademark
applications, service marks, service names, trade names and copyrights
("INTELLECTUAL PROPERTY") necessary to enable it to conduct its business as
now operated (and, except as set forth in SCHEDULE 3.11 hereof, to the best
of the Company's knowledge, as presently contemplated to be operated in the
future); there is no claim or action by any person pertaining to, or
proceeding pending, or to the Company's knowledge threatened, which
challenges the right of the Company with respect to any Intellectual Property
necessary to enable it to conduct its business as now operated (and, except
as set forth in SCHEDULE 3.11 hereof, to the best of the Company's knowledge,
as presently contemplated to be operated in the future); to the best of the
Company's knowledge, the Company's current and intended products, services
and processes do not infringe on any Intellectual Property or other rights
held by any person; and the Company is unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company has taken
reasonable security measures to protect the secrecy, confidentiality and
value of its Intellectual Property.
3.12 NO MATERIALLY ADVERSE CONTRACTS, ETC. The Company is not subject
to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation which in the reasonable judgment of the
Company's officers has or is expected in the future, individually or in the
aggregate, to have a Material Adverse Effect. The Company is not a party to
any contract or agreement which in the reasonable judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
3.13 TAX STATUS. Except as set forth on SCHEDULE 3.13, the Company has
made or filed all federal, state and foreign income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only
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to the extent that the Company has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and
has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports
and declarations, except those being contested in good faith and has set
aside on its books provisions reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of
the Company know of no basis for any such claim. The Company has not
executed a waiver with respect to the statute of limitations relating to the
assessment or collection of any foreign, federal, state or local tax. Except
as set forth on SCHEDULE 3.13, none of the Company's tax returns is presently
being audited by any taxing authority.
3.14 CERTAIN TRANSACTIONS. Except as disclosed in the SEC Documents or
as set forth on SCHEDULE 3.14 and except for arm's-length transactions
pursuant to which the Company makes payments in the ordinary course of
business upon terms no less favorable than the Company could obtain from
third parties and other than the grant of stock options, employment
agreements or the ownership of other securities and rights disclosed on
SCHEDULE 3.3 none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or employee or,
to the knowledge of the Company, any corporation, partnership, trust or other
entity in which any officer, director, or employee has a substantial
interest or is an officer, director, trustee or partner.
3.15 DISCLOSURE. All information relating to or concerning the Company
set forth in this Agreement and provided to the Buyers pursuant to Section
2.4 hereof and otherwise in connection with the transactions contemplated
hereby contained no untrue statement of a material fact and the Company has
not omitted to state any material fact necessary in order to make the
statements made herein or therein, in light of the circumstances under which
they were made, not misleading. No event or circumstance has occurred or
information exists with respect to the Company or its business, properties,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed (assuming for this
purpose that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by the Company
under the 1933 Act).
3.16 ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF SECURITIES. The
Company acknowledges and agrees that each Buyer is acting solely in the
capacity of an arm's length purchaser with respect to this Agreement and the
transactions
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contemplated hereby. The Company further acknowledges that no Buyer is
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any statement made by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is
merely incidental to the Buyer's purchase of the Securities and has not been
relied on by the Company in any way. The Company further represents to each
Buyer that the Company's decision to enter into this Agreement has been based
solely on an independent evaluation by the Company and its representatives.
3.17 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers
to buy any security under circumstances that would require registration under
the 1933 Act of the issuance of the Securities to the Buyers. The issuance
of the Securities to the Buyers will not be integrated with any other
issuance of the Company's securities (past, current or future) for purposes
of the 1933 Act or any applicable rules of Nasdaq.
3.18 NO BROKERS. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby, except for dealings with Shoreline Pacific, whose commissions and
fees will be paid for by the Company.
3.19 PERMITS; COMPLIANCE. The Company is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals and orders necessary to own,
lease and operate its properties and to carry on its business as it is now
being conducted except those the failure of which to possess would not,
individually or in the aggregate, have a Material Adverse Effect
(collectively, the "COMPANY PERMITS"), and there is no action pending or, to
the knowledge of the Company, threatened regarding suspension or cancellation
of any of the Company Permits. The Company is not in conflict with, or in
default or violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect. Since
January 3, 1998, the Company has not received any notification with respect
to possible conflicts, defaults or violations of applicable laws, except for
notices relating to possible conflicts, defaults or violations, which
conflicts, defaults or violations would not have a Material Adverse Effect.
3.20 TITLE TO PROPERTY. The Company has good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company. Any
real property and facilities held under lease by the Company are held by it
under valid,
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subsisting and enforceable leases with such exceptions as would not have a
Material Adverse Effect.
3.21 INSURANCE. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the
businesses in which the Company is engaged. The Company has no reason to
believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would
not have a Material Adverse Effect.
3.22 INTERNAL ACCOUNTING CONTROLS. The Company maintains a system of
internal accounting controls sufficient, in the judgment of the Company's
board of directors, to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
3.23 EMPLOYMENT MATTERS. The Company is in compliance with all federal,
state, local and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours
except where failure to be in compliance would not have a Material Adverse
Effect. There are no pending investigations involving the Company by the U.S.
Department of Labor or any other governmental agency responsible for the
enforcement of such federal, state, local or foreign laws and regulations.
There is no unfair labor practice charge or complaint against the Company
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or threatened against or
involving the Company. Except as set forth in SCHEDULE 3.23, no
representation question exists respecting the employees of the Company, and
no collective bargaining agreement or modification thereof is currently being
negotiated by the Company. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements of the
Company. No material labor dispute with the employees of the Company exists
or, to the knowledge of the Company, is imminent.
3.24 INVESTMENT COMPANY STATUS. The Company is not and upon
consummation of the sale of the Securities will not be an "investment
company," a company controlled by an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended.
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3.25 NO GENERAL SOLICITATION. Assuming the accuracy of the
representations and warranties of Shoreline Pacific in its letter to the
Company dated as of September 3, 1998 (a copy of which is attached as
SCHEDULE 3.25 hereto) to the extent relevant for such determination, neither
the Company nor any distributor participating on the Company's behalf in the
transactions contemplated hereby (if any) nor any person acting for the
Company, or any such distributor, has conducted any "general solicitation,"
as such term is defined in Regulation D, with respect to any of the
Securities being offered hereby.
IV
COVENANTS.
4.1 COMMERCIALLY REASONABLE EFFORTS. The parties shall use their
commercially reasonable efforts to satisfy timely each of the conditions
described in Articles VI and VII of this Agreement.
4.2 FORM D; BLUE SKY LAWS. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on
or before the date of the First Closing, take such action as the Company
shall reasonably determine is necessary to qualify the Securities for sale to
the Buyers pursuant to this Agreement under applicable securities or "blue
sky" laws of the states of the United States (or to obtain an exemption from
such qualification), and shall provide evidence of any such action so taken
to the Buyers on or prior to the date of the First Closing. The Company
agrees to file a Form 8-K disclosing this Agreement and the transactions
contemplated hereby with the SEC within ten (10) business days following the
date of the First Closing.
4.3 REPORTING STATUS; ELIGIBILITY TO USE FORM S-3. The Company's
Common Stock is registered under Section 12(g) of the 1934 Act. Throughout
the Registration Period (as defined in the Registration Rights Agreement),
the Company shall timely file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as
an issuer required to file reports under the 1934 Act even if the 1934 Act or
the rules and regulations thereunder would permit such termination. The
Company currently meets, and will take all reasonably necessary action to
continue to meet, the "registrant eligibility" requirements set forth in the
general instructions to Form S-3 for the registration of securities for the
account of shareholders of the Company.
4.4 USE OF PROCEEDS. The Company shall use the proceeds from the sale
of the Securities for general corporate purposes and shall not otherwise,
directly or indirectly, use such proceeds for any loan to or investment in
any other corporation, partnership, enterprise or other entity.
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4.5 EXPENSES. The Company and the Buyers shall each be liable for their
own expenses incurred in connection with the negotiation, preparation,
execution and delivery of this Agreement and the other agreements to be
executed in connection herewith, including, without limitation, attorneys'
and consultants' fees and expenses.
4.6 FINANCIAL INFORMATION. The Company agrees to file all reports,
schedules, forms, statements and other documents required to be filed by it
with the SEC pursuant to the reporting requirements of the 1934 Act. The
financial statements of the Company will be prepared in accordance with
United States generally accepted accounting principles, consistently applied,
and will fairly present in all material respects the consolidated financial
position of the Company and results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). The Company agrees to send the following
reports to each Buyer until such Buyer transfers, assigns, or sells all of
the Securities owned by it: (i) within ten (10) days after the filing with
the SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on
Form 10-Q and any Current Reports on Form 8-K; (ii) within one (1) day after
release, copies of all press releases issued by the Company; and (iii)
contemporaneously with the making available or giving to the stockholders of
the Company, copies of any notices or other information the Company makes
available or gives to such stockholders.
4.7 LISTING. The Company shall, on or before 10 business days
following the date hereof, secure the listing of the Common Shares and
Warrant Shares upon each national securities exchange or automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and, so long as any Buyer owns any of the
Securities, shall maintain such listing of all such Common Shares and Warrant
Shares. The Company will use its best efforts to obtain and, so long as any
Buyer owns any of the Securities, maintain the listing and trading of its
Common Stock on the Nasdaq National Market System ("NASDAQ"), the American
Stock Exchange ("AMEX") or the New York Stock Exchange ("NYSE"), and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Nasdaq or other exchanges, as
applicable. The Company shall promptly provide to each Buyer copies of any
notices it receives regarding the continued eligibility of the Common Stock
for listing on the Nasdaq or other principal exchange or quotation system on
which the Common Stock is listed or traded.
4.8 SOLVENCY; COMPLIANCE WITH LAW. The Company (both before and after
giving effect to the transactions contemplated by this Agreement) is solvent
(i.e., its assets have a fair market value in excess of the amount required
to pay its probable liabilities on its existing debts as they become
absolute and matured) and currently the Company has no information that would
lead it to reasonably conclude that the Company would not have, nor does it
intend to take any action that would impair, its ability to pay its debts
from time to time incurred in connection therewith as such
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debts mature. The Company will conduct its business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is
conducting business, including, without limitation, all applicable local,
state and federal environmental laws and regulations the failure to comply
with which would have a Material Adverse Effect.
4.9 INSURANCE. The Company shall maintain liability, casualty and
other insurance (subject to customary deductions and retentions) with
responsible insurance companies against such risk of the types and in the
amounts customarily maintained by companies of comparable size to the Company.
4.10 NO INTEGRATION. The Company shall not make any offers or sales of
any security (other than the Securities) under circumstances that would cause
the offering of Securities to be integrated with any other offering of
securities by the Company (i) for the purpose of any stockholder approval
provision applicable to the Company or its securities or (ii) for purposes of
any registration requirement under the 1933 Act.
4.11 RESERVATION OF SHARES. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Preferred Shares and issuance of the Common Shares in connection therewith
(based on the Conversion Price of the Preferred Shares in effect from time to
time) and the full exercise of the Warrants and the issuance of the Warrant
Shares in connection therewith (based upon the Exercise Price of the Warrants
in effect from time to time). The Company shall not reduce the number of
shares of Common Stock reserved for issuance upon conversion of the Preferred
Shares or exercise of the Warrants without the consent of all the Buyers.
The Company shall use its best efforts at all times to maintain the number of
shares of Common Stock so reserved for issuance at no less than 2,925,000
shares of Common Stock. If at any time the number of shares of Common Stock
authorized and reserved for issuance is below the number of Conversion Shares
and Warrant Shares issued and issuable upon conversion of the Preferred
Shares and exercise of the Warrants (based on the Conversion Price of the
Preferred Shares and Exercise Price of the Warrants then in effect), the
Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares, including, without limitation, calling
a special meeting of shareholders to authorize additional shares to meet the
Company's obligations under this Section 4.11, in the case of an insufficient
number of authorized shares, and using its best efforts to obtain shareholder
approval of an increase in such authorized number of shares.
4.12 LIMITATION ON SHORT SALES.
(a) Each Buyer agrees to conduct all sales of shares of Common
Stock (including all short sales or other hedging activities) in compliance
with all relevant securities laws and regulations.
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(b) Each Buyer agrees that during any period of determination of
any Market Price (as defined in the Certificate of Designation), if Buyer (or
others controlling, controlled by, or under common control with Buyer)
engages in short sale transactions or other hedging activities which involve,
among other things, sales of common shares, Buyer (or others controlling,
controlled by, or under common control with Buyer) will place its sale orders
for such shares of Common Stock in the course of such activities so as not to
complete or effect any such sale on any trading day during such period at a
price which is lower than the lowest trading price effected for shares of
Common Stock on such day by persons other than Buyer (or others controlling,
controlled by, or under common control with Buyer ).
(c) Buyer will not create new trading lows through sales of common
shares in order to create a lower Market Price applicable to conversions of
Preferred Stock.
(d) In connection with the sale of any shares of Common Stock (a
"Common Stock Sale") by a Buyer (or by others controlling, controlled by or
under common control with such Buyer) at any time after the Effective Date of
the Registration Statement (as defined in Section 4.13 below) and prior to
the first anniversary of the First Closing (the "Common Stock Sale Period")
at a price greater than 110% of the Closing Price (as defined in the Series B
Certificate of Designation) applicable to the Series B Preferred Stock, each
Buyer convenants and agrees that it will issue a Notice of Conversion (as
defined in the Series B Certificate of Designation) and shall convert Series
B Preferred Stock into such number of Common Shares equal to the number of
such shares of Common Stock sold by such Buyer within twenty (20) business
days following such sale. In addition to the foregoing, (i) during any
period in which Series C Preferred Stock is outstanding, (ii) in the event of
a Common Stock Sale during the Common Stock Sale Period at a price greater
than 110% of the Closing Price (as such term will be defined in the Series C
Certificate of Designation) applicable to the Series C Preferred Stock, (iii)
to the extent such Buyer no longer beneficially owns any shares of Series B
Preferred Stock, and (iv) to the extent that a Registration Statement has
been declared effective with respect to the Common Shares issuable upon
conversion of the Series C Preferred Stock, each such Buyer covenants and
agrees that it will issue a Notice of Conversion (as will be defined in the
Series C Certificate of Designation) and shall convert Series C Preferred
Stock into such number of Common Shares equal to the number of such shares
of Common Stock sold by such Buyer, within twenty (20) Business days
following such sale.
4.13 RESTRICTION ON BELOW MARKET ISSUANCE OF SECURITIES. (a) For a
period from the date of the First Closing through the later to occur of (a)
six months following the effective date of the "REGISTRATION STATEMENT"
required to be filed pursuant to Section 2(a) of the Registration Rights
Agreement (the "EFFECTIVE DATE") and (b) the first anniversary of the First
Closing, neither the Company nor any subsidiary of the Company ("SUBSIDIARY")
shall issue or agree to issue, (except (i) to Buyers pursuant to this
Agreement, (ii) pursuant to any employee stock option,
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stock purchase or restricted stock plan of the Company in effect on the date
hereof, or any such plan established after the date hereof and approved by
the Board of Directors of the Company, (iii) pursuant to any existing
security, option, warrant, scrip, call or commitment or right in each case or
disclosed on SCHEDULE 3.3 hereof or (iv) pursuant to a strategic joint
venture or partnership entered into by the Company or any Subsidiary,
undertaken at the reasonable discretion of the Board of Directors of the
Company, the primary purpose of which is not to raise equity capital), any
equity securities of the Company or any Subsidiary (or any security
convertible into or exercisable or exchangeable, directly or indirectly, for
equity securities of the Company or any Subsidiary) if such securities (x)
are issued at a price (or in the case of securities convertible into or
exercisable or exchangeable, directly or indirectly, for Common Stock such
securities provide for a conversion, exercise or exchange price) which may be
less than the then current market price for Common Stock on the date of
issuance of such Common Stock or securities convertible into or exercisable
or exchangeable for Common Stock, or (y) are convertible into an
indeterminate number of shares of Common Stock. During such period neither
the Company nor any Subsidiary shall issue or agree to issue any security
convertible into or exercisable or exchangeable for, directly or indirectly,
equity securities of the Company or any such Subsidiary based on a variable
conversion exercise or exchange price or formula.
4.14 OBLIGATION OF COMPANY TO ISSUE AND BUYERS TO PURCHASE SERIES C
PREFERRED STOCK. If at any time between (i) the date the SEC declares
effective the Registration Statement (as defined in, and filed pursuant to,
the Registration Rights Agreement) and (ii) nine months from the date of the
First Closing, the closing conditions set forth in Section VII have been
satisfied, then within four (4) business days the Company shall be obligated
to issue, and the Buyers shall be obligated to purchase the Series C
Preferred Stock in the amounts set forth opposite the Buyers' signature
pages hereto.
4.15 LETTER AGREEMENTS REGARDING VOTING. The Company will use its best
efforts to cause, as promptly as possible following the First Closing, Dave,
Dan and Jennifer Hanlon to execute letter agreements, in substantially the
form of EXHIBIT I hereto pursuant to which they will agree to vote in favor
of the Stockholder Approval (as defined in Article V(B)(ii) of the
Certificates of Designation); provided that, so long as the Company has used
such best efforts, the failure by the Company to obtain such executed letter
agreements shall not be deemed to be a breach of this Agreement or of any of
the terms of the Preferred Shares.
V
TRANSFER AGENT INSTRUCTIONS; REMOVAL OF LEGENDS
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The Company shall instruct its transfer agent to issue certificates,
registered in the name of each Buyer or its nominee, for the Common Shares
and the Warrant Shares in such amounts as determined in accordance with this
Agreement and the Warrants. All such certificates shall bear the restrictive
legend, except as specified in this Article V. In addition, the Company will
issue the irrevocable Transfer Agent Instructions to the transfer agent in
the form of EXHIBIT F hereto. The Company warrants that no instruction other
than as referred to in this Article V, and stop transfer instructions to give
effect to Section 2.7 hereof (prior to registration of Common Shares and
Warrant Shares under the 1933 Act), will be given by the Company to its
transfer agent. Nothing in this Section shall affect in any way the Buyer's
obligations and agreement set forth in this Article V hereof to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Common Shares and Warrant Shares.
If, unless otherwise required by applicable state securities laws, (a)
the resale of the Securities has been registered under an effective
registration statement filed under the 1933 Act, or (b) such holder provides
the Company and the Transfer Agent with an opinion of counsel, in form,
substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of such Securities
may be made without registration under the 1933 Act and such sale either has
occurred or may occur without restriction on the manner of such sale or
transfer, or (c) such holder provides the Company and the Transfer Agent with
reasonable assurances that such Securities can be sold under Rule 144 under
the 1933 Act (or a successor rule thereto), or (d) the Securities can be sold
without restriction as to the number of securities as of a particular date
that can then be immediately sold under Rule 144(k), the Company shall permit
the transfer of the Common Shares or Warrant Shares, and the Transfer Agent
shall issue one or more certificates, free from any restrictive legend in
such name and in such denominations as specified by such Buyer.
Notwithstanding anything herein to the contrary, but subject to the following
proviso, the Securities may be pledged as collateral in connection with a
bona fide margin account or other lending arrangement; provided that this
shall not alter the provisions of this Article V with respect to the removal
of restrictive legends.
The Buyer agrees to sell all Securities in compliance with applicable
prospectus delivery requirements, if any, or otherwise in compliance with the
requirements for an exemption from registration under the 1933 Act and the
rules and regulations promulgated thereunder.
