<PAGE>
================================================================================
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1998
---------------
OR
_______ TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number 0-15671
UNICOMP, INC.
(Exact name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
COLORADO 84-1023666
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1850 PARKWAY PLACE, SUITE 925
MARIETTA, GA 30067
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code: (770) 424-3684
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
7,861,786 Common shares, $0.01 par value, as of October 14, 1998.
================================================================================
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UNICOMP, INC.
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of February 28, 1998
and August 31, 1998 3, 4
Consolidated Statements of Operations for the
three months ended August 31, 1997 and 1998 5
Consolidated Statements of Operations for the
six months ended August 31, 1997 and 1998 6
Consolidated Statements of Cash Flows for the
six months ended August 31, 1997 and 1998 7
Notes to the Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Results
of Operations, Financial Conditions, and
Liquidity and Capital Resources 9 - 17
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 18
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 20
</TABLE>
Exhibits
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
______________________________
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATE)
ASSETS
<TABLE>
<CAPTION>
(AUDITED) (UNAUDITED)
FEBRUARY 28, AUGUST 31,
1998 1998
---------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ($3 million restricted at February 28, 1998)........ $ 3,904 $ 618
Accounts and other receivables:
Trade, net of allowance of $1,655 and $386 at February 28, 1998 and August
31, 1998 respectively.................................................... 14,735 16,331
Other receivables........................................................... 480 693
Inventory..................................................................... 4,556 4,739
Prepaid expenses.............................................................. 531 772
Deferred income taxes......................................................... - -
Other......................................................................... 338 595
----------------- -----------------
Total current assets..................................................... 24,544 23,748
----------------- -----------------
Property and equipment, net..................................................... 4,746 4,765
----------------- -----------------
Other assets:
Acquired and developed software, net of accumulated amortization of $4,945 and
$6,118 at February 28, 1998 and August 31, 1998, respectively............... 6,403 6,525
Goodwill, net of accumulated amortization of $542 and $883 at February 28,
1998 and August 31, 1998, respectively...................................... 4,510 4,591
Deferred income taxes......................................................... 446 1,193
Prepaid pension............................................................... 754 754
Investment in joint ventures.................................................. 673 449
Receivables from related parties.............................................. 390 534
Other......................................................................... 39 -
----------------- -----------------
Total other assets....................................................... 13,215 14,046
----------------- -----------------
Total assets............................................................. $ 42,505 $ 42,559
================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATE)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(AUDITED) (UNAUDITED)
FEBRUARY 28, AUGUST 31,
1998 1998
----------------- -----------------
<S> <C> <C>
Current liabilities:
Accounts payable.............................................................. $ 4,955 $ 5,732
Accrued expenses.............................................................. 2,080 1,978
Deferred revenue.............................................................. 3,634 3,653
Taxes payable................................................................. 1,064 1,262
Other......................................................................... 200 121
Lines of credit............................................................... 10,590 9,719
Current portion of notes payable.............................................. 1,358 1,306
----------------- -----------------
Total current liabilities................................................ 23,881 23,771
----------------- -----------------
Long-term liabilities:
Notes payable................................................................. 1,480 1,399
Deferred income taxes......................................................... 741 1,278
Other long-term liabilities................................................... 110 53
----------------- -----------------
Total long-term liabilities.............................................. 2,331 2,730
----------------- -----------------
Total liabilities........................................................ 26,212 26,501
----------------- -----------------
Stockholders' equity:
Preferred stock: $1 par value, authorized 5,000,000, none issued and
outstanding at February 28, 1998 and August 31, 1998, respectively.......... - -
Common stock: $.01 par value, authorized 25,000,000 issued and outstanding
7,965,423 and 7,902,786 at February 28, 1998 and August 31, 1998,
respectively................................................................ 80 80
Additional contributed capital................................................ 15,331 15,313
Retained earnings............................................................. 1,192 932
----------------- -----------------
16,603 16,325
Less treasury stock........................................................... (206) (264)
Cumulative translation adjustment............................................. (104) (3)
----------------- -----------------
Total stockholders' equity............................................... 16,293 16,058
----------------- -----------------
Total liabilities and stockholders' equity............................... $ 42,505 $ 42,559
================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATE)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
-------------------------------------
AUGUST 31, AUGUST 31,
1997 1998
---------------- ----------------
<S> <C> <C>
Revenue:
Equipment $ 6,757 $ 7,159
Services.................................................. 4,964 5,444
Software.................................................. 2,217 2,013
---------------- ----------------
Total revenue........................................ 13,938 14,616
---------------- ----------------
Cost of sales:
Equipment................................................. 5,624 5,631
Services.................................................. 644 1,047
Software.................................................. 778 805
---------------- ----------------
Total cost of sales.................................. 7,046 7,483
---------------- ----------------
Gross profit................................................ 6,892 7,133
---------------- ----------------
Selling, general and administrative expenses................ 5,629 6,463
---------------- ----------------
Operating income............................................ 1,263 670
---------------- ----------------
Other (expense):
Other, net................................................ (4) (13)
Interest, net............................................. (138) (233)
---------------- ----------------
Total other (expense)................................ (142) (246)
---------------- ----------------
Income before provision for income taxes.................... 1,121 424
---------------- ----------------
Provision (Benefit) for income taxes........................ 404 (36)
---------------- ----------------
Net income.................................................. $ 717 $ 460
================ ================
Basic earnings per share.................................... $ 0.09 $ 0.06
================ ================
Diluted earnings per share.................................. $ 0.09 $ 0.06
================ ================
Weighted average number of shares........................... 7,691 7,908
Weighted average number of shares assuming dilution......... 8,155 7,908
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATE)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
-------------------------------------
AUGUST 31, AUGUST 31,
1997 1998
---------------- ----------------
<S> <C> <C>
Revenue:
Equipment.................................................. $ 13,366 $ 13,484
Services................................................... 8,594 10,281
Software................................................... 4,634 3,863
---------------- ----------------
Total revenue............................................. 26,594 27,628
---------------- ----------------
Cost of sales:
Equipment.................................................. 11,153 11,066
Services................................................... 1,224 1,583
Software................................................... 1,741 1,706
---------------- ----------------
Total cost of sales....................................... 14,118 14,355
---------------- ----------------
Gross profit................................................. 12,476 13,273
---------------- ----------------
Selling, general and administrative expenses................. 10,443 13,083
---------------- ----------------
Operating income............................................. 2,033 190
Other (expense):
---------------- ----------------
Other, net................................................. (4) (4)
Interest, net.............................................. (174) (446)
---------------- ----------------
Total other (expense)..................................... (178) (450)
---------------- ----------------
Income (loss) before provision for income taxes.............. 1,855 (260)
---------------- ----------------
Provision for income taxes................................... 616 0
---------------- ----------------
Net income (loss)............................................ $ 1,239 $ (260)
---------------- ----------------
Basic earnings per share..................................... $ 0.16 $ (0.03)
================ ================
Diluted earnings per share................................... $ 0.15 $ (0.03)
================ ================
Weighted average number of shares............................ 7,621 7,920
Weighted average number of shares assuming dilution.......... 8,074 7,920
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
6
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
---------------------------------------------
AUGUST 31, AUGUST 31,
1997 1998
------------------- --------------------
<S> <C> <C>
Net cash (used) by operating activities:
Net income (loss)................................................... $ 717 $ (260)
Adjustments to reconcile net income to net cash provided by
operations:
Depreciation and amortization...................................... 1,984 2,192
Allowance for doubtful accounts.................................... 106 20
Deferred income taxes.............................................. 132 0
Changes in assets and liabilities:
Accounts and other receivables.................................... (2,941) (1,616)
Inventory......................................................... (732) (183)
Prepaid expenses.................................................. (17) (241)
Accounts payable.................................................. (251) 777
Accrued expenses.................................................. 58 (102)
Deferred revenue.................................................. 321 19
Income taxes payable.............................................. 329 (12)
Other............................................................. (280) (713)
------------------- --------------------
Net cash provided (used) by operating activities................ (574) (119)
------------------- --------------------
Cash flow from investing activities:
Capital expenditures................................................ (743) (682)
Acquired and developed software..................................... (1,090) (1,362)
------------------- --------------------
Net cash (used) by investing activities......................... (1,833) (2,044)
------------------- --------------------
Cash flow from financing activities:
Borrowings, (payments) net.......................................... 923 (1,004)
Issuance of common stock, net....................................... 933 ( 76)
Receivables from related parties.................................... (155) (144)
------------------- --------------------
Net cash provided (used) by financing activities................. 1,701 (1,224)
------------------- --------------------
Net (decrease) in cash................................................ (706) (3,387)
Effect of exchange rate changes on cash............................... (85) 101
Cash and cash equivalents at beginning of period...................... 3,810 3,904
------------------- --------------------
Cash and cash equivalents at end of period............................ $ 3,019 $ 618
=================== ====================
Cash paid for interest, net........................................... $ 174 $ 446
=================== ====================
Cash paid for taxes................................................... $ 86 $ 12
=================== ====================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements included the accounts of UniComp,
Inc. and its subsidiaries (the Company). All material intercompany balances and
transactions have been eliminated in consolidation. The preparation of the
financial statements requires management to make estimates and assumptions
underlying the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reported
period. Changes in the status of certain matters, facts or circumstances
underlying these estimates could result in material changes and actual results
could differ from these estimates. It is suggested that these quarterly
consolidated financial statements and notes be read in conjunction with the
financial statements and notes included in the Annual Report on Form 10-K for
the fiscal year ended February 28, 1998.
Certain amounts previously presented in the consolidated financial
statements have been reclassified to conform to current presentation.
8
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS,
FINANCIAL CONDITIONS, AND LIQUIDITY AND CAPITAL RESOURCES:
The following discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto and with the Company's
annual report on Form 10-K for the fiscal year ended February 28, 1998. Except
for the historical information contained herein, this discussion contains
forward-looking statements that are subject to risks and uncertainties,
including economic, competitive and technological factors affecting the
Company's operations, markets, products, services and prices as well as other
factors discussed in the Notes to the Consolidated Financial Statements and the
Company's annual report on Form 10-K. These and other factors may cause actual
results to differ materially from those anticipated.
OVERVIEW
UniComp provides computer equipment primarily to businesses in the United
Kingdom and North America, vertical market applications and professional
services to businesses located primarily in the United Kingdom and platform
migration software and transaction-processing systems to users worldwide. For
the six months ended August 31, 1998, the Company generated $27.6 million in
total revenue, of which $13.4 million was derived from sales of computer
equipment and $10.3 million was derived from information technology services.
The remaining $3.9 million in revenue was derived from license and maintenance
fees for the Company's platform-migration software, transaction-processing
systems and other vertical market software products.
Cost of sales for computer equipment consists of the actual costs of the
products sold. Cost of sales for information technology services includes
supplies, parts, subcontractors and other direct costs of delivering the
services, except for salary costs, which are included in selling, general and
administrative costs. Cost of sales for software includes amortization of
capitalized software development costs, as well as royalties payable on embedded
technologies and any other direct costs of providing its software products and
support. The Company amortizes capitalized software development costs over the
estimated life of the product, generally three to four years.
Selling, general and administrative expenses include salaries and related
costs for all employees, travel, costs associated with internal equipment, sales
commissions, premises and marketing costs, as well as general office and
administrative costs, and the amortization of goodwill. Development grants
received from the government of Northern Ireland have been recorded as a
reduction in selling, general and administrative expenses, or a reduction in
capitalized development costs, and are anticipated to remain relatively constant
for the foreseeable future.
On November 30, 1997, the Company completed the acquisition of Novatek.
Novatek maintains, repairs, remanufactures and distributes a wide variety of
point-of-sale and transaction-processing equipment and supplies. The Company
issued 788,708 shares of its common stock for all the outstanding common stock
of Novatek. This transaction has been accounted for as a pooling-of-interest;
therefore, the Company's historical statements have been restated to reflect
this merger.
In January 1998, the Company acquired for 107,453 shares of the Company's
Common Stock, Industrial Computing Machines Limited ("ICM"), an Irish company
that provides software products and services for the manufacturing industry
primarily in Ireland and the United Kingdom. The acquisition has been accounted
for by the purchase method. As such, ICM's results of operations have been
included since the date of acquisition.
9
<PAGE>
SUBSEQUENT EVENTS
On October 7, 1998, the Company issued 3,000 shares of Series A Convertible
Preferred Stock, par value $1.00 per share, and warrants for 102,127 shares of
the Company's Common Stock for an aggregate consideration of $3 million. Each
share of Series A Convertible Preferred Stock may be converted into a number of
shares of the Company's Common Stock pursuant to the terms of the Series A
Convertible Preferred Stock Purchase Agreement; provided that, absent
shareholder approval, the maximum number of shares of Common Stock that may be
issued upon conversion of the Series A Convertible Preferred Stock is 1,576,000.
The warrants entitle the holders thereof to purchase an aggregate of 102,127
shares of the Company's Common Stock at an exercise price of $4.4063 per share.
See "Liquidity and Capital Resources." The holders of the Series A Convertible
Preferred Stock have certain registration rights.
In connection with the issuance of the Series A Convertible Preferred
Stock, the Company has certain mandatory redemption obligations if certain
events occur, such as upon conversion of the Series A Convertible Preferred
Stock if the shares of Common Stock of the Company to be issue would exceed
1,576,000 shares of Common Stock. The Company also has certain optional
redemption rights, including, but not limited to, the right to redeem the
outstanding shares of Series A Convertible Preferred Stock at a premium of 116%
of the issue price (the "Premium Percentage"); provided, however, that with
respect to any redemption date which is on or before November 6, 1998, the
Premium Percentage shall be 8%, and with respect to any redemption date which is
after November 6, 1998 and on or before January 4, 1999, the Premium Percentage
shall be 112%.
Holders of the Series A Convertible Preferred Stock are not entitled to
vote on any matter.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED AUGUST 31, 1998 COMPARED TO THREE AND SIX MONTHS
ENDED AUGUST 31, 1997
The following table summarizes the Company's results of operations in
dollars and as a percentage of total revenue for the three and six month periods
ended August 31, 1998 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------------------------------------------------------------
8/31/97 8/31/98 8/31/97 8/31/98
------- ------- ------- -------
(in thousands, except percentage data) (in thousands, except percentage data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue $13,938 100.0% $14,616 100.0% $26,594 100.0% $27,628 100.0%
Cost of sales 7,046 50.6 7,483 51.2 14,118 53.1 14,355 52.0
------- ----- ------- ----- ------- ----- ------- -----
Gross profit 6,892 49.4 7,133 48.8 12,476 46.9 13,273 48.0
Selling, general and 5,629 40.4 6,463 44.2 10,443 39.3 13,083 47.4
administrative ------- ----- ------- ----- ------- ----- ------- -----
expenses
Operating income 1,263 9.0 670 4.6 2,033 7.6 190 .6
Other expense 142 1.0 246 1.7 178 .7 450 1.6
------- ----- ------- ----- ------- ----- ------- -----
Income before taxes 1,121 8.0 424 2.9 1,855 6.9 (260) (1.0)
Provision for taxes 404 2.9 (36) (.2) 616 2.3 $ 0 0
------- ----- ------- ----- ------- ----- ------- -----
Net income $ 717 5.1 $ 460 3.1 $ 1,239 4.6 $ (260) (1.0)
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Revenue. Revenue for the three months ended August 31, 1998 increased to
$14.6 million compared to $13.9 million for the three months ended August 31,
1997, an increase of $0.7 million, or 4.9%. Revenue for the six months ended
August 31, 1998 increased to $27.6 million compared to $26.6 million for the
three months ended August 31, 1997, an increase of $1.0 million, or 3.9%.
The following table summarizes the revenue generated from sales of computer
equipment for the three and six months ended August 31, 1998 and the comparable
periods from the prior fiscal year.
10
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<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/(DECREASE)
---------------------------- ------------------------------
8/31/97 8/31/98 $ %
-------- -------- - -
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
Transaction-processing Equipment........... $ 2,631 $ 2,096 $(535) (20.3)
Educational Equipment...................... 2,604 2,986 382 14.7
Other Equipment............................ 1,522 2,077 555 36.5
-------- -------- -----
Total Equipment Revenue.................... $ 6,757 $ 7,159 $ 402 5.9
======== ======== =====
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED INCREASE/(DECREASE)
---------------------------- ------------------------------
8/31/97 8/31/98 $ %
-------- -------- - -
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
Transaction-processing Equipment........... $ 4,949 $ 4,189 $(760) (15.4)
Educational Equipment...................... 4,369 4,737 368 8.4
Other Equipment............................ 4,018 4,558 540 13.4
-------- -------- -----
Total Equipment Revenue.................... $ 13,336 $ 13,484 $ 148 1.1
======== ======== =====
</TABLE>
In connection with the acquisition of Novatek, the Company became a
reseller of transaction-processing equipment which accounts for all the revenue
of sales of this hardware category. Transaction-processing sales are expected
to improve over subsequent quarters due to the recent reorganization of this
division; however, there can be no assurance that any improvements will occur
over subsequent quarters.
In connection with the acquisition of CEM, the Company became a reseller of
computer equipment to the educational marketplace in Northern Ireland which
accounts for all of the revenue generated from the sale of educational computer
equipment. The increase in revenue generated from the sale of such educational
computer equipment was attributable to increased demand for such equipment.
The increase in other equipment, is generally supplied as an adjunct to
software and services customers. Sales of computer equipment can vary from
quarter to quarter based on customer needs. However, due to relatively low
profit margin, these quarterly variations generally do not significantly impact
the overall results of operations.
Revenue from information technology services increased to $5.4 million for
the three months ended August 31, 1998 from $5.0 million for the comparable
period in the prior fiscal year, an increase of $0.4 million or 8.0%. Revenues
from this segment also increased to $10.3 million from $8.6 million for the six
months ended August 31, 1998, an increase of $1.7 million or 19.8%. This
increase is primarily attributable to revenues related to the acquisition of ICM
which accounted for $0.6 million and $1.1 million of revenue for the three
months and six months ended August 31, 1998, respectively.
The following table summarizes the revenue from software licensing and
support.
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/(DECREASE)
---------------------------- -----------------------------
8/31/97 8/31/98 $ %
------- ------- ------------- -------------
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
Initial License Fees:
Platform Migration...................... $ 381 $ 593 $ 212 55.6
Transaction-processing.................. 580 40 (540) (93.1)
Other................................... 289 227 (62) (21.5)
-------- -------- -----
Total Initial License Fees................. $ 1,250 $ 860 (390) (31.2)
-------- -------- -----
Software Support Fees:
Platform Migration...................... $ 322 $ 217 (105) (32.6)
Transaction-processing.................. 40 17 (23) (57.5)
Other................................... 605 919 314 51.9
-------- -------- -----
Total Software Support Fees................ $ 967 $ 1,153 186 19.2
-------- -------- -----
</TABLE>
11
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<TABLE>
<S> <C> <C> <C> <C>
Total Software Revenue..................... $ 2,217 $ 2,013 $(204) (9.2)
======== ======== =====
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED INCREASE/(DECREASE)
---------------------------- ------------------------------
8/31/97 8/31/98 $ %
-------- -------- - -
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
Initial License Fees:
Platform Migration...................... $ 1,148 $ 961 $ (182) (28.0)
Transaction-processing.................. 1,004 83 (921) (91.7)
Other................................... 557 371 (186) (33.4)
-------- -------- -------
Total Initial License Fees................. $ 2,709 $ 1,415 (1,294) (47.8)
-------- -------- -------
Software Support Fees:
Platform Migration...................... $ 651 $ 469 $ (187) (16.3)
Transaction-processing.................. 82 32 (50) (61.0)
Other................................... 1,192 1,947 755 63.3
-------- -------- -------
Total Software Support Fees................ $ 1,925 $ 2,448 523 27.2
-------- -------- -------
Total Software Revenue..................... $ 4,634 $ 3,863 $ (771) (16.6)
======== ======== =======
</TABLE>
Revenue generated from the initial license fees for platform migration
software was $0.6 million and $1.0 million for the three and six months ended
August 31, 1998, respectively compared to $0.4 million and $1.1 million for the
comparable periods in the prior fiscal year, respectively. Platform migration
revenue by major product class is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED INCREASE/(DECREASE)
---------------------------- ----------------------------
8/31/97 8/31/98 $ %
-------- -------- - -
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
UNIBOL36................................... $ 639 $ 823 $ 184 28.8
UNIBOL400.................................. 509 138 (371) (72.9)
-------- -------- -----
Total Platform Migration Revenue........... $ 1,148 $ 961 $(187) (16.3)
======== ======== ===== =====
</TABLE>
The UNIBOL36 product is in a declining market as users of the IBM System 36
update their computer systems to more modern technology. The Company has been
able to slow the decline in UNIBOL36 product sales through marketing the product
along with its year 2000 conversion tools and services and with the release of a
version of UNIBOL36 which supports Microsoft NT. Although there is a decline in
the market, revenue from this product is expected to continue for the next few
years, however, there may be fairly volatile revenue fluctuations from quarter
to quarter during this period.
Revenue generated by the UNIBOL400 product decreased to $35 thousand and
$138 thousand for the three and six months ended August 31, 1998, respectively
from $72 thousand and $509 thousand for the comparable periods in the prior
fiscal year, respectively. The revenues related to the UNIBOL400 product are
expected to improve in future periods as the enhanced versions of the product
are released and the product begins to gain market acceptance.
Revenue generated from initial license fees of transaction-processing
systems decreased to $40 thousand and $83 thousand for the three and six months
ended August 31, 1998, respectively from $580 thousand and $1.0 million for the
comparable periods in the prior fiscal year, respectively. Transaction-
processing support fees decreased to $17 thousand and $32 thousand for the three
and six months ended August 31, 1998, respectively from $40 thousand and $82
thousand for the comparable periods in the prior fiscal year, respectively, in
correlation with the decrease in initial license fees. The Company has begun
restructuring the transaction-processing business unit during this quarter of
fiscal year 1999, which has included the termination of the president and
certain other employees of that subsidiary, the evaluation of the strategic
direction of the business unit, including product offerings, and its
organizational structure.
Revenue generated from other software sales primarily consist of vertical
market software products such as the Company's Distributex product as well as
other third party software products. Revenues for
12
<PAGE>
these products vary depending on customer demands and product mix. Revenue from
initial license fees of other software products decreased to $227 thousand and
$371 thousand for the three and six months ended August 31, 1998, respectively,
from $289 thousand and $557 thousand for the comparable periods in the prior
fiscal year, respectively. Revenue generated from software support fees for
other software products increased to $0.9 million and $1.9 million for the three
and six months ended August 31, 1998, respectively from $0.6 million and $1.2
million for the comparable periods in the prior fiscal year, respectively. The
decrease in initial license fees and the increase in software support is
principally a result of the Company's pricing structure for many of the vertical
market applications having a lower initial license fee replaced with longer-term
annual support fees, coupled with a number of new customers using these systems.
International Revenue. Revenue from international operations, principally
in Northern Ireland, increased to $22.0 million for the six months ended August
31, 1998 from $19.6 million for the comparable period in the prior fiscal year,
an increase of $2.4 million or 12.2%. This revenue increase is due to the
acquisition of ICM in Ireland which accounted for approximately $1.1 million in
revenue for the six months ended August 31, 1998, along with internal growth
related to information technology services and software. Revenue from domestic
operations decreased to $5.6 million for the six months ended August 31, 1998 as
compared to $7.0 million for the comparable period in the prior fiscal year,
due primarily to decreased revenues relating to platform migration and
transaction-processing software, as described above under "Revenue".
Gross Profit. The following tables summarizes the Company's gross profit
information in dollars and as a percentage of the associated revenues for the
three and six months ended August 31, 1998 and the comparable periods for the
prior fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
8/31/97 8/31/98
------- -------
(in thousands, except percentage data)
GROSS PROFIT GROSS PROFIT
------------- -------------
$ % $ %
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Information Technology Services.................... $ 4,320 87.0 $ 4,397 80.8%
------- -------
Equipment:
Transaction-processing........................... 580 22.0 517 24.7
Educational...................................... 269 10.3 468 15.7
Other............................................ 284 18.7 543 26.1
------- -------
Total Equipment.................................... 1,133 16.8 1,528 21.3
------- -------
Software:
Platform Migration............................... 317 45.1 379 46.8
Transaction-processing........................... 498 80.3 (75) (129.3)
Other............................................ 624 69.8 904 79.0
------- -------
Total Software..................................... 1,439 64.9 1,208 60.0
------- -------
Total Gross Profit................................. $ 6,892 49.4 $ 7,133 48.8
======= =======
<CAPTION>
SIX MONTHS ENDED
---------------------------------------------------------------
8/31/97 8/31/98
------- -------
(in thousands, except percentage data)
GROSS PROFIT GROSS PROFIT
------------- -------------
$ % $ %
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Information Technology Services.................... $ 7,370 85.5 $ 8,698 84.6
------- -------
Equipment:
Transaction-processing........................... 1,136 23.0 987 23.6
Educational...................................... 409 9.4 614 13.0
Other............................................ 668 16.6 817 17.9
------- -------
Total Equipment.................................... 2,213 16.6 2,418 17.9
------- -------
Software:
Platform Migration............................... 962 53.5 574 40.1
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Transaction-processing........................... 857 78.9 (155) (135.0)
Other............................................ 1,074 61.4 1,738 75.0
------- -------
Total Software..................................... $ 2,893 62.4 $ 2,157 55.8
------- -------
Total Gross Profit................................. $12,476 46.9 $13,273 48.0
======= =======
</TABLE>
Gross profit margins for services and equipment vary from quarter to
quarter depending on customer demands and product mix. The types of equipment
the Company sells are generally commodity products. Information technology
services gross profit margin, which does not include salary costs, increased for
the three and six month periods due primarily to increases in software related
services revenue for the three and six months ended August 31, 1998 compared to
the same periods in the prior fiscal year, which have higher gross profit
margins than hardware related services, which remained fairly constant for that
same period.
Platform-migration profit margins changed to 46.8% and 40.1% for the three
and six month periods ended August 31, 1998, respectively from 45.1% and 53.5%
for the comparable periods in the prior fiscal year, respectively. These
changes are principally due to relatively fixed amortization expense related to
capitalized software development costs for the UNIBOL400 product. These margins
are expected to improve in future periods as the enhanced versions of the
UNIBOL400 product are released, the product begins to gain market acceptance and
licensing revenues increase.
Transaction-processing gross profit margins are expected to improve over
subsequent quarters due to reorganization of the UniPay facility; however, there
can be no assurance that any improvements will be achieved.
Gross margins for other software products changed to 79.0% and 75.0% for
the three and six months ended August 31, 1998, respectively, compared to 69.8%
and 61.4% for the comparable periods in the prior fiscal year. Other software
primarily consist of vertical market software products such as the Company's
Distributex product as well as other third party software products. Gross
margins for these products have increased due to the increase in related annual
support fees and as more customers are added, as discussed earlier in "Revenue".
Selling, General, & Administrative Expenses. Selling, general, and
administrative expenses increased to $6.5 million and $13.1 million for the
three and six months ended August 31, 1998, respectively from $5.6 million and
$10.4 million for the comparable periods in the prior fiscal year, respectively.
The remaining increase is related to increases in salary and related expenses
which are attributable to new employees hired since August 31, 1997 as well as
in part to increased competition for qualified skilled workers in the Northern
Ireland market. This competition from new businesses in Northern Ireland has
caused increases in salary costs in order to retain key employees as well as
recruit new workers. $0.5 million and $1.0 million of this increase for the
three and six month periods, respectively, is attributable to the acquisition of
ICM in January 1998. Operating expenses as a percentage of total revenue
increased to 44.2% and 47.4% for the three and six months ended August 31, 1998,
respectively, as compared to 40.4% and 39.3% for the comparable periods in the
prior fiscal year.
Other Expenses. Interest, the primary component of other expenses,
increased to $233,000 and $446,000 for the three and six months ended August
31, 1998, respectively from $138,000 and $174,000 for the comparable periods in
the prior fiscal year, respectively. The increase in interest expense is
related to additional borrowings on the Company's lines of credit and other
short-term borrowings to fund operations.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced growth during the six months ended August 31,
1998 as compared to the same period in the prior fiscal year with total revenue
growing to $27.6 million from $26.6 million. During this period, the Company
has met its liquidity requirements primarily through operations, placements of
debt and equity securities, bank financing and grants from the government of
Northern Ireland.
At August 31, 1998, the Company had approximately $0.6 million in cash and
equivalents as compared to $3.9 million at February 28, 1998, $3.0 million of
which was restricted as of February 28, 1998.
The Company generated negative operating cash flows of $0.1 million for the
six months ended August 31, 1998. The Company maintains revolving credit
facilities which are its primary sources of liquidity. The facilities allow the
Company to borrow based on current levels of accounts receivable and inventory
and contain financial covenants including, but not limited to, requirements with
respect to minimum net worth and debt to net worth ratios. The Company has
minimum covenant requirements that must be met by February 28, 1999. The
Company maintains a series of working capital lines of credit with maximum
borrowing available of $7.2 million in the United Kingdom which are secured by
certain accounts receivables, inventories, and other assets of the Company. The
lines of credit are utilized for short-term borrowing for general corporate use.
From time to time, the bank in the United Kingdom allows the borrowing under
such lines to be in excess of the maximum to accommodate the Company's peaks in
spending. The total outstanding balance on the line of credit was fully
utilized at a variable rate based on the lending bank's base lending rate plus
1.75% as of August 31, 1998. While there can be no assurance, the Company
expects to be able to meet these covenants as well as be able to renew or
replace these facilities in the ordinary course of business.
During the six months ended August 31, 1998, the Company expended $0.7
million for capital improvements. Although the Company anticipates spending
comparable amounts in the future on capital expenditures, the Company does not
have any significant commitments to purchase capital equipment as of August 31,
1998.
On October 7, 1998, the Company obtained $3.0 million of financing through
the sale of 3,000 shares of Series A Convertible Preferred Stock, par value
$1.00 per share, and issued warrants for 102,127 shares of the Company's Common
Stock. See "Recent Sales of Unregistered Securities" and "Subsequent Events."
The Company received grants to fund research and development from the
government of Northern Ireland of approximately $0.2 million for the six months
ended August 31, 1998. These grants are subject to the legislative rules and
regulations of Northern Ireland and the United Kingdom. Management does not
anticipate that the receipt of grants will diminish significantly in the
foreseeable future; however, there can be no assurance that the Company will be
able to continue to receive such grants.
The Company believes available credit will be sufficient to meet its
working capital needs both on a short and a long-term basis. However, the
Company's capital needs will depend on many factors, including the Company's
ability to maintain profitable operations, the need to develop and improve
products, and various other factors. Depending on its working capital
requirements, the Company may seek additional financing through debt or equity
offerings in the private or public markets at any time. The Company's ability
to obtain additional financing will depend on its results of operations,
financial condition and business prospects, as well as conditions then
prevailing in the relevant capital markets. There can be no assurance that
financing will be available or, if available, will be on terms acceptable to the
Company.
15
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's operating results and financial condition can be impacted by
a number of factors, including but not limited to, any of the following which
could cause actual results to vary materially from the current and historical
results or the Company's anticipated future results.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements. In addition, these estimates and assumptions affect the reported
amounts of revenue and expenses during the reporting period as well. Amounts
affected by these estimates include, but are not limited to, the estimated
useful lives, related amortization expense and carrying value of the Company's
intangible assets and capitalized software development costs, accrued reserves
for contingencies and estimates to complete fixed price contracts. Changes in
the status of certain matters or facts or circumstances underlying these
estimates could result in material changes to these estimates, and actual
results could differ from these estimates.
