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) April 3, 1998
CHAPARRAL RESOURCES, INC.
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(Exact name of registrant as specified in its charter)
Colorado 0-7261 84-0630863
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(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
2211 Norfolk, Suite 1150, Houston, Texas 77098
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 807-7100
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Item 5. OTHER EVENTS.
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On April 3, 1998, the Company executed a Subscription Agreement
("Agreement") with an investor which was not affiliated with the Company.
Pursuant to the Agreement, the Company agreed to sell to the investor 1,250,000
shares of the Company's common stock for a purchase price of $2.00 per share or
an aggregate purchase price of Two Million Five Hundred Thousand Dollars
($2,500,000). The Company agreed to register the 1,250,000 shares for resale.
Also, the Company agreed that, if at any time by March 31, 1999, the
Company issues additional shares of the Company's common stock at a price of
less than $2.00 per share, the investor will receive an additional number of
shares of common stock which when added to the 1,250,000 shares divided by
$2,500,000 is equal to the price at which the additional shares are sold.
Excluded from the adjustment provisions are all shares of common stock,
including the shares of common stock issuable upon exercise of options or
warrants, issued to management, directors or employees of, or consultants to,
the Company or any subsidiary thereof, shares of common stock issuable upon
exercise of convertible securities, shares of common stock or options or
warrants to acquire common stock issued in connection with investment banking,
financial advisory or legal services provided to the Company and shares of
common stock issued as a dividend or other distribution on any class of stock.
Further, the Company agreed that if, by March 31, 1999, the Company issues or
sells convertible securities (i.e., securities directly or indirectly
convertible into or exchangeable for common stock), other than as a dividend or
other distribution on any class of stock, the investor is entitled to exchange
the 1,250,000 shares for the convertible securities. The amount of convertible
securities to be issued to the investor is to be determined by dividing the
market price of the common stock into the issue price of such convertible
securities. Finally, the Company agreed that, in the event that by March 31,
1999 (i) the Company has not received an investment of $7,500,000 and (ii) the
average market price of the common stock for the twenty day trading period
preceding March 31, 1999, is less than $2.00 per share, then the investor is
entitled to an additional number of shares of common stock which when added to
the 1,250,000 shares and divided by $2,500,000 is equal to the market price of
the common stock on March 31, 1999. This provision is inapplicable if either of
the provisions are satisfied on or before March 31, 1999.
Allen & Company Incorporated acted as placement agent in connection with
the sale of the 1,250,000 shares of common stock. As a result, of the warrants
to purchase 700,000 shares of the Company's common stock held by Allen & Company
Incorporated that were unexercisable, warrants to purchase 100,000 shares of the
Company's common stock have now become exercisable at an exercise price of $0.01
per share and will expire on November 25, 2002.
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Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
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(c) Exhibits.
Exhibit 10.1 Subscription Agreement dated April 1, 1998, by and between
Chaparral Resources, Inc. and Network Fund III, Ltd.
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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.
Date: April 13, 1998
CHAPARRAL RESOURCES, INC.
By: /s/ Howard Karren
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Howard Karren, President
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EXHIBIT INDEX
Exhibit 10.1 Subscription Agreement dated April 1, 1998, by and between
Chaparral Resources, Inc. and Network Fund III, Ltd.
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April 1, 1998
Chaparral Resources, Inc.
Attn: Howard Karren, Chairman and CEO
3400 Bissonnet
Houston, Texas 77005
Gentlemen:
. Subscription. The undersigned, Network Fund III, Ltd. (the
"Subscriber") hereby applies to purchase from Chaparral
Resources, Inc., a corporation organized under the laws of the
State of Colorado (the "Company"), and the Company hereby agrees
to sell to the Subscriber, 1,250,000 shares of the Company's
Common Stock, par value $.10 per share ("Common Stock") for a
purchase price of $2.00 per share, or in the aggregate amount of
Two Million Five Hundred Thousand ($2,500,000) Dollars payable in
cash (the "Purchase Price"). The Shares are being offered to the
Subscriber without registration under the Securities Act of 1933,
as amended (the "Securities Act").
2. Acceptance. The subscription shall be deemed accepted by the
Company upon receipt by the Company of a duly executed copy of
this Agreement.
. Delivery of Certificate for Shares. As soon as practicable after
receipt of the Purchase Price, the Company will deliver to the
Subscriber a certificate or certificates representing the Shares
subscribed for hereby, registered in the name of the Subscriber.