The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Buyer, by vitiating the intent
and purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under
this Article V will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section, that the
Buyer shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring
<PAGE>
Page 21
immediate transfer, without the necessity of showing economic loss and
without any bond or other security being required.
VI
CONDITIONS TO THE FIRST CLOSING.
6.1 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL THE SERIES B
PREFERRED STOCK. The obligation of the Company hereunder to issue and sell
the Series B Preferred Stock to each Buyer at the First Closing is subject to
the satisfaction by such Buyer, at or before such date of each of the
following conditions thereto, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its
sole discretion:
(a) On or before the First Closing, the applicable Buyer shall
have executed this Agreement, the Registration Rights Agreement and the
Escrow Agreement, and delivered the same to the Company and the Escrow Agent.
(b) The applicable Buyer shall have delivered the purchase price
for the Series B Preferred Stock to the Escrow Agent in accordance with this
Agreement.
(c) The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the First Closing as
though made at that time (except for representations and warranties that
speak as of a specific date which representations and warranties shall be
correct as of such date), and the applicable Buyer shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the First
Closing.
(d) No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by or
in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(e) The Series B Certificate of Designation shall have been
accepted by the Secretary of State of the State of Minnesota, and evidence
thereof reasonably satisfactory to the Company shall have been received by
the Company.
6.2 CONDITIONS TO BUYERS' OBLIGATION TO PURCHASE THE SERIES B PREFERRED
STOCK. The obligation of each Buyer hereunder to purchase the Series B
Preferred Stock from the Company at the First Closing is subject to the
satisfaction, at or before such date of each of the following conditions,
provided that these conditions are for each
<PAGE>
Page 22
such Buyer's respective benefit and may be waived by each such Buyer at any
time in its sole discretion:
(a) On or before the First Closing, the Company shall have
executed this Agreement, the Registration Rights Agreement and the Escrow
Agreement, and delivered the same to the Buyer.
(b) The Series B Certificate of Designation shall have been filed
with and accepted by the Secretary of State of the State of Minnesota, and
evidence thereof reasonably satisfactory to the applicable Buyer shall have
been delivered to such Buyer.
(c) The Company shall have delivered to the Escrow Agent duly
executed certificates representing the Series B Preferred Stock and duly
executed Warrants in the amounts specified in Section 1.4.
(d) The representations and warranties of the Company shall be
true and correct in all material respects as of the First Closing as though
made at such time (except for representations and warranties that speak as of
a specific date which representations and warranties shall be true and
correct as of such date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the date of the First Closing. The Buyers
shall have received a certificate or certificates, executed by the Chief
Executive Officer or the Chief Financial Officer of the Company, dated as of
the First Closing, to the foregoing effect and as to such other matters as
may be reasonably requested by such Buyer including, but not limited to,
certificates with respect to the Company's Articles of Incorporation,
By-laws, Board of Directors' resolutions relating to the transactions
contemplated hereby and the incumbency and signatures of each of the officers
of the Company who shall execute on behalf of the Company any document
delivered on the date of the First Closing.
(e) No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(f) Trading and listing of the Common Stock on Nasdaq shall not
have been suspended by the SEC or Nasdaq.
(g) The Buyers shall have received an opinion of the Company's
counsel, dated as of the First Closing, in form, scope and substance
reasonably satisfactory to the Buyers and in substantially the same form as
EXHIBIT E attached hereto.
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Page 23
(h) The Irrevocable Transfer Agent Instructions in respect of the
Series B Preferred Stock, in form and substance satisfactory to the Buyers,
shall have been delivered to the Company's transfer agent and acknowledged in
writing by such transfer agent.
VII
CONDITIONS TO THE
SECOND CLOSING.
7.1 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL THE SERIES C
PREFERRED STOCK. The obligation of the Company hereunder to issue and sell
the Series C Preferred Stock to each Buyer at the Second Closing is subject
to the satisfaction by such Buyer, at or before such date of each of the
following conditions thereto, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its
sole discretion:
(a) On or before the Second Closing, the applicable Buyer shall
have delivered the purchase price for the Series C Preferred Stock to the
Escrow Agent in accordance with this Agreement.
(b) The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the Second Closing
as though made at that time (except for representations and warranties that
speak as of a specific date which representations and warranties shall be
correct as of such date), and the applicable Buyer shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Second
Closing.
(c) No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by or
in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) The Series C Certificate of Designation shall have been
accepted by the Secretary of State of the State of Minnesota, and evidence
thereof reasonably satisfactory to the Company shall have been received by
the Company.
7.2 CONDITIONS TO BUYERS' OBLIGATION TO PURCHASE THE SERIES C PREFERRED
STOCK. The obligation of each Buyer hereunder to purchase the Series C
Preferred Stock from the Company at the Second Closing is subject to the
satisfaction, at or before such date of each of the following conditions,
provided that these conditions are for
<PAGE>
Page 24
each such Buyer's respective benefit and may be waived by each such Buyer at
any time in its sole discretion:
(a) The Series C Certificate of Designation shall have been filed
with and accepted by the Secretary of State of the State of Minnesota, and
evidence thereof reasonably satisfactory to the applicable Buyer shall have
been delivered to such Buyer.
(b) The Company shall have delivered to the Escrow Agent duly
executed certificates representing the Series C Preferred Stock and duly
executed Warrants in the amounts specified in Section 1.4.
(c) The representations and warranties of the Company shall be
true and correct in all material respects as of the Second Closing as though
made at such time (except for representations and warranties that speak as of
a specific date which representations and warranties shall be true and
correct as of such date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the date of the Second Closing. All
information contained in any disclosure schedules referred to in Article III
that was not included in such schedules on the date of the First Closing
shall be reasonably acceptable to the Buyers. The Buyers shall have received
a certificate or certificates, executed by the Chief Executive Officer or the
Chief Financial Officer of the Company, dated as of the Second Closing, to
the foregoing effect and as to such other matters as may be reasonably
requested by such Buyer including, but not limited to, certificates with
respect to the Company's Articles of Incorporation, By-laws, Board of
Directors' resolutions relating to the transactions contemplated hereby and
the incumbency and signatures of each of the officers of the Company who
shall execute on behalf of the Company any document delivered on the date of
the Second Closing.
(d) No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(e) Trading and listing of the Common Stock on Nasdaq shall not
have been suspended by the SEC or Nasdaq.
(f) The Buyers shall have received an opinion of the Company's
counsel, dated as of the Second Closing, in form, scope and substance
reasonably satisfactory to the Buyers and in substantially the same form as
EXHIBIT E attached hereto.
<PAGE>
Page 25
(g) The Irrevocable Transfer Agent Instructions with respect to
the Series C Preferred Stock, in form and substance satisfactory to the
Buyers, shall have been delivered to the Company's transfer agent and
acknowledged in writing by such transfer agent.
(h) No more than nine months shall have passed since the date of
the First Closing.
(i) The resale of the Common Stock issuable upon conversion of the
Preferred Stock and exercise of the Warrants is registered pursuant to the
Registration Statement required to be filed pursuant to Section 2(a) of the
Registration Rights Agreement; provided, however, that if the SEC has not
permitted the Company to include the shares of Common Stock issuable upon
conversion of the Series C Preferred Stock and exercise of the Warrants
issuable at the Second Closing in such Registration Statement, this condition
will be deemed to be satisfied if the resale of the Common Stock issuable
upon conversion of the Series B Preferred Sock and the exercise of the
Warrants issued at the First Closing is registered pursuant to such
Registration Statement and the Company is otherwise in compliance with its
obligations under the Registration Rights Agreement.
(j) The Closing Bid Price (as defined in the Series B Certificate
of Designation) of the Common Stock for each trading day during any fifteen
consecutive trading day period following the First Closing and ending not
more than four (4) business days prior to the Second Closing shall be at
least $8.00.
VIII
GOVERNING LAW; MISCELLANEOUS.
8.1 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of Delaware without
regard to the principles of conflict of laws. The parties hereto hereby
submit to the exclusive jurisdiction of the United States Federal and state
courts located in Delaware with respect to any dispute arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby.
8.2 COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may be
executed in two or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party. This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party
so delivering this Agreement.
8.3 HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
<PAGE>
Page 26
8.4 SEVERABILITY. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect the validity or enforceability of the remainder of this
Agreement or the validity or enforceability of this Agreement in any other
jurisdiction.
8.5 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as specifically
set forth herein or therein, neither the Company nor any Buyer makes any
representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than
by an instrument in writing signed by the party to be charged with
enforcement.
8.6 NOTICES. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular U.S. mail, or
upon receipt, if delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, in each case addressed to a
party. The addresses for such communications shall be:
If to the Company:
Excelsior-Henderson Motorcycle Manufacturing Company
805 Hanlon Drive
Belle Plaine, MN 56011
Attn: Chief Financial Officer
Tel: (612) 873-5826
Fax: (612) 873-5956
With a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: Andrew Hirsch, Esq.
Tel: (650) 493-9300
Fax: (415) 496-4092
With a copy to:
Shoreline Pacific Institutional Finance
3 Harbor Drive, Suite 211
Sausalito, CA 94965
Attn: General Counsel
Phone: (415) 332-7800
<PAGE>
Page 27
Fax: (415) 332-7808
If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.
Each party shall provide written notice to the other party of any change
in address.
8.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, the Buyer may assign all or part of its rights
and obligations hereunder to any of its "affiliates," as that term is defined
under the 1933 Act, without the consent of the Company so long as such
affiliate is an accredited investor (within the meaning of Regulation D under
the 1933 Act) and agrees in writing to be bound by this Agreement. This
provision shall not limit the Buyer's right to transfer the Securities
pursuant to the terms of this Agreement or to assign the Buyer's rights
hereunder to any such transferee pursuant to the terms of the Agreement.
8.8 THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
8.9 SURVIVAL/REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company and the agreements and covenants set forth herein
shall survive the closing hereunder. The Company makes no representations or
warranties in any oral or written information provided to Buyers, other than
the representations and warranties included herein. The Company agrees to
indemnify and hold harmless each Buyer and all such Buyer's respective
officers, directors, employees, partners, members, affiliates, and agents for
loss or damage arising as a result of or related to any breach by the Company
of any of its representations, warranties, covenants and obligations under
this Agreement or the Registration Rights Agreement.
8.10 PUBLICITY. The Company and each Buyer shall have the right to
review, a reasonable period of time before issuance thereof, any press
releases, or relevant portions of any SEC or Nasdaq filings, or any other
public statements with respect to the transactions contemplated hereby;
PROVIDED, HOWEVER, that the Company shall be entitled, without the prior
approval of the Buyers, to make any press release or SEC or Nasdaq filings
with respect to such transactions as are required by applicable law and
regulations including NASD requirements (although the Company shall make
reasonable efforts to consult with the Buyers in connection with any such
press release prior to its release and filing and the Buyers shall be
provided with a copy thereof and be given an opportunity to comment thereon).
<PAGE>
Page 28
8.11 FURTHER ASSURANCES. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out
the intent and accomplish the purposes of this Agreement and the consummation
of the transactions contemplated hereby.
8.12 NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
8.13 EQUITABLE RELIEF. The Company recognizes that in the event that it
fails to perform, observe, or discharge any or all of its obligations under
this Agreement, any remedy at law may prove to be inadequate relief to the
Buyers. The Company therefore agrees that the Buyers shall be entitled to
temporary and permanent injunctive relief in any such case without the
necessity of proving actual damages.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
COMPANY:
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
By: /s/ Thomas M. Rootness
-----------------------------------
Name: Thomas M. Rootness
Title: CFO
[SIGNATURES CONTINUED ONTO NEXT PAGE]
<PAGE>
BUYERS:
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.
Investment Manager
By: RGC General Partner Corp.
By: /s/ Gary S. Kaminsky
---------------------------------
Name: Gary S. Kaminsky
Its: Managing Director
Aggregate Subscription Amount in Connection with
the First and Second Closings: $13,000,000
No. of Shares of Series B Preferred Stock: 10,000
No. of Warrants at First Closing 250,000
No. of Shares of Series C Preferred Stock: 3,000
No. of Warrants at Second Closing 75,000
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Fax: (610) 617-0570
Telephone: (610) 617-5900
Attn: Wayne Bloch
<PAGE>
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of September 3, 1998 (the
"AGREEMENT"), is made by and between EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY, a Minnesota corporation (the "COMPANY"), and the
investors named on the signature pages hereto (the "INITIAL INVESTORS").
W I T N E S S E T H :
WHEREAS, in connection with the Securities Purchase Agreement dated
September 3, 1998 between the Initial Investors and the Company (the
"PURCHASE AGREEMENT"), the Company has agreed, upon the terms and subject to
the conditions of said Purchase Agreement, to issue and sell to the Initial
Investors Ten Million U.S. Dollars ($10,000,000) face amount of the Company's
Series B Convertible Preferred Stock ("SERIES B PREFERRED SHARES")
convertible into shares of the Company's common stock, par value $0.01 per
share (the "COMMON STOCK"), and Three Million U.S. Dollars ($3,000,000) Face
amount of the Company's Series C Convertible Preferred Stock ("SERIES C
PREFERRED SHARES" and, together with the Series B Preferred Shares, the
"PREFERRED SHARES"), convertible into shares of Common Stock, together with
Stock Purchase Warrants (the "WARRANTS") to purchase additional shares of
Common Stock. The shares of Common Stock of the Company issuable upon
conversion of or otherwise pursuant to the Preferred Shares are collectively
referred to herein as the "COMMON SHARES." The shares of Common Stock
issuable upon exercise or otherwise pursuant to the Warrants are collectively
referred to as the "WARRANT SHARES." The rights and privileges of the
holders of the Series B Preferred Shares are set forth in the Amended
Statement of Designation of Rights, Preferences and Limitations of Series B
Convertible Preferred Stock of the Company ("SERIES B CERTIFICATE OF
DESIGNATION"). The rights and privileges of the holders of the Series C
Preferred Shares are set forth in the Statement of Designation of Rights,
Preferences and Limitations of Series C Convertible Preferred Stock of the
Company ("SERIES C CERTIFICATE OF DESIGNATION"and, collectively with the
Series B Certificate of Designations, the "CERTIFICATES OF DESIGNATION").
WHEREAS, to induce the Initial Investors to execute and deliver the
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 ACT"), and applicable state securities laws with respect to the Common
Shares and Warrant Shares.
<PAGE>
Page 2
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investors hereby agree as follows:
1. DEFINITIONS. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the Purchase
Agreement. As used in this Agreement, the following terms shall have the
following meanings:
(a) "HOLDERS" are stockholders of the Company who, by virtue of
agreements with the Company, are entitled to include their securities in
certain Registration Statements filed by the Company.
(b) "INVESTORS" means the Initial Investors and any transferees or
assignees of the Initial Investors who agree to become bound by the
provisions of this Agreement in accordance with Section 9 hereof.
(c) "REGISTRABLE SECURITIES" means the Common Shares and Warrant
Shares issued or issuable with respect to the Preferred Shares and the
Warrants (without regard to any limitations on conversion or exercise) and
any shares of capital stock issued or issuable, from time to time (with any
adjustments), on or in exchange for or otherwise with respect to the
foregoing.
(d) "REGISTRATION PERIOD" means the period between the date of
this Agreement and the earlier of (i) the date on which all of the
Registrable Securities have been sold and no further Registrable Securities
may be issued in the future, or (ii) the date on which all the Registrable
Securities relating to the Preferred Shares (in the opinion of Investors'
counsel) may be immediately sold without registration and without restriction
(including without limitation as to volume by each holder thereof) as to the
number of Registrable Securities to be sold pursuant to Rule 144 (as defined
herein) or otherwise.
(e) "REGISTRATION STATEMENT" means, collectively, each
registration statement filed with the Securities and Exchange Commission (the
"SEC") under the 1933 Act pursuant to the terms hereof.
(f) The terms "REGISTER," "REGISTERED," and "REGISTRATION" refer
to a registration effected by preparing and filing a Registration Statement
or Statements in compliance with the 1933 Act and pursuant to Rule 415 under
the 1933 Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415") and applicable rules and regulations
thereunder, and the declaration or ordering of effectiveness of such
Registration Statement by the SEC.
2. REGISTRATION.
<PAGE>
Page 3
(a) MANDATORY REGISTRATION. The Company will file a Registration
Statement on Form S-3, with the SEC registering the Registrable Securities
and no other securities (other than (i) shares of Common Stock issuable upon
exercise of warrants issued to Shoreline (as defined below) in connection
with the transactions contemplated hereby and under the Securities Purchase
Agreement or (ii) issued or issuable to holders with registration rights
pursuant to previously granted stock purchase warrants as described on
Schedule 3.3 of the Purchase Agreement) for resale within twenty (20)
business days of the closing of the initial purchase of the Series B
Preferred Shares (the "CLOSING DATE"). To the extent allowable under the 1933
Act and the rules promulgated thereunder (including Rule 416), the
Registration Statement shall include the Common Shares and the Warrant Shares
and such indeterminate number of additional shares of Common Stock as may
become issuable upon conversion of the Preferred Shares and exercise of the
Warrants (i) to prevent dilution resulting from stock splits, stock dividends
or similar transactions, or (ii) by reason of changes in the conversion price
of the Preferred Shares in accordance with the terms thereof. The number of
shares of Common Stock initially included in such Registration Statement
shall be no less than (a) the number of shares of Common Stock issuable upon
exercise of the Warrants as if all of the Warrants were then issued plus (b)
two (2) times the number of Common Shares that would be issuable upon
conversion of the Series B Preferred Shares and the Series C Preferred Shares
(as if all of the Series C Preferred Shares were then issued) at the Market
Price (as defined in the Series B Certificate of Designations) on the Closing
Date. Notwithstanding the foregoing, if the SEC prohibits the Company from
registering the resale of the Common Shares issuable upon the conversion of
the Series C Preferred Shares (the "SERIES C CONVERSION SHARES") or exercise
of the Warrants issuable in connection with the Series C Preferred Shares
(the "SERIES C WARRANT SHARES"), the Company shall be entitled to amend the
Registration Statement so as to exclude such Series C Conversion Shares and
Series C Warrant Shares. In such event, the Company will, within twenty (20)
business days of the issuance of the Series C Preferred Shares, file a new
Registration Statement with respect to the Series C Conversion Shares and
Series C Warrant Shares, and such Registration Statement shall, together with
the Registration Statement with respect to the Common Shares issuable in
conversion of the Series B Preferred Shares, constitute a "Registration
Statement" subject to the terms and conditions of this Agreement; provided
that the Required Effective Date (as defined below) for such additional
Registration Statement shall be the 90th day following the Second Closing
(or, if (a) such Registration Statement is reviewed by the SEC, or (b) if the
SEC takes the position that registration of the resale of the Series C
Conversion Shares and Series C Warrant Shares by the Investors is not
available under applicable laws, rules and regulation and that the Company
must register the offering of such Registrable Securities as a primary
offering by the Company, the 120th day following the Second Closing).
The Company shall use its best efforts to cause such Registration Statement
to be declared effective by the SEC as soon as practicable after filing and
in any event no later than the ninetieth (90th) day following the Closing
Date (the "REQUIRED EFFECTIVE DATE"); provided, however, that so long as the
Company has filed such
<PAGE>
Page 4
Registration Statement within twenty (20) business days of the Closing Date,
(a) if the SEC takes the position that registration of the resale of the
Registrable Securities by the Investors is not available under applicable
laws, rules and regulation and that the Company must register the offering of
the Registrable Securities as a primary offering by the Company, or (b) if
the Registration Statement receives SEC review, then the Required Effective
Date shall be the one hundred twentieth (120th) day after the Closing Date.