The business of the Company is subject to national and worldwide economic
and political influences such as recession, political instability, the economic
strength of governments, and rapid change in technology. The Company's
operating results are dependent on its ability to rapidly develop, manufacture,
and market innovative products that meet customers demands. Inherent in this
process are a number of risks that the Company must manage in order to achieve
favorable operating results. The process of developing new high technology
products is complex and uncertain, requiring innovative designs and features
that anticipate customer needs and technological trends. The products, once
developed, must be manufactured and distributed in sufficient volumes at
acceptable costs to meet demand. The development of such products involve risks
and uncertainties, including but not limited to risk of product demand, market
acceptance, economic conditions, competitive products and pricing, difficulties
in product development, commercialization, technology, and other risks. The
Company's success will depend on the level of market acceptance and enhancements
to the market on a timely basis, and its ability to maintain a labor force
sufficiently skilled to compete in the current environment. Additionally, there
is increasing competition in the Company's current products or services
businesses, and there can be no assurance that the Company's current products
and services will remain competitive or that the Company's development efforts
will produce products with the cost and performance characteristics necessary to
remain competitive.
The timing and amount of the Company's revenues are subject to a number of
factors, including, but not limited to, the timing of customers' decisions to
enter into license agreements with the Company, which makes estimation of
operating results prior to the end of the quarter or year extremely uncertain.
While management believes that the Company's financing needs for the foreseeable
future will be satisfied from cash flows from operations, the Company's existing
credit facilities, and the ability to raise additional capital through the
equity markets, unforeseen events and adverse economic or business trends may
significantly increase cash demands beyond those currently anticipated that
affect the Company's ability to generate or raise cash to satisfy financing
needs.
The Company derives its revenue primarily from operations in Northern
Ireland. It is reasonably possible that this concentration of revenue makes the
Company vulnerable to the risk of a near-term severe impact due to unforeseen
political and economic forces, as well as exchange rate fluctuations.
Additionally, concentrations of credit risks with respect to trade accounts
receivable is generally diversified due to the large number of entities
comprising the Company's worldwide customer base. The Company performs ongoing
credit evaluations on certain of its customers' financial conditions, but
generally does not require collateral to support customer receivables. The
Company establishes an allowance for uncollectible accounts based on factors
surrounding the credit risk of specific customers, historical trends and other
information. There can be no assurance, however, that the Company's procedures
will identify all potential uncollectible accounts in a timely manner and
significant adjustments to the Company's allowance for uncollectible accounts
may be necessary from time to time.
16
<PAGE>
As a result of the above and other factors, the Company's operations and
financial position can vary significantly from quarter-to-quarter and year-to-
year. These variations may contribute to volatility in the market for the
Company's common stock.
FORWARD LOOKING STATEMENTS
This report contains both historical facts and forward-looking statements
which represent the Company's expectations or beliefs concerning future events,
including sufficiency of funds from operations and available borrowings to meet
the Company's working capital and capital expenditure needs, among others. Any
forward-looking statements involve risks and uncertainties, including but not
limited to risk of product demand, market acceptance, economic conditions,
competitive products and pricing, difficulties in product development,
commercialization, technology, and other risks detailed in this filing.
Although the Company believes it has the product offerings and resources for
continued success, future revenue and margin trends cannot be reliably
predicted. Factors external to the Company can result in volatility of the
Company's common stock price. Because of the forgoing factors, recent trends
are not necessarily reliable indicators of future stock prices or financial
performance.
17
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1, 3 AND 5 ARE NOT APPLICABLE.
ITEMS 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) On October 6, 1998, the Company filed Articles of Amendment to the Articles
of Incorporation ("Articles of Amendment") of the Company designating 3,600
shares of Preferred Stock as Series A Convertible Preferred Stock, $1.00 par
value, of which 600 shares may be issued only as dividends on the outstanding
shares of Series A Convertible Preferred Stock issued on October 7, 1998. The
Series A Convertible Preferred Stock ranks (i) senior to the Common Stock, now
or hereafter issued, as to payment of dividends and distribution of assets upon
liquidation, dissolution, or winding upon the Company; (ii) senior to any
additional series of the class of Preferred Stock which series the Company's
Board of Directors may from time to time authorize, both as to payment of
dividends and as to distributions of assets upon liquidation, dissolution, or
winding up the Company; and (iii) senior to any additional class of preferred
stock (or series of preferred stock of such class) which the Board of Directors
or the stockholders may from time to time authorize in accordance with the
Articles of Amendment.
Holders of the Series A Convertible Preferred Stock are entitled to
receive, when, as, and if declared by the Board of Directors out of funds
legally available for such purpose, dividends at the rate of $50.00 per annum
per share, which are fully cumulative, shall accrue without interest (except for
dividends in arrears) from the date of original issuance of each share and are
payable quarterly on March 15, June 15, September 15, and December 15 of each
year commencing December 15, 1998. Dividends on the Series A Convertible
Preferred Stock may be paid in cash, or subject to certain limitations,
dividends of additional shares of Series A Convertible Preferred Stock.
In connection with the issuance of the Series A Convertible Preferred
Stock, the Company has certain mandatory redemption obligations if certain
events occur, such as upon conversion of the Series A Convertible Preferred
Stock if the shares of Common Stock of the Company to be issue would exceed
1,576,000 shares of Common Stock. The Company also has the certain optional
redemption rights, including, but not limited to, the right to redeem the
outstanding shares of Series A Convertible Preferred Stock at a premium of 116%
of the issue price (the "Premium Percentage"); provided, however, that with
respect to any redemption date which is on or before November 6, 1998, the
Premium Percentage shall be 8%, and with respect to any redemption date which is
after November 6, 1998 and on or before January 4, 1999, the Premium Percentage
shall be 112%.
Holders of the Series A Convertible Preferred Stock may at any time on or
after January 5, 1999 convert all or from time to time any part of such holder's
shares of Series A Convertible Preferred Stock into fully paid and nonassessable
shares of Common Stock of the Company and such other securities and property
pursuant to the conversion formula set forth in the Articles of Amendment.
However, absent shareholder approval, the maximum number of shares of Common
Stock that may be issued upon conversion of the Series A Convertible Preferred
Stock is 1,576,000.
Holders of the Series A Convertible Preferred Stock are not entitled to
vote on any matter.
(b) None.
(c) On September 30, 1998, the Company issued warrants for 25,000 shares of the
Company's Common Stock to an "accredited investor" as defined by Rule 501 of
Regulation D promulgated by the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act"). The warrants entitled the
holders thereof to, upon exercise, purchase an aggregate of 25,000 shares of the
Company's Common Stock at an exercise price of $3.00 per share. This transaction
was exempt from the
18
<PAGE>
registration provisions of the Act, pursuant to section 4(2) of the Act for
transactions not involving a public offering, based on the fact that the
securities were offered and sold to one investor who had access to financial and
other relevant data concerning the Company, its financial condition, business,
and assets.
On October 7, 1998, the Company issued 3,000 shares of Series A Convertible
Preferred Stock, par value $1.00 per share, and warrants for 102,127 shares of
the Company's Common Stock to an "accredited investor" as defined by Rule 501 of
Regulation D promulgated by the Securities and Exchange Commission under the Act
for an aggregate consideration of $3 million. This transaction was exempt from
the registration provision of the Act pursuant to Rule 506 of Regulation D as
promulgated by the Securities and Exchange Commission under the Act. Each share
of Series A Convertible Preferred Stock may be converted into a number of shares
of the Company's Common Stock pursuant to the terms of the Series A Convertible
Preferred Stock Purchase Agreement; provided that, the maximum number of shares
of Common Stock that may be issued upon conversion of the Series A Convertible
Preferred Stock is 1,576,000. Absent the Company's certain redemption rights,
the holders of the Series A Convertible Preferred Stock may at any time on or
after January 5, 1999 convert all or from time to time any part of their shares
of Series A Convertible Preferred Stock into fully paid and nonassessable shares
of Common Stock and such other securities and property as provided in the
Articles of Amendment. Each Series A Convertible Preferred Stock shall be
converted pursuant to the conversion terms of the Articles of Amendment;
provided that absent shareholder approval, the maximum number of shares of
Common Stock that may be issued upon conversion of the Series A Convertible
Preferred Stock is 1,576,000. See "Liquidity and Capital Resources" and
"Subsequent Events." The holders of the Series A Convertible Preferred Stock
have certain registration rights.
(d) Not required.
19
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders, held on August 25, 1998, the
Company's shareholders approved the election of four Directors. The following
is a summary of the voting for the Directors who were elected:
<TABLE>
<CAPTION>
VOTES CAST FOR VOTES CAST AGAINST ABSTENTIONS
-------------- ------------------ -----------
<S> <C> <C> <C>
Stephen A. Hafer 6,957,997 8,986 71,159
J. Patrick Henry 6,931,847 35,136 71,159
Thomas W. Zimmerer 6,694,947 272,036 71,159
Nelson Millar 6,694,647 272,336 71,159
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibits Description
---------------------------------------------------------------------------------------------
<S> <C>
3.1 UniComp, Inc. Articles of Amendment to the Articles of Incorporation.
4.1 UniComp, Inc. Articles of Amendment to the Articles of Incorporation, filed
herewith as Exhibit 3.1.
4.2 The Cruttenden Roth Bridge Fund, LLC Warrant
4.3 Advantage Fund II Ltd. Warrant
4.4 Subscription Agreement dated as of October 7, 1998 by and between UniComp,
Inc. and Advantage Fund II Ltd.
4.5 Registration Rights Agreement dated as of October 7, 1998 by and between
UniComp, Inc. and Advantage Fund II Ltd.
27.1 Financial Data Schedule
</TABLE>
No reports on Form 8-K have been filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNICOMP, INC.
/s/ Hugh Moore October 19, 1998
- --------------------------------------- -----------------------------------
Hugh Moore Date
Chief Accounting Officer
20
<PAGE>
UNICOMP, INC.
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
________________________
Pursuant to the provisions of Section 7-110-106 of the Colorado Business
Corporations Act, UniComp, Inc., a Colorado corporation (the "Corporation"),
adopts the following Articles of Amendment to its Articles of Incorporation:
FIRST: The name of the Corporation is UniComp, Inc.
SECOND: The following amendment to the Articles of Incorporation was duly
adopted on October 6, 1998 by the Board of Directors of the
Corporation as prescribed by the Colorado Business Corporation Act.
Shareholder action was not required.
THIRD: A series of Preferred Stock, $1.00 par value (hereinafter called the
"Preferred Stock"), of the Corporation is hereby created and shall
have the following designations, preferences, limitations and relative
rights:
SERIES A CONVERTIBLE PREFERRED STOCK
SECTION 1. DEFINITIONS. As used herein, the following terms shall
-----------
have the following meanings:
"Affiliate" means, with respect to any person, any other person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the subject person; for purposes
of this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
whether through the ownership of voting securities or by contract or otherwise.
"Aggregated Person" means, with respect to any person, any person
whose beneficial ownership of shares of Common Stock would be aggregated with
the beneficial ownership of shares of Common Stock by such person for purposes
of Section 13(d) of the Exchange Act, and Regulation 13D-G thereunder.
1
<PAGE>
"AMEX" means the American Stock Exchange, Inc.
"Average Market Price" for any date means the arithmetic average of
the Market Price on each of the three Trading Days, whether or not consecutive,
during the applicable Measurement Period having the lowest Market Prices.
"Board of Directors" or "Board" means the Board of Directors of the
Corporation.
"Ceiling Price" means $5.00 (subject to equitable adjustments from
time to time on terms reasonably acceptable to the Majority Holders for stock
splits, stock dividends, combinations, recapitalizations, reclassifications and
similar events occurring or with respect to which "ex-" trading commences on or
after the date of filing of these Articles of Amendment with the Secretary of
State of the State of Colorado); provided, however, that, notwithstanding any
other provision hereof, the Ceiling Price applicable to a particular conversion
shall be subject to reduction as provided in Section 10(b)(6); provided further,
however, that if a Registration Event occurs, then, in addition to any other
right or remedy of any holder of shares of Series A Convertible Preferred Stock
thereafter the Ceiling Price shall be permanently reduced on each Computation
Date by an amount equal to two percent of the amount that the Ceiling Price
otherwise would have been without any reduction pursuant to this proviso, such
reduction not to exceed a maximum aggregate reduction for all Computation Dates
of 16.7% of the amount that the Ceiling Price otherwise would have been without
any reduction pursuant to this proviso.
"Closing Bid Price" of any security on any date means the closing bid
price of such security on such date on the securities exchange or other market
on which such security is listed for trading which constitutes the principal
securities market for such security, as reported by Bloomberg, L.P.
"Common Stock" means the Common Stock, $.01 par value, of the
Corporation.
"Computation Date" means, if a Registration Event occurs, any of (1)
the date which is 30 days after such Registration Event occurs, if any
Registration Event is continuing on such date, (2) each date which is 30 days
after a Computation Date, if any Registration Event is continuing on such date,
and (3) the date on which all Registration Events cease to continue.
"Conversion Agent" means Corporate Stock Transfer, Inc., or its duly
appointed successor, as conversion agent for the Series A Convertible Preferred
Stock pursuant to the Transfer Agent Agreement.
"Conversion Amount" initially shall be equal to $1,000.00, subject to
adjustment as herein provided.
2
<PAGE>
"Conversion Date" means, with respect to each conversion of shares of
Series A Convertible Preferred Stock pursuant to Section 10, the date on which
the Conversion Notice relating to such conversion is actually received by the
Conversion Agent, whether by mail, courier, personal service, telephone line
facsimile transmission or other means.
"Conversion Notice" means a written notice, duly signed by or on
behalf of a holder of shares of Series A Convertible Preferred Stock, stating
the number of shares of Series A Convertible Preferred Stock to be converted in
the form specified in the Subscription Agreement.
"Conversion Percentage" means 90%; provided, however, that,
notwithstanding any other provision hereof, if a Registration Event occurs, then
such percentage stated above shall be permanently reduced by two percentage
points on each Computation Date (pro rated in the case of any Computation Date
which is less than 30 days after a Registration Event occurs or less than 30
days after another Computation Date) up to maximum aggregate reduction of such
percentage of 15 percentage points.
"Conversion Price" means the lesser of:
(1) the product of (a) the Average Market Price for such date times
(b) the applicable Conversion Percentage; and
(2) the Ceiling Price;
provided, however, that the Conversion Price applicable to a particular
conversion shall be subject to reduction as provided in Section 10(b)(6).
"Conversion Rate" shall have the meaning provided in Section 10(a).
"Converted Market Price" means, for any share of Series A Convertible
Preferred Stock as of any date of determination, an amount equal to the product
obtained by multiplying (x) the number of shares of Common Stock which would, at
the time of such determination, be issuable on conversion in accordance with
Section 10(a) of one share of Series A Convertible Preferred Stock and any
accrued and unpaid dividends thereon and any accrued and unpaid interest on
dividends thereon in arrears if a Conversion Notice were given by the holder of
such share of Series A Convertible Preferred Stock on the date of such
determination (determined without regard to any limitation on conversion based
on beneficial ownership contained in 10(a)) times (y) the arithmetic average of
the Market Price of the Common Stock for the five consecutive Trading Days
ending on the Trading Day prior to the date of such determination.
3
<PAGE>
"Corporation Optional Redemption Notice" means a notice given by the
Corporation to the holders of shares of Series A Convertible Preferred Stock
pursuant to Section 9(a) which notice shall state (1) that the Corporation is
exercising its right to redeem all or a portion of the outstanding shares of
Series A Convertible Preferred Stock pursuant to Section 9(a), (2) the number of
shares of Series A Convertible Preferred Stock held by such holder which are to
be redeemed, (3) the Redemption Price per share of Series A Convertible
Preferred Stock to be redeemed or the formula for determining the same,
determined in accordance herewith, and (4) the applicable Redemption Date.
"Current Price" means with respect to any date the arithmetic average
of the Market Price of the Common Stock on the 30 consecutive Trading Days
commencing 45 Trading Days before such date.
"Dividend Shares" means shares of Series A Convertible Preferred Stock
issued as dividends on outstanding shares of Series A Convertible Preferred
Stock in accordance with Section 5(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Final Redemption Date" means the date of redemption of shares of
Series A Convertible Preferred Stock pursuant to Section 9(b), determined in
accordance therewith.
"Final Redemption Notice" means a notice given by the Corporation to
each holder of Series A Convertible Preferred Stock pursuant to Section 9(b),
which notice shall state (1) that the Corporation is exercising its right to
redeem all outstanding shares of Series A Convertible Preferred Stock pursuant
to Section 9(b), (2) the number of shares of Series A Convertible Preferred
Stock held by such holder which are to be redeemed, (3) the Final Redemption
Price per share of Series A Convertible Preferred Stock held by such holder
which are to be redeemed, determined in accordance herewith, and (4) the Final
Redemption Date.
"Final Redemption Price" means, for any share of Series A Convertible
Preferred Stock on any date, an amount equal to the sum of (i) $1,000 plus (ii)
an amount equal to the accrued but unpaid dividends on the share of Series A
Convertible Preferred Stock to be redeemed to the Final Redemption Date, plus
(iii) an amount equal to the accrued and unpaid interest on dividends in arrears
on such share of Series A Convertible Preferred Stock to the Final Redemption
Date (determined as provided in Section 5).
"Holder Optional Redemption Date" shall mean the date of redemption of
shares of Series A Convertible Preferred Stock pursuant to Section 11.
"Inconvertibility Notice" shall have the meaning provided in Section
7(a)(2).
4
<PAGE>
"Issuance Date" means the first date of original issuance of any
shares of Series A Convertible Preferred Stock.
"Junior Dividend Stock" means, collectively, the Common Stock and any
other class or series of capital stock of the Corporation ranking junior as to
dividends to the Series A Convertible Preferred Stock.
"Junior Liquidation Stock" means the Common Stock or any other class
or series of the Corporation's capital stock ranking junior as to liquidation
rights to the Series A Convertible Preferred Stock.
"Liquidation Preference" means, for each share of Series A Convertible
Preferred Stock, the sum of (i) all dividends accrued and unpaid thereon to the
date of final distribution to such holders, (ii) accrued and unpaid interest on
dividends in arrears (computed in accordance with Section 5(a)) to the date of
such distribution, and (iii) $1,000.00.
"Majority Holders" means at any time the holders of shares of Series A
Preferred Stock which shares constitute a majority of the outstanding shares of
Series A Preferred Stock.
"Market Price" of the Common Stock on any date means the lowest sale
price (regular way) for one share of Common Stock on such date on the first
applicable among the following: (a) the national securities exchange on which
the shares of Common Stock are listed which constitutes the principal securities
market for the Common Stock, (b) the Nasdaq, if the Nasdaq constitutes the
principal market for the Common Stock on such date, or (c) the Nasdaq SmallCap,
if the Nasdaq SmallCap constitutes the principal securities market for the
Common Stock on such date, in any such case as reported by Bloomberg, L.P.;
provided, however, that if during any Measurement Period or other period during
which the Market Price is being determined:
(i) The Corporation shall declare or pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of
Common Stock or fix any record date for any such action, then the Market
Price for each day in such Measurement Period or such other period which
day is prior to the earlier of (1) the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution and
(2) the date on which ex-dividend trading in the Common Stock with respect
to such dividend or distribution begins shall be reduced by multiplying the
Market Price (determined without regard to this proviso) for each such day
in such Measurement Period or such other period by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding at the close of business on the earlier of (1) the record date
fixed for such determination and (2) the date on which ex-dividend trading
in the Common
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<PAGE>
Stock with respect to such dividend or distribution begins and the
denominator of which shall be the sum of such number of shares and the
total number of shares constituting such dividend or other distribution;
(ii) The Corporation shall issue rights or warrants to all holders
of its outstanding shares of Common Stock, or fix a record date for such
issuance, which rights or warrants entitle such holders (for a period
expiring within forty-five (45) days after the date fixed for the
determination of stockholders entitled to receive such rights or warrants)
to subscribe for or purchase shares of Common Stock at a price per share
less than the Market Price (determined without regard to this proviso) for
any day in such Measurement Period or such other period which day is prior
to the end of such 45-day period, then the Market Price for each such day
shall be reduced so that the same shall equal the price determined by
multiplying the Market Price (determined without regard to this proviso) by
a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding at the close of business on the record date fixed for the
determination of stockholders entitled to receive such rights or warrants
plus the number of shares which the aggregate offering price of the total
number of shares so offered would purchase at such Market Price, and the
denominator of which shall be the number of shares of Common Stock
outstanding on the close of business on such record date plus the total
number of additional shares of Common Stock so offered for subscription or
purchase. In determining whether any rights or warrants entitle the holders
to subscribe for or purchase shares of Common Stock at less than the Market
Price (determined without regard to this proviso), and in determining the
aggregate offering price of such shares of Common Stock, there shall be
taken into account any consideration received for such rights or warrants,
the value of such consideration, if other than cash, to be determined in
good faith by a resolution of the Board of Directors of the Corporation;
(iii) The outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock or a record date for any such
subdivision shall be fixed, then the Market Price of the Common Stock for
each day in such Measurement Period or such other period which day is prior
to the earlier of (1) the day upon which such subdivision becomes effective
and (2) the date on which ex-dividend trading in the Common Stock with
respect to such subdivision begins shall be proportionately reduced, and
conversely, in case the outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the Market Price
each trade (regular way) on for each day in such Measurement Period or such
other period which day is prior to the earlier of (1) the date on which
such combination becomes effective and (2) the date on which trading in the
Common Stock on a basis which gives effect to such combination begins,
shall be proportionately increased;
(iv) The Corporation shall, by dividend or otherwise, distribute to
all holders
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<PAGE>
of its Common Stock shares of any class of capital stock of the Corporation
(other than any dividends or distributions to which clause (i) of this
proviso applies) or evidences of its indebtedness, cash or other assets
(including securities, but excluding any rights or warrants referred to in
clause (ii) of this proviso and dividends and distributions paid
exclusively in cash and excluding any capital stock, evidences of
indebtedness, cash or assets distributed upon a merger or consolidation)
(the foregoing hereinafter in this clause (iv) of this proviso called the
"Securities"), or fix a record date for any such distribution, then, in
each such case, the Market Price for each day in such Measurement Period or
such other period which day is prior to the earlier of (1) the record date
for such distribution and (2) the date on which ex-dividend trading in the
Common Stock with respect to such distribution begins shall be reduced so
that the same shall be equal to the price determined by multiplying the
Market Price (determined without regard to this proviso) by a fraction, the
numerator of which shall be the Market Price (determined without regard to
this proviso) for such date less the fair market value (as determined in
good faith by resolution of the Board of Directors of the Corporation) on
such date of the portion of the Securities so distributed or to be
distributed applicable to one share of Common Stock and the denominator of
which shall be the Market Price (determined without regard to this proviso)
for such date; provided, however, that in the event the then fair market
value (as so determined) of the portion of the Securities so distributed
applicable to one share of Common Stock is equal to or greater than the
Market Price (determined without regard to this clause (iv) of this
proviso) for any such Trading Day, in lieu of the foregoing adjustment,
adequate provision shall be made so that the holders of shares of Series A
Preferred Stock shall have the right to receive upon conversion of the
shares of Series A Preferred Stock the amount of Securities the holders of
shares of Series A Preferred Stock would have received had the number of
shares of Common Stock to be issued in payment of such dividends on the
shares of Series A Preferred Stock been issued, or had the holders of
shares of Series A Preferred Stock converted the shares of Series A
Preferred Stock, in either such case immediately prior to the record date
for such distribution. If the Board of Directors of the Corporation
determines the fair market value of any distribution for purposes of this
clause (iv) by reference to the actual or when issued trading market for
any securities comprising all or part of such distribution, it must in
doing so consider the prices in such market on the same day for which an
adjustment in the Market Price is being determined.
For purposes of this clause (iv) and clauses (i) and (ii) of this
proviso, any dividend or distribution to which this clause (iv) is
applicable that also includes shares of Common Stock, or rights or warrants
to subscribe for or purchase shares of Common Stock to which clause (i) or
(ii) of this proviso applies (or both), shall be deemed instead to be (1) a
dividend or distribution of the evidences of indebtedness, assets, shares
of capital stock, rights or warrants other than such shares of Common Stock
or rights or warrants to which clause (i) or (ii) of this proviso applies
(and any Market Price reduction required by this
7
<PAGE>
clause (iv) with respect to such dividend or distribution shall then be
made) immediately followed by (2) a dividend or distribution of such shares
of Common Stock or such rights or warrants (and any further Market Price
reduction required by clauses (i) and (ii) of this proviso with respect to
such dividend or distribution shall then be made), except that any shares
of Common Stock included in such dividend or distribution shall not be
deemed "outstanding at the close of business on the date fixed for such
determination" within the meaning of clause (i) of this proviso;
(v) The Corporation or any subsidiary of the Corporation shall (x)
by dividend or otherwise, distribute to all holders of its Common Stock
cash in (or fix any record date for any such distribution), or (y)
repurchase or reacquire shares of its Common Stock (other than an Option
Share Surrender) for, in either case, an aggregate amount that, combined
with (1) the aggregate amount of any other such distributions to all
holders of its Common Stock made exclusively in cash after the Issuance
Date and within the 12 months preceding the date of payment of such
distribution, and in respect of which no adjustment pursuant to this clause
(v) has been made, (2) the aggregate amount of any cash plus the fair
market value (as determined in good faith by a resolution of the Board of
Directors of the Corporation) of consideration paid in respect of any
repurchase or other reacquisition by the Corporation or any subsidiary of
the Corporation of any shares of Common Stock (other than an Option Share
Surrender) made after the Issuance Date and within the 12 months preceding
the date of payment of such distribution or making of such repurchase or
reacquisition, as the case may be, and in respect of which no adjustment
pursuant to this clause (v) has been made, and (3) the aggregate of any
cash plus the fair market value (as determined in good faith by a
resolution of the Board of Directors of the Corporation) of consideration
payable in respect of any Tender Offer by the Corporation or any of its
subsidiaries for all or any portion of the Common Stock concluded within
the 12 months preceding the date of payment of such distribution or
completion of such repurchase or reacquisition, as the case may be, and in
respect of which no adjustment pursuant to clause (vi) of this proviso has
been made (such aggregate amount combined with the amounts in clauses (1),
(2) and (3) above being the "Combined Amount"), exceeds 10% of the product
of the Market Price (determined without regard to this proviso) for any day
in such Measurement Period or such other period which day is prior to the
earlier of (A) the record date with respect to such distribution and (B)
the date on which ex-dividend trading in the Common Stock with respect to
such distribution begins or the date of such repurchase or reacquisition,
as the case may be, times the number of shares of Common Stock outstanding
on such date, then, and in each such case, the Market Price for each such
day shall be reduced so that the same shall equal the price determined by
multiplying the Market Price (determined without regard to this proviso)
for such day by a fraction (i) the numerator of which shall be equal to the
Market Price (determined without regard to this proviso) for such day less
an amount equal to the quotient of (x) the excess of such Combined Amount
over such 10% and (y) the number
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<PAGE>
of shares of Common Stock outstanding on such day and (ii) the denominator
of which shall be equal to the Market Price (determined without regard to
this proviso) for such day; provided, however, that in the event the
portion of the cash so distributed or paid for the repurchase or
reacquisition of shares (determined per share based on the number of shares
of Common Stock outstanding) applicable to one share of Common Stock is
equal to or greater than the Market Price (determined without regard to
this clause (v) of this proviso) of the Common Stock for any such day, then
in lieu of the foregoing adjustment with respect to such day, adequate
provision shall be made so that the holders of shares of Series A Preferred
Stock shall have the right to receive upon conversion of shares of Series A
Preferred Stock the amount of cash the holders of shares of Series A
Preferred Stock would have received had the holders of shares of Series A
Preferred Stock converted shares of Series A Preferred Stock immediately
prior to the record date for such distribution or the payment date of such
repurchase, as applicable; or
(vi) A Tender Offer made by the Corporation or any of its subsidiaries
for all or any portion of the Common Stock shall expire and such Tender
Offer (as amended upon the expiration thereof) shall require the payment to
stockholders (based on the acceptance (up to any maximum specified in the
terms of the Tender Offer) of Purchased Shares (as defined below)) of an
aggregate consideration having a fair market value (as determined in good
faith by resolution of the Board of Directors of the Corporation) that
combined together with (1) the aggregate of the cash plus the fair market
value (as determined in good faith by a resolution of the Board of
Directors of the Corporation), as of the expiration of such Tender Offer,
of consideration payable in respect of any other Tender Offers, by the
Corporation or any of its subsidiaries for all or any portion of the Common
Stock expiring within the 12 months preceding the expiration of such Tender
Offer and in respect of which no adjustment pursuant to this clause (vi)
has been made, (2) the aggregate amount of any cash plus the fair market
value (as determined in good faith by a resolution of the Board of
Directors of the Corporation) of consideration paid in respect of any
repurchase or other reacquisition by the Corporation or any subsidiary of
the Corporation of any shares of Common Stock (other than an Option Share
Surrender) made after the Issuance Date and within the 12 months preceding
the expiration of such Tender Offer and in respect of which no adjustment
pursuant to clause (v) of this proviso has been made, and (3) the aggregate
amount of any distributions to all holders of Common Stock made exclusively
in cash within 12 months preceding the expiration of such Tender Offer and
in respect of which no adjustment pursuant to clause (v) of this proviso
has been made, exceeds 10% of the product of the Market Price (determined
without regard to this proviso) for any day in such period times the number
of shares of Common Stock outstanding on such day, then, and in each such
case, the Market Price for such day shall be reduced so that the same shall
equal the price determined by multiplying the Market Price (determined
without regard to this proviso) for such day by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding on such
day
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<PAGE>
multiplied by the Market Price (determined without regard to this proviso)
for such day and the denominator of which shall be the sum of (x) the fair
market value (determined as aforesaid) of the aggregate consideration
payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the Tender Offer) of all shares validly tendered
and not withdrawn as of the last time tenders could have been made pursuant
to such Tender Offer (the "Expiration Time") (the shares deemed so
accepted, up to any such maximum, being referred to as the "Purchased
Shares") and (y) the product of the number of shares of Common Stock
outstanding (less any Purchased Shares) on such day times the Market Price
(determined without regard to this proviso) of the Common Stock on the
Trading Day next succeeding the Expiration Time. If the application of this
clause (vi) to any Tender Offer would result in an increase in the Market
Price (determined without regard to this proviso) for any trade, no
adjustment shall be made for such Tender Offer under this clause (vi) for
such day.
"Maximum Share Amount" means 1,576,000 shares, or such greater number
as permitted by the rules of the Nasdaq (such amount to be subject to equitable
adjustment from time to time on terms reasonably acceptable to the Majority
Holders for stock splits, stock dividends, combinations, capital reorganizations
and similar events relating to the Common Stock occurring or with respect to
which "ex-" trading commences after the date of filing these Articles of
Amendment with the Secretary of State of the State of Colorado), of Common
Stock.
"Measurement Period" means, with respect to any date, the period of 30
consecutive Trading Days ending on the Trading Day prior to such date.
"Nasdaq" means the Nasdaq National Market.
"Nasdaq SmallCap" means the Nasdaq SmallCap Market.
"1933 Act" means the Securities Act of 1933, as amended.
"NYSE" means the New York Stock Exchange, Inc.
"Option Share Surrender" means the surrender of shares of Common Stock
to the Corporation in payment of the exercise price or tax obligations incurred
in connection with the exercise of a stock option granted by the Corporation to
any of its employees, directors or consultants.