. Representations Warranties and Covenants of Subscriber. In order
to induce the Company to sell the Shares to the Subscriber, the
Subscriber hereby represents, warrants and covenants to the
Company as follows:
(a) The Subscriber is acquiring the Shares solely for investment
purposes and not with a view to resale or distribution, or
for the account, in whole or in part, of others. No other
person has or will have a direct or indirect beneficial
interest in the Shares.
(b) The Subscriber recognizes the restrictions on the
transferability of the Shares and the Subscriber is able to
bear the substantial economic risk of an investment therein,
including a complete loss thereof, for an indefinite period
of time.
(c) The Subscriber understands that the sale of the Shares
hereunder is intended to be exempt from registration under
the Securities Act, by virtue of Section 4(2) thereof (and
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the rules and regulations promulgated under the Securities
Act) and applicable state securities laws. The Subscriber
will not sell or otherwise transfer any or all of the Shares
without registration under the Securities Act or an
exemption therefrom.
(d) The Subscriber acknowledges and agrees that the certificate
or certificates representing the Shares shall bear a legend
restricting the transfer of the Shares.
(e) The Subscriber further represents and warrants that in order
to make an informed decision in connection with the purchase
of the Shares:
(i) the Subscriber has reviewed the merits and risks of an
invest- ment in the Shares; and
(ii) the Subscriber recognizes that an investment in the
Shares involves a number of significant risks; the
Subscriber has such knowledge and experience in
financial and business matters as to be capable of
evaluating the merits and risks of an investment in the
Shares.
(f) The Subscriber represents and warrants that the Subscriber
is an "accredited investor" as that term is defined in Rule
501 promulgated under the Securities Act.
(g) The Subscriber is not subscribing to purchase the Shares as
a result of or subsequent to any advertisement, article,
notice or other communication published in any newspaper,
magazine or similar media, or broadcast over television or
radio, or presented at any seminar or meeting, or any
solicitation of a subscription by a person not previously
known to the Subscriber in connection with investments in
securities generally.
(h) The Subscriber understands that all documents, records and
books pertaining to this investment have been made available
for inspection by the undersigned, undersigned's attorney,
and/or accountant, including but not limited to, the
Company's Annual Report on Form 10-K for the fiscal year
ended November 30, 1996, the Company's Quarterly Reports on
Form 10-Q for the quarters ended February 28, 1997, June 30,
1997 and September 30, 1997; and the Company's Current
Reports on Form 8-K dated April 17, 1997, May 29, 1997,
October 31, 1997, as amended, November 6, 1997, December 3,
1997 and March 17, 1998.
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(I) The Subscriber has had a reasonable opportunity to ask
questions of and receive answers from a person or persons
acting on behalf of the Company concerning the Company and
the offering of the securities contemplated hereby, and all
such questions have been answered to the full satisfaction
of the undersigned.
5. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Subscriber that the Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Colorado and has all corporate
power and authority to own and lease its properties and to
conduct its business as presently conducted. The Company further
represents and warrants to the Subscriber that the issuance of
the Shares has been duly authorized and, upon the issuance
thereof and payment therefor in the manner provided herein, will
be duly authorized, validly issued, fully paid and
non-assessable.
6. Registration Rights.
(a) Definitions. For purposes of this Section 6, the following
terms shall have the respective meanings set forth below:
(i) "Commission" shall mean the Securities and Exchange
Commission or any other Federal agency at the time
administering the Securities Act.
(ii) The term "holder or holders of Registrable Stock" shall
mean any holder of any Shares issued pursuant to this
Agreement, including any transferee of any Subscriber.
(iii)The terms "register", "registered" and "registration"
refer to a registration effected by preparing and
filing a registration statement or similar document in
compliance with the Securities Act, and the declaration
or ordering of effectiveness of such registration
statement or document by the Commission.
(iv) The term "Registrable Stock" means (a) the Shares
issued pursuant to this Agreement; provided, however,
that shares of Registrable Stock shall cease to be
Registrable Stock if they are sold or transferred
pursuant to a registered public offering or other
transaction which does not result in restrictions on
resale being imposed on the public transfer by virtue
of Federal or state securities laws; and provided
further that Registrable Stock shall cease to be
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Registrable Stock if the holder could sell or transfer
all such Shares held by him/her in one transaction
pursuant to Rule 144 promulgated under the Securities
Act.
