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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON October 6, 1998
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 23, 1998
PC QUOTE, INC.
(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-13093 36-3131704
(State or Other (Commission File (I.R.S. Employer
Jurisdiction of Number) Identification
Incorporation) Number)
300 South Wacker Drive, Suite 300, Chicago, Illinois, 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(312) 913-2800
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ITEM 5. OTHER EVENTS
On September 23, 1998 PC Quote, Inc. (the "Company" or "Registrant")
entered into a Securities Purchase Agreement (the "Agreement"), subject to
shareholder approval, with PICO Holdings, Inc., a California corporation
("PICO") and Physicians Insurance Company of Ohio, an Ohio corporation
("Physicians," and together with PICO, the "Investors").
Physicians currently is the holder of a Subordinated Convertible
Debenture dated November 14, 1996, as amended (the "Debenture"), in the
principal amount of $2,500,000, plus accrued interest in the amount of
$423,123 as of September 23,1998, plus interest accruing at the rate of $651
per day thereafter (such principal and all accrued interest through the
Closing Date, the "Debenture Balance"). The Debenture currently has an
interest rate of 9.5% (prime + 1%) and a maturity date of April 30, 1999.
The Company is currently indebted to PICO in the principal amount of
$3,290,000, plus accrued interest in the amount of $377,742 as of September
23, 1998, plus interest accruing at the rate of $1,262 per day following the
date hereof (such principal and all accrued interest through the Closing
Date, the "PICO Indebtedness"). All principal and interest (14% annually) on
the debt to PICO is currently due and payable on December 31, 1998.
PICO is the holder of three Common Stock Purchase Warrants to purchase an
aggregate of 949,032 shares of Common Stock of the Company (the "Existing
Warrants"), each of which currently expires on April 30, 2000.
The Company and the Investors wish to provide for the purchase of Series A
5% Convertible Preferred Stock by Physicians through the conversion of the
Debenture and for the purchase of Series B 5% Convertible Preferred Stock by
PICO in consideration for the cancellation of the PICO Indebtedness.
Purchase and Sale of Preferred Stock
Subject to the terms and conditions of the Agreement, Physicians agrees to
purchase at the Closing and the Company agrees to issue to Physicians at the
Closing the number of shares of Series A 5% Convertible Preferred Stock into
which the Debenture Balance shall be convertible as of the Closing determined by
dividing the following by one hundred: the number calculated from the division
of the Debenture Balance by the lowest of the following numbers (i) 1.5625, (ii)
the closing sale price of the Company's Common Stock as reported by the American
Stock Exchange ("AMEX") one day prior to the Closing Date (the "AMEX Closing
Price") or (iii) the average AMEX Closing Price of the Company's Common Stock
over the twenty-day period immediately preceding the Closing Date (the "Average
AMEX Price"). The lowest of (i), (ii) or (iii) above is hereinafter referred to
as the "Series A Closing Price."
Subject to the terms and conditions of the Agreement, PICO agrees to purchase at
the Closing and the Company agrees to sell and issue to PICO at the Closing the
number of
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shares of Series B 5% Convertible Preferred Stock determined by dividing the
following by one hundred: the number calculated from the division of the PICO
Indebtedness as of the Closing Date by the lower of the following numbers:
(i) 1.3125, (ii) the AMEX Closing Price or (iii) the Average AMEX Closing
Price, at a purchase price per share equal to the lowest of (i), (ii) and
(iii) (the "Series B Closing Price").
Subject to the terms and conditions of the Agreement, the Company shall issue to
PICO a warrant (the "Warrant") to purchase the number of shares of Common Stock
of the Company equal to the following (i) the Debenture Balance, divided by the
Series B Closing Price, multiplied by .10, plus (ii) the PICO Indebtedness,
divided by the Series B Closing Price, at an exercise price of 120% of the
Series B Closing Price per share (the "Exercise Price"), and an expiration
date of April 30, 2005.
At the Closing, the Company and PICO shall enter into Amendments of the Existing
Warrants to extend the term of the Existing Warrants until April 30, 2005.
The Closing Date shall be the date that is five (5) days from the date of
fulfillment, including obtaining shareholder approval, or waiver of all
conditions to Closing, as set forth in the Agreement, or such other date as
may be mutually agreed to by the Company and the Investors.
Negative Covenants
As part of the Agreement, without the prior written consent of the Investors,
prior to closing, the Company will not:
a) Convey, sell, lease, transfer or otherwise dispose of (collectively, a
"Transfer"), or permit any of its subsidiaries to Transfer, all or any
part of its business or property, other than: (i) Transfers of
non-exclusive licenses and similar arrangements for the use of the
property of the Company or its subsidiaries; or (ii) Transfers of
worn-out or obsolete equipment.
b) Engage in any business, or permit any of its subsidiaries to engage in
any business, other than the businesses currently engaged in by the
Company and any business substantially similar or related thereto (or
incidental thereto).
c) Issue any capital stock of the Company or other securities convertible
into or exchangeable for capital stock of the Company other than
(i) securities issued pursuant to the Company's Incentive Stock Option
Plan or the Employee's Stock Purchase Plan, (ii) capital stock or
securities issued in connection with the exercise or conversion of
securities of the Company issued and outstanding prior to the date
hereof or (ii) securities
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issued, or to be issued, to Jim R. Porter pursuant to the exercise of
options granted to Mr. Porter prior to the date hereof by the
Company's Board of Directors, to purchase up to 6.88% of the
outstanding Common Stock of the Company.
d) Merge or consolidate, or permit any of its subsidiaries to merge or
consolidate, with or into any other business organization, or acquire,
or permit any of its subsidiaries to acquire, all or substantially all
of the capital stock or property of another entity.
e) Create, incur, assume or suffer to exist any lien or encumbrance with
respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any accounts, or permit
any of its subsidiaries so to do, except for an existing blanket lien
in favor of Lakeside Bank on all personal property of the Company and
a blanket lien in favor of PICO, on all personal property of the
Company.
f) Pay any dividends or make any other distribution or payment on account
of or in redemption, retirement or purchase of any capital stock.
g) Directly or indirectly acquire or own, or make any investment in or to
any entity, or permit any of its subsidiaries so to do, other than
Permitted Investments (as defined in the Loan and Security Agreement
dated May 4, 1997, as amended, between the Company, as borrower, and
PICO as lender).
h) Directly or indirectly enter into or permit to exist any material
transaction with any affiliate of the Company except for transactions
that are in the ordinary course of the Company's business, upon fair
and reasonable terms that are no less favorable to the Company than
would be obtained in an arm's length transaction with a non-affiliated
party.
i) Become an "investment company" controlled by an "investment company,"
within the meaning of the Investment Company Act of 1940, or become
principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of
purchasing or carrying margin stock.
j) Fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to
occur, fail to comply with the Federal Fair Labor Standards Act or
violate any law or regulation, which violation could have a Material
Adverse Effect, or permit any of its subsidiaries to do any of the
foregoing.
Listing Requirement
Promptly following the Closing Date, but in no event later than 20 days after
the Closing Date, the Company shall secure the listing of all of the Registrable
Securities (as defined
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in the Registration Rights Agreement) upon each national securities exchange
and automated quotation system (including the AMEX), if any, upon which
shares of Common Stock of the Company are then listed (subject to official
notice of issuance) and shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Registrable Securities from
time to time issuable under the terms of the Agreement and the accompanying
Certificate of Designations, Warrant and Existing Warrants. The Company
shall maintain the Common Stock's authorization for listing on the AMEX, The
Nasdaq SmallCap Market, the Nasdaq National Market, or The New York Stock
Exchange, Inc. ("NYSE"), as applicable.
Termination of Agreement
The Agreement may be terminated on or prior to the Closing Date:
a) At any time by the mutual consent of the Company and the Investors;
b) Following fourteen (14) business days after the date of the
Agreement, by the Investors if the proxy statement soliciting approval
from the shareholders of the Company of the transactions contemplated
by the Agreement has not been filed with the SEC;
c) Following December 31, 1998, by the Investors if the Company has not
yet obtained shareholder approval for the matters contained in the
proxy statement; provided however, that if the proxy statement does
not receive full review by the SEC, the date for termination shall be
November 30, 1998;
d) By the Company or the Investors if the other party breaches in any
material respect any of its representations, warranties, covenants,
obligations or agreements contained in the Agreement and such breach
has not been cured within thirty (30) days of the date that notice of
breach is received by the breaching party;
e) On or after December 31, 1998, by either the Company or the Investors
if the Closing has not taken yet place by such date;
f) By the Investors, on or after the date when it becomes reasonably
likely that the Company will be unable to satisfy any of its
obligations for Closing, and by the Company on or after the date when
it becomes reasonably likely that the Investors will be unable to
satisfy any of its obligations for Closing.
Fees and Expenses
The Company shall pay the reasonable fees and expenses incurred by the Investors
in conjunction with the transactions contemplated by the Agreement, including
but not limited to the reasonable fees and expenses of counsel for the
Investors, provided such fees and expenses do not exceed $30,000.
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Dividends
(a) A holder of Series A Preferred shall be entitled to receive
cash dividends, when and as declared by the Board out of funds legally
available for such purpose, in the annual amount of 5% of the per share
purchase price, payable quarterly on the 15th day of September, December,
March and June, in each year. A holder of Series B Preferred shall be
entitled to receive cash dividends, when and as declared by the Board out of
funds legally available for such purpose, in the annual amount of 5% of the
per share purchase price, payable quarterly on the 15th day of September,
December, March and June, in each year. Dividends payable for any period less
than a full quarter shall be computed on and paid for the actual number of
days elapsed. Dividends shall accrue on each share of Preferred Stock from
the date of issue of such share of stock (the "ISSUANCE DATE").
(b) No dividends shall be declared on any other series or class or
classes of stock unless there shall be or have been declared on all shares of
Preferred Stock then outstanding the dividends for all quarter-yearly periods
coinciding with or ending before such quarter-yearly period. Dividends shall
be cumulative. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment which is in arrears. If in any
quarter-yearly dividend period, dividends in the annual amount have not been
declared and paid or set apart for payment for such quarter-yearly dividend
period and all preceding such periods from the first day from which dividends
are cumulative, then, until the aggregate deficiency is declared and fully
paid or set apart for payment, the Corporation shall not (i) declare or pay
or set apart for payment any dividends or make any other distribution on any
other capital stock or securities having an equity interest in the
Corporation ranking junior to or on a parity with the Preferred Stock with
respect to the payment of dividends or distribution of assets on liquidation,
dissolution or winding up of the Corporation (the "SECONDARY STOCK") (other
than dividends or distributions paid in shares of, or options, warrants or
rights to subscribe for or purchase Secondary Stock) or (ii) make any payment
on account of the purchase, redemption, other retirement or acquisition of
any Secondary Stock with respect to the payment of dividends or distribution
of assets on liquidation, dissolution or winding up of the Corporation.
Conversion of Preferred Stock
A holder of Preferred Stock shall have the right, at such holder's option, to
convert the Preferred Stock into shares of the Company's common stock, par
value $0.001 per share (the "COMMON STOCK"). If any Preferred Stock remains
outstanding on the fifth anniversary after the Issuance Date, then such
Preferred Stock shall automatically convert to Common Stock on such fifth
anniversary.
At any time or times on or after the Issuance Date, any holder of Preferred
Stock shall be entitled to convert any whole number of shares of Preferred
Stock into fully paid and nonassessable shares (rounded to the nearest whole
share). The number of shares of Common Stock issuable upon conversion of the
Preferred Stock shall be determined by multiplying the product of one hundred
(100) and the number of shares of Preferred Stock to be converted into Common
Stock by:
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(i) in the case of Series A Preferred, (A) the Series
A Closing Price PLUS (B) the amount of any accrued but unpaid dividends
attributable to such Preferred Stock, DIVIDED BY the lower of (X) the Series
A Closing Price, (Y) the average Closing Sale Price of the Common Stock over
the twenty-day period immediately prior to the day the Series A Preferred is
to be converted into Common Stock; or (Z) the Closing Sale Price one day
prior to the day the Series A Preferred is to be converted into Common Stock
(the "SERIES A CONVERSION RATE").
(ii) in the case of Series B Preferred, (A) the Series
B Closing Price PLUS (B) the amount of any accrued but unpaid dividends
attributable to such Preferred Stock, DIVIDED BY the lower of (X) the Series
B Closing Price, (Y) the average Closing Sale Price of the Common Stock over
the twenty-day period immediately prior to the day the Series B Preferred is
to be converted into Common Stock; or (Z) the Closing Sale Price one day
prior to the day the Series B Preferred is to be converted into Common Stock
(the "SERIES B CONVERSION RATE").
In order to prevent dilution of the rights granted, the Series A and Series B
Conversion Rates will be subject to adjustment for issuance of additional
securities of the Company, including common stock, options or convertible
securities, and reclassifications or changes of outstanding securities ( by any
stock split, reverse stock split, combination, stock dividend, recapitalization
or otherwise).
Voting Rights
The holders of Preferred Stock shall be entitled to notice of any shareholders'
meeting and to vote upon any matter submitted to the shareholders for a vote on
the following basis. Each Holder of Preferred Stock shall have the number of
votes equal to the number of shares of Common Stock into which the Preferred
Stock then held by such holder is convertible, as adjusted from time to time.
Holders of Preferred Stock shall have the exclusive right to elect two (2) of
the five (5) directors to the Board of the Company.
Warrant Exercise and Adjustments
The holder of the Warrant shall have the right, at such holder's option, to
exercise the Warrant, or any portion thereof, and to purchase the
corresponding whole number of shares of the Company's Common Stock, at the
Exercise Price, at any time after the Issuance Date until April 30, 2005.
In lieu of exercising the Warrant for cash, the holder may elect to receive
shares of the Company's Common Stock equal to the "value" of the Warrant
determined in accordance with a formula specified in the Warrant (the
"Conversion Value"). The number of shares of the Company's Common Stock
subject to the Warrant and the Exercise Price will be adjusted to reflect
stock dividends; reclassifications or changes of outstanding securities of
the Company; any consolidation, merger or reorganization of the Company;
stock splits; issuances of rights, options or warrants to all holders of
shares of the Company's Common Stock exercisable at less than the current
market price per share; and other distributions to all holders of shares of
the Company's Common Stock. In the event of any sale, license or other
disposition of all or substantially all of the assets of the Company or any
reorganization, consolidation or merger involving the Company in which the
holders of the Company's securities before the transaction beneficially own
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less than 50% of the outstanding voting securities of the surviving entity
(an "Acquisition"), if the successor entity does not assume the obligations
of the Warrant and the holder has not fully exercised the Warrant, the
unexercised portion of the Warrant will be deemed automatically converted
into shares of the Company's Common Stock at the Conversion Value.
Alternatively, the holder may elect to cause the Company to purchase the
exercised portion of the Warrant for cash upon the closing of any Acquisition
for an amount equal to (a) the fair market value of any consideration that
would have been received had the holder exercised the unexercised portion of
the Warrant immediately before the record date for determining stockholders
entitled to participate in the proceeds of the Acquisition, less (b) the
aggregate Exercise Price.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Not applicable.
(b) Not applicable.
(c) The following exhibits are filed with this report:
Exhibit Number Description
4.1 Securities Purchase Agreement between Registrant and PICO Holdings, Inc.
and Physicians Insurance Company of Ohio
4.2 Form of Certificate of Designations of Series A and Series B Preferred
Stock of PC Quote, Inc.
4.3 Form of Registration Rights Agreement between Registrant and PICO Holdings,
Inc. and Physicians Insurance Company of Ohio
4.4 Form of Common Stock Purchase Warrant to be issued to PICO Holdings, Inc.
4.5 Form of First Amendment to Common Stock Purchase Warrant dated May 5, 1997
4.6 Form of First Amendment to Common Stock Purchase Warrant dated August 8,
1997
4.7 Form of First Amendment to Common Stock Purchase Warrant dated September
22, 1997
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
<PAGE>
behalf by the undersigned, hereunto duly authorized.
Dated: October 6, 1998 PC QUOTE, INC.
By: /s/ John E. Juska
Chief Financial Officer
EXHIBIT INDEX
Exhibit Number Description
4.1 Securities Purchase Agreement between Registrant and PICO Holdings, Inc.
and Physicians Insurance Company of Ohio
4.2 Form of Certificate of Designations of Series A and Series B Preferred
Stock of PC Quote, Inc.
4.3 Form of Registration Rights Agreement between Registrant and PICO Holdings,
Inc. and Physicians Insurance Company of Ohio
4.4 Form of Common Stock Purchase Warrant to be issued to PICO Holdings, Inc.
4.5 Form of First Amendment to Common Stock Purchase Warrant dated May 5, 1997
4.6 Form of First Amendment to Common Stock Purchase Warrant dated August 8,
1997
4.7 Form of First Amendment to Common Stock Purchase Warrant dated September
22, 1997
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SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement") is made as of the
23rd day of September, 1998, by and among PC Quote, Inc., a Delaware
corporation (the "Company"), PICO Holdings, Inc., a California corporation
("PICO") and Physicians Insurance Company of Ohio, an Ohio corporation
("Physicians," and together with PICO, the "Investors").
WHEREAS, Physicians currently is the holder of a Subordinated Convertible
Debenture dated November 14, 1996, as amended (the "Debenture"), in the
principal amount of $2,500,000, plus accrued interest in the amount of $423,123
as of the date hereof, plus interest accruing at the rate of $651 per day
following the date hereof (such principal and all accrued interest through the
Closing Date, the "Debenture Balance").
WHEREAS, the Company is currently indebted to PICO in the principal amount
of $3,290,000, plus accrued interest in the amount of $377,742 as of the date
hereof, plus interest accruing at the rate of $1,262 per day following the date
hereof (such principal and all accrued interest through the Closing Date, the
"PICO Indebtedness").
WHEREAS, PICO is the holder of three Common Stock Purchase Warrants to
purchase an aggregate of 949,032 shares of Common Stock of the Company (the
"Existing Warrants"), each of which expires on April 30, 2000.
WHEREAS, the Company and the Investors wish to provide for the purchase of
Series A Preferred Stock by Physicians through the conversion of the Debenture
and for the purchase of Series B Convertible Preferred Stock by PICO in
consideration for the cancellation of the PICO Indebtedness, all pursuant to the
terms contained herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. PURCHASE AND SALE OF PREFERRED STOCK.
1.1 SALE AND ISSUANCE OF SERIES A AND SERIES B PREFERRED STOCK.
(a) The Company shall file with the Secretary of State of the
State of Delaware on or before the Closing (as defined below) the Certificate of
Designations for Series A and Series B Preferred Stock in the form attached
hereto as EXHIBIT A (the "Certificate").
