UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 2)*
PC Etcetera, Inc.
(Name of Issuer)
Common Stock, $.01 par value
(Title of Class of Securities)
693189102
(CUSIP Number)
Law Office of Gregory F.W. Todd, Esq.
101 Park Avenue, 27th Floor, New York, New York 10178
(Name, Address, and Telephone Number of Person
Authorized to Receive Notices and Communications)
October 25, 1996
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition which is the subject of this
Schedule 13D, and is filing this schedule because of Rule
13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement
[ ]. (A fee is not required only if the reporting person: (1)
has a previous statement on file reporting beneficial ownership
of more than five percent of the class of securities described in
Item 1; and (2) has filed no amendment subsequent thereto
reporting beneficial ownership of five percent or less of such
class.) (See Rule 13d-7.)
* The remainder of this cover page shall be filled out for a
reporting person's initial filing on this form with respect to
the subject class of securities, and for any subsequent amendment
containing information which would alter disclosures provided in
a prior cover page.
The information required on the remainder of this cover page
shall not be deemed to be "filed" for the purpose of Section 18
of the Securities Exchange Act of 1934 ("Act") or otherwise
subject to the liabilities of that section of the Act but shall
be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
Rho Management Partners L.P.
2. CHECK THE APPROPRIATE ROW IF A MEMBER OF A GROUP*
*(SEE INSTRUCTIONS) (a) [x]
(b) [ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS*
*(SEE INSTRUCTIONS)
NA
5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(D) OR 2(E) [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
New Jersey
7. SOLE VOTING POWER
686,031 Shares (includes warrants to purchase 286,031
shares)
8. SHARED VOTING POWER
0
9. SOLE DISPOSITIVE POWER
686,031 Shares (includes warrants to purchase 286,031
shares)
10. SHARED DISPOSITIVE POWER
0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
726,031 Shares (includes warrants and options to purchase
326,031 shares)
12. CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* (SEE INSTRUCTIONS)
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
21.0%
14. TYPE OF REPORTING PERSON*
*(SEE INSTRUCTIONS)
PN
<PAGE>
1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
Rho Management Trust I
2. CHECK THE APPROPRIATE ROW IF A MEMBER OF A GROUP*
*(SEE INSTRUCTIONS) (a) [x]
(b) [ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS*
*(SEE INSTRUCTIONS)
WC
5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(D) OR 2(E) [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
New York
7. SOLE VOTING POWER
0
8. SHARED VOTING POWER
686,031 Shares (includes warrants to purchase 286,031
shares)
9. SOLE DISPOSITIVE POWER
0
10. SHARED DISPOSITIVE POWER
686,031 Shares (includes warrants to purchase 286,031
shares)
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
726,031 Shares (includes warrants and options to purchase
326,031 shares)
12. CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
(SEE INSTRUCTIONS)
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
21.0%
14. TYPE OF REPORTING PERSON*
(SEE INSTRUCTIONS)
OO
<PAGE>
1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
Joshua Ruch
2. CHECK THE APPROPRIATE ROW IF A MEMBER OF A GROUP*
*(SEE INSTRUCTIONS) (a) [x]
(b) [ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS*
*(SEE INSTRUCTIONS)
NA
5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(D) OR 2(E) [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Republic of South Africa
7. SOLE VOTING POWER
0
8. SHARED VOTING POWER
686,031 Shares (includes warrants to purchase 286,031
shares)
9. SOLE DISPOSITIVE POWER
0
10. SHARED DISPOSITIVE POWER
686,031 Shares (includes warrants to purchase 286,031
shares)
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
726,031 Shares (includes warrants and options to purchase
326,031 shares)
12. CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
(SEE INSTRUCTIONS)
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
21.0%
14. TYPE OF REPORTING PERSON*
(SEE INSTRUCTIONS)
IN
<PAGE>
1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
Cadence Information Associates L.L.C.
2. CHECK THE APPROPRIATE ROW IF A MEMBER OF A GROUP*
*(SEE INSTRUCTIONS) (a) [x]
(b) [ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS*
*(SEE INSTRUCTIONS)
NA
5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(D) OR 2(E) [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7. SOLE VOTING POWER
40,000 Shares (consisting entirely of options to purchase )
8. SHARED VOTING POWER
0
9. SOLE DISPOSITIVE POWER
40,000 Shares (consisting entirely of options to purchase)
10. SHARED DISPOSITIVE POWER
0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
726,031 Shares (includes warrants and options to purchase
326,031 shares)
12. CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES*
(SEE INSTRUCTIONS)
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
21.0%
14. TYPE OF REPORTING PERSON*
(SEE INSTRUCTIONS)
OO
<PAGE>
This Amendment No. 2 to Schedule 13D for PC Etcetera, Inc.,
a Delaware corporation (the "Company"), amends a statement on
Schedule 13D dated March 15, 1995, as amended by Amendment No. 1,
dated May 15, 1995, with respect to shares of Common Stock, par
value $.01 per share, of the Company beneficially owned by Rho
Management Trust I (also known as Gibraltar Trust), Rho
Management Partners L.P., Joshua Ruch and Cadence Information
Associates L.L.C. Because this is the first electronically filed
amendment to the reporting persons' Schedule 13D previously filed
in paper format, pursuant to the Commission's Rule 13d-2(c) this
Amendment restates the entire text of the statement on Schedule
13D presently in effect.
Item 1. Security and Issuer
The class of securities to which this statement on Schedule
13D relates is the Common Stock, par value $0.01 per share (the
"Shares"), of PC Etcetera, Inc., a Delaware corporation. The
Company has its principal executive offices at 462 Seventh
Avenue, New York, New York 10018.
Item 2. Identity and Background
(a-c), (f) This Statement is being filed by Rho Management
Partners L.P., a New Jersey limited partnership ("Rho"), whose
address is 767 Fifth Avenue, New York, New York 10153. Rho is
investment advisor to Rho Management Trust I, a New York grantor
trust (also known as Gibraltar Trust; hereafter, the "Trust"),
which is the registered owner of the Shares. Pursuant to an
investment advisory agreement between Rho and the Trust, Rho has
sole investment discretion and voting authority with respect to
the Shares.
This Statement is also being filed by the Trust, as
registered owner of the Shares, and by Joshua Ruch. Joshua Ruch
is the controlling stockholder of Atlas Capital Corp., a Delaware
corporation ("Atlas"), which is the sole general partner of Rho.
In addition, Joshua Ruch is the Chairman, CEO and controlling
stockholder of Rho Management Company, Inc., a New York
corporation ("RMC"), to which certain advisory duties concerning
the Shares may be delegated by Rho. In such capacities, Joshua
Ruch exercises voting control and dispositive power over the
Shares reported herein by Rho. Joshua Ruch therefore may be
deemed to have indirect beneficial ownership over such Shares.
The address of Rho, the Trust and Mr. Ruch is c/o Rho, 767
Fifth Avenue, New York, New York 10153. The trustee of the Trust
is William F. Indoe, Esq., whose address is Sullivan & Cromwell,
125 Broad Street, New York, New York 10004. The executive
officers of Atlas and RMC are Joshua Ruch, Chairman & CEO; Habib
Kairouz, Vice President; and Peter Kalkanis, Chief Financial
Officer. The address of each of such officer is c/o Rho, 767
Fifth Avenue, New York, New York 10153. Mr. Ruch is a citizen of
the Republic of South Africa, Mr. Kairouz is a citizen of Lebanon
and Mr. Kalkanis is a citizen of the United States. The
directors of Atlas and RMC are Joshua Ruch and William F. Indoe.
In addition, this Statement is also is also being filed by
Cadence Information Associates L.L.C. ("Cadence"). Cadence is a
Delaware limited liability company, with its address at 767 Fifth
Avenue, New York, New York 10153. Cadence's principal business
is business consulting. The Manager and sole executive officer
of Cadence is Martin F. Kahn, a New York resident and a U.S.
citizen, with his address c/o Cadence. Mr. Kahn is also a member
with a 50% membership interest in Cadence. In addition, Mr. Kahn
is a director and Chairman of the Board of PC Etcetera, Inc.
(d)-(e) During the last five years, none of Rho, the Trust,
Joshua Ruch, Cadence or, to the best of their knowledge, any of
the executive officers of Atlas, RMC or Cadence, has been
convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors), or has been a party to a civil
proceeding of a judicial or administrative body of competent
jurisdiction as a result of which any of the foregoing was or is
subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with
respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration
The Trust acquired 333,333 Shares, and a warrant to purchase
166,667 Shares, in a private placement closing on March 15, 1995
pursuant to a Stock Purchase Agreement, dated as of March 15,
1995 (the "Stock Purchase Agreement") among the Company, the
Trust and six other purchasers. The total consideration paid by
the Trust was $500,000. The source of funds for the purchase was
working capital.
Cadence acquired an option to purchase Shares pursuant to an
award granted on May 15, 1995 under the Company's 1987 Stock
Option Plan (the "Plan"). Under the Plan Cadence received an
option to purchase 100,000 Shares, at an exercise price of $5.00
per Share, vesting over the next five years. Pursuant to the
Plan, an option to purchase 20,000 Shares vested on May 15, 1995
and an option to purchase an additional 20,000 Shares vested on
May 15, 1996. Options for the remaining 60,000 Shares will vest
on May 15 of each of the next three years at a rate of 20,000
Shares per year. No monetary consideration has been paid by
Cadence for the options, which have been awarded for consulting
services.
The Trust subsequently acquired a warrant to purchase 18,750
Shares, subject to anti-dilution adjustments, pursuant to a Loan
and Registration Rights Agreement, dated as of December 5, 1995
(the "December 1995 Loan") among the Company, the Trust, and
several other lenders. In addition, the Trust acquired an
additional warrant to purchase 4,687 Shares on the six-month
anniversary of the making of the December 1995 Loan.
The Trust became entitled, as of December 31, 1995, to
an additional 66,666 Shares and a warrant to purchase 33,701
Shares, subject to anti-dilution adjustments, as a result of the
Company's failure to obtain effectiveness for an S-2 registration
statement by such date pursuant to the Stock Purchase Agreement.
On October 25, 1996, the Trust acquired a warrant to
purchase 50,000 Shares in connection with its agreement to make
loans to the Company pursuant to a Loan and Registration Rights
Agreement, dated as of October 25, 1996, among the Company, the
Trust and two other lenders (the "October 1996 Loan and
Registration Rights Agreement"). The Trust also became entitled
to receive or to purchase a further 12,227 Shares pursuant to the
anti-dilution provisions of the Stock Purchase Agreement and
warrants issued in connection with the December 1995 Loan.
Item 4. Purpose of Transaction
The Shares have been acquired by Rho on behalf of the Trust
solely for investment purposes. Rho may, subject to market
conditions and its assessment of business prospects of the
Company, cause the Trust to acquire additional Shares from time
to time, through open market and/or privately negotiated
transactions, as Rho determines in its discretion. Rho may,
however, determine at any time to cease effecting such purchases
and/or to dispose of all or a portion of the Shares owned by the
Trust. The Stock Purchase Agreement referred to in Item 3 above
permits the Trust to consult with management, to examine the
records of the Company and to designate one representative who
shall be entitled to attend, in a nonvoting observer capacity,
meetings of the Company's Board of Directors, provided that such
right shall terminate if the Trust holds less than 10% of the
Common Stock of the Company. In addition, the Managing Director of
Cadence, Martin F. Kahn, is Chairman of the board of directors of
the Company, and as such participates in the formulation,
determination and direction of business policies of the Company.
Rho will continue to evaluate the business and business
prospects of the Company, and its present and future interest in,
and intentions with respect to, the Company, and in connection
therewith may from time to time consult with management and other
shareholders of the Company. Other than as discussed above, Rho
currently has no plans to effect any of the transactions required
to be described in Item 4 of Schedule D.
Item 5. Interest in Securities of the Issuer
(a)-(c) As the holder of sole voting and investment
authority over the Shares owned by the Trust, Rho may be deemed
to be the beneficial owner of all of the 686,031 Shares owned by
the Trust, representing 19.9% of the Company's 3,127,462 Shares
outstanding as of October 29, 1996 (based upon information
obtained from officials of the Company as of such date), and
after giving effect to Shares subject to options, warrants,
rights or convertible securities owned by the reporting persons.
As the controlling person of Rho, Mr. Ruch may also be deemed the
beneficial owner of such Shares. Rho disclaims any economic
interest or beneficial ownership of Shares covered by this
Statement. Mr. Ruch holds an indirect interest in 54,882 Shares
(including warrants for 22,882 Shares) as a result of holdings
through the Trust, but otherwise disclaims any economic interest
or beneficial ownership of Shares covered by this Statement.
Because of their on-going business relationship, Cadence may
be deemed with respect to this investment to constitute a "group"
with Rho, the Trust and Joshua Ruch, pursuant to Rule 13d-5(b)
under the Securities and Exchange Act of 1934, as amended, with
respect to the Shares beneficially owned by them. In such case,
each of such persons would be deemed beneficially to own all
Shares owned collectively by the members of such group, for an
aggregate of 726,031 Shares, or 21.0% of the Company's
outstanding shares of Common Stock as of October 29, 1996 (based
on information obtained from officials of the Company as of such
date), and after giving effect to Shares subject to options,
warrants, rights or convertible securities owned by the reporting
persons.
Item 6. Contracts, Arrangements, Understandings or
Relationships with Respect to Securities of the Issuer
The Trust is entitled, pursuant to the Loan and Registration
Rights Agreement, dated as of December 5, 1995, and the October
1996 Loan and Registration Rights Agreement, to register certain
Shares in a public offering in certain situations.
Item 7. Material to be Filed as Exhibits
The Stock Purchase Agreement, the October 1996 Loan and
Registration Rights Agreement, the Promissory Note issued in
connection with the October 1996 Loan and Registration Rights
Agreement, and the Common Stock Warrant issued in connection with
the October 1996 Loan and Registration Rights Agreement, are
attached as exhibits hereto.
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
Dated: November 5, 1996
RHO MANAGEMENT PARTNERS L.P.
By: ATLAS CAPITAL CORP., its
General Partner
By: /s/ Joshua Ruch
Title: President
RHO MANAGEMENT TRUST I
By: RHO MANAGEMENT COMPANY, INC.
as Investment Advisor
By: /s/ Joshua Ruch
Title: President
JOSHUA RUCH
/s/ Joshua Ruch
CADENCE INFORMATION
ASSOCIATES L.L.C.
By: /s/ Martin F. Kahn
Title: Managing Director
<PAGE>
Exhibit Index
1. Stock Purchase Agreement Exhibit 1
2. October 1996 Loan and
Registration Rights Agreement Exhibit 2
3. October 1996 Promissory Note Exhibit 3
4. Common Stock Purchase Warrant Exhibit 4
<PAGE>
Exhibit 1. Stock Purchase Agreement
STOCK PURCHASE AGREEMENT dated as of March 15, 1995 (the
"Agreement") by and among PC ETCETERA, INC., a Delaware
corporation ("PC"), and those entities whose names appear on
Schedule A attached hereto (collectively, the "Purchasers").