"Optional Redemption Event" means any one of the following events:
(1) For any period of five consecutive Trading Days there shall be
no closing bid price of the Common Stock on the Nasdaq, the Nasdaq
SmallCap, the NYSE or the
10
<PAGE>
AMEX;
(2) The Common Stock ceases to be listed for trading on any of
the NYSE, the AMEX, the Nasdaq or the Nasdaq SmallCap;
(3) The inability for 30 or more days (whether or not
consecutive) of any holder of shares of Series A Convertible Preferred
Stock to sell such shares of Common Stock issued or issuable on
conversion of shares of Series A Convertible Preferred Stock pursuant
to the Registration Statement for any reason on each of such 30 days;
(4) The Corporation shall (A) default in the timely
performance of the obligation to issue shares of Common Stock upon
conversion of shares of Series A Convertible Preferred Stock as and
when required by Section 10 or (B) the Corporation shall fail or
default in the timely performance of any material obligation (other
than as specifically set forth elsewhere in this definition) to a
holder of shares of Series A Convertible Preferred Stock under the
terms of these Articles of Amendment or under the Registration Rights
Agreement, the Warrants or any other agreement or document entered into
in connection with the issuance of shares of Series A Convertible
Preferred Stock, as such instruments may be amended from time to time;
(5) Any consolidation or merger of the Corporation with or
into another entity (other than a merger or consolidation of a
subsidiary of the Corporation into the Corporation or a wholly-owned
subsidiary of the Corporation) where the shareholders of the
Corporation immediately prior to such transaction do not collectively
own at least 51% of the outstanding voting securities of the surviving
corporation of such consolidation or merger immediately following such
transaction or the common stock of such surviving corporation is not
listed for trading on the NYSE, the AMEX, the Nasdaq or the Nasdaq
SmallCap; or any sale or other transfer of all or substantially all of
the assets of the Corporation;
(6) The taking of any action, including any amendment to the
Corporation's Articles of Incorporation, without the consent of the
Majority Holders which materially and adversely affects the rights of
any holder of shares of Series A Convertible Preferred Stock; or
(7) The Corporation shall fail to deliver to the initial
holder of shares of Series A Preferred Stock the legal opinion as and
when required by Section 4(l) of the Subscription Agreement.
"Optional Redemption Notice" means a notice from a holder of
shares of Series A Convertible Preferred Stock to the Corporation which states
(1) that the holder delivering such
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<PAGE>
notice is thereby requiring the Corporation to redeem shares of Series A
Convertible Preferred Stock pursuant to Section 11, (2) in general terms the
Optional Redemption Event giving rise to such redemption, and (3) the number of
shares of Series A Convertible Preferred Stock held by such holder which are to
be redeemed.
"Optional Redemption Price" means the greater of (i) the
Premium Price on the applicable redemption date and (ii) the Converted Market
Price on the applicable redemption date.
"Parity Dividend Stock" means any class of series of the
Corporation's capital stock ranking, as to dividends, on a parity with the
Series A Convertible Preferred Stock.
"Parity Liquidation Stock" means any class or series of the
Corporation's capital stock having parity as to liquidation rights with the
Series A Convertible Preferred Stock.
"Premium Percentage" means 116%; provided, however, that with
respect to any Redemption Date which is on or before 30 days after the Issuance
Date, the Premium Percentage shall be 8%, and with respect to any Redemption
Date which is more than 30 days after the Issuance Date and on or before the
89th day after the Issuance Date, the Premium Percentage shall be 112%.
"Premium Price" means, for any share of Series A Convertible
Preferred Stock as of any date of determination, the product obtained by
multiplying (a) the sum of (1) the Conversion Amount plus (2) an amount equal to
the accrued but unpaid dividends on such share of Series A Convertible Preferred
Stock to the date of determination, plus (3) an amount equal to the accrued and
unpaid interest on dividends in arrears (as provided in Section 5) to the date
of determination times (b) the Premium Percentage.
"Redemption Date" means the date of a redemption of shares of
Series A Convertible Preferred Stock pursuant to Section 9(a), determined in
accordance therewith.
"Redemption Price" means the greater of (i) the Premium Price
on the applicable Redemption Date and (ii) the Converted Market Price on the
applicable Redemption Date.
"Registration Event" shall mean (1) the Registration Statement
is not effective within 90 days after the Issuance Date, (2) the Company fails
to file the Registration Statement with the SEC within 45 days after the
Issuance Date, (3) the Registration Statement shall cease to be available for
use by any holder of shares of Series A Convertible Preferred Stock who is named
therein as a selling stockholder for any reason (including, without limitation,
by reason of an SEC stop order, a material misstatement or omission in the
Registration Statement or the information contained in the Registration
Statement having become outdated); provided, however, that no Registration Event
pursuant to this clause (3) shall be deemed to occur prior to the SEC
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<PAGE>
Effective Date, (4) the Common Stock ceases to be listed for trading on any of
the NYSE, the AMEX, the Nasdaq or the Nasdaq SmallCap, or (5) a holder of shares
of Series A Preferred Stock having become unable to convert any shares of Series
A Preferred Stock in accordance with Section 10(a) for any reason (other than by
reason of (a) the 4.9% limitation on beneficial ownership set forth therein, (b)
a redemption or repurchase of shares of Series A Preferred Stock or (c) the
Maximum Share Amount limitation set forth in Section 7(a)).
"Registration Rights Agreement" means the Registration Rights
Agreement entered into between the Corporation and the original holder of the
shares of Series A Convertible Preferred Stock, as amended or modified from time
to time in accordance with its terms.
"Registration Statement" means the Registration Statement
required to be filed by the Corporation with the SEC pursuant to Section 2(a) of
the Registration Rights Agreement.
"SEC" means the United States Securities and Exchange
Commission.
"SEC Effective Date" means the date the Registration Statement
is first declared effective by the SEC.
"Senior Dividend Stock" means any class or series of capital
stock of the Corporation ranking senior as to dividends to the Series A
Convertible Preferred Stock.
"Senior Liquidation Stock" means any class or series of
capital stock of the Corporation ranking senior as to liquidation rights to the
Series A Convertible Preferred Stock.
"Series A Convertible Preferred Stock" means the Series A
Convertible Preferred Stock, $1.00 par value, of the Corporation.
"Share Limitation Redemption Date" shall mean each date on
which the Corporation is required to redeem shares of Series A Convertible
Preferred Stock as provided in Section 7(a).
"Share Limitation Redemption Price" means the greater of (i)
the Premium Price on the applicable Share Limitation Redemption Date and (ii)
the Converted Market Price on the applicable Share Limitation Redemption Date.
"Stockholder Approval" shall mean the approval by a majority
of the votes cast by the holders of shares of Common Stock (in person or by
proxy) at a meeting of the stockholders of the Corporation (duly convened at
which a quorum was present), or a written consent of holders of shares of Common
Stock entitled to such number of votes given without a meeting, of the issuance
by the Corporation of 20% or more of the Common Stock of the Corporation
outstanding on the Issuance Date for less than the greater of the book or market
value of such
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<PAGE>
Common Stock on conversion of the Series A Convertible Preferred Stock, as and
to the extent required under Rule 4460(i) of the Nasdaq as in effect from time
to time or any successor provision.
"Subscription Agreement" means the Subscription Agreement by
and between the Corporation and the original holder of shares of Series A
Convertible Preferred Stock pursuant to which the shares of Series A Convertible
Preferred Stock were issued.
"Tender Offer" means a tender offer or exchange offer.
"Trading Day" means a day on whichever of (x) the national
securities exchange, (y) the Nasdaq or (z) the Nasdaq SmallCap which at the time
constitutes the principal securities market for the Common Stock is open for
general trading.
"Transfer Agent Agreement" means the Transfer Agent Agreement,
dated as of October 5, 1998, by and among the Corporation, the Conversion Agent
and the original holder of the Series A Convertible Preferred Stock for the
benefit of the holders from time to time of shares of Series A Convertible
Preferred Stock.
"Warrants" means the Common Stock Purchase Warrants issued by
the Corporation in connection with the issuance of the shares of Series A
Convertible Preferred Stock.
SECTION 2. DESIGNATION AND AMOUNT. The shares of such series
----------------------
shall be designated as "Series A Convertible Preferred Stock", and the number of
shares constituting the Series A Convertible Preferred Stock shall be 3,600, and
shall not be subject to increase. Of the authorized shares of Series A
Convertible Preferred Stock, 600 shares may be issued only as dividends on the
outstanding shares of Series A Convertible Preferred Stock.
SECTION 3. [RESERVED.]
SECTION 4. RANK. All Series A Convertible Preferred Stock
----
shall rank (i) senior to the Common Stock, now or hereafter issued, as to
payment of dividends and distribution of assets upon liquidation, dissolution,
or winding up of the Corporation, whether voluntary or involuntary, (ii) senior
to any additional series of the class of Preferred Stock which series the Board
of Directors may from time to time authorize, both as to payment of dividends
and as to distributions of assets upon liquidation, dissolution, or winding up
of the Corporation, whether voluntary or involuntary and (iii) senior to any
additional class of preferred stock (or series of preferred stock of such class)
which the Board of Directors or the stockholders may from time to time authorize
in accordance herewith.
SECTION 5. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of
---------------------------
shares of Series
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A Convertible Preferred Stock shall be entitled to receive, when, as, and if
declared by the Board of Directors out of funds legally available for such
purpose, dividends at the rate of $50.00 per annum per share, and no more, which
shall be fully cumulative, shall accrue without interest (except as otherwise
provided herein as to dividends in arrears) from the date of original issuance
of each share of Series A Convertible Preferred Stock and shall be payable
quarterly on March 15, June 15, September 15, and December 15 of each year
commencing December 15, 1998 (except that if any such date is a Saturday,
Sunday, or legal holiday, then such dividend shall be payable on the next
succeeding day that is not a Saturday, Sunday, or legal holiday) to holders of
record as they appear on the stock books of the Corporation on such record
dates, not more than 20 nor less than 10 days preceding the payment dates for
such dividends, as shall be fixed by the Board. Dividends on the Series A
Convertible Preferred Stock shall be paid in cash or, subject to the limitations
in Section 5(b) hereof, Dividend Shares or any combination of cash and Dividend
Shares, at the option of the Corporation as hereinafter provided. The amount of
the dividends payable per share of Series A Convertible Preferred Stock for each
quarterly dividend period shall be computed by dividing the annual dividend
amount by four. The amount of dividends payable for the initial dividend period
and any period shorter than a full quarterly dividend period shall be computed
on the basis of a 360-day year of twelve 30-day months. Dividends not paid on a
payment date, whether or not such dividends have been declared, will bear
interest at the rate of 14% per annum until paid (or such lesser rate as shall
be the maximum rate allowable by applicable law). No dividends or other
distributions, other than the dividends payable solely in shares of any Junior
Dividend Stock, shall be paid or set apart for payment on any shares of Junior
Dividend Stock, and no purchase, redemption, or other acquisition shall be made
by the Corporation of any shares of Junior Dividend Stock (except for Option
Share Surrenders), unless and until all accrued and unpaid dividends on the
Series A Convertible Preferred Stock and interest on dividends in arrears at the
rate specified herein shall have been paid or declared and set apart for
payment.
If at any time any dividend on any Senior Dividend Stock shall
be in arrears, in whole or in part, no dividend shall be paid or declared and
set apart for payment on the Series A Convertible Preferred Stock unless and
until all accrued and unpaid dividends with respect to the Senior Dividend
Stock, including the full dividends for the then current dividend period, shall
have been paid or declared and set apart for payment, without interest. No full
dividends shall be paid or declared and set apart for payment on any Parity
Dividend Stock for any period unless all accrued but unpaid dividends (and
interest on dividends in arrears at the rate specified herein) have been, or
contemporaneously are, paid or declared and set apart for such payment on the
Series A Convertible Preferred Stock. No full dividends shall be paid or
declared and set apart for payment on the Series A Convertible Preferred Stock
for any period unless all accrued but unpaid dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of such full dividends. When dividends are not paid in full upon the
Series A Convertible Preferred Stock and the Parity Dividend Stock, all
dividends paid or declared and set
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<PAGE>
apart for payment upon shares of Series A Convertible Preferred Stock (and
interest on dividends in arrears at the rate specified herein) and the Parity
Dividend Stock shall be paid or declared and set apart for payment pro rata, so
that the amount of dividends paid or declared and set apart for payment per
share on the Series A Convertible Preferred Stock and the Parity Dividend Stock
shall in all cases bear to each other the same ratio that accrued and unpaid
dividends per share on the shares of Series A Convertible Preferred Stock and
the Parity Dividend Stock bear to each other.
Any references to "distribution" contained in this Section 5
shall not be deemed to include any stock dividend or distributions made in
connection with any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary.
(b) If the Corporation elects in the exercise of its sole
discretion to issue Dividend Shares in payment of dividends on the Series A
Convertible Preferred Stock in respect of any dividend payment date, the
Corporation shall issue and deliver, or cause to be issued and delivered,
by the third Trading Day after such dividend payment date to each holder of
shares of Series A Convertible Preferred Stock a certificate representing the
number of whole Dividend Shares arrived at by dividing (x) the total amount of
cash dividends such holder would be entitled to receive if the aggregate
dividends on the Series A Convertible Preferred Stock held by such holder which
are being paid in Dividend Shares were being paid in cash by (y) $1,000.00;
provided, however, that if certificates representing Dividend Shares are issued
and delivered to holders of Series A Convertible Preferred Stock subsequent to
the third Trading Day after a dividend payment date, the amount so divided into
such total amount of cash dividends will be reduced at a rate of 14% per annum
for each Trading Day after the third Trading Day following such dividend payment
date to the date of delivery of Dividend Shares (and no interest for late
payment of cash dividends will be due pursuant to Section 5(a)). No fractional
Dividend Shares shall be issued in payment of dividends. In lieu thereof, the
Corporation shall pay cash in an amount equal to the product of (x) the
arithmetic average of the Market Price of the Common Stock for the five
consecutive Trading Days ending on the Trading Day prior to such dividend
payment date times (y) the number of shares of Common Stock which the fraction
of a Dividend Share which would otherwise be issuable by the Corporation would
be convertible in accordance with Section 10(a) if so converted on the
applicable dividend payment date. The Corporation shall not exercise its right
to issue Dividend Shares in payment of dividends on Series A Convertible
Preferred Stock if:
(i) the number of shares of Series A Convertible Preferred
Stock at the time authorized, unissued and unreserved for all purposes,
or held in the Corporation's treasury, is insufficient to permit the
issuance of such number of Dividend Shares; or the number of shares of
Common Stock at the time authorized, unissued and unreserved for all
purposes, or held in the Corporation's treasury, is insufficient to
permit the conversion of such Dividend Shares into shares of Common
Stock;
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(ii) the issuance or delivery of Dividend Shares as a
dividend payment or the issuance of shares of Common Stock upon
conversion of such Dividend Shares would require registration with or
approval of any governmental authority under any law or regulation, and
such registration or approval has not been effected or obtained;
(iii) the shares of Common Stock issuable upon conversion of
such Dividend Shares have not been authorized for listing, upon
official notice of issuance, on any securities exchange or market on
which the Common Stock is then listed; or have not been approved for
quotation if the Common Stock is traded in the over-the-counter market;
(iv) the number of shares of Common Stock registered
pursuant to Section 2(a) of the Registration Rights Agreement for
resale upon issuance upon conversion of Dividend Shares shall be
insufficient (after taking into account the number of shares of Common
Stock issued or issuable upon conversion of Dividend Shares theretofore
issued) to permit the resale pursuant to the Registration Statement of
the shares of Common Stock issuable upon conversion of such Dividend
Shares;
(v) the shares of Common Stock issuable upon conversion of
such Dividend Shares (A) cannot be sold or transferred without
restriction by unaffiliated holders who receive such Dividend Shares or
(B) are no longer listed on any of the NYSE, the AMEX, the Nasdaq or
the Nasdaq SmallCap; or
(vi) an Optional Redemption Event shall have occurred and
any holder of shares of Series A Convertible Preferred Stock (A) shall
be entitled to exercise optional redemption rights under Section 11 of
shares of Series A Convertible Preferred Stock by reason of such
Optional Redemption Event or (B) shall have exercised optional
redemption rights under Section 11 by reason of such Optional
Redemption Event and the Corporation shall not have paid the Optional
Redemption Price to each holder.
Dividend Shares issued in payment of dividends on Series A
Convertible Preferred Stock pursuant to this Section and shares of Common Stock
issuable upon conversion of such Dividend Shares shall be, and for all purposes
shall be deemed to be, validly issued, fully paid and nonassessable shares of
the Corporation; the issuance and delivery thereof is hereby authorized; and the
delivery will be, and for all purposes shall be deemed to be, payment in full of
the cumulative dividends to which holders are entitled on the applicable
dividend payment date.
(c) Neither the Corporation nor any subsidiary of the
Corporation shall redeem, repurchase or otherwise acquire in any one transaction
or series of related transactions any shares of Common Stock, Junior Dividend
Stock or Junior Liquidation Stock if the number of shares so repurchased,
redeemed or otherwise acquired in such transaction or series of related
transactions
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(excluding any Option Share Surrender) is more than either (x) 5.0% of the
number of shares of Common Stock, Junior Dividend Stock or Junior Liquidation
Stock, as the case may be, outstanding immediately prior to such transaction or
series of related transactions or (y) 2% of the number of shares of Common
Stock, Junior Dividend Stock or Junior Liquidation Stock, as the case may be,
outstanding immediately prior to such transaction or series of related
transactions if such transaction or series of related transactions is with any
one person or group of affiliated persons, unless the Corporation or such
subsidiary offers to purchase for cash from each holder of shares of Series A
Convertible Preferred Stock at the time of such redemption, repurchase or
acquisition the same percentage of such holder's shares of Series A Convertible
Preferred Stock as the percentage of the number of outstanding shares of Common
Stock, Junior Dividend Stock or Junior Liquidation Stock, as the case may be, to
be so redeemed, repurchased or acquired at a purchase price per share of Series
A Convertible Preferred Stock equal to the greater of (i) the Premium Price in
effect on the date of purchase pursuant to this Section 5(c) and (ii) the
Converted Market Price on the date of purchase pursuant to this Section 5(c).
(d) Neither the Corporation nor any subsidiary of the
Corporation shall (1) make any Tender Offer for outstanding shares of Common
Stock, unless the Corporation contemporaneously therewith makes an offer, or (2)
enter into an agreement regarding a Tender Offer for outstanding shares of
Common Stock by any person other than the Corporation or any subsidiary of the
Corporation, unless such person agrees with the Corporation to make an offer, in
either such case to each holder of outstanding shares of Series A Convertible
Preferred Stock to purchase for cash at the time of purchase in such Tender
Offer the same percentage of shares of Series A Convertible Preferred Stock held
by such holder as the percentage of outstanding shares of Common Stock offered
to be purchased in such Tender Offer at a price per share of Series A
Convertible Preferred Stock equal to the greater of (i) the Premium Price in
effect on the date of purchase pursuant to this Section 5(d) and (ii) the
Converted Market Price on the date of purchase pursuant to this Section 5(d).
SECTION 6. LIQUIDATION PREFERENCE. In the event of a
----------------------
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary, the holders of Series A Convertible Preferred Stock shall be
entitled to receive out of the assets of the Corporation, whether such assets
constitute stated capital or surplus of any nature, an amount per share of
Series A Convertible Preferred Stock equal to the Liquidation Preference, and no
more, before any payment shall be made or any assets distributed to the holders
of Junior Liquidation Stock; provided, however, that such rights shall accrue to
the holders of Series A Convertible Preferred Stock only in the event that the
Corporation's payments with respect to the liquidation preference of the holders
of Senior Liquidation Stock are fully met. After the liquidation preferences of
the Senior Liquidation Stock are fully met, the entire assets of the Corporation
available for distribution shall be distributed ratably among the holders of the
Series A Convertible Preferred Stock and any Parity Liquidation Stock in
proportion to the respective preferential amounts to which each is entitled (but
only to the extent of such preferential amounts). After payment in full
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<PAGE>
of the liquidation price of the shares of the Series A Convertible Preferred
Stock and the Parity Liquidation Stock, the holders of such shares shall not be
entitled to any further participation in any distribution of assets by the
Corporation. Neither a consolidation or merger of the Corporation with another
corporation nor a sale or transfer of all or part of the Corporation's assets
for cash, securities, or other property in and of itself will be considered a
liquidation, dissolution or winding up of the Corporation.
SECTION 7. MANDATORY REDEMPTION.
--------------------
(a) MANDATORY REDEMPTION BASED ON MAXIMUM SHARE AMOUNT. (1)
--------------------------------------------------
Notwithstanding any other provision herein, unless the Stockholder Approval
shall have been obtained from the stockholders of the Corporation or waived by
the Nasdaq, so long as the Common Stock is listed on the Nasdaq, the Nasdaq
SmallCap, the NYSE or the AMEX the Corporation shall not be required to issue
upon conversion of shares of Series A Convertible Preferred Stock pursuant to
Section 10 more than the Maximum Share Amount. The Maximum Share Amount shall be
allocated among the shares of Series A Convertible Preferred Stock at the time
of initial issuance thereof pro rata based on the initial issuance of 3,000
shares of Series A Convertible Preferred Stock. Each certificate for shares of
Series A Convertible Preferred Stock initially issued shall bear a notation as
to the number of shares constituting the portion of the Maximum Share Amount
allocated to the shares of Series A Convertible Preferred Stock represented by
such certificate for purposes of conversion thereof. The Corporation shall
maintain records which show the number of shares of Series A Convertible
Preferred Stock issued by the Corporation pursuant to Section 5 as dividends on
the shares of Series A Convertible Preferred Stock represented by each
certificate, which records shall be controlling in the absence of manifest
error. Each such additional share of Series A Convertible Preferred Stock shall
be allocated a portion of the Maximum Share Amount allocated to the shares of
Series A Convertible Preferred Stock in respect of which such additional shares
of Series A Convertible Preferred Stock are issued as a dividend and the
certificate for such additional shares of Series A Convertible Preferred Stock
shall bear a notation as to the certificate number of the share of Series A
Convertible Preferred Stock in respect of which such additional share of Series
A Convertible Preferred Stock is issued as a dividend. Upon surrender of any
certificate for shares of Series A Convertible Preferred Stock for transfer or
re-registration thereof (or, at the option of the holder, for conversion
pursuant to Section 10(a) of less than all of the shares of Series A Convertible
Preferred Stock represented thereby), the Corporation shall make a notation on
the new certificate issued upon such transfer or re-registration or evidencing
such unconverted shares, as the case may be, as to the remaining number of
shares of Common Stock from the Maximum Share Amount remaining available for
conversion of the shares of Series A Convertible Preferred Stock evidenced by
such new certificate. If any certificate for shares of Series A Convertible
Preferred Stock is surrendered for split-up into two or more certificates
representing an aggregate number of shares of Series A Convertible Preferred
Stock equal to the number of shares of Series A Convertible Preferred Stock
represented by the certificate so surrendered (as reduced by any
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<PAGE>
contemporaneous conversion of shares of Series A Convertible Preferred Stock
represented by the certificate so surrendered), each certificate issued on such
split-up shall bear a notation of the portion of the Maximum Share Amount
allocated thereto determined by pro rata allocation from among the remaining
portion of the Maximum Share Amount allocated to the certificate so surrendered.
If any shares of Series A Convertible Preferred Stock represented by a single
certificate are converted in full pursuant to Section 10, all of the portion of
the Maximum Share Amount allocated to such shares of Series A Convertible
Preferred Stock which remains unissued after such conversion shall be re-
allocated pro rata to the outstanding shares of Series A Convertible Preferred
Stock held of record by the holder of record at the close of business on the
date of such conversion of the shares of Series A Convertible Preferred Stock so
converted, and if there shall be no other shares of Series A Convertible
Preferred Stock held of record by such holder at the close of business on such
date, then such portion of the Maximum Share Amount shall be allocated pro rata
among the shares of Series A Convertible Preferred Stock outstanding on such
date.
(2) The Corporation shall promptly, but in no event later than
five business days after the occurrence, give notice to each holder of shares of
Series A Convertible Preferred Stock (by telephone line facsimile transmission
at such number as such holder has specified in writing to the Corporation for
such purposes or, if such holder shall not have specified any such number, by
overnight courier or first class mail, postage prepaid, at such holder's address
as the same appears on the stock books of the Corporation) and any holder of
shares of Series A Convertible Preferred Stock may at any time after the
occurrence give notice to the Corporation, in either case, if on any ten Trading
Days within any period of 20 consecutive Trading Days the Corporation would not
have been required to convert shares of Series A Convertible Preferred Stock of
such holder in accordance with Section 10(a) as a consequence of the limitations
set forth in Section 7(a)(1) had the shares of Series A Convertible Preferred
Stock held by such holder been converted in full into Common Stock on each such
day, determined without regard to the limitation, if any, on such holder
contained in the proviso to the second sentence of Section 10(a) (any such
notice, whether given by the Corporation or a holder, an "Inconvertibility
Notice"). If the Corporation shall have given or been required to give any
Inconvertibility Notice, or if a holder shall have given any Inconvertibility
Notice, then within ten Trading Days after such Inconvertibility Notice is given
or was required to be given, the holder receiving or giving, as the case may be,
such Inconvertibility Notice shall have the right by written notice to the
Corporation (which written notice may be contained in the Inconvertibility
Notice given by such holder) to direct the Corporation to redeem the portion of
such holder's outstanding shares of Series A Convertible Preferred Stock (which,
if applicable, shall be all of such holder's outstanding shares of Series A
Convertible Preferred Stock) as shall not, on the business day prior to the date
of such redemption, be convertible into shares of Common Stock by reason of the
limitations set forth in Section 7(a)(1) (determined without regard to the
limitation, if any, on beneficial ownership of Common Stock by such holder
contained in the proviso to the second sentence of Section 10(a)), within five
business days after such holder so directs the Corporation, at a price per share
equal
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<PAGE>
to the Share Limitation Redemption Price. If a holder of shares of Series A
Convertible Preferred Stock directs the Corporation to redeem outstanding shares
of Series A Convertible Preferred Stock and, prior to the date the Corporation
is required to redeem such shares of Series A Convertible Preferred Stock, the
Corporation would have been able, within the limitations set forth in Section
7(a)(1), to convert all of such holder's shares of Series A Convertible
Preferred Stock (determined without regard to the limitation, if any, on
beneficial ownership of shares of Common Stock by such holder contained in the
proviso to the second sentence of Section 10(a)) on any ten Trading Days within
any period of 15 consecutive Trading Days commencing after the period of 20
consecutive Trading Days which gave rise to the applicable Inconvertibility
Notice from the Corporation or such holder of shares of Series A Convertible
Preferred Stock, as the case may be, had all of such holder's shares of Series A
Convertible Preferred Stock been surrendered for conversion into Common Stock on
each of such ten Trading Days within such 15 Trading Day period, then the
Corporation shall not be required to redeem any shares of Series A Convertible
Preferred Stock by reason of such Inconvertibility Notice.
(3) Notwithstanding the giving of any Inconvertibility Notice
by the Corporation to the holders of Series A Convertible Preferred Stock
pursuant to Section 7(a)(2) or the giving or the absence of any notice by the
holders of the Series A Convertible Preferred Stock in response thereto or any
redemption of shares of Series A Convertible Preferred Stock pursuant to Section
7(a)(2), thereafter the provisions of Section 7(a)(2) shall continue to be
applicable on any occasion unless the Stockholder Approval shall have been
obtained from the stockholders of the Corporation or waived by the Nasdaq.
(4) On each Share Limitation Redemption Date (or such later
date as a holder of shares of Series A Convertible Preferred Stock shall
surrender to the Corporation the certificate(s) for the shares of Series A
Convertible Preferred Stock being redeemed pursuant to this Section 7(a)), the
Corporation shall make payment in immediately available funds of the applicable
Share Limitation Redemption Price to such holder of shares of Series A
Convertible Preferred Stock to be redeemed to or upon the order of such holder
as specified by such holder in writing to the Corporation at least one business
day prior to such Share Limitation Redemption Date. Upon redemption of less than
all of the shares of Series A Convertible Preferred Stock evidenced by a
particular certificate, promptly, but in no event later than three business days
after surrender of such certificate to the Corporation, the Corporation shall
issue a replacement certificate for the shares of Series A Convertible Preferred
Stock evidenced by such certificate which have not been redeemed. Only whole
shares of Series A Convertible Preferred Stock may be redeemed.
(b) NO OTHER MANDATORY REDEMPTION. The shares of Series A
-----------------------------
Convertible Preferred Stock shall not be subject to mandatory redemption by the
Corporation except as provided in Section 7(a).
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SECTION 8. NO SINKING FUND. The shares of Series A
---------------
Convertible Preferred Stock shall not be subject to the operation of a purchase,
retirement or sinking fund.
SECTION 9. OPTIONAL REDEMPTION.
-------------------
(a) CORPORATION OPTIONAL REDEMPTION. If (1) the Corporation
-------------------------------
shall be in compliance in all material respects with its obligations to the
holders of shares of Series A Convertible Preferred Stock (including, without
limitation, its obligations under the Subscription Agreement, the Registration
Rights Agreement, the Warrants and the provisions of these Articles of
Amendment), (2) on the date the Corporation Optional Redemption Notice is given
and at all times until the Redemption Date, the Registration Statement is
effective and available for use by each holder of shares of Series A Convertible
Preferred Stock for the resale of shares of Common Stock acquired by such holder
upon conversion of all shares of Series A Convertible Preferred Stock held by
such holder and (3) no Optional Redemption Event shall have occurred with
respect to which, on the date a Corporation Optional Redemption Notice is to be
given or on the Redemption Date, any holder of shares of Series A Convertible
Preferred Stock (A) shall be entitled to exercise optional redemption rights
under Section 11 by reason of such Optional Redemption Event or (B) shall have
exercised optional redemption rights under Section 11 by reason of such Optional
Redemption Event and the Corporation shall not have paid the Optional Redemption
Price to such holder, then the Corporation shall have the right, exercisable by
giving a Corporation Optional Redemption Notice not less than 30 days or more
than 60 days prior to the Redemption Date to all holders of record of the shares
of Series A Convertible Preferred Stock, at any time to redeem all or from time
to time to redeem any part of the outstanding shares of Series A Convertible
Preferred Stock in accordance with this Section 9(a). If the Corporation shall
redeem less than all outstanding shares of Series A Convertible Preferred Stock,
such redemption shall be made as nearly as practical pro rata from all holders
of shares of Series A Convertible Preferred Stock. Any Corporation Optional
Redemption Notice under this Section 9(a) shall be given to the holders of
record of the shares of Series A Convertible Preferred Stock at their addresses
appearing on the records of the Corporation; provided, however, that any failure
or defect in the giving of such notice to any such holder shall not affect the
validity of notice to or the redemption of shares of Series A Convertible
Preferred Stock of any other holder. On the Redemption Date (or such later date
as a holder of shares of Series A Convertible Preferred Stock surrenders to the
Corporation the certificate(s) for shares of Series A Convertible Preferred
Stock to be redeemed pursuant to this Section 9(a)), the Corporation shall make
payment of the applicable Redemption Price to each holder of shares of Series A
Convertible Preferred Stock to be redeemed in immediately available funds to
such account as specified by such holder in writing to the Corporation at least
one business day prior to the Redemption Date. A holder of shares of Series A
Convertible Preferred Stock to be redeemed pursuant to this Section 9(a) shall
be entitled to convert such shares of Series A Convertible Preferred Stock in
accordance with Section 10 (1) through the day prior to the Redemption Date and
(2) if the Corporation shall fail to pay the Redemption Price of any share of
Series A Convertible Preferred Stock when due, at any time
22
<PAGE>
after the due date thereof until such date as the Corporation pays the
Redemption Price of such share of Series A Convertible Preferred Stock. No share
of Series A Convertible Preferred Stock as to which the holder exercises the
right of conversion pursuant to Section 10 or the optional redemption right
pursuant to Section 11 may be redeemed by the Corporation pursuant to this
Section 9(a) on or after the date of exercise of such conversion right or
optional redemption right, as the case may be, regardless of whether the
Corporation Optional Redemption Notice shall have been given prior to, or on or
after, the date of exercise of such conversion right or optional redemption
right, as the case may be.