(b) Subject to the terms and conditions of this Agreement,
Physicians agrees to purchase at the Closing and the Company agrees to issue to
Physicians at the Closing the number of shares of Series A Preferred Stock into
which the Debenture Balance shall be convertible as of the Closing. For
reference purposes, the Debenture provides that the Debenture Balance as of the
Closing Date shall be convertible into the number of shares of Series A
Preferred Stock of the Company determined by dividing the following by one
hundred: the number calculated from the division of the Debenture Balance by the
lowest of the following numbers (i) 1.5625, (ii) the closing sale price of the
Company's Common Stock as reported by
1
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the American Stock Exchange ("AMEX") one day prior to the Closing Date (the
"AMEX Closing Price") or (iii) the average AMEX Closing Price of the Company's
Common Stock over the twenty-day period immediately preceding the Closing Date
(the "Average AMEX Price"). The lowest of (i), (ii) or (iii) above is
hereinafter referred to as the "Series A Closing Price." The shares of Series A
Preferred Stock issued to Physicians pursuant to this Agreement are hereinafter
referred to as the "Series A Preferred." The Series A Preferred and the Common
Stock issuable upon conversion of the Series A Preferred are hereinafter
referred to as the "Series A Securities."
(c) Subject to the terms and conditions of this Agreement, PICO
agrees to purchase at the Closing and the Company agrees to sell and issue to
PICO at the Closing the number of shares of Series B Preferred Stock determined
by dividing the following by one hundred: the number calculated from the
division of the PICO Indebtedness as of the Closing Date by the lower of the
following numbers: (i) 1.3125, (ii) the AMEX Closing Price or (iii) the Average
AMEX Closing Price, at a purchase price per share equal to the lowest of (i),
(ii) and (iii) (the "Series B Closing Price"). The shares of Series B Preferred
Stock issued to PICO pursuant to this Agreement are hereinafter referred to as
the "Series B Preferred." The Series B Preferred and the Common Stock issuable
upon conversion of the Series B Preferred are hereinafter referred to as the
"Series B Securities." The Series A Preferred and Series B Preferred are
hereinafter referred to collectively as the "Preferred Stock," and the Preferred
Stock and the Common Stock issuable upon conversion of the Preferred Stock are
hereinafter referred to collectively as the "Securities."
1.2 PURCHASE AND SALE OF WARRANTS.
(a) Subject to the terms and conditions of this Agreement, the
Company shall issue to PICO a warrant (the "Warrant") to purchase the number of
shares of Common Stock of the Company equal to the following (i) the Debenture
Balance, divided by the Series B Closing Price, multiplied by .10, PLUS (ii) the
PICO Indebtedness, divided by the Series B Closing Price, at an exercised price
of 120% of the Series B Closing Price per share, which Warrant shall be
substantially in the form attached as EXHIBIT B.
(b) At the Closing, the Company and PICO shall enter into
Amendments of the Existing Warrants to extend the term of the Existing Warrants
until April 30, 2005, which amendments shall be substantially in the form
attached hereto as EXHIBITS C-1, C-2 AND C-3 (the "Warrant Amendments").
1.3 CLOSING; DELIVERY.
(a) The purchase and sale of the Preferred Stock and the Warrant
shall take place at the offices of Gray Cary Ware & Freidenrich, at 10:00 a.m.
PST, on the date that is five (5) days from the date of fulfillment or waiver of
all conditions to Closing contained in Section 7 and 8 herein, or such other
date as may be mutually agreed to by the Company and the Investors, orally or in
writing (which time and place are designated as the "Closing" and which date is
the "Closing Date").
2
<PAGE>
(b) At the Closing: (i) the Company shall deliver to Physicians
and PICO certificates representing the Series A Preferred and Series B Preferred
being purchased hereby by them against payment of the purchase price therefor by
conversion of the Debenture and cancellation of the PICO Indebtedness, and (ii)
Physicians shall deliver the original Debenture to the Company and PICO shall
deliver the original promissory note and all amendments thereto representing the
PICO Indebtedness to the Company.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As used in this
Section 2, the term the "Company" shall include the Company and each of its
subsidiaries (entities in which the Company owns securities constituting 50% or
more of the voting power). Except as specifically set forth in the Schedule of
Exceptions attached hereto as EXHIBIT D, the Company hereby makes the following
representations and warranties to each of PICO and Physicians as of the date
hereof, which representations and warranties shall be deemed to have been made
again as of Closing.
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of its incorporation and has all requisite corporate power and
authority to carry on its business as now conducted. The Disclosure Schedule
sets forth a list of all subsidiaries of the Company and the jurisdiction in
which they are incorporated. The Company is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which its ownership
of assets or conduct of business makes such qualification necessary, except
where the failure so to qualify would not have a material adverse effect on its
business or properties.
2.2 CAPITALIZATION. Except as to changes between the date hereof and
the Closing Date as the result of (i) issuances of Common Stock by the Company
as the result of the exercise of conversion of securities of the Company
outstanding as of the date hereof convertible into Common Stock of the Company
or (ii) purchases of Common Stock by employees of the Company pursuant to the
Purchase Plan (as defined below), upon the filing of the Certificate, the
authorized capital of the Company consists, or will consist, immediately prior
to the Closing of:
(a) 5,000,000 shares of Preferred Stock, the number of which
shares of Preferred Stock have been designated Series A Preferred as are
necessary to complete the sale and issuance of the Series A Preferred as
provided in Section 1(b) herein, none of which are issued and outstanding
immediately prior to the Closing, and the number of which shares of Preferred
Stock have been designated Series B Preferred as are necessary to complete the
sale and issuance of the Series B Preferred as provided in Section 1(c) herein,
none of which are issued and outstanding immediately prior to the Closing.
(b) 50,000,000 shares of Common Stock, 13,297,781 shares of
which are issued and outstanding immediately prior to the Closing. All of the
outstanding shares of Common Stock have been duly authorized, fully paid and are
nonassessable and issued in compliance with all applicable federal and state
securities laws.
(c) The Company has reserved 2,000,000 shares of Common Stock
for issuance to officers, directors, employees and consultants of the Company
pursuant to its
3
<PAGE>
Incentive Stock Option Plan (the "Option Plan") and 500,000 shares of Common
Stock for issuance to employees of the Company pursuant to its Employee Stock
Purchase Plan (the "Purchase Plan"). Of such reserved shares of Common Stock,
options to purchase 1,397,950 shares have been granted and are currently
outstanding, 602,050 shares of Common Stock remain available for issuance to
officers, directors, employees and consultants pursuant to the Option Plan,
271,650 shares have been purchased by the employees of the Company under the
Purchase Plan and 228,350 shares of Common Stock remain available for purchase
pursuant to the Purchase Plan. All of the outstanding securities of the Company
were issued in compliance with all applicable federal and state securities laws.
(d) Except for (i) the Warrant, (ii) the Existing Warrants,
(iii) the conversion privileges of the Preferred Stock, and (iv) the outstanding
options issued pursuant to the Option Plan, and except as set forth in the
Registration Rights Agreement (as defined below), there are no outstanding
options, warrants, rights (including conversion or preemptive rights and rights
of first refusal or similar rights) or agreements, orally or in writing, for the
purchase or acquisition from the Company of any shares of its capital stock.
2.3 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors, and shareholders necessary to file and perform its
obligations under the Certificate and for the authorization, execution and
delivery of this Agreement, the Registration Rights Agreement in the form
attached hereto as EXHIBIT E (the "Registration Rights Agreement"), the Warrant
and the Warrant Amendments, (this Agreement, the Registration Rights Agreement,
the Warrant and the Warrants Amendments are collectively hereinafter referred to
as the "Agreements"), the performance of all obligations of the Company
hereunder and thereunder and the authorization, issuance and delivery of the
Securities has been taken or will be taken prior to the Closing, and the
Agreements, when executed and delivered by the Company, will constitute valid
and legally binding obligations of the Company, enforceable against the Company
in accordance with their terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of
general applications affecting enforcement of creditors' rights generally, as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, or (ii) to the extent the indemnification
provisions contained in the Registration Rights Agreement may be limited by
applicable federal or state securities laws.
2.4 VALID ISSUANCE OF SECURITIES. The Preferred Stock and the
Warrant that are being issued to the Investors hereunder, when issued, sold and
delivered in accordance with the terms hereof for the consideration expressed
herein, will be duly and validly issued, fully paid and nonassessable and free
of restrictions on transfer other than restrictions on transfer under this
Agreement, the Registration Rights Agreement and applicable state and federal
securities laws. Based in part upon the representations of the Investors in
this Agreement and subject to the provisions of Section 2.5 below, the Preferred
Stock and the Warrant will be issued in compliance with all applicable federal
and state securities laws. The Common Stock issuable upon conversion of the
Preferred Stock and exercise of the Warrant has been duly and validly reserved
for issuance, and upon issuance in accordance with the terms of the Certificate
and the Warrant, will be duly and validly issued, fully paid and nonassessable
and free of restrictions on
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transfer other than restrictions on transfer under this Agreement, the
Registration Rights Agreement and applicable federal and state securities laws
and will be issued in compliance with all applicable federal and state
securities laws.
2.5 GOVERNMENT CONSENT. No consent, approval, order or authorization
of, or registration, qualification, designation or filing with, any federal,
state or local governmental authority on the part of the Company is required in
connection with the consummation of the transactions contemplated by the
Agreements, except for filings pursuant to Section 25102(f) of the California
Corporate Securities Law of 1968, as amended, and the rules thereunder, other
applicable state securities laws, and the Securities Act of 1933, as amended
(the "Securities Act"), and the rules thereunder, which filings will be made in
a timely manner.
2.6 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company that questions the validity of the Agreements or the right
of the Company to enter into them, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any material adverse changes in the assets, condition or
affairs of the Company, financially or otherwise, nor is the Company aware that
there is any basis for the foregoing. The Company is not a party or subject to
the provisions of any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality. The foregoing includes, without
limitation, actions involving the prior employment of any of the Company's
employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employees, or their obligations under agreements with prior employers. There is
no action, suit, proceedings or investigation by the Company currently pending
or which the Company intends to initiate.
2.7 INTELLECTUAL PROPERTY. The Company owns or possesses sufficient
legal rights to all patents, trademarks, service marks, tradenames, copyrights,
trade secrets, licenses, information and proprietary rights necessary for its
business as now conducted without any conflict with, or infringement of, the
rights of others. The Company has not received any communication alleging that
the Company has violated or, by conducting its business, would violate any of
the patents, trademarks, service marks, tradenames, copyrights, trade secrets or
other proprietary rights of any other person or entity. The Company is not
aware that any of its employees are obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of such employee's best efforts to promote the
interest of the Company or that would conflict with the Company's business.
Neither the execution or delivery of this Agreement, nor the carrying on of the
Company's business as now conducted by the employees of the Company, will, to
the Company's knowledge, conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, any contract,
covenant or instrument under which any such employee is now obligated. The
Company does not believe it is or will be necessary to use any inventions of any
of its employees (or persons it currently intends to hire) made prior to their
employment by the Company. To the Company's knowledge, its officers and
employees are not making
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improper use of any confidential information or trade secrets of others,
including those of any former employer.
2.8 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any provisions of its Articles of Incorporation or
Bylaws or in violation or default of any instrument, judgment, order, writ,
decree, contract or agreement to which it is a party or by which it is bound or
of any provision of any federal or state statue, rule or regulation applicable
to the Company, the effect of which would have a material adverse effect on the
Company. To the Company's knowledge, all parties to material contracts and
commitments with the Company are in compliance therewith in all material
respects. The execution, delivery and performance of the Agreements and the
consummation of the transactions contemplated hereby or thereby will not result
in any such violation or be in conflict with or constitute, with or without the
passage of time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree, contract or agreement or an event
which results in the creation of any lien, charge or encumbrance upon any assets
of the Company.
2.9 SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December 31, 1995,
the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the U.S. Securities and Exchange
Commission (the "SEC") pursuant to the reporting requirements of the 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 or made available to the Investors 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 requirement of the 1934 Act 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 have been, required to
be amended or updated under applicable law (except for such statements as have
been amended or updated in subsequent filings prior to the date hereof). As of
the respective dates, the financial statements of the Company included in the
SEC Documents (the "Financial Statements") complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. The Financial Statements have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP"), consistently applied, during the periods involved (except
(i) as may be otherwise indicated in the 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 consolidated financial position of the
Company as of the dates thereof and the consolidated 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, the Company has no liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to December 31, 1997 and (ii) obligations under contracts and
commitments
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incurred in the ordinary course of business and not required under generally
accepted accounting principles GAAP to be reflected in such financial
statements, which, individually or in the aggregate, are not material to the
financial condition or operating results of the Company.
2.10 NO CONFLICT OF INTEREST. Other than with respect to the
Investors, the Company is not indebted, directly or indirectly, to any of its
officers or directors, to their respective spouses or children, in any amount
whatsoever other than in connection with expenses or advances of expenses
incurred in the ordinary course of business or relocation expenses of employees.
Other than with respect to the Investors, none of the Company's officers or
directors, or any members of their immediate families, are, directly or
indirectly, indebted to the Company (other than in connection with purchases of
the Company's stock) or, to the Company's knowledge, have any direct or indirect
ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation that competes with the Company except that officers, directors
and/or shareholders of the Company may own stock in (but not exceeding two
percent of the outstanding capital stock of) any publicly traded company that
may compete with the Company. Other than with respect to the Investors, the
Company's knowledge, none of the Company's officers or directors or any members
of their immediate families are, directly or indirectly, interested in any
material contract with the Company. The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
2.11 RIGHTS OF REGISTRATION AND VOTING RIGHTS. Except as contemplated
in the Registration Rights Agreement, the Company has not granted or agreed to
grant any registration rights, including piggyback rights, to any person or
entity other than the Investors. To the Company's knowledge, no shareholder of
the Company has entered into any agreements with respect to the voting capital
shares of the Company.
2.12 TITLE TO PROPERTY AND ASSETS. The Company owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets it leases, the Company is in
compliance with such leases and, to its knowledge, holds a valid leasehold
interest free of any liens, claims, or encumbrances.
2.13 CHANGES. Since December 31, 1997 there has not been:
(a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Financial
Statements, except (i) changes as reported in the Company's reports on Form 10-Q
for the fiscal periods ended March 31, 1998 and June 30, 1998 and (ii) changes
in the ordinary course of business that have not been, in the aggregate,
materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business (as such business is
presently conducted and as it is proposed to be conducted), properties,
prospects, or financial condition of the Company;
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(c) any waiver or compromise by the Company of a valuable right
or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business (as such business is
presently conducted and as it is proposed to be conducted), properties,
prospects or financial condition of the Company;
(e) any material change to a material contract or agreement by
which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(g) any resignation or termination of employment of any key
officer of the Company; and the Company, to its knowledge, does not know of any
impending resignation or termination of employment of any such officer;
(h) receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of the Company;
(i) any sale or assignment of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(j) any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(l) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
(m) to the Company's knowledge, any other event or condition of
any character that might materially and adversely affect the business (as such
business is presently conducted and as it is proposed to be conducted),
properties, prospects or financial condition of the Company; or
(n) any arrangement or commitment by the Company to do any of
the things described in this Section 2.13.
2.14 TAX RETURNS AND PAYMENTS. The Company has filed all tax returns
and reports as required by law. These returns and reports are true and correct
in all material respects. The Company has paid all taxes and other assessments
due.
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2.15 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or
subject to (none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company, threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company, nor is the Company aware of any
labor organization activity involving its employees. The employment of each
officer and employee of the Company is terminable at the will of the Company.
To its knowledge, the Company has complied in all material respects with all
applicable state and federal equal employment opportunity laws and with other
laws related to employment. The employment of each officer and employee of the
Company is terminable at the will of the Company.
2.16 PERMITS. The Company has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business, the lack of
which could materially and adversely affect the business, properties, prospects,
or financial condition of the Company. The Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority.
2.17 CORPORATE DOCUMENTS. The Articles of Incorporation and the
Bylaws of the Company are in the form made available to counsel for the
Investors. The copy of the minute book of the Company provided to counsel for
the Investors contains minutes of all meetings of the directors and shareholders
of the Company and all actions by written consent without a meeting by the
directors and shareholders of the Company since the date of incorporation and
reflects all actions by the directors and shareholders with respect to all
transactions referred to in such minutes, accurately in all material respects.
2.18 DISCLOSURE. The Company has fully provided the Investors with
all the information which the Investors have requested for deciding whether to
acquire the Preferred Stock and all information which the Company believes is
reasonably necessary to enable the Investors to make such a decision. No
representation or warranty of the Company contained in this Agreement and the
exhibits attached hereto, or any certificate furnished or to be furnished to
Investors at the Closing, contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made. No event or circumstance has occurred or exists with
respect to the Company or its business, properties, prospects, 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.
2.19 INSURANCE. The Company holds and maintains valid policies
covering such casualties and contingencies and of such types and amounts as is
customary for companies similarly situated. 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 obtain similar coverage from
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similar insurers as may be necessary to continue its business at a cost that
would not have a material adverse effect.
2.20 OFFERING OF THE PREFERRED STOCK. Neither the Company nor any
person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Preferred Stock or any
security of the Company similar to the Preferred Stock has offered the Preferred
Stock or any such similar security for sale to, or solicited any offer to buy
the Preferred Stock or any such similar security from, or otherwise approached
or negotiated with respect thereto with, any person or persons, and neither the
Company nor any person acting on its behalf has taken or will take any other
action (including, without limitation, any offer, issuance or sale of any
security of the Company under circumstances which might require the integration
of such security with Preferred Stock under the Securities Act or the rules and
regulations of the Commission thereunder), in either case so as to subject the
offering, issuance or sale of the Preferred Stock to the registration provisions
of the Securities Act.
2.21 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.
2.22 ENVIRONMENT AND SAFETY LAWS. The Company is not in violation of
any applicable statute, law, or regulation relating to the environment or
occupational health and safety, and no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
2.23 EMPLOYEE BENEFIT PLANS. The Company does not have any Employee
Benefit Plans as defined in Employment Retirement Income Security Act of 1974
("ERISA") other than those set forth on the Disclosure Schedule (each an
"Employee Plan"). Each Employee Plan has been administered to date or
terminated, as the case may be, in compliance with the requirements of the
Internal Revenue Code and ERISA, where applicable each Employee Plan is fully
funded on a termination basis, and all reports required by any government agency
with respect to such Employee Plans have been timely filed, and notwithstanding
anything to the contrary contained in such Employee Plans all benefits,
liabilities and obligations of the Company to date under such Employee Plans has
been fully accrued and reflected on the Financial Statements.
2.24 PRINCIPAL EXCHANGE/MARKET. The principal market on which the
Common Stock of the Company is currently traded is the AMEX. The Company has
obtained all approvals and consents of the AMEX, if any, required to enter into
and deliver the Agreements and to consummate the transactions contemplated
thereby.
2.25 FORM S-3. The Company is eligible to file a Registration
Statement (as defined in the Registration Rights Agreement) on Form S-3 under
the Securities Act and rules promulgated thereunder, and Form S-3 is permitted
to be used for the resale by the investors to the public of the Registrable
Securities (as defined in the Registration Rights Agreement) under the
Securities Act and rules promulgated thereunder.
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3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. PICO and Physicians,
severally, and not jointly, each hereby makes the following representations and
warranties to the Company as of the date hereof, which representations and
warranties shall be deemed to have been made again as of Closing.