(b) Demand Registration.
(i) Upon the written request of any holder or holders
("Initiating Holders") of at least 30% of the shares of
Registrable Stock, which request shall state the
intended method of disposition by such Initiating
Holders and shall request that the Company effect the
registration of all or part of the Registrable Stock
under the Securities Act, the Company shall promptly
give written notice of such requested registration to
all other holders, if any, of Registrable Stock. If,
after the expiration of thirty days from the giving of
such notice to the holders of Registrable Stock, the
Company shall have received written requests to
register at least 50% of the shares of Registrable
Stock, which requests shall state the intended method
of disposition of such securities by such holders, the
Company shall use all reasonable efforts to prepare and
file with the Commission a registration statement and
such other documents, including a prospectus, as may be
necessary to permit a public offering and sale of such
Registrable Stock in the United States in compliance
with the provisions of the Securities Act, all to the
extent required to permit the disposition (in
accordance with the intended methods thereof as
aforesaid) by the holders of the Registrable Stock so
to be registered (the "Participating Holders"). If such
sale of Registrable Stock is to be pursuant to an
underwritten offering, the underwriter shall be
selected by the Initiating Holders and shall be
reasonably acceptable to the Company. If the
underwriter selected determines that the number of
shares so to be included is required to be limited due
to market conditions or otherwise, the holders of
Registrable Stock proposing to sell their shares in
such underwritten registration shall share pro rata
(according to the number of shares requested to be
registered) in the number of shares being underwritten
(as determined by such underwrit- er) and registered
for their account. The Company shall only be required
to effect two registrations pursuant to this Section
6(b).
(ii) The Company shall not be required to effect any
registration under this Section 6(b) within nine months
after the completion of any Registered offering of its
securities pursuant to which the holders of Registrable
Stock were afforded the right to register as many
shares of their Registrable Stock as requested nor
within six months after any other Registered offering
by the Company.
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(iii)The Company shall have the right to include in any
registration statement or post-effective amendment
filed pursuant to this Section 6(b), other securities
of the Company then proposed to be distributed, except
that, to the extent consistent with the rights of other
holders of the Company's securities, if and to the
extent that the underwriter or underwriters acting with
respect of such registered offering reasonably
determine that the inclusion of such other securities
may substantially prejudice or hinder the offering of
Registrable Stock, the number of such other securities
shall be reduced or eliminated prior to any reduction
in the number of shares of Registrable Stock so to be
registered.
(iv) If the registration under this paragraph (b) is
effected on a Form S-3 (or any successor form thereto),
and the effectiveness of such registration statement
can be maintained without significant additional
expense to the Company, then the Company agrees to
maintain the effectiveness of such registration
statement for a period of one year after its initial
effective date.
(c) Incidental Registration.
(i) If the Company at any time or from time to time
proposes to file with the Commission a registration
statement under the Securities Act with respect to any
proposed distribution of any of its securities (other
than a registration to be effected on Form S-4, S-8 or
other similar limited purpose form), whether for sale
for its own account or for the account of any other
person holding registration rights with respect to the
securities of the Company, then the Company shall give
written notice of such proposed filing to the holders
of Registrable Stock at least thirty (30) days before
the anticipated filing date, and such notice shall
describe in detail the proposed registration and
distribution (including those jurisdictions where
registration or qualification under the securities or
blue sky laws is intended) and shall offer the holders
of Registrable Stock the opportunity to register such
number of shares of Registrable Stock as the holders of
Registrable Stock may request. Upon receipt by the
Company by the anticipated filing date of written
requests from Participating Holders for the Company to
register their Registrable Stock, the Company shall
permit, or in the event of an underwritten offering,
shall use its best efforts to cause the managing
underwriter or underwriters of such proposed
underwritten offering to permit, the Participating
Holders to include such Registrable Stock in such
offering on the same terms and conditions as any
similar securities of the Company included therein;
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provided, however, that if in the opinion of the
managing underwriter or underwriters of such offering,
the inclusion of the total amount or kind of securities
which it or the Company, and any other persons or
entities, intend to include in such offering would
interfere, hinder, delay, reduce or prevent the
effectiveness or sale of the Company's securities
proposed to be so registered, or would otherwise
adversely affect the success of such offering, then the
amount or kind of securities to be offered for the
accounts of the Company and each holder of Company
Securities (including without limitation Registrable
Stock) or securities convertible into or exercisable
for Company securities proposed to be registered (other
than any persons exercising demand registration rights)
shall be reduced (or eliminated) in proportion to their
respective values to the extent necessary to reduce the
total amount of securities to be included in such
offering on behalf of such holders of securities to the
amount recommended by such managing underwriter. For
purposes of this Section, "value" shall mean principal
amount with respect to debt securities and the proposed
offering price per share with respect to equity
securities. Notwithstanding the foregoing, if, at any
time after giving written notice of its intention to
register securities and prior to the effectiveness of
the registration statement filed in connection with
such registration, the Company determines for any
reason either not to effect such registration or to
delay such registration, the Company may, at its
election, by delivery of written notice to the
Participating Holders, (I) in the case of a
determination not to effect registration, relieve
itself of its obligations to register any Registrable
Stock in connection with such registration, or (ii) in
the case of determination to delay the registration,
delay the registration of such Registrable Stock for
the same period as the delay in the registration of
such other shares of Common Stock or other securities
convertible into or exercisable for Common Stock.