In the case of an SEC response described in clause (a), the Company shall,
within twenty (20) business days following the date the Company receives
such response from the SEC, file a registration statement as a primary
offering. Such best efforts shall include, but not be limited to, promptly
responding to all comments received from the staff of the SEC. Should the
Company receive notification from the SEC that the Registration Statement
will receive no action or no review from the SEC, the Company shall cause
such Registration Statement to become effective within five (5) business days
of such SEC notification. Once declared effective by the SEC, the Company
shall cause such Registration Statement to remain effective throughout the
Registration Period, except as permitted pursuant to Section 3(a).
If (i) at any time after effectiveness of the Registration Statement
sales cannot be made thereunder for any reason for a period of more than ten
(10) consecutive business days, or thirty (30) days in the aggregate, during
any twelve (12) month period or (ii) the Common Stock is not listed or
included for quotation on Nasdaq, Nasdaq SmallCap, the NYSE or AMEX for more
than an aggregate of ten (10) business days in any twelve month period, the
Company will thereafter make cash payments to the Investors as partial
compensation for such delay in an amount equal to one percent (1%) of the
Outstanding Face Amount (as defined below) for the first month that sales
cannot be made under the effective Registration Statement or the Common Stock
is not listed or included for quotation on Nasdaq, Nasdaq SmallCap, the NYSE
or AMEX, two percent (2%) of said Outstanding Face Amount for the second
month thereafter, and three percent (3%) of said Outstanding Face Amount for
each month thereafter, continuing through the date that sales can be made
under the effective Registration Statement or the Common Stock is not listed
or included for quotation on Nasdaq, Nasdaq SmallCap, the NYSE or AMEX
("ILLIQUIDITY PAYMENTS"). "OUTSTANDING FACE AMOUNT" shall mean the sum of
(x) the Face Amount of the then-outstanding Preferred Shares and (y) in the
case of Registrable Securities issued upon conversion of Preferred Shares and
not previously sold by such Investor, the Face Amount of the Preferred Shares
from which such Registrable Securities were converted. Such payments will be
prorated on a daily basis for partial months and will be paid to each
Investor in cash within five (5) business days following the end of each
month during which Illiquidity Payments accrue or, at each Investor's option,
may be added to the Face Value of the Preferred Shares and thereafter be
convertible into Common Stock at the Conversion Price (as defined in the
Certificate of Designation).
(b) LATE REGISTRATION PAYMENTS. If the Registration Statement
required pursuant to Section 2(a) above has not been declared effective by
the Required Effective Date, the Company will make cash payments to each
Investor as
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Page 5
partial compensation for such delay (the "LATE REGISTRATION PAYMENTS"). The
Late Registration Payments will be equal to one percent (1%) of the
Outstanding Face Amount for the first month following the Required Effective
Date, two percent (2%) of said Outstanding Face Amount for the second and
third months following the Required Effective Date, and three percent (3%) of
said Outstanding Face Amount for each month thereafter, continuing through
the date the Registration Statement is declared effective by the SEC. The
Late Registration Payments will be prorated on a daily basis for partial
months and will be paid to the Initial Investors in cash within five (5)
business days following the earlier of: (i) the end of each month following
the Required Effective Date, or (ii) the effective date of the Registration
Statement. Nothing herein shall limit the Investors' right to pursue actual
damages for the Company's failure to file a Registration Statement or to have
it declared effective by the SEC on or prior to the Required Effective Date
in accordance with the terms of this Agreement.
(c) LIMITATION ON LATE REGISTRATION PAYMENTS AND ILLIQUIDITY
PAYMENTS. Notwithstanding anything in this Agreement or in the Certificate
of Designation with respect to the Series B Preferred Shares or the Series C
Preferred Shares to the contrary, (i) the aggregate Late Registration
Payments payable hereunder, if any, together with any Default Amounts (as
defined in the Certificates of Designation) payable with respect to any of
the Preferred Shares pursuant to the Certificates of Designation as a result
of a failure to timely obtain effectiveness of the Registration Statement,
shall not exceed 30% of the Face Amount of the Preferred Shares outstanding
on the date of payment, and (ii) the aggregate Illiquidity Payments payable
with respect to any period after effectiveness of the Registration Statement
during which sales cannot be made thereunder or during which the Common
Stock is not listed or included for quotation on Nasdaq, Nasdaq SmallCap, the
NYSE or AMEX, if any, together with any Default Amounts payable with respect
to any of the Preferred Shares as a result of such period of ineffectiveness
pursuant to the Certificates of Designation, shall not exceed 30% of the Face
Amount of the Preferred Shares outstanding on the date of payment. To the
extent the Late Registration Payments or Illiquidity Payments, as applicable,
together with any Default Amounts would exceed the respective limits
specified above in this Section 2(c), the aggregate Default Amounts will be
reduced so that the aggregate Late Registration Payments or Illiquidity
Payments, when added to the Default Amounts paid with respect to such event,
do not exceed such limits, and no further Late Registration Payments or
Illiquidity Payments, as applicable, will thereafter be payable with respect
to any such event.
(d) PIGGYBACK REGISTRATIONS. If, at any time prior to the
expiration of the Registration Period, the Registration Statement is not
effective with respect to all of the Registrable Securities and the Company
decides to register any of its securities for its own account or for the
account of others (excluding registrations by the Company on Form S-4 or S-8
or their equivalents relating to equity securities to be issued solely in
connection with an acquisition of any entity or business or equity securities
issuable in connection with stock option or other employee benefit plans),
the Company will promptly give the Investors written notice thereof, and will
use
<PAGE>
Page 6
its best efforts to include in such registration all or any part of the
Registrable Securities so requested by such Investors (excluding any
Registrable Securities previously included in a Registration Statement).
Each Investor's request for registration must be given to the Company in
writing within fifteen (15) days after receipt of the notice from the
Company. If the registration for which the Company gives notice is a public
offering involving an underwriting, the Company will so advise the Investors
as part of the above-described written notice. In such event, if the
managing underwriter(s) of the public offering impose a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement because, in such underwriter(s)' judgment, such limitation would be
necessary to effect an orderly public distribution, then the Company will be
obligated to include only such limited portion, if any, of the Registrable
Securities with respect to which such Investors have requested inclusion
hereunder. Any exclusion of Registrable Securities shall be made pro-rata
among all Holders of the Company's securities seeking to include shares of
Common Stock in proportion to the number of shares of Common Stock sought to
be included by such Holders; provided, however, that the Company will not
exclude any Registrable Securities unless the Company has first excluded all
outstanding securities the Holders of which are not entitled by right to
inclusion of securities in such Registration Statement or are not entitled
pro rata inclusion with the Registrable Securities. No right to registration
of Registrable Securities under this Section 2(d) shall be construed to limit
in any way the registration required under Section 2(a) above. The
obligations of the Company under this Section 2(d) will expire upon the
earlier of: (i) the effectiveness of the Registration Statement filed
pursuant to Section 2(a) above; (ii) after the Company has afforded the
opportunity for the Investors to exercise registration rights under this
Section 2(d) for two registrations; provided, however, that any Investor who
shall have had any Registrable Securities excluded from any Registration
Statement in accordance with this Section 2(d) shall be entitled to include
in any additional Registration Statement filed by the Company the Registrable
Securities so excluded; or (iii) when all of the Registrable Securities held
by any Investor may be sold by such Investor under Rule 144 under the 1933
Act without being subject to any volume restrictions.
(e) ELIGIBILITY FOR FORM S-3. The Company represents and warrants
that it meets the requirements for the use of Form S-3 for registration of
the sale by the Investors of the Registrable Securities. The Company shall
file all reports required to be filed by the Company with the SEC in a timely
manner so as to preserve its eligibility for the use of Form S-3.
3. ADDITIONAL OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall have the
following additional obligations:
(a) The Company shall keep the Registration Statement effective
pursuant to Rule 415 under the 1933 Act at all times during the Registration
Period as defined in Section 1(d) above; provided, however, that the
Investors agree that (i) use of the prospectus under the Registration
Statement may be suspended pursuant
<PAGE>
Page 7
to Section 3(f) and (ii) upon receipt of any notice from the Company that, in
the judgment of the Company's Board of Directors, it is advisable to suspend
use of the prospectus for a discrete period of time due to pending corporate
developments, public filing with the SEC or similar events, the Investors
will forthwith discontinue, for a period of up to ten (10) consecutive
business days, disposition of such Registrable Securities covered by such
Registration Statement or prospectus until advised in writing by the Company
that use of the applicable prospectus may be resumed, and until each such
Investor has received copies of any additional or supplemented filings that
are incorporated or deemed to be incorporated by reference in such
prospectus. The Company shall use all reasonable efforts to ensure that the
use of the prospectus may be resumed as soon as practicable, and in any event
shall not be entitled to require the Investors to suspend use of any
prospectus for more than thirty (30) days in any twelve month period.
(b) The Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) filed by the Company
shall 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 therein, in light of the circumstances in which they were made,
not misleading. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to permit sales pursuant to the
Registration Statement at all times during the Registration Period, and,
during such period, shall comply with the provisions of the 1933 Act with
respect to the disposition of all Registrable Securities of the Company
covered by the Registration Statement until the termination of the
Registration Period, or if earlier, such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the Registration
Statement
(c) The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement and its legal counsel
(i) promptly after the same is prepared and publicly distributed, filed with
the SEC or received by the Company, one copy of the Registration Statement
and any amendment thereto; each preliminary prospectus and final prospectus
and each amendment or supplement thereto; and, in the case of the
Registration Statement required under Section 2(a) above, each letter written
by or on behalf of the Company to the SEC and each item of correspondence
from the SEC or the staff of the SEC, in each case relating to such
Registration Statement (other than any portion of any item thereof which
contains information for which the Company has sought confidential
treatment); and (ii) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto, and such
other documents as such Investor may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
Investor.
(d) The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement
under such other
<PAGE>
Page 8
securities or blue sky laws of such jurisdictions as each Investor who holds
(or has the right to hold) Registrable Securities being offered reasonably
request, (ii) prepare and file in those jurisdictions such amendments
(including post-effective amendments) and supplements to such registrations
and qualifications as may be necessary to maintain the effectiveness thereof
during the Registration Period, (iii) take such other actions as may be
necessary to maintain such registrations and qualifications in effect at all
times during the Registration Period, and (iv) take all other actions
reasonably necessary or advisable to qualify the Registrable Securities for
sale in such jurisdictions. Notwithstanding the foregoing provision, the
Company shall not be required in connection therewith or as a condition
thereto to (i) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (ii) subject
itself to general taxation in any such jurisdiction, (iii) file a general
consent to service of process in any such jurisdiction, (iv) provide any
undertakings that cause material expense or burden to the Company, or (v)
make any change in its charter or bylaws, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of
the Company and its stockholders.
(e) In the event Investors who hold a majority in interest of the
Registrable Securities being offered in an offering pursuant to a
Registration Statement or any amendment or supplement thereto under Section
2(a) or 3(b) select underwriters reasonably acceptable to the Company for
such offering, the Company shall enter into and perform its obligations under
an underwriting agreement in usual and customary form including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering.
(f) The Company shall notify (by telephone and also by facsimile
and reputable overnight courier) each Investor who holds Registrable
Securities being sold pursuant to a Registration Statement of the happening
of any event of which the Company has knowledge as a result of which the
prospectus included in the Registration Statement as then in effect includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading (a
"SUSPENSION EVENT"). The Company shall make such notification as promptly as
practicable after the Company becomes aware of such Suspension Event, shall
promptly use its best efforts (but in any event within five business (5)
days) to prepare a supplement or amendment to the Registration Statement to
correct such untrue statement or omission, and shall deliver a number of
copies of such supplement or amendment to each Investor as such Investor may
reasonably request. Notwithstanding anything contained herein or in the
Securities Purchase Agreement, in the event that the use of the Registration
Statement is suspended by the Company, the Company shall promptly notify all
Investors whose securities are covered by the Registration Statement of such
suspension, and shall promptly notify each such Investor as soon as the use
of the Registration Statement may be resumed. Notwithstanding anything to
the contrary, the Company shall cause the Transfer Agent to deliver
unlegended shares of Common Stock to a
<PAGE>
Page 9
transferee of an Investor in accordance with the terms of the Purchase
Agreement in connection with any sale of Registrable Securities with respect
to which such Investor has entered into a contract for sale prior to receipt
of notice of such suspension and for which such Investor has not yet settled.
(g) Subject to the Company's rights under Section 3(a), the
Company shall use its best efforts to prevent the issuance of any stop order
or other suspension of effectiveness of a Registration Statement and, if such
an order is issued, shall use its best efforts to obtain the withdrawal of
such order at the earliest possible time and to notify each Investor who
holds Registrable Securities being sold (or, in the event of an underwritten
offering, the managing underwriters) of the issuance of such order and the
resolution thereof.
(h) The Company shall permit a single firm of counsel designated
by the Investors who hold a majority in interest of the Registrable
Securities being sold pursuant to such registration to review the
Registration Statement and all amendments and supplements thereto (as well as
all requests for acceleration or effectiveness thereof) a reasonable period
of time prior to their filing with the SEC, and shall not file any document
in a form to which such counsel reasonably objects, unless required by law in
the opinion of the Company's counsel. The sections of such Registration
Statement covering information with respect to the Investors, the Investors'
beneficial ownership of securities of the Company or the Investors' intended
method of disposition of Registrable Securities shall conform to the
information provided to the Company by each of the Investors.
(i) The Company shall make generally available to its security
Holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement in a form
complying with the provisions of Rule 158 under the 1933 Act.
(j) At the request of the Investors who hold a majority in
interest of the Registrable Securities being sold pursuant to such
registration, the Company shall furnish on the date that Registrable
Securities are delivered to an underwriter for sale in connection with the
Registration Statement (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters; and (ii)
an opinion, dated such date, from counsel representing the Company for
purposes of such Registration Statement, in form and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters and Investors.
(k) The Company shall make available for inspection by any
Investor whose Registrable Securities are being sold pursuant to such
registration, any underwriter participating in any disposition pursuant to
the Registration Statement, and any attorney, accountant or other agent
retained by any such Investor or underwriter (collectively, the
"INSPECTORS"), all pertinent financial and
<PAGE>
Page 10
other records, pertinent corporate documents and properties of the Company
(collectively, the "RECORDS"), as shall be reasonably deemed necessary by
each Inspector to enable each Inspector to exercise its due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information which any Inspector may reasonably request for
purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor)
of any Record or other information which the Company determines in good faith
to be confidential, and of which determination the Inspectors are so
notified, unless (i) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (ii) the
release of such Records is ordered pursuant to a subpoena or other order from
a court or government body of competent jurisdiction, or (iii) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement (to the
knowledge of the relevant Investor). The Company shall not be required to
disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements
(in form and substance satisfactory to the Company) with the Company with
respect thereto, substantially in the form of this Section 3(k). Each
Investor agrees that it shall, upon learning that disclosure of such Records
is sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the Company,
at the Company's expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein shall be deemed to limit the Investor's ability
to sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
(l) The Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the Company
pursuant hereto unless (i) disclosure of such information is necessary to
comply with federal or state securities laws, (ii) the disclosure of such
information is necessary to avoid or correct a misstatement or omission in
any Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other order from a court or governmental body of
competent jurisdiction, or (iv) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement or (v) such Investor consents to the form and content of any
such disclosure. The Company agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in or by a
court or governmental body of competent jurisdiction or through other means,
give prompt notice to such Investor prior to making such disclosure and allow
such Investor, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.
(m) The Company shall cause the listing and the continuation of
listing of all the Registrable Securities covered by the Registration
Statement on the Nasdaq National Market System, the Nasdaq Small Cap Market,
the New York Stock Exchange, the American Stock Exchange or any successor
national exchange or market, and cause the Registrable Securities to be
quoted or listed on each additional
<PAGE>
Page 11
national securities exchange or quotation system upon which the Common Stock
is then listed or quoted.
(n) The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than
the effective date of the Registration Statement.
(o) The Company shall cooperate with the Investors who hold
Registrable Securities being sold and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable
such certificates to be in such denominations or amounts as the case may be,
and registered in such names as the managing underwriter or underwriters, if
any, or the Investors may reasonably request, all in accordance with the
provisions set forth in Section V of the Purchase Agreement.
(p) At the request of any Investor, the Company shall promptly
prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary in
order to change the plan of distribution set forth in such Registration
Statement.
(q) The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the 1933 Act and the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated by the SEC).
(r) The Company shall take all other reasonable actions as any
Investor or the underwriters, if any, may reasonably request to expedite and
facilitate disposition by such Investor of the Registrable Securities
pursuant to the Registration Statement.
(s) Subject to registration rights of holders of warrants referred
to in Section 2(a) hereof, from and after the date of this Agreement, the
Company shall not, and shall not agree to, allow the holders of any
securities of the Company to include any of their securities in any
Registration Statement under Section 2(a) hereof or any amendment or
supplement thereto under Section 3(b) hereof without the consent of the
holders of a majority-in-interest of the Registrable Securities.
4. OBLIGATIONS OF THE INVESTORS. In connection with the registration
of the Registrable Securities, the Investors shall have the following
obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of each Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and
<PAGE>
Page 12
the intended method of disposition of the Registrable Securities held by it
as shall be reasonably required to effect the registration of the Registrable
Securities. At least ten (10) business days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify each
Investor of the information the Company requires from each such Investor (the
"REQUESTED INFORMATION") if such Investor elects to have any of such
Investor's Registrable Securities included in the Registration Statement. If
within three (3) business days prior to the filing date the Company has not
received the Requested Information from an Investor (a "NON-RESPONSIVE
INVESTOR"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor.
(b) Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from the Registration Statement.
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(f) or 3(g) and,
if so directed by the Company, such Investor shall deliver to the Company (at
the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in such Investor's possession (other
than a limited number of file copies), of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
(d) Without limiting any Investor's rights under Sections 2(a)
hereof, no Investor may participate in any underwritten distribution
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the
terms of such underwriting arrangements, and (iii) agrees to pay its pro rata
share of all underwriting discounts and commissions and other fees and
expenses of investment bankers and any manager or managers of such
underwriting and legal expenses of the underwriter applicable with respect to
its Registrable Securities, in each case to the extent not payable by the
Company pursuant to the terms of this Agreement.