3.1 AUTHORIZATION. Each of the Investors has full power and
authority to enter into this Agreement. The Agreements, when executed and
delivered by the Investors, will constitute valid and legally binding
obligations of the Investors, enforceable in accordance with their terms, except
(a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and any other laws of general application affecting
enforcement of creditors' rights generally, and as limited by laws relating to
the availability of a specific performance, injunctive relief, or other
equitable remedies, or (b) to the extent the indemnification provisions
contained in the Registration Rights Agreement may be limited by applicable
federal or state securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
the Investors in reliance upon the Investors' representation to the Company,
which by the Investors' execution of this Agreement the Investors hereby
confirm, that the Securities to be acquired by the Investors will be acquired
for investment for the Investors' own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that the
Investors have no present intention of selling, granting any participation in,
or otherwise distributing the same. By executing this Agreement, the Investors
further represents that the Investors do not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
Securities. The Investors have not been formed for the specific purpose of
acquiring the Securities.
3.3 DISCLOSURE OF INFORMATION. The Investors have had an opportunity
to discuss the Company's business, management, financial affairs and the terms
and conditions of the offering of the Preferred Stock with the Company's
management and have had an opportunity to review the Company's facilities. The
Investors understand that such discussions, as well as any written information
delivered by the Company to the Investors, were intended to describe the aspects
of the Company's business which the Company believes to be material. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 2 of this Agreement or the right of the Investors to
rely thereon.
3.4 RESTRICTED SECURITIES. The Investors understand that except as
provided in the Registration Rights Agreement, the Securities have not been
registered under the Securities Act, by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent and the accuracy of the
Investors' representations as expressed herein. The Investors understand that
the Securities are "restricted securities" under applicable U.S. federal and
state securities laws and that, pursuant to these laws, the Investors must hold
the Securities indefinitely unless they are registered with the SEC and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Investors acknowledge that the
Company has no
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obligation to register or qualify the Securities for resale except as set forth
in the Registration Rights Agreement.
3.5 LEGENDS. The Investors understand that until such time as the
securities may be registered, the Securities, and any securities issued in
respect thereof or exchange therefor, may bear one or all of the following
legends:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO , OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(b) Any legend set forth in the other Agreements.
(c) Any legend required by the laws of any state regarding the
sale of securities to the extent such laws are applicable to the shares
represented by the certificate so legended.
3.6 ACCREDITED INVESTOR. Each Investor is an "accredited investor"
as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
4. COVENANTS OF THE COMPANY PENDING CLOSING. The Company covenants and
agrees that from the date hereof until the completion of the Closing:
4.1 GOOD STANDING. The Company shall maintain its and each of its
subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. "Material Adverse
Effect" means a material adverse effect on (i) the business operations or
condition (financial or otherwise) of the Company and its subsidiaries taken as
a whole or (ii) the ability of the Company to perform its obligations under this
Agreement. The Company shall maintain, and shall cause each of its subsidiaries
to maintain, to the extent consistent with prudent management of the Company's
business, in force all licenses, approvals and agreements, the loss of which
could have a Material Adverse Effect.
4.2 GOVERNMENT COMPLIANCE. The Company shall meet, and shall cause
each subsidiary to meet, the minimum funding requirements of ERISA with respect
to any employee benefit plans subject to ERISA. The Company shall comply, and
shall cause each subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect.
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4.3 OPERATION IN THE ORDINARY COURSE. The Company shall continue to
carry on its business and keep its books and accounts, records and files in the
usual and ordinary manner in which the business has been conducted in the past.
4.4 REPRESENTATIONS AND WARRANTIES. The Company shall give detailed
written notice to the Investors promptly upon learning any fact which would
render untrue any of the Company's representations or warranties contained in
this Agreement or in any of the other Agreements.
4.5 BEST EFFORTS. The Company shall use its best efforts to fulfill
and perform all conditions and obligations on its part to be fulfilled and
performed under this Agreement and cause the transactions contemplated by this
Agreement to be fully carried out.
4.6 PROXY STATEMENT. Within fourteen (14) days of the date hereof,
the Company shall cause a proxy statement to be prepared and filed with the SEC
soliciting approval from the shareholders of the Company, as of the soonest
practicable date, of the transactions contemplated by this Agreement. The proxy
statement shall be prepared and filed in compliance with the provisions of the
1934 Act and the rules and regulations promulgated thereunder. Prior to filing,
such proxy statement shall have been reviewed by and be reasonably acceptable to
the Investors and counsel to the Investors. The Company shall provide such
proxy statement to each of its stockholder and the Company shall use its best
efforts to solicit its stockholders' approval of the issuance of the Securities
as described in this Agreement and cause the Board of Directors of the Company
to recommend to the stockholders that they approve such proposal.
4.7 NEGATIVE COVENANTS. Without the prior written consent of the
Investors, the Company will not:
(a) Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its subsidiaries to Transfer, all
or any part of its business or property, other than: (i) Transfers of
non-exclusive licenses and similar arrangements for the use of the property of
the Company or its subsidiaries; or (ii) Transfers of worn-out or obsolete
equipment.
(b) Engage in any business, or permit any of its subsidiaries to
engage in any business, other than the businesses currently engaged in by the
Company and any business substantially similar or related thereto (or incidental
thereto).
(c) Issue any capital stock of the Company or other securities
convertible into or exchangeable for capital stock of the Company other than
(i) securities issued pursuant to the Option Plan or the Purchase Plan,
(ii) capital stock or securities issued in connection with the exercise or
conversion of securities of the Company issued and outstanding prior to the date
hereof or (iii) securities issued, or to be issued, to Jim R. Porter pursuant to
the exercise of options granted to Mr. Porter prior to the date hereof by the
Company's Board of Directors, to purchase up to 6.88% of the outstanding Common
Stock of the Company.
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(d) Merge or consolidate, or permit any of its subsidiaries to
merge or consolidate, with or into any other business organization, or acquire,
or permit any of its subsidiaries to acquire, all or substantially all of the
capital stock or property of another entity.
(e) Create, incur, assume or suffer to exist any lien or
encumbrance with respect to any of its property, or assign or otherwise convey
any right to receive income, including the sale of any accounts, or permit any
of its subsidiaries so to do, except for an existing blanket lien in favor of
Lakeside Bank on all personal property of the Company and a blanket lien in
favor of PICO, on all personal property of the Company.
(f) Pay any dividends or make any other distribution or payment
on account of or in redemption, retirement or purchase of any capital stock.
(g) Directly or indirectly acquire or own, or make any
investment in or to any entity, or permit any of its subsidiaries so to do,
other than Permitted Investments (as defined in the Loan and Security Agreement
dated May 4, 1997, as amended, between the Company, as borrower, and PICO as
lender).
(h) Directly or indirectly enter into or permit to exist any
material transaction with any affiliate of the Company except for transactions
that are in the ordinary course of the Company's business, upon fair and
reasonable terms that are no less favorable to the Company than would be
obtained in an arm's length transaction with a non-affiliated party.
(i) Become an "investment company" controlled by an "investment
company," within the meaning of the Investment Company Act of 1940, or become
principally engaged in, or undertake as one of its important activities, the
business of extending credit for the purpose of purchasing or carrying margin
stock.
(j) Fail to meet the minimum funding requirements of ERISA,
permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to
occur, fail to comply with the Federal Fair Labor Standards Act or violate any
law or regulation, which violation could have a Material Adverse Effect, or
permit any of its subsidiaries to do any of the foregoing.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates, registered in the name of each Investor or its respective
nominee(s), for the Common Stock issuable on conversion of the Preferred Stock
and the exercise of the Warrant (collectively, the "Conversion Shares") in such
amounts as specified from time to time by each Investor to the Company upon
conversion of the Preferred Stock and exercise of the Warrant (the "Irrevocable
Transfer Agent Instructions"). Prior to registration of the Conversion Shares
under the Securities Act, all such certificates shall bear the restrictive
legend specified in Section 3.5 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5 will be given by the Company to its transfer agent and that
the Securities shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. If an Investor
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provides the Company with an opinion of counsel, in generally acceptable form,
that registration of a resale by such Investor of any of such Securities is not
required under the Securities Act, the Company shall permit the transfer, and,
in the case of the Conversion Shares, promptly instruct its transfer agent to
issue one or more certificates in such name and in such denominations as
specified by such Investor and without any restrictive legends. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Investors 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 Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Investors shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. LISTING. Promptly following the Closing Date, but in no event later
than 20 days after the Closing Date, the Company shall secure the listing of all
of the Registrable Securities (as defined in the Registration Rights Agreement)
upon each national securities exchange and automated quotation system (including
the AMEX), if any, upon which shares of Common Stock of the Company are then
listed (subject to official notice of issuance) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Registrable Securities from time to time issuable under the terms of the
Documents and the Certificate. The Company shall maintain the Common Stock's
authorization for listing on the AMEX, The Nasdaq SmallCap Market, the Nasdaq
National Market, or The New York Stock Exchange, Inc. ("NYSE"), as applicable.
Neither the Company nor any of its subsidiaries shall take any action which may
result in the delisting or suspension of the Common Stock on the AMEX, The
Nasdaq SmallCap Market, the Nasdaq National Market or NYSE (other than to switch
listings from the AMEX, to The Nasdaq SmallCap Market or to the Nasdaq National
Market or to the NYSE). The Company shall promptly provide to each Investor
copies of any notices it receives from the AMEX, The Nasdaq SmallCap Market, the
Nasdaq National Market or NYSE regarding the continued eligibility of the Common
Stock for listing on such automated quotation system or securities exchange.
The Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 6.
7. CONDITIONS TO THE INVESTORS' OBLIGATIONS AT CLOSING. The obligations
of each of PICO and Physicians to the Company under this Agreement are subject
to the fulfillment by the Company, on or before the Closing, of each of the
following conditions, unless otherwise waived by PICO and Physicians:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
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7.2 PERFORMANCE. The Company shall have performed and complied with
all covenants, agreements, obligations and conditions contained in the Agreement
that are required to be performed or complied with by it on or before the
Closing.
7.3 COMPLIANCE CERTIFICATE. The President of the Company shall
deliver to the Investors at the Closing a certificate certifying that the
conditions specified in Sections 7.1 and 7.2 have been fulfilled.
7.4 BOARD RESOLUTIONS. The Investors shall have received resolutions
of the Board of Directors of the Company duly authorizing the execution and
delivery of the Agreements and the performance of the Company's obligations
thereunder, certified by the Secretary of the Company as being in full force and
effect as of the Closing.
7.5 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Preferred Stock pursuant to this Agreement shall be obtained and effective
as of the Closing.
7.6 SHAREHOLDER APPROVAL. The matters specified in the Proxy
Statement for approval of the Shareholders as contemplated by Section 4.6 of
this Agreement shall have been approved by the shareholders of the Company.
7.7 DELIVERY OF STOCK CERTIFICATES. The Company shall have duly
executed and delivered the certificates representing the shares of Preferred
Stock being purchased by the Investors hereunder.
7.8 OPINION OF COMPANY COUNSEL. The Investors shall have received
from counsel for the Company, an opinion dated as of the Closing in
substantially the form of EXHIBIT F.
7.9 REGISTRATION RIGHTS AGREEMENT. The Company and each Investor
shall have executed and delivered the Registration Rights Agreement in
substantially the form attached as EXHIBIT E.
7.10 THE CERTIFICATE. The Company shall have filed the Certificate
with the Secretary of State of Delaware on or prior to the Closing Date, which
shall continue to be in full force and effect as of the Closing Date.
7.11 GOOD STANDING. The Company shall have delivered to the Investors
a certificate evidencing the incorporation and good standing of the Company and
each of its subsidiaries in such corporation's state of incorporation issued by
the Secretary of State of such state of incorporation as of a date within 10
days prior to the Closing Date.
7.12 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connections with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Investor's counsel, and the
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Investor's counsel shall have received all such counterpart original and
certified or other copies of such documents as it may reasonably request.
7.13 FEES OF INVESTORS' COUNSEL. The Company shall have made
arrangements for the payment, in accordance with Section 9.8, the fees and
disbursements of the Investors' counsel invoiced at the Closing.
7.14 WARRANT AND AMENDMENTS. The Company shall have executed and
delivered the Warrant and the Amendments.
8. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to the Investors under this Agreement are subject to the
fulfillment by the Investors, on or before the Closing, of each of the following
conditions, unless otherwise waived by the Company:
8.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investors contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
8.2 PERFORMANCE. All covenants, agreements and conditions contained
in this Agreement to be performed by the Investors on or prior to the Closing
shall have been performed or complied with in all material respects.
8.3 COMPLIANCE CERTIFICATE. The President of each of PICO and
Physicians shall deliver to the Company at the Closing a certificate certifying
that the conditions specified in Sections 8.1 and 8.2 have been fulfilled.
8.4 BOARD RESOLUTIONS. The Company shall have received resolutions
of the Board of Directors of PICO and Physicians duly authorizing the execution
and delivery of the Agreements and the performance of the Investors' obligations
thereunder, certified by the Secretary of PICO and Physicians as being in full
force and effect as of the Closing
8.5 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Preferred Stock pursuant to this Agreement shall be obtained and effective
as of the Closing.
8.6 THE CERTIFICATE. The Company shall have filed the Certificate
with the Secretary of State of Delaware on or prior to the Closing Date, which
shall continue to be in full force and effect as of the Closing Date.
9. MISCELLANEOUS.
9.1 TERMINATION OF AGREEMENT. This Agreement may be terminated on or
prior to the Closing Date:
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(a) At any time by the mutual consent of the Company and the
Investors;
(b) Following fourteen (14) business days after the date hereof,
by the Investors if the proxy statement referred to in Section 4.6 herein has
not been filed with the SEC;
(c) Following December 31, 1998, by the Investors if the Company
has not yet obtained shareholder approval for the matters contained in the proxy
statement described in Section 4.6 herein; PROVIDED, HOWEVER, that if the proxy
statement described in Section 4.6 herein does not receive full review by the
SEC, the date for termination under this Section 9.1((c)) shall be November 30,
1998.
(d) By the Company or the Investors if the other party breaches
in any material respect any of its representations, warranties, covenants,
obligations or agreements contained in this Agreement and such breach has not
been cured within thirty (30) days of the date that notice of breach is received
by the breaching party, PROVIDED, HOWEVER, that no notice of intent to terminate
this Agreement pursuant to this Section 9.1((d)) may be served by the party
that is itself a material breach of the Agreement at the time of such notice;
(e) On or after December 31, 1998, by either the Company or the
Investors if the Closing has not taken yet place by such date;
(f) By the Investors, on or after the date when it becomes
reasonably likely that the Company will be unable to satisfy any of the
conditions set forth in Section 7, and By the Company on or after the date when
it becomes reasonably likely that the Investors will be unable to satisfy any of
the conditions set forth in Section 8.
A termination pursuant to this Section 9.1 shall not relieve any party of any
liability it otherwise has for breach of this Agreement.
9.2 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this
Agreement, the warranties, representations and covenants of the Company and the
Investors contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing for a period of two (2)
years following the Closing, provided, however, that the representations,
warranties and covenants of the Company contained in Section 6 hereof shall
survive until the later of (i) the exercise or termination of the Warrant or
(ii) the first date on which no Preferred Stock remains outstanding.
9.3 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
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9.4 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
9.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
9.6 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.7 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telecopier, or forty-eight (48)
hours after being deposited in the U.S. mail, as certified or registered mail,
with postage prepaid, addressed to the party to be notified at such party's
address as set forth on the signature page hereto, or as subsequently modified
by written notice, and (a) if to the Company, with a copy to Wildman, Harrold,
Allen & Dixon, 225 West Wacker Drive, 30th Floor, Chicago, IL 60606-1229 Attn:
Donald E. Figliulo, Esq., or (b) if to the Investors, with a copy to Gray Cary
Ware & Freidenrich, 4365 Executive Drive, Suite 1600, San Diego, CA 92121 Attn:
Robert J. Ayling, Esq.
9.8 FEES AND EXPENSES. At the Closing, the Company shall pay the
reasonable fees and expenses incurred by the Investors in conjunction with the
transactions contemplated hereby, including but not limited to the reasonable
fees and expenses of counsel for the Investors, provided such fees and expenses
do not exceed $30,000.
9.9 ATTORNEY'S FEES. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
9.10 AMENDMENTS AND WAIVERS. Prior to the Closing, any term of this
Agreement may be amended or waived only with the written consent of the Company
and the Investors. Following the Closing, any term of this Agreement may be
amended or waived only with the written consent of the Company and the holders
of at least a majority of the Preferred Stock purchased hereunder. Any
amendment or waiver effected in accordance with this Section 9.10 shall be
binding upon the Investors and each transferee of the Securities, each future
holder of all such Securities, and the Company.
9.11 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of
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the Agreement shall be interpreted as if such provision were so excluded and (c)
the balance of the Agreement shall be enforceable in accordance with its terms.
9.12 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party under this Agreement, upon any breach or
default of any other party under this Agreement, shall impair any such right,
power or remedy of such non-breaching or non-defaulting party nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
9.13 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
relating to the subject matter hereof existing between the parties hereto are
expressly canceled.
9.14 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTIONS 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS NOT EXEMPT.
9.15 CONFIDENTIALITY. Each party hereto agrees that, except with the
prior written permission of the other party or as required by applicable law, it
shall at all times keep confidential and not divulge, furnish or make accessible
to anyone any confidential information, knowledge or data concerning or relating
to the business or financial affairs of the other parties to which such party
has been or shall become privy by reason of this Agreement, discussions or
negotiations relating to this Agreement, the performance of its obligations
hereunder or the ownership of the Securities purchased hereunder. The
provisions of this Section 9.15 shall be in addition to, and not in substitution
for, the provisions of any separate nondisclosure agreement executed by the
parties hereto with respect to the transactions contemplated hereby.
[Signature Pages Follow]
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The parties have executed this Securities Purchase Agreement as of the date
first written above.
COMPANY:
PC QUOTE, INC.
By:
--------------------------------------
Jim R. Porter, Chief Executive Officer
Address: 300 South Wacker Drive
Chicago, IL 60606
INVESTORS:
PICO HOLDINGS, INC.
By:
-------------------------------------
John R. Hart, President
Address: 875 Prospect Street
Suite 301
La Jolla, CA 92037
PHYSICIANS INSURANCE COMPANY OF OHIO
By:
------------------------------------
John R. Hart, President
Address: 875 Prospect Street
Suite 301
La Jolla, CA 92037
<PAGE>
EXHIBITS
Exhibit A - Form of Certificate of Designations
Exhibit B - Form of Warrant
Exhibit C - Forms of Amendments to Warrants
Exhibit D - Schedule of Exceptions to Representations and Warranties
Exhibit E - Form of Registration Rights Agreement
Exhibit F - Form of Legal Opinion of Company Counsel
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATIONS
OF SERIES A AND SERIES B
PREFERRED STOCK
OF PC QUOTE, INC.
PC Quote, Inc., a Delaware corporation (the "CORPORATION") hereby certifies
that the following resolutions were adopted by the Board of Directors of the
Corporation (the "BOARD") on ___________, 1998, pursuant to authority conferred
upon the Board by the Certificate of Incorporation, as amended, of the
Corporation and Section 151(g) of the Delaware General Corporation Law:
RESOLVED, that the Board hereby authorizes two series of the Corporation's
previously authorized Preferred Stock, par value $.001 per share, and hereby
states a designation of each series and number of shares, and fixes the relative
rights, preferences, privileges, powers and restrictions thereof as follows:
1. DESIGNATION AND AMOUNT. The Corporation hereby designates ________
shares of the Preferred Stock as Series A Preferred Stock (the "SERIES A
PREFERRED") and __________ shares of the Preferred Stock as Series B Preferred
Stock (the "SERIES B PREFERRED," collectively with the Series A Preferred, the
"PREFERRED STOCK").