(ii) Exception. The Company shall not be required to include
any of the Registrable Stock of a Participating Holder
in any registration statement or post-effective
amendment prepared at its own instance unless such
Participating Holder shall furnish such information and
sign such documents as may be required by the
Commission or reasonably requested by the Company, in
accordance with generally accepted practices, in
connection with such proposed distribution.
(d) Covenants of the Company with Respect to Registration. In
connection with any registration under this Section 6, the
Company shall, as expeditiously as is reasonably possible:
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(i) Prepare and file with the Commission a registration
statement with respect to such Participating Holders
and, subject to the last sentence of Section 6(c)(I)
hereof, use its best efforts to cause such registration
statement to become effective.
(ii) Prepare and file with the Commission such amendments
and supplements to such registration statement and
prospectus used in connection with such registration
statement as may be necessary to comply with the
provisions of the Securities Act with respect to the
disposition of all securities covered by such
registration statement.
(iii)Furnish to the Participating Holders such numbers of
copies of a prospectus, including, if applicable, a
preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other
documents as the selling shareholders may reasonably
request in order to facilitate the disposition of
Registrable Stock owned by the Participating Holders.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under
such other securities or blue sky laws of such
jurisdictions within the United States as shall be
reasonably requested by the Participating Holders;
provided, however, that the Company shall not be
required in connection therewith or as a condition
thereto to qualify to do business or to file a general
consent to service of process in any such states or
jurisdictions.
(v) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting
agreement, in usual and customary form, with the
managing underwriter of such offering. The
Participating Holders shall also enter into and perform
their obligations under such an agreement.
(vi) Notify the Participating Holders, at any time when a
prospectus relating to Registrable Stock covered by
such registration statement is required to be delivered
under the Securities Act, of the happening of any event
as a result of which the prospectus included in such
registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state a
material fact required to be stated therein or
necessary to make the statements therein not misleading
in the light of the circumstances then existing.
(vii)Furnish to the Participating Holders, on the date that
shares of Registrable Stock are delivered to the
underwriters for sale in connection with a registration
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pursuant to this Section 6, if such securities are
being sold by underwriters, or, on the date that the
registration statement with respect to such securities
becomes effective, (I) an opinion as to matters of law
only, dated such date, of counsel representing the
Company for the purposes of such registration, in form
and substance as is customarily given to underwriters
in an underwritten public offering, addressed to the
underwriters, if any, and to Participating Holders and
(ii) a letter dated such date, from the independent
certified public accountants of the Company, 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 to the Participating Holders.
(e) The Company shall pay all costs, fees and expenses in
connection with all registration statements filed under this
Section 6 including, without limitation, the Company's legal
and accounting fees, printing expenses and blue sky fees and
expenses, but not including the fees and expenses of counsel
for the Participating Holders in connection with such
registration; however, the Company shall not pay for
underwriting discounts and commissions and underwriters'
expenses allocable to the Registrable Stock being registered
or state transfer taxes.
(f) Indemnification.
(i) The Company shall indemnify each Participating Holder
under Agreement, its officers and directors and any
person controlling it within the meaning of Section 15
of the Securities Act or Section 20(a) of the
Securities Exchange Act of 1934, as amended, (the
Exchange Act") against any loss, claim, damage, expense
or liability (including without limitation all expenses
reasonably incurred in investigating, preparing, or
defending against any claim whatsoever, such expenses
to be reimbursed by the Company as they are incurred)
to which it may become subject under the Securities
Act, the Exchange Act or other- wise, arising out of or
based upon (I) any untrue statement or alleged untrue
statement of a material fact contained in any
registration statement or prospectus or any amendments
or supplements thereto in which Registrable Stock is
included, or in any application, statement or other
document filed by the Company with the Commission or
any securities exchange or in any jurisdiction in
connection with qualifying such shares under the
securities laws thereof, or (ii) the omission or
alleged omission therefrom of a material fact required
to be stated therein or necessary to make the
statements therein not misleading, unless such
statement or omission is made in reliance upon and in
conformity with written information furnished to the
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Company by or on behalf of such Participating Holder or
an underwriter expressly for use in any such
registration statement or other document.
(ii) Each Participating Holder shall, as a condition to such
registration of Registrable Stock, agree to indemnify
the Company, its officers and directors and any person
controlling the Company within the meaning of Section
15 of the Securities Act or Section 20(a) of the
Exchange Act, against any loss, claim, damage or
expense or liability (including without limitation all
expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever,
such expenses to be reimbursed by the Participating
Holder as they are incurred) to which they may become
subject under the Securities Act, the Exchange Act or
otherwise, arising out of or based upon (a) any untrue
statement or alleged untrue statement of a material
fact contained in any registration statement or
prospectus or any amendments or supplements thereto in
which Registrable Stock is included, or in any
application, statement or other document filed by the
Company with the Commission or any securities exchange
or in any jurisdiction in connection with qualifying
such shares under the securities laws thereof, or (b)
the omission or alleged omission therefrom of a
material fact required to be stated therein or
necessary to make the statements therein not
misleading, provided in each case that such statement
or omission is made in reliance upon and in conformity
with written information furnished to the Company by or
on behalf of such Participating Holder expressly for
use in any such registration statement or other
document.
(iii)Promptly upon receipt by a party claiming
indemnification hereunder of notice of the commencement
of any action involving a claim referred to above, such
indemnified party will, if a claim in respect thereof
is to be made against a party which may be required to
indemnify such party hereunder, give written notice to
the indemnifying party of the commencement of such
action. In case any such action is brought against an
indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense of
such action, to the extent that it may wish, with
counsel reasonably satisfactory to such indemni- fied
party. Except as set forth herein, the indemnified
party and any party cooperating in the defense of such
claim shall not settle or compromise any such claim or
admit liability without the express written consent of
the indemnifying party. The indemnified party shall
have the right to be represented by an advisory counsel
and accountants, at its own expense, and the
indemnified party shall be kept fully informed of such
action, suit or proceeding at all stages thereof
whether or not the indemnified party is so represented.
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After a period of thirty days following the date the
written notice of such claim was given to the
indemnifying party the indemnified party may settle any
such claim (and the amount of any such settlement shall
be subject to indemnification hereunder) unless within
such thirty-day period the indemnifying party shall
have provided the indemnified party with notice and
evidence to the indemnified party's satisfaction that
the indemnifying party reasonably disputes such claim
and has the financial ability to meet its
indemnification obligations hereunder. Notwithstanding
the foregoing, the indemnified party may immediately
cause to be paid or discharged any asserted claim the
non-payment of which would have an immediate
substantial adverse impact on the indemnified party,
and any claim which the indemnifying party has not
disputed within thirty days of notice as provided
above.
(iv) If the indemnification provided for in this Section
6(f) is unavailable or insufficient to hold harmless an
indemnified party under such subsection in respect of
any losses, claims, damages or liabilities or action in
respect thereof or referred to therein, then each
indemnifying party shall in lieu of indemnifying such
indemnified party contribute to the amount paid or
payable by such indemnified party as a result of such
losses, claims, damages, liabilities or actions in such
proportion as is appropri- ate to reflect the relative
fault of the Company, on the one hand, and the
Participating Holder, on the other, in connection with
the statements or omissions which resulted in such
losses, claims, damages, liabilities or actions, as
well as any other relevant equitable considerations,
including the failure to give the notice required under
such subsections. The relative fault shall be
determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material
fact relates to information supplied by the Company on
the one hand, or the Participating Holders, on the
other hand, and the parties' relative intent,
knowledge, access to information and opportunity to
correct or prevent such statement or omission. The
Company and the Participating Holder agree that it
would not be just and equitable if contribution
pursuant to this Section 6(f)(iv) were determined by
pro rata allocation or by any other method of
allocation which did not take account of the equitable
considerations referred to above in this subsection. No
person guilty of fraudulent misrepresentations (within
the meaning of Section 11(f) of the Securities Act),
shall be entitled to contribution from any person who
is not guilty of such fraudulent misrepresentations.
(v) The obligations of the Company and the Participating
Holder under this Section 6(f) shall survive the
completion of any offering of Registrable Stock in a
registration statement under this Section 6.
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(vi) The rights of indemnification contained in this Section
6 shall not be deemed to be the exclusive remedy of the
parties hereto and such rights shall be in addition to
any other rights or remedies which any party hereto may
have at law or equity.
(g) Assignment of Registration Rights. The undersigned's rights
and obligations set forth in this Section 6 shall
automatically be deemed assigned to any transferee or
assignee of shares of Registrable Stock issued hereunder,
provided that immediately following such transfer the
further disposition of such securities by the transferee or
assignee is restricted under the Securities Act; provided
however, that, the termination of registration rights in
respect of any shares of Registrable Stock by reason of the
operation of Section 6(a) shall be binding upon any
transferee of such shares. Upon the request of any such
holder, the Company will confirm in writing, to any
transferee of such holder's Registrable Stock, the Company's
continuing obligation to afford such transferee the benefits
of the Company's agreements contained in this Section 6, but
no failure of the Company to confirm such obligations shall
in any way impair such transferee's rights under this
Section 6.
7. Sale of Additional Shares Below Subscription Price.
(a) If at any time or from time to time within a period of three
hundred and sixty- five (365) days after the date of this
Agreement, the Company issues or sells Additional Shares of
Common Stock (as hereinafter defined), other than as a
dividend or other distribution on any class of stock for an
Effective Price per share (as hereinafter defined) that is
less than the per share subscription price stated in
paragraph 1 above, then and in each such case, the
Subscriber shall be entitled to an additional number of
shares of Common Stock (the "Adjusted Shares") which when
added to the number of shares subscribed for in paragraph 1
above and divided by the by the Purchase Price shall be
equal to the Effective Price per share.
(b) For purposes of the foregoing paragraph, the consideration
received by the Company for any issuance or sale of Common
Stock shall (I) to the extent it consists of cash be
computed at the net amount of cash received by the Company
after deduction of any expenses payable by the Company and
any underwriting or similar commissions, compensation, or
concessions paid or allowed by the Company in connection
with such issuance or sale, and (ii) to the extent it
consists of property other than cash, be computed at the
fair value of that property as reasonably determined in good
faith by the Company's Board of Directors.
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(c) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the date of this
Agreement other than (I) shares of Common Stock or options
or warrants to acquire Common Stock issued to management,
directors or employees of, or consultants to, the Company or
any Subsidiary, (ii) shares of Common Stock issuable upon
exercise of Convertible Securities and (iii) shares of
Common Stock or options or warrants to acquire Common Stock
issued in connection with investment banking, financial
advisory or legal services provided to the Company.
(d) The "Effective Price" of Additional Shares of Common Stock
shall mean the quotient determined by dividing the total
number of Additional Shares of Common Stock issued or sold,
into the aggregate consideration received, or deemed to have
been received by the Company for the issuance of such
Additional Shares of Common Stock.
8. Exchange Option
(a) If at any time or from time to time within a period of three
hundred and sixty-five (365) days after the date of this
Agreement, the Company issues or sells Convertible
Securities (as hereinafter defined), other than as a
dividend or other distribution on any class of stock, then
and in each such case, the Subscriber shall be entitled to
exchange the shares of Common Stock issued to Subscriber
hereunder and still owned by Subscriber for shares of the
Convertible Security.
(b) The Company shall give written notice of the proposed
issuance of Convertible Securities to the Subscriber at
least ten (10) days before the anticipated issuance date of
such securities. Such notice shall describe the terms of the
proposed Convertible Security shall offer the Subscriber the
opportunity to exchange all, but not less than all, the
shares of Common Stock issued to Subscriber hereunder for
such Convertible Securities. The Subscriber shall have five
(5) business days within which to notify the Company that it
wishes to exchange its the shares of Common Stock for
Convertible Securities. The amount of Convertible Securities
to be issued to Subscriber shall be determined by dividing
Market Price (as hereinafter defined) of the Common Stock
into the issue price of such Convertible Securities.
(c) "Convertible Securities" shall mean shares of stock (other
than Common Stock) or other securities directly or
indirectly convertible into or exchangeable for Common
Stock, other than any securities issued pursuant to this
Subscription Agreement.
(d) "Market Price" as used with reference to any share of stock
on any specified date, shall mean:
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(i) if such stock is listed and registered on any national
securities exchange or traded on the Nasdaq Stock
Market ("Nasdaq") , (A) the last reported sale price on
such exchange or Nasdaq of such stock on the business
day immediately preceding the specified date, or (B) if
there shall have been no such reported sale price of
such stock on the business day immediately preceding
the specified date, the average of the last reported
sale price on such exchange or on Nasdaq on (x) the day
next preceding the specified date for which there was a
reported sale price and (y) the day next succeeding the
specified date for which there was a reported sale
price; or
(ii) if such stock is not at the time listed on any such
exchange or traded on Nasdaq but is traded on the
over-the-counter market as reported by the National
Quotation Bureau or other comparable service, (A) the
average of the closing bid and asked prices for such
stock on the business day immediately preceding the
specified date, or (B) if there shall have been no such
reported bid and asked prices for such stock on the
business day immediately preceding the specified date,
the average of the last bid and asked prices on (x) the
day next preceding the specified date for which such
information is available and (y) the day next
succeeding the specified date for which such
information is available; or
(iii)if clauses (I) and (ii) above are not applicable, the
fair value per share of such stock as determined in
good faith and on a reasonable basis by the Board of
Directors of the Company.
9. Reset Provision In the event that at the end of three hundred
sixty-five (365) days from the date hereof (the "Reset Date"),
(I) the Company has not received an investment of $7,500,000 and
(ii) the average Market Price of the Common Stock for the twenty
(20) trading day period preceding the Reset Date is less than
$2.00 per share, then the Subscriber shall be entitled to an
additional number of shares of Common Stock which when added to
the number of shares subscribed for in paragraph 1 above and
divided by the by the Purchase Price shall be equal to the Market
Price of the Common Stock on the Reset Date. If either of the
conditions described in (I) and (ii) above are satisfied on or
before the Reset Date, then the provisions of this paragraph
shall be inapplicable and of no further force and effect.
10. Governing Law. This Agreement has been made in, and shall be
construed in accordance with, the laws of the State of New York
applicable to contracts made and to be fully performed therein.
11. Entire Agreement. This Agreement contains the entire
understanding and agreement of the parties with respect to the
subject matter hereof and supersedes all negotiations,
representations and other agreements made by and between such
parties with respect thereto.
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12. Arbitration
(a) Any dispute, controversy or claim arising out of or in
relation to or in connection with this Agreement including
without limitation any dispute as to the construction,
validity, interpretation, enforceability or breach of this
Agreement, shall be exclusively and finally settled by
arbitration, and any Party may submit such a dispute,
controversy or claim to arbitration.
(b) A single arbitrator shall be appointed by unanimous consent
of the Parties. If the Parties, however, cannot reach
agreement on an arbitrator within thirty (30) days of the
submission of a Notice of Arbitration, the appointing
authority shall be the American Arbitration Association,
which shall appoint an independent arbitrator who does not
have any financial interest in the dispute, controversy or
claim.
(c) Unless otherwise expressly agreed in writing by the Parties
to the arbitration proceedings:
(i) The arbitration proceedings shall be held in the
Borough of Manhattan, City of New York.
(ii) the arbitrator(s) shall be and remain at all times
wholly independent and impartial;
(iii)the arbitration proceedings shall be conducted in
accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect;
(iv) any procedural issues not determined under the arbitral
rules selected pursuant to this Agreement shall be
determined by the law of the place of arbitration,
other than those laws which would refer the matter to
another jurisdiction;
(v) each Party shall be responsible for its own costs of
the arbitration proceedings (including attorneys' fees
and costs); and
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(vi) judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof.
By: /s/ Howard Karren
------------------------------------
Agreed to and accepted this
3rd day of April, 1998.
By:/s/NETWORK FUND III, LTD.
Name: William P. O'Donnell
Title: Managing Director
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