5. EXPENSES OF REGISTRATION. All reasonable expenses, other than
underwriting discounts and commissions, incurred in connection with
registrations, filings or qualifications pursuant to Sections 2 and 3,
including, without limitation, all registration, listing and qualifications
fees, printers and accounting fees, the fees and disbursements of counsel for
the Company, and the
<PAGE>
Page 13
reasonable fees and disbursements of one counsel selected by the Initial
Investors pursuant to Section 3(e) hereof, shall be borne by the Company.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the 1933
Act or the Exchange Act, any underwriter (as defined in the 1933 Act) for the
Investors, the directors, if any, of such underwriter and the officers, if
any, of such underwriter, and each person, if any, who controls any such
underwriter within the meaning of the 1933 Act or the Exchange Act (each, an
"INDEMNIFIED PERSON"), against any losses, claims, damages, expenses or
liabilities (joint or several) (collectively together with actions,
proceedings or inquiries by any regulatory or self-regulatory organization,
whether commenced or threatened in respect thereof, "CLAIMS") to which any of
them become subject under the 1933 Act, the Exchange Act or otherwise,
insofar as such Claims arise out of or are based upon any of the following
statements, omissions or violations in the Registration Statement, or any
post-effective amendment thereof, or any prospectus included therein: (i)
any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any post-effective amendment thereof or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
(ii) any untrue statement or alleged untrue statement of a material fact
contained in the prospectus (as amended or supplemented, if the Company files
any amendment thereof or supplement thereto with the SEC) or the omission or
alleged omission to state therein any material fact necessary to make the
statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or
alleged violation by the Company of the 1933 Act, the Exchange Act or any
other law, including without limitation any state securities law or any rule
or regulation thereunder (the matters in the foregoing clauses (i) through
(iii) being, collectively, "VIOLATIONS"). Subject to the restrictions set
forth in Section 6(c) with respect to the number of legal counsel, the
Company shall reimburse the Investors and each such underwriter or
controlling person and each such other Indemnified Person, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (A)
shall not apply to a Claim arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information furnished in
writing to the Company by any Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(c) hereof; and (B) shall not
apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which
<PAGE>
Page 14
consent shall not be unreasonably withheld. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Persons and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to indemnify and hold
harmless, to the same extent and in the same manner set forth in Section
6(a), the Company, each of its directors, each of its officers who signs the
Registration Statement, each person, if any, who controls the Company within
the meaning of the 1933 Act or the Exchange Act, and any other stockholder
selling securities pursuant to the Registration Statement or any of its
directors or officers or any person who controls such stockholder within the
meaning of the 1933 Act or the Exchange Act (an "INDEMNIFIED PARTY"and,
collectively, "INDEMNIFIED PARTIES"), against any Claim to which any of them
may become subject, under the 1933 Act, the Exchange Act or otherwise,
insofar as such Claim arises out of or is based upon any Violation, in each
case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such
Registration Statement, and subject to Section 6(c), such Investor will
promptly reimburse any legal or other expenses (promptly as such expenses are
incurred and due and payable) reasonably incurred by all Indemnified Parties
in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 6(b) shall
not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of such Investor, which consent
shall not be unreasonably withheld; provided further, however, that the
Investor shall be liable under this Agreement (including this Section 6(b)
and Section 7) for only that amount of a Claim as does not exceed the net
proceeds actually received by such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors pursuant
to Section 9.
(c) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and this indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party
so desires, jointly with any other indemnifying party similarly noticed, to
assume control of the defense thereof with counsel mutually satisfactory to
the indemnifying parties and the Indemnified Person or the Indemnified Party,
as the case may be; provided, however, that such Indemnified Party shall
diligently pursue such defense and that such Indemnified Party shall not be
entitled to assume such defense and an Indemnified Person or Indemnified
Party shall have the right to retain its own counsel, with the fees and
expenses to be paid
<PAGE>
Page 15
by the indemnifying party, if, in the reasonable opinion of counsel retained
by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential conflicts of interest between such
Indemnified Person or Indemnified Party and any other party represented by
such counsel in such proceeding or the actual or potential defendants in, or
targets of, any such action including both the Indemnified Person or the
Indemnified Party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are different from or in
addition to those available to such indemnifying party. The Company shall pay
for only one separate legal counsel for the Investors; such legal counsel
shall be selected by the Investors holding a majority in interest of the
Registrable Securities. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend
such action. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
7. CONTRIBUTION. To the extent any indemnification provided for
herein is prohibited or limited by law, the indemnifying party agrees to make
the maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 6 to the fullest extent permitted by law;
provided, however, that (i) no contribution shall be made under circumstances
where the maker would not have been liable for indemnification under the
fault standards set forth in Section 6, (ii) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any
seller of Registrable Securities who was not guilty of such fraudulent
misrepresentation, and (iii) contribution (together with any indemnification
or other obligations under this Agreement) by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received
by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the 1933 Act or any
similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without
registration ("RULE 144"), the Company agrees to:
(a) File with the SEC in a timely manner and make and keep
available all reports and other documents required of the Company under the
1933 Act and the Exchange Act so long as the Company remains subject to such
requirements (it being understood that nothing herein shall limit the
Company's obligations under Section 4.3 of the Securities Purchase Agreement)
and the filing
<PAGE>
Page 16
and availability of such reports and other documents is required for the
applicable provisions of Rule 144; and
(b) Furnish to each Investor so long as such Investor holds
Preferred Shares, Warrants or Registrable Securities, promptly upon request,
(i) a written statement by the Company that it has complied with the
reporting requirements of Rule 144, the 1933 Act and the Exchange Act, (ii) a
copy of the most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company and (iii) such other
information as may be reasonably requested to permit the Investors to sell
such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights of the Investors
hereunder, including the right to have the Company register Registrable
Securities pursuant to this Agreement shall be automatically assigned by the
Investors to transferees or assignees of all or any portion of such
securities only if (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to
the Company within a reasonable time after such assignment, (ii) the Company
is, within a reasonable time after such transfer or assignment, furnished
with written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are being
transferred or assigned, (iii) following such transfer or assignment the
further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities laws, (iv) at
or before the time the Company received the written notice contemplated by
clause (ii) of this sentence, the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions contained herein, (v)
such transfer shall have been made in accordance with the applicable
requirements of the Purchase Agreement including, but not limited to, the
covenant of each Investor that it will not transfer any of the Securities in
violation of federal and state securities laws, and (vi) such transferee
shall be an "ACCREDITED INVESTOR" as that term is defined in Rule 501 of
Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of the Company and Investors who hold a majority interest of
the Registrable Securities (but not an Investor who no longer owns any
Warrants or Registrable Securities and who is not affected by such amendment
or waiver). Any amendment or waiver effected in accordance with this Section
10 shall be binding upon each Investor and the Company. Notwithstanding the
foregoing, no amendment or waiver shall retroactively affect any Investor
without its comment or prospectively adversely affect any Investor who no
longer owns any Warrants or Registrable Securities without its consent.
Neither Article 6 nor Article 7 hereof may be amended or waived in a manner
adverse to an Investor without its consent.
<PAGE>
Page 17
11. MISCELLANEOUS.
(a) CONFLICTING INSTRUCTIONS. A person or entity is deemed to be
a holder of Registrable Securities whenever such person or entity owns of
record such Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons or entities with
respect to the same Registrable Securities, the Company shall act upon the
basis of instructions, notice or election received from the registered owner
of such Registrable Securities.
(b) NOTICES. Any notices required or permitted to be given under
the terms of this Agreement shall be sent by certified or registered mail
(with return receipt requested) or delivered personally or by courier
(including a nationally recognized overnight delivery service) or by
facsimile transmission. Any notice so given shall be deemed effective three
days after being deposited in the U.S. Mail, or upon receipt if delivered
personally or by courier or facsimile transmission, in each case addressed to
a party at the following address or such other address as each such party
furnishes to the other in accordance with this Section 11(b):
IF TO THE COMPANY:
Excelsior-Henderson Motorcycle Manufacturing Company
805 Hanlon Drive
Belle Plaine, MN 56011
Telephone: (612) 873-5826
Fax: (612) 873-5956
Attention: Chief Financial Officer
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: Andrew Hirsch, Esq.
Tel: (650) 493-9300
Fax: (415) 496-4092
in each case with a copy to:
Shoreline Pacific Institutional Finance
3 Harbor Drive, Suite 211
Sausalito, CA 94965
Telephone: (415) 332-7800
Telecopy: (415) 332-7808
Attention: General Counsel
<PAGE>
Page 18
If to an Investor: To the address set forth immediately below such
Investor's name on the signature pages hereto.
Each party shall provide written notice to the other parties of any change in
address.
(c) WAIVER. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such
right or remedy, shall not operate as a waiver thereof.
(d) GOVERNING LAW. This Agreement shall be enforced, governed by
and construed in accordance with the laws of the State of Delaware applicable
to the agreements made and to be performed entirely within such state,
without giving effect to rules governing the conflict of laws, and any
disputes arising hereunder will be adjudicated in federal or state court
situated in Delaware. Each party hereto consents to such venue in California
and to the personal and subject matter jurisdiction of said courts and, to
the extent permitted by applicable law, agrees to waive any objection as to
such jurisdiction or venue, and agrees not to assert any defense based on
lack of jurisdiction or venue.
(e) SEVERABILITY. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it
may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
(f) ENTIRE AGREEMENT. This Agreement, the Securities Purchase
Agreement, the Certificates of Designation, the Escrow Agreement and the
Warrant (including all schedules and exhibits thereto) constitute the entire
agreement among the parties hereto with respect to the subject matter hereof
and thereof. There are no restrictions, promises, warranties or undertakings,
other than those set forth or referred to herein or therein. This Agreement
supersedes all prior agreements and understandings among the parties hereto
with respect to the subject matter hereof.
(g) SUCCESSORS AND ASSIGNS. Subject to the requirements of
Section 9 hereof, this Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties hereto.
Notwithstanding anything to the contrary herein, including without
limitation, Section 9, the rights of an Investor hereunder shall be
assignable to and exercisable by a bona fide pledgee of the Registrable
Securities in connection with an Investor's margin or brokerage accounts.
(h) USE OF PRONOUNS. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the
context may require.
<PAGE>
Page 19
(i) HEADINGS. The headings and subheadings in the Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(j) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same agreement. This Agreement, once executed
by a party, may be delivered to the other party hereto by facsimile
transmission, and facsimile signatures shall be binding on the parties hereto.
(k) FURTHER ACTS. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) CONSENTS. All consents and other determinations to be made by
the Investors pursuant to this Agreement shall be made by the Initial
Investors or the Investors holding a majority of the Registrable Securities,
determined as if all Preferred Shares and all Warrants then outstanding had
been converted into or exercised for Registrable Securities.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
COMPANY:
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
By: /s/ Thomas M. Rootness
-----------------------------------
Name: Thomas M. Rootness
Title: CFO
INITIAL INVESTORS:
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.
Investment Manager
By: RGC General Partner Corp.
By:
---------------------------------
Name:
Its: Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Fax: (610) 617-0570
Telephone: (610) 617-5900
Attn: Mr. Wayne Bloch
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
COMPANY:
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
By:
-----------------------------------
Name:
Title:
INITIAL INVESTORS:
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.
Investment Manager
By: RGC General Partner Corp.
By: /s/ Gary S. Kaminsky
---------------------------------
Name: Gary S. Kaminsky
Its: Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Fax: (610) 617-0570
Telephone: (610) 617-5900
Attn: Gary S. Kaminsky
<PAGE>
Exhibit 4.3
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
AMENDED
STATEMENT OF DESIGNATION
OF
RIGHTS, PREFERENCES AND LIMITATIONS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
The rights, preferences and limitations of the Series B Convertible
Preferred Stock are as follows. All references to Articles and Sections
herein are solely to Articles and Sections within this Amended Statement of
Rights, Preferences and Limitations (this "Certificate of Designation").
I. DESIGNATION AND AMOUNT
Of the 7,000,000 shares of Preferred Stock that EXCELSIOR-HENDERSON
MOTORCYCLE MANUFACTURING COMPANY (the "Company") is authorized to issue under
its Articles of Incorporation, 10,000 shares shall be designated as shares of
Series B Convertible Preferred Stock of the Company (the "Preferred Stock" or
"Preferred Shares"), par value $0.01 per share, with a face amount per share
of $1,000 (the "Face Amount"). The relative rights and preferences of the
Preferred Shares are as set forth in this Certificate of Designation.
II. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
"Anniversary Date" means the date that is one (1) year following the
Closing Date.
"Business Day" means any day that the principal exchange on which the
Common Stock is traded is open for business.
"Closing Bid Price" means, for any security as of any date, the closing
bid price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the Holders then holding
a majority of the outstanding shares of Preferred Stock ("Majority Holders"),
if Bloomberg Financial Markets is not then reporting closing bid prices of
such security (collectively, "Bloomberg"), or if the foregoing does not
apply, the last reported sale price of such security in the over-the-counter
market on the electronic bulletin board of such security as reported by
Bloomberg, or, if no sale price is reported for such security by Bloomberg,
the average of the bid prices of any market makers for such security that are
listed in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price cannot be calculated for such security on such date on any
of the foregoing bases, the Closing Bid Price of such security
<PAGE>
on such date shall be the fair market value as mutually determined by the
Company and the Majority Holders, or, if they are unable to agree on such
value, it shall be determined by an investment banking firm selected by the
Company and reasonably acceptable to the Majority Holders.
"Closing Date" means the date on which the Preferred Shares are
initially issued.
"Closing Price" means $6.79170 (the average Closing Bid Price for the
three (3) consecutive Business Days ending one Business Day prior to the
filing of the Certificate of Designation).
"Common Stock" means the common stock, $0.01 par value, of the Company.
"Conversion Price", subject to the adjustments provided for in Article X
hereof, means (1) on and prior to the Anniversary Date, $7.47087, and (2)
beginning on the day following the Anniversary Date, the lesser of (i)
$7.47087 and (ii) the Market Price at the time of conversion. Notwithstanding
the foregoing, after the Anniversary Date, if the Market Price is less than
$5.00 per Share of Common Stock, the Conversion Price shall equal 105% of the
Market Price.
"Effective Date" means the date the Registration Statement required to
be filed under the Registration Rights Agreement is declared effective by the
Securities and Exchange Commission.
"Holders" means the initial Holders of the Preferred Stock and their
permitted transferees.
"majority of the outstanding shares of Preferred Stock" means greater
than 66.6% of the outstanding shares of Preferred Stock.
"Market Price" means the lowest volume weighted average price of the
Common Stock during any period of five (5) consecutive Business Days during
the twenty (20) consecutive Business Day period ending on the day prior to
the Conversion Date.
"Maximum Share Amount" shall be calculated on the Anniversary Date, and
shall mean the lesser of (a) 2,600,000 shares of Common Stock, or (b) the
quotient resulting from (i) $13,000,000 less the aggregate Face Amount of
all shares of Preferred Stock and Series C Preferred Stock, if any, which
have converted into shares of Common Stock on or prior to the Anniversary
Date, divided by (ii) $5.00, subject to adjustments for stock dividends,
stock splits, combinations or similar events.
"Registration Deadline" means the date by which the effective date of
the Registration Statement is required to have occurred under the
Registration Rights Agreement.
"Registration Statement" means a registration statement filed with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended.
2
<PAGE>
"Securities Purchase Agreement" means the Securities Purchase Agreement
referencing this Certificate of Designation, among the Company and the
purchasers named therein, as amended from time to time in accordance with the
terms thereof.
"Series C Preferred Stock" means the shares of Series C Convertible
Preferred Stock issuable pursuant to the terms of the Securities Purchase
Agreement.
"Warrants" means certain stock purchase warrants to acquire shares of
Common Stock issued by the Company to the initial Holders in connection with
the transactions contemplated by the Securities Purchase Agreement.
III. DIVIDENDS
The Preferred Stock will be entitled to dividends paid on the Common
Stock, with such dividends calculated as if the Preferred Stock had been
converted to Common Stock at the then-applicable Conversion Price on the date
of declaration of such dividend.
IV. CONVERSION
A. CONVERSION AT THE OPTION OF HOLDER. Subject to Article V(B), on
and following the Closing Date, each Holder may, at any time and from time to
time, convert all or any portion of the Face Amount (plus any other amounts
payable thereon, including, without limitation, payments due under Section 2
of the Registration Rights Agreement and Conversion Default Payments, in
each case, to the extent not paid by the Company in cash (the "Additional
Amounts")) of its shares of Preferred Stock into a number of fully paid and
nonassessable shares of Common Stock determined by dividing the aggregate
Face Amount of the Preferred Shares being converted (including any Additional
Amounts) by the then applicable Conversion Price, subject to adjustment as
provided in Article X; provided, however, that, in no event shall a Holder of
shares of Preferred Stock be entitled to convert any such shares to the
extent, but only to the extent, that (x) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of
the unconverted portion of the shares of Preferred Stock or unexercised
portion of Warrants or any other securities containing analogous limitations)
plus (y) the number of shares of Common Stock issuable upon the conversion of
the shares of Preferred Stock with respect to which the determination of this
proviso is being made, would result in beneficial ownership by a Holder and
such Holder's affiliates of more than 4.99% of the outstanding shares of
Common Stock. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Rules 13(d)
through (g) thereunder, except as otherwise provided in clause (x) of such
proviso.
B. MANDATORY CONVERSION. So long as, for a period of thirty (30)
Business Days prior to delivery of a Mandatory Conversion Notice (as defined
below), and continuing through the Mandatory Conversion Date (as defined
below) (i) all of the shares of Common Stock issuable upon conversion of all
outstanding shares of Preferred Stock and all outstanding shares of Series C
Preferred Stock are then (x) authorized and reserved for issuance, (y)
registered for resale under the 1933 Act by the holders of
3
<PAGE>
the Preferred Stock (or may otherwise be resold publicly without restriction)
and (z) eligible to be traded on the Nasdaq National Market ("Nasdaq"), the
New York Stock Exchange ("NYSE"), the American Stock Exchange ("AMEX") or
Nasdaq SmallCap Market, or any successor national securities exchange or
market (collectively, a "National Exchange") and (ii) there is not then a
continuing Redemption Event and the Maximum Share Limit has not been reached
(unless the Share Limit Waiver (as defined below) has been obtained), the
Company shall be entitled, on any date that the average of the Closing Bid
Prices of the Common Stock during the ten (10) consecutive Business Day
period ending on the Business Day immediately preceding such date of
determination is equal to or greater than 200% of the Closing Price (subject
to adjustment in accordance with Article X hereof), to deliver a written
notice to the Holders requiring the Holders to convert all, but not less than
all, of the Preferred Shares. Such conversion shall be on a Business Day
designated in such notice, which date (the "Mandatory Conversion Date") shall
be no earlier than twenty (20) Business Days and no later than twenty-five
(25) Business Days following the date of such notice (such notice, a
"Mandatory Conversion Notice"). Notwithstanding anything herein to the
contrary, no mandatory conversion will be required, and the applicable
Mandatory Conversion Notice shall be of no further force and effect, if on
the Business Day immediately preceding the Mandatory Conversion Date, the
Closing Bid Price of the Common Stock is not equal to at least 175% of the
Closing Price. The mechanics of such conversion shall be in accordance with
Section IV(C), except that each Holder shall be deemed to have delivered a
Notice of Conversion, with the Conversion Date being the Mandatory Conversion
Date specified in the Mandatory Conversion Notice.
C. MECHANICS OF CONVERSION. To convert the Preferred Shares, a Holder
shall: (i) fax (or deliver by other means resulting in notice) to the Company
a copy of the fully executed Notice of Conversion in the form of Exhibit H to
the Securities Purchase Agreement, and (ii) surrender or cause to be
surrendered to the Company or its transfer agent (the "Transfer Agent") (or
satisfy the provisions of Article XIII(A), if applicable) the certificates
representing the Preferred Stock being converted (the "Preferred Stock
Certificates") and the original executed version of the Notice of Conversion
as soon as practicable thereafter. The date the Holder delivers to the
Company the Notice of Conversion described in clause (i) or such later date
specified in the Notice of Conversion shall be the "Conversion Date". In the
case of fax or messenger delivery, delivery shall be deemed made on the date
of such fax or messenger delivery.