2. DIVIDENDS.
(a) A holder of Series A Preferred shall be entitled to receive cash
dividends, when and as declared by the Board out of funds legally available for
such purpose, in the annual amount of $.__ per share [5% of per share purchase
price], payable quarterly on the 15th day of September, December, March and
June, in each year. A holder of Series B Preferred shall be entitled to receive
cash dividends, when and as declared by the Board out of funds legally available
for such purpose, in the annual amount of $.__ per share [5% of per share
purchase price], payable quarterly on the 15th day of September, December, March
and June, in each year. If any day described in the preceding two sentences is
not a business day, dividends shall be paid on the next business day, commencing
on the first such day after issuance. Dividends payable for any period less
than a full quarter shall be computed on and paid for the actual number of days
elapsed. Dividends shall accrue on each share of Preferred Stock from the date
of issue of such share of stock (the "ISSUANCE DATE"). Dividends shall be paid
to holders of record on a record date to be determined by the Board in advance
of the payment of each dividend.
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(b) No dividends shall be declared on any other series or class or
classes of stock unless there shall be or have been declared on all shares of
Preferred Stock then outstanding the dividends for all quarter-yearly periods
coinciding with or ending before such quarter-yearly period. Dividends shall be
cumulative. No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment which is in arrears. If in any
quarter-yearly dividend period, dividends in the annual amount have not been
declared and paid or set apart for payment for such quarter-yearly dividend
period and all preceding such periods from the first day from which dividends
are cumulative, then, until the aggregate deficiency is declared and fully paid
or set apart for payment, the Corporation shall not (i) declare or pay or set
apart for payment any dividends or make any other distribution on any other
capital stock or securities having an equity interest in the Corporation ranking
junior to or on a parity with the Preferred Stock with respect to the payment of
dividends or distribution of assets on liquidation, dissolution or winding up of
the Corporation (the "SECONDARY STOCK") (other than dividends or distributions
paid in shares of, or options, warrants or rights to subscribe for or purchase
Secondary Stock) or (ii) make any payment on account of the purchase,
redemption, other retirement or acquisition of any Secondary Stock with respect
to the payment of dividends or distribution of assets on liquidation,
dissolution or winding up of the Corporation.
3. CONVERSION OF PREFERRED STOCK. A holder of Preferred Stock shall have
the right, at such holder's option, to convert the Preferred Stock into shares
of the Corporation's common stock, par value $0.001 per share (the "COMMON
STOCK"), on the terms and conditions set forth in Sections 3(a) and 3(b). If
any Preferred Stock remains outstanding on the fifth anniversary after the
Issuance Date, then such Preferred Stock shall automatically convert to Common
Stock on such fifth anniversary under the terms of Section 7(f).
(a) CONVERSION RIGHT. At any time or times on or after the Issuance
Date, any holder of Preferred Stock shall be entitled to convert any whole
number of shares of Preferred Stock into fully paid and nonassessable shares
(rounded to the nearest whole share in accordance with Section 7(h)) of Common
Stock, at the Applicable Conversion Rate, adjusted in accordance with Section 4,
if applicable.
(b) APPLICABLE CONVERSION RATE. The number of shares of Common Stock
issuable upon conversion of the Preferred Stock pursuant to Section 3(a) shall
be determined by multiplying the product of one hundred (100) and the number of
shares of Preferred Stock to be converted into Common Stock by:
(i) in the case of Series A Preferred, (A) the Series A Closing
Price (as defined in the Securities Purchase Agreement dated as of September
___, 1998, among the Corporation, Pico Holdings, Inc., a California corporation,
and Physicians Insurance Corporation of Ohio, Inc., an Ohio corporation (the
"PURCHASE AGREEMENT")) PLUS (B) the amount of any accrued but unpaid dividends
attributable to such Preferred Stock, DIVIDED BY the lower of (X) the Series A
Closing Price, (Y) the average Closing Sale Price of the Common Stock over the
twenty-day period immediately prior to the day the Series A Preferred is to be
converted into Common Stock; or (Z) the Closing Sale Price one day prior to the
day the Series A Preferred is to be converted into Common Stock (the "SERIES A
CONVERSION RATE").
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(ii) in the case of Series B Preferred, (A) the Series B Closing
Price (as defined in the Purchase Agreement) PLUS (B) the amount of any accrued
but unpaid dividends attributable to such Preferred Stock, DIVIDED BY the lower
of (X) the Series B Closing Price, (Y) the average Closing Sale Price of the
Common Stock over the twenty-day period immediately prior to the day the Series
B Preferred is to be converted into Common Stock; or (Z) the Closing Sale Price
one day prior to the day the Series B Preferred is to be converted into Common
Stock (the "SERIES B CONVERSION RATE").
4. ADJUSTMENT TO CONVERSION PRICE -- DILUTION AND OTHER EVENTS. In order
to prevent dilution of the rights granted under this Certificate of
Designations, the Series A and Series B Conversion Rates will be subject to
adjustment from time to time as provided in this Section 4.
(a) ADJUSTMENT OF CONVERSION PRICE DUE TO ISSUANCE OF ADDITIONAL
SECURITIES. If on or after the Closing Date, the Corporation issues or sells,
or is deemed under the terms of Section 4(a)(i) to have issued or sold, any
shares of Common Stock (other than the Preferred Stock and shares of Common
Stock deemed to have been issued by the Corporation in connection with an
Approved Stock Plan (as defined below)) for a consideration per share less than
the Applicable Price (as defined below), then after such issue or sale, in
addition to multiplying such number of shares by the Series A Conversion Rate or
the Series B Conversion Rate, as applicable, the number of shares of Preferred
Stock to be converted into Common Stock shall be multiplied by: the product of
(I) the Applicable Price and (II) the number of shares of Common Stock Deemed
Outstanding (as defined in Section 4(a)(iii)) immediately after such issue or
sale, divided by the sum of (a) the product of the Applicable Price and the
number of shares of Common Stock Deemed Outstanding immediately prior to such
issue or sale, and (b) the consideration, if any, received by the Corporation
upon such issue or sale (as determined in Section 4(a)(iv)). The "APPLICABLE
PRICE" shall equal (x) the Series A Closing Price if the calculation relates to
Series A Preferred, or (y) the Series B Closing Price if the calculation relates
to Series B Preferred, or (z) the lesser of the Series A Closing Price or the
Series B Closing Price if the calculation does not explicitly relate to either
the Series A Preferred or the Series B Preferred. For purposes of determining
the number of shares of Common Stock Deemed Outstanding under this Section 4(a),
the following shall apply:
(i) ISSUANCE OF OPTIONS OR CONVERTIBLE SECURITIES. If the
Corporation in any manner grants (A) any rights or options to subscribe for or
to purchase Common Stock (other than pursuant to an Approved Stock Plan or upon
conversion of the Preferred Stock) or (B) any rights or options to acquire any
stock or other securities convertible into or exchangeable for Common Stock
(such convertible or exchangeable stock or securities being herein called
"CONVERTIBLE SECURITIES") or (C) any rights to subscribe for or to purchase
Convertible Securities, and the price per share for which Common Stock is
issuable upon the exercise of the rights or options described in Sections
5(a)(i)(A) or (B) (together, the "OPTIONS") or upon conversion or exchange of
Convertible Securities is less than the Applicable Price, then the total maximum
number of shares of Common Stock issuable upon the (A) exercise of such Options
or (B) conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options or (C) conversion or
exchange of Convertible Securities, shall increase
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the number of shares of Common Stock Deemed Outstanding and shall be deemed to
have been issued and sold by the Corporation for the price per share specified
in Section 4(a)(iv).
(ii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the (A)
purchase price payable to exercise any Options, (B) additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or (C) rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock change at any time (including due to a
conversion price for Convertible Securities which varies with the market or an
index), the fraction to be used thereafter in the calculation described in
Section 4(a) shall be the fraction which would have been calculated at such time
had such Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold; provided that no
adjustment shall be made if such adjustment would result in an increase to the
Series A Conversion Price or the Series B Conversion Price otherwise applicable.
(iii) CERTAIN DEFINITIONS. For purposes of determining the
additional fraction specified in Section 4(a), the following terms have the
meanings set forth below:
(A) "APPROVED STOCK PLAN" shall mean any contract, plan or
agreement which has been approved by the Board of the Corporation, pursuant to
which the Corporation's securities may be issued to any employee, officer,
director, consultant or other service provider.
(B) "COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus any additional shares of Common Stock deemed to be outstanding at such time
pursuant to Section 4(a)(i) regardless of whether the Options or Convertible
Securities are actually exercisable at such time, plus the number of shares of
Common Stock issuable upon conversion of the Preferred Stock. Upon the
expiration of any Options or any rights of conversion, exercise or exchange
under Convertible Securities which shall not have been exercised, converted or
exchanged, the Common Stock Deemed Outstanding shall include: only the Common
Stock, if any, actually issued upon the exercise of such Options or exercise,
conversion or exchange of such Convertible Securities.
(C) The "CLOSING SALE PRICE" shall be defined as the last
closing sale price of the Common Stock of the Corporation on the American Stock
Exchange, or if the American Stock Exchange is not the principal securities
exchange for the Common Stock, the last closing sale price of the Common Stock
on the principal securities exchange or other trading market where the Common
Stock is listed, or if the foregoing do not apply, the last closing sale price
of the Common Stock in the over-the-counter market on the electronic bulletin
board for the Common Stock as reported by Bloomberg Financial Markets
("BLOOMBERG"), or, if no closing sale price is reported for the Common Stock by
Bloomberg, the last closing bid price of the Common Stock as reported by
Bloomberg, or, if no last closing bid price is reported for the Common Stock by
Bloomberg, the average of the bid prices of any market makers for the Common
Stock as reported in the "pink sheets" by the National Quotation Bureau, Inc.,
or if the last closing sale price cannot be calculated for the Common Stock on
any of the foregoing bases,
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then the fair market value as mutually determined by the Corporation and the
holders of a majority of the outstanding Preferred Stock (including for purposes
of this determination any Preferred Stock with respect to which the Closing Sale
Price is being determined).
(iv) ADJUSTMENT TO CONVERSION PRICE. For purposes of determining
the fraction to be used in the calculation described in Section 4(a), the
following shall apply:
(1) CALCULATION OF CONSIDERATION RECEIVED. For purposes
of Section 4(a), the price per share for which Common Stock is deemed issued
upon exercise of Options or upon conversion or exchange of Convertible
Securities shall be determined by dividing (I) the total amount, if any,
received or receivable by the Corporation as consideration for the granting of
such Options, plus the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of all such Options, plus in the
case of such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable to the Corporation
upon the issuance or sale of such Convertible Securities and the conversion or
exchange thereof, by (II) the total maximum number of shares of Common Stock
issuable upon exercise of such Options or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such Options. Subject
to Section 4(a)(ii), no additional adjustment to the Series A Conversion Price
or the Series B Conversion Price, as applicable, shall be made upon the actual
issuance of such Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(2) CASH PROCEEDS. If any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the net
amount received by the Corporation therefor.
(3) EXPIRATION OF CONVERSION RIGHTS. Upon the
expiration of any Options or any rights of conversion, exercise or exchange
under Convertible Securities which shall not have been exercised, converted
or exchanged, the consideration received therefor shall be deemed to be (i)
the consideration actually received by the Corporation for the issue of all
such Options, whether or not exercised, plus the consideration actually
received by the Corporation upon such exercise, or for the issue of all such
Convertible Securities which were actually exercised, converted or exchanged,
plus any additional consideration, if any, actually received by the
Corporation upon such exercise, conversion or exchange, and (ii) in the case
of Options for Convertible Securities, only the consideration actually
received by the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration deemed to have been received by the
Corporation upon the issue of the Convertible Securities with respect to
which such Options were actually exercised.
(4) NONCASH CONSIDERATION. In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by
the Corporation will be the fair value of such consideration, except where
such consideration consists of securities, in which case the amount of
consideration received by the Corporation will be the average of the Closing
Sale Prices of such
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securities for the five consecutive business days immediately preceding the date
of receipt (calculated as if the definition of the Closing Sale Price relates to
such securities rather than to Common Stock).
(5) FAIR VALUE DEFINED. The fair value of any
consideration other than cash or securities will be determined jointly by the
Corporation and the holders of a majority of the Preferred Stock then
outstanding. If such parties are unable to reach agreement within ten (10)
business days after the occurrence of an event requiring valuation (the
"VALUATION EVENT"), the fair value of such consideration will be determined
within five (5) business days after the tenth (10th) business day following
the Valuation Event by an independent, reputable appraiser selected by the
Corporation. The determination of such appraiser shall be binding upon all
parties absent manifest error.
(6) INTEGRATED TRANSACTIONS. In case any Option is
issued in connection with the issue or sale of other securities of the
Corporation, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties thereto,
the Options will be deemed to have been issued for a consideration of $.01.
(7) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Corporation, and the disposition of any shares so owned or
held will be considered an issue or sale of Common Stock.
(8) RECORD DATE. If the Corporation takes a record of
the holders of Common Stock for the purpose of entitling them (a) to receive
a dividend or other distribution payable in Common Stock, Options or in
Convertible Securities, or (b) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be, for purposes of determining the
voting rights of the holders of Preferred Stock.
(b) ADJUSTMENT OF CONVERSION PRICE UPON SUBDIVISION OR COMBINATION OF
COMMON STOCK.
(i) SUBDIVISIONS. If the Corporation at any time subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, thereafter, when any calculation is to be made of the number of shares
of Common Stock to be received for the Preferred Stock, the number of shares of
Preferred Stock shall be multiplied by the following fraction (in addition to
the Series A Conversion Rate or the Series B Conversion Rate, and any adjustment
in Section 4(a) as applicable): the number of shares which one share of Common
Stock prior to the subdivision was converted into upon the subdivision, divided
by one share of Common Stock.
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(ii) COMBINATIONS. If the Corporation at any time combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, thereafter,,
when any calculation is to be made of the number of shares of Common Stock to be
received for the Preferred Stock, the number of shares of Preferred Stock shall
be multiplied by the following fraction (in addition to the Series A Conversion
Rate or the Series B Conversion Rate, and any adjustment in Section 4(a) as
applicable): one share of Common Stock divided by the number of shares which one
share of Common Stock prior to the combination was converted into upon the
combination.
(c) CERTAIN EVENTS. If any event occurs of the type contemplated to
trigger an adjustment to the Series A Conversion Price or Series B Conversion
Price, as applicable, by the provisions of this Section 4, but which event is
not expressly provided for hereunder (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights with
equity features), then the Corporation's Board shall make an appropriate
adjustment in the applicable Conversion Price so as to protect the rights of the
holders of the Preferred Stock; provided, however, that no such adjustment will
increase the Conversion Price as otherwise determined pursuant to this Section
4.
5. NOTICES. Any notice required to be delivered pursuant to the terms of
this Certificate of Designations shall be delivered, unless otherwise provided
in this Certificate of Designations, in accordance with the terms, and subject
to the notice provisions of, the Securities Purchase Agreement.
(a) EVENTS. The Corporation will provide written notice to each
holder of the Preferred Stock at least twenty (20) days prior to the date on
which the Corporation closes its books or takes a record (I) with respect to any
dividend or distribution upon the Common Stock, (II) with respect to any pro
rata subscription offer to holders of Common Stock, or (III) for determining
rights to vote with respect to any Substantive Change, dissolution or
liquidation, provided, however that in no event shall such notice be provided to
such holder prior to such information being made known to the public.
(b) SUBSTANTIVE CHANGES. The Corporation will provide written notice
to each holder of the Preferred Stock at least twenty (20) days prior to the
date on which any Substantive Change, dissolution or liquidation will take
place, provided, however that in no event shall such notice be provided to such
holder prior to such information being made known to the public.
(c) DOCUMENTS. The Corporation will provide each holder of the
Preferred Stock with the following documents:
(i) monthly, quarterly and annual reports including variances
between planned and actual financial results; and
(ii) audited annual financial statements together with an annual
report, not later than ninety (90) days after the end of the fiscal year of the
Corporation.
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(d) CONVERSION NOTICE. The holder of Preferred Stock will provide
written notice to the Corporation prior to exercising the conversion rights
specified in Section 3 hereof, as provided in Section 7 below.
6. PURCHASE RIGHTS. If at any time after the Issuance Date the
Corporation grants, issues or sells any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata to the
record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the
holders of the Preferred Stock 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
taking into account any limitations or restrictions on the timing or amount of
conversions) 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 the Common Stock are to be determined
for the grant, issue or sale of such Purchase Rights.
7. MECHANICS OF CONVERSION.
(a) HOLDER'S DELIVERY REQUIREMENTS. To convert Preferred Stock into
full shares of Common Stock on any date (the "CONVERSION DATE"), the holder
thereof shall (A) transmit by facsimile (or otherwise deliver), for receipt on
or prior to 11:59 p.m. Eastern Time, on such date, a copy of a fully executed
notice of conversion in the form attached hereto as EXHIBIT A (the "CONVERSION
NOTICE") to the Corporation and its designated transfer agent (the "TRANSFER
AGENT"), and (B) surrender to a common carrier, for delivery to the Corporation
or the Transfer Agent as soon as practicable following such date, the original
certificate(s) representing the Preferred Stock being converted (or an
indemnification undertaking with respect to such shares in the case of their
loss, theft or destruction) (the "PREFERRED STOCK CERTIFICATE(S)") and the
originally executed Conversion Notice. The Preferred Stock shall be deemed to
have been converted to Common Stock on the Conversion Date.
(b) CORPORATION'S RESPONSE. Within forty-eight (48) hours of receipt
by the Corporation of a facsimile copy of a Conversion Notice, the Corporation
shall send, via facsimile, a confirmation of receipt of such Conversion Notice
to such holder. Upon receipt by the Corporation or the Transfer Agent of the
Preferred Stock Certificate(s) to be converted pursuant to a Conversion Notice,
together with the originally executed Conversion Notice, the Corporation or the
Transfer Agent (as applicable) shall, within the later of one (1) business day
after receipt of the Preferred Stock Certificates and two (2) days after receipt
of the Conversion Notice, (I) issue and surrender to a common carrier for
overnight delivery to the address specified in the Conversion Notice, a
certificate, registered in the name of the holder or its designee, for the
number of shares of Common Stock to which the holder shall be entitled, or (II)
credit such aggregate number of shares of Common Stock to which the holder shall
be entitled to the holder's or its designee's balance account with The
Depository Trust Corporation. If the number of shares of Preferred Stock
represented by the Preferred Stock Certificate(s) submitted for conversion is
greater than the number of Preferred Stock being converted, then the Corporation
or Transfer Agent, as the case may be, shall, as soon as practicable and in no
event later than three business days after receipt of the Preferred Stock
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<PAGE>
Certificate(s) and at its own expense, issue and deliver to the holder a new
Preferred Stock Certificate representing the number of Preferred Stock not
converted.