(b) FINAL REDEMPTION. The Corporation shall have the right to
----------------
redeem all, but not less than all, outstanding shares of Series A Convertible
Preferred Stock at any time on or after the date which is 1,096 days after the
Issuance Date so long as (1) the Corporation shall be in compliance in all
material respects with its obligations to the holders of the Series A
Convertible Preferred Stock (including, without limitation, its obligations
under the Subscription Agreement, the Registration Rights Agreement, the
Warrants and these Articles of Amendment) and (2) no Optional Redemption Event
shall have occurred with respect to which on the date a Final Redemption Notice
is to be given or on the Final Redemption Date, any holder of shares of Series A
Convertible Preferred Stock (a) shall be entitled to exercise optional
redemption rights under Section 11 by reason of such Optional Redemption Event
or (b) shall have exercised optional redemption rights under Section 11 by
reason of such Optional Redemption Event and the Corporation shall not have paid
the Optional Redemption Price to such holder. In order to exercise its rights
under this Section 9(b), the Corporation shall give a Final Redemption Notice
not less than 20 or more than 40 Trading Days prior to the Final Redemption Date
to all holders of record of the shares of Series A Convertible Preferred Stock.
Any Final Redemption Notice shall be given to the holders of record of the
shares of Series A Convertible Preferred Stock by telephone line facsimile
transmission to such number as shown on the records of the Corporation for such
purpose; provided, however, that any failure or defect in the giving of such
notice to any such holder shall not affect the validity of notice to or the
redemption of shares of Series A Convertible Preferred Stock of any other
holder. On the Final Redemption Date (or such later date as a holder of shares
of Series A Convertible Preferred Stock surrenders to the Corporation the
certificate(s) for shares of Series A Convertible Preferred Stock to be redeemed
pursuant to this Section 9(b)), the Corporation shall make payment of the
applicable Final Redemption Price to each holder of shares of Series A
Convertible Preferred Stock to be redeemed in immediately available funds to
such account as specified by such holder in writing to the Corporation at least
one business day prior to the Final Redemption Date. A holder of shares of
Series A Convertible Preferred Stock to be redeemed pursuant to this Section
9(b) shall be entitled to convert such shares of Series A Convertible Preferred
Stock in accordance with Section 10 through the day prior to the Final
Redemption Date and (2) if the Corporation shall fail to pay the Final
Redemption Price of any share of Series A Convertible Preferred Stock when due,
at any time after the due date thereof until such date as the Corporation pays
the Final Redemption Price of such share of Series A Convertible Preferred Stock
to such holder. No share of Series A
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Convertible Preferred Stock as to which a holder exercises the right of
conversion pursuant to Section 10 or the optional redemption right pursuant to
Section 11 may be redeemed by the Corporation pursuant to this Section 9(b) on
or after the date of exercise of such conversion right or optional redemption
right, as the case may be, regardless of whether the Final Redemption Notice
shall have been given prior to, or on or after, the date of exercise of such
conversion right or optional redemption right, as the case may be. So long as
during the period from the Issuance Date through the date the Corporation pays
the Final Redemption Price the Corporation shall not have commenced a voluntary
case or other proceeding, and no person shall have commenced an involuntary case
or other proceeding against the Corporation, in any such case seeking
liquidation, reorganization or other relief with respect to the Corporation or
its debts under any bankruptcy, insolvency, receivership, moratorium, or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian, or other similar official of the Corporation or
any substantial part of the Corporation's property, the Corporation shall not
have consented to any such relief or to the appointment of or taking possession
by any such official in an involuntary case or other proceeding commenced
against it, and the Corporation shall not have made a general assignment for the
benefit of creditors, then the Corporation shall have the right, exercisable by
a statement to such effect in the Final Redemption Notice, to pay the Final
Redemption Price by the issuance to the holders of shares of Series A
Convertible Preferred Stock to be redeemed of shares of Common Stock, valued for
this purpose at the Conversion Price on the Final Redemption Date, in lieu of
payment of cash, so long as all shares of Common Stock to be so issued would, if
issued as dividends on shares of Series A Convertible Preferred Stock, meet the
criteria in clauses (i) through (vi) of Section 5(b).
(c) NO OTHER OPTIONAL REDEMPTION. The shares of Series A
----------------------------
Convertible Preferred Stock shall not be subject to redemption at the option of
the Corporation except as provided in Sections 9(a) and 9(b).
SECTION 10. CONVERSION.
----------
(a) CONVERSION AT OPTION OF HOLDER. The holders of the Series
------------------------------
A Convertible Preferred Stock may at any time on or after the date which is 90
days after the Issuance Date convert at any time all or from time to time any
part of their shares of Series A Convertible Preferred Stock into fully paid and
nonassessable shares of Common Stock and such other securities and property as
herein provided. Each share of Series A Convertible Preferred Stock may be
converted at the office of the Conversion Agent or at such other additional
office or offices, if any, as the Board of Directors may designate, into such
number of fully paid and nonassessable shares of Common Stock (calculated as to
each conversion to the nearest 1/100th of a share) determined by dividing (x)
the sum of (i) the Conversion Amount, (ii) accrued but unpaid dividends to the
applicable Conversion Date on the share of Series A Convertible Preferred Stock
being converted, and (iii) accrued but unpaid interest on the dividends on the
share of Series A Convertible Preferred Stock being converted in arrears to the
applicable Conversion Date at the
24
<PAGE>
rate provided in Section 5 by (y) the Conversion Price for such Conversion Date
(the "Conversion Rate"); provided, however, that in no event shall any holder of
shares of Series A Convertible Preferred Stock be entitled to convert any shares
of Series A Convertible Preferred Stock in excess of that number of shares of
Series A Convertible Preferred Stock upon conversion of which the sum of (1) the
number of shares of Common Stock beneficially owned by such holder and all
Aggregated Persons of such holder (other than shares of Common Stock deemed
beneficially owned through the ownership of (x) unconverted shares of Series A
Convertible Preferred Stock and (y) the unconverted or unexercised portion of
any instrument which contains limitations similar to those set forth in this
sentence) and (2) the number of shares of Common Stock issuable upon the
conversion of the number of shares of Series A Convertible Preferred Stock with
respect to which the determination in this proviso is being made, would result
in beneficial ownership by such holder and all Aggregated Persons of such holder
of more than 4.9% of the outstanding shares of Common Stock. For purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act and Regulation
13D-G thereunder, except as otherwise provided in clause (1) of the proviso to
the immediately preceding sentence.
(b) OTHER PROVISIONS. (1) Notwithstanding anything in this
----------------
Section 10(b) to the contrary, no change in the Conversion Amount pursuant to
this Section 10(b) shall actually be made until the cumulative effect of the
adjustments called for by this Section 10(b) since the date of the last change
in the Conversion Amount would change the Conversion Amount by more than 1%.
However, once the cumulative effect would result in such a change, then the
Conversion Amount shall actually be changed to reflect all adjustments called
for by this Section 10(b) and not previously made. Notwithstanding anything in
this Section 10(b), no change in the Conversion Amount shall be made that would
result in the price at which a share of Series A Convertible Preferred Stock is
converted being less than the par value of the Common Stock into which shares of
Series A Convertible Preferred Stock are at the time convertible.
(2) The holders of shares of Series A Convertible Preferred
Stock at the close of business on the record date for any dividend payment to
holders of Series A Convertible Preferred Stock shall be entitled to receive the
dividend payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof after such dividend payment record date
or the Corporation's default in payment of the dividend due on such dividend
payment date; provided, however, that the holder of shares of Series A
Convertible Preferred Stock surrendered for conversion during the period between
the close of business on any record date for a dividend payment and the opening
of business on the corresponding dividend payment date must pay to the
Corporation, within five days after receipt by such holder, an amount equal to
the dividend payable on such shares on such dividend payment date if such
dividend is paid by the Corporation to such holder. A holder of shares of Series
A Convertible Preferred Stock on a record date for a dividend payment who (or
whose transferee) tenders any of such shares for conversion into shares of
Common Stock on or after such dividend payment date will receive the
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<PAGE>
dividend payable by the Corporation on such shares of Series A Convertible
Preferred Stock on such date, and the converting holder need not make any
payment of the amount of such dividend in connection with such conversion of
shares of Series A Convertible Preferred Stock. Except as provided above, no
adjustment shall be made in respect of cash dividends on Common Stock or Series
A Convertible Preferred Stock that may be accrued and unpaid at the date of
surrender of shares of Series A Convertible Preferred Stock.
(3) (A) The right of the holders of Series A Convertible
Preferred Stock to convert their shares shall be exercised by giving (which may
be done by telephone line facsimile transmission) a Conversion Notice to the
Conversion Agent. If a holder of Series A Convertible Preferred Stock elects to
convert any shares of Series A Convertible Preferred Stock in accordance with
Section 10(a), such holder shall not be required to surrender the certificate(s)
representing such shares of Series A Convertible Preferred Stock to the
Corporation unless all of the shares of Series A Convertible Preferred Stock
represented thereby are so converted. Each holder of shares of Series A
Convertible Preferred Stock and the Corporation shall maintain records showing
the number of shares so converted and the dates of such conversions or shall use
such other method, satisfactory to such holder and the Corporation, so as to not
require physical surrender of such certificates upon each such conversion. In
the event of any dispute or discrepancy, such records of the Corporation shall
be controlling and determinative in the absence of manifest error.
Notwithstanding the foregoing, if any shares of Series A Convertible Preferred
Stock evidenced by a particular certificate therefor are converted as aforesaid,
the holder of Series A Convertible Preferred Stock may not transfer the
certificate(s) representing such shares of Series A Convertible Preferred Stock
unless such holder first physically surrenders such certificate(s) to the
Corporation, whereupon the Corporation will forthwith issue and deliver upon the
order of such holder of shares of Series A Convertible Preferred Stock new
certificate(s) of like tenor, registered as such holder of shares of Series A
Convertible Preferred Stock (upon payment by such holder of shares of Series A
Convertible Preferred Stock of any applicable transfer taxes) may request,
representing in the aggregate the remaining number of shares of Series A
Convertible Preferred Stock represented by such certificate(s). Each holder of
shares of Series A Convertible Preferred Stock, by acceptance of a certificate
for such shares, acknowledges and agrees that (1) by reason of the provisions of
this paragraph, following conversion of any shares of Series A Convertible
Preferred Stock represented by such certificate, the number of shares of Series
A Convertible Preferred Stock represented by such certificate may be less than
the number of shares stated on such certificate, and (2) the Corporation may
place a legend on the certificates for shares of Series A Convertible Preferred
Stock which refers to or describes the provisions of this paragraph.
(B) The Corporation shall pay any transfer tax arising in
connection with any conversion of shares of Series A Convertible Preferred Stock
except that the Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery
upon conversion of shares of Common Stock or other securities or
26
<PAGE>
property in a name other than that of the holder of the shares of the Series A
Convertible Preferred Stock being converted, and the Corporation shall not be
required to issue or deliver any such shares or other securities or property
unless and until the person or persons requesting the issuance thereof shall
have paid to the Corporation the amount of any such tax or shall have
established to the satisfaction of the Corporation that such tax has been paid.
The number of shares of Common Stock to be issued upon each conversion of shares
of Series A Convertible Preferred Stock shall be the number set forth in the
applicable Conversion Notice which number shall be conclusive absent manifest
error. The Corporation shall notify a holder who has given a Conversion Notice
of any claim of manifest error within one Trading Day after such holder gives
such Conversion Notice and no such claim of error shall limit or delay
performance of the Corporation's obligation to issue upon such conversion the
number of shares of Common Stock which are not in dispute. A Conversion Notice
shall be deemed for all purposes to be in proper form unless the Corporation
notifies a holder of shares of Series A Convertible Preferred Stock being
converted within one Trading Day after a Conversion Notice has been given (which
notice shall specify all defects in the Conversion Notice) and any Conversion
Notice containing any such defect shall nonetheless be effective on the date
given if the converting holder promptly corrects all such defects.
(4) The Corporation (and any successor corporation) shall take
all action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series A Convertible Preferred
Stock outstanding upon the basis hereinbefore provided are at all times reserved
by the Corporation (or any successor corporation), free from preemptive rights,
for such conversion, subject to the provisions of the next succeeding paragraph.
If the Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series A Convertible Preferred Stock shall be convertible as
herein provided, the Corporation shall at the same time also make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series A Convertible Preferred Stock on the new
basis. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all of the outstanding
shares of Series A Convertible Preferred Stock, the Corporation promptly shall
seek, and use its best efforts to obtain and complete, such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
(5) In case of any consolidation or merger of the Corporation
with any other corporation (other than a wholly-owned subsidiary of the
Corporation) in which the Corporation is not the surviving corporation, or in
case of any sale or transfer of all or substantially all of the assets of the
Corporation, or in the case of any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, the
27
<PAGE>
Corporation shall make appropriate provision or cause appropriate provision to
be made so that each holder of shares of Series A Convertible Preferred Stock
then outstanding shall have the right thereafter to convert such shares of
Series A Convertible Preferred Stock into the kind of shares of stock and other
securities and property receivable upon such consolidation, merger, sale,
transfer, or share exchange by a holder of shares of Common Stock into which
such shares of Series A Convertible Preferred Stock could have been converted
immediately prior to the effective date of such consolidation, merger, sale,
transfer, or share exchange and on a basis which preserves the economic benefits
of the conversion rights of the holders of shares of Series A Convertible
Preferred Stock on a basis as nearly as practical as such rights exist hereunder
prior thereto. If, in connection with any such consolidation, merger, sale,
transfer, or share exchange, each holder of shares of Common Stock is entitled
to elect to receive securities, cash, or other assets upon completion of such
transaction, the Corporation shall provide or cause to be provided to each
holder of Series A Convertible Preferred Stock the right to elect the
securities, cash, or other assets into which the Series A Convertible Preferred
Stock held by such holder shall be convertible after completion of any such
transaction on the same terms and subject to the same conditions applicable to
holders of the Common Stock (including, without limitation, notice of the right
to elect, limitations on the period in which such election shall be made, and
the effect of failing to exercise the election). The Corporation shall not
effect any such transaction unless the provisions of this paragraph have been
complied with. The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers, or share exchanges.
(6) If a holder shall have given a Conversion Notice for
shares of Series A Convertible Preferred Stock, the Corporation shall issue and
deliver to such person certificates for the Common Stock issuable upon such
conversion within three Trading Days after such Conversion Notice is received
and the person converting shall be deemed to be the holder of record of the
Common Stock issuable upon such conversion, and all rights with respect to the
shares surrendered shall forthwith terminate except the right to receive the
Common Stock or other securities, cash, or other assets as herein provided. If a
holder shall have given a Conversion Notice as provided herein, the
Corporation's obligation to issue and deliver the certificates for Common Stock
shall be absolute and unconditional, irrespective of any action or inaction by
the converting holder to enforce the same, any waiver or consent with respect to
any provision thereof, the recovery of any judgment against any person or any
action to enforce the same, any failure or delay in the enforcement of any other
obligation of the Corporation to such holder, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by such
holder or any other person of any obligation to the Corporation or any violation
or alleged violation of law by such holder or any other person, and irrespective
of any other circumstance which might otherwise limit such obligation of the
Corporation to the holder in connection with such conversion. If the Corporation
fails to issue and deliver the certificates for the Common Stock to the holder
converting shares of Series A Convertible Preferred Stock pursuant to the first
sentence of this paragraph within five Trading Days after such Conversion Notice
is received, in addition to any other liabilities the Corporation may have
hereunder and
28
<PAGE>
under applicable law (1) the Corporation shall pay or reimburse such holder on
demand for all out-of-pocket expenses including, without limitation, reasonable
fees and expenses of legal counsel incurred by such holder as a result of such
failure, (2) the Conversion Percentage used to determine the Conversion Price
applicable to such conversion shall be reduced by two percentage points from the
Conversion Percentage otherwise used to calculate the Conversion Price
applicable to such conversion or, if such conversion is based on the Ceiling
Price, the Ceiling Price used to determine the Conversion Price applicable to
such conversion shall be reduced by an amount equal to two percent of the amount
that the Ceiling Price otherwise would have been without reduction pursuant
hereto, and (3) such holder may by written notice (which may be given by mail,
courier, personal service or telephone line facsimile transmission) given at any
time prior to delivery to such holder of the certificates for the shares of
Common Stock issuable upon such conversion of shares of Series A Convertible
Preferred Stock, rescind such conversion, whereupon such holder shall have the
right to convert such shares of Series A Convertible Preferred Stock thereafter
in accordance herewith.
(7) No fractional shares of Common Stock shall be issued upon
conversion of Series A Convertible Preferred Stock but, in lieu of any fraction
of a share of Common Stock to purchase fractional shares of Common Stock which
would otherwise be issuable in respect of the aggregate number of such shares
surrendered for conversion at one time by the same holder, the Corporation shall
pay in cash an amount equal to the product of (i) the arithmetic average of the
Market Price of one share of Common Stock on the three consecutive Trading Days
ending on the Trading Day immediately preceding the Conversion Date times (ii)
such fraction of a share.
(8) The Conversion Amount shall be adjusted from time to time
under certain circumstances, subject to the provisions of Section 10(b)(1), as
follows:
(i) In case the Corporation shall issue rights or warrants on
a pro rata basis to all holders of the Common Stock entitling such holders to
subscribe for or purchase Common Stock on the record date referred to below at a
price per share less than the Current Price for such record date, then in each
such case the Conversion Amount in effect on such record date shall be adjusted
in accordance with the formula
C 1 = C x O + N
-------
O + N x P
-----
M
where
C 1 = the adjusted Conversion Amount
C = the current Conversion Amount
29
<PAGE>
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock issuable pursuant
to the exercise of such rights or warrants.
P = the offering price per share of the additional shares (which amount
shall include amounts received by the Corporation in respect of the
issuance and the exercise of such rights or warrants).
M = the Current Price per share of Common Stock on the record date.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not so issued or expire or terminate
before being exercised, the Conversion Amount then in effect shall be readjusted
appropriately.
(ii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Junior Stock (as hereinafter defined) evidences
of its indebtedness or assets (including securities, but excluding any warrants
or subscription rights referred to in subparagraph (i) above and any dividend or
distribution paid in cash out of the retained earnings of the Corporation), then
in each such case the Conversion Amount then in effect shall be adjusted in
accordance with the formula
C 1 = C x M
-----
M - F
where
C 1 = the adjusted Conversion Amount
C = the current Conversion Amount
M = the Current Price per share of Common Stock on the record date
mentioned below.
F = the aggregate amount of such cash dividend and/or the fair market
value on the record date of the assets or securities to be
distributed divided by the number of shares of Common Stock
outstanding on the record date. The Board of Directors shall
determine such fair market value, which determination shall be
conclusive.
30
<PAGE>
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this subparagraph (ii), "Junior Stock" shall include any class
of capital stock ranking junior as to dividends or upon liquidation to the
Series A Convertible Preferred Stock.
(iii) All calculations hereunder shall be made to the nearest cent
or to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant to
Section 10(b)(5), the holder of any Series A Convertible Preferred Stock
thereafter surrendered for conversion shall become entitled to receive
securities, cash, or assets other than Common Stock, the number or amount of
such securities or property so receivable upon conversion shall be subject to
adjustment from time to time in a manner and on terms nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (i) to (iii) above.
(9) Except as otherwise provided above in this Section 10, no
adjustment in the Conversion Amount shall be made in respect of any conversion
for share distributions or dividends theretofore declared and paid or payable on
the Common Stock.
(10) Whenever the Conversion Amount is adjusted as herein provided,
the Corporation shall send to each holder and each transfer agent, if any, for
the Series A Convertible Preferred Stock and the transfer agent for the Common
Stock, a statement signed by the Chairman of the Board, the President, or any
Vice President of the Corporation and by its Treasurer or its Secretary or an
Assistant Secretary stating the adjusted Conversion Amount determined as
provided in this Section 10, and any adjustment so evidenced, given in good
faith, shall be binding upon all stockholders and upon the Corporation. Whenever
the Conversion Amount is adjusted, the Corporation will give notice by mail to
the holders of record of Series A Convertible Preferred Stock, which notice
shall be made within 15 days after the effective date of such adjustment and
shall state the adjustment and the Conversion Amount. Notwithstanding the
foregoing notice provisions, failure by the Corporation to give such notice or a
defect in such notice shall not affect the binding nature of such corporate
action of the Corporation.
(11) Whenever the Corporation shall propose to take any of the
actions specified in Section 10(b)(5) or in subparagraphs (i) or (ii) of Section
10(b)(8) which would result in any adjustment in the Conversion Amount under
this Section 10(b), the Corporation shall cause a notice to be mailed at least
20 days prior to the date on which the books of the Corporation will close or on
which a record will be taken for such action, to the holders of record of the
outstanding Series A Convertible Preferred Stock on the date of such notice.
Such notice shall specify the action proposed to be taken by the Corporation and
the date as of which holders of record of the Common Stock shall participate in
any such actions or be entitled to exchange their Common Stock for securities or
other property, as the case may be. Failure by the Corporation
31
<PAGE>
to mail the notice or any defect in such notice shall not affect the validity of
the transaction.
SECTION 11. REDEMPTION AT OPTION OF HOLDERS.
-------------------------------
(a) REDEMPTION RIGHT. If an Optional Redemption Event occurs, then,
----------------
in addition to any other right or remedy of any holder of shares of Series A
Convertible Preferred Stock, each holder of shares of Series A Convertible
Preferred Stock shall have the right, at such holder's option, to require the
Corporation to redeem all of such holder's shares of Series A Convertible
Preferred Stock, or any portion thereof, on the date that is three business days
after the date such holder gives the Corporation an Optional Redemption Notice
with respect to such Optional Redemption Event at any time while any of such
holder's shares of Series A Convertible Preferred Stock are outstanding, at a
price equal to the Optional Redemption Price.
(b) NOTICES; METHOD OF EXERCISING OPTIONAL REDEMPTION RIGHTS, ETC.
-------------------------------------------------------------
(1) On or before the fifth business day after the occurrence of an Optional
Redemption Event, the Corporation shall give to each holder of outstanding
shares of Series A Convertible Preferred Stock a notice of the occurrence of
such Optional Redemption Event and of the redemption right set forth herein
arising as a result thereof. Such notice from the Corporation shall set forth:
(i) the date by which the optional redemption right must be
exercised, and
(ii) a description of the procedure (set forth below) which each such
holder must follow to exercise such holder's optional redemption right.
No failure of the Corporation to give such notice or defect therein shall limit
the right of any holder of shares of Series A Convertible Preferred Stock to
exercise the optional redemption right or affect the validity of the proceedings
for the redemption of such holder's shares of Series A Convertible Preferred
Stock.
(2) To exercise its optional redemption right, each holder of
outstanding shares of Series A Convertible Preferred Stock shall deliver to the
Corporation on or before the thirtieth day after the notice required by Section
11(b)(1) is given to such holder (or if no such notice has been given by the
Corporation to such holder, within forty days after such holder first learns of
such Optional Redemption Event) an Optional Redemption Notice to the
Corporation. An Optional Redemption Notice may be revoked by such holder giving
such Optional Redemption Notice by giving notice of such revocation to the
Corporation at any time prior to the time the Corporation pays the Optional
Redemption Price to such holder.
(3) If a holder of shares of Series A Convertible Preferred Stock
shall have given an Optional Redemption Notice, on the date which is three
business days after the date such Optional Redemption Notice is given (or such
later date as such holder surrenders such holder's
32
<PAGE>
certificates for the shares of Series A Convertible Preferred Stock to be
redeemed) the Corporation shall make payment in immediately available funds of
the applicable Optional Redemption Price to such account as specified by such
holder in writing to the Corporation at least one business day prior to the
applicable redemption date.
(c) OTHER. (1) In connection with a redemption pursuant to this
-----
Section 11 of less than all of the shares of Series A Convertible Preferred
Stock evidenced by a particular certificate, promptly, but in no event later
than three Trading Days after surrender of such certificate to the Corporation,
the Corporation shall issue and deliver to such holder a replacement certificate
for the shares of Series A Convertible Preferred Stock evidenced by such
certificate which have not been redeemed.
(2) An Optional Redemption Notice given by a holder of shares of
Series A Convertible Preferred Stock shall be deemed for all purposes to be in
proper form unless the Corporation notifies such holder in writing within three
business days after such Optional Redemption Notice has been given (which notice
shall specify all defects in such Optional Redemption Notice), and any Optional
Redemption Notice containing any such defect shall nonetheless be effective on
the date given if such holder promptly undertakes to correct all such defects.
No such claim of error shall limit or delay performance of the Corporation's
obligation to redeem all shares of Series A Convertible Preferred Stock not in
dispute whether or not such holder makes such undertaking.
SECTION 12. VOTING RIGHTS; CERTAIN RESTRICTIONS.
-----------------------------------
(a) VOTING RIGHTS. Except as otherwise required by law or expressly
-------------
provided herein, shares of Series A Convertible Preferred Stock shall not be
entitled to vote on any matter.
(b) ARTICLES OF INCORPORATION; CERTAIN STOCK. The affirmative vote or
----------------------------------------
consent of the holders of a majority of the outstanding shares of the Series A
Convertible Preferred Stock, voting separately as a class, will be required for
(1) any amendment, alteration, or repeal, whether by merger or consolidation or
otherwise, of the Corporation's Articles of Incorporation if the amendment,
alteration, or repeal materially and adversely affects the powers, preferences,
or special rights of the Series A Convertible Preferred Stock, or (2) the
creation and issuance of any Senior Dividend Stock or Senior Liquidation Stock;
provided, however, that any increase in the authorized Preferred Stock of the
Corporation or the creation and issuance of any stock which is both Junior
Dividend Stock and Junior Liquidation Stock shall not be deemed to affect
materially and adversely such powers, preferences, or special rights and any
such increase or creation and issuance may be made without any such vote by the
holders of Series A Convertible Preferred Stock except as otherwise required by
law.
(c) REPURCHASES OF SERIES A CONVERTIBLE PREFERRED STOCK. The
---------------------------------------------------
Corporation
33
<PAGE>
shall not repurchase or otherwise acquire any shares of Series A Convertible
Preferred Stock (other than pursuant to Sections 7(a), 9(a), 9(b) or 11) unless
the Corporation offers to repurchase or otherwise acquire simultaneously a pro
rata portion of each holder's shares of Series A Convertible Preferred Stock for
cash at the same price per share.
(d) OTHER. So long as any shares of Series A Convertible Preferred
-----
Stock are outstanding:
(1) PAYMENT OF OBLIGATIONS. The Corporation will pay and discharge,
----------------------
and will cause each subsidiary of the Corporation to pay and discharge, when due
all their respective obligations and liabilities which are material to the
Corporation and its subsidiaries taken as a whole, including, without
limitation, tax liabilities, except where the same may be contested in good
faith by appropriate proceedings.
(2) MAINTENANCE OF PROPERTY; INSURANCE. (A) The Corporation will
----------------------------------
keep, and will cause each subsidiary of the Corporation to keep, all material
property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted.
(B) The Corporation will maintain, and will cause each subsidiary of
the Corporation to maintain, with financially sound and responsible insurance
companies, insurance against loss or damage by fire or other casualty and such
other insurance, including but not limited to, product liability insurance, in
such amounts and covering such risks as is reasonably adequate for the conduct
of their businesses and the value of their properties.
(3) CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Corporation
------------------------------------------------
will continue, and will cause each subsidiary of the Corporation to continue, to
engage in business of the same general type as conducted by the Corporation and
its operating subsidiaries at the time these Articles of Amendment are filed
with the Secretary of State of the State of Colorado, and will preserve, renew
and keep in full force and effect, and will cause each subsidiary of the
Corporation to preserve, renew and keep in full force and effect, their
respective corporate existence and their respective material rights, privileges
and franchises necessary or desirable in the normal conduct of business.
(4) COMPLIANCE WITH LAWS. The Corporation will comply, and will cause
--------------------
each subsidiary of the Corporation to comply, in all material respects with all
applicable laws, ordinances, rules, regulations, decisions, orders and
requirements of governmental authorities and courts (including, without
limitation, environmental laws) except (i) where compliance therewith is
contested in good faith by appropriate proceedings or (ii) where non-compliance
therewith could not reasonably be expected to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Corporation and its subsidiaries taken as a
whole.
34
<PAGE>
(5) INVESTMENT COMPANY ACT. The Corporation will not be or become an
----------------------
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended, or any successor provision.
(6) TRANSACTIONS WITH AFFILIATES. The Corporation will not, and will
----------------------------
not permit any subsidiary of the Corporation, directly or indirectly, to pay any
funds to or for the account of, make any investment (whether by acquisition of
stock or indebtedness, by loan, advance, transfer of property, guarantee or
other agreement to pay, purchase or service, directly or indirectly, any
indebtedness, or otherwise) in, lease, sell, transfer or otherwise dispose of
any assets, tangible or intangible, to, or participate in, or effect any
transaction in connection with, any joint enterprise or other joint arrangement
with, any Affiliate of the Corporation, except, on terms to the Corporation or
such subsidiary no less favorable than terms that could be obtained by the
Corporation or such subsidiary from a Person that is not an Affiliate of the
Corporation, as determined in good faith by the Board of Directors.
Section 13. OUTSTANDING SHARES. For purposes of these Articles of
------------------
Amendment, all shares of Series A Convertible Preferred Stock shall be deemed
outstanding except (i) from the applicable Conversion Date, each share of Series
A Convertible Preferred Stock converted into Common Stock, unless the
Corporation shall default in its obligation to issue and deliver shares of
Common Stock upon such conversion as and when required by Section 10; (ii) from
the date of registration of transfer, all shares of Series A Convertible
Preferred Stock held of record by the Corporation or any subsidiary or Affiliate
of the Corporation (other than any original holder of shares of Series A
Convertible Preferred Stock) and (iii) from the applicable Redemption Date,
Share Limitation Redemption Date, Final Redemption Date or date of redemption
pursuant to Section 11, all shares of Series A Convertible Preferred Stock which
are redeemed or repurchased, so long as in each case the Redemption Price, the
Share Limitation Redemption Price, the Final Redemption Price, the Optional
Redemption Price or other repurchase price, as the case may be, of such shares
of Series A Convertible Preferred Stock shall have been paid by the Corporation
as and when due hereunder.
SECTION 14. MISCELLANEOUS.
-------------
(a) NOTICES. Any notices required or permitted to be given under the
-------
terms of these Articles of Amendment shall be in writing and shall be sent by
mail or delivered personally (which shall include telephone line facsimile
transmission) or by courier and shall be deemed given five days after being
placed in the mail, if mailed, or upon receipt, if delivered personally or by
courier (a) in the case of the Corporation, addressed to the Corporation at 1850
Parkway Place, Suite 925, Marietta, Georgia, 30067, Attention: Chief Executive
Officer (telephone line facsimile transmission number (770) 420-5301), or, in
the case of any holder of shares of Series
35
<PAGE>
A Convertible Preferred Stock, at such holder's address or telephone line
facsimile transmission number shown on the stock books maintained by the
Corporation with respect to the Series A Convertible Preferred Stock or such
other address as the Corporation shall have provided by notice to the holders of
shares of Series A Convertible Preferred Stock in accordance with this Section
or any holder of shares of Series A Convertible Preferred Stock shall have
provided to the Corporation in accordance with this Section.
(B) REPLACEMENT OF CERTIFICATES. Upon receipt by the Corporation of
---------------------------
evidence reasonably satisfactory to the Corporation of the ownership of and the
loss, theft, destruction or mutilation of any certificate for shares of Series A
Convertible Preferred Stock and (1) in the case of loss, theft or destruction,
of indemnity from the record holder of the certificate for such shares of Series
A Convertible Preferred Stock reasonably satisfactory in form to the Corporation
(and without the requirement to post any bond or other security) or (2) in the
case of mutilation, upon surrender and cancellation of the certificate for such
shares of Series A Convertible Preferred Stock, the Corporation will execute and
deliver to such holder a new certificate for such shares of Series A Convertible
Preferred Stock without charge to such holder.
(c) OVERDUE AMOUNTS. Except as otherwise specifically provided in
---------------
Section 5 with respect to dividends in arrears on the Series A Convertible
Preferred Stock, whenever any amount which is due to any holder of shares of
Series A Convertible Preferred Stock is not paid to such holder when due, such
amount shall bear interest at the rate of 14% per annum (or such other rate as
shall be the maximum rate allowable by applicable law) until paid in full.
36
<PAGE>
IN WITNESS WHEREOF, UniComp, Inc. has caused these Articles of
Amendment to be signed by S.A. Hafer, its President, as of the 6th day of
October, 1998.
UNICOMP, INC.
By: /s/ S. A. Hafer
37
<PAGE>
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") NOR IS SUCH REGISTRATION CONTEMPLATED. SUCH SECURITIES MAY NOT BE SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME WHATSOEVER UNLESS
REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE, EXCEPT UPON DELIVERY TO THE COMPANY OF AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED
FOR SUCH TRANSFER OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS MAY
BE SATISFACTORY TO IT AND TO ITS COUNSEL TO THE EFFECT THAT ANY SUCH TRANSFER
WILL NOT BE IN VIOLATION OF THE ACT, OR APPLICABLE STATE SECURITIES LAWS OR ANY
RULE OR REGULATION PROMULGATED THEREUNDER.
Warrant to Purchase
25,000 Shares of Common Stock
As Herein Described
WARRANT TO PURCHASE COMMON STOCK OF
UNICOMP, INC.
This is to certify that, for value received, The Cruttenden Roth Bridge
Fund, LLC, or registered assigns (in each case, the "Holder"), is entitled to
purchase, subject to the provisions of this Warrant (the "Warrant"), from
UniComp, Inc., a Colorado corporation (the "Company"), at any time during the
period from the date hereof (the "Commencement Date") until 2:00p.m., California
time on September 30, 2003 (the "Expiration Date"), at which time this Warrant
shall expire and become void, 25,000 shares ("Warrant Shares") of the Company's
Common Stock, par value $0.01 (the "Common Stock"). This Warrant shall be
exercisable at $3.00 per share (the "Exercise Price"). The number of shares of
Common Stock to be received upon exercise of this Warrant shall be adjusted from
time to time as set forth below. This Warrant also is subject to the following
terms and conditions:
1. Exercise of Warrant. This Warrant may be exercised in full at any
-------------------
time from and after the date hereof and before the Expiration Date, but if such
date is a holiday on which federal or state chartered banking institutions
located in the State of California are authorized to close, then on the next
succeeding day which shall not be such a holiday. Exercise shall be by
presentation and surrender to the Company at its principal office, or at the
office of any transfer agent designated by the Company, of (i) this Warrant,
(ii) the attached exercise form properly executed, and (iii) a bank check for
the Exercise Price for the number of Warrant Shares specified in the exercise
form. Notwithstanding any provisions herein to the contrary, if the Market
Price Per Share (as defined in Section 3 below) is greater than the Exercise
Price (as adjusted to the last trading day prior to the exercise date), in lieu
of exercising this Warrant for cash, the Holder may elect to receive full 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 written notice of such election in which event the
Company shall issue to the Holder a number of shares of Common Stock computed
using the following formula:
<PAGE>
X = Y (A-B)
-------
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
A = the Market Price Per Share (as defined in Section 3 below)
B = Exercise Price (as adjusted to the last trading day prior
to the exercise date)
If this Warrant is exercised in part only, the Company or its transfer agent
shall, upon surrender of the Warrant, execute and deliver a new Warrant
evidencing the rights of the Holder to purchase the remaining number of Warrant
Shares purchasable hereunder. Upon receipt by the Company of this Warrant in
proper form for exercise, accompanied by payment as aforesaid, the Holder shall
be deemed to be the holder of record of the Common Stock issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such Warrant Shares shall not
then be actually delivered by the Holder.
2. Reservation of Shares. The Company shall, at all times until the
---------------------
expiration of this Warrant, reserve for issuance and delivery upon exercise of
this Warrant the number of Warrant Shares which shall be required for issuance
and delivery upon exercise of this Warrant. The Company covenants that the
shares of Common Stock issuable on exercise of the Warrant shall be duly and
validly issued and fully paid and non-assessable and free of liens, charges and
all taxes with respect to the issue thereof, and that at such time as the
Warrant Shares may be sold, without registration, pursuant to the provisions of
Rule 144 of the Securities Act of 1933, as amended (the "Securities Act"), such
shares shall be listed on each national securities exchange and/or NASDAQ, if
any, on which the other shares of outstanding Common Stock of the Company are
then listed.
3. Fractional Interests. The Company shall not issue any fractional
--------------------
shares or scrip representing fractional shares upon the exercise or exchange of
this Warrant. With respect to any fraction of a share resulting from the
exercise or exchange hereof, the Company shall pay to the Holder an amount in
cash equal to such fraction multiplied by the current fair market value per
share of Common Stock (herein, the "Market Price Per Share"), determined as
follows:
3.1 If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such an exchange or is listed on
the National Association of Securities Dealers Automated Quotation System
("NASDAQ"), the current fair market value shall be the last reported sale price
of the Common Stock on such exchange or NASDAQ on the last business day prior to
the date of exercise of this Warrant, or if no such sale is made on such day,
the mean of the closing bid and asked prices for such day on such exchange or
NASDAQ;
3.2 If the Common Stock is not so listed or admitted to unlisted
trading privileges or quoted on NASDAQ, the current fair market value shall be
the mean of the last bid and asked prices reported on the last business day
prior to the date of the exercise of this Warrant (i) by NASDAQ, or
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<PAGE>
(ii) if reports are unavailable under clause (i) above, by the National
Quotation Bureau Incorporated; or
3.3 If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
fair market value shall be an amount, not less than book value, determined in
such reasonable manner as may be prescribed by the Company's Board of Directors
in good faith.
4. No Rights as Stockholders. This Warrant shall not entitle the Holder
-------------------------
to any rights as a stockholder of the Company, either at law or in equity. The
rights of the Holder are limited to those expressed in this Warrant and are not
enforceable against the Company except to the extent set forth herein.
5. Adjustments.
-----------
5.1 Subdivision or Combination of Shares. If the Company is
------------------------------------
recapitalized through the subdivision or combination of its outstanding shares
of Common Stock into a larger or smaller number of shares, the number of Warrant
Shares shall be increased or reduced, as of the record date for such
recapitalization, in the same proportion as the increase or decrease in the
outstanding shares of Common Stock, and the Exercise Price shall be adjusted so
that the aggregate amount payable for the purchase of all of the Warrant Shares
issuable hereunder immediately after the record date for such recapitalization
shall equal the aggregate amount so payable immediately before such record date.
5.2 Dividends in Common Stock or Securities Convertible into Common
---------------------------------------------------------------
Stock. If the Company declares a dividend or distribution on Common Stock
- -----
payable in Common Stock or securities convertible into Common Stock, the number
of shares of Common Stock for which this Warrant may be exercised shall be
increased, as of the record date for determining which holders of Common Stock
shall be entitled to receive such dividend, in proportion to the increase in the
number of outstanding shares (and shares of Common Stock issuable upon
conversion of all such securities convertible into Common Stock) of Common Stock
as a result of such dividend or distribution, and the Exercise Price shall be
adjusted so that the aggregate amount payable for the purchase of all the
Warrant Shares issuable hereunder immediately after the record date for such
dividend or distribution shall equal the aggregate amount so payable immediately
before such record date.
5.3 Distributions of Other Securities or Property.
---------------------------------------------
(a) Other Securities. If the Company distributes to holders of
----------------
its Common Stock, other than as part of its dissolution or liquidation or the
winding up of its affairs, any of its securities (other than Common Stock or
securities convertible into Common Stock) or any evidence of indebtedness, then
in each case, the number of Warrant Shares thereafter purchasable upon exercise
of this Warrant shall be determined by multiplying the number of Warrant Shares
theretofore purchasable by a fraction, of which the numerator shall be the then
Market Price Per Share of Common Stock (as determined pursuant to Section 3) on
the record date mentioned below in this Section 5.3(a), and of which the
denominator shall be the then Market Price Per Share of Common Stock on such
record date, less the then fair value (as determined by the Board of Directors
of the Company in good faith) of the portion of the shares of the Company's
capital stock or evidences of indebtedness distributable with respect to each
share of Common Stock. Such adjustment shall be made whenever any such
distribution is made, and shall become effective retroactively as of the record
date for the determination of stockholders entitled to receive such
distribution.
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<PAGE>
(b) Property. If the Company distributes to the holders of its
--------
Common Stock, other than as a part of its dissolution or liquidation or the
winding up of its affairs, any of its assets (including cash), the Exercise
Price per Warrant Share shall be reduced, without any further action by the
parties hereto, by the Per Share Value (as hereinafter defined) of the dividend
or distribution. For the purposes of this Section 5.3(b), the "Per Share Value"
of any dividend or distribution other than cash shall be equal to the fair
market value of such non-cash distribution on each share of Common Stock as
determined in good faith by the Board of Directors of the Company; for dividends
or distributions of cash, the Per Share Value thereof shall be the cash
distributed per share of Common Stock.
5.4 Rights Offering. If the Company offers rights or warrants to
---------------
persons which entitle them to subscribe to or purchase Common Stock or
securities convertible into Common Stock, the Company shall give written notice
of any such proposed offering to the Holder at least twenty days prior to the
proposed record date in order to permit the Holder to exercise this Warrant on
or before such record date.
5.5 Merger, Sale of Assets. If at any time while this Warrant, or
----------------------
any portion thereof, is outstanding and unexpired there shall be (i) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash, or
otherwise, or (iii) a sale or transfer of the Company's properties and assets
as, or substantially as, an entirety to any other person, then, as a part of
such reorganization, merger, consolidation, sale or transfer, lawful provision
shall be made so that the holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Exercise Price then in effect, the number of shares of stock
or other securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer if this
Warrant had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 5. The foregoing provisions of this Section 5.5 shall similarly
apply to successive reorganizations, consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation that are at
the time receivable upon the exercise of this Warrant. In all events,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions of this Warrant
with respect to the rights and interests of the Holder after the transaction, to
the end that the provisions of this Warrant shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon exercise of this Warrant. Holder acknowledges
that the Company's sale of its Aurora subsidiary shall not trigger the
provisions of this Section 5.5.
5.6 Reclassification. If the Company, at any time while this
----------------
Warrant, or any portion thereof, remains outstanding and unexpired, shall change
any of the securities as to which purchase rights under this Warrant exist, by
reclassification of securities or otherwise, into the same or a different number
of securities of any other class or classes, this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities that
were subject to the purchase rights under this Warrant immediately prior to
4
<PAGE>
such reclassification or other change and the Exercise Price therefor shall be
appropriately adjusted, all subject to further adjustment as provided in this
Section 5.
5.7 Liquidation, etc. If the Company shall, at any time before the
----------------
expiration of this Warrant, dissolve, liquidate or wind up its affairs, or
otherwise declare a dividend, or make a distribution to the holders of its
Common Stock generally, whether in cash, property or assets of any kind,
including any dividend payable in stock or securities of any other issuer owned
by the Company (excluding regularly payable cash dividends declared from time to
time by the Company's Board of Directors or any dividend or distribution
referred to in Section 5.2 or Section 5.3), the Exercise Price shall be reduced,
without any further action by the parties hereto, by the Per Share Value (as
hereinafter defined) of the dividend. For purposes of this Section 5.7, the
"Per Share Value" of a cash dividend or other distribution shall be the dollar
amount of the distribution on each share of Common Stock and the "Per Share
Value" of any dividend or distribution other than cash shall be equal to the
fair market value of such non-cash distribution on each share of Common Stock as
determined in good faith by the Board of Directors of the Company.
5.8 Adjustment for Issuance of Common Stock Below Exercise Price. If
------------------------------------------------------------
any time or from time to time during the period from the date of this Warrant
until the Warrant is exercised, the Company shall issue or sell shares of Common
Stock for a consideration per share less than the then existing Exercise Price,
then and in each case the then Exercise Price shall be reduced, as of the
opening of business on the date of such issue or sale, to equal the price at
which such issuance or sale is made.
5.9 Adjustment of Exercise Price. Whenever the number of Warrant
----------------------------
Shares purchasable upon the exercise of the Warrant is adjusted, the Exercise
Price with respect to the Warrant Shares shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Warrant Shares purchasable upon the exercise of
the Warrant immediately prior to such adjustment, and of which the denominator
shall be the number of Warrant Shares so purchasable immediately thereafter.
5.10 Notice of Adjustment. Whenever the number of Warrant Shares
--------------------
purchasable upon the exercise of the Warrant or the Exercise Price of the
Warrant Shares is adjusted as provided herein, the Company shall mail to the
Holder a notice of such adjustment or adjustments, prepared and signed by the
Chief Executive Officer, Chief Financial Officer or Secretary of the Company,
which sets forth the number of Warrant Shares purchasable upon the exercise of
the Warrant and the Exercise Price of such Warrant Shares after such adjustment,
a brief statement of the facts requiring such adjustment, and the computation by
which such adjustment was made.
6. Notices to Holder. So long as this Warrant shall be outstanding (a)
-----------------
if the Company shall pay any dividends or make any distribution upon the Common
Stock otherwise than in cash or (b) if the Company shall offer generally to the
holders of Common Stock the right to subscribe to or purchase any shares of any
class of Common Stock or securities convertible into Common Stock or any similar
rights or (c) if there shall be any capital reorganization of the Company in
which the Company is not the surviving entity, recapitalization of the capital
stock of the Company, consolidation or merger of the Company with or into
another corporation, sale, lease or other transfer of all or substantially all
of the property and assets of the Company, or voluntary or involuntary
dissolution, liquidation or winding up of the Company, then in such event, the
Company shall cause to be mailed to the Holder, at least twenty days prior to
the relevant date described below (or such shorter period as is reasonably
possible if twenty days is not reasonably possible), a notice containing a
description of the proposed action and stating the
5
<PAGE>
date or expected date on which a record of the Company's stockholders is to be
taken for the purpose of any such dividend, distribution of rights, or such
reclassification, reorganization, consolidation, merger, conveyance, lease or
transfer, dissolution, liquidation or winding up is to take place, the effect of
the action, to the extent such effect may be known on the date of such notice,
on the Exercise Price and the kind and amount of shares of stock or other
securities or property deliverable on the exercise of the Warrant, and the date
or expected date, if any is to be fixed, as of which the holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such event. All such notices shall
be deemed to have been received (i) in the case of personal delivery, on the
date of such delivery, and (ii) in the case of mailing, on the third business
day following the date of such mailing. Holder acknowledges that the Company's
sale of its Aurora subsidiary shall not trigger the provisions of this Section
6.
7. Transfer or Loss of Warrant.
---------------------------
7.1 Transfer. This Warrant may be transferred, exercised, exchanged
--------
or assigned ("Transfer" or "Transferred"), in whole or in part, subject to the
provisions of this Section 7.1. The Holder shall have the right to Transfer all
or a part of this Warrant and all or part of the Warrant Shares. The Company
shall register on its books any Transfer of the Warrant, upon surrender of same
to the Company with a written instrument of Transfer duly executed by the
registered Holder or by a duly authorized attorney. Upon any such registration
of a Transfer, new Warrant(s) shall be issued to the transferee(s) and the
surrendered Warrant shall be cancelled by the Company. A Warrant may also be
exchanged, at the option of the Holder, for one or more new Warrants
representing the aggregate number of Warrant Shares evidenced by the Warrant
surrendered. This Warrant and the Warrant Shares or any other securities
("Other Securities") received upon exercise of this Warrant or the conversion of
the Warrant Shares shall be subject to restrictions on transferability unless
registered under the Securities Act, or unless an exemption from registration is
available. Until this Warrant and the Warrant Shares are so registered, this
Warrant and any certificate for Warrant Shares issued or issuable upon exercise
of this Warrant shall contain a legend on the face thereof, in form and
substance satisfactory to counsel for the Company, stating that this Warrant or
the Warrant Shares may not be Transferred unless, in the opinion of counsel
satisfactory to the Company, which may be counsel to the Company, that the
Warrant or the Warrant Shares may be Transferred without such registration.
This Warrant and the Warrant Shares may also be subject to restrictions on
transferability under applicable state securities or blue sky laws.
7.2 Compliance with Laws. Until this Warrant or the Warrant Shares
--------------------
are registered under the Securities Act, the Company may require, as a condition
of Transfer of this Warrant or the Warrant Shares that the transferee (who may
be the Holder in the case of an exchange) represent that the securities being
Transferred are being acquired for investment purposes and for the transferee's
own account and not with a view to or for sale in connection with any
distribution of the security. The Company may also require that the transferee
provide written information adequate to establish that the transferee is an
"accredited investor" within the meaning of Regulation D issued under the
Securities Act, or otherwise meets all qualifications necessary to comply with
exemptions to the Securities Act, all as determined by counsel to the Company.
7.3 Loss of Warrant. Upon receipt by the Company of evidence
---------------
reasonably satisfactory to it of loss, theft, destruction or mutilation of this
Warrant and, in the case of loss, theft or destruction, of reasonable
satisfactory indemnification, or, in the case of mutilation, upon surrender of
this Warrant, the Company will execute and deliver, or instruct its transfer
agent to execute and deliver, a new Warrant of like tenor and date, any such
lost, stolen or destroyed Warrant thereupon shall become
6
<PAGE>
void.
8. Registration Rights. The Company shall be obligated to the Holder of
-------------------
the Warrants and the Warrant Shares as follows:
(a) Whenever the Company proposes to file with the Securities and
Exchange Commission a Registration Statement (other than on Form S-4, Form S-8
or as to securities issued pursuant to an employee benefit plan or a transaction
subject to Rule 145 promulgated under the Act), it shall, at least 30 days prior
to each such filing, give written notice of such proposed filing (a "Filing
Notice") to the Holder and each holder of Warrant Shares at their respective
addresses as they appear on the records of the Company, pursuant to which the
Company shall offer to include in such filing any or all of the Warrant Shares
purchasable under the Warrant and any Warrant Shares theretofore issued on
exercise of any portion of the Warrant. The Holder and holders of Warrant
Shares shall have until the 10th day after receipt of such notice to send to the
Company a written request or requests (a "Registration Request") that shall
specify the number of Warrant Shares which the Holder or holder of Warrant
Shares desires to have included in such filing (the aggregate amounts of which
specified in all such Registration Requests of the Holder and the holders of
Warrant Shares shall be referred to hereinafter as the "Registrable
Securities"). The Company shall include in such filing, for registration under
the Act, the aggregate number of Registrable Securities which the Holder or
holders of Warrant Shares requested be included in such filing. In the event
that the managing underwriter for said offering advises the Company and the
holders of the Registrable Shares in writing that the inclusion of such
securities in the offering would be detrimental to the offering of any shares or
other securities to be sold and issued by the Company pursuant to such
Registration Statement, the Company will include in such Registration Statement
the number of Registrable Shares which in the opinion of such managing
underwriter can be included in such Registration Statement, together with the
shares of all other shareholders who exercise similar registration rights to
have their shares sold pursuant to such Registration Statement, on a pro-rata
basis among all holders of such Registrable Shares and other shares according to
the ratio that the number of Registrable Shares owned by the Holder hereof and
any such other holder bears to the total number of Registrable Shares and other
shares owned by all such holders.
(b) In addition to any Registration Statement pursuant to subsection
(a) above, the Company will, as promptly as practicable (but in any event within
60 days) after written request (the "Request") by Holder, or by a person or
persons holding (or having the right to acquire by virtue of holding the
Warrant) at least 50% of the shares of Common Stock which have been (or may be)
issued upon exercise of the Warrant, prepare and file at the Company's own
expense a Registration Statement with the Securities and Exchange Commission and
appropriate Blue Sky authorities sufficient to permit the public offering of the
Shares and will use its best efforts at its own expense through its officers,
directors, auditors and counsel, in all matters necessary or advisable, to cause
such Registration Statement to become effective as promptly as practicable and
to maintain such effectiveness so as to permit resale of the Shares covered by
the Request until the earlier of the time that all such Shares have been sold or
the expiration of ninety (90) days from the effective date of the Registration
Statement; provided, however, that the Company shall only be obligated to file
and have declared effective one such Registration Statement under this Section
8(b). Notwithstanding the foregoing, if a Registration Statement is filed
pursuant to this Section 8(b) but is not declared effective within 120 days of
the date of the filing thereof or, despite being declared effective within such
period of time, is not kept effective throughout the minimum period, then, it
shall not be deemed to be a Registration Statement meeting the requirements
hereunder and shall not satisfy or discharge the Company's obligations under
this Section 8(b).
7
<PAGE>
(c) The Company shall not be required to file a Registration Statement
pursuant to Section 8(b) if, in the opinion of counsel for the Holder and
holders of Warrant Shares and counsel for the Company (or, should they not
agree, in the opinion of another counsel experienced in securities law matters
acceptable to counsel for such holders and the Company), the proposed public
offering or other disposition as to which such Registration Statement is
requested is exempt from registration and no longer subject to the volume and
manner of sales restrictions of Rule 144 under federal securities law, and also
exempt from qualification under applicable state securities laws and such
offering or other disposition would result in all purchasers or transferees of
such Shares proposed to be sold by any holders of the Warrants or Warrant Shares
obtaining Warrant Shares which are no longer "restricted securities" as defined
in Rule 144 under, and may be sold publicly pursuant to Section 4(1) of, the
Act.
(d) In consideration for the Company agreeing to its obligations under
this Section 8, the holder of Registrable Shares agrees in connection with any
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any underwritten offering of the Company's
securities, not to sell, make any short sale of, loan, grant any option for the
purchase of or otherwise dispose of any Registrable Shares (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as the Company or the
underwriters may specify.
(e) If a registration pursuant to a Request under Section 8(b)
involves an underwritten offering, the managing or lead underwriter or
underwriters thereof shall be selected by the Company and shall be acceptable to
the holders of at least a majority (by number of shares) of the Common Stock
which have been (or may be) issued upon exercise of the Warrant as to which
registration has been requested, which acceptance shall not be unreasonably
withheld.
(f) If requested by the underwriters for any underwritten offering by
holders of Registrable Securities pursuant to a registration requested under
Section 8(b), the Company will enter into an underwriting agreement with such
underwriters for such offering, such agreement to be satisfactory in substance
and form to the Company, each such holder and the underwriters, and to contain
such representations and warranties by the Company and such other terms as are
generally prevailing in agreements of this type, including, without limitations,
indemnities to the effect and to the extent provided in Section 8 hereof.
9. Indemnification.
---------------
(a) The Company will, and does hereby undertake to, indemnify and hold
harmless each Holder, each of such Holder's officers, directors, partners and
agents, and each person controlling such Holder, with respect to any
registration, qualification, or compliance effected pursuant to Section 8, and
each underwriter, if any, and each person who controls any underwriter, of the
Registrable Shares held by or issuable to such Holder, against all claims,
losses, damages, and liabilities (or actions in respect thereto) to which they
may become subject under the Act, the Securities Exchange Act of 1934, as
amended, (the "1934 Act"), or other federal or state law arising out of or based
on (i) any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other similar document
(including any related Registration Statement, notification, or the like)
incident to any such registration, qualification, or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not
8
<PAGE>
misleading, or (ii) any violation or alleged violation by the Company of any
federal, state or common law rule or regulation applicable to the Company in
connection with any such registration, qualification, or compliance, and will
reimburse, as incurred, each Holder, each underwriter, and each director,
officer, partner, agent and controlling person, for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability, or action; provided that the Company will
not be liable in any such case to the extent that any such claim, loss, damage,
liability or expense, arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by any of the Holders or underwriter and stated to be
specifically for use therein.
(b) Each Holder will, if Registrable Shares held by or issuable to
such Holder are included in such registration, qualification, or compliance,
severally and not jointly, indemnify the Company, each of its directors, and
each officer who signs a Registration Statement in connection therewith, and
each person controlling the Company, each underwriter, if any, and, each person
who controls any underwriter, of the Company's securities covered by such a
Registration Statement, against all claims, losses, damages, and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such Registration
Statement, prospectus, offering circular, or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse,
as incurred, the Company, and each such underwriter or other person, for any
legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability, or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) was made in such
Registration Statement, prospectus, offering circular, or other document, in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder and stated to be
specifically for use therein; provided, however, that the liability of each such
Holder hereunder shall be limited to the net proceeds received by such Holder
from the sale of securities under such Registration Statement. In no event will
any Holder be required to enter into any agreement or undertaking in connection
with any registration under this Section 9 providing for any indemnification or
contribution obligations on the part of such Holder greater than such Holder's
obligations under this Section 9.
(c) Each party entitled to indemnification under this Section 9 (the
"Indemnified Party") shall give notice to the party required to provide such
indemnification (the "Indemnifying Party") of any claim as to which
indemnification may be sought promptly after such Indemnified Party has actual
knowledge thereof, and the Indemnifying Party shall assume the defense of any
such claim or any litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be subject to approval by the Indemnified Party (whose approval shall not
be unreasonably withheld) and the Indemnified Party may participate in such
defense with its separate counsel at the Indemnifying Party's expense if
representation of such Indemnified 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; and provided further that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 9, except
to the extent that such failure to give notice shall materially adversely affect
the Indemnifying Party in the defense of any such claim or any such litigation.
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff therein, to such
Indemnified Party, of
9
<PAGE>
a release from all liability in respect to such claim or litigation.
(d) If any Holder includes Registrable Securities in any registration,
such Holder shall furnish to the Company such information regarding such Holder,
and the distribution proposed by such Holder, as the Company may reasonably
request in writing and as shall be required in connection with any registration,
qualification, or compliance referred to in Sections 8 and 9.
10. Contribution. In order to provide for just and equitable contribution
------------
under the Act in any case in which (i) the Holder or any holder of the Warrant
Shares or controlling person makes a claim for indemnification pursuant to
Section 9 hereof but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of Section 9 hereof provide for indemnification in such
case or (ii) contribution under the Act may be required on the part of the
Holder or any holder of the Warrant Shares or controlling person, then the
Company and the Holder or any such holder of the Warrant Shares or controlling
person shall contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees), in either such case (after contribution from others) on the
basis of relative fault as well as any other relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Holder or holder of Warrant
Shares or controlling person on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and such holders of such securities and such
controlling persons agree that it would not be just and equitable if
contribution pursuant to this Section 10 were determined by pro rata allocation
or by any other method which does not take account of the equitable
considerations referred to in this Section 10. The amount paid or payable by an
Indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this Section 10 shall be deemed
to include any legal or other expenses reasonably incurred by such Indemnified
party in connection with investigating or defending any such action or claim.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
11. No Impairment. The Company will not, by amendment of its Certificate
-------------
of Incorporation or otherwise, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times, in good
faith, take all such action as may be necessary or appropriate in order to
protect the rights of the Holder against impairment.
12. Restrictive Legend. Unless and until otherwise permitted by this
------------------
Section 12, each certificate for Warrants issued under this Agreement, each
certificate for any Warrants issued to any transferee of any such certificate,
each certificate for any Warrant Stock issued upon exercise of any Warrant and
each certificate for any Warrant Stock issued to any transferee of any such
certificate, shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") NOR IS SUCH REGISTRATION CONTEMPLATED. SUCH SECURITIES MAY
NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE
10
<PAGE>
TRANSFERRED AT ANY TIME WHATSOEVER UNLESS REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE, EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER
OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY
TO IT AND TO ITS COUNSEL TO THE EFFECT THAT ANY SUCH TRANSFER WILL NOT BE IN
VIOLATION OF THE ACT, OR APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR
REGULATION PROMULGATED THEREUNDER."
13. Notices. All notices and other communications provided for in this
-------
Warrant shall be in writing and delivered, telecopied or mailed, first class
postage prepaid, addressed:
(i) if to the Company:
UniComp, Inc.
1850 Parkway Place, Suite 925
Marietta, Georgia 30067
Attention: Stephen A. Hafer,
President and Chief Executive Officer
Telephone: (770) 424-3684
Telecopy: (770) 420-5301
With a copy to:
Snell & Wilmer, L.L.P.
Broadway Center
111 E. Broadway, Suite 900
Salt Lake City, Utah 84111
Attention: John G. Weston, Esq.
Telephone: (801) 237-1900
Telecopy: (801) 237-1950
(ii) if to Holder, at the address set forth on the
signature page hereto or as may be designated by notice to the Company; and
(iii) if to any subsequent holder of the Warrant or
Warrant Shares, to the address as may be hereafter specified by notice to the
Company.
Any such notice or communication shall be deemed to have been duly given
when delivered, telecopied or mailed as aforesaid.
1.2 Counterparts. This Warrant may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
1.3 Governing Law. THIS WARRANT AND (UNLESS OTHERWISE PROVIDED) ALL
-------------
AMENDMENTS, SUPPLEMENTS, WAIVERS AND CONSENTS RELATING HERETO SHALL
11
<PAGE>
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
.
IN WITNESS WHEREOF, this Warrant is executed as of September 30, 1998.
COMPANY: UNICOMP, INC.
a Colorado corporation
By: /s/ Stephen A. Hafer
--------------------
Name: Stephen A. Hafer
Title: President and Chief Executive Officer
HOLDER: THE CRUTTENDEN ROTH BRIDGE FUND, LLC
a California limited liability company
By: /s/ Shelly Singhal
------------------
Name: Shelly Singhal
Title: Manager
Address for Notices and Payments:
The Cruttenden Roth Bridge Fund, LLC
18301 Von Karman
Irvine, California 92612-1009
Attention: Mr. Shelly Singhal
Telephone: (714) 757-5700
Telecopy: (714) 852-9603
12
<PAGE>
Annex A
-------
[FORM OF EXERCISE]
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ________ shares of Common
Stock and herewith tenders payment for such shares of Common Stock in the amount
of $__________ by bank check made payable to "UniComp, Inc." The undersigned
requests that a certificate for such shares of Common Stock be registered in the
name of _____________________, whose address is ____________________________. If
such number of shares of Common Stock is less than all of the shares of Common
Stock purchasable hereunder, the undersigned requests that a new Warrant
Certificate representing the remaining balance of the shares of Common Stock be
registered in the name of __________, whose address is _________
________________, and that such Warrant Certificate be delivered to
_______________________, whose address is _____________________________.
Dated: _________________
Signature: _______________________________________
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant
Certificate.)
____________________________
(Insert Social Security or
Taxpayer Identification
Number of Holder.)
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE RESOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
Right to Purchase 102,127 Shares of Common
Stock of UniComp, Inc.
UNICOMP, INC.
COMMON STOCK PURCHASE WARRANT
NO. W-A-1
UNICOMP, INC., a Colorado corporation (the "Company"), hereby
certifies that, for value received, ADVANTAGE FUND II LTD. or registered assigns
(the "Holder"), is entitled, subject to the terms set forth below, to purchase
from the Company at any time or from time to time after the date hereof, and
before 5:00 p.m., New York City time, on the Expiration Date (as hereinafter
defined), 102,127 fully paid and nonassessable shares of Common Stock (as
hereinafter defined) at a purchase price per share equal to the Purchase Price
(as hereinafter defined). The number of such shares of Common Stock and the
Purchase Price are subject to adjustment as provided in this Warrant.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
"Common Stock" includes the Company's Common Stock, $.01 par value per
share, as authorized on the date hereof, and any other securities into which or
for which the Common Stock may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
"Company" shall include UniComp, Inc. and any corporation that shall
succeed to or assume the obligation of UniComp, Inc. hereunder in accordance
with the terms hereof.
1
<PAGE>
"Expiration Date" means October 7, 2003.
"Issuance Date" means the first date of original issuance of this Warrant.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Securities" refers to any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which the
Holder at any time shall be entitled to receive, or shall have received, on the
exercise of this Warrant, in lieu of or in addition to Common Stock, or which at
any time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 4.
"Purchase Price" shall mean $4.4063 per share, subject to adjustment as
provided in this Warrant.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of October 7, 1998, by and between the Company and the original Holder
of this Warrant, as amended from time to time in accordance with its terms.
"Subscription Agreement" means the Subscription Agreement, dated as of
October 7, 1998, by and between the Company and the original Holder of this
Warrant, as amended from time to time in accordance with its terms.
"Trading Day" means a day on which the principal securities market for the
Common Stock is open for general trading of securities.
1. EXERCISE OF WARRANT.
-------------------
1.1 EXERCISE. (a) This Warrant may be exercised by the Holder hereof in
--------
full or in part at any time or from time to time during the exercise period
specified in the first paragraph hereof until the Expiration Date by surrender
of this Warrant and the subscription form annexed hereto (duly executed by the
Holder), to the Company's transfer agent and registrar for the Common Stock, and
by making payment, in cash or by certified or official bank check payable to the
order of the Company, in the amount obtained by multiplying (a) the number of
shares of Common Stock designated by the Holder in the subscription form by (b)
the Purchase Price then
2
<PAGE>
in effect. On any partial exercise the Company will forthwith issue and deliver
to or upon the order of the Holder hereof a new Warrant or Warrants of like
tenor, in the name of the Holder hereof or as the Holder (upon payment by the
Holder of any applicable transfer taxes) may request, providing in the aggregate
on the face or faces thereof for the purchase of the number of shares of Common
Stock for which such Warrant or Warrants may still be exercised.
(b) Notwithstanding any other provision of this Warrant, in no event
shall the Holder be entitled at any time to purchase a number of shares of
Common Stock on exercise of this Warrant in excess of that number of shares upon
purchase of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and all persons whose beneficial ownership of
shares of Common Stock would be aggregated with the Holder's beneficial
ownership of shares of Common Stock for purposes of Section 13(d) of the 1934
Act and Regulation 13D-G thereunder, (each such person other than the Holder an
"Aggregated Person" and all such persons other than the Holder, collectively,
the "Aggregated Persons") (other than shares of Common Stock deemed beneficially
owned through the ownership by the Holder and all Aggregated Persons of the
Holder of the unexercised portion of this Warrant and any other security of the
Company which contains similar provisions) and (2) the number of shares of
Common Stock issuable upon exercise of the portion of this Warrant with respect
to which the determination in this sentence is being made, would result in
beneficial ownership by the Holder and all Aggregated Persons of the Holder of
more than 4.9% of the outstanding shares of Common Stock. For purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the 1934 Act and Regulation 13D-G thereunder,
except as otherwise provided in clause (1) of the immediately preceding
sentence. For purposes of the second preceding sentence, the Company shall be
entitled to rely, and shall be fully protected in relying, on any statement or
representation made by the Holder to the Company in connection with a particular
exercise of this Warrant, without any obligation on the part of the Company to
make any inquiry or investigation or to examine its records or the records of
any transfer agent for the Common Stock.
1.2 NET ISSUANCE. Notwithstanding anything to the contrary contained
------------
in Section 1.1, the Holder may elect to exercise this Warrant in whole or in
part by receiving shares of Common Stock equal to the net issuance value (as
determined below) of this Warrant, or any part hereof, upon surrender of this
Warrant to the Company's transfer agent and registrar for the Common Stock the
principal office of the Company together with the subscription form annexed
hereto (duly executed by the Holder), in which event the Company shall issue to
the Holder a number of shares of Common Stock computed using the following
formula:
X = Y (A-B)
-------
A
3
<PAGE>
Where: X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock as to which this
Warrant is to be exercised
A = the current fair market value of one share of Common Stock
calculated as of the last trading day immediately preceding
the exercise of this Warrant
B = the Purchase Price
As used herein, current fair market value of Common Stock as of a
specified date shall mean with respect to each share of Common Stock the closing
sale price of the Common Stock on the principal securities market on which the
Common Stock may at the time be listed or, if there have been no sales on any
such exchange on such day, the average of the highest bid and lowest asked
prices on the principal securities market at the end of such day, or, if on such
day the Common Stock is not so listed, the average of the representative bid and
asked prices quoted in the Nasdaq System as of 4:00 p.m., New York City time,
or, if on such day the Common Stock is not quoted in the Nasdaq System, the
average of the highest bid and lowest asked price on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of five consecutive Trading Days consisting of the day as of which
the current fair market value of a share of Common Stock is being determined (or
if such day is not a Trading Day, the Trading Day next preceding such day) and
the four consecutive Trading Days prior to such day. If on the date for which
current fair market value is to be determined the Common Stock is not listed on
any securities exchange or quoted in the Nasdaq System or the over-the-counter
market, the current fair market value of Common Stock shall be the highest price
per share which the Company could then obtain from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the Company,
from authorized but unissued shares, as determined in good faith by the Board of
Directors of the Company, unless prior to such date the Company has become
subject to a merger, acquisition or other consolidation pursuant to which the
Company is not the surviving party, in which case the current fair market value
of the Common Stock shall be deemed to be the value received by the holders of
the Company's Common Stock for each share thereof pursuant to the Company's
acquisition.
2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as
-------------------------------------------------
practicable after the exercise of this Warrant, and in any event within three
Trading Days thereafter, the Company at its expense (including the payment by it
of any applicable issue or stamp taxes) will
4
<PAGE>
cause to be issued in the name of and delivered to the Holder hereof, or as the
Holder (upon payment by the Holder of any applicable transfer taxes) may direct,
a certificate or certificates for the number of fully paid and nonassessable
shares of Common Stock (or Other Securities) to which the Holder shall be
entitled on such exercise, in such denominations as may be requested by the
Holder, plus, in lieu of any fractional share to which the Holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
current fair market value (as determined in accordance with subsection 1.2) of
one full share, together with any other stock or other securities any property
(including cash, where applicable) to which the Holder is entitled upon such
exercise pursuant to Section 1 or otherwise. Upon exercise of this Warrant as
provided herein, the Company's obligation to issue and deliver the certificates
for Common Stock shall be absolute and unconditional, irrespective of the
absence of any action by the Holder to enforce the same, any waiver or consent
with respect to any provision thereof, the recovery of any judgment against any
person or any action to enforce the same, any failure or delay in the
enforcement of any other obligation of the Company to the Holder, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other person of any obligation to the Company, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with such exercise. If the
Company fails to issue and deliver the certificates for the Common Stock to the
Holder pursuant to the first sentence of this paragraph as and when required to
do so, in addition to any other liabilities the Company may have hereunder and
under applicable law, the Company shall pay or reimburse the Holder on demand
for all out-of-pocket expenses including, without limitation, fees and expenses
of legal counsel incurred by the Holder as a result of such failure.
3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.;
--------------------------------------------------------
RECLASSIFICATION, ETC. In case at any time or from time to time, all the
- ---------------------
holders of Common Stock (or Other Securities) shall have received, or (on or
after the record date fixed for the determination of stockholders eligible to
receive) shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property (other
than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of earnings
or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
5
<PAGE>
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in Section 5), then and in each such case the Holder, on the exercise hereof
as provided in Section 1, shall be entitled to receive the amount of stock and
other securities and property (including cash in the cases referred to in
subdivisions (b) and (c) of this Section 3) which the Holder would hold on the
date of such exercise if on the date thereof the Holder had been the holder of
record of the number of shares of Common Stock called for on the face of this
Warrant and had thereafter, during the period from the date hereof to and
including the date of such exercise, retained such shares and all such other or
additional stock and other securities and property (including cash in the case
referred to in subdivisions (b) and (c) of this Section 3) receivable by the
Holder as aforesaid during such period, giving effect to all adjustments called
for during such period by Section 4.
4. EXERCISE UPON REORGANIZATION, CONSOLIDATION, MERGER, ETC. In
--------------------------------------------------------
case at any time or from time to time, the Company shall (a) effect a
reorganization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, as a condition of such reorganization,
consolidation, merger, sale or conveyance, the Company shall give at least 30
days notice to the Holder of such pending transaction whereby the Holder shall
have the right to exercise this Warrant prior to any such reorganization,
consolidation, merger, sale or conveyance. Any exercise of this Warrant
pursuant to notice under this Section shall be conditioned upon the closing of
such reorganization, consolidation, merger, sale or conveyance which is the
subject of the notice and the exercise of this Warrant shall not be deemed to
have occurred until immediately prior to the closing of such transaction.
5. ADJUSTMENT FOR EXTRAORDINARY EVENTS. In the event that the
-----------------------------------
Company shall (i) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (ii) subdivide or reclassify its
outstanding shares of Common Stock, or (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the Purchase Price in effect immediately prior
to such event by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such event, and the product so obtained shall thereafter be
the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive event or
events described herein in this Section 5. The Holder shall thereafter, on the
exercise hereof as provided in Section 1, be entitled to receive that number of
shares of Common Stock determined by multiplying the number of shares of Common
Stock which would be issuable on such exercise
6
<PAGE>
immediately prior to such issuance by a fraction of which (i) the numerator is
the Purchase Price in effect immediately prior to such issuance and (ii) the
denominator is the Purchase Price in effect on the date of such exercise.
6. FURTHER ASSURANCES. The Company will take all action that may be
------------------
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of stock, free from all taxes, liens and
charges with respect to the issue thereof, on the exercise of all or any portion
of this Warrant from time to time outstanding.
7. NOTICES OF RECORD DATE, ETC. In the event of
---------------------------
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend on, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of all
or substantially all of the assets of the Company to or consolidation or merger
of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder, at least ten days prior to such record date, a notice specifying (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or Other
Securities) shall be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up, and (iii) the amount and character of
any stock or other securities, or rights or options with respect thereto,
proposed to be issued or granted, the date of such proposed issue or grant and
the persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall also state that the action in question or
the record date is subject to the effectiveness of a registration statement
under the 1933 Act, or a favorable vote of stockholders if either is required.
Such notice shall be mailed at least ten days prior to the date
7
<PAGE>
specified in such notice on which any such action is to be taken or the record
date, whichever is earlier.
8. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS.
------------------------------------------------------------
The Company will at all times reserve and keep available out of its authorized
but unissued shares of capital stock, solely for issuance and delivery on the
exercise of this Warrant, a sufficient number of shares of Common Stock (or
Other Securities) to effect the full exercise of this Warrant and the exercise,
conversion or exchange of any other warrant or security of the Company
exercisable for, convertible into, exchangeable for or otherwise entitling the
holder to acquire shares of Common Stock (or Other Securities), and if at any
time the number of authorized but unissued shares of Common Stock (or Other
Securities) shall not be sufficient to effect such exercise, conversion or
exchange, the Company shall take such action as may be necessary to increase its
authorized but unissued shares of Common Stock (or Other Securities) to such
number as shall be sufficient for such purposes.
9. TRANSFER OF WARRANT. This Warrant shall inure to the benefit of
-------------------
the successors to and assigns of the Holder. This Warrant and all rights
hereunder, in whole or in part, are registrable at the office or agency of the
Company referred to below by the Holder hereof in person or by his duly
authorized attorney, upon surrender of this Warrant properly endorsed.
10. REGISTER OF WARRANTS. The Company shall maintain, at the
--------------------
principal office of the Company (or such other office as it may designate by
notice to the Holder hereof), a register in which the Company shall record the
name and address of the person in whose name this Warrant has been issued, as
well as the name and address of each successor and prior owner of such Warrant.
The Company shall be entitled to treat the person in whose name this Warrant is
so registered as the sole and absolute owner of this Warrant for all purposes.
11. EXCHANGE OF WARRANT. This Warrant is exchangeable, upon the
-------------------
surrender hereof by the Holder hereof at the office or agency of the Company
referred to in Section 10, for one or more new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares of Common Stock which may be subscribed for and purchased hereunder,
each of such new Warrants to represent the right to subscribe for and purchase
such number of shares as shall be designated by said Holder hereof at the time
of such surrender.
12. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation,
8
<PAGE>
on surrender and cancellation of this Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
13. WARRANT AGENT. In accordance with the Transfer Agent Agreement,
-------------
dated as of October 7, 1998, by and among the Company, Corporate Stock Transfer,
Inc., as Transfer Agent and Registrar (the "Transfer Agent"), and the original
Holder of this Warrant, the Company has appointed the Transfer Agent as the
exercise agent for purposes of issuing shares of Common Stock (or Other
Securities) on the exercise of this Warrant pursuant to Section 1. The Company
may, by notice to the Holder, appoint an agent having an office in the United
States of America for the purpose of exchanging this Warrant pursuant to Section
11 and replacing this Warrant pursuant to Section 12, or either of the
foregoing, and thereafter any such exchange or replacement, as the case may be,
shall be made at such office by such agent.
14. REMEDIES. The Company stipulates that the remedies at law of the
--------
Holder in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
15. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant shall
-----------------------------------------
not entitle the Holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the Holder hereof to purchase Common Stock, and no mere
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of the Holder for the Purchase Price or as a stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
16. NOTICES, ETC. All notices and other communications from the
------------
Company to the registered Holder shall be mailed by first class certified mail,
postage prepaid, at such address as may have been furnished to the Company in
writing by the Holder or at the address shown for the Holder on the register of
Warrants referred to in Section 10.
17. TRANSFER RESTRICTIONS. This Warrant is subject to the
---------------------
restrictions on transfer set forth in Section 4(a) of the Subscription
Agreement. By acceptance of this Warrant, the Holder represents to the Company
that this Warrant is being acquired for the Holder's own account and for the
purpose of investment and not with a view to, or for sale in connection with,
the distribution thereof, nor with any present intention of distributing or
selling the Warrant or the Common Stock issuable upon exercise of the Warrant.
The Holder acknowledges and agrees that this Warrant and, except as otherwise
provided in the Registration Rights Agreement, the shares of Common Stock
issuable upon exercise of this Warrant (if any) have not been (and at the
9
<PAGE>
time of acquisition by the Holder, will not have been or will not be),
registered under the 1933 Act or under the securities laws of any state, in
reliance upon certain exemptive provisions of such statutes. The Holder further
recognizes and acknowledges that because this Warrant and, except as provided in
the Registration Rights Agreement, the Common Stock issuable upon exercise of
this Warrant (if any) are unregistered, they may not be eligible for resale, and
may only be resold in the future pursuant to an effective registration statement
under the 1933 Act and any applicable state securities laws, or pursuant to a
valid exemption from such registration requirements. Unless the shares of Common
Stock issuable upon exercise of this Warrant have theretofore been registered
for resale under the 1933 Act, the Company may require, as a condition to the
issuance of Common Stock upon the exercise of this Warrant (i) in the case of an
exercise in accordance with Section 1.1 hereof, a confirmation as of the date of
exercise of the Holder's representations pursuant to this Section 17, or (ii) in
the case of an exercise in accordance with Section 1.2 hereof, an opinion of
counsel reasonably satisfactory to the Company that the shares of Common Stock
to be issued upon such exercise may be issued without registration under the
1933 Act.
18. LEGEND. Unless theretofore registered for resale under the 1933
------
Act, each certificate for shares issued upon exercise of this Warrant shall bear
the following legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be resold, transferred or assigned in
the absence of an effective registration statement for the securities under
the Securities Act of 1933, as amended, or an opinion of counsel reasonably
acceptable to the Company that registration is not required under said Act.
19. MISCELLANEOUS. This Warrant and any terms 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. This Warrant shall be construed and enforced in accordance with and
governed by the internal laws of the State of Colorado. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
10
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
on its behalf by one of its officers thereunto duly authorized.
Dated: October 7, 1998 UNICOMP, INC.
By: /s/ S. A. Hafer
Title: President
11
<PAGE>
FORM OF SUBSCRIPTION
UNICOMP, INC.
(To be signed only on exercise of Warrant)
TO: Corporate Stock Transfer, Inc.
as Exercise Agent
Republic Plaza
370 17th Street
Suite 2350
Denver, Colorado 80202-4614
1. The undersigned Holder of the attached original, executed Warrant
hereby elects to exercise its purchase right under such Warrant with respect to
______________ shares of Common Stock, as defined in the Warrant, of UniComp,
Inc., a Colorado Corporation (the "Company").
2. The undersigned Holder (check one):
o (a) elects to pay the aggregate purchase price for such shares of Common
Stock (the "Exercise Shares") (i) by lawful money of the United States
or the enclosed certified or official bank check payable in United
States dollars to the order of the Company in the amount of
$___________, or (ii) 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 Form
of Subscription pursuant to the instructions of the Company;
or
o (b) elects to receive shares of Common Stock having a value equal to the
value of the Warrant calculated in accordance with Section 1.2 of the
Warrant.
3. Please issue a stock certificate or certificates representing the
appropriate number of shares of Common Stock in the name of the undersigned or
in such other name as is specified below:
<PAGE>
Name: =================
Address: =================
=================
4. The undersigned Holder hereby represents to the Company that the
exercise of the Warrant elected hereby does not violate Section 1.1(b) of the
Warrant.
Dated: ____________ ___, ____
(Signature must conform to name of
Holder as specified on the face of
the Warrant)
Name:
Address:
<PAGE>
SUBSCRIPTION AGREEMENT
dated as of October 7, 1998
by and between
UNICOMP, INC.
and
ADVANTAGE FUND II LTD.
____________________
SERIES A CONVERTIBLE PREFERRED STOCK
and
COMMON STOCK PURCHASE WARRANTS
<PAGE>
SUBSCRIPTION AGREEMENT
SERIES A CONVERTIBLE PREFERRED STOCK
and
COMMON STOCK PURCHASE WARRANTS
UNICOMP, INC.
Page
----
1. AGREEMENT TO SUBSCRIBE 1
(a) Subscription 1
(b) Payment 1
2. BUYER REPRESENTATIONS, WARRANTIES, ETC. 2
(a) Purchase for Investment 2
(b) Accredited Investor 2
(c) Reoffers and Resales 2
(d) Company Reliance 2
(e) Information Provided 2
(f) Absence of Approvals 3
(g) Subscription Agreement 3
(h) Residency 3
3. COMPANY REPRESENTATIONS, WARRANTIES, ETC. 3
(a) Organization and Authority 3
(b) Capitalization 3
(c) Concerning the Shares and the Common Stock 4
(d) Subscription Agreement and Other Transaction Documents
4
(e) Non-contravention 5
(f) Approvals 5
(g) Information Provided 5
(h) Absence of Certain Changes 6
(i) Absence of Certain Proceedings 6
(j) Properties 6
(k) Labor Relations 7
(l) SEC Filings 7
(m) Absence of Brokers, Finders, Etc. 7
(n) No Solicitation. 7
(o) Certain Issuances of Securities. 8
(p) Absence of Rights Agreement 8
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS
(a) Transfer Restrictions 8
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<PAGE>
(b) Restrictive Legend 8
(c) Registration Rights Agreement 9
(d) Form D 10
(e) Authorization for Trading; Reporting Status 10
(f) Use of Proceeds 10
(g) Blue Sky Laws 10
(h) Certain Expenses 10
(i) Certain Issuances of Securities 11
(j) Restriction on Conversion 11
(k) Best Efforts 12
(l) Legal Opinion 12
5. TRANSFER AGENT AGREEMENT 12
(a) Transfer Agent Agreement 12
(b) Conversion Procedure 12
6. CLOSING DATE. 13
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE. 13
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE. 13
9. MISCELLANEOUS. 14
(a) Governing Law. 14
(b) Counterparts. 14
(c) Headings, etc. 14
(d) Severability 14
(e) Amendments 14
(f) Waivers. 14
(g) Notices. 15
(h) Assignment 15
(i) Survival of Representations and Warranties 15
(j) Entire Agreement 15
(k) Termination 15
(l) Further Assurances 16
(m) Public Statements, Press Releases, Etc. 16
(n) Construction 16
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<PAGE>
SCHEDULES
Schedule 3(a) Subsidiaries
Schedule 3(b)-1 Antidilution Adjustments
Schedule 3(h) Liabilities
Schedule 3(j) Security Interests
ANNEXES
Annex I Form of Articles of Amendment
Annex II Form of Common Stock Purchase Warrant
Annex III Form of Escrow Agreement
Annex IV Form of Registration Rights Agreement
Annex V Form of Transfer Agent Agreement
Annex VI Form of Opinion of European Counsel to be Delivered
after Closing Date
Annex VII Form of Notice of Conversion of Series A Convertible
Preferred Stock
Annex VIII Form of Opinion of Counsel to be Delivered on Closing
Date
-4-
<PAGE>
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT, dated as of October 7, 1998, by and
between UNICOMP, INC., a Colorado corporation (the "Company"), with headquarters
located at 1850 Parkway Place, Suite 925, Marietta, Georgia 30067, and ADVANTAGE
FUND II LTD., a British Virgin Islands corporation (the "Buyer").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to
the conditions of this Agreement, shares of non-voting, convertible preferred
stock of the Company which will be convertible into shares of Common Stock, $.01
par value (the "Common Stock"), of the Company and in connection therewith the
Company is to issue to the Buyer warrants to purchase shares of Common Stock as
provided in this Agreement; and
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D as promulgated by the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act");
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 parties agree as
follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(A) SUBSCRIPTION. The Buyer hereby agrees to purchase from the
Company the number of shares (the "Preferred Shares") of Series A Convertible
Preferred Stock, $1.00 par value (the "Preferred Stock"), of the Company set
forth on the signature page of this Agreement, having the terms and conditions
as set forth in the form of Articles of Amendment of the Company's Articles of
Incorporation attached hereto as Annex I (the "Articles of Amendment") at the
price per share and for the aggregate purchase price set forth on the signature
page of this Agreement (the "Purchase Price"). In connection with the purchase
of the Preferred Shares by the Buyer, the Company shall issue to the Buyer at
the closing on the Closing Date (as defined herein) Common Stock Purchase
Warrants in the form attached hereto as Annex II (the "Warrants") to purchase a
number of shares of Common Stock equal to the quotient obtained by dividing (i)
the quotient obtained by dividing (x) the Purchase Price by (y) the average
Closing Bid Price (as defined in the Articles of Amendment) of a share of Common
Stock for the five Trading Days (as defined in the Articles of Amendment)
immediately prior to the Closing Date by (ii) ten (subject to adjustment after
issuance of the Warrants as provided in the Warrants). The shares of Preferred
Stock issuable pursuant to Section 5 of the Articles of Amendment as dividends
on the Preferred Shares are referred
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<PAGE>
to herein as the "Dividend Shares." The shares of Common Stock issuable upon
exercise of the Warrants are referred to herein as the "Warrant Shares." The
Warrant Shares and the shares of Common Stock issuable upon conversion of the
Preferred Shares and the Dividend Shares are referred to herein collectively as
the "Common Shares." The Common Shares, the Preferred Shares and the Dividend
Shares are referred to herein collectively as the "Shares." The Shares and the
Warrants are referred to herein collectively as the "Securities."
(B) PAYMENT. Payment of the Purchase Price and delivery of the
Securities shall be made in accordance with the terms of the Escrow Agreement in
the form attached hereto as Annex III (the "Escrow Agreement"). The Escrow
Agreement shall be executed and delivered by the Company, the Buyer and the
escrow agent (the "Escrow Agent") named therein prior to or immediately
following the execution and delivery of this Agreement. The Buyer shall pay the
Purchase Price by delivering good funds in United States Dollars to the Escrow
Agent against delivery by the Company of the certificates for the Preferred
Shares and the Warrants registered in the name of the Buyer. Promptly following
payment by the Buyer to the Escrow Agent of the Purchase Price, but in any event
prior to the Closing Date (as defined herein), the Company shall deliver
certificates for the Preferred Shares and the Warrants, registered in the name
of the Buyer or its nominee, to the Escrow Agent. The certificates for the
Preferred Shares shall be delivered by the Company to the Escrow Agent on a
delivery against payment basis at the closing. Not later than 4:00 p.m., New
York City time, on the date which is two Business Days after the Company shall
have accepted this Agreement and returned a signed counterpart of this Agreement
to the Buyer or its legal counsel, the Buyer shall deposit with the Escrow Agent
an amount equal to the Purchase Price. As used in this Agreement, the term
"Business Day" means any day other than a Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
(A) PURCHASE FOR INVESTMENT. The Buyer is purchasing the
Preferred Shares and acquiring the Warrants, and will acquire the Common Shares
upon conversion of the Preferred Shares or exercise of the Warrants, for its own
account for investment only and not with a view towards the public sale or
distribution thereof;
(B) ACCREDITED INVESTOR. The Buyer is an "accredited investor" as
that term is defined in Rule 501 of the General Rules and Regulations under the
1933 Act by reason of Rule 501(a)(3);
(C) REOFFERS AND RESALES. All subsequent offers and sales of the
Securities by
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<PAGE>
the Buyer shall be made pursuant to registration of the Securities being offered
and sold under the 1933 Act or pursuant to an exemption from registration;
(D) COMPANY RELIANCE. The Buyer understands that the Preferred Shares
are being offered and sold, the Warrants are being issued, and the Common Shares
are being offered, in each case to it in reliance on specific exemptions from
the registration requirements of United States federal and state securities laws
and that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Preferred Shares and the Warrants and to receive an offer of the Common Shares;
(E) INFORMATION PROVIDED. The Buyer and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Preferred Shares and the issuance of the Warrants and the offer of the Common
Shares which have been requested by the Buyer; the Buyer and its advisors, if
any, have been afforded the opportunity to ask questions of the Company and have
received satisfactory answers to any such inquiries; without limiting the
generality of the foregoing, the Buyer has had the opportunity to obtain and to
review the Company's (1) Annual Report on Form 10-K for the fiscal year ended
February 28, 1998 (the "1998 10-K"), (2) Quarterly Report on Form 10-Q for the
quarter ended May 31, 1998, and (3) definitive proxy statement for the Company's
1998 Annual Meeting of Shareholders, in each case as filed with the SEC
(collectively, the "SEC Reports"); and the Buyer understands that its investment
in the Shares involves a high degree of risk;
(F) ABSENCE OF APPROVALS. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Shares;
(G) SUBSCRIPTION AGREEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Buyer and is a valid and
binding agreement of the Buyer enforceable in accordance with its terms, subject
as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally; and
(H) RESIDENCY. The Buyer's address set forth on the signature page of
this Agreement is the Buyer's principal place of business and the Buyer has no
operations in the United States.
3. COMPANY REPRESENTATIONS, WARRANTIES, ETC.
The Company represents and warrants to, and covenants and agrees with,
the Buyer that:
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<PAGE>
(A) ORGANIZATION AND AUTHORITY. Each of the Company and its
subsidiaries listed on SCHEDULE 3(A) attached hereto (the "Subsidiaries") is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, and the Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement,
the Articles of Amendment, the Warrants, the Escrow Agreement, the Registration
Rights Agreement, the form of which is attached hereto as Annex IV (the
"Registration Rights Agreement"), the Transfer Agent Agreement, the form of
which is attached hereto as Annex V (the "Transfer Agent Agreement"), and the
other agreements to be executed and delivered by the Company in connection
herewith, and to consummate the transactions contemplated hereby and thereby.
Each of the Company and the Subsidiaries is duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and where failure so to qualify could have a material
adverse effect on the business, properties, operations, condition (financial or
other), results of operations or prospects of the Company and the Subsidiaries,
taken as a whole. The Company has no equity investment in any person other than
the Subsidiaries.
(B) CAPITALIZATION. The authorized capital stock of the Company
consists of (a) 25,000,000 shares of Common Stock of which 7,890,786 shares were
outstanding on September 30, 1998, all of which are fully paid and
nonassessable; and (b) 5,000,000 shares of Preferred Stock, $1.00 par value,
none of which are outstanding, and 3,600 shares of which will be designated as
Series A Convertible Preferred Stock of which 3,000 shares will be issued
pursuant to this Agreement; and on the Closing Date there will be (x) no
material increase from September 30, 1998 in the number of shares of Common
Stock outstanding and (y) no issuances of preferred stock except as issued
pursuant to this Agreement. As of September 30, 1998, the Company had
outstanding options, warrants and similar rights entitling the holders to
purchase 1,189,671 shares of Common Stock. Other than as set forth in the
preceding sentence, the Company does not have outstanding any material amount of
securities (or obligations to issue any such securities) convertible into,
exchangeable for or otherwise entitling the holders thereof to acquire shares of
Common Stock, except as disclosed in the SEC Reports or on Schedule 3(b)-1. The
Company has duly reserved from its authorized and unissued shares of Common
Stock the full number of shares required for (a) all options, warrants,
convertible securities and other rights to acquire shares of Common Stock which
are outstanding and (b) all shares of Common Stock and options and other rights
to acquire shares of Common Stock which may be issued or granted under the stock
option and similar plans which have been adopted by the Company or any of the
Subsidiaries. Each outstanding class or series of securities for which any
antidilution or similar adjustment arising by reason of the issuance or
conversion of the Preferred Shares and the Dividend Shares or the issuance or
exercise of the Warrants will occur is identified on SCHEDULE 3(B)-1 attached
hereto, together with the amount of such antidilution adjustment. The
outstanding shares of Common Stock and outstanding options, warrants and other
securities convertible into, exchangeable for or otherwise entitling the holder
-8-
<PAGE>
thereof to acquire shares of Common Stock have been duly authorized and validly
issued. None of such outstanding shares of Common Stock, options, warrants and
other securities has been issued in violation of the preemptive rights of any
securityholder of the Company. The offers and sales of the outstanding shares of
Common Stock and such options, warrants and other securities were at all
relevant times either registered under the 1933 Act and applicable state
securities laws or exempt from such requirements. Except for (i) 25,000 shares
of Common Stock issuable upon the exercise of warrants held by First Bermuda,
Inc. and (ii) 25,000 shares of Common Stock issuable upon the exercise of
warrants held by The Cruttenden Roth Bridge Fund, LLC, no holder of any of the
Company's securities has any rights, "demand," "piggy-back" or otherwise, to
have such securities registered by reason of the intention to file, filing or
effectiveness of the Registration Statement (as defined in the Registration
Rights Agreement).
(C) CONCERNING THE SHARES AND THE COMMON STOCK. The Shares have been
duly authorized. The Preferred Shares, when issued and paid for in accordance
with this Agreement, the Dividend Shares, when issued as dividends on the
outstanding shares of Preferred Stock, and the Common Shares, when issued upon
conversion of the Preferred Shares or the Dividend Shares or upon exercise of
the Warrants, as the case may be, will be duly and validly issued, fully paid
and non-assessable and will not subject the holder thereof to personal liability
by reason of being such holder. There are no preemptive or similar rights of any
stockholder of the Company or any other person to acquire any of the Shares. The
Company has duly reserved 1,576,000 shares of Common Stock for conversion of the
shares of Preferred Stock and exercise of the Warrants, and such shares shall
remain so reserved (subject to reduction from time to time for shares of Common
Stock issued upon conversion of shares of Preferred Stock or redemption or other
permitted retirement of shares of Preferred Stock), and the Company shall from
time to time reserve such additional shares of Common Stock as shall be required
to be reserved pursuant to the Articles of Amendment, as long as the Preferred
Stock is convertible, and pursuant to the Warrants, as long as the Warrants are
exercisable. The Common Stock is listed for trading on the Nasdaq National
Market ("Nasdaq") and (1) the Company and the Common Stock meet the criteria for
continued listing and trading on Nasdaq; (2) the Company has not been notified
since January 1, 1996 by Nasdaq of any failure or potential failure to meet the
criteria for continued listing and trading on Nasdaq and (3) no suspension of
trading in the Common Stock is in effect. The Company knows of no reason that
the Common Shares will not be eligible for listing on Nasdaq.
(D) SUBSCRIPTION AGREEMENT AND OTHER TRANSACTION DOCUMENTS. This
Agreement, the Articles of Amendment, the Registration Rights Agreement, the
Warrants, the Escrow Agreement and the Transfer Agent Agreement and the other
agreements and instruments contemplated hereby and thereby have been duly and
validly authorized by the Company, this Agreement has been duly executed and
delivered by the Company and this Agreement is, and the Registration Rights
Agreement, the Warrants, the Escrow Agreement and the Transfer Agent Agreement
and such other agreements, when executed and delivered by the Company, will be,
valid and binding obligations of the Company enforceable in accordance with
their respective terms,
-9-
<PAGE>
subject as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally.
(E) NON-CONTRAVENTION. The execution and delivery by the Company of
this Agreement and the other documents contemplated by this Agreement and the
consummation by the Company of the issuance of the Preferred Shares and the
Warrants as contemplated by this Agreement, and the other transactions
contemplated by this Agreement, the Articles of Amendment, the Registration
Rights Agreement, the Warrants, the Escrow Agreement and the Transfer Agent
Agreement do not and will not, with or without the giving of notice or the lapse
of time, or both (i) result in any violation of any terms of the Articles of
Incorporation or By-laws of the Company or any Subsidiary, (ii) conflict with or
result in a breach by the Company or any Subsidiary of any of the terms or
provisions of, or constitute a default under, or result in the modification,
amendment, termination or cancellation of, result in the acceleration of any
obligation of the Company or any Subsidiary under, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any Subsidiary pursuant to, any
indenture, mortgage, deed of trust or other agreement or instrument to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or any of their respective properties or assets is bound or affected, (iii)
violate or contravene any applicable law, rule or regulation or any applicable
decree, judgment or order of any court, United States federal or state
regulatory body, administrative agency or other governmental body having
jurisdiction over the Company or any Subsidiary or any of their respective
properties or assets or (iv) have any material adverse effect on any permit,
certification, registration, approval, consent, license or franchise necessary
for the Company or any Subsidiary to own or lease and operate any of their
respective properties or to conduct any of their respective businesses or the
ability of the Company or any Subsidiary to make use thereof.
(F) APPROVALS. No authorization, approval or consent of, or filing
with, any court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market or the stockholders of the Company is
required to be obtained or made by the Company for (1) the execution, delivery
and performance by the Company of this Agreement, the Registration Rights
Agreement, the Warrants, the Escrow Agreement, the Transfer Agent Agreement and
the other agreements and instruments contemplated hereby and thereby, (2) the
execution, filing and performance by the Company of the Articles of Amendment,
(3) the issuance and sale of the Preferred Shares and the Dividend Shares and
the issuance of the Warrants as contemplated by this Agreement and (4) the
issuance of Common Shares on conversion of the Preferred Shares or the Dividend
Shares or upon the exercise of the Warrants or the issuance of Dividend Shares
as dividends on shares of Preferred Stock, other than (v) the filing of the
notification for listing of additional shares with the Nasdaq pursuant to
Section 4(e), (w) the filing of the Articles of Amendment with the Secretary of
State of the State of Colorado, (x) registration of the resale of the Common
Shares under the 1933 Act as contemplated by the Registration Rights Agreement,
(y) as may be required under applicable state securities or "blue sky" laws and
(z) filing of one or more
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<PAGE>
Forms D with respect to the Securities as required under Regulation D.
(G) INFORMATION PROVIDED. The information provided by or on behalf of
the Company to the Buyer in connection with the transactions contemplated by
this Agreement, including, without limitation, the information referred to in
Section 2(e) of this Agreement, does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading, it being understood that, for purposes of this Section 3(g), any
statement contained in such information shall be deemed to be modified or
superseded for purposes of this Section 3(g) to the extent that a statement in
any document included in such information which was prepared or filed with the
SEC on a later date modifies or replaces such statement, whether or not such
later prepared or filed statement so states. The Company has not filed any
reports with the SEC under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), since February 28, 1998 other than the SEC Reports.
(H) ABSENCE OF CERTAIN CHANGES. Since February 28, 1998, there has
been no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or other), results of
operations or prospects of the Company and the Subsidiaries taken as a whole,
except as disclosed in the SEC Reports. Except as and to the extent disclosed,
reflected or reserved against in the financial statements of the Company and the
notes thereto included in the SEC Reports or disclosed on SCHEDULE 3(H) attached
hereto, neither the Company nor any Subsidiary has any material (individually or
in the aggregate) liabilities, debts or obligations whether accrued, absolute,
contingent or otherwise, and whether due or to become due. Subsequent to
February 28, 1998, neither the Company nor any Subsidiary has incurred any
liabilities, debts or obligations of any nature whatsoever which are
individually or in the aggregate material to the Company and the Subsidiaries
taken as a whole, other than those incurred in the ordinary course of their
respective businesses or disclosed in the SEC Reports.
(I) ABSENCE OF CERTAIN PROCEEDINGS. Except as disclosed in the SEC
Reports, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board or body or governmental agency (collectively, an
"Action") pending or, to the knowledge of the Company or any Subsidiary,
threatened against the Company or any Subsidiary, in any such case wherein an
unfavorable decision, ruling or finding would have a material adverse effect on
the business, properties, condition (financial or other), results of operations
or prospects of the Company and the Subsidiaries, taken as a whole, or the
transactions contemplated by this Agreement or any of the documents contemplated
hereby or which would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, this
Agreement or any of such other documents; neither the Company or any Subsidiary
nor any director or officer thereof is or has been the subject of any Action
involving a claim of violation of or liability under federal or state securities
laws or a claim of breach of fiduciary duty; the Company does not have pending
before the SEC any request for confidential treatment of information and to the
best of the
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<PAGE>
Company's knowledge no such request will be made by the Company prior to the
time the Registration Statement relating to the Common Shares which is
contemplated by the Registration Rights Agreement is first ordered effective by
the SEC; and, other than as disclosed in writing to the Buyer, there has not
been, and to the best of the Company's knowledge there is not pending or
contemplated, any investigation by the SEC involving the Company or any current
or former director or officer of the Company.
(J) PROPERTIES. Except as set forth on SCHEDULE 3(J) attached
hereto, the Company and the Subsidiaries have good title to all property real
and personal (tangible and intangible) and other assets owned by them, free and
clear of all security interests, charges, mortgages, liens or other
encumbrances, except such as are described in the SEC Reports or such as do not
materially interfere with the use of such property made, or proposed to be made,
by the Company or any Subsidiary. The leases, licenses or other contracts or
instruments under which the Company and the Subsidiaries lease, hold or are
entitled to use any property, real or personal, are valid, subsisting and
enforceable with only such exceptions as do not materially interfere with the
use of such property made, or proposed to be made, by the Company or any
Subsidiary. Neither the Company nor any Subsidiary has received notice of any
material violation of any applicable law, ordinance, regulation, order or
requirement relating to its owned or leased properties. The Company does not
have any knowledge of, and the Company has not given or received any notice of,
any pending conflicts with or infringement of the rights of others with respect
to any Company Proprietary Rights (as defined herein) or with respect to any
license of Company Proprietary Rights. No action, suit, arbitration, or legal,
administrative or other proceeding or investigation is pending, or, to the best
knowledge of the Company, threatened, which involves any Company Proprietary
Rights. Neither the Company nor any Subsidiary is subject to any judgment,
order, writ, injunction or decree of any court or any federal, state, local,
foreign or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or any arbitrator, or has entered into or
is a party to any contract which restricts or impairs the use of any such
Company Proprietary Rights in a manner which would have a material adverse
effect on the use by the Company or any Subsidiary of any of the Company
Proprietary Rights. To the best knowledge of the Company, no Company Proprietary
Rights and no services or products sold by the Company or any Subsidiary,
conflict with or infringe upon any proprietary rights available to any third
party. Neither the Company nor any Subsidiary has received written notice of any
pending conflict with or infringement upon such third-party proprietary rights.
Neither the Company nor any Subsidiary has entered into any consent,
indemnification, forbearance to sue or settlement agreement with respect to
Company Proprietary Rights other than in the ordinary course of business. No
claims have been asserted by any person with respect to the validity of the
Company's or any Subsidiary's ownership or right to use the Company Proprietary
Rights and, to the best knowledge of the Company, there is no reasonable basis
for any such claim to be successful. To the best knowledge of the Company, the
Company Proprietary Rights are valid and enforceable. No registration relating
to the Company Proprietary Rights has lapsed, expired or been abandoned or
canceled or is the subject of cancellation or other adversarial proceedings, and
all applications therefor are pending and
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<PAGE>
are in good standing, except for such lapses, expirations, abandonments,
cancellations, adversarial proceedings or failures to be in good standing which
would not, singly or in the aggregate, have a material adverse effect on the
business, properties, operations, condition (financial or otherwise), results of
operations or prospects of the Company and the Subsidiaries taken as a whole.
The Company and the Subsidiaries have complied, in all material respects, with
their respective contractual obligations relating to the protection of the
Company Proprietary Rights used pursuant to licenses. To the best knowledge of
the Company, no person is infringing on or violating the Company Proprietary
Rights. As used herein, the term "Company Proprietary Rights" means all patents,
patent applications, inventions, trademarks, trade names, applications for
registration of trademarks, service marks, service mark applications,
copyrights, know-how, manufacturing processes, formulae, trade secrets, licenses
and rights in any thereof and any other intangible property and assets which are
material to the businesses of the Company and the Subsidiaries as now conducted,
as proposed to be conducted or as described in this Agreement.
(K) LABOR RELATIONS. No material labor problem exists or, to
the knowledge of the Company or any Subsidiary, is imminent with respect to any
of the employees of the Company or any Subsidiary.
(L) SEC FILINGS. The Company has timely filed all required
forms, reports and other documents required to be filed with the SEC under the
1934 Act. All of such forms, reports and other documents complied, when filed,
in all material respects, with all applicable requirements of the 1933 Act and
the 1934 Act.
(M) ABSENCE OF BROKERS, FINDERS, ETC. No broker, finder or
similar person is entitled to any commission, fee or other compensation by
reason of the transactions contemplated by this Agreement other than Rochon
Capital Group, Ltd., and the Company shall pay, and indemnify and hold harmless
the Buyer from, any claim made against the Buyer by such entity or any other
person for any such commission, fee or other compensation.
(N) NO SOLICITATION. No form of general solicitation or
general advertising was used by the Company or, to the best of its knowledge,
any other person acting on behalf of the Company, in respect of or in connection
with the offer and sale of the Securities. Neither the Company nor, to its
knowledge, any person acting on behalf of the Company has, either directly or
indirectly, sold or offered for sale to any person any of the Preferred Shares
or the Warrants or, within the six months prior to the date hereof, any other
similar security of the Company except as contemplated by this Agreement; and
neither the Company nor any person authorized to act on its behalf will sell or
offer for sale any shares of Preferred Stock or shares of Common Stock or
Warrants, or solicit any offers to buy any shares of Preferred Stock or shares
of Common Stock or Warrants, so as thereby to cause the issuance or sale of any
of the Shares or the issuance of the Warrants to be in violation of Section 5 of
the 1933 Act.
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(O) CERTAIN ISSUANCES OF SECURITIES. The Company has not
issued any shares of Common Stock or shares of any series of preferred stock or
other securities convertible into, exchangeable for or otherwise entitling the
holder to acquire shares of Common Stock which are subject to Rule 4460(i) of
Nasdaq (or any successor, replacement or similar provision thereof or of any
other market on which the Common Stock is listed for trading) and which would be
integrated with the sale of the Preferred Shares to the Buyer or the issuance of
Common Shares upon conversion thereof or upon exercise of the Warrants or the
Dividend Shares in payment of dividends thereon for purposes of such Rule
4460(i) (or any successor, replacement or similar provision thereof or of any
other market on which the Common Stock is listed for trading).
(P) ABSENCE OF RIGHTS AGREEMENT. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(A) TRANSFER RESTRICTIONS. The Company and the Buyer
acknowledge and agree that (1) the Preferred Shares and the Warrants have not
been and are not being registered under the provisions of the 1933 Act and,
except as provided in the Registration Rights Agreement with respect to the
resale of the Common Shares, the Common Shares have not been and are not being
registered for resale under the 1933 Act, and the Securities may not be
transferred unless (A)(i) subsequently registered for resale thereunder or (ii)
the Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration and (B) in the case of the Preferred Shares and
the Warrants, such transfer is made to a Permitted Transferee (as defined
herein); (2) any resale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any such resale of
Securities under circumstances in which the seller, or the person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (3) neither the
Company nor any other person is under any obligation to register the Securities
(other than pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder (other than
pursuant to Section 4(d) hereof and pursuant to the Registration Rights
Agreement). As used in this Agreement, "Permitted Transferee" means (i) any
person that directly, or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with the Buyer; for
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"), as used with respect
to any person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of the Buyer,
whether through the ownership of voting securities or by contract or otherwise,
(ii) any person who has the same investment manager
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as the Buyer, (iii) a bank or other institutional lender of the Buyer to which
the Preferred Shares or the Warrants are pledged as collateral, or (iv) any
other person approved by the Company, which approval shall not be unreasonably
withheld.
(B) RESTRICTIVE LEGEND. (1) The Buyer acknowledges and agrees
that the Preferred Shares shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of the
Preferred Shares):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be sold, transferred or assigned in
the absence of an effective registration statement for the securities
under the Securities Act of 1933, as amended, or an opinion of counsel
that registration is not required under said Act.
The number of shares constituting the portion of the Maximum Share
Amount, as defined in the Articles of Amendment to the Company's
Articles of Incorporation (the "Articles of Amendment"), allocated to
the shares represented by this certificate for purposes of conversion
thereof is 1,576,000.
Section 10(b)(3)(a) of the Articles of Amendment permits a holder of
the securities represented by this certificate to convert such
securities in accordance with the Articles of Amendment without being
required to surrender this certificate to the Company unless all of the
securities represented hereby are so converted. Consequently, following
conversion of any of the securities represented by this certificate,
the number of shares represented by this certificate may be less than
the number of shares stated hereon. Upon request of any proposed
transferee of this certificate, the Company will provide confirmation
of the number of shares evidenced by this certificate.
(2) The Buyer further acknowledges and agrees that the
Warrants shall bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of the Warrants):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be resold, transferred or assigned
in the absence of an effective registration statement for the
securities under the Securities Act of 1933, as amended, or an opinion
of counsel reasonably acceptable to the Company that registration is
not required under said Act.
(3) The Buyer further acknowledges and agrees that until such
time as the Common Shares have been registered for resale under the 1933 Act as
contemplated by the Registration Rights Agreement, the certificates for the
Common Shares may bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of the
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certificates for the Common Shares):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be resold, transferred or assigned
in the absence of an effective registration statement for the
securities under the Securities Act of 1933, as amended, or an opinion
of counsel reasonably acceptable to the Company that registration is
not required under said Act.
(4) Once the Registration Statement required to be filed by
the Company pursuant to Section 2 of the Registration Rights Agreement has been
declared effective, thereafter (1) upon request of the Buyer the Company will
substitute certificates without restrictive legend for certificates for any
Common Shares issued prior to the date such Registration Statement is declared
effective by the SEC which bear such restrictive legend and remove any
stop-transfer restriction relating thereto promptly, but in no event later than
three trading days after surrender of such certificates by the Buyer and (2) the
Company shall not place any restrictive legend on certificates for Common Shares
issued on conversion of or as dividends on the Preferred Shares or upon exercise
of the Warrants or impose any stop-transfer restriction thereon.
(C) REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to
enter into the Registration Rights Agreement in the form attached hereto as
Annex IV on or before the Closing Date.
(D) FORM D. The Company agrees to file a Form D with respect
to the Securities as required under Regulation D and to provide a copy thereof
to the Buyer promptly after such filing. The Buyer agrees to cooperate with the
Company in connection with such filing and, upon request of the Company, to
provide all information relating to the Buyer reasonably required for such
filing.
(E) AUTHORIZATION FOR TRADING; REPORTING STATUS. Within two
Business Days after the Closing Date, the Company shall file a notification for
listing of additional shares with the Nasdaq relating to the Common Shares and
shall provide evidence of such filing to the Buyer. So long as the Buyer
beneficially owns any of the Preferred Shares, the Dividend Shares, the Warrants
or the Common Shares, the Company shall file all reports required to be filed
with the SEC pursuant to Section 13 or 15(d) of the 1934 Act and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
permit such termination.
(F) USE OF PROCEEDS. Neither the Company nor any Subsidiary
owns or has any present intention of acquiring any "margin stock" as defined in
Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve
System ("margin stock"). The proceeds of sale of the Preferred Shares will be
used for general working capital purposes and in the operation of the Company's
business. None of such proceeds will be used, directly or indirectly (1) to make
any loan
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to or investment in any other person (other than financing the Company's
subsidiaries in the ordinary course of business) or (2) for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any margin stock or
for the purpose of maintaining, reducing or retiring any indebtedness which was
originally incurred to purchase or carry any stock that is currently a margin
stock or for any other purpose which might constitute the transactions
contemplated by this Agreement a "purpose credit" within the meaning of such
Regulation G. Neither the Company nor any agent acting on its behalf has taken
or will take any action which might cause this Agreement or the transactions
contemplated hereby to violate Regulation G, Regulation T or any other
regulation of the Board of Governors of the Federal Reserve System or to violate
the 1934 Act, in each case as in effect now or as the same may hereafter be in
effect.
(G) BLUE SKY LAWS. On or before the Closing Date, the Company
shall take such action as shall be necessary to qualify, or to obtain an
exemption for, the Preferred Shares for sale to the Buyer and the Warrants for
issuance to the Buyer pursuant to this Agreement and the Common Shares for
issuance to the Buyer on conversion of the Preferred Shares under such of the
securities or "blue sky" laws of jurisdictions as shall be applicable to the
sale of the Preferred Shares and the issuance of the Warrants pursuant to this
Agreement and the issuance to the Buyer of Common Shares on conversion of the
Preferred Shares and exercise of the Warrants. The Company shall furnish copies
of all filings, applications, orders and grants or confirmations of exemptions
relating to such securities or "blue sky" laws on or prior to the Closing Date.
(H) CERTAIN EXPENSES. Whether or not the closing occurs, the
Company shall pay or reimburse the Buyer for all reasonable expenses (including,
without limitation, legal fees and expenses of counsel to the Buyer) not in
excess of $25,000 incurred by the Buyer in connection with this Agreement and
the transactions contemplated hereby. In addition, the Company shall pay on
demand all expenses incurred by the Buyer, including reasonable attorneys' fees
and expenses, as a consequence of, or in connection with (1) the negotiation,
preparation or execution of any amendment, modification or waiver of this
Agreement, the Articles of Amendment, the Registration Rights Agreement, the
Warrants, the Transfer Agent Agreement and the other agreements and instruments
contemplated hereby and thereby requested by the Company, (2) any default or
breach of any of the Company's obligations set forth in any of such agreements
or instruments and (3) the enforcement or restructuring of any right of,
including the collection of any payments due, the Buyer under any of such
agreements or instruments, including any action or proceeding relating to such
enforcement or any order, injunction or other process seeking to restrain the
Company from paying any amount due the Buyer, in which the Buyer prevails.
(I) CERTAIN ISSUANCES OF SECURITIES. (1) Unless the Company
obtains the Stockholder Approval (as defined in the Articles of Amendment) or a
waiver thereof from the Nasdaq, the Company will not issue any shares of Common
Stock or shares of any other series of preferred stock or other securities
convertible into, exchangeable for, or otherwise entitling the holder to
acquire, shares of Common Stock which would be subject to the requirements of
Rule
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4460(i) of Nasdaq (or any successor, replacement, or similar provision thereof
or of any other market on which the Common Stock is listed for trading) and
which would be integrated with the sale of the Preferred Shares and issuance of
the Warrants to the Buyer or the issuance of Common Shares upon conversion of
the Preferred Shares or Dividend Shares or exercise of the Warrants for purposes
of Rule 4460(i) of Nasdaq (or any successor, replacement or similar provision
thereof or of any other market on which the Common Stock is listed for trading).
(2) During the period from the date of this Agreement to the
date on which the Registration Statement (as defined in the Registration Rights
Agreement) shall have been effective with the SEC for 180 consecutive days, the
Company shall not, without the prior written consent of the Buyer, offer, sell,
contract to sell or issue (or engage any person to assist the Company in taking
any such action) (A) any security (whether debt or equity) with conversion or
exchange terms similar in nature to the conversion rights of the Preferred Stock
or (B) any equity securities or securities convertible into, exchangeable for or
otherwise entitling the holder to acquire, any Common Stock at a price below the
market price of the Common Stock on the date of such issuance or the date of
conversion, exchange or other exercise thereof (collectively, "Discounted
Securities"); provided, however, that nothing in this Section 4(i)(2) shall
prohibit the Company from issuing securities (w) pursuant to compensation plans
for employees, directors, officers, advisers or consultants of the Company and
in accordance with the terms of such plans as in effect as of the date of this
Agreement, (x) upon exercise of conversion, exchange, purchase or similar rights
issued, granted or given by the Company and outstanding as of the date of this
Agreement and disclosed in the SEC Reports or this Agreement, (y) pursuant to a
public offering underwritten on a firm commitment basis registered under the
1933 Act or (z) as part of a transaction involving a strategic alliance,
collaboration, joint venture, partnership or other similar arrangement of the
Company with another corporation, partnership or other business entity which is
engaged in a business similar to or related to the business of the Company, so
long as in the case of this clause (z) the Board of Directors by resolution duly
adopted (and a copy of which shall be furnished to the Buyer promptly after
adoption) determines that such issuance is fair to the holders of each class and
series of capital stock of the Company, including the Preferred Shares, the
Dividend Shares, if any, and the Warrants.
(J) RESTRICTION ON CONVERSION. So long as the Corporation
shall be in compliance in all material respects with its obligations to the
holders of the shares of Series A Convertible Preferred Stock and trading of
shares of Common Stock on Nasdaq shall not be suspended for any reason on any
Trading Day during the calendar month for which this Section 4(j) is applicable,
during any calendar month through and including September, 1999, the Buyer
together with its Permitted Transferees shall not, without the written consent
of the Corporation, exercise their conversion rights pursuant to the Articles of
Amendment by delivering Conversion Notices (as defined in Section 5(b)) which
would require the issuance of a number of shares of Common Stock in excess of
the Conversion Restriction Amount (as defined herein). As used in this
Agreement, "Conversion Restriction Amount" means, for any calendar month, 20% of
the aggregate number of shares of Common Stock traded on Nasdaq during such
calendar month as reported by Bloomberg,
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L.P. (such amount to be subject to equitable adjustments from time to time on
terms reasonably acceptable to the Buyer for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the Common
Stock).
(K) BEST EFFORTS. Each of the parties shall use its best
efforts timely to satisfy each of the conditions to the other party's
obligations to sell and purchase the Preferred Shares set forth in Section 7 or
8, as the case may be, of this Agreement on or before the Closing Date.
(L) LEGAL OPINION. On or before the tenth Business Day after
the Closing Date, the Company shall deliver to the Buyer an opinion of its
European counsel, in form, scope and substance reasonably satisfactory to the
Buyer, to the effect set forth in Annex VI attached hereto.
5. TRANSFER AGENT AGREEMENT; CONVERSION PROCEDURE.
(A) TRANSFER AGENT AGREEMENT. Prior to the Closing Date, the
Company will (1) execute and deliver the Transfer Agent Agreement in the form
attached hereto as Annex V and thereby irrevocably instruct, Corporate Stock
Transfer, Inc., as Transfer Agent and Registrar (the "Transfer Agent"), to issue
certificates for the Common Shares from time to time upon conversion of the
Preferred Shares and the Dividend Shares and exercise of the Warrants in such
amounts as specified from time to time to the Transfer Agent in the Notices of
Conversion surrendered in connection with such conversions and referred to in
Section 5(b) of this Agreement and the Form of Subscription in the form attached
to the Warrants and (2) appoint the Transfer Agent the conversion agent for the
Preferred Stock and the exercise agent for the Warrants. The certificates for
the Common Shares may bear the restrictive legend specified in Section 4(b) of
this Agreement prior to registration of the resale of the Common Shares under
the 1933 Act. The certificates for the Common Shares shall be registered in the
name of the Buyer or its designee and in such denominations to be specified by
the Buyer in connection with each conversion of Preferred Shares or Dividend
Shares or exercise of the Warrants. The Company warrants that no instruction
other than (x) such instructions referred to in this Section 5, (y) stop
transfer instructions to give effect to Section 4(a) prior to registration of
the resale of the Common Shares under the 1933 Act and (z) the instructions
required by Section 3(n) of the Registration Rights Agreement will be given by
the Company to the Transfer Agent and that the Common Shares shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement. Nothing in this Section 5(a) shall limit in any way
the Buyer's obligations and agreement to comply with the registration
requirements of the 1933 Act upon resale of the Common Shares. If the Buyer
provides the Company with an opinion of counsel, reasonably satisfactory in
form, scope and substance to the Company and its legal counsel, that
registration of a resale by the Buyer of any of the Securities is not required
under the 1933 Act, the Company shall permit the transfer of such Securities
and, in the case of the Common Shares, in accordance with clause (1)(B) of
Section 4(a) of this Agreement, promptly instruct the Company's transfer agent
to issue upon transfer one or more share certificates in such name and in such
denominations as specified by the Buyer within three trading days after
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receipt of such opinion. Nothing in this Section 5(a) shall limit the
obligations of the Company under Section 3(n) of the Registration Rights
Agreement.
(B) CONVERSION PROCEDURE. In connection with the exercise of
conversion rights relating to the Preferred Shares and the Dividend Shares, the
Buyer or any subsequent holder of the Preferred Shares shall complete, sign and
furnish to the Transfer Agent a Notice of Conversion of Series A Convertible
Preferred Stock in the form attached hereto as ANNEX VII, which shall be deemed
to satisfy all requirements of the Articles of Amendment.
6. CLOSING DATE.
Subject to the satisfaction or waiver of the conditions set
forth in Sections 7 and 8, the date and time of the issuance and sale of the
Preferred Shares and the issuance of the Warrants (the "Closing Date") shall be
12:00 noon, New York City time, on or before the date which is three Business
Days after the date the Buyer has deposited the Purchase Price with the Escrow
Agent in accordance with Section 1(b), or such other mutually agreed to time.
The closing shall occur on the Closing Date at the Law Offices of Brian W Pusch,
Penthouse Suite, 29 West 57th Street, New York, New York 10019.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE.
The Buyer understands that the Company's obligation to sell
the Preferred Shares and issue the Warrants to the Buyer pursuant to this
Agreement is conditioned upon the satisfaction of the following conditions
precedent on or before the Closing Date (any or all of which may be waived by
the Company in its sole discretion):
(a) The receipt and acceptance by the Company of this
Agreement as evidenced by execution of this Agreement by the Company and
delivery of an executed counterpart of this Agreement to the Buyer or its legal
counsel;
(b) Delivery by the Buyer to the Escrow Agent of good funds as
payment in full of an amount equal to the Purchase Price for the Preferred
Shares in accordance with Section 1(b) hereof; and
(c) The accuracy on the Closing Date of the representations
and warranties of the Buyer contained in this Agreement as if made on the
Closing Date and the performance by the Buyer on or before the Closing Date of
all covenants and agreements of the Buyer required to be performed
on or before the Closing Date.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
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The Company understands that the Buyer's obligation to
purchase the Preferred Shares and acquire the Warrants on the Closing Date is
conditioned upon the satisfaction of the following conditions precedent on or
before the Closing Date (any or all of which may be waived by the Buyer in its
sole discretion):
(a) The Company and the Escrow Agent shall have executed and
delivered the Escrow Agreement in the form attached hereto as ANNEX III.
(b) Delivery by the Company to the Escrow Agent of the
certificates for the Preferred Shares and the Warrants in accordance with this
Agreement and the Escrow Agreement;
(c) The accuracy on the Closing Date of the representations
and warranties of the Company contained in this Agreement as if made on the
Closing Date and the performance by the Company on or before the Closing Date of
all covenants and agreements of the Company required to be performed on or
before the Closing Date and receipt by the Buyer of a certificate, dated the
Closing Date, of the Chief Executive Officer of the Company confirming such
matters and such other matters as the Buyer may reasonably request;
(d) The receipt by the Buyer of confirmation of the filing
with the Secretary of State of the State of Colorado of the Articles of
Amendment;
(e) The receipt by the Buyer of a certificate, dated the
Closing Date, of the Secretary of the Company certifying (1) the Articles of
Incorporation and By-Laws of the Company as in effect on the Closing Date, (2)
all resolutions of the Board of Directors (and committees thereof) of the
Company relating to this Agreement and the transactions contemplated hereby and
(3) such other matters as reasonably requested by the Buyer;
(f) The Transfer Agent shall have executed and delivered the
Transfer Agent Agreement in the form attached hereto as ANNEX V; and
(g) Receipt by the Buyer on the Closing Date of an opinion of
Snell & Wilmer LLP, counsel for the Company, dated the Closing Date, in form,
scope and substance reasonably satisfactory to the Buyer, to the effect set
forth in ANNEX VIII attached hereto.
9. MISCELLANEOUS.
(A) GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Colorado.
(B) COUNTERPARTS. This Agreement may be executed in
counterparts and by the parties hereto on separate counterparts, all of which
together shall constitute one and the same
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instrument. A facsimile transmission of this Agreement bearing a signature on
behalf of a party hereto shall be legal and binding on such party. Although this
Agreement is dated as of the date first set forth above, the actual date of
execution and delivery of this Agreement by each party is the date set forth
below such party's signature on the signature page hereof. Any reference in this
Agreement or in any of the documents executed and delivered by the parties
hereto in connection herewith to (1) the date of execution and delivery of this
Agreement by the Buyer shall be deemed a reference to the date set forth below
the Buyer's signature on the signature page hereof, (2) the date of execution
and delivery of this Agreement by the Company shall be deemed a reference to the
date set forth below the Company's signature on the signature page hereof and
(3) the date of execution and delivery of this Agreement or the date of
execution and delivery of this Agreement by the Buyer and the Company shall be
deemed a reference to the later of the dates set forth below the signatures of
the parties on the signature page hereof.
(C) HEADINGS, ETC. The headings, captions and footers of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement.
(D) SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
(E) AMENDMENTS. No amendment, modification, waiver, discharge
or termination of any provision of this Agreement nor consent to any departure
by the Buyer or the Company therefrom shall in any event be effective unless the
same shall be in writing and signed by the party to be charged with enforcement,
and then shall be effective only in the specific instance and for the purpose
for which given. No course of dealing between the parties hereto shall operate
as an amendment of this Agreement.
(F) WAIVERS. 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, or any course of dealings between the parties, shall not
operate as a waiver thereof or an amendment hereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or exercise of any other right or power.
(G) NOTICES. Any notices required or permitted to be given
under the terms of this Agreement shall be delivered personally (which shall
include telephone line facsimile transmission with answer back confirmation) or
by courier and shall be effective upon receipt, if delivered personally or by
courier, in the case of the Company addressed to the Company at its address
shown in the introductory paragraph of this Agreement, Attention: Chief
Executive Officer (telephone line facsimile transmission number (770) 420-5301
or, in the case of the Buyer, at its
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address or telephone line facsimile transmission number shown on the signature
page of this Agreement, with a copy to Genesee International, Inc., 10500 N.E.
8th Street, Suite 1920, Bellevue, Washington 98004-4332 (telephone line
facsimile transmission number (425) 462-4645) or such other address or telephone
line facsimile transmission number as a party shall have provided by notice to
the other party in accordance with this provision. The Buyer hereby designates
as its address for any notice required or permitted to be given to the Buyer
pursuant to the Articles of Amendment the address shown on the signature page of
this Agreement, with a copy to: Advantage Fund II Ltd., c/o Genesee
International, Inc., 10500 N.E. 8th Street, Suite 1920, Bellevue, Washington
98004-4332 (facsimile number (425) 462-4645), until the Buyer shall designate
another address for such purpose.
(H) ASSIGNMENT. Prior to the Closing Date, the Buyer may not
assign its rights and obligations under this Agreement. Any transfer of the
Preferred Shares or the Warrants by the Buyer after the Closing Date shall be
made in accordance with Section 4(a). After the Closing Date, the Buyer shall
have the right to assign its rights and obligations under this Agreement in
connection with any transfer of the Buyer's rights under the Registration Rights
Agreement by compliance with the provisions of Section 9 of the Registration
Rights Agreement.
(I) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
representations, warranties, covenants and agreements of the Buyer and the
Company contained in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall survive the delivery of and
payment for the Preferred Shares and shall remain in full force and effect
regardless of any investigation made by or on behalf of them or any person
controlling or advising any of them.
(J) ENTIRE AGREEMENT. This Agreement and its Schedule and
Annexes set forth the entire agreement between the parties hereto with respect
to the subject matter hereof and supersede all prior agreements and
understandings, whether written or oral, with respect thereto.
(K) TERMINATION. The Buyer shall have the right to terminate
this Agreement by giving notice to the Company at any time at or prior to the
Closing Date if:
(1) the Company shall have failed, refused, or been unable at
or prior to the date of such termination of this Agreement to perform
any of its obligations hereunder;
(2) any other condition of the Buyer's obligations hereunder
is not fulfilled; or
(3) the closing shall not have occurred on a Closing Date on
or before October 13, 1998, other than solely by reason of a breach of
this Agreement by the Buyer.
Any such termination shall be effective upon the giving of notice thereof by the
Buyer. Upon such termination, the Buyer shall have no further obligation to the
Company hereunder and the Company
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shall remain liable for any breach of this Agreement or the other documents
contemplated hereby which occurred on or prior to the date of such termination.
(L) FURTHER ASSURANCES. Each party to this Agreement will
perform any and all acts and execute any and all documents as may be necessary
and proper under the circumstances in order to accomplish the intents and
purposes of this Agreement and to carry out its provisions.
(M) PUBLIC STATEMENTS, PRESS RELEASES, ETC. The Company and
the Buyer shall have the right to approve before issuance any press releases or
any other public statements with respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled, without the prior
approval of the Buyer, to make any press release or other public disclosure with
respect to such transactions as is required by applicable law or Nasdaq
regulation (although the Buyer shall be consulted by the Company in connection
with any such press release or other public disclosure prior to its release and
shall be provided with a copy thereof).
(N) CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by
the Buyer and the Company by their respective officers or other representatives
thereunto duly authorized on the respective dates set forth below.
NUMBER OF SHARES: 3,000
PRICE PER SHARE: $1,000.00
AGGREGATE PURCHASE PRICE: $3,000,000.00
ADVANTAGE FUND II LTD.
By: /s/ T. J. vanDijk
-----------------
Name: Inter Caribbean Services Limited
Title: Secretary
Date: October 7, 1998
---------------
Address: c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Facsimile No.: 011-599-9732-2008
UNICOMP, INC.
By: /s/ S. A. Hafer
---------------
Name: S. A Hafer
Title: President
Date: October 7, 1998
---------------
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of October 7, 1998 (this
"Agreement"), is made by and between UNICOMP, INC., a Colorado corporation (the
"Company"), and ADVANTAGE FUND II LTD. (the "Initial Investor").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, in connection with the Subscription Agreement, dated as of
October 7, 1998, between the Initial Investor and the Company (the "Subscription
Agreement"), the Company has agreed, upon the terms and subject to the
conditions of the Subscription Agreement, to issue and sell to the Initial
Investor shares (the "Preferred Shares") of Series A Convertible Preferred
Stock, $1.00 par value (the "Series A Preferred Stock"), of the Company as
provided in the Subscription Agreement, which Preferred Shares are convertible
into shares (the "Conversion Shares") of Common Stock, $.01 par value (the
"Common Stock"), of the Company, and to issue common stock purchase warrants
(the "Warrants") to purchase shares (the "Warrant Shares") of Common Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription 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
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares, the Warrant Shares and the shares of Common Stock issuable
upon conversion of shares (the "Dividend Shares") of Series A Preferred Stock
which are issuable in payment of dividends on the Preferred Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
"Articles of Amendment" means the Articles of Amendment of the
Articles of Incorporation of the Company establishing and designating the Series
A Preferred Stock and fixing the rights and preferences of such series as filed
by the Company with the Secretary of State of the
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State of Colorado.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Investor" means the Initial Investor and any transferee or assignee
who agrees to become bound by the provisions of this Agreement in accordance
with Section 9 hereof.
"Nasdaq" means the Nasdaq National Market.
"register," "registered," and "registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
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 by the United States Securities and Exchange Commission
(the "SEC").
"Registrable Securities" means the Conversion Shares, the Warrant
Shares and any shares of Common Stock issued by the Company to any Investor upon
conversion of any Dividend Shares.
"Registration Period" means the period from the Closing Date to the
earliest of (i) the date which is two years after the SEC Effective Date, (ii)
the date on which each Investor may sell all of its Registrable Securities
without registration under the Securities Act pursuant to Rule 144, without
restriction on the manner of sale or the volume of securities which may be sold
in any period and without the requirement for the giving of any notice to, or
the making of any filing with, the SEC and (iii) the date on which the Investors
no longer beneficially own any Registrable Securities.
"Registration Statement" means a registration statement of the Company
under the Securities Act, including any amendment thereto.
"Rule 144" means Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit a holder
of any securities to sell securities of the Company to the public without
registration under the Securities Act.
"SEC Effective Date" means the date the Registration Statement is
declared effective by the SEC.
"SEC Filing Date" means the date the Registration Statement is first
filed with the SEC pursuant to Section 2(a).
(b) As used in this Agreement, the term Investor includes (i) each
Investor (as
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<PAGE>
defined above) and (ii) each person who is a permitted transferee or assignee of
the Registrable Securities pursuant to Section 9 of this Agreement.
(c) Capitalized terms defined in the introductory paragraph or the
recitals to this Agreement shall have the respective meanings therein provided.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Subscription Agreement.
2. REGISTRATION.
(A) MANDATORY REGISTRATION. The Company shall prepare, and on or
prior to the date which is 45 days after the Closing Date, file with the SEC a
Registration Statement on Form S-3 which, on the date of filing with the SEC,
covers the resale by the Initial Investor of a number of shares of Common Stock
at least equal to
(1) if Rule 416 under the Securities Act is applicable to the
Preferred Stock, the sum of (x) the number of shares of Common Stock
issuable upon conversion of the Preferred Shares, determined as if the
Preferred Shares, together with accrued and unpaid dividends thereon, were
converted in full on the SEC Filing Date (and determined without regard to
the limitation on beneficial ownership contained in the proviso to the
second sentence of Section 10(a) of the Articles of Amendment), plus (y)
the number of Warrant Shares (determined without regard to the limitation
on beneficial ownership contained in Section 1.1(b) of the Warrants) and
the resale of such additional number of shares of Common Stock as the
Company shall in its discretion determine to register to permit the
issuance of Dividend Shares and the resale of the shares of Common Stock
issuable upon conversion thereof, and which Registration Statement shall
state that, in accordance with Rule 416 under the Securities Act, such
Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the
Preferred Shares and Dividend Shares or exercise of the Warrants to prevent
dilution resulting from stock splits, stock dividends or similar
transactions in accordance with the terms thereof; or
(2) if Rule 416 under the Securities Act is not applicable to the
Preferred Stock, the sum of (x) a number of shares of Common Stock equal to
175% of the number of shares of Common Stock issuable upon conversion of
the Preferred Shares, determined as if the Preferred Shares, together with
accrued and unpaid dividends thereon, were converted in full on the SEC
Filing Date (and determined without regard to the limitations on conversion
contained in the Articles of Amendment) plus (y) the number of Warrant
Shares (determined without regard to the limitation on beneficial ownership
contained in Section 1.1(b) of the Warrants) and the resale of such
additional number of shares of Common Stock as the
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<PAGE>
Company shall in its discretion determine to register to permit the
issuance of Dividend Shares and the resale of the shares of Common Stock
issuable upon conversion thereof.
If at any time the number of shares of Common Stock included in the Registration
Statement required to be filed as provided in the first sentence of this Section
2(a) shall be insufficient to cover the number of shares of Common Stock
issuable on conversion in full of the unconverted Preferred Shares and Dividend
Shares or the unexercised portion of the Warrants, then promptly, but in no
event later than 30 days after such insufficiency shall occur, the Company shall
file with the SEC an additional Registration Statement on Form S-3 (which shall
not constitute a post-effective amendment to the Registration Statement filed
pursuant to the first sentence of this Section 2(a)), covering such number of
shares of Common Stock as shall be sufficient to permit such conversion and
exercise. For all purposes of this Agreement such additional Registration
Statement shall be deemed to be the Registration Statement required to be filed
by the Company pursuant to Section 2(a) of this Agreement, and the Company and
the Investors shall have the same rights and obligations with respect to such
additional Registration Statement as they shall have with respect to the initial
Registration Statement required to be filed by the Company pursuant to this
Section 2(a).
(B) CERTAIN OFFERINGS. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Company shall have the right to select one legal counsel and an investment
banker or bankers and manager or managers to administer the offering, which
legal counsel and investment banker or bankers or manager or managers shall be
reasonably satisfactory to Investors who hold a majority in interest of the
Registrable Securities subject to such underwritten offering. The Investors who
hold the Registrable Securities to be included in such underwriting shall pay
all underwriting discounts and commissions and other fees and expenses of such
legal counsel and such investment banker or bankers and manager or managers so
selected in accordance with this Section 2(b) (other than fees and expenses
relating to registration of Registrable Securities under federal or state
securities laws, which are payable by the Company pursuant to Section 5 hereof)
with respect to their Registrable Securities.
(C) ADJUSTMENTS OF CONVERSION TERMS. The Articles of Amendment
provide, among other things, that, if (1) the Registration Statement covering
the Registrable Securities which is required to be filed by the Company pursuant
to the first sentence of Section 2(a) (A) is not filed with the SEC within 45
days of the Closing Date, (B) is not effective within 90 days after the Closing
Date or (C) shall cease to be available for use by any holder of shares of
Series A Preferred Stock which is named therein as a selling stockholder for any
reason (including, without limitation, by reason of an SEC stop order, a
material misstatement or omission in such Registration Statement or the
information contained in such Registration Statement having become outdated), or
(2) a holder of shares of Series A Preferred Stock becomes unable to convert any
shares of Series A Preferred Stock in accordance with Section 10(a) of the
Articles of Amendment (other than by reason of the 4.9% limitation set forth
therein), then the Conversion Percentage (as defined in the Articles of
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<PAGE>
Amendment) shall be adjusted as provided in the Articles of Amendment.
(D) PIGGY-BACK REGISTRATIONS. If at any time the Company shall
determine to prepare and file with the SEC a Registration Statement relating to
an offering for its own account or the account of others under the Securities
Act of any of its equity securities, other than on Form S-4 or Form S-8 or their
then equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each Investor who is entitled to registration rights under this Section
2(d) written notice of such determination and, if within ten (10) calendar days
after receipt of such notice, such Investor shall so request in writing, the
Company shall include in such Registration Statement all or any part of the
Registrable Securities such Investor requests to be registered, except that if,
in connection with any underwritten public offering for the account of the
Company, the managing underwriter(s) thereof shall impose a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement because, in such underwriter(s)' judgment, such limitation is
necessary to effect an orderly public distribution, then the Company shall be
obligated to include in such Registration Statement only such limited portion of
the Registrable Securities with respect to which such Investor has requested
inclusion hereunder. Any exclusion of Registrable Securities shall be made pro
rata among the Investors seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such
Investors; provided, however, that the Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding securities the
holders of which are not entitled by right to inclusion of securities in such
Registration Statement; and provided further, however, that, after giving effect
to the immediately preceding proviso, any exclusion of Registrable Securities
shall be made pro rata with holders of other securities having the right to
include such securities in the Registration Statement, based on the number of
securities for which registration is requested except to the extent such pro
rata exclusion of such other securities is prohibited under any written
agreement entered into by the Company with the holder of such other securities
prior to the date of this Agreement, in which case such other securities shall
be excluded, if at all, in accordance with the terms of such agreement. No
right to registration of Registrable Securities under this Section 2(d) shall be
construed to limit any registration required under Section 2(a) hereof. The
obligations of the Company under this Section 2(d) may be waived by Investors
holding a majority in interest of the Registrable Securities and shall expire
after the Company has afforded the opportunity for the Investors to exercise
registration rights under this Section 2(d) for two registrations; provided,
however, that any Investor who shall have had any Registrable Securities
excluded from any Registration Statement in accordance with this Section 2(d)
shall be entitled to include in an additional Registration Statement filed by
the Company the Registrable Securities so excluded. Notwithstanding any other
provision of this Agreement, if the Registration Statement required to be filed
pursuant to Section 2(a) of this Agreement shall have been ordered effective by
the SEC and the Company shall have maintained the effectiveness of such
Registration Statement as required by this Agreement and if the Company shall
otherwise have
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<PAGE>
complied in all material respects with its obligations under this Agreement,
then the Company shall not be obligated to register any Registrable Securities
on such Registration Statement referred to in this Section 2(d).
(E) ELIGIBILITY FOR FORM S-3. The Company meets the requirements for
the use of Form S-3 for registration of the Registrable Securities for resale by
the Investors. The Company shall file all reports required to be filed by the
Company with the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration
of the Registrable Securities, the Company shall:
(a) prepare promptly, and file with the SEC not later than 45 days
after the Closing Date, a Registration Statement with respect to the number of
Registrable Securities provided in Section 2(a), and thereafter to use its best
efforts to cause each Registration Statement relating to Registrable Securities
to become effective as soon as possible after such filing, and keep the
Registration Statement effective pursuant to Rule 415 at all times during the
Registration Period; submit to the SEC, within three business days after the
Company learns that no review of the Registration Statement will be made by the
staff of the SEC or that the staff of the SEC has no further comments on the
Registration Statement, as the case may be, a request for acceleration of
effectiveness of the Registration Statement to a time and date not later than 48
hours after the submission of such request; notify the Investors of the
effectiveness of the Registration Statement on the date the Registration
Statement is declared effective; and the Company represents and warrants to, and
covenants and agrees with, the Investors that the Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein), at the time it is first filed with the SEC, at the time it is ordered
effective by the SEC and at all times during which it is required to be
effective hereunder (and each such amendment and supplement at the time it is
filed with the SEC and at all times during which it is available for use in
connection with the offer and sale of the Registrable Securities) 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) prepare and file with the SEC such amendments (including post-
effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
6
<PAGE>
(c) furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel, (1) promptly after the same
is prepared and publicly distributed, filed with the SEC or received by the
Company, one copy of the Registration Statement and any amendment thereto, each
preliminary prospectus and prospectus and each amendment or supplement thereto,
each letter written by or on behalf of the Company to the SEC or the staff of
the SEC and each item of correspondence from the SEC or the staff of the SEC
relating to such Registration Statement (other than any portion of any thereof
which contains information for which the Company has sought confidential
treatment) and (2) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such securities or blue
sky laws of such jurisdictions as the Investors who hold a majority in interest
of the Registrable Securities being offered reasonably request, (ii) prepare and
file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times until the end of
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 (I) to qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (II) to subject itself to general taxation in any such
jurisdiction, (III) to file a general consent to service of process in any such
jurisdiction, (IV) to provide any undertakings that cause more than nominal
expense or burden to the Company or (V) to make any change in its Certificate of
Incorporation or by-laws, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the Company and its
stockholders;
(e) in the event that the Registrable Securities are being offered in
an underwritten offering, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering;
(f) as promptly as practicable after becoming aware of such event or
circumstance, notify each Investor of any event or circumstance of which the
Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which
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<PAGE>
they were made, not misleading, and use its best efforts promptly to prepare a
supplement or amendment to the Registration Statement to correct such untrue
statement or omission, file such supplement or amendment with the SEC at such
time as shall permit the Investors to sell Registrable Securities pursuant to
the Registration Statement as promptly as practicable, and deliver a number of
copies of such supplement or amendment to each Investor as such Investor may
reasonably request;
(g) as promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of any stop order or other suspension of effectiveness of the
Registration Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling
stockholders' counsel by the Investors who hold a majority in interest of the
Registrable Securities being sold to review and comment on the Registration
Statement and all amendments and supplements thereto a reasonable period of time
prior to their filing with the SEC;
(i) make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 under the Securities 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;
(j) at the request of the Investors who hold a majority in interest
of the Registrable Securities being sold, furnish on the date that Registrable
Securities are delivered to an underwriter, if any, for sale in connection with
the Registration Statement (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters; and (ii) an
opinion, dated such date, from counsel representing the Company for purposes of
such Registration Statement, in form and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors;
(k) make available for inspection by any Investor, any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by any such Investor or underwriter
(collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable each Investor to exercise
its due diligence responsibility, and cause the Company's officers, directors
and employees to supply all information which any Inspector may reasonably
request for purposes of such due diligence; provided, however,
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<PAGE>
that each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (ii) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction or (iii)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at the Company's own expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential. The Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the Company
pursuant to Section 4(e) hereof unless (i) disclosure of such information is
necessary to comply with federal or state securities laws, (ii) the disclosure
of such information is necessary to avoid or correct a misstatement or omission
in any Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other order from a court or governmental body of
competent jurisdiction or (iv) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Company agrees that it shall, upon learning that disclosure
of such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to such Investor, at such Investor's own expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information;
(l) use its best efforts (i) to cause all the Registrable Securities
covered by the Registration Statement to be listed on the Nasdaq or such other
principal securities market on which securities of the same class or series
issued by the Company are then listed or traded or (ii) if securities of the
same class or series as the Registrable Securities are not then listed on Nasdaq
or any such other securities market, to cause all of the Registrable Securities
covered by the Registration Statement to be listed on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq SmallCap Market;
(m) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(n) cooperate with the Investors who hold Registrable Securities
being offered and the managing underwriter or underwriters, if any, to
facilitate the timely preparation and delivery
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<PAGE>
of certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request; and, within three business
days after a Registration Statement which includes Registrable Securities is
ordered effective by the SEC, the Company shall deliver to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction
substantially in the form attached hereto as EXHIBIT 1 and shall cause legal
counsel selected by the Company to deliver to the Investors an opinion of such
counsel in the form attached hereto as EXHIBIT 2 (with a copy to the Company's
transfer agent);
(o) during the period the Company is required to maintain
effectiveness of the Registration Statement pursuant to Section 3(a), the
Company shall not bid for or purchase any Common Stock or any right to purchase
Common Stock or attempt to induce any person to purchase any such security or
right if such bid, purchase or attempt would in any way limit the right of the
Investors to sell Registrable Securities by reason of the limitations set forth
in Regulation M under the Exchange Act; and
(p) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investors of the Registrable Securities pursuant
to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
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 shall execute such documents in connection
with such registration as the Company may reasonably request. At least four
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor (the "Requested Information") if any of such Investor's
Registrable Securities are eligible for inclusion in the Registration Statement.
If at least one business day prior to the filing date the Company has not
received the Requested Information from an Investor (a "Non-Responsive
Investor"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor but shall not
be relieved of its obligation to file a Registration Statement with the SEC
relating to the Registrable Securities of such Non-Responsive Investor promptly
after such Non-Responsive Investor provides the Requested Information;
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(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement;
(c) In the event Investors holding a majority in interest of the
Registrable Securities being registered determine to engage the services of an
underwriter, each 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, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement;
(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(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession of the prospectus covering such
Registrable Securities current at the time of receipt of such notice; and
(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 and other fees and expenses of investment
bankers and any manager or managers of such underwriting and legal expenses of
the underwriters applicable with respect to its Registrable Securities, in each
case to the extent not payable by the Company pursuant to the terms of this
Agreement.
5. EXPENSES OF REGISTRATION. All reasonable expenses, other than
underwriting discounts and commissions and other fees and expenses of investment
bankers and other than brokerage commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 3, including,
without limitation, all registration, listing and qualifications fees, printers
11
<PAGE>
and accounting fees and the fees and disbursements of counsel for the Company
and the Investors, shall be borne by the Company, provided, however, that (i)
the Company shall not be obligated to pay the Investors' expenses pursuant to
this Section 5 in excess of the amount equal to the difference between $25,000
and the amount of the Initial Investor's expenses paid by the Company on the
Closing Date pursuant to Section 4(h) of the Subscription Agreement and (ii) the
Investors shall bear the fees and out-of-pocket expenses of the one legal
counsel selected by the Company pursuant to Section 2(b) hereof.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act, any underwriter (as defined in the
Securities Act) for the Investors, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations in the
Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in 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 Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (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 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
12
<PAGE>
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, the prospectus
or any such amendment thereof or supplement thereto, if such prospectus was
timely made available by the Company pursuant to Section 3(c) hereof; (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) hereof; and (III) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of the Company, which 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 of the Registrable Securities by the Investors pursuant to
Section 9.
(b) In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to indemnify and hold
harmless, to the same extent and in the same manner set forth in Section 6(a),
the Company, each of its directors, each of its officers who signs the
Registration Statement, each person, if any, who controls the Company within the
meaning of the Securities Act or the Exchange Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and such Investor will reimburse
any legal or other expenses reasonably incurred by any Indemnified Party in
connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Section 6(b) for only that amount of a Claim as does not
exceed the amount by which the net proceeds to such Investor from the sale of
Registrable Securities pursuant to such Registration Statement exceeds the cost
of such Registrable Securities to such Investor. 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
13
<PAGE>
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 so furnished in writing by such persons
expressly for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to 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 selected by the indemnifying party
but reasonably acceptable to the Indemnified Person or the Indemnified Party, as
the case may be; provided, however, that an Indemnified Person or Indemnified
Party shall have the right to retain its own counsel with the fees 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 Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. In such event, the Company shall pay for only one
separate legal counsel for the Investors; such legal counsel shall be selected
by the Investors holding a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party of
any liability to the Indemnified Person or Indemnified Party under this Section
6, except to the extent that the indemnifying party is prejudiced in its ability
to defend such action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION. To the extent any indemnification 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 (a) 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, (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to
14
<PAGE>
contribution from any seller of Registrable Securities who was not guilty of
such fraudulent misrepresentation and (c) contribution by any seller of
Registrable Securities shall be limited in amount to the amount by which the net
amount of proceeds received by such seller from the sale of such Registrable
Securities exceeds the purchase price paid by such seller for such Registrable
Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities 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 Securities Act and the Exchange Act;
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 and the
Exchange Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company and (iii)
such other information as may be reasonably requested to permit the Investors to
sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of all or any portion
of such securities (or to any transferee of all or any portion of the Preferred
Shares, the Dividend Shares or the Warrants which transfer is permitted by
Section 4(a) of the Subscription Agreement) only if: (a) 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, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) immediately following
such transfer or assignment the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, and (d) at or before the time the Company received the
written notice contemplated by clause (b) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein. In connection with any such transfer the Company shall, at
its sole cost and expense, promptly after such assignment take such actions as
shall be reasonably acceptable to the Initial Investor and such transferee to
assure that the
15
<PAGE>
Registration Statement and related prospectus are available for use by such
transferee for sales of the Registrable Securities in respect of which the
rights to registration have been so assigned. In connection with any such
assignment, each Investor shall have the right to assign to such transferee such
Investor's rights under the Subscription Agreement by notice of such assignment
to the Company. Following such notice of assignment of rights under the
Subscription Agreement, the Company shall be obligated to such transferee to
perform all of its covenants under the Subscription Agreement as if such
transferee were the Buyer under the Subscription Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold a majority in interest of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
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) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission or other means)
(i) if to the Company, at 1850 Parkway Place, Suite 925, Marietta, Georgia
30067, Attention: Chief Executive Officer, telephone line facsimile
transmission number (770) 420-5301, (ii) if to the Initial Investor, c/o Genesee
International, Inc., 10500 N.E. 8th Street, Suite 1920, Bellevue, Washington
98004-4332, telephone line facsimile transmission number (425) 462-4645 and
(iii) if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b), and shall be
effective upon receipt.
(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 shall be enforced, governed by and construed in
accordance with the laws of the State of Colorado applicable to agreements made
and to be performed entirely within such State. In the event that any provision
of this Agreement is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the
16
<PAGE>
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(i) The Company acknowledges that any failure by the Company to
perform its obligations under this Agreement, including, without limitation, the
Company's obligations under Section 3(n), or any delay in such performance could
result in damages to the Investors and the Company agrees that, in addition to
any other liability the Company may have by reason of any such failure or delay,
the Company shall be liable for all direct and consequential damages caused by
any such failure or delay.
(j) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
17
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of day and
year first above written.
UNICOMP, INC.
By: /s/ Stephen A. Hafer
--------------------
Name: Stephen A. Hafer
Title: President
ADVANTAGE FUND II LTD.
By: /s/ T.J. vanDijk
----------------
Name: Inter Caribbean Services Limited
Title: Secretary
18
<PAGE>
EXHIBIT 1
TO
REGISTRATION
RIGHTS AGREEMENT
[Company Letterhead]
[Date]
Corporate Stock Transfer, Inc.,
as Transfer Agent, Warrant Agent and Registrar
Republic Plaza
370 17th Street, Suite 2350
Denver, Colorado 80202-4614
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and direction
to you [(1) to transfer or re-register the certificates for the shares of Common
Stock, $.01 par value (the "Common Stock"), of UniComp, Inc., a Colorado
corporation (the "Company"), represented by certificate numbers _______ and
_______ for an aggregate of _______ shares (the "Outstanding Shares") of Common
Stock presently registered in the name of [Name of Investors] upon surrender of
such certificate(s) to you, notwithstanding the legend appearing on such
certificates, and (2) ]/1/ to issue (a) shares (the "Conversion Shares") of
Common Stock to or upon the order of the holder from time to time on conversion
of the shares (the "Preferred Shares") of Series A Convertible Preferred Stock,
$1.00 par value, of the Company upon receipt by you of a Notice of Conversion of
Series A Convertible Preferred Stock in the form enclosed herewith, and (b)
shares (the "Warrant Shares") of Common Stock to or upon the order of the holder
from time to time on exercise of the Common Stock Purchase Warrants (the
"Warrants") exercisable for Common Stock issued by the Company upon receipt by
you of a Subscription Form from such holder in the form enclosed herewith. [The
transfer or re-registration of the certificates for the Outstanding Shares by
you should be made at such time as you are requested to do so by the record
holder of the Outstanding Shares. The certificate issued upon such transfer or
re-registration should be registered in such name as requested by the holder of
record of the certificate surrendered to you and should not bear any legend
which would restrict the transfer of the shares represented thereby. In
addition, you are hereby directed to
_____________________
/1/
Omit if no conversions of Preferred Stock or exercises of Warrants have
occurred before SEC registration is declared effective.
<PAGE>
remove any stop-transfer instruction relating to the Outstanding Shares.]/1/
Certificates for the Conversion Shares and Warrant Shares should not bear any
restrictive legend and should not be subject to any stop-transfer restriction.
Contemporaneously with the delivery of this letter, the Company is
delivering to you an opinion of __________________________ as to registration of
the resale of [the Outstanding Shares and]/ / the Conversion Shares and Warrant
Shares under the Securities Act of 1933, as amended.
__________________________
/2/
<PAGE>
Should you have any questions concerning this matter, please contact
me.
Very truly yours,
UNICOMP, INC.
By:
Name:
Title:
Enclosures
cc: [Names of Investors]
<PAGE>
EXHIBIT 2
TO
REGISTRATION
RIGHTS AGREEMENT
________ ___, 1998
[Names and Addresses of Investors]
UNICOMP, INC.
SHARES OF COMMON STOCK
---------------------------
Ladies and Gentlemen:
We are counsel to UniComp, Inc., a Colorado corporation (the
"Company"), and we understand that the Company has sold to Advantage Fund II
Ltd. (the "Holder") an aggregate of 3,000 shares (the "Preferred Shares") of the
Company's Series A Convertible Preferred Stock, $1.00 par value (the "Preferred
Stock"), and issued to the Holder Common Stock Purchase Warrants (the
"Warrants"). The Preferred Shares were sold, and the Warrants were issued, to
the Holder pursuant to the Subscription Agreement, dated as of September ___,
1998, by and between the Holder and the Company (the "Subscription Agreement").
Pursuant to the Registration Rights Agreement, dated as of September ___, 1998,
by and between the Company and the Holder (the "Registration Rights Agreement")
entered into in connection with the purchase by the Holder of the Preferred
Shares, the Company agreed with the Holder, among other things, to register for
resale (1) the shares (the "Conversion Shares") of Common Stock issuable upon
conversion of the Preferred Shares and conversion of the shares of Preferred
Stock issuable as dividends on the Preferred Shares and (2) the shares (the
"Warrant Shares") of Common Stock issuable upon exercise of the Warrants under
the Securities Act of 1933, as amended (the "1933 Act"), upon the terms provided
in the Registration Rights Agreement. The Conversion Shares and the Warrant
Shares are referred to herein collectively as the "Shares". Pursuant to the
Registration Rights Agreement, on _________ ___, 1998 the Company filed a
Registration Statement on Form S-3 (File No. 333-__________) (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") relating to
the Shares, which
<PAGE>
names the Holder as the selling stockholder thereunder.
[Other introductory and scope of examination language to be inserted]
Based on the foregoing, we are of the opinion that:
(1) Since the Closing Date, the Company has timely filed with the SEC
all forms, reports and other documents required to be filed with the SEC
under the Securities Exchange Act of 1934, as amended (the "1934 Act"). To
the best of our knowledge, all of such forms, reports and other documents
complied, when filed, in all material respects, with all applicable
requirements of the 1933 Act and the 1934 Act;
(2) The Registration Statement and the Prospectus contained therein
(other than the financial statements and financial schedules and other
financial and statistical information contained or incorporated by
reference therein, as to which we have not been requested to and do not
express any opinion) comply as to form in all material respects with the
applicable requirements of the 1933 Act and the rules and regulations
promulgated thereunder; and
(3) The Registration Statement has become effective under the 1933
Act, to the best of our knowledge after due inquiry, no stop order
proceedings with respect thereto have been instituted or threatened by the
SEC. The Shares have been registered under the 1933 Act and may be resold
by the respective Holders pursuant to the Registration Statement.
Paragraph (3) of this opinion may be relied upon by Corporate Stock
Transfer, Inc., as Transfer Agent, Warrant Agent and Registrar (the "Transfer
Agent"), as if addressed to the Transfer Agent.
Very truly yours,
cc: Corporate Stock Transfer, Inc.,
as Transfer Agent, Warrant Agent and Registrar
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTD FROM (IDENTIFY
SPECIFIC FINANCIAL STATEMENTS HERE): THE COMPANY'S UNAUDITED FINANCIAL
STATEMENTS FOR THE SIX MONTHS ENDED AGUST 31, 1998.
</LEGEND>
<RESTATED>
<CIK> 0000792341
<NAME> UNICOMP, INC.
<MULTIPLIER> 1,000
<CURRENCY> USA
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> AUG-31-1998
<EXCHANGE-RATE> 1
<CASH> 618
<SECURITIES> 0
<RECEIVABLES> 17,410
<ALLOWANCES> 386
<INVENTORY> 4,739
<CURRENT-ASSETS> 23,748
<PP&E> 10,849
<DEPRECIATION> 6,084
<TOTAL-ASSETS> 42,559
<CURRENT-LIABILITIES> 23,771
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> 15,313
<TOTAL-LIABILITY-AND-EQUITY> 42,559
<SALES> 13,484
<TOTAL-REVENUES> 27,628
<CGS> 14,355
<TOTAL-COSTS> 27,438
<OTHER-EXPENSES> 450
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 446
<INCOME-PRETAX> (260)
<INCOME-TAX> 0
<INCOME-CONTINUING> (260)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (260)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