Upon the terms and conditions hereinafter set forth, the
Purchasers desire to purchase from PC, and PC desires to issue to
the Purchasers, shares of Preferred Stock of PC.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Purchase and Sale of Stock. Simultaneously herewith, PC is
issuing to the Purchasers, in the amounts set forth on Schedule A
attached hereto, certificates representing an aggregate of one
million (1,000,000) shares of Series B preferred Stock, par value
$.001 per share, of PC having the rights, preferences and
limitations set forth in PC's Certificate of Designations with
regard thereto (the "Certificate of Designations") (the "Series B
preferred Stock"). Notwithstanding the foregoing, PC shall not
be obligated to issue any such certificates to the Purchasers
unless and until it shall have received the aggregate purchase
Price (as hereinafter defined) for the Series B preferred Stock
in accordance with the provisions of Section 1.2 hereof.
1.2 Purchase Price. The purchase price for the Series B
preferred Stock (the "Purchase Price") is one dollar and fifty
cents ($1.50) per share (an aggregate purchase Price of one
million five hundred thousand dollars ($1,500,000)).
Simultaneously herewith, each Purchaser is paying its pro rata
share of the aggregate purchase Price for its respective shares
of Series B preferred Stock in cash or by wire transfer in
immediately available funds. The $250,000 aggregate purchase
Price for the Series B Preferred Stock being purchased by Justy
Ltd. ("Justy") and Yozma Venture Capital Ltd. ("Yozma") (the
"Justy/Yozma Proceeds") shall be paid by wire transfer to a bank
account established by PC in Israel, shall be paid in New Israel
Sheqels, in an amount calculated at the representative rate of
exchange to the United States dollar published by the Bank of
Israel as in effect at the time of transfer, and shall
immediately be transferred to PC Israel (as hereinafter defined).
The remaining $1,250,000 purchase Price shall be paid by the
other purchasers in cash or by wire transfer to a bank account of
PC in New York, New York and shall be paid in United States
dollars.
1.3 Warrants. In consideration of the purchase of the Series B
preferred Stock, simultaneously herewith, PC is issuing and
delivering to the purchasers, in the proportions set forth on
Schedule A attached hereto, four year warrants (the "Warrants")
for the purchase of an aggregate of two million five hundred
thousand (2,500,000) shares of common stock, par value $.01 per
share, of PC (the "Common Stock") at an exercise price of fifty-
five cents ($.55) per share, subject to adjustment as set forth
therein. All shares of Common Stock now or hereafter issuable
pursuant to the Warrants shall hereinafter be referred to as the
"Warrant Stock". Notwithstanding the foregoing, PC shall not be
obligated to issue any Warrants to the Purchasers unless and
until it shall have received the aggregate Purchase Price for the
Series B Preferred Stock in accordance with the provisions of
Section 1.2 hereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PC
PC makes the following representations and warranties to the
purchasers:
2.1 Valid Corporate Existence. PC is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware. PC has the requisite corporate power
to carry on its business as now conducted and to own its assets.
PC is qualified to do business as a foreign corporation in each
jurisdiction in which it is required to be so qualified. The
copies of PC's Certificate of Incorporation, Certificate of
Designations and By-laws, each as amended to date (each as
certified by the Secretary of PC), which have heretofore been
delivered to the purchasers, are true and complete copies of such
documents as now in effect.
2.2 Capitalization.
(a) The authorized capital stock of PC consists of
15,000,000 shares of Common Stock, of which 9,637,308 shares are
issued and outstanding, and 5,000,000 shares of preferred Stock,
of which 1,000,000 shares of Series A preferred Stock, par value
$.001 per share, are issued and outstanding. All the issued and
outstanding shares of Common Stock and Preferred Stock have been
validly issued and fully paid and are nonassessable.
(b) The Series B preferred Stock has been duly and validly
authorized and, when issued and delivered, will be duly and
validly issued, fully paid and nonassessable. Subject to the
filing of a Certificate of Amendment to PC's Certificate of
Incorporation as contemplated by Section 6.1 hereof (the
"Certificate of Amendment"), the shares of Common Stock issuable
upon conversion of the Series B preferred Stock (the "Conversion
Stock") have been duly and validly authorized and, upon
conversion in accordance with the terms of the Certificate of
Designations, will be duly and validly issued, fully paid and
nonassessable. Subject to the filing of the Certificate of
Amendment, the Warrant Stock has been duly and validly authorized
and, when issued upon payment in full of the exercise price in
accordance with the terms of the Warrants, will be duly and
validly issued, fully paid and nonassessable.
(c) Except as set forth in Schedule 2.2 attached hereto,
there are no commitments to which PC is a party, or by which it
is bound, calling for the issuance, sale or other disposition of
any class of securities of PC and there are no outstanding
securities of PC convertible or exchangeable into shares of
Common Stock or any other securities of PC.
(d) Subject to the filing of the Certificate of Amendment,
the shares of Common Stock issuable by PC pursuant to Sections
5.6 and 6.3 hereof (collectively, the "Contingent Stock") have
been duly and validly authorized for issuance and, when issued
and delivered (subject to any required payments therefor), will
be duly and validly issued, fully paid and nonassessable.
2.3 Subsidiaries. Schedule 2.3 attached hereto sets forth a
complete list of the names and jurisdictions of incorporation of
all corporations and other business entities owned by PC
(collectively, the "Subsidiaries"). Each of the Subsidiaries is
a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation
and has the requisite corporate power to carry on its business as
now conducted and to own its assets. Each Subsidiary is qualified
to do business as a foreign corporation in each jurisdiction in
which it is required to be so qualified. All the outstanding
capital stock or other voting interests of each of the
Subsidiaries is owned by PC.
2.4 Consents. Except for the requisite approval by PC's
stockholders of the Certificate of Amendment, no filings with or
consents of governmental or other regulatory agencies, foreign or
domestic, or of other parties are required to be made or received
by or on the part of PC to enable it to enter into and carry out
this Agreement and the transactions contemplated hereby,
including without limitation, the issuance by PC of the Series B
Preferred Stock, the Warrant Stock, the Conversion Stock and the
Contingent Stock.
2.5 Authority; Binding Nature of Agreement. PC has the requisite
corporate power to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by the Board of Directors of PC
and, except for the approval of the Certificate of Amendment by
the stockholders of PC, no other corporate proceedings on the
part of PC, including, without limitation, stockholder approval,
are necessary to authorize the execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby. This Agreement constitutes the valid and binding
obligation of PC and is enforceable against PC in accordance with
its terms.
2.6 SEC Reports. PC has previously delivered to the Purchasers
true and complete copies and, as applicable, amendments thereto,
of (i) its Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1993; (ii) its Quarterly Report on Form 10-QSB for
the periods ended March 31, 1994, June 30, 1994 and September 30,
1994; (iii) its Current Report on Form 8-K for events dated May
31, 1994, August 12, 1994 and December 16, 1994; and (iv) its
proxy statement dated November 17, 1994 (collectively, "PC's SEC
Reports"). All of PC's SEC Reports were timely filed with the
Securities and Exchange Commission (the "SEC"), and PC has timely
filed with the SEC all reports required to be filed by PC under
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") since January 1, 1992. None of PC's SEC Reports, or any
other reports or documents filed by PC with the SEC with respect
to which PC may be subject to liability, contains any untrue
statement of a material fact, or omits to state any material fact
required to be stated therein or necessary to make the statements
made therein not materially misleading.
2.7 Adverse Developments. Except for the operating losses for
the fourth quarter of the fiscal year ended December 31, 1994
which have continued into the first quarter of the fiscal year
ending December 31, 1995, as disclosed to the purchasers, since
September 30, 1994, there have been no material adverse changes
in the operations or financial condition of PC and the
Subsidiaries taken as a whole.
2.8 Use of Proceeds. The proceeds from the sale of the Series B
preferred Stock will be used in connection with computer-based
training ("CBT") research and development (approximately
$500,000), CBT promotion (approximately $500,000) and for working
capital purposes (approximately $500,000, of which no more than
$200,000, plus interest at the rate of 16% per annum, will be
used to repay a bridge loan made to PC in January, 1995).
Immediately following the receipt of the Justy/Yozma proceeds,
they will be transferred by PC to its Subsidiary, PC Etcetera
Israel Ltd. ("PC Israel"), for research and development and other
business purposes, and PC will exercise its control of PC Israel
so as to ensure that PC Israel uses such funds for purposes
directly related to projects carried on by PC Israel.
2.9 Material Contracts. Neither PC nor any Subsidiary is in
violation of any loan agreement or other material agreement to
which it is a party or by which any of its assets are bound, the
violation of which would have a material adverse effect upon PC
and the Subsidiaries taken as a whole.
2.10 No Breach. Neither the execution and delivery of this
Agreement nor compliance by PC with any of the provisions hereof
nor the consummation of the transactions contemplated hereby
will:
(a) violate or conflict with any provision of the
Certificate of Incorporation or By-laws, each as amended to date,
of PC;
(b) violate or result in the breach of the terms of any
agreement to which PC or any Subsidiary is a party or by which it
or any of them are bound, the violation or breach of which would
have a material adverse effect on PC and the Subsidiaries taken
as a whole;
(c) violate any judgment, order, injunction, decree or
award against, or binding upon, PC or any Subsidiary;
(d) violate any law or regulation of any jurisdiction
relating to PC, the violation of which would have a material
adverse effect on PC;
(e) result in the creation of any security interest or
other encumbrance upon any of the properties or assets of PC or
any Subsidiary, the creation of which would have a material
adverse effect upon PC and the Subsidiaries taken as a whole;
(f) result in a reduction in the exercise price of any
rights, options or warrants for the purchase of, or a reduction
in the conversion or exchange price of any convertible or
exchangeable securities for the acquisition of, shares of Common
Stock; or
(g) result in the issuance of any additional shares of
Common Stock pursuant to any (i) rights, options or warrants,
(ii) convertible or exchangeable securities or (iii) preemptive
or other similar rights.
2.11 Brokers. PC has not engaged, consented to, or authorized any
broker, finder, investment banker or other third party to act on
its behalf, directly or indirectly, as a broker or finder in
connection with the transactions contemplated by this Agreement.
2.12 Registration Statement. To the best of PC's knowledge, there
exist no facts or circumstances that would inhibit or delay the
preparation and filing of a shelf registration statement with
respect to the Conversion Stock and the Warrant Stock in
accordance with Article V hereof. The Common Stock is, and the
Conversion Stock and Warrant Stock will be, registered under
Section 12(g) of the Exchange Act.
2.13 No Material Misstatement. No representation or warranty by
PC in this Agreement contains, and no statement of PC contained
in any document, certificate or other writing furnished to any
Purchaser in connection with the transactions contemplated hereby
at the time furnished contained, any untrue statement of a
material fact or omits or omitted, as the case may be, to state
any material fact required to be stated therein or necessary to
make the statements made therein not materially misleading.
2.14 Approval of Certificates of Amendment. PC has heretofore
obtained from stockholders of PC holding a sufficient number of
shares of Common Stock (when considered with and assuming the
affirmative vote of the holders of the Series B Preferred Stock)
necessary for approval of the Certificate of Amendment (as more
fully described in Section 6.1 hereof) their written commitments
to the purchasers to vote in favor of such Certificate of
Amendment (subject to their receipt of solicitation materials
from PC prepared in accordance with the requirements of the
Exchange Act and the rules and regulations promulgated
thereunder).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
Each purchaser makes the following representations and warranties
to PC with respect to itself:
3.1 Valid Existence. Each corporate Purchaser is a corporation
duly organized, validly existing and in good standing under the
laws of its state or jurisdiction of incorporation.
Each partnership or trust Purchaser is a partnership or trust
duly organized and validly existing under the laws of its state
or jurisdiction of organization. Except for Justy (which is 100%
beneficially owned by Star Management of Investments (1993)
Limited partnership ("Star")), no Purchaser has been formed for
the purpose of making a purchase of the Series B preferred Stock
and, other than Justy, each has been in existence for a period of
at least ninety (90) days.
3.2 Authority: Binding Nature of Agreement. Each Purchaser has
the requisite power to enter into this Agreement and to carry out
its obligations hereunder. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by the board of directors of
each corporate purchaser, the general partners of each
partnership purchaser and the trustees of each trust purchaser
and no other proceedings on the part of any purchaser, including,
without limitation, stockholder, limited partner, grantor or
beneficiary approval, are necessary to authorize the execution
and delivery of this Agreement and the consummation of the
transactions contemplated hereby. This Agreement constitutes the
valid and binding obligation of each Purchaser and is enforceable
in accordance with its terms.
3.3 Consents. No filings with or consents of governmental or
other regulatory agencies, foreign or domestic, or of other
parties are required to be made or received by or on the part of
any purchaser to enable it to enter into and carry out this
Agreement and the transactions contemplated hereby.
3.4 No Breach. Neither the execution and delivery of this
Agreement nor compliance by any purchaser with any of the
provisions hereof nor the consummation of the transactions
contemplated hereby will:
(a) violate or conflict with any provision of the
certificate of incorporation, by-laws, partnership agreement or
declaration of trust of any purchaser;
(b) violate or result in the breach of any material
agreement to which any Purchaser is a party or by which it is
bound;
(c) violate any judgment, order, injunction, decree or
award against, or binding upon, any Purchaser; or
(d) violate any law or regulation of any jurisdiction
relating to any Purchaser.
3.5 Brokers. No Purchaser has engaged, consented to, or
authorized any broker, finder, investment banker or other third
party to act on its behalf, directly or indirectly, as a broker
or finder in connection with the transactions contemplated by
this Agreement.
ARTICLE IV
ACQUISITION OF SECURITIES
Each Purchaser makes the following representations and warranties
to PC with respect to itself (and, in the case of a trust
purchaser, with respect to any grantors for which it may be
considered a nominee):
4.1 Investment Representations.
(a) Each purchaser is acquiring the Series B preferred
Stock and the Warrants and, in the event of a conversion of the
Series B Preferred Stock and/or an exercise of the Warrants
and/or the receipt of the Contingent Stock, will be acquiring the
Conversion Stock, the Warrant Stock and the Contingent Stock, for
its own account, and not as a nominee or agent (except in the
case of a trust purchaser to the extent the trust may be
considered a nominee for its grantors, which, in number, do not
exceed five (5)), and will not resell or otherwise distribute any
of such securities except in compliance with the Securities Act
of 1933, as amended (the "Securities Act").
(b) Each purchaser understands that neither the Series B
preferred Stock nor the Warrants nor the Conversion Stock nor the
Warrant Stock nor the Contingent Stock (collectively, the
"Securities") have been registered under the Securities Act or
any state securities laws and, except as provided for in Article
V and Section 6.3 hereof, there is no agreement on the part of PC
to register any of the Securities thereunder.