(c) DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the arithmetic calculation of the Series A Conversion Rate or
the Series B Conversion Rate, the Corporation shall promptly issue to the holder
the number of shares of Common Stock that is not disputed and shall submit the
disputed determinations or arithmetic calculations to the holder via facsimile
within two (2) business days of receipt of such holder's Conversion Notice. If
such holder and the Corporation are unable to agree upon the determination of
the Closing Sale Price or applicable Conversion Rate within one (1) business day
of such disputed determination or arithmetic calculation being submitted to the
holder, then the Corporation shall within one (1) business day submit via
facsimile the disputed arithmetic calculation of such Closing Sale Price or
Conversion Rate to an independent, outside accountant mutually agreed upon by
the Corporation and a majority of the holders of the Preferred Stock. If the
Corporation cannot agree with the holders of the Preferred Stock upon one
accountant, then an accountant chosen by the Corporation and an accountant
chosen by the holders of the Preferred Stock shall choose a third, independent,
outside accountant who shall make the disputed determinations or calculation and
notify the Corporation and the holder of the results no later than forty-eight
(48) hours from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
manifest error.
(d) RECORD HOLDER. The person or persons entitled to receive the
shares of Common Stock issuable upon a conversion of Preferred Stock shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date.
(e) CORPORATION'S FAILURE TO CONVERT. If within five (5) business
days after the Corporation's or the Transfer Agent's receipt of the Preferred
Stock Certificates to be converted and the Conversion Notice the Corporation
shall fail (1) to issue a certificate for the number of shares of Common Stock
to which a holder is entitled or to credit the holder's balance account with The
Depository Trust Corporation for such number of shares of Common Stock to which
the holder is entitled upon such holder's conversion of the Preferred Stock, or
(2) to issue a new Preferred Stock Certificate representing the number of shares
of Preferred Stock to which such holder is entitled, pursuant to Section 7(b) in
addition to all other available remedies which such holder may pursue hereunder
and under the Purchase Agreement, the Corporation shall pay additional damages
to such holder on each date after such fifth (5th) business day that such
conversion or delivery of such Preferred Stock Certificates, as the case may be,
is not timely effected in an amount equal to 0.5% of the product of (x) the sum
of the number of shares of Common Stock not issued to the holder on a timely
basis pursuant to Section 7(b) and to which such holder is entitled and, in the
event the Corporation has failed to deliver a Preferred Stock Certificate to the
holder on a timely basis pursuant to Section 7(b) the number of shares of Common
Stock issuable upon conversion of the Preferred Stock represented by such
Preferred Stock Certificate as of the last possible date which the Corporation
could have issued such Preferred Stock Certificate to such holder without
violating Section 7(b); and (y) the Closing Sale Price of the Common Stock on
the last possible date which
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the Corporation could have issued such Common Stock and the Preferred Stock
Certificate, as the case may be, to such holder without violating Section 7(b).
(f) MANDATORY CONVERSION. If any Preferred Stock remain outstanding
on the fifth (5th) anniversary after the Issuance Date, then all such Preferred
Stock shall be automatically converted as of such date as if the holders of such
Preferred Stock had given a Conversion Notice under Section 3 and in accordance
with this Section 7 on such fifth (5th) anniversary. All holders of Preferred
Stock shall thereupon surrender all Preferred Stock Certificates, duly endorsed
for cancellation, to the Corporation or the Transfer Agent, provided that the
Corporation has complied with its obligations under this Section 7.
(g) PRO-RATA CONVERSION. In the event the Corporation receives a
Conversion Notice from more than one holder of Preferred Stock on the same day
and the Corporation is able to convert some, but not all, of the Preferred Stock
pursuant to this Section 7, the Corporation shall convert from each holder of
Preferred Stock electing to have Preferred Stock converted at such time an
amount equal to such holder's pro-rata amount (based on the number of Preferred
Stock held by such holder relative to the number of Preferred Stock outstanding)
of all Preferred Stock being converted at such time.
(h) FRACTIONAL SHARES. The Corporation shall not issue any fraction
of a share of Common Stock upon any conversion. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one
Preferred Share by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of a fraction of
a share of Common Stock. If, after the aforementioned aggregation, the issuance
would result in the issuance of a fraction of a share of Common Stock, the
Corporation shall round such fraction of a share of Common Stock up or down to
the nearest whole share.
(i) TAXES. The Corporation shall pay any and all taxes which may be
imposed upon it with respect to the issuance and delivery of shares of Common
Stock upon the conversion of the Preferred Stock.
(j) RESERVATION OF SHARES. The Corporation shall, so long as any of
the shares of Preferred Stock are outstanding, reserve and keep available out
of its authorized and unused Common Stock, solely for the purpose of effecting
the conversion of the Preferred Stock, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all of the
Preferred Stock then outstanding (without regard to any limitations on
conversions); provided that the number of shares of Common Stock so reserved
shall at no time be less than 150% of the number of shares of Common Stock for
which the shares of Preferred Stock are at any time convertible. The initial
number of shares of Common Stock reserved for conversions of the Preferred Stock
and each increase in the number of shares so reserved shall be allocated pro
rata among the holders of the Preferred Stock based on the number of Preferred
Stock held by each holder at the time of issuance of the Preferred Stock or
increase in the number of reserved shares, as the case may be. In the event a
holder shall sell or otherwise transfer any of such holder's Preferred Stock,
each transferee shall be allocated a pro rata portion of the number of reserved
shares of Common Stock reserved for such transferor. Any shares of Common Stock
reserved and which
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<PAGE>
remain allocated to any person or entity which does not hold any Preferred Stock
shall be allocated to the remaining holders of Preferred Stock, pro rata based
on the number of shares of Preferred Stock then held by such holder.
(k) LIMITATION ON NUMBER OF CONVERSION SHARES. Notwithstanding
any other provision herein, the Corporation shall not be obligated to issue any
shares of Common Stock upon conversion of the Preferred Stock if the issuance of
such shares of Common Stock would exceed that number of shares of Common Stock
which the Corporation may issue upon Conversion of the Preferred Stock (the
"EXCHANGE CAP") without breaching the Company's obligations under the rules or
regulations of the American Stock Exchange, except that such limitation shall
not apply in the event that the Company (a) obtains the approval of its
stockholders as required by applicable rules and regulations of the American
Stock Exchange (or if the American Stock Exchange is not the principal
securities exchange for the Common Stock, then the principal securities
exchange) for issuances of Common Stock in excess of such amount or (ii) obtains
a written opinion from outside counsel to the Company that such approval is not
required, which opinion shall be reasonably satisfactory to the holders of a
majority of the Preferred Stock then outstanding. Until such approval or
written opinion is obtained, no holder of Preferred Stock pursuant to the
Purchase Agreement shall be issued, upon conversion of Preferred Stock, shares
of Common Stock in an amount greater than the product of (I) the Exchange Cap
amount multiplied by (ii) a fraction, the numerator of which is the number of
shares of Preferred Stock issued to such holder pursuant to the Purchase
Agreement and the denominator of which is the aggregate amount of all the
Preferred Stock issued to the holders pursuant to the Purchase Agreement (the
"CAP ALLOCATION AMOUNT"). In the event that any holder shall sell or otherwise
transfer any of such holder's Preferred Stock, the transferee shall be allocated
a pro rata portion of such holder's Cap Allocation Amount. In the event that
any holder of Preferred Stock shall convert all of such holder's Preferred Stock
into a number of shares of Common Stock which, in the aggregate, is less than
such holder's Cap Allocation Amount, then the difference between such holder's
Cap Allocation Amount and the number of shares of Common Stock actually issued
to such holder shall be allocated to the respective Cap Allocation Amounts of
the remaining holders of Preferred Stock on a pro rata basis in proportion to
the number of shares of Preferred Stock then held by each such holder.
8. VOTING RIGHTS. Except as otherwise required by law or as otherwise
explicitly provided herein, the holders of Preferred Stock and the holders of
Common Stock shall be entitled to notice of any shareholders' meeting and to
vote together as a single class upon any matter submitted to the shareholders
for a vote on the following basis:
(a) COMMON STOCK. Each share of Common Stock issued and
outstanding shall have one vote.
(b) PREFERRED STOCK. Each holder of Preferred Stock shall have
the number of votes equal to the number of shares of Common Stock into which
the Preferred Stock then held by such holder is convertible, as adjusted from
time to time under Section 4 hereof.
(c) DIRECTORS. Holders of Preferred Stock shall have the
exclusive right to elect two (2) of the five (5) directors to the Board, and
shall have such other voting rights as are
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expressly provided in this Certificate of Designations. The Corporation shall
provide the members of the Board elected hereunder with (a) all written accounts
prepared by management; (b) the annual budget of the Corporation prepared for
the next succeeding fiscal year; (c) notification of any litigation or claim
that may materially adversely affect the financial affairs or business prospects
of the Corporation; and (d) written or electronic copies of all filings the
Corporation makes with the Securities and Exchange Commission or the American
Stock Exchange (or if the American Stock Exchange is not the principal
securities exchange for the Common Stock, then such principal securities
exchange).
9. LIQUIDATION, DISSOLUTION, WINDING-UP. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, the
holders of the Preferred Stock shall be entitled to receive in cash out of the
assets of the Corporation, whether from capital or from earnings available for
distribution to its stockholders (the "PREFERRED FUNDS"), before any amount
shall be paid to the holders of any of the capital stock of the Corporation of
any class junior in rank to the Preferred Stock in respect of the preferences as
to the distributions and payments on the liquidation, dissolution and winding up
of the Corporation, an amount per share of Preferred Share equal to the
Applicable Price plus all accrued but unpaid dividends (such sum being referred
to as the "LIQUIDATION VALUE"); provided that, if the Preferred Funds are
insufficient to pay the full amount due to the holders of Preferred Stock and
holders of shares of other classes or series of preferred stock of the
Corporation that are of equal rank with the Preferred Stock as to payments of
Preferred Funds (the "PARI PASSU SHARES"), then each holder of Preferred Stock
and Pari Passu Shares shall receive a percentage of the Preferred Funds equal to
the full amount of Preferred Funds payable to such holder as a liquidation
preference, in accordance with their respective Certificate of Designations,
Preferences and Rights, as a percentage of the full amount of Preferred Funds
payable to all holders of Preferred Stock and Pari Passu Shares.
The following events shall be deemed voluntary liquidation events for
purpose of this Section 9: (a) the purchase or redemption by the Corporation of
stock of any class, in any manner permitted by law, (b) the consolidation or
merger of the Corporation with or into any other Person, or where more than 50%
of the securities of the Corporation then outstanding do not remain outstanding
after such transaction, (c) the sale or transfer by the Corporation of more than
50% of its assets, or (d) the sale or transfer other than by the holders of
Preferred Stock of more than 50% of the voting power of the Corporation.
10. PREFERRED RANK; PARTICIPATION.
(a) RANK. All shares of Common Stock shall be of junior rank to all
Preferred Stock in respect to the preferences as to distributions and payments
upon the liquidation, dissolution and winding up of the Corporation. The rights
of the shares of Common Stock shall be subject to the preferences and relative
rights of the Preferred Stock.
(b) CHANGES TO PREFERENCES. Without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Stock, the Corporation shall not hereafter authorize or issue
additional or other capital stock that is of senior rank to the Preferred Stock
in respect of the preferences as to distributions and payments upon the
liquidation,
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dissolution and winding up of the Corporation. Without the prior express
written consent of the holders of not less than two-thirds (2/3) of the then
outstanding Preferred Stock, the Corporation shall not hereafter authorize or
make any amendment to the Corporation's Certificate of Incorporation or bylaws,
or file any resolution of the Board with the Secretary of State of the State of
Delaware containing any provisions, which would adversely affect or otherwise
impair the rights or relative priority of the holders of the Preferred Stock
relative to the holders of the Common Stock or the holders of any other class of
capital stock (including, but not limited to any increase in the number of
authorized shares of the Corporation or in the number of shares issuable under
any plan to grant stock to employees, officers or directors of the Corporation).
(c) PAYMENTS. Subject to the rights of the holders, if any, of the
Pari Passu Shares, the holders of the Preferred Stock shall, as holders of
Preferred Stock, be entitled to such dividends paid and distributions made to
the holders of Common Stock to the same extent as if such holders of Preferred
Stock had converted the Preferred Stock into Common Stock (without regard to any
limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions. Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.
11. VOTE TO CHANGE THE TERMS OF OR ISSUE PREFERRED STOCK. So long as any
of the Preferred Stock remains outstanding, the Corporation, and any subsidiary
of the Corporation, shall not, without first obtaining the affirmative vote at a
meeting duly called for such purpose or the written consent without a meeting,
of the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Stock:
(a) change this Certificate of Designations or the Corporation's
Certificate of Incorporation to amend, alter, change or repeal any of the
powers, designations, preferences and rights of the Preferred Stock;
(b) issue Preferred Stock other than pursuant to the Securities
Purchase Agreement;
(c) approve the merger of the Corporation with and into another legal
entity, or any reorganization of the Corporation or the sale of substantially
all of the stock or assets of the Corporation, or acquire all or substantially
all of the capital stock or property or another entity;
(d) pay any dividends or make any other distribution or payment on
account of or in redemption, retirement or purchase of any capital stock;
(e) make any change in the size or number of members of the Board
(currently five (5)) or the rights to elect members of the Board; or
(f) incur any debt of greater than $50,000, aggregating the principal
and interest due under the terms of such debt.
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12. LOST OR STOLEN CERTIFICATES. Upon receipt by the Corporation of
evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Preferred Stock,
and, in the case of loss, theft or destruction, of any indemnification
undertaking by the holder to the Corporation and, in the case of mutilation,
upon surrender and cancellation of the Preferred Stock Certificate(s), the
Corporation shall execute and deliver new preferred stock certificate(s) of like
tenor and date; provided, however, the Corporation shall not be obligated to
re-issue preferred stock certificates if the holder contemporaneously requests
the Corporation to convert such Preferred Stock into Common Stock.
13. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, 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 Corporation to comply with the terms of this Certificate of
Designations. Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Corporation (or the
performance thereof). The Corporation acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the
Preferred Stock and that the remedy at law for any such breach may be
inadequate. The Corporation therefore agrees that, in the event of any such
breach or threatened breach, the holders of the Preferred Stock shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
14. SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No specific
provision contained in this Certificate of Designations shall limit or modify
any more general provision contained herein. This Certificate of Designations
shall be deemed to be jointly drafted by the Corporation and all holders of
Preferred Stock notwithstanding its adoption by the Board and shall not be
construed against any person as the drafter hereof.
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15. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
of a holder of Preferred Stock 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.
IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Corporation this ___ day of ___________________, 1998.
PC QUOTE, INC.
By:
------------------------------------
Name:
-----------------------------------
Title:
---------------------------------
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EXHIBIT A
P.C. QUOTE, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and
Rights of Series A and Series B Convertible Preferred Stock (the "CERTIFICATE
OF DESIGNATIONS"). In accordance with and pursuant to the Certificate of
Designations, the undersigned hereby elects to convert the number of shares
of Series __ Convertible Preferred Stock, par value $0.001 per share (the
"PREFERRED STOCK"), of P.C. Quote, Inc., a Delaware corporation (the
"CORPORATION"), as indicated below into shares of Common Stock, par value
$0.001 per share (the "COMMON STOCK"), of the Corporation, by tendering the
stock certificate(s) representing the share(s) of Preferred Stock specified
below as of the date specified below.
Date of Conversion:
------------------------------------------------
Number of Preferred Stock to be converted:
------------------------
Series of Preferred Stock to be converted:
------------------------
Stock certificate no(s). of Preferred Stock to be converted:
-------
Please confirm the following information:
Conversion Price:
-------------------------------------------------
Number of shares of Common Stock
to be issued:
-------------------------------------------------
Please issue the Common Stock into which the Preferred Stock are being converted
and, if applicable, any check drawn on an account of the Corporation in the
following name and to the following address:
Issue to:
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
Facsimile Number:
-------------------------------------------------
Authorization:
-------------------------------------------------
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
<PAGE>
Dated:
------------------------------------------------
Account Number:
(if electronic book entry transfer):
------------------------------
Transaction Code Number
(if electronic book entry transfer):
------------------------------
THIS NOTICE MUST BE DELIVERED TO CORPORATION AND TRANSFER AGENT
<PAGE>
EXHIBIT E
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), is dated as of this
__ day of _________, 1998, by and among PC Quote, Inc., a Delaware corporation
(the "COMPANY"), and the undersigned buyers (each, a "BUYER" and collectively,
the "BUYERS").
WHEREAS:
A. In connection with the Securities Purchase Agreement dated as of
September ___, 1998, by and among the Company and the Buyers (the "SECURITIES
PURCHASE AGREEMENT"), the Company has agreed, upon the terms and subject to the
conditions of the Securities Purchase Agreement, to issue and sell to the Buyers
shares of the Company's Series A Preferred Stock and Series B Preferred Stock
(collectively, the "PREFERRED SHARES"), which will be convertible into shares of
the Company's Common Stock, par value $0.001 per share (the "COMMON STOCK") (as
converted, the "CONVERSION SHARES"), in accordance with the terms of the
Company's Certificate of Designations for Series A and Series B Preferred Stock
(the "CERTIFICATE OF DESIGNATIONS");
B. In connection with the Securities Purchase Agreement, the Company also
issued to PICO Holdings, Inc. ("PICO"), one of the Buyers, a Warrant (the "NEW
WARRANT") to purchase additional shares of Common Stock of the Company (the "NEW
WARRANT SHARES");
C. In connection with the Securities Purchase Agreement, the Company and
PICO amended the provisions of three issued and outstanding Warrants (the
"EXISTING WARRANTS" and collectively with the New Warrant the "WARRANTS") held
by PICO to purchase an aggregate of 949,032 shares of Common Stock of the
Company (the "EXISTING WARRANT SHARES," and collectively with the New Warrant
Shares, the "WARRANT SHARES");
D. The Company is currently maintaining an effective Registration
Statement on Form S-3, filed on May 20, 1998 (the "EXISTING S-3"), covering the
registration of the Existing Warrant Shares and 2,370,000 issued and outstanding
shares of Common Stock of the Company owned by PICO (the "PICO SHARES"); and
E. To induce the Buyers to execute and deliver the Securities 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.
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 Buyers hereby
agree as follows:
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1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "INVESTOR" means a Buyer and any transferee or assignee thereof
to whom a Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9.
b. "PERSON" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
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 the declaration or ordering of effectiveness of such
Registration Statement(s) by the United States Securities and Exchange
Commission (the "SEC").
d. "REGISTRABLE SECURITIES" means the Conversion Shares issued or
issuable upon conversion of the Preferred Shares, the Existing Warrant Shares,
the New Warrant Shares, the PICO Shares and any shares of capital stock issued
or issuable with respect to the Conversion Shares, the Existing Warrant Shares,
the New Warrant Shares, the PICO Shares or the Preferred Shares as a result of
any stock split, stock dividend, recapitalization, exchange or similar event or
otherwise, regardless of any limitation on conversions of Preferred Shares.
e. "REGISTRATION STATEMENT" means a registration statement of the
Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare, and, as soon
as practicable but in no event later than 30 days after the date of issuance of
the Preferred Shares, file with the SEC a Registration Statement or Registration
Statements (as is necessary) on Form S-3 (or, if such form is unavailable for
such a registration, on such other form as is available for such a registration,
subject to the consent of the Investors holding a majority of the Registrable
Securities (which consent will not be unreasonably withheld) and the provisions
of Section 2(d)), covering the resale of all of the Registrable Securities,
which Registration Statement(s) shall state that, in accordance with Rule 416
promulgated under the 1933 Act, such Registration Statement(s) also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Preferred Shares and the exercise and purchase of the New
Warrant Shares (i) to prevent dilution resulting from stock splits, stock
dividends or
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similar transactions, and (ii) by reason of changes in the Conversion Rate of
the Preferred Shares in accordance with the terms of the Securities Purchase
Agreement and the Company's Articles of Incorporation as modified by the
Certificate of Designations. Such Registration Statement shall initially
register for resale at least ________ shares of Common Stock [the number equal
to 150% of the shares (a) issuable on conversion of the Preferred Shares
assuming the Conversion Rate applicable as of the Closing Date, and (b) issuable
on exercise of the Warrants assuming at the Exercise Prices as of the Closing
Date], subject to adjustment as provided in Section 3(b). Such registered
shares of Common Stock shall be allocated among the Investors pro rata based on
the total number of Registrable Securities issued or issuable as of each date
that a Registration Statement, as amended, relating to the resale of the
Registrable Securities is declared effective by the SEC. The Company shall use
its best efforts to have the Registration Statement(s) declared effective by the
SEC as soon as practicable, but in no event later than 120 days after the
issuance of the Preferred Shares.
b. ALLOCATION OF REGISTRABLE SECURITIES. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time of such establishment or increase, as the case may be.