D. TIMING OF CONVERSION. No later than the third Business Day
following the Conversion Date (the "Delivery Date"), provided that the
Company's Transfer Agent has received prior to such date the Preferred Stock
Certificates (or the Holder has satisfied the provisions of Article XIII(A),
if applicable), the Company shall cause the Transfer Agent to issue and
deliver to the Holder (or otherwise at such Holder's direction) that number
of shares of Common Stock issuable upon conversion of the number of Preferred
Shares being converted, if applicable, and a new certificate representing the
Preferred Stock not converted by such Holder. The person or persons entitled
to receive shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares at
the close of business on the Conversion Date, unless the Notice of Conversion
is revoked as provided in Article V(E). If Preferred Stock Certificates are
not received (or the provisions of Article XIII(A) are not satisfied) prior
to 2:00 p.m. Eastern Time on the Business Day prior to the Delivery Date, the
Delivery Date shall be extended until the Business Day (or, if received after
2:00 p.m.
4
<PAGE>
Eastern Time, the second Business Day) following the date of surrender to the
Company of Preferred Stock Certificates to be converted or satisfaction of
the provisions of Article XIII(A), if applicable.
E. CONTINUING RIGHTS. In addition to any other remedies which may be
available to the Holder, in the event the Company fails for any reason to
effect or to cause the Transfer Agent to effect delivery to the Holder of
certificates representing the shares of Common Stock receivable upon
conversion of the Preferred Shares by the Business Day following the Delivery
Date (which certificates shall be unlegended as and when required pursuant to
the Securities Purchase Agreement, the Registration Rights Agreement entered
into in connection with the Securities Purchase Agreement by and among the
Company and the other signatories thereto (the "Registration Rights
Agreement") and this Certificate of Designation), the Holder shall, unless
the Holder otherwise elects to retain its status as a holder of Common Stock
by so notifying the Company and the Transfer Agent, regain the rights of a
Holder with respect to such unconverted shares of Preferred Stock and the
Company shall immediately cause the Transfer Agent to return the subject
Preferred Stock certificates and other conversion documents, if any,
delivered by Holder, to the Holder, or, if shares of Preferred Stock have not
been surrendered, adjust its records to reflect that such shares of Preferred
Stock have not been converted; provided, however, that the Company shall
remain liable for payment of the amounts determined pursuant to Article VI(A)
hereof for each day falling between the Business Day following the Delivery
Date and the date the revocation notice is received by the Company, and shall
also remain liable for any damages suffered by Holder.
F. STAMP, DOCUMENTARY AND OTHER SIMILAR TAXES. The Company shall pay
all stamp, documentary, issuance and other similar taxes which may be imposed
with respect to the issuance and delivery of the shares of Common Stock
pursuant to conversion of the Preferred Stock; provided that the Company will
not be obligated to pay stamp, transfer or other taxes resulting from the
issuance of Common Stock to any person other than the registered holder of
the Preferred Stock.
G. NO FRACTIONAL SHARES. No fractional shares of Common Stock are to
be issued upon the conversion of Preferred Stock, but the Company shall make
a cash payment equal to such fraction multiplied by the Closing Bid Price on
the Conversion Date in respect of any fractional share which would otherwise
be issuable; provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
H. ELECTRONIC TRANSMISSION. In lieu of delivering physical
certificates representing the Common Stock issuable upon conversion, provided
the Transfer Agent is participating in the Depository Trust Company ("DTC")
Fast Automated Securities Transfer program, upon request of a Holder, the
Company shall use its commercially reasonable efforts to cause the Transfer
Agent to electronically transmit the Common Stock issuable upon conversion to
the Holder by crediting the account of a prime broker designated by the
Holder with DTC through its Deposit Withdrawal Agent Commission ("DWAC")
system. In the case of electronic transmission of such Common Stock, the
Company or the Transfer Agent shall, if applicable, within three (3) Business
Days issue a new certificate representing the Preferred Stock not converted
pursuant to any Notice of Conversion.
5
<PAGE>
I. CASH CONVERSION. Following the Anniversary Date, so long as (i)
for at least thirty (30) Business Days prior to the date of any Cash
Conversion (as defined below) all of the shares of Common Stock issuable upon
conversion of all outstanding shares of Preferred Stock and all outstanding
shares of Series C Preferred Stock are then (x) authorized and reserved for
issuance, (y) registered for resale under the 1933 Act by the holders of the
Preferred Stock (or may otherwise be resold publicly without restriction) and
(z) eligible to be traded on a National Exchange and (ii) there is not then a
continuing Redemption Event, in lieu of honoring Notices of Conversion by
delivery of shares of Common Stock on the Delivery Date in accordance with
Section IV(D), the Company shall, subject to the notice requirement set forth
in the last sentence of this Section IV(I), be entitled to make a cash
payment ("Cash Conversion") in an amount equal to (a) the number of shares of
Common Stock deliverable to a Holder pursuant to the Notice of Conversion
multiplied by (b) the average Closing Bid Price of the Common Stock for the
five consecutive Business Days preceding the Conversion Date. The number of
shares of Common Stock that would have been issued absent any such Cash
Conversion will be deemed to have been issued for purposes of calculating the
Maximum Share Amount. If the Company desires to effect Cash Conversions, it
shall notify the Holder subject thereto at least five Business Days prior to
the first date during which Cash Conversions will be effected, and, unless
waived by the Company, during the period specified in such notice, not to
exceed (with respect to any one notice) thirty (30) days, only Cash
Conversions will be permitted.
V. RESERVATION OF AUTHORIZED SHARES OF COMMON STOCK;
LIMITATION ON NUMBER OF CONVERSION SHARES
A. RESERVATION OF COMMON STOCK. Subject to the provisions of this
Article V, and subject to the Maximum Share Amount (unless the Stockholder
Approval (as defined herein) has been obtained) the Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock a sufficient number of shares of Common Stock to provide for the
conversion of all outstanding Preferred Shares upon issuance of shares of
Common Stock and the exercise of all Warrants (at the then-current Conversion
Price and Exercise Price, respectively) in accordance with Section 4.11 of
the Securities Purchase Agreement (the "Reserved Amount"). The Reserved
Amount shall be increased from time to time in accordance with the Company's
obligations pursuant to 4.11 of the Securities Purchase Agreement. In
addition, if the Company shall issue any securities or make any change in its
capital structure which would change the number of shares of Common Stock
into which each share of the Preferred Stock shall be convertible at the then
current Conversion Price, the Company shall at the same time also make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Preferred Stock.
B. LIMITATION ON NUMBER OF COMMON SHARES TO BE ISSUED.
(i) Notwithstanding anything in this Certificate of Designation
to the contrary, the Preferred Stock shall not be convertible into an
aggregate number of shares in excess of the Maximum Share Amount, subject to
adjustments for stock dividends, stock splits, combinations or similar
events, and upon issuance of Common Shares in conversion of the Preferred
Stock equal to the Maximum Share Amount, the Preferred Stock shall, from that
time forward, cease to be convertible into Common Stock
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in accordance with the terms of Article IV, unless (a) the Company, at its
sole option, shall have notified the Holders that the Company will continue
to honor conversions of Preferred Stock into Common Stock, and (b) either (1)
any necessary shareholder approval required by the Nasdaq (or such other
principal exchange upon which the Common Stock is then trading) for the
issuance of shares in excess of the Maximum Share Amount has been obtained or
duly waived by such exchange, and evidence of such approval satisfactory to
the Holders has been delivered to the Holders or (2) the Company can issue
additional shares without violating National Association of Securities
Dealers, Inc. ("NASD") rules and regulations (but only to the extent such
rules or regulations would not be violated) (satisfaction of clauses (a) and
(b) of this Section V(B)(i) being referred to herein as a "Share Limit
Waiver").
(ii) Following any Stockholder Approval Trigger Date, the Company
shall solicit by proxy the authorization (the "Stockholder Approval") by the
stockholders of the Company of the issuance of shares of Common Stock upon
(x) the conversion of shares of Preferred Stock pursuant to the terms hereof,
(y) the exercise of the Warrants pursuant to the terms thereof, and (z) the
conversion and/or exercise of any other securities (including, but not
limited to, the shares of Series C Preferred Stock and the warrants (the
"Second Closing Warrants") issuable by the Company at the Second Closing (as
defined in the Securities Purchase Agreement)) which would be integrated with
the Preferred Stock and Warrants for purposes of the rules or regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or any of its securities (the
"Other Securities") representing in the aggregate in excess of twenty (20%)
percent of the outstanding shares of Common Stock on the date of issuance of
the Preferred Stock (the "20% Limit") for the purpose of eliminating any
prohibitions under the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Company or any of its securities on the Company's
ability to issue shares of Common Stock in excess of such 20% Limit. The
Company shall thereafter use its commercially reasonable efforts to obtain
the Stockholder Approval no later than ninety (90) days following the
Stockholder Approval Trigger Date. The failure to obtain Stockholder
Approval shall not constitute a breach of the Company's obligations
hereunder. "Stockholder Approval Trigger Date" shall mean any date following
the Anniversary Date and following the date (i) on which the Holders have, in
the aggregate, converted more than 50% of (x) the original Face Amount of all
of the Preferred Stock issued on the Closing Date, or (y) to the extent the
Series C Preferred Stock has been issued pursuant to the terms of the
Securities Purchase Agreement, the sum of the original Face Amount of all of
the Preferred Stock issued on the Closing Date plus the original face value
of all of the Series C Preferred Stock issued at the Second Closing under the
Securities Purchase Agreement, and (ii) on which the sum of (a) the number of
shares of Common Stock issued upon conversion of the Preferred Stock on the
date of calculation, plus (b) the number of shares of Common Stock issuable
upon conversion of the then outstanding Preferred Stock at the Market Price
on the date of calculation, plus (c) the number of shares of Common Stock,
if any, issued upon conversion and/or exercise of the Other Securities
(excluding shares of Common Stock issuable upon exercise of the Second
Closing Warrants) on the date of calculation, plus (d) the number of shares
of Common Stock, if any, issuable upon conversion and/or exercise of the
Other Securities (excluding shares of Common Stock issuable upon exercise of
the Second Closing Warrants) at the conversion price that would be in effect
on the date of calculation, is, in the aggregate, in excess of the 20% Limit.
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C. REDEMPTION OBLIGATION FOLLOWING ISSUANCE OF MAXIMUM SHARE AMOUNT.
Within 90 days of the date that the Maximum Share Amount of Common Stock has
been issued (or has been deemed to have been issued as a result of Cash
Conversions), the Company must (a) to the extent the conditions set forth in
clause (b) of Article V(B)(i), have been satisfied, provide the Share Limit
Waiver to each Holder, and thereafter permit conversions of the Preferred
Stock into shares of Common Stock in excess of the Maximum Share Amount, or
(b) redeem all of the outstanding shares of Preferred Stock, with the
redemption amount for each share of Preferred Stock being equal to the Face
Amount thereof. The Share Limit Waiver must be provided within two (2)
Business Days following the issuance of the Maximum Share Amount of Common
Stock unless the Company delivers to each Holder a certificate signed by its
Chief Financial Officer or a Chief Executive Officer certifying that the
Company will exercise commercially reasonable best efforts to obtain
sufficient financing to permit the redemption of all of the outstanding
shares of Preferred Stock during the 90 day period referenced in the
preceding sentence. Unless the Share Limit Waiver is delivered on the
Business Day following the date that the Maximum Share Amount of Common Stock
has been issued, any conversions of Preferred Shares into shares of Common
Stock in excess of the Maximum Share Amount (after the Share Limit Waiver has
been delivered to each Holders) shall be at the lowest applicable Conversion
Price, as chosen in the sole discretion of each Holder, in effect from the
date that the Maximum Share Amount was reached until the date of delivery of
the Share Limit Waiver to such Holder.
D. ALLOCATION OF RESERVED AMOUNT, MAXIMUM SHARE AMOUNT. The Maximum
Share Amount (including any increases thereto) shall be allocated by the
Company pro rata among the holders of Preferred Shares and Series C Preferred
Stock based on the number of shares of Preferred Shares and Series C
Preferred Stock issued to each holder. Each increase to the Maximum Share
Amount shall be allocated pro rata among the holders of Preferred Shares and
Series C Preferred Stock based on the number of shares of Preferred Shares
and Series C Preferred Stock held by each holder at the time of the increase
in the Maximum Share Amount. In the event a holder shall sell or otherwise
transfer any of such holder's shares of Series C Preferred Stock or Preferred
Shares, each transferee shall be allocated a pro rata portion of such
transferor's Maximum Share Amount. Any portion of the Maximum Share Amount
which remains allocated to any person or entity which does not hold any
Series C Preferred Stock or Preferred Shares shall be allocated to the
remaining holders of shares of Preferred Shares and Series C Preferred Stock,
pro rata based on the number of shares of Preferred Shares and Series C
Preferred Stock then held by such holders.
The Reserved Amount (including any increases thereto) shall be
allocated by the Company pro rata among the holders of Preferred Shares based
on the number of shares of Preferred Shares issued to each holder. Each
increase to the Reserved Amount shall be allocated pro rata among the holders
of Preferred Shares based on the number of shares of Preferred Shares held by
each holder at the time of the increase in the Reserved Amount. In the event
a holder shall sell or otherwise transfer any of such holder's shares of
Preferred Shares, each transferee shall be allocated a pro rata portion of
such transferor's Reserved Amount. Any portion of the Reserved Amount which
remains allocated to any person or entity which does not hold any Preferred
Shares shall be allocated to the remaining holders of shares of Preferred
Shares, pro rata based on the number of shares of Preferred Shares then held
by such holders.
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VI. FAILURE TO CONVERT
A. If, at any time, (x) a Notice of Conversion has been sent to the
Company and the Company fails for any reason to deliver, on or prior to the
third Business Day following the expiration of the Delivery Date for such
conversion (said period of time being the "Extended Delivery Period"), such
number of shares of Common Stock to which such Holder is entitled (taking
into account the limitations on conversions imposed by such Holder's
allocated portion of the Maximum Share Amount) upon such conversion, or (y)
the Company provides notice (including by way of public announcement) (the
"Refusal Notice") to any Holder at any time of its intention not to issue
shares of Common Stock upon exercise by any Holder of its conversion rights
in accordance with the terms of this Certificate of Designation (each of (x)
and (y) being a "Conversion Default"), then the Company shall pay to the
affected Holder, in the case of a Conversion Default described in clause (x)
above, and to all Holders, in the case of a Conversion Default described in
clause (y) above, an amount equal to 1% of the Face Amount of the Preferred
Stock held by such Holder with respect to which the Conversion Default exists
(which amount shall be deemed to be the aggregate Face Amount of all
outstanding Preferred Stock in the case of a Conversion Default described in
clause (y) above) for each day thereafter until the Cure Date. "Cure Date"
means (i) with respect to a Conversion Default described in clause (x) of its
definition or if a Conversion Notice has been submitted and the Company has
issued a Refusal Notice, the date the Company effects the conversion of the
portion of the Preferred Stock submitted for conversion and (ii) if no
Conversion Notices have been submitted, with respect to a Conversion Default
described in clause (y) of its definition, the date the Company undertakes in
writing to issue Common Stock in satisfaction of all conversions of Preferred
Stock in accordance with the terms of this Certificate of Designation. The
Company shall promptly provide each Holder with notice of the occurrence of a
Conversion Default with respect to any of the other Holders.
B. The payments to which a Holder shall be entitled pursuant to this
Section VI(A) are referred to herein as "Conversion Default Payments."
Conversion Default Payments shall be paid in cash. Such payment shall be
made in accordance with and be subject to the provisions of Article XIII(B).
VII. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption Events. A "Redemption Event" means any one of the
following (after expiration of any applicable cure period):
(i) The Company fails, and any such failure continues uncured
for seven (7) Business Days after the Company has been notified thereof in
writing by the Holder, to (x) remove any restrictive legend on any
certificate for any shares of Common Stock issued after the Effective Date to
the Holders upon conversion of the Preferred Stock or the Series C Preferred
Stock or upon exercise of the Warrants or the Second Closing Warrants, or (y)
to transfer or cause the Transfer Agent to transfer any certificate for
shares of Common Stock issued to a Holder upon conversion of the Preferred
Stock or the Series C Preferred Stock, in each case as and when required by
this Certificate of Designation, the Warrants or the Second Closing Warrants,
the Securities Purchase Agreement or the Registration Rights Agreement; or
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(ii) The Company fails to fulfill its obligations pursuant to
Section 4.11 or 4.13 of the Securities Purchase Agreement (or makes any
announcement, statement or threat that it does not intend to honor the
obligations described in this paragraph) and any such failure shall continue
uncured (or any announcement, statement or threat not to honor its
obligations shall not be rescinded in writing) for ten (10) days after the
Corporation shall have been notified thereof in writing by any holder of
Series B Preferred Stock; or
(iii) The Company fails to make any redemption payment due
pursuant to Article V(C) hereof or Article V(C) of the Certificate of
Designation with respect to the Series C Preferred Stock when due; or
(iv) The Company (x) fails to cause the Registration Statement to
be declared effective on or before the date that is one hundred eighty (180)
days following the Closing Date, or (y) such Registration Statement lapses in
effect (or sales cannot be made by the Holders thereunder, whether by reason
of the Company's failure to amend or supplement the prospectus included
therein in accordance with the Registration Rights Agreement or otherwise)
for more than forty-five (45) consecutive days or an aggregate of
seventy-five (75) days in any twelve (12) month period after such
Registration Statement becomes effective, or (z) the Common Stock is not
listed or included for quotation on a National Exchange or that trading is
halted after the Registration Statement has been declared effective for more
than an aggregate of twenty (20) Business Days or more in any twelve (12)
month period.
B. REDEMPTION OF HOLDER'S SHARES. Upon the occurrence and during the
continuation of any Redemption Event, the Company shall, as to each Holder of
the then outstanding shares of Preferred Stock who have given written notice
(the "Optional Redemption Notice") to the Company of such Redemption Event,
purchase each such Holder's shares of Preferred Stock for an amount per share
equal to the greater of (1) 130% multiplied by the sum of (a) the Face Amount
of the shares to be redeemed, plus (b) any other amounts payable thereon
(including without limitation payments due under Section 2 of the
Registration Rights Agreement and Conversion Default Payments) through the
date of payment of the Optional Redemption Amount (as defined herein) (the
"Optional Redemption Date") and (2) the "Parity Value" of the shares to be
redeemed (the greater of such amounts being the "Optional Redemption
Amount"); provided that if such Redemption Event is pursuant to Article
VII(A)(iv), the Company may, at its sole option, in lieu of the foregoing
purchase, pay the Holder an amount equal to the Default Amount (as defined
below) multiplied by the number of shares of Preferred Stock held by such
holder on the date of the Optional Redemption Notice. "Parity Value" means
the product of (a) the number of shares of Common Stock issuable upon
conversion of such shares at such time (treating the Trading Day immediately
preceding the Optional Redemption Date as the "Conversion Date" (as
hereinafter defined), unless the Redemption Event arises as a result of a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Bid
Price for the Common Stock on the principal trading market for such shares
from the period beginning on the date of the first occurrence of the
Redemption Event and ending on such Conversion Date. "Default Amount" shall
mean Two Hundred U.S. Dollars ($200), or such lesser amount as would be
determined in accordance with Section 2(c) of the Registration Rights
Agreement.
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In the case of a Redemption Event, if the Company fails to pay the
Default Amount or the Optional Redemption Amount, as applicable, for each
share within five (5) business days of written notice that such amount is due
and payable, then (assuming there are sufficient authorized shares) in
addition to all other available remedies, each holder of Preferred Stock
shall have the right at any time, so long as the Redemption Event continues,
to require the Company, upon written notice, to immediately issue (in
accordance with and subject to the terms of Article V above), in lieu of the
Default Amount or the Optional Redemption Amount, as applicable, with respect
to each outstanding share of Preferred Stock held by such holder, the number
of shares of Common Stock of the Company equal to the Default Amount or the
Optional Redemption Amount, as applicable, divided by any Conversion Price ,
as chosen in the sole discretion of the Holder, in effect from the date of
the Redemption Event until the date of exercise of such rights by Holder.
Payment of the Default Amount shall not affect the Holder's ongoing rights
with respect to the then outstanding shares of Preferred Stock or the rights
of such holders to pursue alternate damages in respect of the events giving
rise to such payments.
C. OPTIONAL REDEMPTION BY THE COMPANY. So long as (i) for at least
thirty (30) Business Days prior to the date of any date of redemption under
this Article VII(C) all of the shares of Common Stock issuable upon
conversion of all outstanding shares of Preferred Stock and all outstanding
shares of Series C Preferred Stock are then (x) authorized and reserved for
issuance, (y) registered for resale under the 1933 Act by the holders of the
Preferred Stock (or may otherwise be resold publicly without restriction) and
(z) eligible to be traded on a National Exchange and (ii) there is not then a
continuing Redemption Event or Shareholder Approval Trigger Date (unless the
Share Limit Waiver has occurred), the Company may, at its option, upon twenty
(20) Business Days' notice, redeem the Preferred Stock, as follows: (x)
beginning upon the date that the Company completes a public offering of its
Common Stock of at least $20,000,000 underwritten by an investment banking
firm that holds a seat on the NYSE, and (y) on any date following the
Anniversary Date that the average Closing Bid Price of the Common Stock over
the immediately preceding ten trading day period is less than $5.00 per share
(as adjusted for any stock dividends, stock splits, combinations, or similar
events), the Company may, at its option, redeem for cash out of funds legally
available therefor, all (but not less than all) of the outstanding Preferred
Shares at 120% of the Face Amount of such shares of Preferred Stock plus any
other amounts payable thereon.
Nothing in this Article VII(C) shall prohibit conversions of
Preferred Stock otherwise permitted pursuant to the terms of this Certificate
of Designation during the pendency of any notice of optional redemption by
the Company hereunder.
D. MATURITY; REQUIRED REDEMPTION. Subject to the limitations
contained in Article VII(F) hereof and so long as there is not then a
continuing Redemption Event, each share of Preferred Stock outstanding on the
third anniversary of the Closing Date (the "Maturity Date") will be redeemed
at the Company's sole option, (a) in cash equal to the aggregate face value
thereof and any other amounts payable thereon or, (b) by delivery of a number
of shares of Common Stock issuable upon conversion of all of the Preferred
Stock at the then-applicable Conversion Price, including any adjustment under
Article X; provided that (i) any necessary approval for the issuance of
additional shares has been obtained if the Maximum Share Amount has been
reached (or will be exceeded as a result of any conversion at maturity) or
the Company is able to issue shares of Common Stock without violating
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applicable rules of the principal National Exchange on which the Common Stock
is then traded (but only to the extent such rules would not be violated), and
(ii) all shares of Common Stock issuable upon conversion of all outstanding
shares of Preferred Stock are then (x) authorized and reserved for issuance,
(y) registered under the Securities Act for resale by all Holders of such
Preferred Shares and (z) eligible to be traded on a National Exchange. The
Maturity Date shall be delayed by one (1) Business Day each for each Business
Day occurring prior thereto and prior to the full conversion of the Preferred
Stock that any Redemption Event (as defined in Article V(A)) exists, without
regard to whether any cure periods shall have run, and for each Business Day
that the Registration Statement is not effective or that the Common Stock is
not then listed for trading beyond days during which such events are
permitted without penalty pursuant to the Registration Rights Agreement. The
Company will notify each Holder at least ten Business Days prior to the
Maturity Date if the Company intends to redeem all or any portion of the
Preferred Stock held such Holder in cash.
E. REDEMPTION DEFAULTS. If the Company fails to pay any Holder the
redemption consideration with respect to any share of Preferred Stock, as
provided in this Article VII, within five (5) Business Days of its receipt or
delivery, as applicable, of a notice requiring such redemption (the
"Redemption Notice"), then each Holder (i) shall be entitled to interest on
the redemption consideration not paid at a per annum rate equal to the lower
of (x) the sum of prime rate published from time to time by the Wall Street
Journal plus three percent (3%) and (y) the highest interest rate permitted
by applicable law from the date of the Redemption Notice until the date of
redemption hereunder. In the event the Company is not able to redeem all of
the shares of Preferred Stock subject to Redemption Notices, the Company
shall redeem shares of Preferred Stock from each Holder, pro rata, based on
the total number of shares of Preferred Stock included in the Redemption
Notice relative to the total number of shares of Preferred Stock in all of
the Redemption Notices. In the case of a Redemption Event, if the Company
fails to pay the Optional Redemption Amount for each share for any reason
(including, without limitation, the circumstances specified in paragraph
VII(F)), within five (5) Business Days of the applicable Redemption Notice
then (assuming there are sufficient authorized shares) in addition to all
other available remedies, each Holder of Preferred Stock shall have the right
at any time, so long as the Redemption Event continues, to convert, upon
written notice, in lieu of the Optional Redemption Amount, each outstanding
share of Preferred Stock held by such Holder, into the number of shares of
Common Stock of the Company equal to the Optional Redemption Amount, divided
by the Conversion Price then in effect, subject in all cases to each such
Holder's Maximum Share Amount.
F. CAPITAL IMPAIRMENT. In the event that any Section 302A.551 of the
Minnesota Business Corporation Act ("BCA"), would be violated by the
redemption of any shares of Preferred Stock that are otherwise subject to
redemption pursuant to this Article VII, the Company: (i) will redeem the
greatest number of shares of Preferred Stock possible without violation of
said Article; (ii) the Company thereafter shall use its best efforts to take
all necessary steps permitted pursuant to this Certificate of Designation and
the agreements entered into in connection with the issuance of Preferred
Stock pursuant hereto in order to remedy its capital structure in order to
allow further redemptions without violation of said Article; and (iii) from
time to time thereafter as promptly as possible the Company shall redeem
shares of Preferred Stock at the request of the Holders to the greatest
extent possible without causing a violation of the BCA.
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VIII. RANK; PARTICIPATION
A. RANK. All shares of the Preferred Stock shall rank (i) prior to
the Common Stock; (ii) prior to any class or series of capital stock of the
Company hereafter created (unless, with the consent of the Holders of a
majority of the outstanding shares of Preferred Stock obtained in accordance
with Article XII hereof, such class or series of capital stock specifically,
by its terms, ranks senior to or pari passu with the Preferred Stock)
(collectively, with the Common Stock, "Junior Securities"); (iii) pari passu
with the Series C Preferred Stock (to the extent, and only to the extent,
that such Series C Preferred Stock is issued pursuant to the terms of the
Securities Purchase Agreement) and pari passu with any class or series of
capital stock of the Company hereafter created (with the consent of the
Holders of a majority of the outstanding shares of Preferred Stock obtained
in accordance with Article XII hereof), specifically ranking, by its terms,
on parity with the Preferred Stock (the "Pari Passu Securities"); and (iv)
junior to any class or series of capital stock of the Company hereafter
created (with the consent of the Holders of a majority of the outstanding
shares of Preferred Stock obtained in accordance with Article XII hereof)
specifically ranking, by its terms, senior to the Preferred Stock (the
"Senior Securities"), in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary.
B. PARTICIPATION. Subject to the rights of the Holders (if any) of
Pari Passu Securities and Senior Securities, the Holders shall, as such
Holders, be entitled to such dividends paid and distributions made to the
Holders of Common Stock to the same extent as if such Holders had converted
their shares of Preferred Stock into Common Stock (without regard to any
limitations on conversion herein or elsewhere contained) and had been issued
such Common Stock on the day before the record date for said dividend or
distribution. Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the Holders of Common Stock.
IX. LIQUIDATION PREFERENCE
A. LIQUIDATION OF THE COMPANY. If the Company shall commence a
voluntary case under the U.S. Federal bankruptcy laws or any other applicable
bankruptcy, insolvency or similar law, or consent to the entry of an order
for relief in an involuntary case under any law or to the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Company or of any substantial part of its property,
or make an assignment for the benefit of its creditors, or admit in writing
its inability to pay its debts generally as they become due, or if a decree
or order for relief in respect of the Company shall be entered by a court
having jurisdiction in the premises in an involuntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law resulting in the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Company
or of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and any such decree or order shall be unstayed
and in effect for a period of sixty (60) consecutive days and, on account of
any such event, the Company shall liquidate, dissolve or wind up, or if the
Company shall otherwise liquidate, dissolve or wind up (a "Liquidation
Event"), no distribution shall be made to the Holders of any shares of
capital stock of the Company (other than
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Senior Securities and, together with the Holders of Preferred Stock the Pari
Passu Securities) upon liquidation, dissolution or winding up unless prior
thereto the Holders shall have received the Liquidation Preference (as herein
defined) with respect to each Preferred Share. If, upon the occurrence of a
Liquidation Event, the assets and funds available for distribution among the
Holders and holders of Pari Passu Securities shall be insufficient to permit
the payment to such Holders of the preferential amounts payable thereon, then
the entire assets and funds of the Company legally available for distribution
to the Preferred Stock and the Pari Passu Securities shall be distributed
ratably among such shares in proportion to the ratio that the Liquidation
Preference payable on each such share bears to the aggregate Liquidation
Preference payable on all such shares.
B. CERTAIN ACTS NOT A LIQUIDATION. The purchase or redemption by the
Company of stock of any class, in any manner permitted by law, shall not, for
the purposes hereof, be regarded as a liquidation, dissolution or winding up
of the Company. Subject to the provisions of Section X(B), neither the
consolidation or merger of the Company with or into any other entity nor the
sale or transfer by the Company of less than substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Company.
C. DEFINITION OF LIQUIDATION PREFERENCE. The "Liquidation Preference"
with respect to a share of Preferred Stock means an amount equal to the Face
Amount thereof plus any other amounts that may be due from the Company with
respect thereto pursuant to this Certificate of Designation, the Securities
Purchase Agreement or the Registration Rights Agreement. The Liquidation
Preference with respect to any Pari Passu Securities shall be as set forth in
the Certificate of Designation filed in respect thereof.
X. ADJUSTMENTS TO THE CONVERSION PRICE; CERTAIN PROTECTIONS
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. STOCK SPLITS, STOCK DIVIDENDS, ETC. If at any time on or after the
Closing Date, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, reclassification or other similar event,
the number of shares of Common Stock issuable upon conversion of the
Preferred Shares shall be proportionately increased, or if the number of
outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the number
of shares of Common Stock issuable upon conversion of the Preferred Shares
shall be proportionately reduced. In such event, the Company shall notify
the Company's Transfer Agent of such change on or before the effective date
thereof.
B. MAJOR TRANSACTIONS. If the Company shall consolidate with or merge
into any corporation, sell all or substantially all of its assets, effectuate
a transaction or series of transactions in which 50% or more of the voting
power of the Company is disposed of or reclassify its outstanding shares of
Common Stock (other than by way of subdivision or reduction of such shares)
(each a "Major Transaction"), then each Holder shall thereafter be entitled
to receive consideration, in exchange for each share of Preferred Stock held
by it, equal to the greater of, as determined in the sole discretion of the
Holders of at least 50.1% of the outstanding shares of Preferred Stock: (i)
the number of shares of stock
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or securities or property of the Company, or of the entity resulting from
such consolidation or merger (the "Major Transaction Consideration"), to
which a Holder of the number of shares of Common Stock delivered upon
conversion of such shares of Preferred Stock would have been entitled upon
such Major Transaction (without regard to any limitations on conversion
herein contained) and had such Common Stock been issued and outstanding and
had such Holder been the holder of record of such Common Stock at the time of
such Major Transaction, and the Company shall make lawful provision therefore
as a part of such consolidation, merger or reclassification; and (ii) the
Optional Redemption Amount, in cash. Subject to the provisions of this
Article X, but in any event not later than five (5) Business Days prior to
the consummation of the Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver written
notice ("Notice of Major Transaction") to each Holder, which Notice of Major
Transaction shall be deemed to have been delivered one (1) Business Day after
the Company's sending such notice by telecopy (provided that the Company
sends a confirming copy of such notice on the same day by overnight courier).
Such Notice of Major Transaction shall indicate the amount and type of the
Major Transaction Consideration which such Holder would receive under clause
(i) of this Article X(B). If the Major Transaction Consideration does not
consist entirely of United States dollars, the value of such other property
shall be determined by a reputable accounting firm selected by the Company
that is reasonably acceptable the Holders of a majority of the outstanding.
The Holder shall, within two (2) Business Days following receipt of the
Notice of Major Transactions, notify the Company of the type of consideration
it elects to receive under this Article X(B).
C. ADJUSTMENT DUE TO DISTRIBUTION. If at any time after the Closing
Date, the Company shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Company's stockholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off))
(a "Distribution"), then the minimum Conversion Price per share shall be
reduced by the value of such Distribution per share. If the Distribution
does not consist entirely of U.S. Dollars, the value of such other property
shall be determined by a reputable accounting firm selected by the Company
that is reasonably acceptable to the Holders of a majority of the outstanding
shares of Preferred Stock.
D. PURCHASE RIGHTS. Except for the issuance of Series C Preferred
Stock in accordance with the terms of the Securities Purchase Agreement, if
at any time after the Closing Date, the Company issues any Convertible
Securities or rights to purchase stock, warrants, securities or other
property (the "Purchase Rights") pro rata to the record holders of any class
of Common Stock, then the Holders will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which such
Holder could have acquired if such Holder had held the number of shares of
Common Stock acquirable upon complete conversion of the Preferred Stock
(without regard to any limitations on conversion or exercise herein or
elsewhere contained) immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock are
to be determined for the grant, issue or sale of such Purchase Rights.
E. ADJUSTMENT TO CONVERSION PRICE. If at any time when Preferred
Stock is issued and outstanding, the number of outstanding shares of Common
Stock is increased or decreased by a stock
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<PAGE>
split, stock dividend, combination, reclassification, below-market price
rights offering to all holders of Common Stock or other similar event, which
event shall have taken place during the reference period for determination of
the Conversion Price for the Preferred Stock, then the Conversion Price shall
be calculated giving appropriate effect to the stock split, stock dividend,
combination, reclassification or other similar event during the calculation
period preceding the Conversion Date. In such event, the Company shall
notify the Transfer Agent of such change on or before the effective date
thereof.
F. ADJUSTMENT FOR RESTRICTED PERIODS. If (i) the Company fails to
obtain effectiveness of the Registration Statement prior to ninety (90) days
following the Closing Date, or (ii) the Registration Statement, once
effective, lapses in effect, or sales cannot otherwise be made thereunder,
whether by reason of the Company's failure or inability to amend or
supplement the prospectus included therein ("Prospectus") in accordance with
the Registration Rights Agreement or otherwise, then the 20 Business Days
period ("Lookback Period") used for determining the "Market Price" shall be
extended to include (x) in the case of an event described in clause (i), the
20 Business Days immediately preceding the 90th day following the Closing
Date plus all Trading Days through and including the date of effectiveness of
the Registration Statement, and (y) in the case of an event described in
clause (ii), the number of Business Days preceding the date on which the
Holder is first notified that sales may not be made under the Prospectus,
which would otherwise then be included in the Lookback Period plus all
Business Days through and including the date on which the Holder is notified
that sales may again be made under the Prospectus. If a Holder of the
Preferred Stock reasonably determines that sales may not be made pursuant to
the Prospectus, it shall notify the Company in writing and, unless the
Company provides Holder with an opinion of Company's counsel to the contrary,
such determination shall be binding for purposes of this paragraph.
G. ADJUSTMENT TO CONVERSION PRICE FOR MAJOR ANNOUNCEMENTS. In the
event the Company (i) makes a public announcement that it intends to
consolidate or merge with any other corporation (other than a merger in which
the Company is the surviving or continuing corporation and its capital stock
is unchanged) or sell or transfer all or substantially all of the assets of
the Company or (ii) any person, group or entity (including the Company)
publicly announces a tender offer to purchase 50% or more of the Company's
Common Stock or otherwise publicly announces an intention to replace a
majority of the corporation's Board of Directors by waging a proxy battle or
otherwise (the date of the announcement referred to in clause (i) or (ii) is
hereinafter referred to as the "Announcement Date"), then the Conversion
Price shall, effective upon the Announcement Date and continuing through the
Adjusted Conversion Price Termination Date (as defined below), be equal to
the lower of (x) the Conversion Price which would have been applicable for an
Optional Conversion occurring on the Announcement Date and (y) the Conversion
Price that would otherwise be in effect. From and after the Adjusted
Conversion Price Termination Date, the Conversion Price shall be determined
as set forth in Article II. For purposes hereof, "Adjusted Conversion Price
Termination Date" shall mean, with respect to any proposed transaction,
tender offer or removal of the majority of the Board of Directors which a
public announcement as contemplated by this Article X.H. has been made, the
date upon which the Company (in the case of clause (i) above) or the person,
group or entity (in the case of clause (ii) above) consummates or publicly
announces the termination or abandonment of the proposed transaction or
tender offer which caused this Article X.H. to become operative.
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H. NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Section X, the Company,
at its expense, shall promptly compute such adjustment or readjustment and
prepare and furnish to each Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written
request at any time of any Holder, furnish to such Holder a like certificate
setting forth (i) such adjustment or readjustment, (ii) the Conversion Price
at the time in effect and (iii) the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time would be
received upon conversion of a share of Preferred Stock.
XI. VOTING RIGHTS
The holders of the Preferred Stock have no voting power whatsoever,
except as otherwise provided by the ("BCA"), in this Article XI, and in
Article XII below.
Notwithstanding the above, the Company shall provide each holder of
Preferred Stock with prior notification of any meeting of the shareholders
(and copies of proxy materials and other information sent to shareholders).
In the event of any taking by the Company of a record of its shareholders for
the purpose of determining shareholders who are entitled to receive payment
of any dividend or other distribution, any right to subscribe for, purchase
or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property,
or to receive any other right, or for the purpose of determining shareholders
who are entitled to vote in connection with any proposed sale, lease or
conveyance of all or substantially all of the assets of the Company, or any
proposed liquidation, dissolution or winding up of the Company, the Company
shall mail a notice to each holder, at least ten (10) days prior to the
record date specified therein (or thirty (30) days prior to the consummation
of the transaction or event, whichever is earlier), of the date on which any
such record is to be taken for the purpose of such dividend, distribution,
right or other event, and a brief statement regarding the amount and
character of such dividend, distribution, right or other event, and a brief
statement regarding the amount and character of such dividend, distribution,
right or other event to the extent known at such time.
No Holder of the Preferred Stock shall be entitled to vote on any matter
submitted to the shareholders of the Company for their vote, waiver, release
or other action, except as may be otherwise expressly required by law.
XII. PROTECTION PROVISIONS
So long as any Preferred Shares are outstanding, the Company shall not,
without first obtaining the approval of the Holders of majority of the
outstanding shares of Preferred Stock: (a) alter or change the rights,
preferences or privileges of the Preferred Stock; (b) alter or change the
rights, preferences or privileges of any capital stock of the Company so as
to affect adversely the Preferred Stock; (c) create or issue any Senior
Securities; (d) create or issue any Pari Passu Securities, except that the
creation and issuance of Series C Preferred Stock pursuant to the terms of
the Securities Purchase Agreement shall not require the consent of the
holders of Preferred Stock; (e) increase the authorized number of shares of
Preferred Stock; (f) increase the par value of the Common Stock; or (g) do
any act or thing not
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<PAGE>
authorized or contemplated by this Certificate of Designation which would
result in any taxation with respect to the Preferred Stock under Section 305
of the Internal Revenue Code of 1986, as amended, or any comparable provision
of the Internal Revenue Code as hereafter from time to time amended, (or
otherwise suffer to exist any such taxation as a result thereof).
XIII. MISCELLANEOUS
A. LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to the Company, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date. However, the Company shall not be
obligated to reissue such lost, stolen, destroyed or mutilated Preferred
Stock Certificate(s) if the Holder contemporaneously requests the Company to
convert such Preferred Stock.
B. PAYMENT OF CASH; DEFAULTS. Whenever the Company is required to
make any cash payment to a Holder under this Certificate of Designation (as a
Conversion Default Payment, Optional Redemption Amount or otherwise), such
cash payment shall be made to the Holder by the method (by certified or
cashier's check or wire transfer of immediately available funds) elected by
such Holder. If such payment is not delivered when due such Holder shall
thereafter be entitled to interest on the unpaid amount until such amount is
paid in full to the Holder at a per annum rate equal to the lower of (x) the
sum of prime rate published from time to time by the Wall Street Journal plus
three percent (3%) and (y) the highest interest rate permitted by applicable
law.
C. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Certificate of Designation
shall be cumulative and in addition to all other remedies available under
this Certificate of Designation, at law or in equity (including a decree of
specific performance and/or other injunctive relief), no remedy contained
herein shall be deemed a waiver of compliance with the provisions giving rise
to such remedy and nothing herein shall limit a Holder's right to pursue
actual damages for any failure by the Company to comply with the terms of
this Certificate of Designation. Company covenants to each Holder that there
shall be no characterization concerning this instrument other than as
expressly provided herein; provided, however, that the Company shall be
entitled to prepare summaries of this Certificate of Designation for purposes
of complying with its disclosure obligations and in connection with bona fide
disputes as to the operations of the provisions of this Certificate of
Designation.
D. FAILURE OR INDULGENCY NOT WAIVER. No failure or delay on the part
of a Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.
E. NOTICES. Any notice from a Holder to the Company hereunder shall
be given to the Company in accordance with Section 8(f) of the Securities
Purchase Agreement. Any notices from the Company to a Holder shall be given
to such Holder at such Holder's address as shown in the stock
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<PAGE>
register of the Company and otherwise in accordance with Section 8(f) of the
Securities Purchase Agreement.
19
<PAGE>
Exhibit 4.4
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR
SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS
OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
Dated: September 3 , 1998
to Purchase [ ] Shares of Common Stock of
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY, a Minnesota
corporation (the "COMPANY"), hereby certifies that RGC INTERNATIONAL
INVESTORS, LDC , its permissible transferees, designees, successors and
assigns (collectively, the "HOLDER"), for value received, is entitled to
purchase from the Company at any time commencing on September 3, 1998
("ISSUANCE DATE") and terminating on the fifth anniversary of the Issuance
Date (or such earlier date as is specified in a duly delivered Call Notice
(as defined below)) up to [ ] ([ ]) shares
(each a "SHARE" and collectively the "SHARES") of the Company's common stock
(the "COMMON STOCK"), at an exercise price of $8.4896 (the "EXERCISE PRICE").
The number of Shares purchasable hereunder is subject to adjustment as
provided in Section 4 hereof.
1. EXERCISE OF WARRANTS.
(a) Upon presentation and surrender of this Common Stock Purchase
Warrant Certificate ("WARRANT CERTIFICATE" or "CERTIFICATE"), or a Lost
Certificate Affidavit (as defined below), accompanied by a completed Election
to Purchase in the form attached hereto as Exhibit A (the "ELECTION TO
PURCHASE") duly executed, at the principal office of the Company at 805
Hanlon Drive, Belle Plaine, Minnesota 56011, Attn: Chief Financial Officer,
together with a check payable to the Company in the amount of the Exercise
Price multiplied by the number of Shares being purchased, the Company or the
Company's Transfer Agent as the case may be, shall, within three (3) trading
days of receipt of the foregoing, deliver to the Holder hereof, certificates
of fully paid and non-assessable Common Stock which in the aggregate
represent the number of Shares being purchased. The certificates so
delivered shall be in such denominations
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Page 2
as may be reasonably requested by the Holder and shall be registered in the
name of the Holder or such other name as shall be designated by the Holder.
All or less than all of the Warrants represented by this Certificate may be
exercised and, in case of the exercise of less than all, the Company, upon
surrender hereof, will at the Company's expense deliver to the Holder a new
Warrant Certificate or Certificates (in such denominations as may be
requested by the Holder) of like tenor and dated the date hereof entitling
said holder to purchase the number of Shares represented by this Certificate
which have not been exercised and to receive Registration Rights with respect
to such Shares, and all other rights with respect to the shares which the
Holder has on the date hereof.
(b) CASHLESS EXERCISE. Notwithstanding the foregoing provision
regarding payment of the Exercise Price in cash, the Holder may elect, with
the prior written consent of the Company, which may be granted or withheld in
the Company's sole discretion on a case by case basis, to receive a reduced
number of Shares in lieu of tendering the Exercise Price in cash ("CASHLESS
EXERCISE"); PROVIDED that the Holder shall be entitled, without the consent
of the Company, to elect Cashless Exercise at any time that the resale of the
Warrant Shares by the Holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"SECURITIES ACT"). In such case, the number of Shares to be issued to the
Holder shall be computed using the following formula:
X = Y(A-B)
A
where: X = the number of Shares to be issued to the Holder;
Y = the number of Shares to be exercised under this Warrant
Certificate;
A = the Market Value (defined below) of one share of Common Stock
on the trading day immediately prior to the date that the Election to
Purchase is duly surrendered to the Company for full or partial
exercise; and
B = the Exercise Price.
The term "Market Value" means, for any security as of any date, the five-day
average closing bid price of such security on the principal securities
exchange or trading market where such security is listed or traded as
reported by Bloomberg Financial Markets or a comparable reporting service of
national reputation selected by the Company and reasonably acceptable to the
Holder if Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively, "Bloomberg"), or if the foregoing does
not apply, the last reported sale price of such security in the
over-the-counter market or the electronic bulletin board of such security as
reported by Bloomberg, or, if no sale price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such
security that are reported in the "pink sheets" by the National Quotation
Bureau, Inc. If the Market Value cannot be calculated for such security on
such date on any of the foregoing bases, the Market Value of such security on
such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Company and reasonably acceptable to
the
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Page 3
Holder with the costs of such appraisal to be borne by the Company.
2. EXCHANGE, TRANSFER AND REPLACEMENT. (a) At any time prior to the
exercise hereof, this Warrant Certificate may be exchanged upon presentation
and surrender to the Company, alone or with other Warrant Certificates of
like tenor of different denominations registered in the name of the same
Holder, together with a duly executed Assignment in substantially the form
and substance of the Form of Assignment which accompanies this Warrant
Certificate. The Warrant Certificate or Certificates shall be exchanged for
another Warrant Certificate or Certificates of like tenor in the name of such
Holder and/or the transferees named in such Assignment, exercisable for the
aggregate number of Shares as the Certificate or Certificates surrendered,
provided that the Company shall not be obligated to issue exchange or
transfer Certificates for an exchange or transfer of less than 10,000 shares.
The Company shall issue any Warrant Certificates reflecting such transfer or
assignment (including such portion of this Warrant Certificate, if any, as
shall not have been transferred or assigned) within three (3) business days
after receipt of the requisite Warrant Certificate(s) and duly completed
Assignment.
(b) REPLACEMENT OF WARRANT CERTIFICATE. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant Certificate and, in the case of any such loss,
theft, or destruction, upon delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company (collectively, a "LOST
CERTIFICATE AFFIDAVIT"), or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant Certificate, the Company, at its
expense, will execute and deliver in lieu thereof, a new Warrant Certificate
of like tenor.
(c) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of
this Warrant Certificate in connection with any transfer, exchange or
replacement as provided in this Section 2, this Warrant Certificate shall be
promptly canceled by the Company. The Company shall pay all taxes (other
than securities transfer taxes) and all other expenses (other than legal
expenses, if any, incurred by the Holder or transferees) and charges payable
in connection with the preparation, execution and delivery of Warrant
Certificates pursuant to this Section 2.
(d) WARRANT REGISTER. The Company shall maintain, at its
principal executive offices (or at the offices of the transfer agent for the
Warrant Certificate or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant
Certificate (the "WARRANT REGISTER"), in which the Company shall record the
name and address of the person in whose name this Warrant Certificate has
been issued, as well as the name and address of each permitted transferee and
each prior owner of this Warrant Certificate.
(e) MANDATORY EXERCISE RIGHT. The Company shall be entitled, on any
day following the third anniversary of the Issuance Date on which the average
of the closing bid prices of the Common Stock (as reported by Bloomberg,
L.P.) during the ten (10) consecutive trading day period ending on the
trading day immediately preceding
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Page 4
such date (the "Calculation Date"), is equal to or greater than $13.5834 per
Share (subject to adjustment in accordance with Section 4 hereof), to deliver
a written notice to the Holder requiring such Holder to exercise this Warrant
Certificate in accordance with Section 1 hereof on the date which is twenty
(20) trading days following the date of such notice (the "Exercise
Date");provided, however, that the Company shall have such right if and only
if (x) for a period of thirty (30) consecutive trading days prior to such
Calculation Date, and (y) at all times during such ten (10) consecutive
trading day period of time and continuing through the Exercise Date, the
Shares of Common Stock issuable upon exercise of the Warrants are (i)
authorized and reserved for issuance, and (ii) listed for trading on each
principal exchange or market on which the shares of Common Stock of the
Company were then traded; provided further, that the Holder shall not be
required to exercise this Warrant with respect to any such notice unless the
closing bid price of the Common Stock -on the trading day immediately
preceding the Exercise Date is at least equal to $11.885475 (subject to
adjustment in accordance with Section 4 hereof).
3. RIGHTS AND OBLIGATIONS OF HOLDERS OF THIS CERTIFICATE. The Holder
of this Certificate shall not, by virtue hereof, be entitled to any rights of
a stockholder in the Company, either at law or in equity; provided, however,
that in the event any certificate representing shares of Common Stock or
other securities is issued to the holder hereof upon exercise of some or all
of the Warrants, such holder shall, for all purposes, be deemed to have
become the holder of record of such Common Stock on the date on which this
Certificate, together with a duly executed Purchase Form, was surrendered and
payment of the aggregate Exercise Price was made, irrespective of the date of
delivery of such share certificate.
4. ADJUSTMENTS.
(a) STOCK DIVIDENDS, RECLASSIFICATIONS, RECAPITALIZATIONS, ETC.
In the event the Company: (i) pays a dividend in Common Stock or makes a
distribution in Common Stock, (ii) subdivides its outstanding Common Stock
into a greater number of shares, (iii) combines its outstanding Common Stock
into a smaller number of shares or (iv) increases or decreases the number of
shares of Common Stock outstanding by reclassification of its Common Stock
(including a recapitalization in connection with a consolidation or merger in
which the Company is the continuing corporation), then (1) the Exercise Price
on the record date of such division or distribution or the effective date of
such action shall be adjusted by multiplying such Exercise Price by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately before such event and the denominator of which is the
number of shares of Common Stock outstanding immediately after such event,
and (2) the number of shares of Common Stock for which this Warrant
Certificate may be exercised immediately before such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the
Exercise Price immediately before such event and the denominator of which is
the Exercise Price immediately after such event.
(b) CASH DIVIDENDS AND OTHER DISTRIBUTIONS. In the event that at
any time or from time to time the Company shall distribute to all holders of
Common Stock
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Page 5
(i) any dividend or other distribution of cash, evidences of its
indebtedness, shares of its capital stock or any other properties or
securities or (ii) any options, warrants or other rights to subscribe for or
purchase any of the foregoing (other than in each case, (w) the issuance of
any rights under a shareholder rights plan, (x) any dividend or distribution
described in Section 4(a), (y) any rights, options, warrants or securities
described in Section 4(c) and (z) any cash dividends or other cash
distributions from current earnings), then the number of shares of Common
Stock issuable upon the exercise of each Warrant Certificate shall be
increased to a number determined by multiplying the number of shares of
Common Stock issuable upon the exercise of such Warrant Certificate
immediately prior to the record date for any such dividend or distribution by
a fraction, the numerator of which shall be such Market Value (as hereinafter
defined) per share of Common Stock on the record date for such dividend or
distribution, and the denominator of which shall be such Market Value per
share of Common Stock on the record date for such dividend or distribution
less the sum of (x) the amount of cash, if any, distributed per share of
Common Stock and (y) the fair value (as determined in good faith by the Board
of Directors of the Company, whose determination shall be evidenced by a
board resolution, a copy of which will be sent to the Holders upon request)
of the portion, if any, of the distribution applicable to one share of Common
Stock consisting of evidences of indebtedness, shares of stock, securities,
other property, warrants, options or subscription or purchase rights; and the
Exercise Price shall be adjusted to a number determined by dividing the
Exercise Price immediately prior to such record date by the above fraction.
Such adjustments shall be made whenever any distribution is made and shall
become effective as of the date of distribution, retroactive to the record
date for any such distribution. No adjustment shall be made pursuant to this
Section 4(b) which shall have the effect of decreasing the number of shares
of Common Stock issuable upon exercise of each Warrant Certificate or
increasing the Exercise Price. No adjustments shall be made under this
Section 4(b) unless the adjustments to be made to the Exercise Price would,
individually or together with any prior adjustments to the Exercise Price,
exceed $.10. If such rights, options and warrants expire unexercised, any
such adjustments shall be reversed or adjusted to reflect such expiration.
(c) RIGHTS ISSUE. In the event that at any time, or from time to
time, the Company shall issue rights, options or warrants entitling the
holders thereof to subscribe for shares of Common Stock, or securities
convertible into or exchangeable or exercisable for Common Stock to all
holders of Common Stock (other than in connection with the adoption of a
shareholder rights plan by the Company, or any stock option plan or employee
stock purchase plan) without any charge, entitling such holders to subscribe
for or purchase shares of Common Stock at a price per share that as of the
record date for such issuance is less than the then Market Value per share of
Common Stock, the number of shares of Common Stock issuable upon the exercise
of each Warrant Certificate shall be increased to a number determined by
multiplying the number of shares of Common Stock theretofore issuable upon
exercise of each Warrant Certificate by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights, options, warrant or securities plus the number of
additional shares of Common Stock offered for subscription or purchase or
into or for which such securities that are issued are
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Page 6
convertible, exchangeable or exercisable, and the denominator of which shall
be the number of shares of Common Stock outstanding on the date of issuance
of such rights, option, warrants or securities plus the total number of
shares of Common Stock which the aggregate consideration expected to be
received by the Company (assuming the exercise or conversion of all such
rights, options, warrants or securities) would purchase at the then Market
Value per share of Common Stock. In the event of any such adjustment, the
Exercise Price shall be adjusted to a number determined by dividing the
Exercise Price immediately prior to such date of issuance by the
aforementioned fraction. Such adjustment shall be made immediately after
such rights, options or warrants are issued and shall become effective,
retroactive to the record date for the determination of stockholders entitled
to receive such rights, options, warrants or securities. No adjustment shall
be made pursuant to this Section 4(c) which shall have the effect of
decreasing the number of shares of Common Stock purchasable upon exercise or
each Warrant Certificate or of increasing the Exercise Price. No adjustments
shall be made under this Section 4(b) unless the adjustments to be made to
the Exercise Price would individually or together with any prior adjustments
to the Exercise Price exceed $.10. If such rights, options and warrants
expire unexercised, any such adjustments shall be reversed or adjusted to
reflect such expiration.
(d) COMBINATION: LIQUIDATION. (i) In the event of a Combination
(as defined below), each Holder shall have the right to receive upon exercise
of the Warrant Certificates the kind and amount of shares of capital stock
or other securities or property which such Holder would have been entitled to
receive upon or as a result of such Combination had such Warrant Certificate
been exercised immediately prior to such event (subject to further adjustment
in accordance with the terms hereof). If agreed to by the Successor Company
(as defined below) the Company shall provide that the surviving or acquiring
Person (the "SUCCESSOR COMPANY") in such Combination will assume by written
instrument the obligations under this Section 4 and the obligations to
deliver to the Holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, the Holder may be entitled to
acquire. If the Successor Company does not agree, or if the Holder otherwise
determines in it's sole discretion that it elects to receive cash
consideration as a result of such Combination, the Warrant will be, upon
notice from the Holder to that effect, purchased by the Company within three
(3) business days following such Combination at a price per share of Common
Stock for which the Warrant is then exercisable equal to (x) on and prior to
the first anniversary of the Issuance Date, $ 1.697925, (y) on and prior to
the second anniversary of the Issuance Date, $ 3.39585, and (z) thereafter, $
5.093775.The provisions of this Section 4(d)(i) shall similarly apply to
successive Combinations involving any Successor Company. "Combination" means
an event in which the Company consolidates with, mergers with or into, or
sells all or substantially all of its assets to another Person, where
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
(ii) Subject to the Holder's right to have this Warrant purchased
by the Company pursuant to Section 4(d)(i), in the event of (x) a Combination
where consideration to the holders of Common Stock in exchange for their
shares is payable
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Page 7
solely in cash or (y) the dissolution, liquidation or winding-up of the
Company, the Holders shall be entitled to receive, upon surrender of their
Warrant Certificates, distributions on an equal basis with the holders of
Common Stock or other securities issuable upon exercise of the Warrant
Certificates, as if the Warrant Certificates had been exercised immediately
prior to such event, less the Exercise Price. In case of any Combination
described in this Section 4(d)(ii), Successor Company and, in the event of
any dissolution, liquidation or winding-up of the Company, the Company, shall
deposit promptly following the consummation of such combination or at the
time of such dissolution, liquidation or winding-up with an agent or trustee
for the benefit of the Holders of the funds, if any, necessary to pay to the
Holders the amounts to which they are entitled as described above. After
such funds and the surrendered Warrant Certificates are received, the Company
is required to deliver a check in such amount as is appropriate (or, in the
case of consideration other than cash, such other consideration as is
appropriate) to such Person or Persons as it may be directed in writing by
the Holders surrendering such Warrant Certificates.
(e) NOTICE OF ADJUSTMENT. Whenever the Exercise Price or the
number of shares of Common Stock and other property, if any, issuable upon
exercise of the Warrant Certificates is adjusted, as herein provided, the
Company shall deliver to the holders of the Warrant Certificates in
accordance with Section 10 a certificate of the Company's Chief Financial
Officer setting forth, in reasonable detail, the event requiring the
adjustment and the method by which such adjustment was calculated (including
a description of the basis on which (i) the Board of Directors determined the
fair value of any evidences of indebtedness, other securities or property or
warrants, options or other subscription or purchase rights and (ii) the
Market Value of the Common Stock was determined, if either of such
determinations were required), and specifying the Exercise Price and number
of shares of Common Stock issuable upon exercise of Warrant Certificates
after giving effect to such adjustment.
(f) PURCHASE PRICE ADJUSTMENT. In the event that the Company
issues or sells any Common Stock or securities which are convertible into or
exchangeable for its Common Stock or any convertible securities, or any
warrants or other rights to subscribe for or to purchase or any options for
the purchase of its Common Stock or any such convertible securities (other
than shares or options issued or which may be issued pursuant to the
Company's employee or director option plans or shares issued upon exercise of
options, warrants or rights outstanding on the date of the Agreement and
listed in the Company's most recent periodic report filed under the Exchange
Act) at a purchase price per share on the date of original issuance of such
security which is less than 95% of the Market Value of the Common Stock on
the trading day next preceding such issue or sale, then in each such case,
the Exercise Price in effect immediately prior to such issue or sale shall be
reduced effective concurrently with such issue or sale to an amount
determined by multiplying the Exercise Price then in effect by a fraction,
(x) the numerator of which shall be the sum of (1) the number of shares of
Common Stock outstanding immediately prior to such issue or sale, plus (2)
the number of shares of Common Stock which the aggregate consideration
received by the Company for such additional shares would purchase at such
Market Value; and (y) the denominator of which shall be the number of shares
of Common Stock of the Company outstanding
<PAGE>
Page 8
immediately after such issue or sale. Notwithstanding the forgoing, no
adjustment shall be made if such adjustment would be less than $.10.
For the purposes of the foregoing adjustment, in the case of the issuance of
any convertible securities, warrants, options or other rights to subscribe
for or to purchase or exchange for, shares of Common Stock ("CONVERTIBLE
SECURITIES"), the maximum number of shares of Common Stock that would be
issuable upon exercise, exchange or conversion of such Convertible Securities
(assuming that shares of Common Stock were trading at the then Market Value
at the time of conversion) shall be deemed to be outstanding, provided that
no further adjustment shall be made upon the actual issuance of Common Stock
upon exercise, exchange or conversion of such Convertible Securities;
provided, further that if such Convertible Securities expire or are redeemed
without conversion or exercise, the Exercise Price shall be further adjusted
to reflect that the same are no longer outstanding.
If there is a change at any time in (i) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
of any Convertible Securities; or (ii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.
(g) NOTICE OF CERTAIN TRANSACTIONS. In the event that the Company
shall propose (a) to pay any dividend payable in securities of any class to
the holders of its Common Stock or to make any other non-cash dividend or
distribution to the holders of its Common Stock, (b) to offer the holders of
its Common Stock rights to subscribe for or to purchase any securities
convertible into shares of Common Stock or shares of stock of any class or
any other securities, rights or options, (c) to effect any capital
reorganization, reclassification, consolidation or merger affecting the class
of Common Stock, as a whole, or (d) to effect the voluntary or involuntary
dissolution, liquidation or winding-up of the Company, the Company shall,
within the time limits specified below, send to each Holder a notice of such
proposed action or offer. Such notice shall be mailed to the Holders at
their addresses as they appear in the Warrant Register (as defined in Section
2(d)), which shall specify the record date for the purposes of such dividend,
distribution or rights, or the date such issuance or event is to take place
and the date of participation therein by the holders of Common Stock, if any
such date is to be fixed, and shall briefly indicate the effect of such
action on the number of shares of Common Stock and on the number and kind of
any other shares of stock and on other property, if any, and the number of
shares of Common Stock and other property, if any, issuable upon exercise of
each Warrant Certificate and the Exercise Price after giving effect to any
adjustment pursuant to Section 4 which will be required as a result of such
action. Such notice shall be given as promptly as possible and (x) in the
case of any action covered by clause (a) or (b) above, at least 10 days prior
to the record date for determining holders of the Common Stock for purposes
of such action or (y) in the case
<PAGE>
Page 9
of any other such action, at least 20 days prior to the date of the taking of
such proposed action or the date of participation therein by the holders of
Common Stock, whichever shall be the earlier.
(h) OTHER ADJUSTMENTS. In the event of any other transaction of
the type contemplated by this Section 4, but not expressly provided for by
the provisions hereof, the Board of Directors of the Company will make
appropriate adjustment in the Exercise Price so as to equitably protect the
rights of the Holder.
(i) NO IMPAIRMENT OF HOLDER'S RIGHTS. The Company will not, by
amendment of its articles of organization or bylaws or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, except as contemplated
hereby, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant Certificate, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all action as may
be necessary or appropriate in order to protect the rights of the Holder
against dilution or other impairment.
5. COMPANY'S REPRESENTATIONS.
(a) The Company covenants and agrees that all shares of Common
Stock issuable upon exercise of this Warrant Certificate will, upon delivery,
be duly and validly authorized and issued, fully-paid and non-assessable and
free from all taxes, liens, claims and encumbrances.
(b) The Company covenants and agrees that it will at all times
reserve and keep available an authorized number of shares of its Common Stock
and other applicable securities sufficient to permit the exercise in full of
all outstanding options, warrants and rights, including this Warrant
Certificate.
(c) The Company shall promptly secure the listing of the Shares
upon each national securities exchange or automated quotation system, if any,
upon which shares of Common Stock are then listed or become listed (subject
to official notice of issuance upon exercise of this Warrant Certificate) and
shall maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all shares of Common Stock from time to time issuable
upon the exercise of this Warrant Certificate; and the Company shall so list
on each national securities exchange or automated quotation system, as the
case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant Certificate
if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(d) The Company has taken all necessary action and proceedings as
required and permitted by applicable law, rule and regulation, including,
without limitation, the notification of the principal market on which the
Common Stock is traded, for the legal and valid issuance of this Warrant
Certificate to the Holder under this Warrant Certificate.
<PAGE>
Page 10
(e) With a view to making available to Holder the benefits of Rule
144 promulgated under the Act and any other rule or regulation of the
Securities and Exchange Commission ("SEC") that may at any time permit Holder
to sell securities of the Company to the public without registration, the
Company agrees to use its reasonable best efforts to:
(i) make and keep public information available, as those
terms are understood and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"); and
(iii) furnish to any Holder forthwith upon request a written
statement by the Company that it has complied with the reporting requirements
of Rule 144 and of the Act and the Exchange Act, a copy of the most recent
annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as may be reasonably requested to permit
any such Holder to take advantage of any rule or regulation of the SEC
permitting the selling of any such securities without registration.
6. REGISTRATION RIGHTS. The initial Holder is entitled to the benefit
of such registration rights in respect of the Shares as are set forth in the
Registration Rights Agreement dated as of September 3, 1998, by and between
the Company, the Holder and the other investors parties thereto
("REGISTRATION RIGHTS AGREEMENT"), including the right to assign such rights
to certain assignees as set forth therein.
7. ISSUANCE OF CERTIFICATES. Within two (2) trading days of receipt
of a duly completed Election to Purchase form, together with this Certificate
and payment of the Exercise Price, the Company, at its expense, will cause to
be issued in the name of and delivered to the Holder of this Warrant, a
certificate or certificates for the number of fully paid and non-assessable
shares of Common Stock to which that holder shall be entitled on such
exercise. In the event the shares of Common Stock are not timely delivered
to the Holder, the Company agrees to (a) indemnify Holder for all damages,
including consequential and special damages, lost profits and expenses,
including legal fees, and (b) beginning on the fifth (5th) day following the
Company's receipt of a duly completed Election to Purchase form, pay a
default premium of 2% per day of the value of underlying shares (based on the
highest closing price during the two (2) day period preceding the date of
surrender of the Warrant Certificate). In lieu of issuance of a fractional
share upon any exercise hereunder, the Company will pay the cash value of
that fractional share, calculated on the basis of the Exercise Price. The
shares of Common Stock underlying this Warrant Certificate shall bear legends
only as set forth in Article V of the Securities Purchase Agreement.
8. DISPOSITION OF WARRANTS OR SHARES. The Holder of this Warrant
Certificate, each transferee hereof and any holder and transferee of any
Shares, by his or its
<PAGE>
Page 11
acceptance thereof, agrees that no public distribution of Warrants or Shares
will be made in violation of the provisions of the 1933 Act. Transfer of the
Warrant or the Shares is subject to the restrictions set forth in the
Securities Purchase Agreement. Furthermore, it shall be a condition to the
transfer of the Warrants that any transferee thereof deliver to the Company
his or its written agreement to accept and be bound by all of the relevant
terms and conditions contained in this Warrant Certificate and in the
Securities Purchase Agreement.
9. NOTICES. Except as otherwise specified herein to the contrary, all
notices, requests, demands and other communications required or desired to be
given hereunder shall only be effective if given in writing by certified or
registered U.S. mail with return receipt requested and postage prepaid; by
private overnight delivery service (e.g. Federal Express); by facsimile
transmission (if no original documents or instruments must accompany the
notice); or by personal delivery. Any such notice shall be deemed to have
been given (a) five business days following the mailing thereof, if mailed by
certified or registered U.S. mail as specified above; (b) on the business day
immediately following deposit with a private overnight delivery service if
sent by said service; (c) upon receipt of confirmation of transmission if
sent by facsimile transmission; or (d) upon personal delivery of the notice.
All such notices shall be sent to the following addresses (or to such other
address or addresses as a party may have advised the other in the manner
provided in this Section 10):
If to the Company:
Excelsior-Henderson Motorcycle Manufacturing Company
805 Hanlon Drive
Belle Plaine, MN 56011
Attn: Chief Executive Officer
Tel: (612) 873-5826
Fax: (612) 873-5956
With a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: Andrew Hirsch, Esq.
Tel: (650) 493-9300
Fax: (415) 496-4092
If to the Holder:
RGC International Investors, LDC
C/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
<PAGE>
Page 12
Attn: Jerry Stahlecker
Tel: (610) 617-5900
Fax: (610) 617-0570
and with a copy to:
Morgan Lewis & Bockius
2001 Logan Square
Philadelphia, PA
Attn: Keith Marlowe
Tel: (215) 963-5083
Fax: (215) 963-5299
in each case with a copy to:
Shoreline Pacific Institutional Finance
3 Harbor Drive, Suite 211
Sausalito, CA 94965
Telephone: (415) 332-7800
Telecopy: (415) 332-7808
Attention: General Counsel
Notwithstanding the time of effectiveness of notices set forth in this
Section, an Election to Purchase shall not be deemed effectively given until
it has been duly completed and submitted to the Company together with the
original Warrant Certificate to be exercised and payment of the Exercise
Price in a manner set forth in this Section.
10. Notwithstanding anything in this Warrant Certificate to the
contrary, in no event shall the holder of this Warrant Certificate be
entitled to exercise with respect to a number of shares of Common Stock to
the extent that following such exercise the sum of (i) the number of shares
of Common Stock beneficially owned by the holder and its affiliates (other
than shares of Common Stock which may be deemed beneficially owned through
the ownership of the unexercised Warrant Certificates or other securities
containing restrictions on conversion or exercise analogous to the provisions
in this paragraph), and (ii) the number of shares of Common Stock issuable
upon exercise of the Warrant Certificates (or portions thereof) with respect
to which the determination described herein is being made, would result in
beneficial ownership by the holder and its affiliates of more than 4.99% of
the outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Rules 13(d)-(g) thereunder, except as otherwise provided in clause (i)
hereof.
11. GOVERNING LAW. This Warrant Certificate and all rights and
obligations
<PAGE>
Page 13
hereunder shall be deemed to be made under and governed by the laws of the
State of Delaware without giving effect to its conflicts of laws provisions.
The Holder hereby irrevocably consents to the venue and jurisdiction of the
State and Federal Courts located in the State of Delaware.
12. SUCCESSORS AND ASSIGNS. This Warrant Certificate shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
13. HEADINGS. The headings of various sections of this Warrant
Certificate have been inserted for reference only and shall not affect the
meaning or construction of any of the provisions hereof.
14. SEVERABILITY. If any provision of this Warrant Certificate is held
to be unenforceable under applicable law, such provision shall be excluded
from this Warrant Certificate, and the balance hereof shall be interpreted as
if such provision were so excluded.
15. MODIFICATION AND WAIVER. This Warrant Certificate and any
provision hereof may be amended, waived, discharged or terminated only by an
instrument in writing signed by the Company and the Holder.
16. SPECIFIC ENFORCEMENT. The Company and the Holder acknowledge and
agree that irreparable damage would occur in the event that any of the
provisions of this Warrant Certificate were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent
or cure breaches of the provisions of this Warrant Certificate and to enforce
specifically the terms and provisions hereof, this being in addition to any
other remedy to which either of them may be entitled by law or equity.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Page 14
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or by facsimile, by one of its officers thereunto
duly authorized.
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY, a Minnesota
corporation
Date: September 3, 1998 By: /s/ Thomas M. Rootness
---------------------------------
Name: Thomas M. Rootness
Title: Chief Financial Officer
<PAGE>
ELECTION TO PURCHASE
To Be Executed by the Holder
in Order to Exercise the Common Stock
Purchase Warrant Certificate
The undersigned Holder hereby elects to exercise _______ of the Warrants
represented by the attached Common Stock Purchase Warrant Certificate, and to
purchase the shares of Common Stock issuable upon the exercise of such
Warrants, and requests that certificates for securities be issued in the name
of:
__________________________________________________________
(Please type or print name and address)
__________________________________________________________
__________________________________________________________
__________________________________________________________
(Social Security or Tax Identification Number)
and delivered to:______________________________________________________________
_____________________________________________________________________________ .
(Please type or print name and address if different from above)
If such number of Warrants being exercised hereby shall not be all the
Warrants evidenced by the attached Common Stock Purchase Warrant Certificate,
a new Common Stock Purchase Warrant Certificate for the balance of such
Warrants shall be registered in the name of, and delivered to, the Holder at
the address set forth below.
[In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$__________ by check, money order or wire transfer payable in United States
currency to the order of Excelsior-Henderson Motorcycle Manufacturing Company.]
or [The undersigned elects cashless exercise in accordance with Section 1(b) of
the Common Stock Purchase Warrant Certificate.]
<PAGE>
Holder hereby represents and convenants that it has complied with, or
will comply with, any and all prospectus delivery requirements with respect
to its sale of the Common Stock of the Company being purchased herewith.
HOLDER:
Dated:___________________ By:____________________________________
Name:
Title:
Address:____________________________
____________________________
____________________________
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers unto
_____________ the right represented by the within Warrant to purchase ______
shares of Common Stock of Excelsior-Henderson Motorcycle Manufacturing
Company, to which the within Warrant relates, and appoints
____________________ Attorney to transfer such right on the books of
Excelsior-Henderson Motorcycle Manufacturing Company, with full power of
substitution of premises.
Dated:___________________ By: ___________________________________
Name:
Title:
(signature must conform to name of
holder as specified on the fact of the
Warrant)
Address: _____________________________
______________________________________
______________________________________
Signed in the presence of:
__________________________
<PAGE>
Exhibit 99.1
FOR IMMEDIATE RELEASE
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
ANNOUNCES THE PRIVATE PLACEMENT OF $10 MILLION OF
SERIES B CONVERTIBLE PREFERRED STOCK
CONTACT: EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
THOMAS M. ROOTNESS
CHIEF FINANCIAL OFFICER
(612) 873-7000
BELLE PLAINE, MN, SEPTEMBER 8, 1998 -- Excelsior-Henderson Motorcycle
Manufacturing Company (NASDAQ: BIGX) today announced the closing of the
private placement of $10 million of Series B Convertible Preferred Stock with
a single institutional investor. The investor has committed to make an
additional $3 million investment in the Company upon the achievement of
certain market price goals and certain other conditions. The financing was
arranged by Shoreline Pacific Institutional Finance, the Institutional
Division of Financial West Group of Sausalito, California.
"The proceeds of this private placement will be used primarily to fund
working capital needs and for general corporate purpose", said Thomas M.
Rootness, Senior Vice President and Chief Financial Officer. "This
represents another milestone accomplished within our financial plan", added
Rootness.
The conversion price of the Series B Preferred Stock is $7.47, a 10% premium
over the recent market price, and is fixed for at least the first twelve
months after closing. Thereafter, the conversion price may vary based upon
the market price of the Company's Common Stock during the period immediately
preceding conversion.
At the closing of this transaction, Excelsior-Henderson had approximately
13.0 million common shares outstanding. Depending on the ultimate conversion
price, the number of common shares issuable in satisfaction of conversion of
the $10 million Series B Preferred Stock could range from a low of 1,338,500
to a high, without obtaining prior shareholder approval, of 2,600,000. The
agreements also provide for optional cash redemption by Excelsior-Henderson
of any unconverted Series B Preferred Stock.
Excelsior-Henderson Motorcycle Manufacturing Company is a pre-revenue company
which plans to manufacture, market and sell premium heavyweight American
cruisers and touring motorcycles, as well as related parts, apparel and
accessories branded with a name that evokes an authentic American
motorcycling heritage and lifestyle. The Company will distribute its
products through a quality, nationally recognized dealer network.
Excelsior-Henderson is one of only two authentic American motorcycle
companies exclusively committed to the manufacture of motorcycles. The
production-
<PAGE>
intent 1999 Super X motorcycle was unveiled August 3, 1998, during Sturgis
Rally and Races. Motorcycle production is scheduled to begin during the
fourth quarter of 1998.
NOTES CONCERNING FORWARD LOOKING STATEMENTS:
THIS PRESS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS REGARDING THE PLAN OF
THE COMPANY TO PRODUCE AND SELL THE FIRST 1999 SUPER X MOTORCYCLES DURING THE
FOURTH QUARTER OF 1998 THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF THE FACTORS SET FORTH BELOW AND THE
FACTORS DESCRIBED FROM TIME TO TIME IN THE COMPANY'S REPORTS ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION, INCLUDING BUT NOT LIMITED TO THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 3,
1998 AND THE COMPANY'S QUARTERLY REPORTS ON FORM 10-Q FOR THE QUARTER ENDED
APRIL 4, 1998 AND THE QUARTER ENDED JULY 4, 1998.
FACTORS THAT MAY AFFECT THE TIMING OF PRODUCTION OF THE SUPER X INCLUDE
PROBLEMS IN ACQUISITION, INSTALLATION AND SUCCESSFUL OPERATION OF THE
MOTORCYCLE PRODUCTION EQUIPMENT, THE ABILITY OF THE COMPANY TO LOCATE
COMPETENT SUPPLIERS OR OBTAIN ADEQUATE QUANTITIES OF COMPONENTS AND SUPPLIES
AT REASONABLE COSTS, THE ABILITY OF THE COMPANY TO OBTAIN WORKING CAPITAL
FINANCING AS NEEDED, THE ABILITY OF THE COMPANY TO HIRE ADDITIONAL QUALIFIED
PERSONNEL AND THE ABILITY OF THE COMPANY'S ENGINEERING AND MANUFACTURING
STAFF TO DESIGN, ENGINEER AND PRODUCE THE SUPER X. IN ADDITION, FOR THE
COMPANY TO BE SUCCESSFUL, ITS PRODUCTS MUST BE MANUFACTURED TO MEET HIGH
QUALITY STANDARDS IN PRODUCTION VOLUMES. THE TRANSITION FROM PROTOTYPE TO
MASS PRODUCTION WILL INVOLVE VARIOUS RISKS AND UNCERTAINTIES THAT MAY NOT BE
APPARENT AT THIS TIME AND THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL BE
ABLE TO SUCCESSFULLY REACT TO UNANTICIPATED DIFFICULTIES AND COMMENCE MASS
PRODUCTION IN LATE 1998. IN ADDITION, THE COMPANY WILL BE REQUIRED TO OBTAIN
CERTAIN GOVERNMENT APPROVALS AND CERTIFICATIONS PRIOR TO SALES OF THE SUPER
X. POTENTIAL DELAYS AND COSTS THAT COULD RESULT FROM OBTAINING SUCH
APPROVALS COULD RESULT IN A DELAY IN MOTORCYCLE PRODUCTION.