(c) Each purchaser acknowledges and agrees that none of the
Securities may be sold, pledged, transferred, assigned, or
otherwise disposed of unless they are registered under the
Securities Act and applicable state securities laws or unless an
exemption from such registration is available. Each Purchaser
further acknowledges and agrees that, as a condition to the
transfer or other disposition of any of the Securities, PC may
require that the request for transfer be accompanied by an
opinion of counsel, in form and substance reasonably satisfactory
to PC and its counsel, to the effect that the proposed transfer
does not result in a violation of the Securities Act and any
applicable state securities laws. Each Purchaser understands
that each certificate representing any of the Securities will
bear the following legend:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended, or
the securities laws of any state. The securities may not be
sold, pledged, transferred, assigned or otherwise disposed of in
the absence of an effective registration statement under such Act
and any applicable state securities laws covering such
securities, or an opinion of counsel reasonably satisfactory to
PC that such registration is not required."
4.2 Additional Representations.
(a) Each purchaser is able to bear the economic risks of an
investment in each of the Securities, including, without
limitation, the risk of the loss of part or all of its investment
and the inability to sell or transfer the Securities until such
Securities are registered under the Securities Act or an
exemption from registration is available; subject, however, to
PC's obligation to effect the registration of the Conversion
Stock, the Warrant Stock and the Contingent Stock under the
Securities Act in accordance with Article V and Section 6.3
hereof.
(b) Each purchaser is an "accredited investor", as such
term is defined in Rule 501(a), promulgated under the Securities
Act, or it, alone or with its purchaser representative, if any,
has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of
an investment in each of the Securities. Each Purchaser will
execute and deliver to PC such documents as PC may reasonably
request in order to confirm the accuracy of the foregoing.
(c) Each Purchaser and its purchaser representative, if
any, have reviewed PC's SEC Reports and have been afforded the
opportunity to obtain such other information as such Purchaser
requested from PC in order to evaluate the merits and risks of an
investment in each of the Securities.
(d) No board of directors of any corporate Purchaser, no
general partner of any partnership Purchaser and no trustee of
any trust Purchaser has adopted any resolutions or made any
determination relative to the distribution of any of the
Securities to its stockholders, partners, grantors or
beneficiaries and has no present intention to do so.
4.3 Risk Factors. Each Purchaser acknowledges that there are
significant risks relating to an acquisition of the Securities,
including, without limitation, the incurrence of operating losses
by PC during the fourth quarter of 1994, the year ended December
31, 1994 and the first quarter (to date) of the year ending
December 31, 1995.
ARTICLE V
REGISTRATION OBLIGATION
5.1 Registration Obligation. PC agrees that, on or before the
earlier of (a) the date on which PC's shares of Common Stock are
listed for trading on NASDAQ (but in no event before the later of
April 30, 1995 or the filing of the Certificate of Amendment with
the Secretary of State of Delaware) or (b) June 30, 1995, it
shall file a registration statement under the Securities Act and
shall include therein, for resale by the Purchasers, all of the
Conversion Stock and the Warrant Stock (collectively, the
"Registration Stock").
5.2 Obligations of PC.
(a) As to the registration statement referred to in Section
5.1, PC shall:
(i) use its best efforts to have such registration
statement declared effective as promptly as reasonably
practicable and shall promptly notify the Purchasers and the
underwriters, if any, for the Purchasers, and confirm such advice
in writing, (I) when such registration statement becomes
effective, (II) when any post-effective amendment to any such
registration statement becomes effective, and (III) of any
request by the SEC for any amendment or supplement to such
registration statement or any prospectus relating thereto or for
additional information;
(ii) furnish to the Purchasers or the underwriters for the
Purchasers, if any, or other securities firms designated by the
purchasers, if any, such reasonable number of copies of any
prospectus (including any supplemental or preliminary prospectus)
as may be reasonably necessary in order to effect the offering
and sale of the Registration Stock being offered and sold by the
purchasers, but only while PC is required under the provisions
hereof to cause the registration statement to remain current;
(iii) qualify, not later than the effective date of such
registration statement, the Registration Stock registered
thereunder under the "blue sky" laws of such states as the
Purchasers may reasonably request; provided, however, that in no
event shall PC be obligated to qualify as a foreign corporation
or as a dealer in securities or to execute or file any general
consent to service of process under the laws of any such state
where it is not at such time so qualified or subject;
(iv) until the earlier of (I) the sale of all the
Registration Stock or (II) seven (7) months following the
expiration date for the exercise of the Warrants, from time to
time amend or supplement the registration statement and the
prospectus in connection therewith to the extent necessary to
permit the completion of the sale of the Registration Stock for
which such registration statement shall have become effective
within said period in compliance with the Securities Act and the
rules and regulations promulgated thereunder.
(b) If at any time the SEC should institute or threaten to
institute any proceedings for the purpose of issuing, or should
issue, a stop order suspending the effectiveness of any
registration statement referred to in Section 5.1, PC shall
notify the Purchasers and shall use its best efforts to prevent
the issuance of any such stop order or to obtain the withdrawal
thereof as soon as possible. PC shall advise the Purchasers of
any order or communication of any public board or body addressed
to PC suspending or threatening to suspend the qualification of
any of the Registration Stock for sale in any jurisdiction. In
the event that the effectiveness of such registration statement
shall be suspended, PC shall extend the period during which such
registration statement shall be maintained effective, pursuant to
Section 5.2(a) (iv) hereof, by the number of days during the
period from and including the date of such suspension to the date
when such suspension shall be removed or terminated.
(c) PC shall, if requested, prior to filing a registration
statement referred to in Section 5.1 or prospectus or any
amendment or supplement thereof, furnish to each Purchaser and
each underwriter, if any, of the Registration Stock covered by
such registration statement, prospectus, amendment or supplement,
copies of such registration statement, prospectus, amendment or
supplement as proposed to be filed by PC.
5.3 Expenses. Except as provided below, the expenses of the
registration statement pursuant to Section 5.1, and the state
qualifications related thereto pursuant to Section 5.2(a)(iii),
shall be borne by PC. The expenses of any such registration and
qualifications shall include, but not be limited to (A) the fees
and expenses of PC's counsel and its accountants; (B) all other
out-of-pocket costs and expenses of PC incident to the
preparation, printing and filing under the Securities Act of the
registration statement and all amendments and supplements
thereto; (C) the cost of furnishing copies of each preliminary
prospectus, each final prospectus and each amendment or
supplement thereto to the Purchasers and each underwriter, if
any; and (D) the costs and expenses incurred in connection with
the qualification of such securities so registered under the
"blue sky" laws of various jurisdictions. However, under no
circumstances shall PC be liable or responsible for the fees and
expenses of the Purchasers, or of any of their counsel, incurred
in connection with any registration or for underwriting or
brokerage discounts and commissions or transfer taxes payable in
connection with any sale of the Registration Stock included in a
registration statement.
5.4 Indemnification.
(a) PC hereby agrees to indemnify, hold harmless and defend
the Purchasers, and each of them, any underwriter (as such term
is defined in the Securities Act) for the Purchasers, any broker
or dealer to or through whom the Purchasers sell Registration
Stock that may be deemed to be an underwriter and each person, if
any, that controls (within the meaning of the Securities Act) any
of the Purchasers or any such underwriter, broker or dealer
against any and all losses, claims, damages, liabilities and
expenses (including reasonable counsel fees and expenses) to
which any such persons may be subject under the Securities Act or
otherwise, insofar as such losses, claims, damages, liabilities
and expenses (including reasonable counsel fees and expenses)
arise out of or are based upon any untrue statement of a material
fact contained in any registration statement under which the
Registration Stock was registered under the Securities Act
pursuant to this Article, any prospectus contained therein, or
any amendment or supplement thereto, or arise out of or are based
upon the omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of or are based upon
information furnished in writing to PC by any Purchaser or any
underwriter or representative for a Purchaser, which writing
specifies that the information be included in the registration
statement. Each Purchaser hereby agrees to indemnify, hold
harmless and defend PC, its directors, officers, agents and
representatives, and each person, if any, that controls (within
the meaning of the Securities Act) PC against any losses, claims,
damages, liabilities and expenses (including reasonable counsel
fees and expenses) to which any of such persons may be subject
under the Securities Act or otherwise, but only to the extent
caused by an untrue statement or omission of a material fact in
any registration statement under which the Registration Stock was
registered under the Securities Act, any prospectus contained
therein, or any amendment or supplement thereto, which was based
solely upon information furnished in writing to PC by such
Purchaser or any underwriter or representative for such
Purchaser, which writing specifies that the information be
included in the registration statement.
(b) In the event that any claim, demand, investigation or
action for which an indemnifying party would be liable to an
indemnified party hereunder is asserted against or sought to be
collected from an indemnified party by a third party, the
indemnified party shall promptly notify the indemnifying party of
such claim, demand, investigation or action specifying the nature
thereof and the amount or the estimated amount thereof to the
extent then feasible. The indemnifying party shall thereupon, at
its sole cost and expense, defend the indemnified party against
such claim, demand, investigation or action with counsel
reasonably satisfactory to the indemnified party.
(c) The indemnifying party shall not, without the prior
written consent of the indemnified party, consent to the entry of
any judgment against the indemnified party or enter into any
settlement or compromise with regard to any such claim, demand or
action unless such judgment, settlement or compromise includes,
as an unconditional term thereof (i.e., there being no
requirement that the indemnified party pay any amount of money or
give any other consideration), the giving by the claimant or
plaintiff to the indemnified party of a release, in form and
substance satisfactory to the indemnified party, from all
liability in respect of such claim, demand or action. If the
indemnified party desires to participate in, but not control, any
such defense or settlement, it may do so at its sole cost and
expense; provided, however, that the indemnifying party shall pay
the reasonable fees and expenses of counsel for the indemnified
party if the named parties to any action (included impleaded
parties) include both the indemnifying party and indemnified
parties and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing
interests between them.
5.5 Obligations of the Purchasers. As to the registration
statement referred to in Section 5.1, each of the Purchasers
shall provide PC with a written description of the proposed
method or methods of distribution of the Registration Stock
contemplated by that Purchaser and such other information as may
be required by PC, and PC shall include such description and
other information in the registration statement and file any and
all amendments and supplements necessary in connection therewith.
5.6 Default. (a) In the event the registration statement
referred to in Section 5.1 is not filed by PC with the SEC by
June 30, 1995 or, regardless of whether or not such registration
statement has been filed, is not declared effective by the SEC by
December 31, 1995, as the Purchasers' sole and exclusive remedy
and relief with respect thereto, PC shall issue, free of charge
and without cost, to the Purchasers, pro rata in proportion to
the amounts set forth on Schedule A attached hereto, (a)
certificates representing an aggregate of one million (1,000,000)
shares of Common Stock and (b) warrants (in the form of the
Warrants) for the purchase of an aggregate of five hundred
thousand (500,000) shares of Common Stock of PC, in each case
subject to antidilution adjustments for stock splits, reverse
stock splits (including, without limitation, the reverse stock
split contemplated by Section 6.1 hereof) and other antidilution
adjustments as provided for in the Warrants.
(b) In the event the registration statement referred to in
Section 5.1 is not declared effective by the SEC by June 30,
1996, regardless of whether or not such registration statement
has been filed, as the Purchasers' sole and exclusive remedy and
relief with respect thereto, PC shall issue, free of charge and
without cost, to the Purchasers, pro rata in proportion to the
amounts set forth on Schedule A attached hereto, (a) certificates
representing an aggregate of one million (1,000,000) additional
shares of Common Stock and (b) warrants (in the form of the
Warrants) for the purchase of an aggregate of five hundred
thousand (500,000) additional shares of Common Stock of PC, in
each case subject to antidilution adjustments for stock splits,
reverse stock splits (including, without limitation, the
reverse stock split contemplated by Section 6.1 hereof) and
other antidilution adjustments as provided for in the Warrants.
(c) In the event the registration statement referred to in
Section 5.1 is not declared effective by the SEC by December 31,
1996, regardless of whether or not such registration statement
has been filed, as the Purchasers' sole and exclusive remedy and
relief with respect thereto, PC shall issue, free of charge and
without cost, to the Purchasers, pro rata in proportion to the
amounts set forth on Schedule A attached hereto, (a) certificates
representing an aggregate of one million (1,000,000) additional
shares of Common Stock and (b) warrants (in the form of the
Warrants) for the purchase of an aggregate of five hundred
thousand (500,000) additional shares of Common Stock of PC, in
each case subject to antidilution adjustments for stock splits,
reverse stock splits (including, without limitation, the
reverse stock split contemplated by Section 6.1 hereof) and
other antidilution adjustments as provided for in the Warrants.
ARTICLE VI
ADDITIONAL COVENANTS
6.1 Certificate of Amendment. (a) As soon as is reasonably
practicable following the date hereof, PC will submit to its
stockholders for approval a proposed Certificate of Amendment to
its Certificate of Incorporation as a result of which (i) there
will be a sufficient number of authorized shares of Common Stock
available for issuance upon the conversion of the Series B
Preferred Stock into the Conversion Stock, the exercise of the
Warrants for the purchase of the Warrant Stock, any issuance of
Contingent Stock and the exercise of any and all other
outstanding purchase, exchange or conversion rights for the
acquisition of shares of Common Stock, and (ii) a one-for-five
reverse split of the shares of Common Stock will be effected.
(b) If, for any reason, the Certificate of Amendment shall
not have been filed by April 30, 1995, each Purchaser shall have
the right to redeem any and all of its holdings of shares of
Series B Preferred Stock at the redemption price specified
therefor at any time after such date as provided for in the
Certificate of Designations. Upon notice of such redemption from
any Purchaser, PC shall take such action as may be reasonably
required to redeem, for cash, all shares of the Series B
Preferred Stock held by such Purchaser in accordance with the
provisions of the Certificate of Designations, including, without
limitation, the maintenance of sufficient surplus to permit such
a redemption. In any event, the Purchasers shall be entitled to
retain the Warrants, subject to the terms thereof.
6.2 NASDAQ. As soon as is reasonably practicable following the
date hereof, PC will use its best efforts to have its shares of
Common Stock listed for trading on NASDAQ; provided, however,
that the foregoing shall not require PC to engage in any
financing activities or other activities out of the ordinary
course of business in order to meet the initial requirements for
listing thereon.
6.3 Antidilution Protection.
(a) In the event that PC, during the period (the "Price
Protection Period") of four years following the Effective
Conversion Date (as such term is defined in the Certificate of
Designations) for the Series B Preferred Stock, shall issue any
shares of Common Stock (other than pursuant to Exempt Issuances,
as such term is defined in the Certificate of Designations), or
issue any rights, options, warrants or other securities
exercisable for or convertible into Common Stock, entitling the
holders thereof to purchase Common Stock or convert such
securities into Common Stock (other than Exempt Rights, as such
term is defined in the Certificate of Designations), at a price
or consideration per share less than the Conversion Price (as
defined in the Certificate of Designations) that would have been
in effect at the time of such issuance (had the Series B
Preferred Stock remained outstanding), PC shall issue to each
Purchaser, and each Purchaser shall be entitled to receive, free
of charge and without cost, such number of shares of Common Stock
as such Purchaser would have been entitled to receive on the
Effective Conversion Date (upon conversion of its shares of
Series B Preferred Stock) if the Conversion Price had been
adjusted pursuant to Paragraph (iv) (C) of the Certificate of
Designations as a result of the issuance of the securities
described above in this Section 6.3.