In the event an Investor shall sell or otherwise transfer any of such holder's
Registrable Securities, each transferee shall be allocated a pro rata portion of
the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any person or entity
which does not hold any Registrable Securities shall be allocated to the
remaining Investors, pro rata based on the number of Registrable Securities then
held by such Investors. In addition, the number of Registrable Securities held
by any Investor shall be determined as if all Warrants held by Investors and
Preferred Shares then outstanding were converted into or exercised for
Registrable Securities.
c. COUNSEL AND INVESTMENT BANKERS. Subject to Section 5 hereof, in
connection with any offering pursuant to this Section 2, at their own expense
the Investors shall have the right to select one legal counsel and an investment
banker or bankers and manager or managers to administer their interest in the
offering, which investment banker or bankers or manager or managers shall be
reasonably satisfactory to the Company. The Company shall reasonably cooperate
with any such counsel and investment bankers.
d. ELIGIBILITY FOR FORM S-3. The Company represents and warrants
that on the date hereof it meets the requirements for the use of Form S-3 for
registration of the sale by the Investors of the Registrable Securities and the
Company has filed and shall file all reports required to be filed by the Company
with the SEC in a timely manner so as to obtain and maintain such eligibility
for the use of Form S-3. In the event that Form S-3 is not available for sale
by the Investors of the Registrable Securities, then the Company (i) with the
consent of the Investors holding a majority of the Registrable Securities
pursuant to Section 2(a), shall register the sale of the Registrable Securities
on another appropriate form and (ii) the Company shall undertake to register the
Registrable Securities on Form S-3 as soon as such form is available, but shall
maintain the effectiveness of the Registration Statement then in effect until
such time as
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a Registration Statement on Form S-3 covering the Registrable Securities has
been declared effective by the SEC.
e. RULE 416. The Company and the Investors each acknowledge that an
indeterminate number of Registrable Securities shall be registered pursuant to
Rule 416 under the 1933 Act so as to include in such Registration Statement any
and all Registrable Securities which may become issuable (i) to prevent dilution
resulting from stock splits, stock dividends or similar transactions and (ii) if
permitted by law, by reason of reductions in the Series A and Series B
Conversion Rates (as defined in the Certificate of Designations) of the
Preferred Shares in accordance with the terms thereof, including, without
limitation, the terms which cause the Series A and Series B Conversion Rates to
decrease as the price of the Common Stock decreases (collectively, the "RULE 416
SECURITIES"). In this regard, the Company agrees to use all reasonable efforts
to ensure that the maximum number of Registrable Securities which may be
registered pursuant to Rule 416 under the 1933 Act are covered by the
Registration Statement and, absent guidance from the SEC or other definitive
authority to the contrary, the Company shall use all reasonable efforts to
affirmatively support and to not take any position adverse to the position that
the Registration Statement filed hereunder covers all of the Rule 416
Securities. If the Company takes a position adverse to the position that the
Registration Statement filed hereunder covers all of the Rule 416 Securities,
then the Company shall immediately provide to each Investor written notice
setting forth the basis for the Company's position and the authority therefor.
f. EFFECT OF FAILURE TO OBTAIN AND MAINTAIN EFFECTIVENESS OF
REGISTRATION STATEMENT. If the Registration Statement is not (i) filed within
30 days of the Issuance Date (as defined in the Certificate of Designations) of
the Preferred Shares (the "SCHEDULED FILING DATE"), (ii) declared effective by
the SEC on or before 120 days after the Issuance Date for the Preferred Shares
(the "SCHEDULED EFFECTIVE DATE"), or (iii) if after the Registration Statement
has been declared effective by the SEC, sales cannot be made pursuant to the
Registration Statement (whether because of a failure to keep the Registration
Statement effective, to disclose such information as is necessary for sales to
be made pursuant to the Registration Statement, to register sufficient shares of
Common Stock or otherwise), then, as partial relief for the damages to any
Investor by reason of any such delay in or reduction of its ability to sell any
of the Registrable Securities (which remedy shall not be exclusive of any other
remedies available at law or in equity), the Company shall pay to each Investor
an amount, per each Conversion Share to be issued to such Investor as of the
relevant date, in cash equal to the product of (i) $10,000 multiplied by (ii)
the sum of (A) .02, if the Registration Statement is not filed by the Scheduled
Filing Date, plus (B) .02, if the Registration Statement is not declared
effective by the SEC by the Scheduled Effective Date, plus (C) the product of
(I) .00067 multiplied by (II) the sum of (x) the number of days after the
Scheduled Filing Date that the relevant Registration Statement has not been
filed with the SEC, (y) the number of days after the Scheduled Effective Date
and prior to the date that the relevant Registration Statement has not been
declared effective by the SEC, and (z) the number of days after the Registration
Statement has been declared effective by the SEC that the Registration Statement
is not available for sales of at least all of the Registrable Securities. The
payments to which a holder shall be entitled pursuant to this Section 2(h) are
referred to herein as "REGISTRATION DELAY PAYMENTS." The aggregate amount then
owing upon
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<PAGE>
any Registration Delay Payments shall be paid within five business days of the
earlier of (A) the first day of each month following the occurrence of the event
resulting in the requirement to make such Registration Delay Payments, or (B)
the date on which the event resulting in the requirement to make Registration
Delay Payments is cured. In the event the Company fails to make Registration
Delay Payments in a timely manner, such Registration Delay Payments shall bear
interest at the rate of 2.0% per month (or the maximum rate permitted by law),
prorated for partial months, until paid in full. If the Company fails to pay
the Registration Delay Payments, including any interest thereon, within 15
business days of the applicable payment date, then the holder entitled to such
payments shall have the right at any time, so long as the Company continues to
fail to make such payments, to require the Company, upon written notice, to
immediately issue, in lieu of the Registration Delay Payments, including any
interest thereon, the number of shares of Common Stock equal to the quotient of
(X) the sum of the Registration Delay Payments and all interest accrued thereon
divided by (Y) the lowest closing bid price on the American Stock Exchange (or
such other stock exchange as the Common Stock may then be quoted) on any day
during the period beginning on and including the date the Registration Delay
Payments were due and payable and ending on and including the date the holder
delivers written notice to the Company of its election to receive shares of
Common Stock in lieu of the Registration Delay Payments.
3. RELATED OBLIGATIONS.
At such time as the Company is obligated to file a Registration
Statement with the SEC pursuant to Section 2(a), the Company will use its best
efforts to effect the registration of the Registrable Securities in accordance
with the intended method of disposition thereof, and, pursuant thereto, the
Company shall perform the following:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the thirtieth (30th) day after the date of issuance of the Preferred Shares
for the registration of Registrable Securities pursuant to Section 2(a)) and use
its best efforts to cause such Registration Statement relating to the
Registrable Securities to become effective as soon as possible after such filing
(but in no event later than 120 days after the issuance of the Preferred Shares
for the registration of Registrable Securities), and keep such Registration
Statement effective pursuant to Rule 415 at all times until the earlier of (i)
the date as of which the Investors may sell all of the Registrable Securities
without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto) or (ii) the date on which (A) the Investors shall have sold
all the Registrable Securities and (B) none of the Preferred Shares or the
Warrants is outstanding (the "REGISTRATION PERIOD"), which Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein) 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.
b. The Company shall 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 such Registration
Statement, which prospectus is to be filed
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<PAGE>
pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep
such Registration Statement effective at all times during the Registration
Period, and, during such period, comply with the provisions of the 1933 Act with
respect to the disposition of all Registrable Securities of the Company covered
by such Registration Statement until such time as all of such Registrable
Securities shall have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof as set forth in such
Registration Statement. Upon written notice from any Investor or actual
knowledge that the number of shares available under a Registration Statement
filed pursuant to this Agreement is insufficient to cover all of the Registrable
Securities, the Company shall amend such Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable), or
both, so as to cover all of the Registrable Securities for all Investors, in
each case, as soon as practicable, but in any event within twenty (20) days
after the Company's receipt of such notice or actual knowledge. The Company
shall use its best efforts to cause such amendment and/or new Registration
Statement to become effective as soon as practicable following the filing
thereof. For purposes of the foregoing provision, the number of shares
available under a Registration Statement shall be deemed "insufficient to cover
all of the Registrable Securities" if at any time the number of Registrable
Securities issued or issuable upon conversion of the Preferred Shares and the
Warrants, when taken with the PICO Shares, is greater than the quotient
determined by dividing (i) the number of shares of Common Stock available for
resale under such Registration Statement by (ii) 1.5. For purposes of the
calculation set forth in the foregoing sentence, any restrictions on the
convertibility of the Preferred Shares and the Warrants shall be disregarded and
such calculation shall assume that the Preferred Shares and the Warrants are
then convertible into shares of Common Stock at the then prevailing Series A and
Series B Conversion Rates (as defined in the Company's Certificate of
Designations).
c. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement and its legal counsel
without charge (i) promptly after the same is prepared and filed with the SEC at
least one copy of such Registration Statement and any amendment(s) thereto,
including financial statements and schedules, all documents incorporated therein
by reference and all exhibits, the prospectus included in such Registration
Statement (including each preliminary prospectus) and, with regards to such
Registration Statement(s), any correspondence by or on behalf of the Company to
the SEC or the staff of the SEC and any correspondence from the SEC or the staff
of the SEC to the Company or its representatives, (ii) upon the effectiveness of
any Registration Statement, ten (10) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such other
number of copies as such Investor may reasonably request) and (iii) such other
documents, including copies of any preliminary or final prospectus, as such
Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities owned by such Investor.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as any Investor reasonably requests, (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
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<PAGE>
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; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (x) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (y) subject itself to general taxation in any such
jurisdiction, or (z) file a general consent to service of process in any such
jurisdiction. The Company shall promptly notify each Investor who holds
Registrable Securities of the receipt by the Company of any notification with
respect to the suspension of the registration or qualification of any of the
Registrable Securities for sale under the securities or "blue sky" laws of any
jurisdiction in the United States or its receipt of actual notice of the
initiation or threatening of any proceeding for such purpose.
e. In the event Investors who hold a majority of the Registrable
Securities being offered in the offering select underwriters for the 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 (only with respect to violations
which occur in reliance upon and in conformity with information furnished in
writing to the Company by such Investor expressly for use in the Registration
Statement for such underwritten public offering), with the underwriters of such
offering.
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor in writing of the happening of any event
as a result of which the prospectus included in a Registration Statement, as
then in effect, includes an untrue statement of a material fact or omission 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, and promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and deliver
ten (10) copies of such supplement or amendment to each Investor (or such other
number of copies as such Investor may reasonably request). The Company shall
also promptly notify each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to each Investor by
facsimile on the same day of such effectiveness and by overnight mail), (ii) of
any request by the SEC for amendments or supplements to a Registration Statement
or related prospectus or related information, and (iii) of the Company's
reasonable determination that a post-effective amendment to a Registration
Statement would be appropriate.
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
or the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify each Investor who holds Registrable Securities being sold
(and, in the event of an underwritten offering, the managing underwriters) of
the issuance of such order
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<PAGE>
and the resolution thereof or its receipt of actual notice of the initiation or
threat of any proceeding for such purpose.
h. The Company shall permit each Investor and a single firm of
counsel, initially Gray Cary Ware & Freidenrich or such other counsel as
thereafter designated as selling stockholders' counsel by the Investors who hold
a majority of the Registrable Securities being sold, to review and comment upon
a Registration Statement and all amendments and supplements thereto at least
seven (7) business days prior to their filing with the SEC, and shall not file
any document in a form to which such counsel reasonably objects. The Company
shall not submit a request for acceleration of the effectiveness of a
Registration Statement or any amendment or supplement thereto without the prior
approval of such counsel, which consent shall not be unreasonably withheld.
i. At the request of any Investor, the Company shall use its
reasonable best efforts to furnish to such Investor, if required by an
underwriter, on the date of the effectiveness of the Registration Statement and
thereafter from time to time on such dates as an Investor may reasonably request
(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 as of such date, of
counsel representing the Company for purposes of such Registration Statement, in
form, scope and substance as is customarily given in an underwritten public
offering, addressed to the underwriters and the Investors.
j. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall hold in strict confidence and shall
not make any disclosure (except to an Investor) or use 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 (a) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
any Registration Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or (c) 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 of which
the Inspector has knowledge. 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 its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, the Records
deemed confidential.
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k. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company 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 final,
non-appealable 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 Agreement or any other
agreement. 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
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
l. The Company shall, within twenty (20) days of the Issue Date and
thereafter throughout the Registration Period, either (i) cause all the
Registrable Securities covered by a Registration Statement to be listed on each
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation and quotation of all the Registrable Securities covered by the
Registration Statement on the American Stock Exchange. The Company shall pay
all fees and expenses in connection with satisfying its obligation under this
Section 3(l).
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any managing
underwriter or underwriters, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or, if there is no
managing underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters, if any, or
the Investors may request.
n. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.
o. The Company shall provide a transfer agent and registrar for all
such Registrable Securities not later than the effective date of such
Registration Statement.
p. If reasonably requested by the managing underwriters or an
Investor, the Company shall (i) immediately incorporate in a prospectus
supplement or post-effective amendment such information as the managing
underwriters and the Investors agree should be included therein relating to the
sale and distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being sold to
such underwriters, the purchase price being paid therefor by such underwriters
and any other terms of the underwritten (or best efforts underwritten) offering
of the Registrable Securities to be sold in
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such offering; (ii) make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment; and (iii) supplement
or make amendments to any Registration Statement or the related prospectus if
requested by a shareholder or any underwriter of such Registrable Securities.
q. The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities.
r. The Company shall make generally available to the Investors as
soon as practical, but not later than 90 days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 under the 1933 Act) covering a twelve-month period beginning not later
than the first day of the Company's fiscal quarter next following the effective
date of the Registration Statement.
s. The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.
t. Within two (2) business days after the Registration Statement
which includes the Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to deliver,
to the transfer agent for such Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) confirmation in the form attached hereto as EXHIBIT A that the
Registration Statement has been declared effective by the SEC.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated filing
date of a Registration Statement, the Company shall notify each Investor in
writing of the information the Company requires from each such Investor if such
Investor elects to have any of such Investor's Registrable Securities included
in such Registration Statement. 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 a particular Investor
that such Investor shall (i) furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and (ii)
execute such documents in connection with such registration as the Company may
reasonably request.
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 any 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 such Registration Statement.
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c. In the event any Investor elects to participate in an
underwritten public offering pursuant to Section 2, each such Investor agrees to
enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations (only with respect to violations
which occur in reliance upon and in conformity with information furnished in
writing to the Company by such Investor expressly for use in the Registration
Statement for such underwritten public offering), with the managing underwriter
of such offering and to take such other actions as are reasonably required in
order to expedite or facilitate the disposition of the Registrable Securities,
unless such Investor notifies the Company in writing of such Investor's election
to exclude all of such Investor's Registrable Securities from such Registration
Statement.
d. 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(g) or
the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of 3(f).
e. No Investor may participate in any underwritten registration
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.
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, and
fees and disbursements of counsel for the Company and one (1) counsel for the
Investors, shall be paid by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor who holds such
Registrable Securities, the directors, officers, partners, employees, agents
of, and each Person, if any, who controls, any Investor within the meaning of
the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934
ACT"), and any underwriter (as defined in the 1933 Act) for the Investors,
and the directors and officers of, and each Person, if any, who controls, any
such underwriter within the
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meaning of the 1933 Act or the 1934 Act (each, an "INDEMNIFIED PERSON"),
against any losses, claims, damages, liabilities, judgments, fines, penalties,
charges, costs, attorneys' fees, amounts paid in settlement or expenses, joint
or several, (collectively, "CLAIMS") incurred in investigating, preparing or
defending any action, claim, suit, inquiry, proceeding, investigation or appeal
taken from the foregoing by or before any court or governmental, administrative
or other regulatory agency, body or the SEC, whether pending or threatened,
whether or not an indemnified party is or may be a party thereto ("INDEMNIFIED
DAMAGES"), to which any of them may become subject insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or any post-effective
amendment thereto or in any filing made in connection with the qualification of
the offering under the securities or other "blue sky" laws of any jurisdiction
in which Registrable Securities are offered ("BLUE SKY FILING"), or the omission
or alleged omission to state 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 any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final 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 1934 Act,
any other law, including, without limitation, any state securities law, or
any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement (the matters in
the foregoing clauses (i) through (iii) being, collectively, "VIOLATIONS").
Subject to the restrictions set forth in Section 6(d) with respect to the
number of legal counsel, the Company shall reimburse the Investors and each
such underwriter or controlling person, promptly as such expenses are
incurred and are due and payable, for any reasonable 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): (i)
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 or underwriter for such
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); (ii) with respect to any preliminary prospectus, shall not
inure to the benefit of any such person from whom the person asserting any
such Claim purchased the Registrable Securities that are the subject thereof
(or to the benefit of any person controlling such person) if the untrue
statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or supplemented,
if such prospectus was timely made available by the Company pursuant to
Section 3(c), and if the Indemnified Person was promptly advised in writing
not to use the incorrect preliminary prospectus prior to the use giving rise
to a violation and if such Indemnified Person, notwithstanding such advice,
used the incorrect preliminary prospectus; (iii) shall not be available to
the extent such Claim is based on a failure of the Investor to deliver or to
cause to be delivered the prospectus made available by the Company; and (iv)
shall not apply to amounts paid in settlement of any Claim if such settlement
is effected without the prior written consent of
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<PAGE>
the Company, which 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 Person and shall survive the transfer or
disposition of the Registrable Securities by the Investors.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement and, each Person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are 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(d), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 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 Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
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. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Party under this Section
6 of notice of the commencement of any action or proceeding (including any
governmental action or proceeding) involving a Claim, such Indemnified Party
shall, if a Claim in respect thereof is to be made against any indemnifying
party under this Section 6, deliver to the indemnifying party a written notice
of the commencement thereof, and the 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 party and
the Indemnified Party, provided, however, that an Indemnified Party shall have
the right to retain its own counsel with the reasonable fees
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<PAGE>
and expenses to be paid by the indemnifying party, if, in the reasonable opinion
of counsel retained by the indemnifying party, the representation by such
counsel of the Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. The indemnifying party shall pay for only one separate legal
counsel for the Indemnified Parties, and such counsel shall be selected by
Investors holding a majority-in-interest of the Registrable Securities included
in the Registration Statement to which the Claim relates (and subject to the
Company's approval which shall not be unreasonably withheld), if the Investors
are entitled to indemnification hereunder, or the Company, if the Company is
entitled to indemnification hereunder, as applicable. The Indemnified Party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the Indemnified Party which relates to such action or claim. The indemnifying
party shall keep the Indemnified Party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its written consent, provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the consent of the Indemnified
Party, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Following indemnification as
provided for hereunder, the indemnifying party shall be subrogated to all rights
of the Indemnified Party with respect to all third parties, firms or
corporations relating to the matter for which indemnification has been made.
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 Party under this Section
6, except to the extent that the indemnifying party is prejudiced in its ability
to defend such action.
e. 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 and when bills are received or Indemnified Damages are incurred.
f. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party against the
indemnifying party or others, and (ii) any liabilities the indemnifying party
may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party 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
14
<PAGE>
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (iii) contribution 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 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other 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. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements and the filing of such reports
and other documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
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 1934 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 under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable Securities
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 (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned;
(iii) immediately 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
receives 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; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.
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<PAGE>
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 two-thirds (2/3) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any person to amend or
consent to a waiver or modification of any provision of any of this Agreement
unless the same consideration also is offered to all of the parties to this
Agreement.
11. MISCELLANEOUS.
a. 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. Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided a confirmation
of transmission is mechanically generated and kept on file by the sending
party); (iii) upon receipt, when delivered by a delivery service, in each case
properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
PC Quote, Inc.
300 S. Wacker Dr., Suite 300
Chicago, IL 60606
Telephone: _________
Facsimile: _________
Attention: President
With a copy to:
Wildman, Harrold, Allen & Dixon
225 West Wacker Drive
Chicago, IL 60606-1229
Telephone: 312-201-2000
Facsimile: 312-201-2555
Attention: Donald E. Figliulo, Esq.
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If to a Buyer, to its address and facsimile number on the Schedule of
Buyers attached hereto, with a copy to:
Gray Cary Ware & Freidenrich LLP
4365 Executive Drive, Suite 1600
San Diego, CA 92121
Telephone: 619-677-1400
Facsimile: 619-677-1477
Attention: Robert W. Ayling, Esq.
Each party shall use reasonable efforts to provide five (5) days prior notice to
the other party of any change in address, phone number or facsimile number.
c. 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. This Agreement, and all acts and transactions pursuant hereto and
the rights and obligations of the parties hereto shall be governed, construed
and interpreted in accordance with the laws of the State of California without
regard to the principles of conflict of laws. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the County of San Diego, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
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 in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
e. This Agreement, the Securities Purchase Agreement and the
documents listed therein 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 and therein. This Agreement, the Securities Purchase
Agreement and the documents listed therein supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
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g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more identical
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 of a
copy of this Agreement bearing the signature of the party so delivering this
Agreement.
i. 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.
j. All consents and other determinations to be made by the Investors
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by Investors holding a majority of the Registrable Securities,
determined as if all of the Preferred Shares then outstanding have been
converted into Registrable Securities (without regard to any limitations on
conversion).
k. 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.
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
PC QUOTE, INC. PICO HOLDINGS, INC.
By: By:
----------------------------- ---------------------------------
Name: Name:
--------------------------- -------------------------------
Title: Title:
-------------------------- ------------------------------
PHYSICIANS INSURANCE COMPANY OF OHIO
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
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SCHEDULE OF BUYERS
1. PICO Holdings, Inc.
875 Prospect Street, Suite 301
La Jolla, CA 92037
Attn: President
2. Physicians Insurance Company of Ohio, Inc.
875 Prospect Street, Suite 301
La Jolla, CA 92037
Attn: President
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<PAGE>
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
ATTN:
--------------------
RE: PC QUOTE, INC.
--------------
Ladies and Gentlemen:
We are counsel to PC QUOTE, INC., a Delaware corporation (the "COMPANY"),
and have represented the Company in connection with that certain Securities
Purchase Agreement (the "PURCHASE AGREEMENT") entered into by and among the
Company and the Investors named therein (collectively, the "HOLDERS") pursuant
to which the Company issued to the Holders shares of its Series A and Series B
Preferred Stock, par value $0.001 per share, (the "PREFERRED SHARES"). Pursuant
to the Purchase Agreement, the Company also has entered into a Registration
Rights Agreement with the Holders (the "REGISTRATION RIGHTS AGREEMENT") pursuant
to which the Company agreed, among other things, to register the Registrable
Securities (as defined in the Registration Rights Agreement), including the
shares of the Common Stock of the Company, par value $0.001 per share (the
"COMMON STOCK") issuable upon conversion of the Preferred Shares, and the shares
of Common Stock issuable on exercise of the Warrant and the Existing Warrants
(as defined in the Securities Purchase Agreement) under the Securities Act of
1933, as amended (the "1933 ACT"). In connection with the Company's obligations
under the Registration Rights Agreement, on ____________ ___, 1998, the Company
filed a Registration Statement on Form _____ (File No. 333-_____________) (the
"REGISTRATION STATEMENT") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names each of the Holders as
a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge that
any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC and
the Registrable Securities are available for resale under the 1933 Act pursuant
to the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
By:
------------------------------------------
cc: [LIST NAMES OF HOLDERS]
<PAGE>
EXHBIT B
Common Stock Warrant
____________ Shares
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE
ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
Void after April 30, 2005
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, PICO HOLDINGS, INC., a California
corporation, is entitled to purchase a minimum of ________________ (_______)
shares of Common Stock of PC QUOTE, INC., a Delaware corporation, at a price per
share (the "Warrant Price") equal to $___________ [120% of the Series B Closing
Price under the Securities Purchase Agreement], subject to adjustments and all
other terms and conditions set forth in this Warrant.
1. DEFINITIONS. As used herein, the following terms, unless the context
otherwise requires, shall have the following meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
(b) "Acquisition" shall mean any sale, license, or other disposition
of all or substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
(c) "Commission" shall mean the Securities and Exchange Commission,
or any other Federal agency at the time administering the Act.
(d) "Common Stock" shall mean shares of the Company's presently or
subsequently authorized Common Stock, and any stock into which such Common Stock
may hereafter be exchanged.
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(e) "Company" shall mean PC QUOTE, INC., a Delaware corporation, and
any corporation which shall succeed to or assume the obligations of PC QUOTE,
INC., under this Warrant.
(f) "Date of Grant" shall mean ______________, 1998 [Closing Date of
Securities Purchase Agreement].
(g) "Exercise Date" shall mean the effective date of the delivery of
the Notice of Exercise pursuant to Section 4 below.
(h) "Holder" shall mean any person who shall at the time be the
registered holder of this Warrant.
(i) "Shares" shall mean shares of the Company's Common Stock, as
described in the Company's Certificate of Incorporation.
2. ISSUANCE OF WARRANT AND CONSIDERATION THEREFOR. This Warrant is
issued in consideration for the renegotiation of the terms of a promissory note
issued by the Company and held by PICO HOLDINGS, INC. ("PICO") and the purchase
of preferred stock in the Company by PICO pursuant to that certain Securities
Purchase Agreement (the "Purchase Agreement") dated ___________, 1998 by and
among the Company, PICO and PHYSICIANS INSURANCE COMPANY OF OHIO ("PHYSICIANS").
3. TERM. The purchase right represented by this Warrant is exercisable
only during the period commencing upon the Date of Grant and ending on April 30,
2005.
4. METHOD OF EXERCISE AND PAYMENT.
(a) METHOD OF EXERCISE. Subject to Section 3 hereof and compliance
with all applicable Federal and state securities laws, the purchase right
represented by this Warrant may be exercised, in whole or in part and from time
to time, by the Holder by (i) surrender of this Warrant and delivery of the
Notice of Exercise (the form of which is attached hereto as EXHIBIT A), duly
executed, to the principal office of the Company and (ii) payment to the Company
of an amount equal to the product of the Warrant Price, as adjusted under
Section 5, multiplied by the number of Shares then being purchased pursuant to
one of the payment methods permitted under Section 4(b) below.
(b) METHOD OF PAYMENT. Payment shall be made either (1) by check
drawn on a United States bank and for United States funds made payable to the
Company, or (2) by wire transfer of United States funds for the account of the
Company.
(c) NET ISSUE EXERCISE. Notwithstanding any provisions herein to the
contrary, in lieu of payment of the exercise price in cash, the Holder may elect
to receive Shares equal to the value (as determined below) of this Warrant (or
the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with a properly endorsed notice of
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exercise and notice of such election in which event the Company shall issue to
the Holder a number of Shares computed using the following formula:
Y(A-B)
X= ----------
A
Where X = the number of shares of Common Stock to be issued to the Holder,
Y = the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised,
the portion of the Warrant being canceled (at the date of such
calculation),
A = the fair market value of one share of the Company's Common Stock
(at the date of such calculation), and
B = the Warrant Price, as adjusted.
For purposes of the above calculation, fair market value of one Share shall be
determined by the Company's Board of Directors in good faith; provided, however,
that where there exists a public market for the Company's Common Stock at the
time of such exercise, fair market value shall mean the average over the
preceding twenty trading days (or such fewer number of days as such public
market has existed) of the mean of the closing bid and asked prices on the
over-the-counter market as reported by American Stock Exchange, or if the Common
Stock is then traded on a national securities exchange other than the American
Stock Exchange, the average over the preceding twenty trading days (or such
fewer number of days as the Common Stock has been so traded) of the closing sale
prices on the principal national securities exchange or the National Market on
which it is so traded.
(d) DELIVERY OF CERTIFICATE. In the event of any exercise of the
purchase right represented by this Warrant, certificates for the Shares so
purchased shall be delivered to the Holder within ten days of delivery of the
Notice of Exercise and, unless this Warrant has been fully exercised or has
expired, a new warrant representing the portion of the Shares with respect to
which this Warrant shall not then have been exercised shall also be issued to
the Holder within such ten day period.
(e) NO FRACTIONAL SHARES. No fractional Shares shall be issued in
connection with any exercise hereunder, but in lieu of such fractional Shares
the Company shall make a cash payment therefor upon the basis of the fair market
value per Share as of the date of exercise.
(f) COMPANY'S REPRESENTATIONS.
(i) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer under applicable federal
and state securities laws. During the period within which the purchase right
3
<PAGE>
represented by this Warrant may be exercised, the Company shall at all times
have authorized, and reserved for the purpose of issuance upon exercise of the
purchase right represented by this Warrant, a sufficient number of Shares to
provide for the exercise of the purchase right represented by this Warrant;
(ii) This Warrant has been duly authorized and executed by
the Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting the
enforcement of creditors' rights;
(iii) The execution and delivery of this Warrant are not, and
the issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be inconsistent with the Company's Certificate of
Incorporation or Bylaws, do not and will not contravene any law, governmental
rule or regulation, judgment or order applicable to the Company, and do not and
will not conflict with or contravene any provision of, or constitute a default
under, any material indenture, mortgage, contract or other instrument of which
the Company is a party or by which it is bound, or require the registration or
filing with or the taking of any action in respect of or by, any federal, state
or local government authority or agency (other than such consents, approvals,
notices, actions, or filings as have already been obtained or made, as the case
may be).
5. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number of
securities issuable upon the exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time upon the occurrence of certain
events, as follows:
(a) ADJUSTMENT FOR DIVIDENDS IN STOCK. In case at any time or from
time to time on or after the date hereof the holders of the Common Stock of the
Company (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or, on or after the record
date fixed for the determination of eligible stockholders, shall have become
entitled to receive, without payment therefor, other or additional stock of the
Company by way of dividend then, and in each case, the Holder of this Warrant
shall, upon the exercise hereof, be entitled to receive, in addition to the
number of Shares receivable thereupon, and without payment of any additional
consideration therefor, the amount of such other or additional stock of the
Company which such Holder would hold on the date of such exercise had it been
the holder of record of such Common Stock on the date hereof and had thereafter,
during the period from the date hereof to and including the date of such
exercise, retained such Shares and/or all other additional stock receivable by
it as aforesaid during such period, giving effect to all adjustments called for
during such period by paragraphs (b) and (c) of this Section 5.
(b) ADJUSTMENT FOR RECLASSIFICATION OR REORGANIZATION. In case of
any reclassification or change of the outstanding securities of the Company or
of any consolidation, merger or reorganization of the Company on or after the
date hereof, then and in each such case the Holder of this Warrant, upon the
exercise hereof at any time after the consummation of such reclassification,
change, consolidation, merger or reorganization, shall be entitled to receive,
in lieu of or in addition to the stock or other securities and property
receivable upon the exercise hereof prior to such consummation, the stock or
other securities to which such Holder would have been
4
<PAGE>
entitled upon such consummation if such Holder had exercised this Warrant
immediately prior thereto, all subject to further adjustment as provided in
paragraphs (a) and (c); in each such case, the terms of this Section 5 shall
be applicable to the shares of stock or other securities property receivable
upon the exercise of this Warrant after such consummation.
(c) STOCK SPLITS AND REVERSE STOCK SPLITS. If, at any time on or
after the date hereof, the Company shall subdivide its outstanding Shares into a
greater number of Shares, the Warrant Price in effect immediately prior to such
subdivision shall thereby be proportionately reduced and the number of Shares
receivable upon exercise of this Warrant shall thereby be proportionately
increased; and, conversely, if at any time on or after the date hereof the
outstanding number of Shares shall be combined into a smaller number of Shares,
the Warrant Price in effect immediately prior to such combination shall thereby
be proportionately increased and the number of Shares receivable upon exercise
of the Warrant shall be proportionately decreased.
(d) RIGHTS, OPTIONS OR WARRANTS. If the Company issues rights,
options or warrants to all holders of its Shares, without any charge to such
holders, entitling them (for a period expiring within 45 days after the record
date mentioned below in this paragraph (d)) to subscribe for or to purchase
Shares at a price per share lower than the then current market price per Share
at the record date mentioned below (as defined in paragraph (f) below), the
number of Shares thereafter purchasable upon exercise of each Warrant shall be
determined by multiplying the number of Shares theretofore purchasable upon
exercise of each Warrant by a fraction, of which the numerator shall be the
number of Shares outstanding on such record date plus the number of additional
Shares offered for subscription or purchase, and of which the denominator shall
be the number of Shares outstanding on such record date plus the number of
Shares which the aggregate offering price of the total number of Shares so
offered would purchase at the then current market price per Share. Such
adjustment shall be made whenever such rights, options or warrants are issued,
and shall become effective retroactively to immediately after the record date
for the determination of stockholders entitled to receive such rights, options
or warrants.
(e) OTHER DISTRIBUTIONS. If the Company distributes to all holders
of its Shares shares of stock other than Common Stock or evidences of its
indebtedness or assets (excluding cash dividends payable out of consolidated
earnings or retained earnings and dividends or distributions referred to in
paragraph (a) above) or rights, options or warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase Shares
(excluding those referenced in Section (2) above), then in each case the number
of Shares thereafter issuable upon the exercise of each warrant shall be
determined by multiplying the number of Shares theretofore issuable upon the
exercise of each Warrant, by a fraction, of which the numerator shall be the
current market price per Share (as defined in paragraph (f) below) on the record
date mentioned below in this paragraph (e), and of which the denominator shall
be the current market price per Share on such record date, less the then fair
value (as determined in good faith by the Board of Directors of the Company,
whose determination shall be conclusive) of the portion of the shares of stock
other than the Common Stock or assets or evidences of indebtedness so
distributed or of such subscription rights, options or warrants, or of such
convertible or exchangeable securities applicable to one Share. Such adjustment
shall be made whenever any such distribution is made, and shall become effective
on
5
<PAGE>
the date of distribution retroactive to immediately after the record date for
the determination of stockholders entitled to receive such distribution.
(f) CURRENT MARKET PRICE. For the purposes of any computation under
paragraphs (d) and (c) of this Section 5, the current market price per Share at
any date shall be the average of the daily closing prices for fifteen
consecutive trading days commencing twenty trading days before the date of such
computation. The closing price for each day shall be the closing sale price or
in case no such reported sale takes place on such day, the average of the
closing bid and asked prices for such day, in either case on the American Stock
Exchange or such other principal national securities exchange or National Market
on which the Shares are listed or admitted to trading, or if they are not listed
or admitted to trading on any national securities exchange or the National
Association of Securities Dealers Automated Quotation ("NASDAQ") National
Market, but are traded in the over-the-counter market, the average of the
representative closing bid and asked quotations for the Common Stock, on the
NASDAQ system or any comparable system, or, in case no sale is publicly
reported, the average of the closing bid and asked prices as furnished by two
members of the National Association of Securities Dealers selected by the
Company for that purpose.
(g) ADJUSTMENTS TO WARRANT PRICE. Whenever the number of Shares
purchasable upon exercise of this Warrant is adjusted, as herein provided, the
Warrant Price shall be adjusted by multiplying the Warrant Price in effect
immediately prior to such adjustment by a fraction, of which the numerator shall
be the number of Shares purchasable upon the exercise of this Warrant
immediately prior to such adjustment, and of which the denominator shall be the
number of Shares so purchasable immediately thereafter.
(h) CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish the Holder with a certificate of its Chief Financial
Officer setting forth such adjustment and the facts upon which such adjustment
is based. The Company shall, upon written request, furnish the Holder a
certificate setting forth the Warrant Price in effect upon the date thereof and
the series of adjustments leading to such Warrant Price.
6. ACQUISITIONS
(a) ASSUMPTION OF WARRANT. If upon the closing of any Acquisition
the successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing.
(b) NONASSUMPTION. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and the Holder
has not otherwise exercised this Warrant in full, then the unexercised portion
of this Warrant shall be deemed to have been automatically converted pursuant to
Section 4(c) and thereafter the Holder shall participate in the acquisition on
the same terms as other holders of the same class of securities of the Company.
6
<PAGE>
(c) PURCHASE RIGHT. Notwithstanding the foregoing, at the election
of the Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to
(a) the fair market value of any consideration that would have been received by
the Holder in consideration of the Shares had the Holder exercised the
unexercised portion of this Warrant immediately before the record date for
determining the stockholders entitled to participate in the proceeds of the
Acquisition, less (b) the aggregate Warrant Price of the Shares, but in no event
less than zero.