(b) PC shall provide immediate notice to each purchaser
upon the occurrence of an event described in Section 6.3(a)
hereof requiring PC to issue additional shares of Common Stock to
the Purchasers. Each such notice shall contain a computation
supporting the amount of shares to be issued pursuant to Section
6.3(a), together with certificates for shares of Common Stock
required to be issued to each Purchaser.
(c) PC, promptly upon issuance of any shares of Common
Stock pursuant to this Section 6.3, shall include such shares of
Common Stock in the registration statement referred to in Section
5.1 hereof or any prospectus relating thereto by means, if
necessary, of an amendment or supplement to such registration
statement or prospectus. For purposes of Article V hereof, any
and all shares of Common Stock issued by PC pursuant to this
Section 6.3 shall constitute "Registration Stock".
(d) For purposes of any computation respecting
consideration received pursuant to this Section 6.3, the
provisions of Section (iv) (C) (IV) of the Certificate of
Designations shall apply hereto as if set forth herein.
6.4 Exchange Act Filings. PC agrees that, until all of the
Conversion Stock, Warrant Stock and Contingent Stock are saleable
pursuant to paragraph (k) of Rule 144 under the Securities Act,
it shall file with the SEC in a timely manner all reports
required to be filed under Section 13 or 15(d) of the Exchange
Act.
6.5 Intent to File Registration Statement. PC agrees that, if it
shall propose to file a registration statement under the
Securities Act with regard to any of its securities (other than
for employee benefit plans or transactions of a nature
contemplated by Rule 145, promulgated under the Securities Act),
PC shall give reasonable advance notice of such intention to the
purchasers.
6.6 Independent Auditors. PC agrees that its selection of
independent auditors for the fiscal year ending December 31, 1995
shall be subject to the approval of Special Situations Fund III,
L.P. ("Special Situations"), which approval shall not be
unreasonably withheld (it being agreed that PC need not
necessarily select a "Big Six" accounting firm).
6.7 Board of Directors. (a) If and for so long as a Purchaser
does not have a representative on PC's Board of Directors (an
"Unrepresented Purchaser"), it shall be permitted, upon written
notice to PC, to select one representative (a "Representative")
who shall be entitled, subject to the execution and delivery of
any required confidentiality agreement, to (i) consult with
management of PC on significant business issues, including
management's proposed annual operating plans, (ii) examine the
books and records of PC, inspect its facilities, and obtain
information at reasonable times and intervals and upon reasonable
notice concerning the general status of PC's financial condition
and operations, and (iii) attend, in a nonvoting observer
capacity, meetings of PC's Board of Directors, participate in
discussions of matters brought to the Board, and obtain copies of
all notices, minutes, consents, and other material provided to
its directors. Such right shall terminate and be of no further
force or effect if such Unrepresented Purchaser shall hold at any
time less than 10% of the Common Stock of PC, calculated in
accordance with the provisions of Section 13 of the Exchange Act
and the rules promulgated thereunder. For purposes hereof,
Special Situations and Special Situations Cayman Fund, L.P.
("Cayman") shall be considered one Purchaser (on whose behalf
Special Situations shall have the right to select a
Representative) and Justy, Yozma, SVE STAR Ventures Enterprises
No. II GbR ("SVE II"), SVE STAR Ventures Enterprises No. III GbR
("SVE III") and SVE STAR Ventures Enterprises No. IIIA GbR ("SVE
IIIA") shall be considered one Purchaser (on whose behalf Star
shall have the right to select a Representative).
(b) In addition, upon the written request of Star, the
Board of Directors of PC shall take such necessary action as is
required to increase the size thereof by one person and shall
elect as a director of PC a person designated by Star. Star's
right to designate a person to the Board shall continue only for
as long as Star shall have the right to select a Representative
pursuant to the provisions of paragraph (a) hereof.
(c) In the event the consolidated revenues or earnings
before interest, taxes, depreciation and amortization ("EBITDA")
of PC for any two consecutive quarters commencing with the
quarter ending March 31, 1995 and terminating with the quarter
ending December 31, 1995 shall be less than 90% of the
consolidated revenues or EBITDA of PC as set forth in that
certain plan approved by the Board of Directors of PC and
furnished to the Purchasers in February, 1995 (the "Plan"), upon
receipt of written request from Special Situations within thirty
(30) days of the date of public release of the second consecutive
shortfall quarter, the Board of Directors of PC shall take such
necessary action as is required to increase the size thereof by
one additional person and shall elect as a director of PC a
designee of Special Situations. For purposes hereof, the
consolidated revenues and EBITDA of PC for the first three
quarters of 1995 shall be as set forth in its Forms 10-QSB for
such quarters, as filed with the SEC, and the consolidated
revenues and EBITDA for the quarter ending December 31, 1995
shall be equal to the consolidated revenues and EBITDA for the
full fiscal year ending December 31, 1995 less the respective
amounts for the nine months ending September 30, 1995.
Notwithstanding the foregoing, the Plan shall be subject to
adjustment to the extent of any extraordinary actions taken by PC
during 1995 and approved in writing by Special Situations,
including, without limitation, the sale of any division and the
incurrence of any extraordinary research and development
expenses.
6.8 Further Assurances. On and after the date hereof, PC shall
take all such further actions and execute and deliver all such
further instruments and documents as may be necessary or
appropriate to carry out the transactions contemplated by this
Agreement.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Expenses. Each of the parties shall bear its own expenses
in connection herewith.
7.2 Survival. The parties agree that their respective
representations and warranties contained in this Agreement shall
survive the date hereof and consummation of any of the
transactions contemplated herein for a period of three (3) years
with the exception of those set forth in Article IV hereof which
shall survive for an indefinite duration. Nothing herein shall
be construed to limit the right of the Purchasers to seek damages
for any violation by PC of the Federal and state securities laws.
7.3 Publicity. The parties agree that no publicity, release or
other public announcement concerning the transactions
contemplated by this Agreement shall be issued by any party
without the advance written approval of both the form and
substance of the same by PC and Special Situations, Gibraltar
Trust and Star on behalf of the Purchasers, which approval, in
the case of any publicity, release or other public announcement
required by applicable law, shall not be unreasonably withheld or
delayed. The parties agree that this Agreement, including or
excluding the schedules attached hereto, may be filed by PC with
the SEC pursuant to the requirements of applicable law. The
parties agree further that the terms of this Agreement shall be
divulged only to such of their employees and representatives who
shall have a "need to know", unless such terms have been publicly
released in accordance with the provisions hereof.
7.4 Entire Agreement. This Agreement, including the schedules
attached hereto, which are a part hereof, together with the
Certificate of Designations and the Warrants, constitute the
entire agreement of the parties with respect to the subject
matter hereof. No change, modification, amendment, addition or
termination of this Agreement or any part thereof shall be valid
unless in writing and signed by PC and Special Situations,
Gibraltar Trust and Star on behalf of the Purchasers.
7.5 Notices. Any and all notices or other communications or
deliveries required or permitted to be given or made pursuant to
any of the provisions of this Agreement shall be deemed to have
been duly given or made for all purposes when hand delivered or
sent by telecopier (subject to confirmation of receipt) or shall
be deemed to have been given on the third business day next
following when sent by certified or registered mail, return
receipt requested and postage prepaid, as follows:
If to PC at:
PC Etcetera, Inc.
462 Seventh Avenue
New York, New York 10018
Attention: President
Telecopier Number: (212) 736-0039
with a copy to:
Certilman Balm Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Attention: Fred Skolnik, Esq.
Telecopier Number: (516) 296-7111
If to the Purchasers, as follows:
If to Special Situations, to:
Special Situations Fund III, L.P.
153 East 53rd Street (51st Floor)
New York, New York 10022
Attention: Austin Marxe
Telecopier Number: (212) 832-1904
If to Cayman, to:
c/o CIBC Bank & Trust Company (Cayman) Limited
P.O. Box 694 (Edward St.)
Grand Cayman, Cayman Islands
British West Indies
Attention: Martin Laidlaw
Telecopier Number: (809) 949-7904
with a copy of any communications or deliveries to Special
Situations or Cayman to:
Hertzog, Calamari & Gleason
100 Park Avenue
23rd Floor
New York, New York 10017
Attention: David Hertzog, Esq.
Telecopier Number: (212) 213-1199
If to Gibraltar Trust, to:
c/o Rho Management Company, Inc.
767 Fifth Avenue
New York, New York 10153
Telecopier Number: (212) 751-3613
with a copy to:
Gregory F.W. Todd, Esq.
900 Third Avenue, Suite 1250
New York, New York 10022
Telecopier Number: (212) 355-7674
If to Justy or Yozma, to:
c/o Star Management of Investments (1993) Limited
Partnership
28 Lechi Street
Bnei Brak, Israel
Attention: Amnon Shoham
Telecopier Number: 972-3-618-0748
If to SVE II, SVE III or SVE IIIA, to:
c/o SVM STAR Ventures Management GmbH
28A Leopoldstrasse
80208 Munich, Germany
Attention: Dr. Meir Barel
Telecopier Number: 49-89-381-70555
with a copy of any communications or deliveries to Justy,
Yozma, SVE II, SVE III or SVE IIIA to:
Goldfarb, Levy, Eran & Co.
Eliahu House
2 Ibn Gvirol
Tel Aviv, Israel
Attention: Oded Eran, Adv.
Telecopier Number: 972-3-695-4344
or at such other address as any party or person shall designate
by notice to the other parties in accordance with the provisions
hereof.
7.6 Choice of Law: Jurisdiction. This Agreement shall be
governed by, and interpreted and construed in accordance with,
the laws of the State of New York, excluding choice of law
principles thereof. The federal and state courts located in the
State of New York shall be the sole forum for any action brought
in connection with this Agreement or the transactions
contemplated hereby. Each party consents to the jurisdiction of
the federal and state courts located in the State of New York,
New York County, with respect to any such action and agrees
further not to raise any objection to the service of process in
any such action on the basis of lack of personal jurisdiction in
any such court.
7.7 Severability. In the event any clause, section or part of
this Agreement shall be held or declared to be void, illegal or
invalid for any reason, all other clauses, sections or parts of
this Agreement which can be effected without such void, illegal
or invalid clause, section or part shall nevertheless continue in
full force and effect.
7.8 Successors and Assigns: Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns; provided, however,
that no party may assign this Agreement or any portion thereof
without the prior written consent of the Purchasers and PC;
provided, further, that subject to the requirements of Sections
4.1 and 4.2 hereof, this Agreement and the rights and duties of
the Purchasers set forth herein may be assigned, in whole or in
part, by any Purchaser (i) that is a partnership, to (A) any
venture capital limited partnership now existing or hereafter
formed that is affiliated with or under common control with one
or more of the general partners or one or more general partners
of the general partner of such Purchaser and any predecessor or
successor thereto, or (B) any limited partner of such Purchaser,
(ii) that is a trust, to a grantor or beneficiary of such trust
or any other trust, corporate entity or partnership for which Rho
Management Company, Inc. acts as investment adviser, (iii) as to
any of the Star Purchasers (as defined in Schedule A), to an
entity controlled by, controlling, under common control with, or
under overlapping control with, such Star Purchaser or to an
entity for which investment decisions are made by such Star
Purchaser's Manager (the term "Manager" being defined as the
entity which makes investment decisions for such Star Purchaser,
or an entity which is controlled by, controls, is under common
control with, or is under overlapping control with, such entity),
(iv) as to Yozma, to Justy, Star, any of the partners of Star,
and any entity to which Justy would be permitted to freely assign
under this Section 7.8 and (v) to any other Purchaser (provided
that, in each instance under (i), (ii), (iii), (iv) and (v)
hereof, PC receives written notification thereof and the assignee
(a "Registered Assignee") executes and delivers to PC a writing
agreeing to be bound by the provisions of this Agreement).
Communications sent by PC to any Purchaser or Registered Assignee
shall be effective as against all assignees with respect to which
PC shall not have received written notification of assignment.
7.9 Headings. The headings or captions in this Agreement are for
convenience and reference only and do not in any way modify,
interpret or construe the intent of the parties or affect any of
the provisions of this Agreement.
7.10 Facsimile Signatures. Signatures transmitted by telecopier
shall be deemed original signatures.
7.11 Counterpart Signatures. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
WITNESS the execution of this Agreement as of the date first
above written.
PC ETCETERA
By:
SPECIAL SITUATIONS FUND III, L.P.
By: MGP Advisers Limited Partnership,
General Partner
By: AWM Investment Company, Inc.,
General Partner
By:
SPECIAL SITUATIONS CAYMAN FUND, L.P.
By: AWM Investment Company, Inc.,
General Partner
By:
GIBRALTAR TRUST
By:
JUSTY LTD.
By:
By:
YOZMA VENTURE CAPITAL LTD.
By:
By:
SVE STAR VENTURES SVE STAR VENTURES ENTERPRISES
ENTERPRISES NO. II GBR NO. III GBR
By: By:
By: By:
SVE STAR VENTURES ENTERPRISES NO.
IIIA GBR
By:
By:
<PAGE>
SCHEDULE A
Number of Shares Number of Shares
of Series .B of Common Stock
Name and Address Preferred Stock Underlying
Warrants
Special Situations 250,000 625,000
Fund III, L.P.
153 East 53rd Street
(51st Floor)
New York, NY 10022
Special Situations 83,334 208,334
Cayman Fund, L.P.
P.O. Box 694 (Edward St.)
Grand Cayman, Cayman Islands
British West Indies
Gibraltar Trust 333,333 833,333
c/o Rho Management
Company, Inc.
767 Fifth Avenue
43rd Floor
New York, NY 10153
Justy Ltd. (together 100,000 250,000
with the next four (4)
listed Purchasers, the
"Star Purchasers")
c/o Star Management of
Investments (1993)
Limited Partnership
28 Lechi Street
Bnei Brak, Israel
Yozma Venture Capital Ltd. 66,666 166,665
c/o Star Management of
Investments (1993)
Limited Partnership
28 Lechi Street
Bnei Brak, Israel
SVE STAR Ventures
Enterprises No. II GbR 42,674 106,685
c/o SVM STAR Ventures
Management GmbH
28A Leopoldstrasse
80208 Munich, Germany SVE STAR Ventures
Enterprises No. III GbR 114,512 286,280
c/o SVM STAR Ventures
Management GmbH
2 8A Leopoldstrasse
80208 Munich, Germany
SVE STAR Ventures
Enterprises No. IIIA GbR 9,481 23,703
c/o SVM STAR Ventures
Management GmbH
28A Leopoldstrasse
80208 Munich, Germany
<PAGE>
SCHEDULE 2.2
OUTSTANDING OPTIONS. WARRANTS. ETC.
1. Stock options granted pursuant to Amended and Restated 1987
Stock Option Plan (the "Plan") to purchase 2,049,000 shares
of Common Stock as follows:
Number Exercise Price
of Shares Per Share
706,500 $1.00
429,500 .375
166,500 .1875
150,000 .21
134,000 1.25
100,500 .50
100,000 .42
100,000 .5625
50,000 .36
50,000 .55
50,000 .6875
6,000 .875
5,000 .75
1,000 .38
2. Contractual obligation, under certain circumstances, to
grant options under the Plan to purchase at then market
price up to 150,000 shares of Common Stock.
3. Warrants to purchase 380,000 shares of Common Stock as
follows:
Number Exercise
Price
Holder of Shares Per Share
Elron Electronic Industries Ltd. 200,000 $1.00
The Hill Thompson Group, Ltd. 180,000 .50
4. Series A Preferred Stock convertible into 1,000,000 shares
of Common Stock at conversion price of $1.00 per share.
<PAGE>
SCHEDULE 2.3
SUBSIDIARIES
Jurisdiction of
Name Incorporation
PC Etcetera Inc. Quebec
PC Etcetera, California California
PC Etcetera Israel Ltd. Israel
<PAGE>
Exhibit 2. October 1996 Loan and Registration Rights Agreement
OCTOBER 1996
LOAN AND REGISTRATION RIGHTS AGREEMENT
LOAN AND REGISTRATION RIGHTS AGREEMENT, dated October 25,
1996, among PC ETCETERA, INC., a Delaware corporation (the
"Company"), RHO MANAGEMENT TRUST I, a/k/a Gibraltar Trust ("Rho
Trust I"), ELRON ELECTRONIC INDUSTRIES LTD. ("Elron") and GILBERT
H. STEINBERG ("Steinberg", and collectively with Rho Trust I and
Elron, the "Lenders").
WHEREAS: The Company desires to obtain debt financing in
the aggregate amount of one hundred eighty-seven thousand five
hundred dollars ($187,500), and to extend the maturity of certain
loans made pursuant to a Loan and Registration Rights Agreement,
dated December 5, 1995 (the "1995 Loan Agreement"), among the
Company, the Lenders and certain other lenders;
WHEREAS: Each Lender is willing to lend to the Company
the amount set forth by its name on Schedule A attached hereto
(collectively, the "Loans"), to be evidenced by promissory notes of
the Company in the aggregate principal amount of one hundred
eighty-seven thousand five hundred dollars ($187,500)
(collectively, the "Notes"), which loans shall be extendible at the
election of the Company and thereby convertible at the election of
the Lenders into shares of Common Stock of the Company on the terms
set forth herein;
WHEREAS: In consideration for making of the Loans, the
Company has agreed to issue to the Lenders warrants (the
"Warrants") for the purchase of an aggregate of 150,000 shares of
Common Stock of the Company (the "Warrant Shares");
WHEREAS: Each Lender is willing to extend the maturity
of the loans made by it pursuant to the 1995 Loan Agreement and
waive any defaults under the notes issued pursuant to the 1995 Loan
Agreement relating to the sale by the Company of PC Etcetera Inc,
a Quebec corporation, in consideration for which the Company has
agreed to allow the Lenders to convert the notes issued pursuant to
the 1995 Loan Agreement into shares of Common Stock of the Company
on the same terms and conditions as the Notes; and
WHEREAS: Subject to the terms of this Agreement, the
Company has agreed to grant to the Lenders certain rights to cause
the registration under the Securities Act (as hereinafter defined)
of the Warrant Shares and shares of its Common Stock which may
become issuable in the event of the conversion of the Notes or the
notes under the 1995 Loan Agreement (the "Conversion Shares");
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used herein, the following
terms have the meanings indicated:
(a) "Securities Act" means the Securities Act of 1933,
as amended; and
(b) "Rule 144 Holding Period" means the period of time
that the Warrant Shares or the Conversion Shares must be held by
the Lenders before they can resell them, or any portion thereof,
pursuant to Rule 144, promulgated under the Securities Act.
2. Loans; Warrants.
(a) Loans; Notes. Simultaneously herewith, upon
fulfillment of the conditions set forth in Section 3 hereof, each
Lender is loaning to the Company the amount set forth on Schedule
A attached hereto, and, in consideration thereof, the Company is
issuing to the Lender a Note in the principal amount thereof. The
maturity date of each such loan shall be extendible at the election
of the Company, on the terms set forth in the Notes, and if so
extended, the Notes shall become convertible at each Lender's
option for shares of Common Stock of the Company on the terms set
forth in the Notes.
(b) Warrants. Simultaneously herewith, in consideration
of the Loans, each Lender is being issued by the Company Warrants
for the purchase of such number of shares of Common Stock of the
Company as indicated on Schedule B attached hereto. Accordingly,
the aggregate number of Warrant Shares shall equal one hundred and
fifty thousand (150,000). The Warrants shall be exercisable at a
price of twenty-five cents ($0.25) per share until five (5) years
from the date hereof and shall contain certain antidilution
provisions as set forth therein.
(c) 1995 Loans. The maturity date of the loans made by
the Lenders under the 1995 Loan Agreement, as evidenced by
promissory notes issued thereunder, is hereby extended to October
25, 1997. The maturity date of each such loan shall be extendible
at the option of the Company, on identical terms as the Notes, and
if so extended, the notes issued pursuant to the 1995 Loan
Agreement shall become convertible for shares of Common Stock of
the Company on the identical terms as the Notes.
3. Conditions Precedent. The Lenders' obligations to
make the Loans under this Agreement and extend the loans under the
1995 Loan Agreement shall be subject to their receipt of the
following documents simultaneously herewith, in form and substance
reasonably satisfactory to the Lenders:
(a) A copy of the resolutions of the Board of Directors
of the Company authorizing the execution, delivery and performance
by the Company of this Agreement and the Notes.
(b) An executed copy of the agreement between the
Company and Steinberg, in form satisfactory to the Lenders,
providing for Steinberg's non-cancelable commitment to advance to
the Company from time to time until repayment or conversion of the
Notes in full: (i) up to sixty-two thousand five hundred dollars
($62,500), as the Company may require for working capital or other
operating purposes, repayable only upon repayment or conversion of
the Loans in full and (ii) up to one hundred and thirty three
thousand dollars ($133,000) in addition to the amount stated above
in 3(b)(i), on a pro rata basis with Rho Trust I and/or Elron, with
his pro rata percentage being 33% of the additional loans, in the
event that the Company requires additional working capital and Rho
Trust I and/or Elron agree to provide the Company with additional
loans.
(c) Original copies, duly executed by the Company, of
each Warrant to be issued by the Company hereunder.
4. Registration Rights.
(a) Demand Rights. Upon the written request (a "Demand
Registration Request") of the holders of a majority of the Warrant
Shares or the Conversion Shares as the case may be (in either case,
the "Registrable Shares"), received prior to the expiration of the
applicable Rule 144 Holding Period, that the Company register such
Registrable Shares for resale under the Securities Act, the Company
shall advise in writing all other holders of the Registrable Shares
of the Demand Registration Request and of its intention to file a
registration statement under the Securities Act covering such
resale (the "Registration Notice"). The Company thereafter shall,
as expeditiously as reasonably practicable, file a registration
statement under the Securities Act for the sale of the number of
Registrable Shares owned by the Lenders specified in the Demand
Registration Request, as well as the number of Registrable Shares
owned by the Lenders who advise the Company in writing within
twenty (20) days of the date of, and in response to, the
Registration Notice that they desire to have their Registrable
Shares included in such registration statement, and shall
thereafter file such amendment or amendments to such registration
statement, in the use of its best efforts, to cause the same to
become effective. The Company shall not be obligated to file or
use its best efforts to cause to become effective registration
statement under this paragraph (i) during any period (A) commencing
with the date the Company files a registration statement relating
to the sale or exchange by it of its securities in either an
underwritten offering or in an offering involving a merger,
acquisition, combination or reorganization, and (B) ending on the
ninetieth (90th) day following the consummation of any such
underwritten offering or other such transaction, or (ii) if, in its
judgment, such filing or registration may be materially disruptive
or detrimental to its business or any pending or prospective
transaction. Following the conclusion of such period or commencing
upon such time as the filing or registration would not be so
materially disruptive or detrimental, the Company's obligation to
file or use its best efforts to cause to become effective a
registration statement shall recommence. The Company shall not be
obligated to use its best efforts to effect more than one (1)
registration pursuant to the terms of this paragraph (a).
(b) Piggyback Rights. The Company agrees that, if it
shall propose to file, at any time prior to the expiration of the
Rule 144 Holding Period, for the sale by the Company of shares of
its Common Stock for cash, a registration statement under the
Securities Act on Form SB-1, SB-2, S-1, S-2 or S-3 (or a comparable
successor form) (but excluding registration statements for employee
benefit plans or transactions of the nature contemplated by Rule
145, promulgated under the Securities Act), the Company shall give
written notice to the Lenders of such intention at least twenty
(20) days prior to the proposed filing date and shall include the
Registrable Shares in such registration statement at the written
request of the Lenders, provided that the Company receives a
request therefor at least ten (10) days prior to the proposed
filing date; provided, however, that if, in the opinion of the
managing underwriter or underwriters of the offering of the
Company's securities for which such registration statement is being
filed, such inclusion is likely to affect adversely the success of
the offering or the price that would be received, at the option of
such managing underwriter or underwriters, (i) the number of
Registrable Shares to be added to the registration statement shall
be reduced (to zero if necessary), and/or (ii) the Lenders shall
delay the sale of the Registrable Shares included in the
registration statement until the expiration of the ninety (90) day
period commencing with the effective date of the registration
statement.
(c) Obligations of the Company.
(i) As to each registration statement referred to in
this Section 4, the Company shall:
(A) use its best efforts to have such registration
statement declared effective as promptly as reasonably practicable
and shall promptly notify the Lenders and the underwriters, if any,
for the Lenders, and confirm such advice in writing, (I) when such
registration statement becomes effective, (II) when any post-
effective amendment to any such registration statement becomes
effective, and (III) of any request by the Securities and Exchange
Commission (the "SEC") for any amendment or supplement to such
registration statement or any prospectus relating thereto or for
additional information;
(B) furnish to the Lenders or the underwriters for the
Lenders, if any, or other securities firms designated by the
Lenders, if any, such reasonable number of copies of any prospectus
(including any supplemental or preliminary prospectus) as may be
reasonably necessary in order to effect the offering and sale of
the Registrable Shares being offered and sold by the Lenders, but
only while the Company is required under the provisions hereof to
cause the registration statement to remain current;
(C) qualify, not later than the effective date of such
registration statement, the Registrable Shares registered
thereunder under the "blue sky" laws of such states as the Lenders
may reasonably request; provided, however, that in no event shall
the Company be obligated to qualify as a foreign corporation or as
a dealer in securities or to execute or file any general consent to
service of process under the laws of any such state where it is not
at such time so qualified or subject;
(D) until the earlier of (I) the sale of all the
Registrable Shares or (II) seven (7) months following the
expiration date for the exercise of the Warrants, from time to time
amend or supplement the registration statement and the prospectus
in connection therewith to the extent necessary to permit the
completion of the sale of the Registrable Shares for which such
registration statement shall have become effective within said
period in compliance with the Securities Act and the rules and
regulations promulgated thereunder.
(ii) If at any time the SEC should institute or threaten
to institute any proceedings for the purpose of issuing, or should
issue, a stop order suspending the effectiveness of any
registration statement referred to in this Section 4, the Company
shall notify the Lenders and shall use its best efforts to prevent
the issuance of any such stop order or to obtain the withdrawal
thereof as soon as possible. The Company shall advise the Lenders
of any order or communication of any public board or body addressed
to the Company suspending or threatening to suspend the
qualification of any of the Registrable Shares for sale in any
jurisdiction. In the event that the effectiveness of such
registration statement shall be suspended, the Company shall extend
the period during which such registration statement shall be
maintained effective, pursuant to Section 4(c)(i)(D) hereof, by the
number of days during the period from and including the date of
such suspension to the date when such suspension shall be removed
or terminated.
(iii) The Company shall, if requested, prior to filing
a registration statement referred to in this Section 4 or
prospectus or any amendment or supplement thereof, furnish to each
Lender and each underwriter, if any, of the Registrable Shares
covered by such registration statement, prospectus, amendment or
supplement, copies of such registration statement, prospectus,
amendment or supplement as proposed to be filed by the Company.
(d) Expenses. Except as provided below, the expenses
of the registration statements pursuant to this Section 4, and the
state qualifications related thereto pursuant to Section
4(c)(i)(C), shall be borne by the Company. The expenses of any
such registration and qualifications shall include, but not be
limited to (A) the fees and expenses of the Company's counsel and
its accountants; (B) all other out-of-pocket costs and expenses of
the Company incident to the preparation, printing and filing under
the Securities Act of the registration statement and all amendments
and supplements thereto; (C) the cost of furnishing copies of each
preliminary prospectus, each final prospectus and each amendment or
supplement thereto to the Lenders and each underwriter, if any; and
(D) the costs and expenses incurred in connection with the
qualification of such securities so registered under the "blue sky"
laws of various jurisdictions. However, under no circumstances
shall the Company be liable or responsible for the fees and
expenses of the Lenders, or of any of their counsel, incurred in
connection with any registration or for underwriting or brokerage
discounts and commissions or transfer taxes payable in connection
with any sale of the Registrable Shares included in a registration
statement.
(e) Indemnification.
(i) The Company hereby agrees to indemnify, hold
harmless and defend the Lenders, and each of them, any underwriter
(as such term is defined in the Securities Act) for the Lenders,
any broker or dealer to or through whom the Lenders sell
Registrable Shares that may be deemed to be an underwriter and each
person, if any, that controls (within the meaning of the Securities
Act) any of the Lenders or any such underwriter, broker or dealer
against any and all losses, claims, damages, liabilities and
expenses (including reasonable counsel fees and expenses) to which
any such persons may be subject under the Securities Act or
otherwise, insofar as such losses, claims, damages, liabilities and
expenses (including reasonable counsel fees and expenses) arise out
of or are based upon any untrue statement of a material fact
contained in any registration statement under which the Registrable
Shares were registered under the Securities Act pursuant to this
Section 4, any prospectus contained therein, or any amendment or
supplement thereto, or arise out of or are based upon the omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages, liabilities or expenses
arise out of or are based upon information furnished in writing to
the Company by any Lender or any underwriter or representative for
a Lender, which writing specifies that the information be included
in the registration statement. Each Lender hereby agrees to
indemnify, hold harmless and defend the Company, its directors,
officers, agents and representatives, and each person, if any, that
controls (within the meaning of the Securities Act) the Company
against any losses, claims, damages, liabilities and expenses
(including reasonable counsel fees and expenses) to which any of
such persons may be subject under the Securities Act or otherwise,
but only to the extent caused by an untrue statement or omission of
a material fact in any registration statement under which the
Registrable Shares were registered under the Securities Act, any
prospectus contained therein, or any amendment or supplement
thereto, which was based solely upon information furnished in
writing to the Company by such Lender or any underwriter or
representative for such Lender, which writing specifies that the
information be included in the registration statement.
(ii) In the event that any claim, demand, investigation
or action for which an indemnifying party would be liable to an
indemnified party hereunder is asserted against or
sought to be collected from an indemnified party by a third party,
the indemnified party shall promptly notify the indemnifying party
of such claim, demand, investigation or action specifying the
nature thereof and the amount or the estimated amount thereof to
the extent then feasible. The indemnifying party shall thereupon,
at its sole cost and expense, defend the indemnified party against
such claim, demand, investigation or action with counsel reasonably
satisfactory to the indemnified party.
(iii) The indemnifying party shall not, without the
prior written consent of the indemnified party, consent to the
entry of any judgment against the indemnified party or enter into
any settlement or compromise with regard to any such claim, demand
or action unless such judgment, settlement or compromise includes,
as an unconditional term thereof (i.e., there being no requirement
that the indemnified party pay any amount of money or give any
other consideration), the giving by the claimant or plaintiff to
the indemnified party of a release, in form and substance
satisfactory to the indemnified party, from all liability in
respect of such claim, demand or action. If the indemnified party
desires to participate in, but not control, any such defense or
settlement, it may do so at its sole cost and expense; provided,
that the indemnifying party shall pay the reasonable fees and
expenses of counsel for the indemnified party if the named parties
to any action (included impleaded parties) include both the
indemnifying party and indemnified parties and representation of
both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them.
(f) Obligations of the Lenders. As to each
registration statement referred to in this Section 4, each of the
Lenders shall provide the Company with a written description of the
proposed method or methods of distribution of the Registrable
Shares contemplated by that Lender and such other information as
may be required by the Company, and the Company shall include such
description and other information in the registration statement and
file any and all amendments and supplements necessary in connection
therewith.
5. Acquisition of Securities. Each Lender makes the
following representations and warranties to the Company with
respect to itself (and, in the case of a trust Lender, with respect
to any grantors for which it may be considered a nominee):
(a) Investment Representations.
(i) Each Lender is acquiring the Note and the Warrants
and, in the event of an exercise of the Warrants or conversion of
Conversion Shares, will be acquiring the Warrant Shares or
Conversion Shares for its own account, and not as a nominee or
agent (except in the case of a trust Lender to the extent the trust
may be considered a nominee for its grantors, which, in number, do
not exceed five (5)), and will not resell or otherwise distribute
any of such securities except in compliance with the Securities
Act.
(ii) Each Lender understands that none of the Notes, the
Warrants, the Warrant Shares or the Conversion Shares
(collectively, the "Securities") have been registered under the
Securities Act or any state securities laws and, except as provided
for in Section 4 hereof, there is no agreement on the part of the
Company to register any of the Securities thereunder.
(iii) Each Lender acknowledges and agrees that none of
the Securities may be sold, pledged, transferred, assigned, or
otherwise disposed of unless they are registered under the
Securities Act and applicable state securities laws or unless an
exemption from such registration is available. Each Lender further
acknowledges and agrees that, as a condition to the transfer or
other disposition of any of the Securities, the Company may require
that the request for transfer be accompanied by an opinion of
counsel, in form and substance reasonably satisfactory to the
Company and its counsel, to the effect that the proposed transfer
does not result in a violation of the Securities Act and any
applicable state securities laws. Each Lender understands that
each certificate representing any of the Securities will bear the
following legend:
"The securities represented by this
certificate have not been registered under the
Securities Act of 1933, as amended, or the
securities laws of any state. The securities
may not be sold, pledged, transferred,
assigned or otherwise disposed of in the
absence of an effective registration statement
under such Act and any applicable state
securities laws covering such securities, or
an opinion of counsel reasonably satisfactory
to the Company that such registration is not
required."
(b) Additional Representations.
(i) Each Lender is able to bear the economic risks of an
investment in each of the Securities, including, without
limitation, the risk of the loss of part or all of its investment
and the inability to sell or transfer the Securities until such
Securities are registered under the Securities Act or an exemption
from registration is available; subject, however, to the Company's
obligation to use its best efforts to effect any registration of
the Warrant Shares under the Securities Act in accordance with
Section 4 hereof.
(ii) Each Lender is an "accredited investor", as such
term is defined in Rule 501(a), promulgated under the Securities
Act, or it, alone or with its purchaser representative, if any, has
such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of an
investment in each of the Securities. Each Lender will execute and
deliver to the Company such documents as the Company may reasonably
request in order to confirm the accuracy of the foregoing.
(iii) Each Lender and its purchaser representative, if
any, have reviewed the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1995, as amended, Quarterly Reports on
Form 10-QSB for the periods ended March 31, 1996, as amended, and
June 30, 1996 and Current Report on Form 8-K for an event dated
January 31, 1996, as amended, and have been afforded the
opportunity to obtain such other information as such Lender
requested from the Company in order to evaluate the merits and
risks of an investment in each of the Securities.
(iv) No board of directors of any corporate Lender, no
general partner of any partnership Lender and no trustee of any
trust Lender has adopted any resolutions or made any determination
relative to the distribution of any of the Securities to its
stockholders, partners, grantors or beneficiaries and has no
present intention to do so.
6. Covenants of the Company.
(a) Legal Fees. The Company shall pay the Law Office of
Gregory F.W. Todd, counsel for Lenders, the amount of $3,500, for
legal fees incurred by the Lenders in connection with the
preparation and execution of this Agreement and the instruments and
documents related thereto.
7. Miscellaneous.
(a) Waiver. The Lenders hereby waive any defaults under
the notes issued pursuant to the 1995 Loan Agreement relating to
the sale by the Company of PC Etcetera Inc., a Quebec corporation.
(b) Governing Law. This Agreement shall be governed in
all respects by the laws of the State of New York, excluding choice
of law principles thereof.
(c) Entire Agreement. This Agreement constitutes the
full and entire understanding and agreement among the parties with
regard to the subject matter hereof and may be amended only by a
writing executed by the Company and the relevant Lender.
(d) Notices, etc. All notices and other
communications required or permitted hereunder shall be in writing
and shall be mailed by first-class mail, postage prepaid, or
delivered either by hand or by messenger or sent by overnight mail
or courier or by facsimile transmission, addressed as follows:
If to the Company:
462 Seventh Avenue
New York, New York 10018
Attention: President
Telecopier: (212) 736-0039
with a copy to:
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Attention: Fred Skolnik, Esq.
Telecopier: (516) 296-7111
If to Rho Trust I to:
Rho Management Company, Inc.
767 Fifth Avenue
New York, New York 10153
Attention: Habib Kairouz
Telecopier: (212) 751-3613
with a copy to:
Gregory F. W. Todd, Esq.
Law Office of Gregory F.W. Todd
101 Park Avenue, 27th Floor
New York, New York 10178
Telecopier: (212) 808-5155
If to Elron:
850 Third Avenue
New York, New York 10022
Attention: President
Telecopier: (212) 935-3882
with a copy to:
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Attention: Richard H. Gilden, Esq.
Telecopier: (212) 752-5958
If to Steinberg:
585 Stewart Avenue
Suite LL-24
Garden City, New York 11530
Telecopier: (516) 222-2599
or at such other address as the Company or the respective
Lender shall have furnished in writing as aforesaid.
(e) Headings. The headings of the paragraphs and
subparagraphs of this Agreement are for convenience of reference
only and are not to be considered in construing this Agreement.
(f) Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, and all
of which together shall constitute one instrument.
(g) Facsimile. This Agreement may be executed and
thereafter transmitted by facsimile and the facsimile receipt shall
constitute an original.
(h) Successors and Assigns. This Agreement shall be
binding upon and shall inure to the successors, permitted assigns,
and legal representatives of the parties hereto; provided, however,
that the rights under this Agreement may not be assigned by any
Lender, in whole or in part, without the prior written consent of
the Company.
IN WITNESS WHEREOF, the undersigned have set their hands
as of the date first above written.
Company:PC ETCETERA, INC.
By: __________________________
Name: ________________________
Title: _______________________
Lenders:RHO MANAGEMENT TRUST I
By: Rho Management Company, Inc., as Investment
Advisor
By: __________________________
Name: ________________________
Title: _______________________
ELRON ELECTRONIC INDUSTRIES LTD.
By: __________________________
Name: ________________________
Title: _______________________
______________________________
Gilbert H. Steinberg
<PAGE>
SCHEDULE A
LENDER AMOUNT OF LOAN
Rho Management Trust I $62,500
Elron Electronic Industries Ltd. $62,500
Gilbert H. Steinberg $62,500
_________
Total: $187,500
<PAGE>
SCHEDULE B
LENDER WARRANTS
Rho Management Trust I 50,000
Elron Electronic Industries Ltd. 50,000
Gilbert H. Steinberg 50,000
_________
Total: 150,000
<PAGE>
Exhibit 3. Promissory Note
THIS PROMISSORY NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY
AND MAY BE TRANSFERRED OR OTHERWISE DISPOSED OF ONLY IN COMPLIANCE
WITH THE SECURITIES ACT OF 1933, AS AMENDED. THIS LEGEND SHALL BE
ENDORSED UPON ANY PROMISSORY NOTE ISSUED IN EXCHANGE FOR THIS
PROMISSORY NOTE.
PC ETCETERA, INC.
October 25, 1996
$62,500
EXTENDIBLE MATURITY CONVERTIBLE
PROMISSORY NOTE
PC ETCETERA, INC., a Delaware corporation (the
"Company"), for value received, HEREBY PROMISES TO PAY to RHO
MANAGEMENT TRUST I, or its registered assigns (the "Holder"), on
(i) the earlier of one (1) year from the date hereof or each
Redemption Date (as hereinafter defined), or (ii) such later date
on or before October 25, 1999 as the Company may elect pursuant to
Section 4, at the offices of the Company, 462 Seventh Avenue, New
York, New York the principal sum of SIXTY-TWO THOUSAND FIVE HUNDRED
DOLLARS ($62,500) (or such lesser amount required to be paid on
such Redemption Date) in such coin or currency of the United States
of America as at the time of payment shall be legal tender for the
payment of public and private debts and to pay interest on such
principal sum at the rate of ten percent (10%) per annum from the
date hereof. Interest on the unpaid principal balance of this
Promissory Note ("Note") shall be payable in cash on each of
December 31, March 31 and June 30, September 30, commencing on
December 31, 1996.
Any principal portion of, or interest or fee payable on,
this Note which is not paid on the date when due shall bear
interest from such due date to the date of actual payment, as well
after as before judgment, at the rate per annum which is four
percent (4%) above the rate otherwise payable hereunder; provided,
however, that the rate of interest under this Note shall not exceed
the maximum rate of interest then permitted by applicable law.
1 Series of Notes. The Company and the Holder
acknowledge that this Note is one of a series of promissory notes
issued to various persons and entities in the aggregate principal
amount of one hundred eighty-seven thousand five hundred dollars
($187,500) pursuant to a Loan and Registration Rights Agreement of
even date (the "Loan Agreement"). The Company and the Holder agree
that the rights of the Holder herein shall be pari passu with the
rights of the holders of the other Promissory Notes (the "Other
Notes").
2 Registered Owner. The Company may consider and
treat the person in whose name this Note shall be registered as the
absolute owner thereof for all purposes whatsoever (whether or not
this Note shall be overdue) and the Company shall not be affected
by any notice to the contrary. The registered owner of this Note
shall have the right to transfer it by assignment and the
transferee thereof, upon his registration as owner of this Note,
shall become vested with all the powers and rights of the
transferor. Registration of any new owner shall take place upon
presentation of this Note to the Company at its office, together
with an assignment duly authenticated. In case of transfers by
operation of law, the transferee shall notify the Company of such
transfer and of his address, and shall submit appropriate evidence
regarding the transfer so that this Note may be registered in the
name of the transferee. This Note is transferable only on the books
of the Company by the Holder hereof, in person or by attorney, on
the surrender hereof, duly endorsed. Communications sent to any
registered owner shall be effective as against all holders or
transferees of this Note not registered at the time of sending the
communication.
3 Redemption.
3.1 Redemption Right. The Holder, by its acceptance of
this Note, hereby acknowledges that, at any time, and from time to
time, the Company may, at its option, by written notice given to
the Holder, elect to redeem and prepay, without premium or penalty,
all or any portion of the outstanding principal indebtedness
evidenced by this Note provided that all Notes issued pursuant to
the Loan Agreement shall be repaid pro rata.
3.2 Redemption Obligation. (a) In the event the
Company at any time or from time to time shall sell, lease,
transfer or otherwise dispose of any of its assets in a single
transaction or a series of related transactions for an aggregate
purchase price of more than one hundred thousand dollars
($100,000), then, to the extent of any net proceeds received, the
Company shall redeem and prepay, upon the closing of each such
transaction(s) (each such date, a "Redemption Date"), without
premium or penalty, the outstanding principal indebtedness
evidenced by this Note and the Other Notes pro rata.
(b) If the Company shall fail to make any payment of
principal hereunder on the due date therefor or any payment of
interest for a period of seven (7) days past the due date therefor,
or there shall occur an Event of Default under the terms of the
Security Agreement dated as of December 5, 1995 and any such Event
of Default shall be continuing, the Holder may, by written notice
to the Company, declare the entire unpaid principal amount of this
Note then outstanding, plus accrued interest thereon, to be
forthwith due and payable whereupon the same shall become forthwith
due and payable.
4 Optional Extension of Maturity. Upon fifteen (15)
days' prior written notice to the Holder given at any time within
sixty (60) days of the original maturity date hereof, the Company
may elect to extend the maturity date of the Note to October 25,
1999; provided, that such election may be made a single time only
and shall cause the Note, the other Notes and the note issued to
the Holder under the 1995 Loan Agreement, to become convertible for
shares of Common Stock of the Company in accordance with Section 5.
5 Conversion. In the event that the Company shall
extend the original maturity of this Note pursuant to Section 4,
then upon the opening of business of such original maturity date
the Holder shall become and be entitled to convert all or part of
the then-outstanding principal amount of this Note into shares of
Common Stock of the Company, as provided in this Section 5.
5.1 Procedure for Conversion. (a) If the Note shall
become convertible hereunder, the Holder may at any time or from
time to time elect to convert all or part of the outstanding
principal amount hereunder (the "Elected Amount") by surrendering
to the Company this Note, along with an executed Conversion Notice
and Certificate in the form of Exhibit II hereto. The Company
shall within ten (10) business days of receipt of the Holder's
executed Conversion Notice and Certificate (the "Conversion Date")
pay the unpaid interest on the Elected Amount, accrued to the
Conversion Date, and the Elected Amount shall be converted into
Common Stock at the Conversion Price (as defined below). Any
securities receivable by the Holder pursuant to this Section 5
shall be deemed for all purposes to have been issued and recorded
in the records of the Company as of the Conversion Date.
(b) In the event that only part of the outstanding
principal amount of this Note is converted pursuant to this Section
5, the Company at its expense shall execute and deliver to the
Holder a new promissory note for the remaining principal amount,
which promissory note shall be substantially in the form of this
Note. Any unpaid interest accrued on the remaining outstanding
principal amount prior to the issuance of the new promissory note
shall be deemed to be payable as interest under the new promissory
note.
(c) In calculating the amount of Common Stock issuable
to the Holder upon the Conversion Date, no adjustment shall be made
for interest accrued hereunder or for dividends on any Common Stock
issuable upon any such conversion. The Company shall not issue
fractional shares of Common Stock upon any such conversion, but
shall make adjustment therefore in cash on the basis of the Current
Market Price (as defined below) of such fractional interest as of
the Conversion Date.
5.2 Conversion Price. The conversion price per share of
Common Stock issuable upon conversion of this Note (the "Conversion
Price") shall be equal to twenty-five cents ($0.25), subject to
adjustment from time to time as follows:
(a) If the Company shall, at any time or from time to
time after the date hereof and on or before the Conversion Date
issue any shares of Common Stock, or other securities convertible
into, or exchangeable or exercisable for, shares of Common Stock
("Additional Shares"), in each case other than Exempt Issuances (as
hereinafter defined), for a consideration per share less than the
applicable Conversion Price in effect immediately prior to the
issuance of such Additional Shares, the Conversion Price for shares
of Common Stock issuable upon conversion of this Note in effect
immediately prior to each such issuance shall automatically (except
as otherwise provided herein) be lowered to that price determined
by multiplying the Conversion Price by a fraction, (x) the
numerator of which shall be the sum of (A) the number of shares of
Common Stock outstanding immediately prior to the issuance of such
Additional Shares plus (B) the number of shares of Common Stock
which the aggregate consideration for the total number of such
Additional Shares so issued would purchase at the Conversion Price,
and (y) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after the issuance of such
Additional Shares. For the purposes of any adjustment of the
Conversion Price, the following provisions shall apply:
(i) In the case of an issuance of Common Stock in
whole or in part for cash, the consideration shall be
deemed to be the amount of cash paid therefor without
deducting therefrom any discounts, commissions or other
expenses allowed, paid or incurred by the Company for any
underwriting or otherwise in connection with the issuance
and sale thereof, plus the value of any property other
than cash received by the Company, determined as provided
in Section 5.2(a)(ii).
(ii) In the case of an issuance of Common Stock for
consideration in whole or in part in property other than
cash, the value of such property or consideration other
than cash shall be deemed to be the fair market value of
such property as determined in good faith by the Board of
Directors, irrespective of any accounting treatment;
provided, that such fair market value as determined by
the Board of Directors shall not exceed the aggregate
Current Market Price (as defined below) of the shares of
Common Stock being issued, less any cash consideration
paid for such shares.
(iii) In the case of an issuance of Common Stock
for consideration in whole or in part other than cash or
property, the value of such consideration shall be deemed
to be the aggregate par value of such Common Stock, less
the value of any other consideration received by the
Company, determined as provided in Sections 5.2(a)(i) and
(ii) hereof.
(iv) In the case of an issuance of options or other
rights to purchase or subscribe for Common Stock,
securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or
other rights to subscribe for such convertible or
exchangeable securities:
(A) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to
purchase or rights to subscribe for Common Stock shall be
deemed to have been issued at the time such options or
rights were issued and for a consideration equal to the
consideration (determined in the manner provided in this
Section 5.2(a)), if any, received by the Company upon the
issuance of such options or rights plus the minimum
purchase price provided in such options or rights for the
Common Stock covered thereby (the consideration in each
case to be determined in the manner provided in this
Section 5.2(a));
(B) the aggregate maximum number of shares of
Common Stock deliverable upon conversion of, or in
exchange for, any such convertible or exchangeable
securities or upon the exercise of options to purchase or
rights to subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange thereof
shall be deemed to have been issued at the time such
securities were issued or such options or rights were
issued and for a consideration equal to the consideration
received by the Company for any such securities and
related options or rights (excluding any cash received on
account of accrued interest or accrued dividends), plus
the minimum additional consideration, if any, to be
received by the Company upon the conversion or exchange
of such securities or the exercise of any related options
or rights (the consideration in each case to be
determined in the manner provided in this Section
5.2(a)), provided that in making the foregoing
calculations, such convertible or exchangeable securities
shall be deemed to have been converted or redeemed;
(C) if there is any change in the exercise price
of, or number of shares deliverable upon exercise of, any
such options or rights or upon the conversion or exchange
of any such convertible or exchangeable securities (other
than a change resulting from the antidilution provisions
thereof), then the Conversion Price shall automatically
be readjusted in proportion to such change; and
(D) upon the expiration of any such options or
rights or the termination of any such rights to convert
or exchange such convertible or exchangeable securities,
the Conversion Price shall be automatically readjusted to
the Conversion Price that would have obtained had such
options, rights or convertible or exchangeable securities
not been issued.
(b) As used herein, the term "Exempt Issuances" shall
mean any issuance of Common Shares:
(i) upon the exercise of options hereafter granted to
full-time employees and non-employee directors of the Company
pursuant to a plan or plans adopted by the Company's Board of
Directors and approved by its stockholders; provided, that in order
to be considered an Exempt Issuance under this clause (i), (a) the
option exercise price must be equal to or greater than the Current
Market Price Per Share on the date of grant and (b) on the date of
grant, the aggregate number of Common Shares issuable pursuant to
the exercise of (I) the options being granted and (II) all other
then outstanding options, warrants and other rights (other than any
included within clause (iii) hereof), whether or not then currently
exercisable, cannot exceed ten percent (10%) of the number of
Common Shares then issued and outstanding;
(ii) upon the exercise of options, warrants and other
rights which are outstanding as of the date hereof (whether or not
currently exercisable); or
(iii) upon the conversion or exchange of convertible or
exchangeable securities which are outstanding as of the date hereof
(whether or not currently convertible or exchangeable).
(c) In the event at any time after the date hereof the
number of shares of Common Stock outstanding is increased by a
stock dividend payable in shares of Common Stock or by a
subdivision or split-up of shares of Common Stock, then, following
the record date fixed for the determination of holders of Common
Stock entitled to receive such stock dividend, subdivision or
split-up, the Conversion Price shall be appropriately decreased and
the number of shares of Common Stock issuable on conversion of this
Note shall be increased in proportion to such increase in
outstanding shares.
(d) In the event at any time after the date hereof the
number of shares of Common Stock outstanding is decreased by a
combination or reverse split of the outstanding shares of Common
Stock, then following the record date for such combination or
reverse split, the Conversion Price shall be appropriately
increased and the number of shares of Common Stock issuable on
conversion of this Note shall be decreased in proportion to such
decrease in outstanding shares.
(e) In the event at any time after the date hereof of
any capital reorganization or any reclassification of the capital
stock of the Company (other than a change in par value or from par
value to no par value or from no par value to par value or as a
result of a stock dividend or subdivision, split-up, combination or
reverse split of shares), or the consolidation or merger of the
Company with or into another person (other than a consolidation or
merger in which the Company is the continuing corporation and which
does not result in any change in the powers, designations,
preferences and rights, or the qualifications, limitations or
restrictions, if any, of the capital stock of the Company) or of
the sale or other disposition of all or substantially all of the
properties and assets of the Company as an entirety to any other
person, then the Company shall provide appropriate adjustment to
the Conversion Price and other terms of this Note after the
effectiveness of such transaction such that this Note shall be
convertible into the kind and number of shares of stock or other
securities or property of the Company that the Holder (immediately
prior to the effectiveness of such transaction) upon conversion of
the Note would have been entitled to receive in connection with
such transaction. The provisions of this Section 5 shall similarly
apply to successive such reorganizations and reclassifications.
(f) All calculations under this Section 5 shall be made
to the nearest one-tenth of a cent ($.001) or to the nearest one-
tenth of a share, as the case may be.
(g) For the purpose of any computation pursuant to this
Section 5, the "Current Market Price" as of any date of one share
of Common Stock shall be deemed to be the average of the daily
closing prices for the 30 consecutive business days ending on the
fifth (5th) business day before the day in question (as adjusted
for any stock dividend, split-up, combination or reclassification
that took effect during such 30-business-day period), as quoted on
a national securities exchange, or in the over-the-counter market
as reported by NASDAQ or, if not available, by the National
Quotation Bureau, Incorporated, as the case may be (or, if there is
no bid price on a particular day, then the closing bid price or, if
not available, the highest bid price on the nearest trading date
before that day and for which such prices are available), and if
the Common Shares are not listed on such an exchange or traded in
such a market on such particular day, then the Current Market Price
Per Share shall be determined by the Board of Directors by taking
into consideration all relevant factors, including, but not limited
to, the Company's net worth, prospective earning power and dividend
paying capacity.
(h) In any case in which the provisions of this Section
5 shall require that an adjustment shall become effective
immediately after a record date for an event, the Company may defer
until the occurrence of such event (A) issuing to the holder of any
share of Common Stock issued upon conversion of this Note after
such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by
reason of the adjustment required by such event over and above the
shares of capital stock issuable upon such conversion before giving
effect to such adjustment, and (B) paying to such holder any cash
amounts in lieu of fractional shares hereunder; provided, that the
Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive
such additional shares, and such cash, upon the occurrence of the
event requiring such adjustment.
(i) If a state of facts shall occur that, without being
specifically controlled by the provisions of this Section 5 would
not fairly protect the conversion rights of the Note in accordance
with the essential intent and principles of such provisions, then
the Board of Directors shall make an adjustment in the application
of such provisions, in accordance with such essential intent and
principles, so as to protect such conversion rights.
5.3 Notice of Changes in Conversion Price. Whenever the
Conversion Price shall be adjusted as provided in Section 5.2, the
Company shall forthwith file and keep on record at the office of
the Secretary of the Company or at such other place as may be
designated by the Company, a statement, signed by its President or
Chief Executive Officer and by its Treasurer or Chief Financial
Officer, showing in detail the facts requiring such adjustment and
the Conversion Price that shall be in effect after such adjustment.
The Company shall also provide a copy of such statement to any
Holder who so requests.
5.4 Taxes Etc. The Company shall pay all documentary,
stamp or other transactional taxes attributable to the issuance or
delivery of shares of capital stock of the Company upon conversion
of the Note; provided, that the Company shall not be required to
pay any taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificate for such
shares in a name other than that of the Holder in respect of which
such shares are being issued.
6 Rights of Stockholder. Nothing contained in this
Note shall be construed to confer upon the Holder, as such, any of
the rights of a stockholder of the Company, including any right (i)
to vote for the election of directors or upon any matter submitted
to stockholders, (ii) to give or withhold consent to any corporate
action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value or change of stock
to no par value, consolidation, merger, conveyance of otherwise),
(iii) to receive dividends or subscription rights, (iv) to receive
notices, or (v) to be deemed the holder of shares of Common Stock
or any other securities of the Company that may at any time be
issuable upon the exercise hereof for any purpose. The Holder
shall have the rights of a stockholder of the Company only upon
receipt of shares issued upon conversion of the Note pursuant to
Section 5 above (and only to the extent it holds such shares).
7 Waiver; Expenses. The Company hereby waives
presentment, notice of dishonor, protest, notice of acceleration,
notice of intent to accelerate or any other notice of any kind in
connection with this Note. The Company shall pay all reasonable
out-of-pocket expenses incurred by the Holder in connection with
the enforcement and collection of this Note or any judgment based
thereon, including, without limitation, the reasonable fees and
expenses of any counsel for the Holder.
8 Applicable Law. This Note is issued under and shall
for all purposes be governed by and construed in accordance with
the laws of the State of New York, excluding choice of law rules
thereof.
9 Miscellaneous. This Note sets forth the rights and
obligations of the Holder and the Company. No provision of this
Note may be modified except by an instrument in writing signed by
the party against whom the enforcement of any modification is
sought.
Payment of principal and interest due under this Note
shall be made to the registered Holder of this Note.
IN WITNESS WHEREOF, the Company has caused this Note to
be signed on its behalf, in its corporate name, by its duly
authorized officer, all as of the day and year first above written.
PC ETCETERA, INC.
By: ___________________________
Terry I. Steinberg
President
<PAGE>
Exhibit I
PC ETCETERA, INC.
EXTENDIBLE MATURITY CONVERTIBLE
PROMISSORY NOTE
OCTOBER 25, 1996
FOR USE ONLY UPON ASSIGNMENT
FOR VALUE RECEIVED, The undersigned
_____________________________ (please print or typewrite name of
assignor) hereby sells, assigns and transfers unto
__________________________ (please print or typewrite name, address
and social security or taxpayer identification number, if any, of
assignee) the within Promissory Note of PC ETCETERA, INC. in the
original principal amount of $__________ and hereby authorizes the
Company to transfer this Note on its books.
_____________________________
(Signature)
____________________________
(Signature, if Jointly held)
____________________________
(Date)
___________________________
(Signature(s) guaranteed)
<PAGE>
Exhibit II
PC ETCETERA, INC.
EXTENDIBLE MATURITY CONVERTIBLE
PROMISSORY NOTE
OCTOBER 25, 1996
Conversion Notice and Certificate
The undersigned hereby elects to convert the principal
amount of $________ outstanding under the within Extendible
Maturity Convertible Promissory Note issued by PC Etcetera, Inc.
(the "Company") on October 25, 1996 (the "Note") into _________
shares of Common Stock, of the Company (the "Shares"), pursuant to
the terms of the Note, and hereby represents and warrants as
follows with respect to the Shares:
(a) It is acquiring the Shares for its own account, for
investment and not with a view to the distribution thereof within
the meaning of the Securities Act (the "Securities Act").
(b) It understands that the Shares (i) will not be
registered under the Securities Act, (ii) will be deemed
"restricted securities" as defined in Rule 144 under the Securities
Act, and (iii) may not be sold or otherwise transferred unless such
sale or other transfer is registered under the Securities Act or is
exempt from such registration.
(c) It is an "accredited investor" as that term is
defined in Rule 501(a) under the Securities Act.
(d) If it is a corporation or partnership, it is duly
organized and validly existing under the laws of the state of its
organization, and has full power and authority to execute this
Conversion Notice and Certificate.
(e) If it is a trust, it is duly organized and validly
existing under the laws of the state of its organization and has
full power and authority to execute this Election of Conversion and
Certificate, and its trustee executing this Election of Conversion
and Certificate has full power and authority to act on behalf of
the trust.
The undersigned has caused this Conversion Notice and
Certificate to be executed on its behalf as of __________, 199_.
____________________________
By: __________________________
Name: ________________________
Title: _______________________
<PAGE>
Exhibit 4. Common Stock Purchase Warrant
VOID AFTER 5:00 P.M., NEW YORK CITY LOCAL TIME, ON OCTOBER 25, 2001
NEITHER THIS WARRANT NOR THE WARRANT SHARES (AS HEREINAFTER
DEFINED) HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. NEITHER
THIS WARRANT NOR THE WARRANT SHARES MAY BE SOLD, PLEDGED,
TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF (COLLECTIVELY,
"TRANSFERRED") IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES, OR AN OPINION OF COUNSEL TO PC ETCETERA,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED. THIS LEGEND SHALL BE
ENDORSED UPON ANY WARRANT ISSUED IN EXCHANGE FOR THIS WARRANT.
PC ETCETERA, INC.
(Incorporated under the laws of the State of Delaware)
Warrant
October 25, 1996
FOR VALUE RECEIVED, PC ETCETERA, INC., a Delaware
corporation (the "Company"), hereby certifies that RHO MANAGEMENT
TRUST I (the "Holder") is entitled, subject to the provisions of
this Warrant, to purchase from the Company up to FIFTY THOUSAND
(50,000) SHARES OF COMMON STOCK ("Common Shares") of the Company at
a price of TWENTY-FIVE CENTS ($0.25) per share (the "Exercise
Price") during the period commencing on the date hereof and
expiring at 5:00 P.M., New York City local time, on October 25,
2001.
The number of shares to be received upon the exercise of
this Warrant may be adjusted from time to time as hereinafter set
forth. The shares deliverable upon such exercise, and as adjusted
from time to time, are hereinafter sometimes referred to as
"Warrant Shares".
The Holder agrees with the Company that this Warrant is
issued, and all the rights hereunder shall be held, subject to all
of the conditions, limitations and provisions set forth herein.
1 Exercise of Warrant.
1.1 Exercise. Subject to the provisions hereof, this
Warrant may be exercised in whole or in part at any time, or from
time to time, during the period commencing on the date hereof and
expiring at 5:00 p.m., New York City local time, on October 25,
2001 or, if such day is a day on which banking institutions in the
City of New York are authorized by law to close, then on the next
succeeding business day that shall not be such a day, by
presentation and surrender hereof to the Company at its principal
office, with the Warrant Exercise Form attached hereto duly
executed and accompanied by payment (either in cash or by certified
or official bank check, payable to the order of the Company) of the
Exercise Price for the number of shares specified in such Form. If
this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder.
1.2 Net Exercise. Notwithstanding the foregoing, in
lieu of paying to the Company an amount equal to the aggregate
Exercise Price of the Warrant Shares being purchased, the Holder
may elect to receive Warrant Shares equal to the value (as
determined below) of the Warrant by surrender of this Warrant, in
which event the Company shall issue to the Holder a number of
Warrant Shares computed using the following formula:
X = Y (A-B)
A
Where: X = the number of Warrant Shares to be issued to
the Holder.
Y = the number of Warrant Shares under this
Warrant.
A = the Current Market Price Per Share (as
hereinafter defined) on the day on which the
Warrant Exercise Form is received by the
Company.
B = the Exercise Price.
2 Reservation of Shares. The Company will reserve for
issuance and delivery upon exercise of this Warrant all Common
Shares or other shares of capital stock of the Company (and other
securities and property) from time to time receivable upon exercise
of this Warrant; provided, however, that nothing contained herein
shall preclude the Company from satisfying its obligations
hereunder by delivery of shares which are held in the treasury of
the Company.
3 Fractional Shares. The Company shall not be
required to issue certificates representing fractions of shares,
nor shall it be required to issue scrip or pay cash in lieu of
fractional interests, it being the intent of the Company and the
Holder that all fractional interests shall be eliminated.
4 Exchange or Assignment of Warrant. This Warrant is
exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company, for other
Warrants of different denominations, entitling the Holder to
purchase in the aggregate the same number of shares purchasable
hereunder. Subject to the provisions of this Warrant and receipt by
the Company of any required representations and agreements, upon
surrender of this Warrant to the Company with the Warrant
Assignment Form annexed hereto duly executed and funds sufficient
to pay any transfer tax, the Company shall, without additional
charge, execute and deliver a new Warrant in the name of the
assignee named in such instrument of assignment and this Warrant
shall promptly be canceled.
5 Rights of the Holder. The Holder shall not, by
virtue hereof, be entitled to any rights of a shareholder of the
Company, either at law or in equity, and the rights of the Holder
are limited to those expressed in this Warrant.
6 Anti-Dilution Provisions.
6.1 Adjustments for Stock Dividends; Combinations, Etc.
In case the Company shall do any of the following (an "Event"):
(a) declare a dividend or other distribution on its
Common Shares payable in Common Shares of the Company,
(b) effect a subdivision of its outstanding Common
Shares into a greater number of Common Shares (by reclassification,
stock split or otherwise than by payment of a dividend in Common
Shares),
(c) effect a combination of its outstanding Common
Shares into a lesser number of Common Shares (by reclassification,
reverse split or otherwise),
(d) issue by reclassification, exchange or substitution
of its Common Shares any shares of capital stock of the Company, or
(e) effect any other transaction having similar effect,
then the Exercise Price in effect at the time of the record date
for such dividend or other distribution or of the effective date of
such subdivision, combination, reclassification, exchange or
substitution shall be changed to a price determined by multiplying
such Exercise Price by a fraction, of which the numerator shall be
the number of Common Shares outstanding immediately prior to such
Event, and the denominator shall be the number of Common Shares
outstanding immediately after such Event. Each such adjustment of
the Exercise Price shall be calculated to the nearest cent. No such
adjustment shall be made in an amount less than one cent ($.01),
but any such amount shall be carried forward and shall be given
effect in connection with the next subsequent adjustment. Such
adjustment shall be made successively whenever any Event listed
above shall occur.
6.2 Adjustment for Consolidation or Merger. In case of
any consolidation or merger to which the Company is a party, other
than a merger or consolidation in which the Company is the
surviving or continuing corporation and which does not result in
any reclassification of, or change (other than a change in par
value or from par value to no par value or from no par value to par
value, or as a result of a subdivision or combination) in,
outstanding Common Shares, then, and in each such case, the Holder
of this Warrant, upon the exercise thereof as provided in Section
1, at any time after the consummation of such consolidation or
merger, shall be entitled to receive, in lieu of the securities and
property receivable upon the exercise of this Warrant prior to such
consummation, the securities or property to which such Holder would
have been entitled upon such consummation if such Holder had
exercised this Warrant immediately prior thereto; in each such
case, the terms of this Warrant shall be applicable to the
securities or property receivable upon the exercise of this Warrant
after such consummation.
6.3 Issuance of Shares, Etc. (a) In case the Company
shall issue its Common Shares (other than (i) pursuant to Exempt
Issuances, as hereinafter defined, or (ii) upon the exercise of any
rights, options, warrants, or the conversion of any securities, as
provided for in paragraph (c) hereof) for a consideration per share
less than the Exercise Price in effect on the day immediately
preceding the date of issuance, the Exercise Price shall be
adjusted immediately thereafter so that it shall equal the price
determined by multiplying the Exercise Price in effect immediately
prior thereto by a fraction, of which the numerator shall be the
sum of the number of Common Shares outstanding immediately prior to
the issuance of such additional shares and the number of Common
Shares which the aggregate consideration received (determined as
provided in Section 6.5 below) for the issuance of such additional
shares would purchase at such Exercise Price and the denominator
shall be the number of Common Shares outstanding immediately after
the issuance of such additional shares. Such adjustment shall be
made successively whenever any such issuance is made.
(b) If, at any time or from time to time after the date
of this Warrant, the Company shall distribute to the holders of its
outstanding Common Shares (i) securities, other than its Common
Shares, or (ii) property, other than cash, without payment
therefor, then, and in each such case, the Holder, upon the
exercise of this Warrant, shall be entitled to receive the
securities and property which the Holder would hold on the date of
such exercise if, on the date of this Warrant, the Holder had been
the holder of record of the number of Common Shares subscribed for
upon such exercise and, during the period from the date of this
Warrant to and including the date of such exercise, had retained
such shares and the securities and properties receivable by the
Holder during such period. Notice of each such distribution shall
be forthwith mailed to the Holder.
(c) In case the Company shall issue any rights, options,
warrants or securities convertible into Common Shares (other than
Exempt Rights, as hereinafter defined) entitling the holders
thereof to purchase Common Shares or to convert such securities
into Common Shares at a price per share (determined by dividing (i)
the total amount, if any, received or receivable by the Company in
consideration of the issuance or sale of such rights, options,
warrants or convertible securities plus the total consideration, if
any, payable to the Company upon exercise or conversion thereof
(the "Total Consideration") by (ii) the number of additional Common
Shares issuable upon exercise or conversion of such securities)
less than the Exercise Price in effect on the date of such issuance
or sale, the Exercise Price shall be adjusted as of the date of
such issuance or sale so that the same shall equal the price
determined by multiplying the Exercise Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the
sum of the number of Common Shares outstanding immediately prior to
such issuance or sale and the number of Common Shares which the
Total Consideration would purchase at such Exercise Price and the
denominator shall be the number of Common Shares outstanding on the
date of such issuance or sale plus the maximum number of additional
Common Shares issuable upon exercise or conversion of such
securities.
(d) On the expiration of such rights, options or
warrants, or the termination of such right to convert, the Exercise
Price shall forthwith be readjusted to such Exercise Price as would
have been obtained had the adjustments made upon the issuance of
such rights, options, warrants or convertible securities been made
upon the basis of the delivery of only the number of Common Shares
actually delivered or deliverable upon the exercise of such rights,
options or warrants, or upon the conversion of such securities.
(e) On an adjustment in the exercise or conversion price
in such rights, options, warrants or convertible securities, the
Exercise Price shall forthwith be readjusted to such Exercise Price
as would have been obtained had the adjustments made upon the
issuance of such rights, options, warrants or convertible
securities been made upon the basis of such adjusted exercise or
conversion price.
(f) As used herein, the term "Exempt Issuances" shall
mean any issuance of Common Shares:
(i) upon the exercise of options hereafter granted
to full-time employees and non-employee directors of the Company
pursuant to a plan or plans adopted by the Company's Board of
Directors and approved by its stockholders; provided, however,
that, in order to be considered an Exempt Issuance under this
clause (i), (a) the option exercise price must be equal to or
greater than the Current Market Price Per Share on the date of
grant and (b) on the date of grant, the aggregate number of Common
Shares issuable pursuant to the exercise of (I) the options being
granted and (II) all other then outstanding options, warrants and
other rights (other than any included within clause (iii) hereof),
whether or not then currently exercisable, cannot exceed ten
percent (10%) of the number of Common Shares then issued and
outstanding;
(ii) upon the exercise of options, warrants and
other rights which are outstanding as of the date hereof (whether
or not currently exercisable); or
(iii) upon the conversion or exchange of
convertible or exchangeable securities which are outstanding as of
the date hereof (whether or not currently convertible or
exchangeable).
The options, warrants, rights and other securities
referred to in clauses (i), (ii) and (iii) of this paragraph (f)
are hereinafter referred to collectively as "Exempt Rights".
6.4 Adjustment in Number of Warrant Shares. Whenever
the Exercise Price is adjusted as set forth in Section 6.1 or 6.3
(whether or not the Company then or thereafter elects to issue
additional Warrants in substitution for an adjustment in the number
of Warrant Shares), the number of Warrant Shares specified in each
Warrant which the Holder may purchase shall be adjusted, to the
nearest full share, by multiplying such number of Warrant Shares
immediately prior to such adjustment by a fraction, of which the
numerator shall be the Exercise Price immediately prior to such
adjustment and the denominator shall be the Exercise Price
immediately thereafter.
6.5 Consideration. For purposes of any computation
respecting consideration received pursuant to Section 6.3, the
following shall apply:
(a) in the case of the issuance of Common Shares,
rights, options, warrants or convertible securities for cash, the
consideration shall be the amount of such cash, without deduction
for any commissions, discounts or other expenses incurred by the
Company for any underwriting of the issuance or otherwise in
connection therewith; and
(b) in the case of the issuance of Common Shares,
rights, options, warrants or convertible securities for a
consideration in whole or in part other than cash, the
consideration shall be deemed to be the fair market value thereof
as determined in good faith by the Board of Directors of the
Company (irrespective of the accounting treatment thereof), whose
determination shall be conclusive.
6.6 Current Market Price Per Share. As used herein, the
term "Current Market Price Per Share" shall mean the closing bid
price, or, if not available, the highest bid price, of the Common
Shares as quoted on a national securities exchange, or in the over-
the-counter market as reported by NASDAQ or, if not available, by
the National Quotation Bureau, Incorporated, as the case may be
(or, if there is no bid price on a particular day, then the closing
bid price or, if not available, the highest bid price on the
nearest trading date before that day and for which such prices are
available), and if the Common Shares are not listed on such an
exchange or traded in such a market on such particular day, then
the Current Market Price Per Share shall be determined by the Board
of Directors by taking into consideration all relevant factors,
including, but not limited to, the Company's net worth, prospective
earning power and dividend paying capacity.
7 [Intentionally Omitted]
8 Restrictions on Exercise.
(a) Unless, prior to the exercise of this Warrant, the
Warrant Shares have been registered with the Securities and
Exchange Commission pursuant to the Act, the notice of exercise
shall be accompanied by a representation of the Holder to the
Company to the effect that such shares are being acquired for
investment and not with a view to the distribution thereof, and
such other representations and documentation as may be required by
the Company, unless in the opinion of counsel to the Company such
representations or other documentation is not necessary to comply
with such Act.
(b) The Company shall not be obligated to deliver any
Warrant Shares unless and until they have been listed on each
securities exchange or other self-regulatory body on which the
Company's Common Shares may then be listed or until there has been
qualification under or compliance with such federal or state laws,
rules or regulations as the Company may deem applicable. The
Company shall use its best efforts to obtain such listing,
qualification and compliance.
9 Restrictions on Transfer; Registration Rights.
9.1 Transfer to Comply with the Securities Act of 1933.
Neither this Warrant nor any Warrant Shares may be Transferred
except as follows: (a) to a person who, in the opinion of counsel
satisfactory to the Company, is a person to whom this Warrant or
the Warrant Shares may legally be Transferred without registration
and without the delivery of a current prospectus under the Act with
respect thereto and then only against receipt of an agreement of
such person to comply with the provisions of this Section 9 with
respect to any Transfer of such securities; or (b) to any person
upon delivery of a prospectus then meeting the requirements of the
Act relating to such securities and the offering thereof for such
Transfer.
9.2 Legend. Subject to the terms hereof, upon exercise
of this Warrant and the issuance of the Warrant Shares, all
certificates representing such Warrant Shares shall bear on the
face or reverse thereof substantially the following legend:
"The shares represented by this certificate
have not been registered under the Securities
Act of 1933, as amended, and may not be sold,
offered for sale, pledged, transferred,
assigned or otherwise disposed of unless
registered pursuant to the provisions of such
Act or an opinion-of counsel to the Company is
obtained stating that such sale, offer for
sale, pledge, transfer, assignment or other
disposition is in compliance with an available
exemption from such registration."
9.3 Registration Rights. Simultaneously herewith, the
Company and the Holder, among others, are entering into a Loan and
Registration Rights Agreement covering, among other matters, the
registration of the Warrant Shares under the Act for resale by the
Holder.
10 Lost, Stolen or Destroyed Warrants. In the event
that the Holder notifies the Company that this Warrant has been
lost, stolen or destroyed and either (a) provides a letter, in form
satisfactory to the Company, to the effect that he will indemnify
the Company from any loss incurred by it in connection therewith,
and/or (b) provides an indemnity bond in such amount as is
reasonably required by the Company, the Company having the option
of electing either (a) or (b) or both, the Company shall accept
such letter and/or indemnity bond in lieu of the surrender of this
Warrant as required by Section 1 hereof.
11 Applicable Law. This Warrant is issued under, and
shall for all purposes be governed by and construed in accordance
with, the laws of the State of Delaware, excluding choice of law
principles thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant
to be signed on its behalf, in its corporate name, by its duly
authorized officer, all as of the day and year first above written.
PC ETCETERA, INC.
By: /s/ Terry Steinberg
Name: Terry Steinberg
Title: President