7. NOTICES; INFORMATION; REGISTRATION.
(a) NOTICE OF CERTAIN EVENTS. If the Company proposes at any time
(a) to declare any dividend or distribution upon its Common Stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of Common
Stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company shall
give the Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of Common Stock will be entitled
thereto) or in respect of the matters referred to in (c) and (d) above for
determining rights to vote, if any; (2) in the case of the matters referred to
in (c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of Common
Stock will be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
(b) INFORMATION RIGHTS. So long as the Holder holds this Warrant
and/or any of the Shares acquired on exercise of this Warrant, the Company shall
deliver to the Holder (a) promptly after mailing, copies of all notices or other
written communications to the stockholders of the Company, (b) within ninety
days after the end of each fiscal year of the Company, the annual audited
financial statements of the Company audited by independent public accountants of
recognized standing and (c) within forty-five days after the end of each of the
first three quarters of each fiscal year, the Company's quarterly, unaudited
financial statements.
(c) REGISTRATION UNDER SECURITIES ACT OF 1933. The Company agrees
that the Shares underlying this Warrant shall be "Registrable Securities" under
that certain Registration Rights Agreement, dated _________, 1998, among the
Company, PICO and PHYSICIANS.
7
<PAGE>
8. COMPLIANCE WITH ACT; TRANSFERABILITY AND NEGOTIABILITY OF WARRANT;
DISPOSITION OF SHARES.
(a) COMPLIANCE WITH ACT. The Holder, by acceptance hereof, agrees
that this Warrant and the Shares to be issued upon the exercise hereof are being
acquired solely for its own account and not as a nominee for any other party and
not with a view toward the resale or distribution thereof and that it will not
offer, sell or otherwise dispose of this Warrant or any Shares to be issued upon
the exercise hereof except under circumstances which will not result in a
violation of the Act. This Warrant and the Shares to be issued upon the
exercise hereof (unless registered under the Act) shall be imprinted with a
legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
In addition, this Warrant and the Shares to be issued upon the exercise hereof
shall bear any legends required by the securities laws of any applicable states.
(b) TRANSFERABILITY AND NEGOTIABILITY OF WARRANT. This Warrant may
not be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if reasonably requested
by the Company and the transfer is to a person other than a general partner or
affiliate of the initial Holder). Subject to the provisions of this Warrant
with respect to compliance with the Act, title to this Warrant may be
transferred by endorsement and delivery in the same manner as a negotiable
instrument transferable by endorsement and delivery. The Company shall act
promptly to record transfers of this Warrant on its books, but the Company may
treat the registered holder of this Warrant as the absolute owner of this
Warrant for all purposes, notwithstanding any notice to the contrary.
(c) DISPOSITION OF SHARES. With respect to any offer, sale, transfer
or other disposition of any Shares acquired pursuant to the exercise of this
Warrant prior to registration of such Shares, except for any such offer, sale,
transfer or other disposition of Shares to an affiliate of the initial Holder,
the Holder and each subsequent holder of this Warrant agrees to give written
notice to the Company prior thereto, describing briefly the manner thereof, and
if such transfer is not pursuant to Rule 144, a written opinion of legal counsel
for such holder, if requested by the Company, to the effect that such offer,
sale or other disposition may be effected without registration
8
<PAGE>
or qualification of such Shares. Notwithstanding the foregoing, such Shares may
be offered, sold or otherwise disposed of in accordance with Rule 144, provided
that the Company shall have been furnished with such information as the Company
may reasonably request to provide a reasonable assurance that the provisions of
Rule 144 have been satisfied. Each certificate representing the Shares thus
transferred (except a transfer pursuant to Rule 144) shall bear a restrictive
legend as to the applicable restrictions on transferability in order to insure
compliance with the Act, unless in the aforesaid opinion of legal counsel for
the holder, such legend is not required in order to insure compliance with the
Act.
9. RIGHTS OF STOCKHOLDERS. No Holder shall be entitled to vote or
receive dividends or be deemed the holder of Shares or any other securities of
the Company which may at any time be issuable on the exercise of this Warrant
for any purpose, nor shall anything contained herein be construed to confer upon
the Holder, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, consolidation, merger, transfer of assets or
otherwise) or, except as expressly required herein, to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until this
Warrant shall have been exercised and the Shares issuable upon exercise hereof
shall have become deliverable, as provided herein.
10. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
11. EXCHANGE OF WARRANT. Subject to the other provisions of this Warrant,
on surrender of this Warrant for exchange, and subject to the provisions of this
Warrant with respect to compliance with the Act, the Company at its expense
shall issue to or on the order of the Holder a new warrant or warrants of like
tenor, in the name of the Holder or as the Holder (on payment by the Holder of
any applicable transfer taxes) may direct, for the number of Shares issuable
upon exercise thereof.
12. NOTICES. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such Holder from time
to time.
13. WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
9
<PAGE>
14. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California.
15. TITLES AND SUBTITLES; FORMS OF PRONOUNS. The titles of the Sections
and Subsections of this Warrant are for convenience only and are not to be
considered in construing this Warrant. All pronouns used in this Warrant shall
be deemed to include masculine, feminine and neuter forms.
16. ATTORNEYS' FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
Dated: ______________, 1998. PC QUOTE, INC., a Delaware corporation
By:
------------------------------------
, President
By:
------------------------------------
, Secretary
10
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
TO: PC QUOTE, INC.
1. The undersigned Holder of the attached Common Stock Purchase Warrant
hereby elects to exercise its purchase right under such Warrant with respect to
________________ Shares, as defined in the Warrant.
2. The undersigned Holder elects to pay the aggregate Warrant Price for
such Shares (the "Exercise Shares") in the following manner:
[ ] by the enclosed check drawn on a United States bank and for
United States funds made payable to the Company in the amount of
$_____________;
[ ] by wire transfer of United States funds to the account of the
Company in the amount of $___________, which transfer has been
made before or simultaneously with the delivery of this Notice
pursuant to the instructions of the Company; or
[ ] pursuant to the Net Exercise provisions set forth in Section 4(c)
of the Warrant.
3. Please issue a stock certificate or certificates representing the
appropriate number of Shares in the name of the undersigned or in such other
names as is specified below:
Name:
-----------------------------
Address:
---------------------------
-----------------------------------
-----------------------------------
TIN:
------------------------------
HOLDER:
By:
--------------------------------
Name:
Title:
Date:
--------------------
11
<PAGE>
EXHIBIT C-1
FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT
THIS FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT is entered into as of
this ___ day of ______________, 1998, by and between PICO HOLDINGS, INC., a
California corporation ("PICO"), and PC QUOTE, INC., a Delaware corporation (the
"Company").
RECITALS
A. PICO is the holder of that certain Common Stock Purchase Warrant to
purchase a minimum of 640,000 shares of Common Stock of the Company granted on
May 5, 1997 (the "Warrant"), 320,000 of which shares have already been
purchased by PICO through a partial exercise of the Warrant.
B. Concurrently herewith, the Company, PICO and Physicians Insurance
Company of Ohio, an Ohio corporation, are entering into a Securities Purchase
Agreement (the "Recapitalization Agreement"). Pursuant to the Recapitalization
Agreement certain debt obligations PICO holds in the Company will be converted
into equity.
C. As additional consideration for PICO entering into the
Recapitalization Agreement and in order to induce PICO to convert its debt into
equity, the Company has agreed to extend the exercise period of the Warrant for
an additional five (5) years. It is a condition of the Recapitalization
Agreement that PICO and the Company enter into this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein and in the Agreement, and for other good and valuable
consideration, the receipt and sufficiency which is hereby acknowledged, the
parties hereto agree as follows:
1. The statement "Void after April 30, 2000" in the heading to the cover
page of the Warrant is hereby amended to state in its entirety as follows:
"Void after April 30, 2005"
2. Section 3 of the Agreement is hereby amended and restated to state in
its entirety as follows:
"3. TERM. The purchase right represented by this Warrant is
exercisable only during the period commencing upon the Date of Grant and ending
on April 30, 2005."
<PAGE>
3. Section 2 of Exhibit B of the Agreement is hereby amended and restated
to state in its entirety as follows:
"2. COMPANY REGISTRATION. If (but without any obligation to do so)
the Company proposes at any time before April 30, 2005 to register (including
for this purpose a registration effected by the Company for stockholders other
than Holder) any of its stock or other securities under the Act in connection
with the public offering of such securities solely for cash (other than a
registration relating solely to the sale of securities to participants in a
Company stock plan, or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), the
Company shall, at such time, promptly give Holder written notice of such
registration. Upon the written request of Holder given within twenty days after
mailing of such notice by the Company, the Company shall, subject to the
provisions of Section 8 hereof and Section 5 of the Warrant, cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered."
4. Section 3 of Exhibit B of the Agreement is hereby amended and restated
to state in its entirety as follows:
"3. DEMAND REGISTRATION. In case the Company shall, at any time
before April 30, 2005, receive from Holders holding 40% or more of the
outstanding Registrable Securities a written request (to be exercised only once)
that the Company effect a registration and any related qualification or
compliance with respect to all or a part of the Registrable Securities (which
registration shall at the election of Holder either be for a registration for a
primary issuance of the Shares upon the exercise of the Warrant or the resale of
the Shares previously issued upon exercise of the Warrant at the election of
Holder) owned by such Holder, the Company will promptly notify each other Holder
(if any) of such request and will:
(a) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of a Holder's
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any other holder of registration
rights joining in such request as are specified in a written request given
within 20 days after receipt of such written notice from the Company; PROVIDED,
HOWEVER, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 3: (1) if
the Company has effected a registration of Registrable Securities pursuant to
this Section 3 within the preceding 12 months; (2) if the Company shall furnish
to Holder a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the registration statement for a period of not more than 60
days after receipt of the request of Holder under this Section 3; PROVIDED,
HOWEVER, that the Company shall not utilize this right more than once in any
twelve-month period; or (3) in any jurisdiction in which the Company would be
required to qualify to do business or to execute
<PAGE>
a general consent to service of process in effecting such registration,
qualification or compliance; and,
(b) subject to the foregoing, file a registration statement
covering the Registrable Securities and other securities so requested to be
registered promptly after receipt of the request or requests of Holder, and in
any event within 30 days of receipt of such request."
5. Except as expressly provided herein, all of the terms and provisions
of the Agreement shall remain in full force and effect.
6. The provisions of this Amendment shall be performed and interpreted in
accordance with the laws of the State of Delaware without reference to conflicts
of laws principles.
7. This Amendment may be executed in multiple counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Common Stock Purchase Warrant as of the date first above written.
PC QUOTE, INC.
By:
----------------------------
Name:
Title:
PICO HOLDINGS, INC.
By:
----------------------------
Name:
Title:
<PAGE>
EXHIBIT C-3
FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT
THIS FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT is entered into as of
this ___ day of ___________, 1998, by and between PICO HOLDINGS, INC., a
California corporation ("PICO"), and PC QUOTE, INC., a Delaware corporation (the
"Company").
RECITALS
A. PICO is the holder of that certain Common Stock Purchase Warrant to
purchase a minimum of 500,000 shares of Common Stock of the Company granted on
August 8, 1997 (the "Warrant").
B. Concurrently herewith, the Company, PICO and Physicians Insurance
Company of Ohio, an Ohio corporation, are entering into a Securities Purchase
Agreement (the "Recapitalization Agreement"). Pursuant to the Recapitalization
Agreement certain debt obligations PICO holds in the Company will be converted
into equity.
C. As additional consideration for PICO entering into the
Recapitalization Agreement and in order to induce PICO to convert its debt into
equity, the Company has agreed to extend the exercise period of the Warrant for
an additional five (5) years. It is a condition of the Recapitalization
Agreement that PICO and the Company enter into this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein and in the Agreement, and for other good and valuable
consideration, the receipt and sufficiency which is hereby acknowledged, the
parties hereto agree as follows:
1. The statement "Void after April 30, 2000" in the heading to the cover
page of the Warrant is hereby amended to state in its entirety as follows:
"Void after April 30, 2005"
2. Section 3 of the Agreement is hereby amended and restated to state in
its entirety as follows:
"3. TERM. The purchase right represented by this Warrant is
exercisable only during the period commencing upon the Date of Grant and ending
on April 30, 2005."
<PAGE>
3. Section 2 of Exhibit B of the Agreement is hereby amended and restated
to state in its entirety as follows:
"2. COMPANY REGISTRATION. If (but without any obligation to do so)
the Company proposes at any time before April 30, 2005 to register (including
for this purpose a registration effected by the Company for stockholders other
than Holder) any of its stock or other securities under the Act in connection
with the public offering of such securities solely for cash (other than a
registration relating solely to the sale of securities to participants in a
Company stock plan, or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), the
Company shall, at such time, promptly give Holder written notice of such
registration. Upon the written request of Holder given within twenty days after
mailing of such notice by the Company, the Company shall, subject to the
provisions of Section 8 hereof and Section 5 of the Warrant, cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered."
4. Section 3 of Exhibit B of the Agreement is hereby amended and restated
to state in its entirety as follows:
"3. DEMAND REGISTRATION. In case the Company shall, at any time
before April 30, 2005, receive from Holders holding 40% or more of the
outstanding Registrable Securities a written request (to be exercised only once)
that the Company effect a registration and any related qualification or
compliance with respect to all or a part of the Registrable Securities (which
registration shall at the election of Holder either be for a registration for a
primary issuance of the Shares upon the exercise of the Warrant or the resale of
the Shares previously issued upon exercise of the Warrant at the election of
Holder) owned by such Holder, the Company will promptly notify each other Holder
(if any) of such request and will:
(a) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of a Holder's
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any other holder of registration
rights joining in such request as are specified in a written request given
within 20 days after receipt of such written notice from the Company; PROVIDED,
HOWEVER, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 3: (1) if
the Company has effected a registration of Registrable Securities pursuant to
this Section 3 within the preceding 12 months; (2) if the Company shall furnish
to Holder a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the registration statement for a period of not more than 60
days after receipt of the request of Holder under this Section 3; PROVIDED,
HOWEVER, that the Company shall not utilize this right more than once in any
twelve-month period; or (3) in any jurisdiction in which the Company would be
required to qualify to do business or to execute
<PAGE>
a general consent to service of process in effecting such registration,
qualification or compliance; and,
(b) subject to the foregoing, file a registration statement
covering the Registrable Securities and other securities so requested to be
registered promptly after receipt of the request or requests of Holder, and in
any event within 30 days of receipt of such request."
5. Except as expressly provided herein, all of the terms and provisions
of the Agreement shall remain in full force and effect.
6. The provisions of this Amendment shall be performed and interpreted in
accordance with the laws of the State of Delaware without reference to conflicts
of laws principles.
7. This Amendment may be executed in multiple counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Common Stock Purchase Warrant as of the date first above written.
PC QUOTE, INC.
By:
---------------------------
Name:
Title:
PICO HOLDINGS, INC.
By:
---------------------------
Name:
Title:
<PAGE>
EXHIBIT C-2
FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT
THIS FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT is entered into as of
this ___ day of _____________, 1998, by and between PICO HOLDINGS, INC., a
California corporation ("PICO"), and PC QUOTE, INC., a Delaware corporation (the
"Company").
RECITALS
A. PICO is the holder of that certain Common Stock Purchase Warrant to
purchase a minimum of 129,032 shares of Common Stock of the Company granted on
September 22, 1997 (the "Warrant").
B. Concurrently herewith, the Company, PICO and Physicians Insurance
Company of Ohio, an Ohio corporation, are entering into a Securities Purchase
Agreement (the "Recapitalization Agreement"). Pursuant to the Recapitalization
Agreement certain debt obligations PICO holds in the Company will be converted
into equity.
C. As additional consideration for PICO entering into the
Recapitalization Agreement and in order to induce PICO to convert its debt into
equity, the Company has agreed to extend the exercise period of the Warrant for
an additional five (5) years. It is a condition of the Recapitalization
Agreement that PICO and the Company enter into this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein and in the Agreement, and for other good and valuable
consideration, the receipt and sufficiency which is hereby acknowledged, the
parties hereto agree as follows:
1. The statement "Void after April 30, 2000" in the heading to the cover
page of the Warrant is hereby amended to state in its entirety as follows:
"Void after April 30, 2005"
2. Section 3 of the Agreement is hereby amended and restated to state in
its entirety as follows:
"3. TERM. The purchase right represented by this Warrant is
exercisable only during the period commencing upon the Date of Grant and ending
on April 30, 2005."
<PAGE>
3. Section 2 of Exhibit B of the Agreement is hereby amended and restated
to state in its entirety as follows:
"2. COMPANY REGISTRATION. If (but without any obligation to do so)
the Company proposes at any time before April 30, 2005 to register (including
for this purpose a registration effected by the Company for stockholders other
than Holder) any of its stock or other securities under the Act in connection
with the public offering of such securities solely for cash (other than a
registration relating solely to the sale of securities to participants in a
Company stock plan, or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), the
Company shall, at such time, promptly give Holder written notice of such
registration. Upon the written request of Holder given within twenty days after
mailing of such notice by the Company, the Company shall, subject to the
provisions of Section 8 hereof and Section 5 of the Warrant, cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered."
4. Section 3 of Exhibit B of the Agreement is hereby amended and restated
to state in its entirety as follows:
"3. DEMAND REGISTRATION. In case the Company shall, at any time
before April 30, 2005, receive from Holders holding 40% or more of the
outstanding Registrable Securities a written request (to be exercised only once)
that the Company effect a registration and any related qualification or
compliance with respect to all or a part of the Registrable Securities (which
registration shall at the election of Holder either be for a registration for a
primary issuance of the Shares upon the exercise of the Warrant or the resale of
the Shares previously issued upon exercise of the Warrant at the election of
Holder) owned by such Holder, the Company will promptly notify each other Holder
(if any) of such request and will:
(a) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of a Holder's
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any other holder of registration
rights joining in such request as are specified in a written request given
within 20 days after receipt of such written notice from the Company; PROVIDED,
HOWEVER, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 3: (1) if
the Company has effected a registration of Registrable Securities pursuant to
this Section 3 within the preceding 12 months; (2) if the Company shall furnish
to Holder a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the registration statement for a period of not more than 60
days after receipt of the request of Holder under this Section 3; PROVIDED,
HOWEVER, that the Company shall not utilize this right more than once in any
twelve-month period; or (3) in any jurisdiction in which the Company would be
required to qualify to do business or to execute
<PAGE>
a general consent to service of process in effecting such registration,
qualification or compliance; and,
(b) subject to the foregoing, file a registration statement
covering the Registrable Securities and other securities so requested to be
registered promptly after receipt of the request or requests of Holder, and in
any event within 30 days of receipt of such request."
5. Except as expressly provided herein, all of the terms and provisions
of the Agreement shall remain in full force and effect.
6. The provisions of this Amendment shall be performed and interpreted in
accordance with the laws of the State of Delaware without reference to conflicts
of laws principles.
7. This Amendment may be executed in multiple counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Common Stock Purchase Warrant as of the date first above written.
PC QUOTE, INC.
By:
---------------------------------
Name:
Title:
PICO HOLDINGS, INC.
By:
---------------------------------
Name:
Title:
