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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
APRIL 20, 1998
-----------------------
Date of Report
(Date of earliest event
reported)
INCONTROL, INC.
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(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-24540 91-150619
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(State or Other (Commission File No.) (IRS Employer
Jurisdiction Identification No.)
of Incorporation)
6675 - 185TH AVENUE, N.E., REDMOND, WASHINGTON 98052
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(Address of principal executive offices, including Zip Code)
(206) 861-9800
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS
On April 20, 1998, InControl, Inc. (the "Company") sold and issued 7,500
shares (the "Series B Shares") of newly-created Series B Convertible Preferred
Stock (the "Series B Stock") to two institutional investors (the "Series B
Investors"). The Series B Shares were issued and sold pursuant to the
provisions of Regulation D promulgated by the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"Securities Act"). The aggregate offering price of the Series B Shares was
$7,500,000, based on a per share price of $1,000. The Series B Stock is
convertible into shares of the Company's common stock, par value $.01 per
share (the "Common Stock"), at values related to the trading price of the
Common Stock that vary over time. Pursuant to Registration Rights Agreements
between the Company and the Series B Investors, the Company is required, by
May 20, 1998, to file a registration statement on Form S-3 for the public
resale of the Common Stock issuable upon conversion of Series B Stock. These
Registration Rights Agreements are attached hereto as Exhibits 4.1 and 4.2.
The rights and preferences of the Series B Stock are set forth in the
Certificate of Designations of Series B Convertible Preferred Stock and
attached hereto as Exhibit 3.1. In connection with the sale of the Series B
Shares, the Company amended the Rights Agreement, dated February 27, 1996,
between the Company and ChaseMellon Shareholder Services L.L.C., as Rights
Agent (the "Rights Agreement"), to provide that holders of Series B Stock
shall not be deemed to be the Beneficial Owner (as defined in the Rights
Agreement) of the shares of Common Stock issuable upon conversion of Series B
Stock until Series B Stock is converted into shares of Common Stock. The
amendment to the Rights Agreement is attached hereto as Exhibit 4.3.
In connection with the sale and issuance of the Series B Shares, the
Company and one of the Series B Investors entered into a letter agreement (the
"Letter Agreement"), pursuant to which such Series B Investor, at the option of
the Company, will purchase up to $7.5 million of shares of Series C Convertible
Preferred Stock, which shall have substantially the same rights and preferences
as the Series B Stock and be sold and issued on substantially the same terms as
the sale and issuance of the Series B Shares. The obligations of such Series B
Investor under the Letter Agreement are subject to certain conditions as set
forth in the Letter Agreement. The Letter Agreement is attached hereto as
Exhibit 10.1.
Also, on April 20, 1998, the Company sold and issued 400,000 shares of
Common Stock (the "Common Shares") to three institutional investors. The Common
Shares were issued and sold pursuant to the provisions of Regulation D
promulgated by the SEC under the Securities Act. The aggregate purchase price of
the Common
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Shares was $2,500,000, based on a per share price of $6.25. Under the
Stock Purchase Agreement pursuant to which the Common Shares were sold, the
Company is obligated to file a registration statement on Form S-3 for the public
resale of the Common Shares. The Stock Purchase Agreement is attached hereto as
Exhibit 4.4.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
<TABLE>
<CAPTION>
(c) Exhibits
<S> <C>
3.1 Certificate of Designations of Series B
Convertible Preferred Stock.
4.1 Registration Rights Agreement between InControl,
Inc. and Advantage Fund II Ltd., dated April 16,
1998.
4.2 Registration Rights Agreement between InControl,
Inc. and Koch Industries, Inc., dated April 16,
1998.
4.3 First Amendment of Rights Agreement, dated April
17, 1998.
4.4 Stock Purchase Agreement between InControl, Inc.
and the investors named therein, dated April 20,
1998.
10.1 Letter Agreement between Advantage Fund II Ltd.
and InControl, Inc., dated April 16, 1998.
</TABLE>
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INCONTROL, INC.
Dated: April 30, 1998 By /s/ Donald F. Seaton III
--------------------------
Donald F. Seaton III
Vice President, Finance, Chief
Financial Officer and Secretary
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
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<S> <C>
3.1 Certificate of Designations of Series B Convertible
Preferred Stock.
4.1 Registration Rights Agreement between InControl, Inc. and
Advantage Fund II Ltd., dated April 16, 1998.
4.2 Registration Rights Agreement between InControl, Inc.
and Koch Industries, Inc., dated April 16, 1998.
4.3 First Amendment of Rights Agreement, dated April 17,
1998.
4.4 Stock Purchase Agreement between InControl, Inc. and
the investors named therein, dated April 20, 1998.
10.1 Letter Agreement between Advantage Fund II Ltd. and
InControl, Inc., dated April 16, 1998.
</TABLE>
<PAGE> 1
EXHIBIT 3.1
INCONTROL, INC.
CERTIFICATE OF DESIGNATIONS OF
SERIES B CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the General Corporation
Law of the State of Delaware)
InControl, Inc., a Delaware corporation (the "Corporation"),
in accordance with the provisions of Section 151 of the General Corporation Law
of the State of Delaware DOES HEREBY CERTIFY:
That pursuant to authority vested in the Board of Directors of
the Corporation (the "Board of Directors") by the Certificate of Incorporation
of the Corporation, the Special Financing Committee of the Board of Directors,
at a meeting duly called and held on April 16, 1998, adopted a resolution
providing for the creation of a series of the Corporation's Preferred Stock,
$.01 par value, which series is designated as "Series B Convertible Preferred
Stock," which resolution is as follows:
RESOLVED, that pursuant to authority vested in the Board of
Directors by the Certificate of Incorporation of the Corporation, the Board of
Directors does hereby provide for the creation of a series of the Preferred
Stock, $.01 par value (hereinafter called the "Preferred Stock"), of the
Corporation, and to the extent that the voting powers and the designations,
preferences and relative, participating, optional or other special rights
thereof and the qualifications, limitations or restrictions of such rights have
not been set forth in the Certificate of Incorporation of the Corporation, does
hereby fix the same as follows:
SERIES B CONVERTIBLE PREFERRED STOCK
SECTION 1. DEFINITIONS. As used herein, the following terms
shall have the following meanings:
"Affiliate" means, with respect to any person, any other
person that directly, or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with the subject person;
for purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such person, whether through the ownership of voting securities or by contract
or otherwise.
"Aggregated Person" means, with respect to any person, any
person whose beneficial ownership of shares of Common Stock would be aggregated
with the beneficial
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ownership of shares of Common Stock by such person for purposes of Section 13(d)
of the Exchange Act, and Regulation 13D-G thereunder.
"AMEX" means the American Stock Exchange, Inc.
"Average Market Price" for any date means the arithmetic
average of the Market Price on each of the two Trading Days, whether or not
consecutive, during the applicable Measurement Period having the lowest Market
Prices.
"Blackout Period" means any Trading Day, but not in excess of
an aggregate of 30 Trading Days, occurring after the SEC Effective Date as to
which the Corporation has notified the holders of shares of Series B Convertible
Preferred Stock on or prior to such Trading Day in accordance with Section 3(f)
of the Registration Rights Agreements that they are required, pursuant to
Section 3(f) of the Registration Rights Agreements, to suspend offers and sales
of shares of Common Stock pursuant to the Registration Statement as a result of
an event or circumstance which relates to a development concerning the business
of the Corporation which development occurred subsequent to the later of (x) the
SEC Effective Date and (y) the latest date prior to such notice on which the
Corporation has amended or supplemented the Registration Statement and as to
which the Board of Directors shall have determined in good faith that public
disclosure of such event or circumstance at such time would not be in the best
interests of the Corporation, which determination shall be set forth in a
resolution duly adopted by the Board of Directors and copies of which shall be
furnished to the holders of shares of Series B Convertible Preferred Stock;
provided, however, that not more than two periods of such Trading Days in any
period of 365 consecutive days shall be Blackout Periods.
"Board of Directors" or "Board" means the Board of Directors
of the Corporation.
"Ceiling Price" means, for any Conversion Date during any
period set forth below, the applicable price set forth below:
<TABLE>
<CAPTION>
Ceiling
Conversion Date Price
--------------- -----
<S> <C>
Issuance Date through 90th day after Issuance Date $7.91
91st through 270th day after Issuance Date $7.6275
271st day after Issuance Date and thereafter $7.345
</TABLE>
(subject to equitable adjustments from time to time on terms reasonably
acceptable to the Majority Holders for stock splits, stock dividends,
combinations, recapitalizations, reclassifications and similar events occurring
or with respect to which "ex-" trading commences on or after the date of filing
of this Certificate of Designations with the Secretary of State of the
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State of Delaware); provided, however, that, notwithstanding any other provision
hereof, the Ceiling Price applicable to a particular conversion shall be subject
to reduction as provided in Section 10(b)(6); provided further, however, that if
a Registration Event occurs, then, in addition to any other right or remedy of
any holder of shares of Series B Convertible Preferred Stock, thereafter the
Ceiling Price shall be permanently reduced on each Computation Date by an amount
equal to two-and-one-half percent (pro rated in the case of any Computation Date
that is less than 30 days after a Registration Event occurs or less than 30 days
after another Computation Date) of the amount that the Ceiling Price otherwise
would have been without any reduction pursuant to this proviso.
"Closing Bid Price" of any security on any date means the
closing bid price of such security on such date on the securities exchange or
other market on which such security is listed for trading which constitutes the
principal securities market for such security, as reported by Bloomberg, L.P.
"Common Stock" means the Common Stock, $.01 par value, of the
Corporation.
"Computation Date" means, if a Registration Event occurs, any
of (1) the date which is 30 days after such Registration Event occurs, if any
Registration Event is continuing on such date, (2) each date which is 30 days
after a Computation Date, if any Registration Event is continuing on such date,
and (3) the date on which all Registration Events cease to continue.
"Conversion Agent" means ChaseMellon Shareholder Services,
L.L.C., or its duly appointed successor, who will issue shares of Common Stock
upon conversion of the Series B Convertible Preferred Stock pursuant to the
Transfer Agent Instructions.
"Conversion Amount" initially shall be equal to $1,000.00,
subject to adjustment as herein provided.
"Conversion Date" means, with respect to each conversion of
shares of Series B Convertible Preferred Stock pursuant to Section 10, the date
on which the Conversion Notice relating to such conversion is actually received
by the Corporation, whether by mail, courier, personal service, telephone line
facsimile transmission or other means, in case of a conversion pursuant to
Section 10(a).
"Conversion Notice" means a written notice, duly signed by or
on behalf of a holder of shares of Series B Convertible Preferred Stock, stating
the number of shares of Series B Convertible Preferred Stock to be converted in
the form specified in the Subscription Agreements.
"Conversion Percentage" means, for any Conversion Date during
any period set forth below, the applicable percentage set forth below:
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<TABLE>
<CAPTION>
Conversion
Conversion Date Percentage
--------------- ----------
<S> <C>
Issuance Date through 90th day after Issuance Date 100.0%
91st through 270th day after Issuance Date 92.5%
271st day after Issuance Date and thereafter 87.5%
</TABLE>
; provided, however, that, notwithstanding any other provision hereof, if a
Registration Event occurs, then each percentage stated above shall be
permanently reduced by two-and-one-half percentage points on each Computation
Date (pro rated in the case of any Computation Date which is less than 30 days
after a Registration Event occurs or less than 30 days after another Computation
Date).
"Conversion Price" means:
(1) for any Conversion Date on or prior to the date
which is 90 days after the Issuance Date, $7.91 (subject to equitable
adjustments from time to time on terms reasonably acceptable to the Majority
Holders for stock splits, stock dividends, combinations, recapitalizations,
reclassifications and similar events occurring or with respect to which "ex-"
trading commences on or after the date of filing of this Certificate of
Designations with the Secretary of State of the State of Delaware); provided,
however, that if a Registration Event occurs, then, in addition to any other
right or remedy of any holder of shares of Series B Convertible Preferred Stock,
thereafter the price provided in this clause (i) shall be permanently reduced by
an amount equal to two-and-one-half percent (pro rated in the case of any
Computation Date that is less than 30 days after a Registration Event occurs or
less than 30 days after another Computation Date) of the amount that such price
otherwise would have been without any reduction pursuant to this proviso; and
(2) for any Conversion Date on or after the date which is 91
days after the Issuance Date, the lesser of:
(A) the product of (a) the Average Market Price for such date
times (b) the applicable Conversion Percentage; and
(B) the Ceiling Price;
provided, however, that the Conversion Price applicable to a particular
conversion shall be subject to reduction as provided in Section 10(b)(6).
"Conversion Rate" shall have the meaning provided in Section
10(a).
"Conversion Restriction Amount" means 1,500 shares of Series B
Convertible Preferred Stock.
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"Conversion Restriction Price" means $4.00 per share of Common
Stock (subject to equitable adjustments from time to time on terms reasonably
acceptable to the Majority Holders for stock splits, stock dividends,
combinations, recapitalizations, reclassifications and similar events occurring
or with respect to which "ex-" trading commences on or after the date of filing
of this Certificate of Designations with the Secretary of State of the State of
Delaware); provided, however, that if a Registration Event occurs, then, in
addition to any other right or remedy of any holder of shares of Series B
Convertible Preferred Stock, thereafter the price provided in this clause (i)
shall be permanently reduced by an amount equal to two-and-one-half percent (pro
rated in the case of any Computation Date that less than 30 days after a
Registration Event occurs or less than 30 days after another Computation Date)
of the amount that such price otherwise would have been without any reduction
pursuant to this proviso.
"Converted Market Price" means, for any share of Series B
Convertible Preferred Stock as of any date of determination, an amount equal to
the product obtained by multiplying (x) the number of shares of Common Stock
which would, at the time of such determination, be issuable on conversion in
accordance with Section 10(a) of one share of Series B Convertible Preferred
Stock and any accrued and unpaid dividends thereon and any accrued and unpaid
interest on dividends thereon in arrears if a Conversion Notice were given by
the holder of such share of Series B Convertible Preferred Stock on the date of
such determination (determined without regard to any limitation on conversion
based on beneficial ownership contained in 10(a)) times (y) the arithmetic
average of the Closing Bid Price of the Common Stock for the five consecutive
Trading Days ending on the Trading Day prior to the date of such determination.
"Corporation Optional Redemption Notice" means a notice given
by the Corporation to the holders of shares of Series B Convertible Preferred
Stock pursuant to Section 9(a) which notice shall state (1) that the Corporation
is exercising its right to redeem all or a portion of the outstanding shares of
Series B Convertible Preferred Stock pursuant to Section 9(a), (2) the number of
shares of Series B Convertible Preferred Stock held by such holder which are to
be redeemed, (3) the Redemption Price per share of Series B Convertible
Preferred Stock to be redeemed or the formula for determining the same,
determined in accordance herewith and (4) the applicable Redemption Date.
"Current Price" means with respect to any date the arithmetic
average of the Closing Bid Price of the Common Stock on the 30 consecutive
Trading Days commencing 45 Trading Days before such date.
"Dividend Shares" means shares of Series B Convertible
Preferred Stock issued as dividends on outstanding shares of Series B
Convertible Preferred Stock in accordance with Section 5(b).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder Optional Redemption Date" shall mean the date of
redemption of shares of Series B Convertible Preferred Stock pursuant to Section
11.
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"Inconvertibility Notice" shall have the meaning provided in
Section 7(a)(2).
"Issuance Date" means the first date of original issuance of
any shares of Series B Convertible Preferred Stock.
"Junior Dividend Stock" means, collectively, the Common Stock
and any other class or series of capital stock of the Corporation ranking junior
as to dividends to the Series B Convertible Preferred Stock.
"Junior Liquidation Stock" means the Common Stock or any other
class or series of the Corporation's capital stock ranking junior as to
liquidation rights to the Series B Convertible Preferred Stock.
"Letter Agreement" means the letter agreement, dated April 16,
1998, between the Corporation and Advantage Fund II Ltd. relating to the
issuance of shares of Series C Convertible Preferred Stock, as the same may be
amended from time to time.
"Liquidation Preference" means, for each share of Series B
Convertible Preferred Stock, the sum of (i) all dividends accrued and unpaid
thereon to the date of final distribution to such holders, (ii) accrued and
unpaid interest on dividends in arrears (computed in accordance with Section
5(a)) to the date of distribution, and (iii) $1,000.00.
"Majority Holders" means at any time the holders of shares of
Series B Convertible Preferred Stock which shares constitute a majority of the
outstanding shares of Series B Convertible Preferred Stock.
"Market Price" of the Common Stock on any date means the
lowest sale price (regular way) for one share of Common Stock on such date on
the first applicable among the following: (a) the national securities exchange
on which the shares of Common Stock are listed which constitutes the principal
securities market for the Common Stock, (b) the Nasdaq, if the Nasdaq
constitutes the principal market for the Common Stock on such date, or (c) the
Nasdaq SmallCap, if the Nasdaq SmallCap constitutes the principal securities
market for the Common Stock on such date, in any such case as reported by
Bloomberg, L.P.; provided, however, that if during any Measurement Period or
other period during which the Market Price is being determined:
(i) The Corporation shall declare or pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares
of Common Stock or fix any record date for any such action, then the
Market Price for each day in such Measurement Period
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or such other period which day is prior to the earlier of (1) the date
fixed for the determination of stockholders entitled to receive such
dividend or other distribution and (2) the date on which ex-dividend
trading in the Common Stock with respect to such dividend or
distribution begins shall be reduced by multiplying the Market Price
(determined without regard to this proviso) for each such day in such
Measurement Period or such other period by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding at the
close of business on the earlier of (1) the record date fixed for such
determination and (2) the date on which ex-dividend trading in the
Common Stock with respect to such dividend or distribution begins and
the denominator of which shall be the sum of such number of shares and
the total number of shares constituting such dividend or other
distribution;
(ii) The Corporation shall issue rights or warrants to all
holders of its outstanding shares of Common Stock, or fix a record date
for such issuance, which rights or warrants entitle such holders (for a
period expiring within forty-five (45) days after the date fixed for
the determination of stockholders entitled to receive such rights or
warrants) to subscribe for or purchase shares of Common Stock at a
price per share less than the Market Price (determined without regard
to this proviso) for any day in such Measurement Period or such other
period which day is prior to the end of such 45-day period, then the
Market Price for each such day shall be reduced so that the same shall
equal the price determined by multiplying the Market Price (determined
without regard to this proviso) by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding at the close
of business on the record date fixed for the determination of
stockholders entitled to receive such rights or warrants plus the
number of shares which the aggregate offering price of the total number
of shares so offered would purchase at such Market Price, and the
denominator of which shall be the number of shares of Common Stock
outstanding on the close of business on such record date plus the total
number of additional shares of Common Stock so offered for subscription
or purchase. In determining whether any rights or warrants entitle the
holders to subscribe for or purchase shares of Common Stock at less
than the Market Price (determined without regard to this proviso), and
in determining the aggregate offering price of such shares of Common
Stock, there shall be taken into account any consideration received for
such rights or warrants, the value of such consideration, if other than
cash, to be determined in good faith by a resolution of the Board of
Directors of the Corporation;
(iii) The outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock or a record
date for any such subdivision shall be fixed, then the Market Price of
the Common Stock for each day in such Measurement Period or such other
period which day is prior to the earlier of (1) the day upon which such
subdivision becomes effective and (2) the date on which ex-dividend
trading in the Common Stock with respect to such subdivision begins
shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock shall be combined into a smaller
number of shares of Common Stock, the Market Price for each day in such
Measurement Period or such other period which day is prior to the
earlier of (1) the date on which such combination becomes effective and
(2) the date on which trading in the Common Stock on a basis which
gives effect to such combination begins, shall be proportionately
increased;
(iv) The Corporation shall, by dividend or otherwise,
distribute to all holders of its Common Stock shares of any class of
capital stock of the Corporation (other than any
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<PAGE> 8
dividends or distributions to which clause (i) of this proviso applies)
or evidences of its indebtedness, cash or other assets (including
securities, but excluding any rights or warrants referred to in clause
(ii) of this proviso and dividends and distributions paid exclusively
in cash and excluding any capital stock, evidences of indebtedness,
cash or assets distributed upon a merger or consolidation) (the
foregoing hereinafter in this clause (iv) of this proviso called the
"Securities"), or fix a record date for any such distribution, then, in
each such case, the Market Price for each day in such Measurement
Period or such other period which day is prior to the earlier of (1)
the record date for such distribution and (2) the date on which
ex-dividend trading in the Common Stock with respect to such
distribution begins shall be reduced so that the same shall be equal to
the price determined by multiplying the Market Price (determined
without regard to this proviso) by a fraction, the numerator of which
shall be the Market Price (determined without regard to this proviso)
for such trade less the fair market value (as determined in good faith
by resolution of the Board of Directors of the Corporation) on such
date of the portion of the Securities so distributed or to be
distributed applicable to one share of Common Stock and the denominator
of which shall be the Market Price (determined without regard to this
proviso); provided, however, that in the event the then fair market
value (as so determined) of the portion of the Securities so
distributed applicable to one share of Common Stock is equal to or
greater than the Market Price (determined without regard to this clause
(iv) of this proviso) for any such Trading Day, in lieu of the
foregoing adjustment, adequate provision shall be made so that the
holders of shares of Series B Convertible Preferred Stock shall have
the right to receive in payment of dividends on the shares of Series B
Convertible Preferred Stock or upon conversion of the shares of Series
B Convertible Preferred Stock, as the case may be, the amount of
Securities the holders of shares of Series B Convertible Preferred
Stock would have received had the number of shares of Common Stock to
be issued in payment of such dividends on the shares of Series B
Convertible Preferred Stock been issued, or had the holders of shares
of Series B Convertible Preferred Stock converted the shares of Series
B Convertible Preferred Stock, in either such case immediately prior to
the record date for such distribution. If the Board of Directors of the
Corporation determines the fair market value of any distribution for
purposes of this clause (iv) by reference to the actual or when issued
trading market for any securities comprising all or part of such
distribution, it must in doing so consider the prices in such market on
the same day for which an adjustment in the Market Price is being
determined.
For purposes of this clause (iv) and clauses (i) and (ii) of
this proviso, any dividend or distribution to which this clause (iv) is
applicable that also includes shares of Common Stock, or rights or
warrants to subscribe for or purchase shares of Common Stock to which
clause (i) or (ii) of this proviso applies (or both), shall be deemed
instead to be (1) a dividend or distribution of the evidences of
indebtedness, assets, shares of capital stock, rights or warrants other
than such shares of Common Stock or rights or warrants to which clause
(i) or (ii) of this proviso applies (and any Market Price reduction
required by this clause (iv) with respect to such dividend or
distribution shall then be made) immediately followed by (2) a dividend
or distribution of such shares of Common Stock or such rights or
warrants (and any further Market Price reduction required by clauses
(i) and (ii) of this
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<PAGE> 9
proviso with respect to such dividend or distribution shall then be
made), except that any shares of Common Stock included in such dividend
or distribution shall not be deemed "outstanding at the close of
business on the date fixed for such determination" within the meaning
of clause (i) of this proviso;
(v) The Corporation or any subsidiary of the Corporation shall
(x) by dividend or otherwise, distribute to all holders of its Common
Stock cash in (or fix any record date for any such distribution), or
(y) repurchase or reacquire shares of its Common Stock (other than an
Option Share Surrender) for, in either case, an aggregate amount that,
combined with (1) the aggregate amount of any other such distributions
to all holders of its Common Stock made exclusively in cash after the
Issuance Date and within the twelve (12) months preceding the date of
payment of such distribution, and in respect of which no adjustment
pursuant to this clause (v) has been made, (2) the aggregate amount of
any cash plus the fair market value (as determined in good faith by a
resolution of the Board of Directors of the Corporation) of
consideration paid in respect of any repurchase or other reacquisition
by the Corporation or any subsidiary of the Corporation of any shares
of Common Stock (other than an Option Share Surrender) made after the
Issuance Date and within the twelve (12) months preceding the date of
payment of such distribution or making of such repurchase or
reacquisition, as the case may be, and in respect of which no
adjustment pursuant to this clause (v) has been made, and (3) the
aggregate of any cash plus the fair market value (as determined in good
faith by a resolution of the Board of Directors of the Corporation) of
consideration payable in respect of any Tender Offer by the Corporation
or any of its subsidiaries for all or any portion of the Common Stock
concluded within the twelve (12) months preceding the date of payment
of such distribution or completion of such repurchase or reacquisition,
as the case may be, and in respect of which no adjustment pursuant to
clause (vi) of this proviso has been made (such aggregate amount
combined with the amounts in clauses (1), (2) and (3) above being the
"Combined Amount"), exceeds 10% of the product of the Market Price
(determined without regard to this proviso) for any day in such
Measurement Period or such other period which day is prior to the
earlier of (A) the record date with respect to such distribution and
(B) the date on which ex-dividend trading in the Common Stock with
respect to such distribution begins or the date of such repurchase or
reacquisition, as the case may be, times the number of shares of Common
Stock outstanding on such date, then, and in each such case, the Market
Price for each such day shall be reduced so that the same shall equal
the price determined by multiplying the Market Price (determined
without regard to this proviso) for such day by a fraction (i) the
numerator of which shall be equal to the Market Price (determined
without regard to this proviso) for such day less an amount equal to
the quotient of (x) the excess of such Combined Amount over such 10%
and (y) the number of shares of Common Stock outstanding on such day
and (ii) the denominator of which shall be equal to the Market Price
(determined without regard to this proviso) for such day; provided,
however, that in the event the portion of the cash so distributed or
paid for the repurchase or reacquisition of shares (determined per
share based on the number of shares of Common Stock outstanding)
applicable to one share of Common Stock is equal to or greater than the
Market Price (determined without regard to this clause (v) of this
proviso) of the Common Stock for any such day, then in lieu of the
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foregoing adjustment with respect to such day, adequate provision shall
be made so that the holders of shares of Series B Convertible Preferred
Stock shall have the right to receive in payment of dividends on shares
of Series B Convertible Preferred Stock or upon conversion of shares of
Series B Convertible Preferred Stock, as the case may be, the amount of
cash the holders of shares of Series B Convertible Preferred Stock
would have received had the number of shares of Common Stock to be
issued in payment of such dividends on shares of Series B Convertible
Preferred Stock been issued, or had the holders of shares of Series B
Convertible Preferred Stock converted shares of Series B Convertible
Preferred Stock, in either such case, immediately prior to the record
date for such distribution or the payment date of such repurchase, as
applicable; or
(vi) A Tender Offer made by the Corporation or any of its
subsidiaries for all or any portion of the Common Stock shall expire and
such Tender Offer (as amended upon the expiration thereof) shall require
the payment to stockholders (based on the acceptance (up to any maximum
specified in the terms of the Tender Offer) of Purchased Shares (as
defined below)) of an aggregate consideration having a fair market value
(as determined in good faith by resolution of the Board of Directors of
the Corporation) that combined together with (1) the aggregate of the
cash plus the fair market value (as determined in good faith by a
resolution of the Board of Directors of the Corporation), as of the
expiration of such Tender Offer, of consideration payable in respect of
any other Tender Offers, by the Corporation or any of its subsidiaries
for all or any portion of the Common Stock expiring within the 12 months
preceding the expiration of such Tender Offer and in respect of which no
adjustment pursuant to this clause (vi) has been made, (2) the aggregate
amount of any cash plus the fair market value (as determined in good
faith by a resolution of the Board of Directors of the Corporation) of
consideration paid in respect of any repurchase or other reacquisition
by the Corporation or any subsidiary of the Corporation of any shares of
Common Stock (other than an Option Share Surrender) made after the
Issuance Date and within the 12 months preceding the expiration of such
Tender Offer and in respect of which no adjustment pursuant to clause
(v) of this proviso has been made, and (3) the aggregate amount of any
distributions to all holders of Common Stock made exclusively in cash
within 12 months preceding the expiration of such Tender Offer and in
respect of which no adjustment pursuant to clause (v) of this proviso
has been made, exceeds 10% of the product of the Market Price
(determined without regard to this proviso) for any day in such period
times the number of shares of Common Stock outstanding on such day,
then, and in each such case, the Market Price for such day shall be
reduced so that the same shall equal the price determined by multiplying
the Market Price (determined without regard to this proviso) for such
day by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding on such day multiplied by the Market Price
(determined without regard to this proviso) for such day and the
denominator of which shall be the sum of (x) the fair market value
(determined as aforesaid) of the aggregate consideration payable to
stockholders based on the acceptance (up to any maximum specified in the
terms of the Tender Offer) of all shares validly tendered and not
withdrawn as of the last time tenders could have been made pursuant to
such Tender Offer (the "Expiration Time") (the shares deemed so
accepted, up to any such maximum, being referred to as the "Purchased
Shares") and (y)
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<PAGE> 11
the product of the number of shares of Common Stock outstanding (less
any Purchased Shares) on such day times the Market Price (determined
without regard to this proviso) of the Common Stock on the Trading Day
next succeeding the Expiration Time. If the application of this clause
(vi) to any Tender Offer would result in an increase in the Market
Price (determined without regard to this proviso) for any trade, no
adjustment shall be made for such Tender Offer under this clause (vi)
for such day.
"Maximum Share Amount" means 3,769,000 shares, or such greater
number as permitted by the rules of the Nasdaq (such amount to be subject to
equitable adjustment from time to time on terms reasonably acceptable to the
Majority Holders for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring or
with respect to which "ex-" trading commences after the date of filing this
Certificate of Designations with the Secretary of State of the State of
Delaware), of Common Stock; provided, however, that if (1) shares of Series C
Convertible Preferred Stock are issued, (2) the issuance thereof or the issuance
of shares of Common Stock upon conversion of shares of Series C Convertible
Preferred Stock is required to be integrated with the issuance of the shares of
Series B Convertible Preferred Stock or the issuance of shares of Common Stock
upon conversion of shares of Series C Convertible Preferred Stock for purposes
of Rule 4460(i) of the Nasdaq and (3) the Stockholder Approval has not been
obtained or waived by the Nasdaq, then the Maximum Share Amount in effect
immediately prior thereto shall be reduced to an amount which represents a pro
rata portion of such Maximum Share Amount prior to reduction pursuant to this
proviso based on the number of shares of Series B Convertible Preferred Stock
originally issued on the Issuance Date for a purchase price of $1,000.00 per
share and the number of shares of Series C Convertible Preferred Stock
originally issued for a purchase price of $1,000.00 per share.
"Measurement Period" means, with respect to any date during a
period specified below, the number of consecutive Trading Days specified below
ending on the Trading Day prior to such date:
<TABLE>
<CAPTION>
Number of
Date Trading Days
---- ------------
<S> <C>
Issuance Date through 90th day after Issuance Date 10
91st through 270th day after Issuance Date 12
271st day after Issuance Date and thereafter 15
</TABLE>
"Nasdaq" means the Nasdaq National Market.
"Nasdaq SmallCap" means the Nasdaq SmallCap Market.
"NYSE" means the New York Stock Exchange, Inc.
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<PAGE> 12
"Option Share Surrender" means the surrender of shares of
Common Stock to the Corporation in payment of the exercise price or tax
obligations incurred in connection with the exercise of a stock option granted
by the Corporation to any of its employees, directors or consultants.
"Optional Redemption Event" means any one of the following
events:
(1) For any period of five consecutive Trading Days there
shall be no closing bid price of the Common Stock on any national
securities exchange, the Nasdaq or the Nasdaq SmallCap;
(2) The Common Stock ceases to be listed for trading on
any of the NYSE, the AMEX, the Nasdaq or the Nasdaq SmallCap;
(3) The inability for 30 or more days (whether or not
consecutive) of any holder of shares of Series B Convertible Preferred
Stock to sell such shares of Common Stock issued or issuable on
conversion of shares of Series B Convertible Preferred Stock pursuant to
the Registration Statement for any reason other than a Blackout Period
on each of such 30 days;
(4) The Corporation shall fail or default in the timely
performance of any material obligation (including, without limitation,
the obligation to issue shares of Common Stock upon conversion of shares
of Series B Convertible Preferred Stock as and when required by Section
10) to a holder of shares of Series B Convertible Preferred Stock under
the terms of this Certificate of Designations or under the Registration
Rights Agreement with such holder or any other agreements or documents
entered into in connection with the issuance of shares of Series B
Convertible Preferred Stock, as such instruments may be amended from
time to time;
(5) The taking of any action, including any amendment to
the Corporation's Certificate of Incorporation, without the consent of
the Majority Holders which materially and adversely affects the rights
of any holder of shares of Series B Convertible Preferred Stock; or
(6) Any consolidation or merger of the Corporation with or
into another entity (other than a merger or consolidation of a
subsidiary of the Corporation into the Corporation or a wholly-owned
subsidiary of the Corporation) where the stockholders of the Corporation
immediately prior to such transaction do not collectively own at least
51% of the outstanding voting securities of the surviving corporation of
such consolidation or merger immediately following such transaction or
the common stock of such surviving corporation is not listed for trading
on the NYSE, the AMEX, the Nasdaq or the Nasdaq SmallCap or any sale or
other transfer of all or substantially all of the assets of the
Corporation (other than such a sale or other transfer to a wholly-owned
subsidiary of the Corporation).
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<PAGE> 13
"Optional Redemption Notice" means a notice from a holder of
shares of Series B Convertible Preferred Stock to the Corporation which states
(1) that the holder delivering such notice is thereby requiring the Corporation
to redeem shares of Series B Convertible Preferred Stock pursuant to Section 11,
(2) in general terms the Optional Redemption Event giving rise to such
redemption, and (3) the number of shares of Series B Convertible Preferred Stock
held by such holder which are to be redeemed.
"Optional Redemption Price" means the greater of (i) the
Premium Price on the applicable redemption date, and (ii) Converted Market Price
on the applicable redemption date.
"Parity Dividend Stock" means any class or series or the
Corporation's capital stock ranking, as to dividends, on a parity with the
Series B Convertible Preferred Stock.
"Parity Liquidation Stock" means any class or series of the
Corporation's capital stock having parity as to liquidation rights with the
Series B Convertible Preferred Stock.
"Par Redemption Date" means the date of redemption of shares
of Series B Convertible Preferred Stock pursuant to Section 9(b), determined in
accordance therewith.
"Par Redemption Event" means that, during any period of 20
consecutive Trading Days commencing on or after the date which is 361 days after
the Issuance Date, the Market Price of the Common Stock shall be at least equal
to 150% of the Ceiling Price on each Trading Day in such period.
"Par Redemption Notice" means a notice given by the
Corporation to each holder of Series B Convertible Preferred Stock pursuant to
Section 9(b), which notice shall state (1) that the Corporation is exercising
its right to redeem all outstanding shares of Series B Convertible Preferred
Stock pursuant to Section 9(b), (2) if such right is being exercised by reason
of a Par Redemption Event, that a Par Redemption Event has occurred the date on
which such Par Redemption Event occurred and a brief statement of the facts
showing such occurrence, (3) the number of shares of Series B Convertible
Preferred Stock held by such holder which are to be redeemed, (4) the Par
Redemption Price per share of Series B Convertible Preferred Stock held by such
holder which are to be redeemed, determined in accordance herewith, and (5) the
Par Redemption Date.
"Par Redemption Price" on any date means an amount equal to
the sum of (a) $1,000 plus (b) an amount equal to the accrued but unpaid
dividends on the share of Series B Convertible Preferred Stock to be redeemed to
the Par Redemption Date, plus (c) an amount equal to the accrued and unpaid
interest on dividends in arrears on such share of Series B Convertible Preferred
Stock to the Par Redemption Date (determined as provided in Section 5).
"Premium Percentage" means 115%.
"Premium Price" means, for any share of Series B Convertible
Preferred Stock as of any date of determination, the product obtained by
multiplying (a) the sum of (1) the
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<PAGE> 14
Conversion Amount plus (2) an amount equal to the accrued but unpaid dividends
on such share of Series B Convertible Preferred Stock to the date of
determination, plus (3) an amount equal to the accrued and unpaid interest on
dividends in arrears (as provided in Section 5) to the date of determination
times (b) the Premium Percentage.
"Redemption Date" means the date of a redemption of shares of
Series B Convertible Preferred Stock pursuant to Section 9(a), as the case may
be, determined in accordance therewith.
"Redemption Price" means, with respect to each Redemption
Date, the greater of (A) the Premium Price on the Redemption Date and (B) the
Converted Market Price on such Redemption Date.
"Registration Event" shall mean (1) the Registration Statement
is not effective within 90 days after the Issuance Date (other than solely as a
result of a material misstatement or omission in the Registration Statement
based solely on information furnished in writing to the Corporation by a holder
of shares of Series B Convertible Preferred Stock expressly for use in
connection with preparation of the Registration Statement, so long as the
Corporation shall have used its best efforts to amend the Registration Statement
to correct such misstatement or omission), (2) the Company fails to file the
Registration Statement with the SEC within 30 days after the Issuance Date
(other than solely as a result of a material misstatement or omission in the
Registration Statement based solely on information furnished in writing to the
Corporation by a holder of shares of Series B Convertible Preferred Stock
expressly for use in connection with preparation of the Registration Statement,
so long as the Corporation shall have used its best efforts to correct such
misstatement or omission and file the Registration Statement in a timely
fashion), (3) the Company fails to submit a request for acceleration of the
effective date of the Registration Statement in accordance with Section 3(a) of
the Registration Rights Agreements, (4) the Registration Statement shall cease
to be available for use by any holder of shares of Series B Convertible
Preferred Stock who is named therein as a selling stockholder for any reason
(including, without limitation, by reason of an SEC stop order, a material
misstatement or omission in the Registration Statement or the information
contained in the Registration Statement having become outdated) other than a
Blackout Period or by reason of material misstatement or omission in the
Registration Statement based solely on information furnished in writing to the
Corporation by a holder of shares of Series B Convertible Preferred Stock
expressly for use in connection with preparation of the Registration Statement
so long as the Corporation complies with Section 3(f) of the Registration Rights
Agreement; provided, however, that no Registration Event pursuant to this clause
(4) shall be deemed to occur prior to the SEC Effective Date, (5) the Common
Stock ceases to be listed for trading on any of the NYSE, the AMEX, the Nasdaq
or the Nasdaq SmallCap, or (6) a holder of shares of Series B Convertible
Preferred Stock having become unable to convert any shares of Series B
Convertible Preferred Stock in accordance with Section 10(a) as a result of the
Corporation's failure to comply with its obligations under Section 10.
"Registration Rights Agreements" means the several
Registration Rights Agreements entered into between the Corporation and the
original holders of the shares of Series
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<PAGE> 15
B Convertible Preferred Stock, as amended or modified from time to time in
accordance with their respective terms.
"Registration Statement" means the Registration Statement
required to be filed by the Corporation with the SEC pursuant to Section 2(a) of
the Registration Rights Agreements.
"Rights Agreement" means the Rights Agreement, dated as of
February 27, 1996, between the Corporation and First Interstate Bank at
Washington, N.A., as Rights Agent.
"SEC" means the United States Securities and Exchange
Commission.
"SEC Effective Date" means the date the Registration Statement
is first declared effective by the SEC.
"Senior Dividend Stock" means any class or series of capital
stock of the Corporation ranking senior as to dividends to the Series B
Convertible Preferred Stock.
"Senior Liquidation Stock" means any class or series of
capital stock of the Corporation ranking senior as to liquidation rights to the
Series B Convertible Preferred Stock.
"Series B Convertible Preferred Stock" means the Series B
Convertible Preferred Stock, $.01 par value, of the Corporation.
"Series C Convertible Preferred Stock" means Series C
Convertible Preferred Stock, $.01 par value, of the Corporation which may be
issued pursuant to the Letter Agreement.
"Share Limitation Redemption Date" shall mean each date on
which the Corporation is required to redeem shares of Series B Convertible
Preferred Stock as provided in Section 7(a).
"Share Limitation Redemption Price" means the greater of (i)
the Premium Price on the applicable Share Limitation Redemption Date and (ii)
the Converted Market Price on the applicable Share Limitation Redemption Date.
"Stockholder Approval" shall mean the approval by a majority
of the votes cast by the holders of shares of Common Stock (in person or by
proxy) at a meeting of the stockholders of the Corporation (duly convened at
which a quorum was present), or a written consent of holders of shares of Common
Stock entitled to such number of votes given without a meeting, of the issuance
by the Corporation of 20% or more of the Common Stock of the Corporation
outstanding on the Issuance Date for less than the greater of the book or market
value of such Common Stock on conversion of the Series B Convertible Preferred
Stock, as and to the extent required under Rule 4460(i) of the Nasdaq as in
effect from time to time or any successor provision.
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<PAGE> 16
"Subscription Agreements" means the several Subscription
Agreements by and between the Corporation and the original holders of shares of
Series B Convertible Preferred Stock pursuant to which the shares of Series B
Convertible Preferred Stock were issued.
"Tender Offer" means a tender offer or exchange offer.
"Trading Day" means a day on whichever of (x) the national
securities exchange, (y) the Nasdaq or (z) the Nasdaq SmallCap which at the time
constitutes the principal securities market for the Common Stock is open for
general trading of securities.
"Transfer Agent Instructions" means the Transfer Agent
Instructions, dated as of April 17, 1998, from the Corporation to the Conversion
Agent for the benefit of the holders of shares of Series B Convertible Preferred
Stock.
SECTION 2. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series B Convertible Preferred Stock", and the number of
shares constituting the Series B Convertible Preferred Stock shall be 8,710, and
shall not be subject to increase. Of the authorized shares of Series B
Convertible Preferred Stock, 1,210 shares may be issued only as dividends on the
outstanding shares of Series B Convertible Preferred Stock.
SECTION 3. SERIES B CONVERTIBLE PREFERRED STOCK CAPITAL. For
purposes of Section 154 of the General Corporation Law of the State of Delaware,
the amount to be represented in the Series B Convertible Preferred Stock capital
of the Corporation at all times for each outstanding share of Series B
Convertible Preferred Stock shall be the greater of (i) the Premium Price at
such time and (ii) the Converted Market Price at such time. The Corporation
shall take such action as may be required to maintain the amount required by
this Section 3 to be represented in stated capital for the Series B Convertible
Preferred Stock not less frequently than monthly. Nothing in this Section 3
shall require the Corporation to prepare or present its financial statements
filed with the SEC or furnished to its stockholders on any basis other than in
accordance with generally accepted accounting principals.
SECTION 4. RANK. All Series B Convertible Preferred Stock
shall rank (i) senior to the Common Stock, now or hereafter issued, as to
payment of dividends and distribution of assets upon liquidation, dissolution,
or winding up of the Corporation, whether voluntary or involuntary, (ii) senior
to any additional series of the class of Preferred Stock which series the Board
of Directors may from time to time authorize, both as to payment of dividends
and as to distributions of assets upon liquidation, dissolution, or winding up
of the Corporation, whether voluntary or involuntary and (iii) senior to any
additional class of preferred stock (or series of preferred stock of such class)
which the Board of Directors or the stockholders may from time to time authorize
in accordance herewith, except, in the case of clauses (ii) or (iii) above, to
the extent specifically approved by the affirmative vote or consent of the
Majority Holders in accordance with Section 12(b).
SECTION 5. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of
shares of Series B Convertible Preferred Stock shall be entitled to receive,
when, as, and if declared by the Board
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<PAGE> 17
of Directors out of funds legally available for such purpose, dividends at the
rate of $50.00 per annum per share, and no more, which shall be fully
cumulative, shall accrue without interest (except as otherwise provided herein
as to dividends in arrears) from the date of original issuance of each share of
Series B Convertible Preferred Stock and shall be payable quarterly on January
15, April 15, July 15, and October 15 of each year commencing July 15, 1998
(except that if any such date is a Saturday, Sunday, or legal holiday, then such
dividend shall be payable on the next succeeding day that is not a Saturday,
Sunday, or legal holiday) to holders of record as they appear on the stock books
of the Corporation on such record dates, not more than 20 nor less than 10 days
preceding the payment dates for such dividends, as shall be fixed by the Board.
Dividends on the Series B Convertible Preferred Stock shall be paid in cash or,
subject to the limitations in Section 5(b) hereof, Dividend Shares or any
combination of cash and Dividend Shares, at the option of the Corporation as
hereinafter provided. The amount of the dividends payable per share of Series B
Convertible Preferred Stock for each quarterly dividend period shall be computed
by dividing the annual dividend amount by four. The amount of dividends payable
for the initial dividend period and any period shorter than a full quarterly
dividend period shall be computed on the basis of a 360-day year of twelve
30-day months. Dividends not paid on a payment date, whether or not such
dividends have been declared, will bear interest at the rate of 12% per annum
until paid (or such lesser rate as shall be the maximum rate allowable by
applicable law). Except as provided in the Rights Agreement, no dividends or
other distributions, other than the dividends payable solely in shares of any
Junior Dividend Stock, shall be paid or set apart for payment on any shares of
Junior Dividend Stock, and no purchase, redemption, or other acquisition shall
be made by the Corporation of any shares of Junior Dividend Stock (except for
Option Share Surrenders), unless and until all accrued and unpaid dividends on
the Series B Convertible Preferred Stock and interest on dividends in arrears at
the rate specified herein shall have been paid or declared and set apart for
payment.
If at any time any dividend on any Senior Dividend Stock shall
be in arrears, in whole or in part, no dividend shall be paid or declared and
set apart for payment on the Series B Convertible Preferred Stock unless and
until all accrued and unpaid dividends with respect to the Senior Dividend
Stock, including the full dividends for the then current dividend period, shall
have been paid or declared and set apart for payment, without interest. No full
dividends shall be paid or declared and set apart for payment on any Parity
Dividend Stock for any period unless all accrued but unpaid dividends (and
interest on dividends in arrears at the rate specified herein) have been, or
contemporaneously are, paid or declared and set apart for such payment on the
Series B Convertible Preferred Stock. No full dividends shall be paid or
declared and set apart for payment on the Series B Convertible Preferred Stock
for any period unless all accrued but unpaid dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of such full dividends. When dividends are not paid in full upon the
Series B Convertible Preferred Stock and the Parity Dividend Stock, all
dividends paid or declared and set apart for payment upon shares of Series B
Convertible Preferred Stock (and interest on dividends in arrears at the rate
specified herein) and the Parity Dividend Stock shall be paid or declared and
set apart for payment pro rata, so that the amount of dividends paid or declared
and set apart for payment per share on the Series B Convertible Preferred Stock
and the Parity Dividend Stock shall in all cases
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<PAGE> 18
bear to each other the same ratio that accrued and unpaid dividends per share on
the shares of Series B Convertible Preferred Stock and the Parity Dividend Stock
bear to each other.
Any references to "distribution" contained in this Section 5
shall not be deemed to include any stock dividend or distributions made in
connection with any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary.
(b) If the Corporation elects in the exercise of its sole
discretion to issue Dividend Shares in payment of dividends on the Series B
Convertible Preferred Stock in respect of any dividend payment date, the
Corporation shall issue and deliver, or cause to be issued and delivered, by the
third Trading Day after such dividend payment date to each holder of shares of
Series B Convertible Preferred Stock a certificate representing the number of
whole Dividend Shares arrived at by dividing (x) the total amount of cash
dividends such holder would be entitled to receive if the aggregate dividends on
the Series B Convertible Preferred Stock held by such holder which are being
paid in Dividend Shares were being paid in cash by (y) $1,000.00; provided,
however, that if certificates representing Dividend Shares are issued and
delivered to holders of Series B Convertible Preferred Stock subsequent to the
third Trading Day after a dividend payment date, the amount so divided into such
total amount of cash dividends will be reduced by $10.00 for each Trading Day
after the third Trading Day following such dividend payment date to the date of
delivery of Dividend Shares. No fractional Dividend Shares shall be issued in
payment of dividends. In lieu thereof, the Corporation shall pay cash in an
amount equal to the product of (x) the arithmetic average of the Closing Bid
Price of the Common Stock for the five consecutive Trading Days ending on the
Trading Day prior to such dividend payment date times (y) the number of shares
of Common Stock which the fraction of a Dividend Share which would otherwise be
issuable by the Corporation would be convertible in accordance with Section
10(a) if so converted on the applicable dividend payment date. The Corporation
shall not exercise its right to issue Dividend Shares in payment of dividends on
Series B Convertible Preferred Stock if:
(i) the number of shares of Series B Convertible Preferred
Stock at the time authorized, unissued and unreserved for all purposes,
or held in the Corporation's treasury, is insufficient to permit the
issuance of such number of Dividend Shares; or the number of shares of
Common Stock at the time authorized, unissued and unreserved for all
purposes, or held in the Corporation's treasury, is insufficient to
permit the conversion of such Dividend Shares into shares of Common
Stock;
(ii) the issuance or delivery of Dividend Shares as a dividend
payment or the issuance of shares of Common Stock upon conversion of
such Dividend Shares would require registration with or approval of any
governmental authority under any law or regulation, and such
registration or approval has not been effected or obtained;
(iii) the shares of Common Stock issuable upon conversion of
such Dividend Shares have not been authorized for listing, upon official
notice of issuance, on any securities exchange or market on which the
Common Stock is then listed; or have not been approved for quotation if
the Common Stock is traded in the over-the-counter market;
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<PAGE> 19
(iv) the Conversion Price is less than the par value of one
share of Common Stock;
(v) the shares of Common Stock issuable upon conversion of
such Dividend Shares (A) cannot be sold or transferred without
restriction by unaffiliated holders who receive such Dividend Shares or
(B) are no longer listed on any of the NYSE, the AMEX, the Nasdaq or the
Nasdaq SmallCap; or
(vi) an Optional Redemption Event shall have occurred and any
holder of shares of Series B Convertible Preferred Stock (A) shall be
entitled to exercise optional redemption rights under Section 11 of
shares of Series B Convertible Preferred Stock by reason of such
Optional Redemption Event or (B) shall have exercised optional
redemption rights under Section 11 by reason of such Optional Redemption
Event and the Corporation shall not have paid the Optional Redemption
Price to each holder.
Dividend Shares issued in payment of dividends on Series B
Convertible Preferred Stock pursuant to this Section and shares of Common Stock
issuable upon conversion of such Dividend Shares shall be, and for all purposes
shall be deemed to be, validly issued, fully paid and nonassessable shares of
the Corporation; the issuance and delivery thereof is hereby authorized; and the
delivery will be, and for all purposes shall be deemed to be, payment in full of
the cumulative dividends to which holders are entitled on the applicable
dividend payment date.
(c) Except as provided in the Rights Agreement, neither the
Corporation nor any subsidiary of the Corporation shall redeem, repurchase or
otherwise acquire in any one transaction or series of related transactions any
shares of Common Stock, Junior Dividend Stock or Junior Liquidation Stock if the
number of shares so repurchased, redeemed or otherwise acquired in such
transaction or series of related transactions (excluding any Option Share
Surrender) is more than either (x) 5.0% of the number of shares of Common Stock,
Junior Dividend Stock or Junior Liquidation Stock, as the case may be,
outstanding immediately prior to such transaction or series of related
transactions or (y) 1% of the number of shares of Common Stock, Junior Dividend
Stock or Junior Liquidation Stock, as the case may be, outstanding immediately
prior to such transaction or series of related transactions if such transaction
or series of related transactions is with any one person or group of affiliated
persons, unless the Corporation or such subsidiary offers to purchase for cash
from each holder of shares of Series B Convertible Preferred Stock at the time
of such redemption, repurchase or acquisition the same percentage of such
holder's shares of Series B Convertible Preferred Stock as the percentage of the
number of outstanding shares of Common Stock, Junior Dividend Stock or Junior
Liquidation Stock, as the case may be, to be so redeemed, repurchased or
acquired at a purchase price per share of Series B Convertible Preferred Stock
equal to the greater of (i) the Premium Price in effect on the date of purchase
pursuant to this Section 5(c) and (ii) the Converted Market Price on the date of
purchase pursuant to this Section 5(c).
(d) Neither the Corporation nor any subsidiary of the
Corporation shall (1) make any Tender Offer for outstanding shares of Common
Stock, unless the Corporation
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<PAGE> 20
contemporaneously therewith makes an offer, or (2) enter into an agreement
regarding a Tender Offer for outstanding shares of Common Stock by any person
other than the Corporation or any subsidiary of the Corporation, unless such
person agrees with the Corporation to make an offer, in either such case to each
holder of outstanding shares of Series B Convertible Preferred Stock to purchase
for cash at the time of purchase in such Tender Offer the same percentage of
shares of Series B Convertible Preferred Stock held by such holder as the
percentage of outstanding shares of Common Stock offered to be purchased in such
Tender Offer at a price per share of Series B Convertible Preferred Stock equal
to the greater of (i) the Premium Price in effect on the date of purchase
pursuant to this Section 5(d) and (ii) the Converted Market Price on the date of
purchase pursuant to this Section 5(d).
SECTION 6. LIQUIDATION PREFERENCE. In the event of a
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary, the holders of Series B Convertible Preferred Stock shall be
entitled to receive out of the assets of the Corporation, whether such assets
constitute stated capital or surplus of any nature, an amount per share of
Series B Convertible Preferred Stock equal to the Liquidation Preference, and no
more, before any payment shall be made or any assets distributed to the holders
of Junior Liquidation Stock; provided, however, that such rights shall accrue to
the holders of Series B Convertible Preferred Stock only in the event that the
Corporation's payments with respect to the liquidation preference of the holders
of Senior Liquidation Stock are fully met. After the liquidation preferences of
the Senior Liquidation Stock are fully met, the entire assets of the Corporation
available for distribution shall be distributed ratably among the holders of the
Series B Convertible Preferred Stock and any Parity Liquidation Stock in
proportion to the respective preferential amounts to which each is entitled (but
only to the extent of such preferential amounts). After payment in full of the
liquidation price of the shares of the Series B Convertible Preferred Stock and
the Parity Liquidation Stock, the holders of such shares shall not be entitled
to any further participation in any distribution of assets by the Corporation.
Neither a consolidation or merger of the Corporation with another corporation
nor a sale or transfer of all or part of the Corporation's assets for cash,
securities, or other property in and of itself will be considered a liquidation,
dissolution or winding up of the Corporation.
SECTION 7. MANDATORY REDEMPTION.
(a) MANDATORY REDEMPTION BASED ON MAXIMUM SHARE AMOUNT. (1)
Notwithstanding any other provision herein, unless the Stockholder Approval
shall have been obtained from the stockholders of the Corporation or waived by
the Nasdaq, so long as the Common Stock is listed on the Nasdaq or the Nasdaq
SmallCap the Corporation shall not be required to issue upon conversion of
shares of Series B Convertible Preferred Stock pursuant to Section 10 more than
the Maximum Share Amount. The Maximum Share Amount shall be allocated among the
shares of Series B Convertible Preferred Stock at the time of initial issuance
thereof pro rata based on the initial issuance of 7,500 shares of Series B
Convertible Preferred Stock. Each certificate for shares of Series B Convertible
Preferred Stock initially issued shall bear a notation as to the number of
shares constituting the portion of the Maximum Share Amount allocated to the
shares of Series B Convertible Preferred Stock represented by such certificate
for purposes of conversion thereof. The Corporation shall maintain records which
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show the number of shares of Series B Convertible Preferred Stock issued by the
Corporation pursuant to Section 5 as dividends on the shares of Series B
Convertible Preferred Stock represented by each certificate, which records shall
be controlling in the absence of manifest error. Each such additional share of
Series B Convertible Preferred Stock shall be allocated a portion of the Maximum
Share Amount allocated to the shares of Series B Convertible Preferred Stock in
respect of which such additional shares of Series B Convertible Preferred Stock
are issued as a dividend and the certificate for such additional shares of
Series B Convertible Preferred Stock shall bear a notation as to the certificate
number of the share of Series B Convertible Preferred Stock in respect of which
such additional share of Series B Convertible Preferred Stock is issued as a
dividend. Upon surrender of any certificate for shares of Series B Convertible
Preferred Stock for transfer or re-registration thereof (or, at the option of
the holder, for conversion pursuant to Section 10(a) of less than all of the
shares of Series B Convertible Preferred Stock represented thereby), the
Corporation shall make a notation on the new certificate issued upon such
transfer or re-registration or evidencing such unconverted shares, as the case
may be, as to the remaining number of shares of Common Stock from the Maximum
Share Amount remaining available for conversion of the shares of Series B
Convertible Preferred Stock evidenced by such new certificate. If any
certificate for shares of Series B Convertible Preferred Stock is surrendered
for split-up into two or more certificates representing an aggregate number of
shares of Series B Convertible Preferred Stock equal to the number of shares of
Series B Convertible Preferred Stock represented by the certificate so
surrendered (as reduced by any contemporaneous conversion of shares of Series B
Convertible Preferred Stock represented by the certificate so surrendered), each
certificate issued on such split-up shall bear a notation of the portion of the
Maximum Share Amount allocated thereto determined by pro rata allocation from
among the remaining portion of the Maximum Share Amount allocated to the
certificate so surrendered. If any shares of Series B Convertible Preferred
Stock represented by a single certificate are converted in full pursuant to
Section 10 or redeemed, all of the portion of the Maximum Share Amount allocated
to such shares of Series B Convertible Preferred Stock which remains unissued
after such conversion shall be re-allocated pro rata to the outstanding shares
of Series B Convertible Preferred Stock held of record by the holder of record
at the close of business on the date of such conversion of the shares of Series
B Convertible Preferred Stock so converted or redeemed, and if there shall be no
other shares of Series B Convertible Preferred Stock held of record by such
holder at the close of business on such date, then such portion of the Maximum
Share Amount shall be allocated pro rata among the shares of Series B
Convertible Preferred Stock outstanding on such date. If at any time the Maximum
Share Amount shall be adjusted pursuant to the proviso to the definition of
Maximum Share Amount, then (A) simultaneous with such adjustment the portion of
the Maximum Share Amount allocated to each certificate for shares of Series B
Convertible Preferred Stock shall be proportionately adjusted; and (B) if on any
date thereafter when shares of Series B Convertible Preferred Stock are
outstanding all outstanding shares of Series C Convertible Preferred Stock shall
have been converted or redeemed, any remaining portion of the Maximum Share
Amount which was re-allocated to the shares of Series C Convertible Preferred
Stock pursuant to such proviso and in respect of which shares of Common Stock
were not issued upon conversion of shares of Series C Convertible Preferred
Stock shall be allocated pro rata among the shares of Series B Convertible
Preferred Stock outstanding on such date.
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<PAGE> 22
(2) The Corporation shall promptly, but in no event later than
five business days after the occurrence, give notice to each holder of shares of
Series B Convertible Preferred Stock (by telephone line facsimile transmission
at such number as such holder has specified in writing to the Corporation for
such purposes or, if such holder shall not have specified any such number, by
overnight courier or first class mail, postage prepaid, at such holder's address
as the same appears on the stock books of the Corporation) and any holder of
shares of Series B Convertible Preferred Stock may at any time after the
occurrence give notice to the Corporation, in either case, if on any ten Trading
Days within any period of 20 consecutive Trading Days the Corporation would not
have been required to convert shares of Series B Convertible Preferred Stock of
such holder in accordance with Section 10(a) as a consequence of the limitations
set forth in Section 7(a)(1) had the shares of Series B Convertible Preferred
Stock held by such holder been converted in full into Common Stock on each such
day, determined without regard to the limitation, if any, on such holder
contained in the proviso to the second sentence of Section 10(a) (any such
notice, whether given by the Corporation or a holder, an "Inconvertibility
Notice"). If the Corporation shall have given or been required to give any
Inconvertibility Notice, or if a holder shall have given any Inconvertibility
Notice, then within ten Trading Days after such Inconvertibility Notice is given
or was required to be given, the holder receiving or giving, as the case may be,
such Inconvertibility Notice shall have the right by written notice to the
Corporation (which written notice may be contained in the Inconvertibility
Notice given by such holder) to direct the Corporation to redeem the portion of
such holder's shares of Series B Convertible Preferred Stock (which, if
applicable, shall be all of such holder's shares of Series B Convertible
Preferred Stock) as shall not, on the business day prior to the date of such
redemption, be convertible into shares of Common Stock by reason of the
limitations set forth in Section 7(a)(1) (determined without regard to the
limitation, if any, on beneficial ownership of Common Stock by such holder
contained in the proviso to the second sentence of Section 10(a)), within five
business days after such holder so directs the Corporation, at a price per share
equal to the Share Limitation Redemption Price. If a holder of shares of Series
B Convertible Preferred Stock directs the Corporation to redeem outstanding
shares of Series B Convertible Preferred Stock and, prior to the date the
Corporation is required to redeem such shares of Series B Convertible Preferred
Stock, the Corporation would have been able, within the limitations set forth in
Section 7(a)(1), to convert all of such holder's shares of Series B Convertible
Preferred Stock (determined without regard to the limitation, if any, on
beneficial ownership of shares of Common Stock by such holder contained in the
proviso to the second sentence of Section 10(a)) on any ten Trading Days within
any period of 15 consecutive Trading Days commencing after the period of 20
consecutive Trading Days which gave rise to the applicable Inconvertibility
Notice from the Corporation or such holder of shares of Series B Convertible
Preferred Stock, as the case may be, had all of such holder's shares of Series B
Convertible Preferred Stock been surrendered for conversion into Common Stock on
each of such ten Trading Days within such 15 Trading Day period, then the
Corporation shall not be required to redeem any shares of Series B Convertible
Preferred Stock by reason of such Inconvertibility Notice.
(3) Notwithstanding the giving of any Inconvertibility Notice
by the Corporation to the holders of Series B Convertible Preferred Stock
pursuant to Section 7(a)(2) or the giving or the absence of any notice by the
holders of the Series B Convertible Preferred Stock in response thereto or any
redemption of shares of Series B Convertible Preferred Stock pursuant
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<PAGE> 23
to Section 7(a)(2), thereafter the provisions of Section 7(a)(2) shall continue
to be applicable on any occasion unless the Stockholder Approval shall have been
obtained from the stockholders of the Corporation or waived by the Nasdaq.
(4) On each Share Limitation Redemption Date (or such later
date as a holder of shares of Series B Convertible Preferred Stock shall
surrender to the Corporation the certificate(s) for the shares of Series B
Convertible Preferred Stock being redeemed pursuant to this Section 7(a)), the
Corporation shall make payment in immediately available funds of the applicable
Share Limitation Redemption Price to such holder of shares of Series B
Convertible Preferred Stock to be redeemed to or upon the order of such holder
as specified by such holder in writing to the Corporation at least one business
day prior to such Share Limitation Redemption Date. Upon redemption of less than
all of the shares of Series B Convertible Preferred Stock evidenced by a
particular certificate, promptly, but in no event later than three business days
after surrender of such certificate to the Corporation, the Corporation shall
issue a replacement certificate for the shares of Series B Convertible Preferred
Stock evidenced by such certificate which have not been redeemed. Only whole
shares of Series B Convertible Preferred Stock may be redeemed.
(B) NO OTHER MANDATORY REDEMPTION. The shares of Series B
Convertible Preferred Stock shall not be subject to mandatory redemption by the
Corporation except as provided in Section 7(a).
SECTION 8. NO SINKING FUND. The shares of Series B Convertible
Preferred Stock shall not be subject to the operation of a purchase, retirement
or sinking fund.
SECTION 9. OPTIONAL REDEMPTION.
(a) CORPORATION OPTIONAL REDEMPTION. If (1) the Corporation
shall be in compliance in all material respects with its obligations to the
holders of shares of Series B Convertible Preferred Stock (including, without
limitation, its obligations under the Subscription Agreements, the Registration
Rights Agreements and the provisions of this Certificate of Designations), (2)
on the date the Corporation Optional Redemption Notice is given and at all times
until the Redemption Date, the Registration Statement is effective and available
for use by each holder of shares of Series B Convertible Preferred Stock for the
resale of shares of Common Stock acquired by such holder upon conversion of all
shares of Series B Convertible Preferred Stock held by such holder and (3) no
Optional Redemption Event shall have occurred with respect to which, on the date
a Redemption Notice is to be given or on the Redemption Date, any holder of
shares of Series B Convertible Preferred Stock (A) shall be entitled to exercise
optional redemption rights under Section 11 by reason of such Optional
Redemption Event or (B) shall have exercised optional redemption rights under
Section 11 by reason of such Optional Redemption Event and the Corporation shall
not have paid the Optional Redemption Price to such holder, then the Corporation
shall have the right, exercisable by giving a Corporation Optional Redemption
Notice not less than 30 days or more than 60 days prior to the Redemption Date
to all holders of record of the shares of Series B Convertible Preferred Stock,
at any time to redeem all or from time to time to redeem any part of the
outstanding shares of Series B Convertible
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<PAGE> 24
Preferred Stock in accordance with this Section 9(a). If the Corporation shall
redeem less than all outstanding shares of Series B Convertible Preferred Stock,
such redemption shall be made as nearly as practical pro rata from all holders
of shares of Series B Convertible Preferred Stock. Any Corporation Optional
Redemption Notice under this Section 9(a) shall be given to the holders of
record of the shares of Series B Convertible Preferred Stock at their addresses
appearing on the records of the Corporation; provided, however, that any failure
or defect in the giving of such notice to any such holder shall not affect the
validity of notice to or the redemption of shares of Series B Convertible
Preferred Stock of any other holder. On the Redemption Date (or such later date
as a holder of shares of Series B Convertible Preferred Stock surrenders to the
Corporation the certificate(s) for shares of Series B Convertible Preferred
Stock to be redeemed pursuant to this Section 9(a)), the Corporation shall make
payment of the applicable Redemption Price to each holder of shares of Series B
Convertible Preferred Stock to be redeemed in immediately available funds to
such account as specified by such holder in writing to the Corporation at least
one business day prior to the Redemption Date. A holder of shares of Series B
Convertible Preferred Stock to be redeemed pursuant to this Section 9(a) shall
be entitled to convert such shares of Series B Convertible Preferred Stock in
accordance with Section 10 into shares of Common Stock (1) through the day prior
to the Redemption Date and (2) if the Corporation shall fail to pay the
Redemption Price of any share of Series B Convertible Preferred Stock when due,
at any time after the due date thereof until such date as the Corporation pays
the Redemption Price of such share of Series B Convertible Preferred Stock. No
share of Series B Convertible Preferred Stock as to which the holder exercises
the right of conversion pursuant to Section 10 or the optional redemption right
pursuant to Section 11 may be redeemed by the Corporation pursuant to this
Section 9(a) on or after the date of exercise of such conversion right or
optional redemption right, as the case may be, regardless of whether the
Corporation Optional Redemption Notice shall have been given prior to, or on or
after, the date of exercise of such conversion right or optional redemption
right, as the case may be.
(b) REDEMPTION BASED ON PAR REDEMPTION EVENT OR AFTER A
SPECIFIED DATE. The Corporation shall have the right to redeem all, but not less
than all, outstanding shares of Series B Convertible Preferred Stock (x) if at
any time prior to the date which is 1,080 days after the Issuance Date a Par
Redemption Event shall have occurred or (y) at any time on or after the date
which is 1,080 days after the Issuance Date so long as (1) the Corporation shall
be in compliance in all material respects with its obligations to the holders of
the Series B Convertible Preferred Stock (including, without limitation, its
obligations under the Subscription Agreements, the Registration Rights
Agreements and this Certificate of Designations) and (2) no Optional Redemption
Event shall have occurred with respect to which on the date a Par Redemption
Notice is to be given or on the Par Redemption Date, any holder of shares of
Series B Convertible Preferred Stock (a) shall be entitled to exercise optional
redemption rights under Section 11 by reason of such Optional Redemption Event
or (b) shall have exercised optional redemption rights under Section 11 by
reason of such Optional Redemption Event and the Corporation shall not have paid
the Optional Redemption Price to such holder. In order to exercise its rights
under this Section 9(b), the Corporation shall give a Par Redemption Notice not
less than 25 or more than 40 Trading Days prior to the Par Redemption Date (and,
in the case of such redemption by reason of the occurrence of a Par Redemption
Event, within 10 days after the occurrence of such Par Redemption Event) to all
holders of record of the shares of Series B Convertible Preferred Stock.
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<PAGE> 25
Any Par Redemption Notice shall be given to the holders of record of the shares
of Series B Convertible Preferred Stock by telephone line facsimile transmission
to such number as shown on the records of the Corporation for such purpose;
provided, however, that any failure or defect in the giving of such notice to
any such holder shall not affect the validity of notice to or the redemption of
shares of Series B Convertible Preferred Stock of any other holder. On the Par
Redemption Date (or such later date as a holder of shares of Series B
Convertible Preferred Stock surrenders to the Corporation the certificate(s) for
shares of Series B Convertible Preferred Stock to be redeemed pursuant to this
Section 9(b)), the Corporation shall make payment of the applicable Par
Redemption Price to each holder of shares of Series B Convertible Preferred
Stock to be redeemed in immediately available funds to such account as specified
by such holder in writing to the Corporation at least one business day prior to
the Par Redemption Date. A holder of shares of Series B Convertible Preferred
Stock to be redeemed pursuant to this Section 9(b) shall be entitled to convert
such shares of Series B Convertible Preferred Stock in accordance with Section
10 through the day prior to the Par Redemption Date and (2) if the Corporation
shall fail to pay the Par Redemption Price of any share of Series B Convertible
Preferred Stock when due, at any time after the due date thereof until such date
as the Corporation pays the Par Redemption Price of such share of Series B
Convertible Preferred Stock to such holder. If a Par Redemption Event shall have
occurred and the Corporation shall not have exercised its redemption rights
under this Section 9(b) within 15 days after the occurrence of such Par
Redemption Event, then the Corporation shall not be entitled to redeem shares of
Series B Convertible Preferred Stock by reason of another occurrence of a Par
Redemption Event unless such Par Redemption Event occurs more than 150 days
after the earlier occurrence of a Par Redemption Event. No share of Series B
Convertible Preferred Stock as to which a holder exercises the right of
conversion pursuant to Section 10 or the optional redemption right pursuant to
Section 11 may be redeemed by the Corporation pursuant to this Section 9(b) on
or after the date of exercise of such conversion right or optional redemption
right, as the case may be, regardless of whether the Par Redemption Notice shall
have been given prior to, or on or after, the date of exercise of such
conversion right or optional redemption right, as the case may be. In the case
of any redemption pursuant to this Section 9(b) for which the Par Redemption
Notice is given on or after the date which is 1,080 days after the Issuance
Date, the Corporation shall have the right, exercisable by a statement to such
effect in the Par Redemption Notice, to pay the Par Redemption Price by the
issuance to the holders of shares of Series B Convertible Preferred Stock to be
redeemed of shares of Common Stock, valued for this purpose at the Conversion
Price on the Par Redemption Date, in lieu of payment of cash, so long as all
shares of Common Stock to be so issued would, if issued as dividends on shares
of Series B Convertible Preferred Stock, meet the criteria in clauses (i)
through (vi) of Section 5(b).
(c) NO OTHER OPTIONAL REDEMPTION. The shares of Series B
Convertible Preferred Stock shall not be subject to redemption at the option of
the Corporation except as provided in Sections 9(a) and 9(b).
SECTION 10. CONVERSION.
(a) CONVERSION AT OPTION OF HOLDER. (1) The holders of the
Series B Convertible Preferred Stock may at any time on or after the earlier of
(x) the SEC Effective Date
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<PAGE> 26
and (y) the date which is 90 days after the Issuance Date convert at any time
all or from time to time any part of their shares of Series B Convertible
Preferred Stock into fully paid and nonassessable shares of Common Stock and
such other securities and property as herein provided. Holders of shares of
Series B Convertible Preferred Stock shall be entitled, with respect to the
shares of Common Stock or other securities issued or issuable upon conversion
thereof, to the benefits available to the holders of Common Stock under the
Rights Agreement or any similar plan or arrangement. Each share of Series B
Convertible Preferred Stock may be converted at the office of the Conversion
Agent or at such other additional office or offices, if any, as the Board of
Directors may designate, into such number of fully paid and nonassessable shares
of Common Stock (calculated as to each conversion to the nearest 1/100th of a
share) determined by dividing (x) the sum of (i) the Conversion Amount, (ii)
accrued but unpaid dividends to the applicable Conversion Date on the share of
Series B Convertible Preferred Stock being converted, and (iii) accrued but
unpaid interest on the dividends on the share of Series B Convertible Preferred
Stock being converted in arrears to the applicable Conversion Date at the rate
provided in Section 5 by (y) the Conversion Price for such Conversion Date (the
"Conversion Rate"); provided, however, that in no event shall any holder of
shares of Series B Convertible Preferred Stock be entitled to convert any shares
of Series B Convertible Preferred Stock in excess of that number of shares of
Series B Convertible Preferred Stock upon conversion of which the sum of (x) the
number of shares of Common Stock beneficially owned by such holder and all
Aggregated Persons of such holder (other than shares of Common Stock deemed
beneficially owned through the ownership of unconverted shares of Series B
Convertible Preferred Stock) and (y) the number of shares of Common Stock
issuable upon the conversion of the number of shares of Series B Convertible
Preferred Stock with respect to which the determination in this proviso is being
made, would result in beneficial ownership by such holder and all Aggregated
Persons of such holder of more than 4.9% of the outstanding shares of Common
Stock. For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and Regulation 13D-G thereunder, except as otherwise provided in
clause (x) of the proviso to the immediately preceding sentence.
(2) (A) Notwithstanding any provision of this Certificate of
Designation to the contrary, if at any time on or after the SEC Effective Date
the Closing Bid Price of the Common Stock is below the Conversion Restriction
Price for ten consecutive Trading Days, and so long as the Company shall be in
compliance in all material respects with its obligations to the holders of the
shares of Series B Convertible Preferred Stock then thereafter the holders of
shares of Series B Convertible Preferred Stock shall not be entitled to convert
any shares of Series B Convertible Preferred Stock for which the Conversion Date
is after the end of such ten-day period and prior to the earlier of (i) the date
which is 30 days after the end of such ten-day period and (ii) the first Trading
Day after the end of such ten-day period on which the Closing Bid Price of the
Common Stock is at least equal to the Conversion Restriction Price. If the
Closing Bid Price of the Common Stock is below the Conversion Restriction Price
for any such period of ten consecutive Trading Days and remains below the
Conversion Restriction Price on each Trading Day during the 30-day period
referred to in clause (i) of the immediately preceding sentence, then thereafter
until the Trading Day on which the Closing Bid Price of the Common Stock is at
least equal to the Conversion Restriction Price each holder of shares of Series
B Convertible Preferred Stock shall not be permitted to convert during any
period of 30 consecutive days a number of shares of
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Series B Convertible Preferred Stock in excess of the portion of the Conversion
Restriction Amount allocated to such Holder.
(B) The Conversion Restriction Amount shall be allocated among
the shares of Series B Convertible Preferred Stock at the time of initial
issuance thereof pro rata based on the initial issuance of 7,500 shares of
Series B Convertible Preferred Stock. Each certificate for shares of Series B
Convertible Preferred Stock initially issued shall bear a notation as to the
number of shares constituting the portion of the Conversion Restriction Amount
allocated to the shares of Series B Convertible Preferred Stock represented by
such certificate for purposes of conversion thereof in accordance with the
restrictions in this Section 10(a)(2). The Corporation shall maintain records
which show the number of shares of Series B Convertible Preferred Stock issued
by the Corporation pursuant to Section 5 as dividends on the shares of Series B
Convertible Preferred Stock represented by each certificate, which records shall
be controlling in the absence of manifest error. Each such additional share of
Series B Convertible Preferred Stock shall be allocated a portion of the
Conversion Restriction Amount allocated to the shares of Series B Convertible
Preferred Stock in respect of which such additional shares of Series B
Convertible Preferred Stock are issued as a dividend and the certificate for
such additional shares of Series B Convertible Preferred Stock shall bear a
notation as to the certificate number of the share of Series B Convertible
Preferred Stock in respect of which such additional share of Series B
Convertible Preferred Stock is issued as a dividend. Upon surrender of any
certificate for shares of Series B Convertible Preferred Stock for transfer or
re-registration thereof (or, at the option of the holder, for conversion
pursuant to this Section 10(a) of less than all of the shares of Series B
Convertible Preferred Stock represented thereby), the Corporation shall make a
notation on the new certificate issued upon such transfer or re-registration or
evidencing such unconverted shares, as the case may be, as to the remaining
number of shares of Common Stock from the Conversion Restriction Amount
remaining available for conversion of the shares of Series B Convertible
Preferred Stock evidenced by such new certificate. If any certificate for shares
of Series B Convertible Preferred Stock is surrendered for split-up into two or
more certificates representing an aggregate number of shares of Series B
Convertible Preferred Stock equal to the number of shares of Series B
Convertible Preferred Stock represented by the certificate so surrendered (as
reduced by any contemporaneous conversion of shares of Series B Convertible
Preferred Stock represented by the certificate so surrendered), each certificate
issued on such split-up shall bear a notation of the portion of the Conversion
Restriction Amount allocated thereto determined by pro rata allocation from
among the remaining portion of the Conversion Restriction Amount allocated to
the certificate so surrendered. If any shares of Series B Convertible Preferred
Stock represented by a single certificate are converted in full pursuant to this
Section 10, all of the portion of the Conversion Restriction Amount allocated to
such shares of Series B Convertible Preferred Stock which remains unissued after
such conversion shall be re-allocated pro rata to the outstanding shares of
Series B Convertible Preferred Stock held of record by the holder of record at
the close of business on the date of such conversion of the shares of Series B
Convertible Preferred Stock so converted, and if there shall be no other shares
of Series B Convertible Preferred Stock held of record by such holder at the
close of business on such date, then such portion of the Conversion Restriction
Amount shall be allocated pro rata among the shares of Series B Convertible
Preferred Stock outstanding on such date.
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<PAGE> 28
(b) OTHER PROVISIONS. (1) Notwithstanding anything in this
Section 10(b) to the contrary, no change in the Conversion Amount pursuant to
this Section 10(b) shall actually be made until the cumulative effect of the
adjustments called for by this Section 10(b) since the date of the last change
in the Conversion Amount would change the Conversion Amount by more than 1%.
However, once the cumulative effect would result in such a change, then the
Conversion Amount shall actually be changed to reflect all adjustments called
for by this Section 10(b) and not previously made. Notwithstanding anything in
this Section 10(b), no change in the Conversion Amount shall be made that would
result in the price at which a share of Series B Convertible Preferred Stock is
converted being less than the par value of the Common Stock into which shares of
Series B Convertible Preferred Stock are at the time convertible.
(2) The holders of shares of Series B Convertible Preferred
Stock at the close of business on the record date for any dividend payment to
holders of Series B Convertible Preferred Stock shall be entitled to receive the
dividend payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof after such dividend payment record date
or the Corporation's default in payment of the dividend due on such dividend
payment date; provided, however, that the holder of shares of Series B
Convertible Preferred Stock surrendered for conversion during the period between
the close of business on any record date for a dividend payment and the opening
of business on the corresponding dividend payment date must pay to the
Corporation, within five days after receipt by such holder, an amount equal to
the dividend payable on such shares on such dividend payment date if such
dividend is paid by the Corporation to such holder. A holder of shares of Series
B Convertible Preferred Stock on a record date for a dividend payment who (or
whose transferee) tenders any of such shares for conversion into shares of
Common Stock on or after such dividend payment date will receive the dividend
payable by the Corporation on such shares of Series B Convertible Preferred
Stock on such date, and the converting holder need not make any payment of the
amount of such dividend in connection with such conversion of shares of Series B
Convertible Preferred Stock. Except as provided above, no adjustment shall be
made in respect of cash dividends on Common Stock or Series B Convertible
Preferred Stock that may be accrued and unpaid at the date of surrender of
shares of Series B Convertible Preferred Stock.
(3) (A) The right of the holders of Series B Convertible
Preferred Stock to convert their shares shall be exercised by giving (which may
be done by telephone line facsimile transmission) a Conversion Notice to the
Corporation and the Conversion Agent; provided, however, that for all purposes a
Conversion Notice shall be deemed given when given to the Corporation. If a
holder of Series B Convertible Preferred Stock elects to convert any shares of
Series B Convertible Preferred Stock in accordance with Section 10(a), such
holder shall not be required to surrender the certificate(s) representing such
shares of Series B Convertible Preferred Stock to the Corporation unless all of
the shares of Series B Convertible Preferred Stock represented thereby are so
converted. Each holder of shares of Series B Convertible Preferred Stock and the
Corporation shall maintain records showing the number of shares so converted and
the dates of such conversions or shall use such other method, satisfactory to
such holder and the Corporation, so as to not require physical surrender of such
certificates upon each such conversion. In the event of any dispute or
discrepancy, such records of the Corporation shall be controlling and
determinative in the absence of manifest error. Notwithstanding the foregoing,
if
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<PAGE> 29
any shares of Series B Convertible Preferred Stock evidenced by a particular
certificate therefor are converted as aforesaid, the holder of Series B
Convertible Preferred Stock may not transfer the certificate(s) representing
such shares of Series B Convertible Preferred Stock unless such holder first
physically surrenders such certificate(s) to the Corporation, whereupon the
Corporation will forthwith issue and deliver upon the order of such holder of
shares of Series B Convertible Preferred Stock new certificate(s) of like tenor,
registered as such holder of shares of Series B Convertible Preferred Stock
(upon payment by such holder of shares of Series B Convertible Preferred Stock
of any applicable transfer taxes) may request, representing in the aggregate the
remaining number of shares of Series B Convertible Preferred Stock represented
by such certificate(s). Each holder of shares of Series B Convertible Preferred
Stock, by acceptance of a certificate for such shares, acknowledges and agrees
that (1) by reason of the provisions of this paragraph, following conversion of
any shares of Series B Convertible Preferred Stock represented by such
certificate, the number of shares of Series B Convertible Preferred Stock
represented by such certificate may be less than the number of shares stated on
such certificate, and (2) the Corporation may place a legend on the certificates
for shares of Series B Convertible Preferred Stock which refers to or describes
the provisions of this paragraph.
(B) The Corporation shall pay any transfer tax arising in
connection with any conversion of shares of Series B Convertible Preferred Stock
except that the Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery
upon conversion of shares of Common Stock or other securities or property in a
name other than that of the holder of the shares of the Series B Convertible
Preferred Stock being converted, and the Corporation shall not be required to
issue or deliver any such shares or other securities or property unless and
until the person or persons requesting the issuance thereof shall have paid to
the Corporation the amount of any such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid. The number of
shares of Common Stock to be issued upon each conversion of shares of Series B
Convertible Preferred Stock shall be the number set forth in the applicable
Conversion Notice which number shall be conclusive absent manifest error. The
Corporation shall notify a holder who has given a Conversion Notice and the
Conversion Agent by telephone line facsimile transmission of any claim of
manifest error (which notice shall state the number of shares in dispute) within
one Trading Day after such holder gives such Conversion Notice and no such claim
of error shall limit or delay performance of the Corporation's obligation to
issue upon such conversion the number of shares of Common Stock which are not in
dispute. A Conversion Notice shall be deemed for all purposes to be in proper
form unless the Corporation notifies a holder of shares of Series B Convertible
Preferred Stock being converted by telephone line facsimile transmission within
one Trading Day after a Conversion Notice has been given (which notice shall
specify all defects in the Conversion Notice) and any Conversion Notice
containing any such defect shall nonetheless be effective on the date given if
the converting holder promptly corrects all such defects. If the Corporation
shall have notified the Conversion Agent and such holder of any such manifest
error, the Corporation shall on the date such notice is given submit the dispute
to Ernst & Young LLP or another firm of independent public accountants of
recognized national standing (the "Auditors") for determination and shall
instruct the Auditors to resolve such dispute and to notify the Corporation, the
Conversion Agent and such holder within one Trading Day after such dispute is
submitted to the Auditors. Immediately after receipt of timely notice of the
Auditors'
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determination (but in any event within three Trading Days after the applicable
Conversion Notice is given to the Corporation), the Corporation shall, or shall
cause the Conversion Agent to, issue to the converting holder any additional
shares of Common Stock to which such holder is entitled based on the
determination of the Auditors. If the Auditors shall fail to notify the
Corporation, the Conversion Agent and such holder of their determination within
three Trading Days after the applicable Conversion Notice is given to the
Corporation, then the Corporation shall, or shall cause the Conversion Agent to,
within three Trading Days after receipt of the applicable Conversion Notice,
issue to the converting holder any additional shares of Common Stock to which
such holder is entitled based on the applicable Conversion Notice.
(4) The Corporation (and any successor corporation) shall take
all action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series B Convertible Preferred
Stock outstanding upon the basis hereinbefore provided are at all times reserved
by the Corporation (or any successor corporation), free from preemptive rights,
for such conversion, subject to the provisions of the next succeeding paragraph.
If the Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series B Convertible Preferred Stock shall be convertible as
herein provided, the Corporation shall at the same time also make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series B Convertible Preferred Stock on the new
basis. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all of the outstanding
shares of Series B Convertible Preferred Stock, the Corporation promptly shall
seek, and use its best efforts to obtain and complete, such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
(5) In case of any consolidation or merger of the Corporation
with any other corporation (other than a wholly-owned subsidiary of the
Corporation) in which the Corporation is not the surviving corporation, or in
case of any sale or transfer of all or substantially all of the assets of the
Corporation, or in the case of any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, the Corporation shall make appropriate provision or cause appropriate
provision to be made so that each holder of shares of Series B Convertible
Preferred Stock then outstanding shall have the right thereafter to convert such
shares of Series B Convertible Preferred Stock into the kind of shares of stock
and other securities and property receivable upon such consolidation, merger,
sale, transfer, or share exchange by a holder of shares of Common Stock into
which such shares of Series B Convertible Preferred Stock could have been
converted immediately prior to the effective date of such consolidation, merger,
sale, transfer, or share exchange and on a basis which preserves the economic
benefits of the conversion rights of the holders of shares of Series B
Convertible Preferred Stock on a basis as nearly as practical as such rights
exist hereunder prior thereto. If, in connection with any such consolidation,
merger, sale, transfer, or share exchange, each holder of shares of Common Stock
is entitled to elect to receive securities, cash, or other assets upon
completion of such transaction, the Corporation shall provide or cause to be
provided
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<PAGE> 31
to each holder of Series B Convertible Preferred Stock the right to elect the
securities, cash, or other assets into which the Series B Convertible Preferred
Stock held by such holder shall be convertible after completion of any such
transaction on the same terms and subject to the same conditions applicable to
holders of the Common Stock (including, without limitation, notice of the right
to elect, limitations on the period in which such election shall be made, and
the effect of failing to exercise the election). The Corporation shall not
effect any such transaction unless the provisions of this paragraph have been
complied with. The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers, or share exchanges.
(6) If a holder shall have given a Conversion Notice for
shares of Series B Convertible Preferred Stock, the Corporation shall issue and
deliver to such person certificates for the Common Stock issuable upon such
conversion within three Trading Days after such Conversion Notice is given and
the person converting shall be deemed to be the holder of record of the Common
Stock issuable upon such conversion, and all rights with respect to the shares
surrendered shall forthwith terminate except the right to receive the Common
Stock or other securities, cash, or other assets as herein provided. If a holder
shall have given a Conversion Notice as provided herein, the Corporation's
obligation to issue and deliver the certificates for Common Stock shall be
absolute and unconditional, irrespective of any action or inaction by the
converting holder to enforce the same, any waiver or consent with respect to any
provision thereof, the recovery of any judgment against any person or any action
to enforce the same, any failure or delay in the enforcement of any other
obligation of the Corporation to such holder, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by such
holder or any other person of any obligation to the Corporation or any violation
or alleged violation of law by such holder or any other person, and irrespective
of any other circumstance which might otherwise limit such obligation of the
Corporation to the holder in connection with such conversion. If the Corporation
fails to issue and deliver the certificates for the Common Stock to the holder
converting shares of Series B Convertible Preferred Stock pursuant to the first
sentence of this paragraph as and when required to do so, in addition to any
other liabilities the Corporation may have hereunder and under applicable law
(1) the Corporation shall pay or reimburse such holder on demand for all
out-of-pocket expenses including, without limitation, reasonable fees and
expenses of legal counsel incurred by such holder as a result of such failure,
(2) the Conversion Price for such conversion shall be reduced by two and
one-half percentage points from the Conversion Price otherwise applicable to
such conversion and (3) such holder may by written notice (which may be given by
mail, courier, personal service or telephone line facsimile transmission) or
oral notice (promptly confirmed in writing) given at any time prior to delivery
to such holder of the certificates for the shares of Common Stock issuable upon
such conversion of shares of Series B Convertible Preferred Stock, rescind such
conversion, whereupon such holder shall have the right to convert such shares of
Series B Convertible Preferred Stock thereafter in accordance herewith.
(7) No fractional shares of Common Stock shall be issued upon
conversion of Series B Convertible Preferred Stock but, in lieu of any fraction
of a share of Common Stock to purchase fractional shares of Common Stock which
would otherwise be issuable in respect of the aggregate number of such shares
surrendered for conversion at one time by the same holder, the Corporation shall
pay in cash an amount equal to the product of (i) the arithmetic average of the
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Closing Bid Price of one share of Common Stock on the three consecutive Trading
Days ending on the Trading Day immediately preceding the Conversion Date times
(ii) such fraction of a share.
(8) The Conversion Amount shall be adjusted from time to time
under certain circumstances, subject to the provisions of Section 10(b)(1), as
follows:
(i) In case the Corporation shall (other than pursuant to the
Rights Agreement) issue rights or warrants on a pro rata basis to all holders of
the Common Stock entitling such holders to subscribe for or purchase Common
Stock on the record date referred to below at a price per share less than the
Current Price for such record date, then in each such case the Conversion Amount
in effect on such record date shall be adjusted in accordance with the formula
C1 = C x O + N
-----
O + N x P
-----
M
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
O = the number of shares of Common Stock outstanding on the record date.
N = the number of additional shares of Common Stock issuable
pursuant to the exercise of such rights or warrants.
P = the offering price per share of the additional shares (which
amount shall include amounts received by the Corporation in
respect of the issuance and the exercise of such rights or
warrants).
M = the Current Price per share of Common Stock on the record date.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not so issued or expire or terminate
before being exercised, the Conversion Amount then in effect shall be readjusted
appropriately.
(ii) In case the Corporation shall (other than pursuant to the
Rights Agreement), by dividend or otherwise, distribute to all holders of its
Junior Stock (as hereinafter defined) evidences of its indebtedness or assets
(including securities, but excluding any warrants or subscription rights
referred to in subparagraph (i) above and any dividend or distribution paid in
cash out of the retained earnings of the Corporation), then in each such case
the Conversion Amount then in effect shall be adjusted in accordance with the
formula
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C1 = C x M
---
M - F
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
M = the Current Price per share of Common Stock on the record date
mentioned below.
F = the aggregate amount of such cash dividend and/or the fair
market value on the record date of the assets or securities to be
distributed divided by the number of shares of Common Stock
outstanding on the record date. The Board of Directors shall
determine such fair market value, which determination shall be
conclusive.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this subparagraph (ii), "Junior Stock" shall include any class
of capital stock ranking junior as to dividends or upon liquidation to the
Series B Convertible Preferred Stock.
(iii) All calculations hereunder shall be made to the nearest
cent or to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant
to Section 10(b)(5), the holder of any Series B Convertible Preferred Stock
thereafter surrendered for conversion shall become entitled to receive
securities, cash, or assets other than Common Stock, the number or amount of
such securities or property so receivable upon conversion shall be subject to
adjustment from time to time in a manner and on terms nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (i) to (iii) above.
(9) Except as otherwise provided above in this Section 10, no
adjustment in the Conversion Amount shall be made in respect of any conversion
for share distributions or dividends theretofore declared and paid or payable on
the Common Stock.
(10) Whenever the Conversion Amount is adjusted as herein
provided, the Corporation shall send to each holder and each transfer agent, if
any, for the Series B Convertible Preferred Stock and the transfer agent for the
Common Stock, a statement signed by the Chairman of the Board, the President, or
any Vice President of the Corporation and by its Treasurer or its Secretary or
an Assistant Secretary stating the adjusted Conversion Amount determined as
provided in this Section 10, and any adjustment so evidenced, given in good
faith, shall be binding upon all stockholders and upon the Corporation. Whenever
the Conversion Amount is adjusted, the Corporation will give notice by mail to
the holders of record of Series B
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Convertible Preferred Stock, which notice shall be made within 15 days after the
effective date of such adjustment and shall state the adjustment and the
Conversion Amount. Notwithstanding the foregoing notice provisions, failure by
the Corporation to give such notice or a defect in such notice shall not affect
the binding nature of such corporate action of the Corporation.
(11) Whenever the Corporation shall propose to take any of the
actions specified in Section 10(b)(5) or in subparagraphs (i) or (ii) of Section
10(b)(8) which would result in any adjustment in the Conversion Amount under
this Section 10(b), the Corporation shall cause a notice to be mailed at least
20 days prior to the date on which the books of the Corporation will close or on
which a record will be taken for such action, to the holders of record of the
outstanding Series B Convertible Preferred Stock on the date of such notice.
Such notice shall specify the action proposed to be taken by the Corporation and
the date as of which holders of record of the Common Stock shall participate in
any such actions or be entitled to exchange their Common Stock for securities or
other property, as the case may be. Failure by the Corporation to mail the
notice or any defect in such notice shall not affect the validity of the
transaction.
SECTION 11. REDEMPTION AT OPTION OF HOLDERS.
(a) REDEMPTION RIGHT. If an Optional Redemption Event occurs,
then, in addition to any other right or remedy of any holder of shares of Series
B Convertible Preferred Stock, each holder of shares of Series B Convertible
Preferred Stock shall have the right, at such holder's option, to require the
Corporation to redeem all of such holder's shares of Series B Convertible
Preferred Stock, or any portion thereof, on the date that is three business days
after the date such holder gives the Corporation an Optional Redemption Notice
with respect to such Optional Redemption Event at any time while any of such
holder's shares of Series B Convertible Preferred Stock are outstanding, at a
price equal to the Optional Redemption Price.
(b) NOTICES; METHOD OF EXERCISING OPTIONAL REDEMPTION RIGHTS,
ETC. (1) On or before the fifth business day after the occurrence of an Optional
Redemption Event, the Corporation shall give to each holder of outstanding
shares of Series B Convertible Preferred Stock a notice of the occurrence of
such Optional Redemption Event and of the redemption right set forth herein
arising as a result thereof. Such notice from the Corporation shall set forth:
(i) the date by which the optional redemption right must be
exercised, and
(ii) a description of the procedure (set forth below) which
each such holder must follow to exercise such holder's optional
redemption right.
No failure of the Corporation to give such notice or defect therein shall limit
the right of any holder of shares of Series B Convertible Preferred Stock to
exercise the optional redemption right or affect the validity of the proceedings
for the redemption of such holder's shares of Series B Convertible Preferred
Stock.
(2) To exercise its optional redemption right, each holder of
outstanding shares of Series B Convertible Preferred Stock shall deliver to the
Corporation on or before the thirtieth
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<PAGE> 35
day after the notice required by Section 11(b)(1) is given to such holder (or if
no such notice has been given by the Corporation to such holder, within forty
days after such holder first learns of such Optional Redemption Event) an
Optional Redemption Notice to the Corporation. An Optional Redemption Notice may
be revoked by such holder giving such Optional Redemption Notice by giving
notice of such revocation to the Corporation at any time prior to the time the
Corporation pays the Optional Redemption Price to such holder.
(3) If a holder of shares of Series B Convertible Preferred
Stock shall have given an Optional Redemption Notice, on the date which is three
business days after the date such Optional Redemption Notice is given (or such
later date as such holder surrenders such holder's certificates for the shares
of Series B Convertible Preferred Stock redeemed) the Corporation shall make
payment in immediately available funds of the applicable Optional Redemption
Price to such account as specified by such holder in writing to the Corporation
at least one business day prior to the applicable redemption date.
(c) OTHER. (1) In connection with a redemption pursuant to
this Section 11 of less than all of the shares of Series B Convertible Preferred
Stock evidenced by a particular certificate, promptly, but in no event later
than three Trading Days after surrender of such certificate to the Corporation,
the Corporation shall issue and deliver to such holder a replacement certificate
for the shares of Series B Convertible Preferred Stock evidenced by such
certificate which have not been redeemed.
(2) An Optional Redemption Notice given by a holder of shares
of Series B Convertible Preferred Stock shall be deemed for all purposes to be
in proper form unless the Corporation notifies such holder in writing within
three business days after such Optional Redemption Notice has been given (which
notice shall specify all defects in such Optional Redemption Notice), and any
Optional Redemption Notice containing any such defect shall nonetheless be
effective on the date given if such holder promptly undertakes to correct all
such defects. No such claim of error shall limit or delay performance of the
Corporation's obligation to redeem all shares of Series B Convertible Preferred
Stock not in dispute whether or not such holder makes such undertaking.
SECTION 12. VOTING RIGHTS; CERTAIN RESTRICTIONS.
(a) VOTING RIGHTS. Except as otherwise required by law or
expressly provided herein, shares of Series B Convertible Preferred Stock shall
not be entitled to vote on any matter.
(b) CERTIFICATE OF INCORPORATION; CERTAIN STOCK. The
affirmative vote or consent of the Majority Holders, voting separately as a
class, will be required for (1) any amendment, alteration, or repeal, whether by
merger or consolidation or otherwise, of the Corporation's Certificate of
Incorporation if the amendment, alteration, or repeal materially and adversely
affects the powers, preferences, or special rights of the Series B Convertible
Preferred Stock, or (2) the creation and issuance of any Senior Dividend Stock
or Senior Liquidation Stock; provided, however, that any increase in the
authorized Preferred Stock of the Corporation or the creation and issuance of
any stock which is both Junior Dividend Stock and Junior Liquidation
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<PAGE> 36
Stock shall not be deemed to affect materially and adversely such powers,
preferences, or special rights and any such increase or creation and issuance
may be made without any such vote by the holders of Series B Convertible
Preferred Stock except as otherwise required by law.
(c) REPURCHASES OF SERIES B CONVERTIBLE PREFERRED STOCK. The
Corporation shall not repurchase or otherwise acquire any shares of Series B
Convertible Preferred Stock (other than pursuant to Sections 7(a), 9(a), 9(b) or
11) unless the Corporation offers to repurchase or otherwise acquire
simultaneously a pro rata portion of each holder's shares of Series B
Convertible Preferred Stock for cash at the same price per share.
(d) OTHER. So long as any shares of Series B Convertible
Preferred Stock are outstanding, unless otherwise consented to in writing by the
Majority Holders:
(1) PAYMENT OF OBLIGATIONS. The Corporation will pay and
discharge, and will cause each subsidiary of the Corporation to pay and
discharge, when due all their respective obligations and liabilities which are
material to the Corporation and its subsidiaries taken as a whole, including,
without limitation, tax liabilities, except where the same may be contested in
good faith by appropriate proceedings (which obligation or liability for
purposes hereof shall not be deemed to be due so long as the Corporation shall
continue to so contest such obligation or liability); provided, however, that
the Corporation shall not be deemed to have violated this Section 12(d)(1)
unless such failure shall continue for 15 days after notice thereof from any
holder of shares of Series B Convertible Preferred Stock. The Corporation shall
notify the holders of shares of Series B Convertible Preferred Stock promptly,
but in any event not later than five days of the occurrence, of any failure of
the Corporation or any subsidiary to pay or discharge when due any such
obligation or liability.
(2) MAINTENANCE OF PROPERTY; Insurance. (A) The Corporation
will keep, and will cause each subsidiary of the Corporation to keep, all
material property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted, and except where such property is
damaged by act of God or public enemy, civil war, insurrection or riot, fire,
flood, explosion, earthquake, accident, epidemic or other similar event beyond
the control of the Corporation and which is not covered by insurance.
(B) The Corporation will maintain, and will cause each
subsidiary of the Corporation to maintain, with financially sound and
responsible insurance companies, insurance against loss or damage by fire or
other casualty and such other insurance, including but not limited to, product
liability insurance, in such amounts and covering such risks as is reasonably
adequate for the conduct of their businesses and the value of their properties.
(3) CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The
Corporation will continue to engage in business of the same general type as
conducted by the Corporation at the time this Certificate of Designations is
filed with the Secretary of State of the State of Delaware, and will preserve,
renew and keep in full force and effect its corporate existence and its material
rights, privileges and franchises necessary or desirable in the normal conduct
of business.
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<PAGE> 37
(4) COMPLIANCE WITH LAWS. The Corporation will comply, and
will cause each subsidiary of the Corporation to comply, in all material
respects with all applicable laws, ordinances, rules, regulations, decisions,
orders and requirements of governmental authorities and courts (including,
without limitation, environmental laws) except (i) where compliance therewith is
contested in good faith by appropriate proceedings or (ii) where non-compliance
therewith could not reasonably be expected to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Corporation and its subsidiaries taken as a
whole.
(5) INVESTMENT COMPANY ACT. The Corporation will not be or
become an open-end investment trust, unit investment trust or face-amount
certificate company that is or is required to be registered under Section 8 of
the Investment Company Act of 1940, as amended, or any successor provision.
(6) TRANSACTIONS WITH AFFILIATES. The Corporation will not,
and will not permit any subsidiary of the Corporation, directly or indirectly,
to pay any funds to or for the account of, make any investment (whether by
acquisition of stock or indebtedness, by loan, advance, transfer of property,
guarantee or other agreement to pay, purchase or service, directly or
indirectly, any indebtedness, or otherwise) in, lease, sell, transfer or
otherwise dispose of any assets, tangible or intangible, to, or participate in,
or effect any transaction in connection with, any joint enterprise or other
joint arrangement with, any Affiliate of the Corporation, except, on terms to
the Corporation or such subsidiary no less favorable than terms that could be
obtained by the Corporation or such subsidiary from a Person that is not an
Affiliate of the Corporation, as determined in good faith by the Board of
Directors.
SECTION 13. OUTSTANDING SHARES. For purposes of this
Certificate of Designations, all shares of Series B Convertible Preferred Stock
shall be deemed outstanding except (i) from the applicable Conversion Date, each
share of Series B Convertible Preferred Stock converted into Common Stock,
unless the Corporation shall default in its obligation to issue and deliver
shares of Common Stock upon such conversion as and when required by Section 10;
(ii) from the date of registration of transfer, all shares of Series B
Convertible Preferred Stock held of record by the Corporation or any subsidiary
or Affiliate of the Corporation (other than any original holder of shares of
Series B Convertible Preferred Stock) and (iii) from the applicable Redemption
Date, Share Limitation Redemption Date, Par Redemption Date or date of
redemption pursuant to Section 11, all shares of Series B Convertible Preferred
Stock which are redeemed or repurchased, so long as in each case the Redemption
Price, the Share Limitation Redemption Price, the Par Redemption Price, the
Optional Redemption Price or other repurchase price, as the case may be, of such
shares of Series B Convertible Preferred Stock shall have been paid by the
Corporation as and when due hereunder.
SECTION 14. MISCELLANEOUS.
(a) NOTICES. Any notices required or permitted to be given
under the terms of this Certificate of Designations shall be in writing and
shall be sent by mail or delivered personally (which shall include telephone
line facsimile transmission) or by courier and shall be deemed given
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<PAGE> 38
five days after being placed in the mail, if mailed, or upon receipt, if
delivered personally or by courier (a) in the case of the Corporation, addressed
to the Corporation at 6675 185th Avenue N.E., Redmond, Washington, 98052,
Attention: Chief Financial Officer (telephone line facsimile transmission number
(425) 861-9301), or, in the case of any holder of shares of Series B Convertible
Preferred Stock, at such holder's address or telephone line facsimile
transmission number shown on the stock books maintained by the Corporation with
respect to the Series B Convertible Preferred Stock or such other address as the
Corporation shall have provided by notice to the holders of shares of Series B
Convertible Preferred Stock in accordance with this Section or any holder of
shares of Series B Convertible Preferred Stock shall have provided to the
Corporation in accordance with this Section.
(b) REPLACEMENT OF CERTIFICATES. Upon receipt by the
Corporation of evidence reasonably satisfactory to the Corporation of the
ownership of and the loss, theft, destruction or mutilation of any certificate
for shares of Series B Convertible Preferred Stock and (1) in the case of loss,
theft or destruction, of indemnity from the record holder of the certificate for
such shares of Series B Convertible Preferred Stock reasonably satisfactory in
form to the Corporation (and without the requirement to post any bond or other
security) or (2) in the case of mutilation, upon surrender and cancellation of
the certificate for such shares of Series B Convertible Preferred Stock, the
Corporation will execute and deliver to such holder a new certificate for such
shares of Series B Convertible Preferred Stock without charge to such holder.
(c) OVERDUE AMOUNTS. Except as otherwise specifically provided
in Section 5 with respect to dividends in arrears on the Series B Convertible
Preferred Stock, whenever any amount which is due to any holder of shares of
Series B Convertible Preferred Stock is not paid to such holder when due, such
amount shall bear interest at the rate of 14% per annum (or such lesser rate as
shall be the maximum rate allowable by applicable law) until paid in full.
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IN WITNESS WHEREOF, InControl, Inc. has caused this
certificate to be signed by Donald F. Seaton III, its Vice President, Finance,
Chief Financial Officer and Secretary, as of the 17th day of April, 1998.
INCONTROL, INC.
By /s/ Donald F. Seaton III
-----------------------------
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<PAGE> 1
EXHIBIT 4.1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of April 16, 1998
(this "Agreement"), is made by and between INCONTROL, INC., a Delaware
corporation (the "Company"), and the person named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, in connection with the Subscription Agreement, dated as
of April 16, 1998, between the Initial Investor and the Company (the
"Subscription Agreement"), the Company has agreed, upon the terms and subject to
the conditions of the Subscription Agreement, to issue and sell to the Initial
Investor shares (the "Series B Preferred Shares") of Series B Convertible
Preferred Stock, $.01 par value (the "Series B Preferred Stock"), of the Company
as provided in the Subscription Agreement, which Series B Preferred Shares and
any Series B Dividend Shares (such capitalized term and all other capitalized
terms used in this Agreement having the respective meanings provided in this
Agreement) are convertible into shares of Common Stock, $.01 par value (the
"Common Stock"), of the Company;
WHEREAS, pursuant to the Letter Agreement, the Initial Investor
has agreed, upon the terms and subject to the conditions of the Letter
Agreement, to purchase shares (the "Series C Preferred Shares") of Series C
Convertible Preferred Stock, $.01 par value (the "Series C Preferred Stock"), of
the Company as provided in the Letter Agreement, which Series C Preferred Shares
and any Dividend Shares issued as dividends on the Series C Preferred Stock will
be convertible into shares of Common Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver
the Subscription Agreement and the Letter Agreement, the Company has agreed to
provide certain registration rights under the Securities Act of 1933, as
amended, and the rules and regulations thereunder, or any similar successor
statute (collectively, the "Securities Act"), and applicable state securities
laws with respect to the Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
"Certificate of Designations" means the Certificate of
Designations of the Series B Convertible Preferred Stock as filed by the Company
with the Secretary of State of the State of Delaware.
1
<PAGE> 2
"Conversion Shares" means the shares of Common Stock issuable
upon conversion of the Series B Preferred Shares, the Series C Preferred Shares
and the Dividend Shares.
"Dividend Shares" means any shares of Series B Preferred Stock
issued pursuant to Section 5 of the Certificate of Designations and any shares
of Series C Preferred Stock issued as dividends on shares of Series C Preferred
Stock pursuant to the certificate of designations for the Series C Preferred
Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Investor" means the Initial Investor and any transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
"Letter Agreement" means the letter agreement, dated the date
hereof, between the Company and the Initial Investor relating to the sale and
purchase of shares of Series C Preferred Stock.
"Nasdaq" means the Nasdaq National Market.
"Preferred Shares" means the Series B Preferred Shares and the
Series C Preferred Shares.
"register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
"Registrable Securities" means the Conversion Shares and any
stock or other securities into which or for which the Common Stock may hereafter
be changed, converted or exchanged by the Company or its successor, as the case
may be, and any other securities issued to holders of such Common Stock (or such
shares into which or for which such shares are so changed, converted or
exchanged) upon any reclassification, share combination, share subdivision,
share dividend, merger, consolidation or similar transaction or event.
"Registration Period" means the period from the Closing Date to
the earlier of (i) the date which is two years after the SEC Effective Date,
(ii) the date on which each Investor may sell all of its Registrable Securities
without registration under the Securities Act pursuant to Rule 144, without
restriction on the manner of sale or the volume of securities which may be sold
in any period and without the requirement for the giving of any notice to, or
the making of any filing with, the SEC and (iii) the date on which the Investors
no longer beneficially own any Registrable Securities.
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"Registration Statement" means a registration statement of the
Company under the Securities Act, including any amendment thereto.
"Rule 144" means Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit a
holder of any securities to sell securities of the Company to the public without
registration under the Securities Act.
"SEC Effective Date" means the date the Registration Statement is
declared effective by the SEC.
"SEC Filing Date" means the date the Registration Statement is
first filed with the SEC pursuant to Section 2(a).
(b) Capitalized terms defined in the introductory paragraph or
the recitals to this Agreement shall have the respective meanings therein
provided. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Subscription Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare, and on or
prior to the date which is 30 days after the Closing Date, file with the SEC a
Registration Statement on Form S-3 which, on the date of filing with the SEC,
covers the resale by the Initial Investor of a number of shares of Common Stock
at least equal to the number of shares of Common Stock issuable upon conversion
of the Preferred Shares and the number of Dividend Shares issuable thereon
(based on the market price of the Common Stock at the time the Registration
Statement is filed with the SEC) assuming the Initial Investor does not sell or
convert any shares of Series B Preferred Stock or Series C Preferred Stock for
two years after the Closing Date, determined as if the Preferred Shares and such
number of Dividend Shares, together with accrued and unpaid dividends thereon,
were converted in full on the SEC Filing Date (and determined without regard to
the limitation on beneficial ownership contained in the proviso to the second
sentence of Section 10(a) of the Certificate of Designations) based on a
Conversion Price computed from the Average Market Price and a Conversion
Percentage (as such terms are defined in the Certificate of Designations) of
87.5%, and which Registration Statement shall state that, in accordance with
Rule 416 under the Securities Act, such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Preferred Shares and Dividend Shares to prevent dilution
resulting from stock splits, stock dividends or similar transactions or by
reason of changes in the conversion price of the Preferred Shares and Dividend
Shares in accordance with the terms thereof. If at any time the number of shares
of Common Stock included in the Registration Statement required to be filed as
provided in the first sentence of this Section 2(a) shall be insufficient to
cover the number of shares of Common Stock issuable on conversion in full of the
unconverted Preferred Shares and Dividend Shares, then promptly, but in no event
later than 20 days after such insufficiency shall occur, the Company shall file
with the SEC an additional Registration Statement on Form S-3 (which shall not
constitute a post-effective amendment to the Registration Statement filed
pursuant to the first
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sentence of this Section 2(a)), covering such number of shares of Common Stock
as shall be sufficient to permit such conversion. For all purposes of this
Agreement such additional Registration Statement shall be deemed to be the
Registration Statement required to be filed by the Company pursuant to Section
2(a) of this Agreement, and the Company and the Investors shall have the same
rights and obligations with respect to such additional Registration Statement as
they shall have with respect to the initial Registration Statement required to
be filed by the Company pursuant to this Section 2(a).
(b) CERTAIN OFFERINGS. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering,
Investors who hold a majority in interest of the Registrable Securities subject
to such underwritten offering shall have the right to select one legal counsel
and an investment banker or bankers and manager or managers to administer the
offering, which investment banker or bankers or manager or managers shall be
reasonably satisfactory to the Company. The Investors who hold the Registrable
Securities to be included in such underwriting shall pay all underwriting
discounts and commissions and other fees and expenses of such investment banker
or bankers and manager or managers so selected in accordance with this Section
2(b) (other than fees and expenses relating to registration of Registrable
Securities under federal or state securities laws, which are payable by the
Company pursuant to Section 5 hereof) with respect to their Registrable
Securities and the fees and expenses of such legal counsel so selected by the
Investors.
(c) ADJUSTMENTS OF CONVERSION TERMS. The Certificate of
Designations provides, among other things, that upon the occurrence of a
Registration Event (as defined in the Certificate of Designations), the
Conversion Percentage (as defined in the Certificate of Designations) shall be
adjusted as provided therein.
(d) PIGGY-BACK REGISTRATIONS. If at any time the Company shall
determine to prepare and file with the SEC a Registration Statement relating to
an offering for its own account or the account of others under the Securities
Act of any of its equity securities, other than on Form S-4 or Form S-8 or their
then equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each Investor who is entitled to registration rights under this Section
2(d) written notice of such determination and, if within ten (10) days after
receipt of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that if, in
connection with any underwritten public offering for the account of the Company,
the managing underwriter(s) thereof shall impose a limitation on the number of
shares of Common Stock which may be included in the Registration Statement
because, in such underwriter(s)' judgment, such limitation is necessary to
effect an orderly public distribution, then the Company shall be obligated to
include in such Registration Statement only such limited portion of the
Registrable Securities with respect to which such Investor has requested
inclusion hereunder. Any exclusion of Registrable Securities shall be made pro
rata among the Investors seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such
Investors; provided, however, that the Company shall not exclude any Registrable
Securities unless the
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Company has first excluded all outstanding securities the holders of which are
not entitled by right to inclusion of securities in such Registration Statement;
and provided further, however, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall be made pro
rata with holders of other securities having the right to include such
securities in the Registration Statement, based on the number of securities for
which registration is requested except to the extent such pro rata exclusion of
such other securities is prohibited under any written agreement entered into by
the Company with the holder of such other securities prior to the date of this
Agreement, in which case such other securities shall be excluded, if at all, in
accordance with the terms of such agreement. No right to registration of
Registrable Securities under this Section 2(d) shall be construed to limit any
registration required under Section 2(a) hereof. The obligations of the Company
under this Section 2(d) may be waived by Investors holding a majority in
interest of the Registrable Securities and shall expire after the Company has
afforded the opportunity for the Investors to exercise registration rights under
this Section 2(d) for two registrations; provided, however, that any Investor
who shall have had any Registrable Securities excluded from any Registration
Statement in accordance with this Section 2(d) shall be entitled to include in
an additional Registration Statement filed by the Company the Registrable
Securities so excluded. Notwithstanding any other provision of this Agreement,
if the Registration Statement required to be filed pursuant to Section 2(a) of
this Agreement shall have been ordered effective by the SEC and the Company
shall have maintained the effectiveness of such Registration Statement as
required by this Agreement and if the Company shall otherwise have complied in
all material respects with its obligations under this Agreement, then the
Company shall not be obligated to register any Registrable Securities on such
Registration Statement referred to in this Section 2(d).
(e) ELIGIBILITY FOR FORM S-3. The Company meets the requirements
for the use of Form S-3 for registration of the Registrable Securities for
resale by the Investors. The Company shall file all reports required to be filed
by the Company with the SEC in a timely manner so as to maintain such
eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall:
(a) prepare promptly, and file with the SEC not later than 30
days after the Closing Date, a Registration Statement with respect to the number
of Registrable Securities provided in Section 2(a), and thereafter to use its
best efforts to cause each Registration Statement relating to Registrable
Securities to become effective as soon as possible after such filing, and keep
the Registration Statement effective pursuant to Rule 415 at all times during
the Registration Period; submit to the SEC, within three Business Days after the
Company learns that no review of the Registration Statement will be made by the
staff of the SEC or that the staff of the SEC has no further comments on the
Registration Statement, as the case may be, a request for acceleration of
effectiveness of the Registration Statement to a time and date not later than 48
hours after the submission of such request; notify the Investors of the
effectiveness of the Registration Statement on the date the Registration
Statement is declared effective; and the Company represents and warrants to, and
covenants and agrees with, the Investors that the Registration Statement
(including any amendments or supplements thereto and prospectuses
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<PAGE> 6
contained therein), at the time it is first filed with the SEC, at the time it
is ordered effective by the SEC and at all time during which it is required to
be effective hereunder (and each such amendment and supplement at the time it is
filed with the SEC and at all time during which it is available for use in
connection with the offer and sale of the Registrable Securities) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel, (1) promptly after
the same is prepared and publicly distributed, filed with the SEC or received by
the Company, one copy of the Registration Statement and any amendment thereto,
each preliminary prospectus and prospectus and each amendment or supplement
thereto, each letter written by or on behalf of the Company to the SEC or the
staff of the SEC and each item of correspondence from the SEC or the staff of
the SEC relating to such Registration Statement (other than any portion of any
thereof which contains information for which the Company has sought confidential
treatment) and (2) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) use reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such
securities or blue sky laws of such jurisdictions as the Investors who hold a
majority in interest of the Registrable Securities being offered reasonably
request, (ii) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times until the end of the Registration Period, (iii) take such other actions as
may be necessary to maintain such registrations and qualifications in effect at
all times during the Registration Period and (iv) take all other actions
reasonably necessary or advisable to qualify the Registrable Securities for sale
in such jurisdictions; provided, however, that the Company shall not be required
in connection therewith or as a condition thereto (I) to qualify to do business
in any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (II) to subject itself to general taxation in any such
jurisdiction, (III) to file a general consent to service of process in any such
jurisdiction, (IV) to provide any undertakings that cause more than nominal
expense or burden to the Company or (V) to make any change in its Certificate of
Incorporation or by-laws, which in each case the Board of
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<PAGE> 7
Directors of the Company determines to be contrary to the best interests of the
Company and its stockholders;
(e) in the event that the Registrable Securities are being
offered in an underwritten offering, enter into and perform its obligations
under an underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering;
(f) as promptly as practicable after becoming aware of such event
or circumstance, notify each Investor of any event or circumstance of which the
Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and use its best efforts promptly to
prepare a supplement or amendment to the Registration Statement to correct such
untrue statement or omission, file such supplement or amendment with the SEC at
such time as shall permit the Investors to sell Registrable Securities pursuant
to the Registration Statement as promptly as practical, and deliver a number of
copies of such supplement or amendment to each Investor as such Investor may
reasonably request;
(g) as promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the SEC of any stop order or other suspension of effectiveness of
the Registration Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling
stockholders' counsel by the Investors who hold a majority in interest of the
Registrable Securities being sold to review and comment on the Registration
Statement and all amendments and supplements thereto a reasonable period of time
prior to their filing with the SEC;
(i) make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 under the Securities Act) covering a twelve-month period beginning not
later than the first day of the Company's fiscal quarter next following the
effective date of the Registration Statement;
(j) at the request of the Investors who hold a majority in
interest of the Registrable Securities being sold, furnish on the date that
Registrable Securities are delivered to an underwriter, if any, for sale in
connection with the Registration Statement (i) a letter, dated such date, from
the Company's independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters; and (ii) an
opinion, dated such date, from counsel representing the Company for purposes of
such Registration Statement, in form and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors;
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<PAGE> 8
(k) make available for inspection by any Investor, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by any such
Investor or underwriter (collectively, the "Inspectors"), all pertinent
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably necessary to
enable each Inspector to exercise its due diligence responsibility, and cause
the Company's officers, directors and employees to supply all information which
any Inspector may reasonably request for purposes of such due diligence;
provided, however, that each Inspector shall hold in confidence and shall not
make any disclosure (except to an Investor) of any Record or other information
which the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (ii) the release of such Records is ordered pursuant to
a subpoena or other order from a court or government body of competent
jurisdiction or (iii) the information in such Records has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Company shall not be required to disclose any confidential
information in such Records to any Inspector until and unless such Inspector
shall have entered into confidentiality agreements (in form and substance
satisfactory to the Company) with the Company with respect thereto,
substantially in the form of this Section 3(k). Each Investor agrees that it
shall, upon learning that disclosure of such Records is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to the Company and allow the Company, at the Company's own
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, the Records deemed confidential. The Company shall hold
in confidence and shall not make any disclosure of information concerning an
Investor provided to the Company pursuant to Section 4(e) hereof unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor, at
such Investor's own expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information;
(l) use its best efforts (i) to cause all the Registrable
Securities covered by the Registration Statement to be listed on the Nasdaq or
such other principal securities market on which securities of the same class or
series issued by the Company are then listed or traded or (ii) if securities of
the same class or series as the Registrable Securities are not then listed on
Nasdaq or any such other securities market, to cause all of the Registrable
Securities covered by the Registration Statement to be listed on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market;
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(m) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(n) cooperate with the Investors who hold Registrable Securities
being offered and the managing underwriter or underwriters, if any, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legends) representing Registrable Securities to be offered pursuant
to the Registration Statement and enable such certificates to be in such
denominations or amounts as the case may be, as the managing underwriter or
underwriters, if any, or the Investors may reasonably request and registered in
such names as the managing underwriter or underwriters, if any, or the Investors
may request; and, within three Business Days after a Registration Statement
which includes Registrable Securities is ordered effective by the SEC, the
Company shall deliver to the transfer agent for the Registrable Securities (with
copies to the Investors whose Registrable Securities are included in such
Registration Statement) an instruction substantially in the form attached hereto
as EXHIBIT 1 and shall cause legal counsel selected by the Company to deliver to
the Investors an opinion of such counsel in the form attached hereto as EXHIBIT
2 (with a copy to the Company's transfer agent);
(o) during the period the Company is required to maintain
effectiveness of the Registration Statement pursuant to Section 3(a), the
Company shall not bid for or purchase any Common Stock or any right to purchase
Common Stock or attempt to induce any person to purchase any such security or
right if such bid, purchase or attempt would in any way limit the right of the
Investors to sell Registrable Securities by reason of the limitations set forth
in Regulation M under the Exchange Act; and
(p) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investors of the Registrable Securities pursuant
to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least four (4)
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor (the "Requested Information") if any of such Investor's
Registrable Securities are eligible for inclusion in the Registration Statement.
If at least one (1) Business Day prior to the filing date the Company has not
received the Requested Information from an Investor (a "Non-Responsive
Investor"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor but shall not
be relieved of its obligation to file a Registration Statement with the SEC
relating to
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the Registrable Securities of such Non-Responsive Investor promptly after such
Non-Responsive Investor provides the Requested Information;
(b) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement;
(c) In the event Investors holding a majority in interest of the
Registrable Securities being registered determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement;
(d) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession of the prospectus covering such
Registrable Securities current at the time of receipt of such notice; and
(e) No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and other fees and expenses of investment
bankers and any manager or managers of such underwriting and legal expenses of
the underwriters applicable with respect to its Registrable Securities, in each
case to the extent not payable by the Company pursuant to the terms of this
Agreement.
5. EXPENSES OF REGISTRATION. All reasonable expenses, other than
underwriting discounts and commissions and other fees and expenses of investment
bankers and other than brokerage commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 3, including,
without limitation, all registration, listing and qualifications fees, printers
and accounting fees and the fees and disbursements of counsel for the Company
and the Investors, shall be borne by the Company, provided, however, that the
Investors
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shall bear the fees and out-of-pocket expenses of the one legal counsel selected
by the Investors pursuant to Section 2(b) hereof.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act, any underwriter (as defined in the
Securities Act) for the Investors, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations in the
Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to the restrictions set forth in Section 6(d) with
respect to the number of legal counsel, the Company shall reimburse the
Investors and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (I) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement, the prospectus or any such amendment thereof or supplement thereto,
if such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (II) with respect to any preliminary prospectus shall not inure to
the benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus,
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as then amended or supplemented, if such prospectus was timely made available by
the Company pursuant to Section 3(c) hereof; and (III) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
(b) In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to indemnify and hold
harmless, to the same extent and in the same manner set forth in Section 6(a),
the Company, each of its directors, each of its officers who signs the
Registration Statement, each person, if any, who controls the Company within the
meaning of the Securities Act or the Exchange Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and such Investor will reimburse
any legal or other expenses reasonably incurred by any Indemnified Party in
connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Section 6(b) for only that amount of a Claim as does not
exceed the amount by which the net proceeds to such Investor from the sale of
Registrable Securities pursuant to such Registration Statement exceeds the cost
of such Registrable Securities to such Investor. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
such Indemnified Party and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9. Notwithstanding anything to
the contrary contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information so furnished in writing by such persons
expressly for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written
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notice of the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume control
of the defense thereof with counsel selected by the indemnifying party but
reasonably acceptable to the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. In such event, the Company shall pay for only one
separate legal counsel for the Investors; such legal counsel shall be selected
by the Investors holding a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party of
any liability to the Indemnified Person or Indemnified Party under this Section
6, except to the extent that the indemnifying party is prejudiced in its ability
to defend such action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6, (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the amount by which the net amount of proceeds
received by such seller from the sale of such Registrable Securities exceeds the
purchase price paid by such seller for such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
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(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 and the
Exchange Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company and (iii)
such other information as may be reasonably requested to permit the Investors to
sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of all or any portion
of such securities (or all or any portion of the Preferred Shares or the
Dividend Shares) only if: (a) the Investor agrees in writing with the transferee
or assignee to assign such rights, and a copy of such agreement is furnished to
the Company within a reasonable time after such assignment, (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the securities with respect to which such registration rights are being
transferred or assigned, (c) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities laws, and
(d) at or before the time the Company received the written notice contemplated
by clause (b) of this sentence the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained herein. In connection
with any such transfer the Company shall, at its sole cost and expense, promptly
after such assignment take such actions as shall be reasonably acceptable to the
Initial Investor and such transferee to assure that the Registration Statement
and related prospectus are available for use by such transferee for sales of the
Registrable Securities in respect of which the rights to registration have been
so assigned. In connection with any such assignment, each Investor shall have
the right to assign to such transferee such Investor's rights under the
Subscription Agreement by notice of such assignment to the Company. Following
such notice of assignment of rights under the Subscription Agreement, the
Company shall be obligated to such transferee to perform all of its covenants
under of the Subscription Agreement as if such transferee were the Buyer under
the Subscription Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold a majority in interest of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
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(b) Notices required or permitted to be given hereunder shall be
in writing and shall be deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line facsimile transmission or
other means) (i) if to the Company, at 6675 185th Avenue N.E., Redmond,
Washington 98052-6734, Attention: Chief Financial Officer, telephone line
facsimile transmission number (206) 861-9301, (ii) if to the Initial Investor,
c/o Genesee International, Inc., 10500 N.E. 8th Street, Suite 1920, Bellevue,
Washington 98004-4332, telephone line facsimile transmission number (425)
462-4645 and (iii) if to any other Investor, at such address as such Investor
shall have provided in writing to the Company, or at such other address as each
such party furnishes by notice given in accordance with this Section 11(b), and
shall be effective, when personally delivered, upon receipt and, when so sent by
certified mail, four days after deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed
in accordance with the laws of the State of Washington applicable to agreements
made and to be performed entirely within such State. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) The Company acknowledges that any failure by the Company to
perform its obligations under this Agreement, including, without limitation, the
Company's obligations under Section 3(n), or any delay in such performance could
result in damages to the Investors and the Company agrees that, in addition to
any other liability the Company may have by reason of
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<PAGE> 16
any such failure or delay, the Company shall be liable for all direct and
consequential damages caused by any such failure or delay.
(j) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by telephone line facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement.
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<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of day
and year first above written.
INCONTROL, INC.
By: /s/ Donald F. Seaton III
------------------------------------
Name: Donald F. Seaton III
Title: Vice President, Finance, Chief
Financial Officer and
Secretary
ADVANTAGE FUND II LTD.
By: /s/ W.R. Weber
-------------------------------------
W.R. Weber
President
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<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of April 16, 1998
(this "Agreement"), is made by and between INCONTROL, INC., a Delaware
corporation (the "Company"), and the person named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, in connection with the Subscription Agreement, dated as
of April 16, 1998, between the Initial Investor and the Company (the
"Subscription Agreement"), the Company has agreed, upon the terms and subject to
the conditions of the Subscription Agreement, to issue and sell to the Initial
Investor shares (the "Series B Preferred Shares") of Series B Convertible
Preferred Stock, $.01 par value (the "Series B Preferred Stock"), of the Company
as provided in the Subscription Agreement, which Series B Preferred Shares and
any Series B Dividend Shares (such capitalized term and all other capitalized
terms used in this Agreement having the respective meanings provided in this
Agreement) are convertible into shares of Common Stock, $.01 par value (the
"Common Stock"), of the Company;
WHEREAS, pursuant to the Letter Agreement, Advantage has agreed,
upon the terms and subject to the conditions of the Letter Agreement, to
purchase shares (the "Series C Preferred Shares") of Series C Convertible
Preferred Stock, $.01 par value (the "Series C Preferred Stock"), of the Company
as provided in the Letter Agreement, which Series C Preferred Shares and any
Dividend Shares issued as dividends on the Series C Preferred Stock will be
convertible into shares of Common Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver
the Subscription Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
"Advantage" means Advantage Fund II Ltd., a British Virgin
Islands corporation.
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"Certificate of Designations" means the Certificate of
Designations of the Series B Convertible Preferred Stock as filed by the Company
with the Secretary of State of the State of Delaware.
"Conversion Shares" means the shares of Common Stock issuable
upon conversion of the Series B Preferred Shares, the Series C Preferred Shares
and the Dividend Shares.
"Dividend Shares" means any shares of Series B Preferred Stock
issued pursuant to Section 5 of the Certificate of Designations and any shares
of Series C Preferred Stock issued as dividends on shares of Series C Preferred
Stock pursuant to the certificate of designations for the Series C Preferred
Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Investor" means the Initial Investor and any transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
"Letter Agreement" means the letter agreement, dated the date
hereof, between the Company and Advantage relating to the sale and purchase of
shares of Series C Preferred Stock.
"Nasdaq" means the Nasdaq National Market.
"Preferred Shares" means the Series B Preferred Shares and the
Series C Preferred Shares.
"register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
"Registrable Securities" means the Conversion Shares issuable to
any Investor and any stock or other securities into which or for which the
Common Stock may hereafter be changed, converted or exchanged by the Company or
its successor, as the case may be, and any other securities issued to holders of
such Common Stock (or such shares into which or for which such shares are so
changed, converted or exchanged) upon any reclassification, share combination,
share subdivision, share dividend, merger, consolidation or similar transaction
or event.
"Registration Period" means the period from the Closing Date to
the earlier of (i) the date which is two years after the SEC Effective Date,
(ii) the date on which each Investor may sell all of its Registrable Securities
without registration under the Securities Act pursuant to Rule 144, without
restriction on the manner of sale or the volume of securities which may be sold
in any period and without the requirement for the giving of any notice to, or
the making of any filing
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with, the SEC and (iii) the date on which the Investors no longer beneficially
own any Registrable Securities.
"Registration Statement" means a registration statement of the
Company under the Securities Act, including any amendment thereto.
"Rule 144" means Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit a
holder of any securities to sell securities of the Company to the public without
registration under the Securities Act.
"SEC Effective Date" means the date the Registration Statement is
declared effective by the SEC.
"SEC Filing Date" means the date the Registration Statement is
first filed with the SEC pursuant to Section 2(a).
(b) Capitalized terms defined in the introductory paragraph or
the recitals to this Agreement shall have the respective meanings therein
provided. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Subscription Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare, and on or
prior to the date which is 30 days after the Closing Date, file with the SEC a
Registration Statement on Form S-3 which, on the date of filing with the SEC,
covers the resale by the Initial Investor of a number of shares of Common Stock
at least equal to the number of shares of Common Stock issuable upon conversion
of the Series B Preferred Shares and the number of Dividend Shares issuable
thereon (based on the market price of the Common Stock at the time the
Registration Statement is filed with the SEC) assuming the Initial Investor does
not sell or convert any shares of Series B Preferred Stock for two years after
the Closing Date, determined as if the Series B Preferred Shares and such number
of Dividend Shares, together with accrued and unpaid dividends thereon, were
converted in full on the SEC Filing Date (and determined without regard to the
limitation on beneficial ownership contained in the proviso to the second
sentence of Section 10(a) of the Certificate of Designations) based on a
Conversion Price computed from the Average Market Price and a Conversion
Percentage (as such terms are defined in the Certificate of Designations) of
87.5%, and which Registration Statement shall state that, in accordance with
Rule 416 under the Securities Act, such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Preferred Shares and Dividend Shares to prevent dilution
resulting from stock splits, stock dividends or similar transactions or by
reason of changes in the conversion price of the Preferred Shares and Dividend
Shares in accordance with the terms thereof. The Registration Statement will
also register the Conversion Shares issuable to Advantage pursuant to the Other
Subscription Agreement and the Letter Agreement. If at any time the number of
shares of Common Stock included in the Registration Statement required to be
filed as provided in the first sentence of this
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Section 2(a) shall be insufficient to cover the number of shares of Common Stock
issuable on conversion in full of the unconverted Preferred Shares and Dividend
Shares, then promptly, but in no event later than 20 days after such
insufficiency shall occur, the Company shall file with the SEC an additional
Registration Statement on Form S-3 (which shall not constitute a post-effective
amendment to the Registration Statement filed pursuant to the first sentence of
this Section 2(a)), covering such number of shares of Common Stock as shall be
sufficient to permit such conversion. For all purposes of this Agreement such
additional Registration Statement shall be deemed to be the Registration
Statement required to be filed by the Company pursuant to Section 2(a) of this
Agreement, and the Company and the Investors shall have the same rights and
obligations with respect to such additional Registration Statement as they shall
have with respect to the initial Registration Statement required to be filed by
the Company pursuant to this Section 2(a).
(b) CERTAIN OFFERINGS. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering,
Investors who hold a majority in interest of the Registrable Securities subject
to such underwritten offering shall have the right to select one legal counsel
and an investment banker or bankers and manager or managers to administer the
offering, which investment banker or bankers or manager or managers shall be
reasonably satisfactory to the Company. The Investors who hold the Registrable
Securities to be included in such underwriting shall pay all underwriting
discounts and commissions and other fees and expenses of such investment banker
or bankers and manager or managers so selected in accordance with this Section
2(b) (other than fees and expenses relating to registration of Registrable
Securities under federal or state securities laws, which are payable by the
Company pursuant to Section 5 hereof) with respect to their Registrable
Securities and the fees and expenses of such legal counsel so selected by the
Investors.
(c) ADJUSTMENTS OF CONVERSION TERMS. The Certificate of
Designations provides, among other things, that upon the occurrence of a
Registration Event (as defined in the Certificate of Designations), the
Conversion Percentage (as defined in the Certificate of Designations) shall be
adjusted as provided therein.
(d) PIGGY-BACK REGISTRATIONS. If at any time the Company shall
determine to prepare and file with the SEC a Registration Statement relating to
an offering for its own account or the account of others under the Securities
Act of any of its equity securities, other than on Form S-4 or Form S-8 or their
then equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each Investor who is entitled to registration rights under this Section
2(d) written notice of such determination and, if within ten (10) days after
receipt of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that if, in
connection with any underwritten public offering for the account of the Company,
the managing underwriter(s) thereof shall impose a limitation on the number of
shares of Common Stock which may be included in the Registration Statement
because, in such underwriter(s)' judgment, such limitation is necessary to
effect an orderly public distribution, then the Company shall be obligated to
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<PAGE> 5
include in such Registration Statement only such limited portion of the
Registrable Securities with respect to which such Investor has requested
inclusion hereunder. Any exclusion of Registrable Securities shall be made pro
rata among the Investors seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such
Investors; provided, however, that the Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding securities the
holders of which are not entitled by right to inclusion of securities in such
Registration Statement; and provided further, however, that, after giving effect
to the immediately preceding proviso, any exclusion of Registrable Securities
shall be made pro rata with holders of other securities having the right to
include such securities in the Registration Statement, based on the number of
securities for which registration is requested except to the extent such pro
rata exclusion of such other securities is prohibited under any written
agreement entered into by the Company with the holder of such other securities
prior to the date of this Agreement, in which case such other securities shall
be excluded, if at all, in accordance with the terms of such agreement. No right
to registration of Registrable Securities under this Section 2(d) shall be
construed to limit any registration required under Section 2(a) hereof. The
obligations of the Company under this Section 2(d) may be waived by Investors
holding a majority in interest of the Registrable Securities and shall expire
after the Company has afforded the opportunity for the Investors to exercise
registration rights under this Section 2(d) for two registrations; provided,
however, that any Investor who shall have had any Registrable Securities
excluded from any Registration Statement in accordance with this Section 2(d)
shall be entitled to include in an additional Registration Statement filed by
the Company the Registrable Securities so excluded. Notwithstanding any other
provision of this Agreement, if the Registration Statement required to be filed
pursuant to Section 2(a) of this Agreement shall have been ordered effective by
the SEC and the Company shall have maintained the effectiveness of such
Registration Statement as required by this Agreement and if the Company shall
otherwise have complied in all material respects with its obligations under this
Agreement, then the Company shall not be obligated to register any Registrable
Securities on such Registration Statement referred to in this Section 2(d).
(e) ELIGIBILITY FOR FORM S-3. The Company meets the requirements
for the use of Form S-3 for registration of the Registrable Securities for
resale by the Investors. The Company shall file all reports required to be filed
by the Company with the SEC in a timely manner so as to maintain such
eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall:
(a) prepare promptly, and file with the SEC not later than 30
days after the Closing Date, a Registration Statement with respect to the number
of Registrable Securities provided in Section 2(a), and thereafter to use its
best efforts to cause each Registration Statement relating to Registrable
Securities to become effective as soon as possible after such filing, and keep
the Registration Statement effective pursuant to Rule 415 at all times during
the Registration Period; submit to the SEC, within three Business Days after the
Company learns that no review of the Registration Statement will be made by the
staff of the SEC or that the staff of the SEC has no further comments on the
Registration Statement, as the case may be, a request for
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<PAGE> 6
acceleration of effectiveness of the Registration Statement to a time and date
not later than 48 hours after the submission of such request; notify the
Investors of the effectiveness of the Registration Statement on the date the
Registration Statement is declared effective; and the Company represents and
warrants to, and covenants and agrees with, the Investors that the Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein), at the time it is first filed with the SEC, at the time it
is ordered effective by the SEC and at all time during which it is required to
be effective hereunder (and each such amendment and supplement at the time it is
filed with the SEC and at all time during which it is available for use in
connection with the offer and sale of the Registrable Securities) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel, (1) promptly after
the same is prepared and publicly distributed, filed with the SEC or received by
the Company, one copy of the Registration Statement and any amendment thereto,
each preliminary prospectus and prospectus and each amendment or supplement
thereto, each letter written by or on behalf of the Company to the SEC or the
staff of the SEC and each item of correspondence from the SEC or the staff of
the SEC relating to such Registration Statement (other than any portion of any
thereof which contains information for which the Company has sought confidential
treatment) and (2) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) use reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such
securities or blue sky laws of such jurisdictions as the Investors who hold a
majority in interest of the Registrable Securities being offered reasonably
request, (ii) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times until the end of the Registration Period, (iii) take such other actions as
may be necessary to maintain such registrations and qualifications in effect at
all times during the Registration Period and (iv) take all other actions
reasonably necessary or advisable to qualify the Registrable Securities for sale
in such jurisdictions; provided, however, that the Company shall not be required
in connection therewith or as a condition thereto (I) to qualify to do business
in any jurisdiction where it would not otherwise be required to qualify
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but for this Section 3(d), (II) to subject itself to general taxation in any
such jurisdiction, (III) to file a general consent to service of process in any
such jurisdiction, (IV) to provide any undertakings that cause more than nominal
expense or burden to the Company or (V) to make any change in its Certificate of
Incorporation or by-laws, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the Company and its
stockholders;
(e) in the event that the Registrable Securities are being
offered in an underwritten offering, enter into and perform its obligations
under an underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering;
(f) as promptly as practicable after becoming aware of such event
or circumstance, notify each Investor of any event or circumstance of which the
Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and use its best efforts promptly to
prepare a supplement or amendment to the Registration Statement to correct such
untrue statement or omission, file such supplement or amendment with the SEC at
such time as shall permit the Investors to sell Registrable Securities pursuant
to the Registration Statement as promptly as practical, and deliver a number of
copies of such supplement or amendment to each Investor as such Investor may
reasonably request;
(g) as promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the SEC of any stop order or other suspension of effectiveness of
the Registration Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling
stockholders' counsel by the Investors who hold a majority in interest of the
Registrable Securities being sold to review and comment on the Registration
Statement and all amendments and supplements thereto a reasonable period of time
prior to their filing with the SEC;
(i) make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 under the Securities Act) covering a twelve-month period beginning not
later than the first day of the Company's fiscal quarter next following the
effective date of the Registration Statement;
(j) at the request of the Investors who hold a majority in
interest of the Registrable Securities being sold, furnish on the date that
Registrable Securities are delivered to an underwriter, if any, for sale in
connection with the Registration Statement (i) a letter, dated such date, from
the Company's independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to underwriters
in an
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<PAGE> 8
underwritten public offering, addressed to the underwriters; and (ii) an
opinion, dated such date, from counsel representing the Company for purposes of
such Registration Statement, in form and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors;
(k) make available for inspection by any Investor, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by any such
Investor or underwriter (collectively, the "Inspectors"), all pertinent
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably necessary to
enable each Inspector to exercise its due diligence responsibility, and cause
the Company's officers, directors and employees to supply all information which
any Inspector may reasonably request for purposes of such due diligence;
provided, however, that each Inspector shall hold in confidence and shall not
make any disclosure (except to an Investor) of any Record or other information
which the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (ii) the release of such Records is ordered pursuant to
a subpoena or other order from a court or government body of competent
jurisdiction or (iii) the information in such Records has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Company shall not be required to disclose any confidential
information in such Records to any Inspector until and unless such Inspector
shall have entered into confidentiality agreements (in form and substance
satisfactory to the Company) with the Company with respect thereto,
substantially in the form of this Section 3(k). Each Investor agrees that it
shall, upon learning that disclosure of such Records is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to the Company and allow the Company, at the Company's own
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, the Records deemed confidential. The Company shall hold
in confidence and shall not make any disclosure of information concerning an
Investor provided to the Company pursuant to Section 4(e) hereof unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor, at
such Investor's own expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information;
(l) use its best efforts (i) to cause all the Registrable
Securities covered by the Registration Statement to be listed on the Nasdaq or
such other principal securities market on which securities of the same class or
series issued by the Company are then listed or traded or (ii) if securities of
the same class or series as the Registrable Securities are not then listed on
Nasdaq or any such other securities market, to cause all of the Registrable
Securities covered by the
8
<PAGE> 9
Registration Statement to be listed on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market;
(m) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(n) cooperate with the Investors who hold Registrable Securities
being offered and the managing underwriter or underwriters, if any, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legends) representing Registrable Securities to be offered pursuant
to the Registration Statement and enable such certificates to be in such
denominations or amounts as the case may be, as the managing underwriter or
underwriters, if any, or the Investors may reasonably request and registered in
such names as the managing underwriter or underwriters, if any, or the Investors
may request; and, within three Business Days after a Registration Statement
which includes Registrable Securities is ordered effective by the SEC, the
Company shall deliver to the transfer agent for the Registrable Securities (with
copies to the Investors whose Registrable Securities are included in such
Registration Statement) an instruction substantially in the form attached hereto
as EXHIBIT 1 and shall cause legal counsel selected by the Company to deliver to
the Investors an opinion of such counsel in the form attached hereto as EXHIBIT
2 (with a copy to the Company's transfer agent);
(o) during the period the Company is required to maintain
effectiveness of the Registration Statement pursuant to Section 3(a), the
Company shall not bid for or purchase any Common Stock or any right to purchase
Common Stock or attempt to induce any person to purchase any such security or
right if such bid, purchase or attempt would in any way limit the right of the
Investors to sell Registrable Securities by reason of the limitations set forth
in Regulation M under the Exchange Act; and
(p) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investors of the Registrable Securities pursuant
to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least four (4)
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor (the "Requested Information") if any of such Investor's
Registrable Securities are eligible for inclusion in the Registration Statement.
If at least one (1) Business Day prior to the filing date the Company has not
received the Requested Information from an Investor (a "Non-Responsive
Investor"), then the Company may file the
9
<PAGE> 10
Registration Statement without including Registrable Securities of such
Non-Responsive Investor but shall not be relieved of its obligation to file a
Registration Statement with the SEC relating to the Registrable Securities of
such Non-Responsive Investor promptly after such Non-Responsive Investor
provides the Requested Information;
(b) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement;
(c) In the event Investors holding a majority in interest of the
Registrable Securities being registered determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement;
(d) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession of the prospectus covering such
Registrable Securities current at the time of receipt of such notice; and
(e) No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and other fees and expenses of investment
bankers and any manager or managers of such underwriting and legal expenses of
the underwriters applicable with respect to its Registrable Securities, in each
case to the extent not payable by the Company pursuant to the terms of this
Agreement.
5. EXPENSES OF REGISTRATION. All reasonable expenses, other than
underwriting discounts and commissions and other fees and expenses of investment
bankers and other than brokerage commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 3, including,
without limitation, all registration, listing and
10
<PAGE> 11
qualifications fees, printers and accounting fees and the fees and disbursements
of counsel for the Company and the Investors, shall be borne by the Company,
provided, however, that the Investors shall bear the fees and out-of-pocket
expenses of the one legal counsel selected by the Investors pursuant to Section
2(b) hereof.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act, any underwriter (as defined in the
Securities Act) for the Investors, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations in the
Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to the restrictions set forth in Section 6(d) with
respect to the number of legal counsel, the Company shall reimburse the
Investors and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (I) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement, the prospectus or any such amendment thereof or supplement thereto,
if such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (II) with respect to any preliminary prospectus shall not inure to
the benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject
11
<PAGE> 12
thereof (or to the benefit of any person controlling such person) if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected in the prospectus, as then amended or supplemented, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; and (III) shall not apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to indemnify and hold
harmless, to the same extent and in the same manner set forth in Section 6(a),
the Company, each of its directors, each of its officers who signs the
Registration Statement, each person, if any, who controls the Company within the
meaning of the Securities Act or the Exchange Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and such Investor will reimburse
any legal or other expenses reasonably incurred by any Indemnified Party in
connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Section 6(b) for only that amount of a Claim as does not
exceed the amount by which the net proceeds to such Investor from the sale of
Registrable Securities pursuant to such Registration Statement exceeds the cost
of such Registrable Securities to such Investor. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
such Indemnified Party and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9. Notwithstanding anything to
the contrary contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information so furnished in writing by such persons
expressly for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action),
12
<PAGE> 13
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
selected by the indemnifying party but reasonably acceptable to the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In such event, the
Company shall pay for only one separate legal counsel for the Investors; such
legal counsel shall be selected by the Investors holding a majority in interest
of the Registrable Securities included in the Registration Statement to which
the Claim relates. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that the
indemnifying party is prejudiced in its ability to defend such action. The
indemnification required by this Section 6 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6, (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the amount by which the net amount of proceeds
received by such seller from the sale of such Registrable Securities exceeds the
purchase price paid by such seller for such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
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<PAGE> 14
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 and the
Exchange Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company and (iii)
such other information as may be reasonably requested to permit the Investors to
sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of all or any portion
of such securities (or all or any portion of the Preferred Shares or the
Dividend Shares) only if: (a) the Investor agrees in writing with the transferee
or assignee to assign such rights, and a copy of such agreement is furnished to
the Company within a reasonable time after such assignment, (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the securities with respect to which such registration rights are being
transferred or assigned, (c) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities laws, and
(d) at or before the time the Company received the written notice contemplated
by clause (b) of this sentence the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained herein. In connection
with any such transfer the Company shall, at its sole cost and expense, promptly
after such assignment take such actions as shall be reasonably acceptable to the
Initial Investor and such transferee to assure that the Registration Statement
and related prospectus are available for use by such transferee for sales of the
Registrable Securities in respect of which the rights to registration have been
so assigned. In connection with any such assignment, each Investor shall have
the right to assign to such transferee such Investor's rights under the
Subscription Agreement by notice of such assignment to the Company. Following
such notice of assignment of rights under the Subscription Agreement, the
Company shall be obligated to such transferee to perform all of its covenants
under of the Subscription Agreement as if such transferee were the Buyer under
the Subscription Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold a majority in interest of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with
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<PAGE> 15
respect to the same Registrable Securities, the Company shall act upon the basis
of instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be
in writing and shall be deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line facsimile transmission or
other means) (i) if to the Company, at 6675 185th Avenue N.E., Redmond,
Washington 98052-6734, Attention: Chief Financial Officer, telephone line
facsimile transmission number (206) 861-9301, (ii) if to the Initial Investor,
at 4111 East 37th Street North, Wichita, Kansas 67220, Attention: Mr. Josh
Taylor, telephone line facsimile transmission number (316) 828-7947 and (iii) if
to any other Investor, at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 11(b), and shall be effective, when
personally delivered, upon receipt and, when so sent by certified mail, four
days after deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed
in accordance with the laws of the State of Washington applicable to agreements
made and to be performed entirely within such State. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) The Company acknowledges that any failure by the Company to
perform its obligations under this Agreement, including, without limitation, the
Company's obligations under Section 3(n), or any delay in such performance could
result in damages to the Investors and
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<PAGE> 16
the Company agrees that, in addition to any other liability the Company may have
by reason of any such failure or delay, the Company shall be liable for all
direct and consequential damages caused by any such failure or delay.
(j) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by telephone line facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement.
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<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of day
and year first above written.
INCONTROL, INC.
By: /s/ Donald F. Seaton III
-------------------------------------
Name: Donald F. Seaton III
Title: Vice President, Finance,
Chief Financial Officer and
Secretary
KOCH INDUSTRIES, INC.
By: /s/ Josh Taylor
-------------------------------------
Name: Josh Taylor
Title: Portfolio Manager
17
<PAGE> 1
EXHIBIT 4.3
FIRST AMENDMENT OF RIGHTS AGREEMENT
Pursuant to Section 26 of the Rights Agreement, dated as of February 27,
1996, by and between InControl, Inc. (the "Company") and First Interstate Bank
of Washington, N.A. (now ChaseMellon Shareholder Services, L.L.C.) (the "Rights
Agreement"), the Company, by this First Amendment of Rights Agreement, dated
April 17, 1998, does hereby amend the Rights Agreement as follows:
Section 1 is hereby amended to add the following paragraph as a new last
paragraph at the end of the definition of "Beneficial Ownership":
"Notwithstanding the foregoing, a Person shall not be deemed to be the
Beneficial Owner of the shares of Common Stock underlying shares of the
Company's Series B Convertible Preferred Stock (including, without limitation,
for purposes of determining whether such Person is an Acquiring Person) until
such time as such shares of Series B Convertible Preferred Stock are converted
into shares of Common Stock."
IN WITNESS WHEREOF, the Company has executed this First Amendment to
Rights Agreement as of the date first written above.
INCONTROL, INC.
/s/ Donald F. Seaton III
------------------------------------
Donald F. Seaton III
Vice President, Finance,
Chief Financial Officer and
Secretary
<PAGE> 1
EXHIBIT 4.4
INCONTROL, INC.
STOCK PURCHASE AGREEMENT
DATED
AS OF
APRIL 20, 1998
<PAGE> 2
CONTENTS
<TABLE>
<S> <C>
1. Purchase and Sale of Stock ......................................... 1
1.1 Purchase and Sale ........................................... 1
1.2 Purchase Price .............................................. 1
2. Closing ............................................................ 1
2.1 Closing Date ................................................ 1
2.2 Delivery .................................................... 1
3. Representations and Warranties of the Company ...................... 1
3.1 Organization, Good Standing and Qualification ............... 1
3.2 Capitalization .............................................. 2
3.3 Authorization, Due Execution and Validity ................... 2
3.4 Valid Issuance of Stock ..................................... 2
3.5 Governmental Consents ....................................... 2
3.6 Litigation .................................................. 3
3.7 Employee Compensation Plans ................................. 3
3.8 Compliance With Other Instruments ........................... 3
3.9 Disclosure .................................................. 3
3.10 SEC Reports, Financial Statements ........................... 4
3.11 Compliance With Laws ........................................ 4
3.12 Private Offering ............................................ 5
3.13 Changes ..................................................... 6
3.14 Certain Fees ................................................ 6
4. Representations and Warranties of the Investors .................... 6
4.1 Authorization ............................................... 6
4.2 Exemption from Registration ................................. 7
4.3 Purchase Entirely for Own Account ........................... 7
4.4 Investment Experience ....................................... 7
4.5 Access to Information ....................................... 7
4.6 Restricted Securities ....................................... 8
4.7 Residency ................................................... 8
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.8 Legends ..................................................... 8
5. Registration Rights ................................................ 8
6. Conditions of Investors' Obligations at the Closing Date ........... 8
6.1 Representations and Warranties .............................. 9
6.2 Performance ................................................. 9
6.3 Compliance Certificate ...................................... 9
6.4 Secretary's Certificate ..................................... 9
6.5 Proceedings and Documents ................................... 9
6.6 Opinion of Company Counsel .................................. 9
6.7 Authorizations .............................................. 9
6.8 Convertible Preferred Closing ............................... 10
7. Conditions of the Company's Obligations at the Closing Date ........ 10
7.1 Representations and Warranties .............................. 10
7.2 Exemption ................................................... 10
7.3 Performance ................................................. 10
8. Entire Agreement; Governing Law .................................... 10
9. Notice ............................................................. 10
10. Amendments ......................................................... 11
11. Expenses ........................................................... 11
12. Counterparts ....................................................... 11
</TABLE>
EXHIBIT A Schedule of Investors
EXHIBIT B Information Provided to the Investors
EXHIBIT C Registration Rights
ii
<PAGE> 4
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of April 20, 1998, between INCONTROL,
INC., a Delaware corporation (the "Company"), and the investors listed on
Exhibit A hereto (collectively, the "Investors" and individually, an
"Investor").
1. PURCHASE AND SALE OF STOCK
1.1 PURCHASE AND SALE
Upon the terms and subject to the conditions of this Agreement, the
Company shall sell and issue to each Investor, and each Investor shall purchase
from the Company, severally and not jointly, the number of shares of Common
Stock of the Company (the "Shares") specified opposite of such Investor's name
on the Schedule of Investors attached hereto as Exhibit A.
1.2 PURCHASE PRICE
The price per Share shall be $6.25.
2. CLOSING
2.1 CLOSING DATE
The closing of the sale and purchase of the Shares shall be held at 1:00
p.m., on April 20, 1998 (the "Closing Date").
2.2 DELIVERY
At the Closing, subject to the terms and conditions hereof, the Company
shall deliver to each Investor a certificate, representing the Shares to be
purchased by such Investor from the Company, dated the Closing Date, against
payment of the purchase price therefor by wire transfer.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Investors as follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the state of Delaware and has all requisite
corporate power and authority to own its properties and carry on its business as
currently conducted and as proposed to be conducted. The Company is duly
qualified to transact business and is in good standing as a foreign corporation
in each jurisdiction in which the failure to so qualify would have a material
<PAGE> 5
adverse effect on its financial condition, results of operations, business,
properties or prospects. The Company has previously provided the Investors with
complete and correct copies of its Restated Certificate of Incorporation and its
Amended and Restated Bylaws as in effect on the date of this Agreement.
3.2 CAPITALIZATION
The authorized capital of the Company consists of 40,000,000 shares of
common stock (the "Common Stock") and 10,000,000 shares of preferred stock,
400,000 shares of which are designated as Series A Participating Cumulative
Preferred Stock and 8,710 shares of which are designated as Series B Convertible
Preferred Stock. As of the date of this Agreement, no shares of the Series A
Participating Cumulative Preferred Stock (which are issuable upon exercise of
certain preferred stock purchase rights associated with shares of the Company's
Common Stock), 7,500 shares of the Series B Convertible Preferred Stock and
18,845,415 shares of the Common Stock are issued and outstanding. In addition,
102,901 shares of Common Stock are subject to outstanding warrants to purchase
shares of Common Stock, 3,873,490 shares of Common Stock are reserved for
issuance upon the exercise of stock options granted or to be granted under the
Company's 1990 Restated Stock Option Plan, 1994 Stock Option Plan for
Nonemployee Directors and 1996 Stock Option Plan for Nonemployee Directors and
3,769,000 shares of Common Stock are reserved for issuance upon conversion of
the Series B Convertible Preferred Stock.
3.3 AUTHORIZATION, DUE EXECUTION AND VALIDITY
The Company has all requisite power and authority to execute, deliver
and perform its obligations under this Agreement. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement and the transactions
contemplated herein, the performance of all obligations of the Company hereunder
and the authorization, issuance and delivery of the Shares being sold hereunder
have been taken or will be taken prior to the Closing. This Agreement has been
duly executed and delivered by the Company and constitutes a valid and legally
binding obligation of the Company, enforceable in accordance with its terms.
3.4 VALID ISSUANCE OF STOCK
The Shares, when issued, sold and delivered in accordance with the terms
hereof for the consideration expressed herein, will be duly and validly issued,
fully paid and nonassessable and free of any liens or encumbrances, and will be
free of restrictions on transfer, except as set forth herein and subject to
limitations promulgated under Rule 144 and Regulation D of the rules promulgated
pursuant to the Securities Act of 1933, as amended (the "Act"), and will be
issued in compliance with all applicable state and federal securities laws. The
outstanding shares of Common Stock of the Company are all duly and validly
authorized and issued, fully paid and nonassessable and were issued in
compliance with all applicable state and federal securities laws.
2
<PAGE> 6
3.5 GOVERNMENTAL CONSENTS
No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, regional,
state or local governmental authority on the part of the Company is required in
connection with the consummation of the transactions contemplated by this
Agreement.
3.6 LITIGATION
There is no action, suit, claim, proceeding or investigation pending or,
to the Company's knowledge, currently threatened against the Company that
relates to or challenges the legality, validity or enforceability of this
Agreement or the Shares, or that could either individually or in the aggregate
have a material adverse effect on the financial condition, results of
operations, business, properties or prospects of the Company. The Company is not
a party to or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality that could have a
material adverse effect on its financial condition, results of operations,
business, properties or prospects.
3.7 EMPLOYEE COMPENSATION PLANS
The Company is not a party to or bound by any currently effective
employment agreement, deferred compensation agreement, bonus plan, incentive
plan, profit sharing plan, retirement agreement or other employee compensation
agreement, except for the Company's 1990 Restated Stock Option Plan, the
Company's 1994 Stock Option Plan for Nonemployee Directors and 1996 Stock Option
Plan for Nonemployee Directors and such other agreements as would be required to
be disclosed in the SEC Documents (as such term is defined below).
3.8 COMPLIANCE WITH OTHER INSTRUMENTS
The Company is not in violation of any provision of its Restated
Certificate of Incorporation or its Amended and Restated Bylaws or in violation
or default of any provision of any instrument, judgment, order, writ, decree or
contract to which it is a party or by which it is bound, or any provision of any
federal or state statute, rule or regulation applicable to the Company, which
violation or default would adversely affect the legality, validity, or
enforceability of this Agreement or have a material adverse effect on its
financial condition, results of operations, business, properties or prospects.
The execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby will not result in any such violation or
default or require any consent under or be in conflict with or constitute, with
or without the passage of time and giving of notice, either a violation or
default under any such provision, instrument, judgment, order, writ, decree or
contract, or an event which results in the creation of any lien, charge or
encumbrance upon any assets of the Company.
3
<PAGE> 7
3.9 DISCLOSURE
The Company has provided the Investors, its representatives and legal
counsel with all the information set forth on Exhibit B attached hereto and has
provided the opportunity to ask and have answered satisfactorily, questions of
the Company. Neither this Agreement, the exhibits hereto, nor any certificate or
material prepared by the Company for the benefit of the Investors at the Closing
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements made herein or therein not misleading.
3.10 SEC REPORTS, FINANCIAL STATEMENTS
The Company has furnished the Investors with a true and complete copy of
each report, schedule, registration statement and definitive proxy statement
filed by the Company with the Securities and Exchange Commission (the "SEC")
since December 31, 1997 (the "SEC Documents"), which are all the documents
(other than registration statements on Form S-8 of the SEC) that the Company has
been required to file or has filed with the SEC. As of their respective dates,
the SEC Documents complied with the requirements of the Act, or the Securities
Exchange Act of 1934, as amended, as applicable, and the rules and regulations
of the SEC thereunder, and none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, as in effect at the time
of filing, were prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Form 10-Q of the SEC) and fairly present, subject,
in the case of unaudited financial statements, to normal recurring audit
adjustments, the financial position of the Company and its consolidated
subsidiaries at the dates thereof and the results of their operations and
changes in financial position for the periods then ended. Except to the extent
reflected or reserved against in the financial statements of the Company as of
and for the fiscal year ended December 31, 1997, the Company does not have any
material liabilities or other obligations (including contingent liabilities and
obligations) except (i) liabilities and obligations incurred in the ordinary
course of business since December 31, 1997 or (ii) that would not be required to
be reflected or reserved against in the consolidated balance sheet of the
Company prepared in accordance with generally accepted accounting principles
applied on a consistent basis.
3.11 COMPLIANCE WITH LAWS
(a) The Company has complied, and is in compliance with, all
federal, state, county, local and foreign laws, rules, regulations, ordinances,
decrees and orders applicable to the operation of its business, to its
employees, or to the real property and the personal property that it owns or
leases (the "Property"), the failure to comply with which
4
<PAGE> 8
would, individually or in the aggregate, have a material adverse effect on the
business, assets or operations of the Company, including, without limitation,
all such laws, rules, ordinances, decrees and orders relating to antitrust,
consumer protection, currency exchange, environmental protection, equal
opportunity, health, occupational safety, pension, securities and
trading-with-the-enemy matters. The Company has not received any notification of
any asserted present or past unremedied failure by the Company to comply with
any of such laws, rules, ordinances, decrees or orders.
(b) The Company is not in violation of any applicable building,
zoning, environmental or other law, ordinance or regulation in respect of any of
its real property employed in its operations or its plant, structures or
operations. No such law, ordinance or regulation would reasonably be expected to
prevent the use of substantially all of such real property for the conduct
thereon of the business of the Company as currently conducted.
(c) The Company is not in violation of, and has not violated, in
connection with the ownership, use, maintenance or operation of its Property or
the conduct of its business, any applicable federal, state, county, local or
foreign statutes, laws, regulations, guidances, rules, ordinances, codes,
licenses, permits, judgments, writs, decrees, injunctions or orders of any
governmental entity relating to environmental (air, water, groundwater, soil,
noise and odor) matters, including all other applicable environmental
requirements where such violation might have a material adverse impact on the
Company's business, business prospects, assets, operations or condition
(financial or other).
(d) The Company has made all filings and given all notices to
governmental authorities and obtained all necessary ordinances, registrations,
declarations, approvals, orders, trademarks, patents, tradenames, licenses,
consents, qualifications, certificates, permits and authorizations from any
foreign, Federal, state or local government or governmental agency or department
to own or lease its properties and to conduct its business as currently
conducted, the absence or failure of which would have a material adverse effect
on the Company. All such authorizations, ordinances, consents, approvals,
waivers, orders, trademarks, patents, tradenames, licenses, consents,
qualifications, certificates and permits are in full force and effect and are
not the subject of any pending or, to the Company's knowledge, any threatened
attack by appeal or direct proceeding or otherwise.
3.12 PRIVATE OFFERING
Neither the Company nor any person acting on its behalf has, directly or
through any agent, sold, offered for sale, solicited offers to buy or otherwise
negotiated in respect of any security (as defined in the Act) that is or may be
integrated with the sale of the Shares in a manner that would require the
registration of the Shares under the Act within the six months preceding the
date of this Agreement; neither the Company nor any person acting on its behalf
has offered or sold or will offer or sell any Shares by means of any general
solicitation or general advertising within the meaning of Rule 502(c) under the
Act. Subject in part to the truth and accuracy of each Investor's
representations set forth in this Agreement, the offer,
5
<PAGE> 9
sale and issuance of the Shares as contemplated by this Agreement are exempt
from the registration requirements of the Act, and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemptions.
3.13 CHANGES
Since December 31, 1997 there has not been:
(a) Any change in the assets, liabilities, financial condition,
or operating results of the Company from that reflected in the Company's
financial statements dated as of December 31, 1997, except changes in the
ordinary course of business that have not been, in the aggregate, materially
adverse;
(b) Any damage, destruction or loss (whether or not covered by
insurance) that has materially and adversely affected, or may materially and
adversely affect, the business, financial position, results of operations,
prospects or properties of the Company;
(c) Any change in the accounting methods or practices followed by
the Company;
(d) Any material debt obligation or liability (whether absolute
or contingent) incurred by the Company (whether or not presently outstanding)
except (i) current liabilities incurred, and obligations under agreements
entered into, in the ordinary course of business and (ii) obligations or
liabilities entered into or incurred in connection with the execution of this
Agreement; or
(e) Any sale, lease, abandonment or other disposition by the
Company of any real property or, other than in the ordinary course of business,
of any equipment or other operating properties or, other than in the ordinary
course of business, any sale, assignment, transfer, license or other disposition
by the Company of any intellectual property or other intangible asset.
3.14 CERTAIN FEES
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the sale of the Shares to
the Investors.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor hereby represents and warrants that:
6
<PAGE> 10
4.1 AUTHORIZATION
This Agreement constitutes a valid and legally binding obligation of the
Investor, enforceable in accordance with its terms. The Investor has full power
and authority to execute, deliver and perform its obligations under this
Agreement and to own the Shares.
4.2 EXEMPTION FROM REGISTRATION
The Investor has been advised that the none of the Shares proposed to be
purchased by the Investor hereunder is being registered under the Act and the
rules and regulations of the SEC promulgated thereunder, or applicable state
securities laws, but is being offered and sold pursuant to exemptions from such
laws, and that the Company's reliance upon such exemptions is predicated in part
on the Investor's representations contained herein. The Investor acknowledges
that the Company is relying in part upon the Investor's representations and
warranties contained herein for the purpose of qualifying the offer and sale of
the Shares proposed to be offered and sold hereunder for applicable exemptions
from registration or qualification pursuant to federal or state securities laws,
rules and regulations.
4.3 PURCHASE ENTIRELY FOR OWN ACCOUNT
The Shares to be received by the Investor will be acquired for
investment for the Investor's own account, not as a nominee or agent, and not
with a view to the distribution of any part thereof, and the Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same in a manner contrary to the Act or any applicable state
securities law, and the Investor does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person with respect to any of the
Shares.
4.4 INVESTMENT EXPERIENCE
The Investor is an investor in securities of companies in the
development stage, qualifies as an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated by the SEC that meets the requirements of
Rule 501(a)(1), (2), (3), or (7) of said Regulation D, is purchasing shares in
an aggregate amount of at least $1,000,000, and acknowledges that the Shares are
a speculative risk. The Investor is able to fend for itself in the transactions
contemplated by this Agreement, can bear the economic risk of its investment
(including possible complete loss of such investment) for an indefinite period
of time and has such knowledge and experience in financial or business matters
that it is capable of evaluating the merits and risks of the investment in the
Shares. The Investor represents it has not been organized for the purpose of
acquiring the Shares.
4.5 ACCESS TO INFORMATION
The Investor believes that it has been furnished such information as it
deems necessary to evaluate an investment in the Shares, including the
information as set forth on Exhibit A
7
<PAGE> 11
attached hereto. The Investor has been given access to sufficient information
regarding the Company including, in particular, the current financial condition,
results of operations, business, properties, management and prospects of the
Company and the risks associated therewith and has utilized such access to its
satisfaction for the purpose of obtaining information or verifying information,
and particularly, the Investor has either attended or been given reasonable
opportunity to attend a meeting with representatives of the Company for the
purpose of asking questions of, and receiving answers from, such representatives
concerning the terms and conditions of the offering of the Shares and to obtain
any additional information, to the extent reasonably available. The foregoing,
however, does not limit or modify the representations and warranties of the
Company is Section 3 of this Agreement of the right of the Investor to rely
thereon.
4.6 RESTRICTED SECURITIES
The Investor realizes that none of the Shares proposed to be purchased
by the Investor hereunder has been registered under the Act and that all of such
Shares are characterized under the Act as "restricted securities" and therefore
cannot be sold or transferred unless subsequently registered under the Act or an
exemption from such registration is available. In this connection, the Investor
represents that it is familiar with Rule 144 of the SEC, as presently in effect,
and understands the resale limitations imposed thereby and by the Act.
4.7 RESIDENCY
For purposes of the Company's compliance with applicable state and
foreign securities laws, the Investor represents that it is a bona fide resident
of, and/or is domiciled in the state of California.
4.8 LEGENDS
It is understood that the certificates evidencing the Shares may bear
legends in substantially the following form:
"The securities evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended (the 'Act'), or applicable state
securities law, and no interest therein may be sold, distributed, assigned,
offered, pledged or otherwise transferred unless (i) there is an effective
registration statement under the Act and applicable state securities laws
covering any such transaction involving said securities, (ii) this corporation
receives an opinion of legal counsel for the holder of these securities
reasonably satisfactory to this corporation stating that such transaction is
exempt from registration or (iii) this corporation otherwise satisfies itself
that such transaction is exempt from registration."
5. REGISTRATION RIGHTS
The terms of the Registration Rights attached hereto as Exhibit C are
hereby incorporated into and made a part of this Agreement as if fully set forth
herein.
8
<PAGE> 12
6. CONDITIONS OF INVESTORS' OBLIGATIONS AT THE CLOSING DATE
The obligations of the Investors under Section 1 hereof are subject to
the fulfillment, on or before the Closing Date of each of the following
conditions, unless waived by the Investors:
6.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Company contained in Section 3
hereof shall be true in all material respects on and as of the Closing Date.
6.2 PERFORMANCE
The Company shall have performed and complied with all agreements,
obligations and conditions contained in this Agreement that are required to be
performed or complied with by it on or before the Closing Date.
6.3 COMPLIANCE CERTIFICATE
The Chief Executive Officer of the Company shall have delivered to the
Investors a certificate stating that the conditions specified in Sections 6.1,
6.2, 6.7 and 6.8 hereof have been fulfilled.
6.4 SECRETARY'S CERTIFICATE
The Investors shall have received a certificate, dated the Closing Date,
signed by the secretary of the Company and certifying (a) that attached thereto
is a true, complete and correct copy of (i) the Company's Restated Certificate
of Incorporation and Amended and Restated Bylaws and (ii) resolutions duly
adopted by the Board of Directors of the Company authorizing the execution and
delivery of this Agreement and the issuance of the Shares, (b) the incumbency of
officers executing this Agreement, and (c) that attached thereto is a specimen
of the stock certificate for the Common Stock.
6.5 PROCEEDINGS AND DOCUMENTS
All corporate and other proceedings in connection with the transactions
contemplated at the Closing Date and all documents incident thereto shall be
reasonably satisfactory to the Investors and the Investors' counsel.
6.6 OPINION OF COMPANY COUNSEL
The Investors shall have received from Perkins Coie, counsel for the
Company, an opinion, dated as of the Closing Date, in form and substance
satisfactory to the Investors.
9
<PAGE> 13
6.7 AUTHORIZATIONS
All authorizations, approvals, or permits, if any, of any governmental
authority or regulatory body of the United States or any state that are required
in connection with the lawful issuance and sale of the Shares pursuant to this
Agreement shall be duly obtained and effective as of the Closing Date.
6.8 CONVERTIBLE PREFERRED CLOSING
The Company shall have closed the sale of $7.5 million of its Series B
Convertible Preferred Stock.
7. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING DATE
The obligations of the Company under this Agreement are subject to the
fulfillment on or before the Closing Date of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Investors contained in Section
4 hereof shall be true in all material respects on and as of the Closing Date.
7.2 EXEMPTION
The offer and sale of the Shares to the Investors pursuant to this
Agreement shall be exempt from registration under the Act, and the Company shall
have received from Perkins Coie an opinion, dated the Closing Date, to such
effect.
7.3 PERFORMANCE
The Investors shall have performed and complied with all agreements,
obligations and conditions contained in this Agreement that are required to be
performed or complied with by it on or before the Closing Date.
8. ENTIRE AGREEMENT; GOVERNING LAW
This Agreement and the other documents delivered at the Closing
constitute the full and entire understanding and agreement between the parties
with respect to the subject matter hereof and supersede all prior agreements
with respect to the subject matter hereof. This Agreement shall be governed by
and construed under the laws of the state of Washington as applied to agreements
among Washington residents entered into and to be performed entirely within the
state of Washington.
10
<PAGE> 14
9. NOTICE
Unless otherwise provided, any notice desired or required to be given
hereunder shall be in writing given by personal delivery or certified or
registered mail, telegram or confirmed facsimile transmission, addressed to such
party at its address listed on the signature page of this Agreement, or to such
other address as any party shall have previously designated by such a notice.
The effective date of any notice or request shall be three days from the date it
is sent by the addressor with charges prepaid so long as it is in fact received
within five days, or when successful transmission is confirmed if sent by
facsimile, or when personally delivered.
10. AMENDMENTS
Any term of this Agreement may be amended and the observance of any term
may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the Investors.
11. EXPENSES
Irrespective of whether the Closing is effected, the Company shall pay
all costs and expenses that it incurs with respect to the negotiation,
execution, delivery, and performance of this Agreement. If the Closing is
effected, the Company shall, at the Closing, reimburse the reasonable fees of
Pillsbury, Madison & Sutro LLP, special counsel to the Investors, not to exceed
$15,000, and shall, upon receipt of a bill therefor, reimburse out-of-pocket
expenses of such special counsel.
12. COUNTERPARTS
This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed and delivered shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement.
[remainder of page intentionally left blank]
11
<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY"
INCONTROL, INC.
By /s/ Kurt C. Wheeler
----------------------------------------
Its Chief Executive Officer
------------------------------------
Address: 6675 -- 185th Avenue N.E.
Redmond, WA 98052
Fax: (206) 861-9301
"INVESTORS"
CHARTER GROWTH CAPITAL L.P.
By /s/ A. Barr Dolan
----------------------------------------
Its General Partner
-------------------------------------
CHARTER GROWTH CAPITAL CO. -
INVESTMENT FUND L.P.
By /s/ A. Barr Dolan
----------------------------------------
Its General Partner
-----------------------------------
CGC INVESTORS L.P.
By /s/ A. Barr Dolan
----------------------------------------
Its General Partner
------------------------------------
12
<PAGE> 16
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Name Aggregate Purchase Price No. of Shares
- ---- ------------------------ -------------
<S> <C> <C>
Charter Growth Capital L.P. $1,978,800 316,608
Charter Growth Capital Co.- $388,762.50 62,202
Investment Fund L.P.
CGC Investors L.P. $132,437.50 21,190
</TABLE>
<PAGE> 17
EXHIBIT B
INFORMATION PROVIDED TO THE INVESTORS
1. Annual Report of the Company on Form 10-K for the year ended
December 31, 1997.
2. Annual Report of the Company to stockholders for the year ended
December 31, 1997.
3. Proxy Statement, dated March 27, 1998, relating to the 1998 annual
meeting of stockholders of the Company.
<PAGE> 18
EXHIBIT C
REGISTRATION RIGHTS
1. REGISTRATION RIGHTS
1.1 CERTAIN DEFINITIONS
As used in this Agreement, the following terms not otherwise defined in
the Agreement shall have the following respective meanings:
"Commission" shall mean the United States Securities and Exchange
Commission.
"Holder" shall mean the Investor.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement with the
Commission in compliance with the Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, except as otherwise
stated below, incurred by the Company in complying with Section 1 hereof,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company and of one special counsel to the Holder, and blue sky fees and
expenses.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of the Shares by the
Holder.
"Shelf Period" shall mean the period commencing 90 days after the
Closing Date and ending on the date one year from the Closing Date.
1.2 SHELF REGISTRATION
The Company shall cause a registration statement to be declared
effective by the Commission prior to or upon commencement of the Shelf Period
with respect to all the Shares held by the Holder (including, without
limitation, appropriate qualification under applicable blue sky or other state
securities laws) and to maintain the registration effective until the earlier of
(i) the expiration of the Shelf Period or (ii) the time at which the Shares of
the Holder have been sold or distributed (such period, the "Selling Period"). If
at any time during the Shelf Period the Company shall notify the Holder in a
writing signed by the President of the Company that there exists material
nonpublic information which must be disclosed in order for the registration
statement not to be false or misleading, then the Company may require that no
sales may be made under the registration statement until such time as disclosure
is made.
<PAGE> 19
The Company shall use its best efforts to cause such disclosure to be made as
soon as practicable, but in any event no later than 45 days after such written
notice to the Holder.
1.3 EXPENSES OF REGISTRATION
All Registration Expenses incurred in connection with registrations
pursuant to Section 1.2 shall be borne by the Company. All Selling Expenses
relating to securities registered on behalf of the Holder shall be borne by the
Holder on the basis of the number of Shares registered and sold.
1.4 REGISTRATION PROCEDURES
In the case of registration effected by the Company pursuant to this
Section 1, the Company will keep the Holder advised in writing as to the
initiation of registration and as to the completion thereof. At its expense the
Company will:
(a) Registration Statement. Prepare and file with the Commission
a registration statement with respect to the Shares held by the Holder and use
its best efforts to cause such registration statement to become and remain
effective for the Selling Period;
(b) Amendments. Prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(c) Copies. Furnish to the Holder such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as the Holder or such underwriters may reasonably
request in order to facilitate the public offering of such securities.
(d) Blue Sky. Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holder, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any state or jurisdiction.
(e) Notice. Notify the Holder covered by such registration
statement (at any time when a prospectus relating thereto is required to be
delivered under the Act) of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(f) Opinion. Furnish, at the request of the Holder requesting
registration of Shares in connection with a registration pursuant to Section
1.2, (i) an opinion, dated such
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<PAGE> 20
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holder and (ii) a letter dated such date, from the independent accountants
of the Company, in form and substance as is customarily given by independent
accountants to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holder.
(h) Listing. The Company will list the Shares, prior to the
commencement of the Selling Period, on the Nasdaq National Market.
1.5 INFORMATION BY HOLDER
The Holder shall furnish to the Company such information regarding
itself, the Shares it holds and the distribution proposed by it as the Company
may reasonably request in writing and as shall be required in connection with
any registration, qualification or compliance referred to in this Section 1.
1.6 INDEMNIFICATION AND CONTRIBUTION
(a) Indemnification by the Company. Upon the registration of
Shares pursuant to Section 1.2 hereof, the Company shall indemnify and hold
harmless the Holder and each underwriter, selling agent or other securities
professional, if any, that facilitates the disposition of such Shares, and each
of their respective officers and directors and each person who controls the
Holder, underwriter, selling agent or other securities professional within the
meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), against any losses, claims, damages or
liabilities, joint or several, to which the Holder or such other persons may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any registration statement under which such Shares are to be
registered under the Act, or any prospectus contained therein or furnished by
the Company to the Holder or other such person, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and the Company hereby agrees to
reimburse the Holder or other person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such action
or claim as such expenses are incurred; provided, however, that the Company
shall not be liable to the Holder or other person in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement or prospectus, or amendment or supplement,
in reliance upon and in conformity with written information furnished to the
Company by the Holder or such other person expressly for use therein.
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<PAGE> 21
(b) Indemnification by the Holder and any Agents and
Underwriters. The Holder agrees, as a consequence of the inclusion of the Holder
in such registration, to (i) indemnify and hold harmless the Company, its
directors, officers who sign any registration statement with respect to such
Shares and each person, if any, who controls the Company within the meaning of
either Section 15 of the Act or Section 20 of the Exchange Act, against any
losses, claims, damages or liabilities to which the Company or such other
persons may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact contained in such registration statement or prospectus, or any amendment or
supplement, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by the Holder, and (ii) reimburse
the Company for any legal or other expenses reasonably incurred by the Company
in connection with investigating or defending any such action or claim as such
expenses are incurred.
(c) Notices of Claims, Etc. Promptly after receipt by an
indemnified party under subsection (a) or (b) above of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against an indemnifying party under this Section 1.6,
notify such indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 1.6. In case any such action shall be brought against any indemnified
party and it shall notify an indemnifying party of the commencement thereof,
such indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and, after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, such indemnifying party shall not be liable to such indemnified
party under this Section 1.6 for any legal expenses of other counsel or any
other expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation, unless representation of such indemnifying party and such
indemnified party by the same counsel would be inappropriate due to actual or
potential conflicting interests between such parties. No indemnifying party
shall, without the written consent of the indemnified party, effect the
settlement or compromise of, or consent to the entry of any judgment with
respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or
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<PAGE> 22
claim and (ii) does not include a statement as to, or an admission of, fault,
culpability or a failure to act, by or on behalf of any indemnified party.
(d) Contribution. If the indemnification provided for in this
Section 1.6 is unavailable to or insufficient to hold harmless an indemnified
party under subsection (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein, then
each indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such indemnifying party or by such indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 1.6(d) were determined by
pro rata allocation (even if the Holder or any underwriters, selling agents or
other securities professionals or all of them were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in this Section 1.6(d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above shall
be deemed to include any legal or other fees or expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The obligations
of the Holder and any underwriters, selling agents or other securities
professionals in this Section 1.6(d) to contribute shall be several in
proportion to the number of Shares registered, underwritten, or sold as the case
may be, by them and not joint.
(e) Notwithstanding any other provision of this Section 1.6, in
no event will (i) the Holder be required to undertake liability to any person
under this Section 1.6 for any amounts in excess of the dollar amount of the
proceeds to be received by the Holder from the sale of the Holder's Shares
(after deducting any fees, discounts and commissions applicable thereto)
pursuant to any registration statement under which such Shares are to be
registered under the Act and (ii) any underwriter, selling agent or other
securities professional be required to undertake liability to any person
hereunder for any amounts in excess of the discount, commission or other
compensation payable to such underwriter, selling agent or other securities
professional with respect to the Shares underwritten or sold by it.
(f) The obligations of the Company under this Section 1.6 shall
be in addition to any liability which the Company may otherwise have to the
Holder, underwriter, selling agent or other securities professional within the
meaning of Section 15 of the Act or
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<PAGE> 23
Section 20 of the Exchange Act, and the obligations of the Holder or other such
person under this Section 1.6 shall be in addition to any liability which the
Holder or other person may otherwise have to the Company, its directors,
officers who sign any registration statement with respect to such Shares and
each person, if any, who controls the Company within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act. The remedies provided
in this Section 1.6 are not exclusive and shall not limit any rights or remedies
which may otherwise be available to an indemnified party at law or in equity.
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<PAGE> 1
EXHIBIT 10.1
ADVANTAGE FUND II LTD.
C/O CITCO
KAYA FLAMBOYAN 9
CURACAO, NETHERLANDS ANTILLES
April 16, 1998
InControl, Inc.
6675 185th Avenue, N.E.
Redmond, Washington 98052-6734
COMMITMENT LETTER
Dear Sir or Madam:
Advantage Fund II Ltd., a British Virgin Islands corporation
("Advantage"), is pleased to provide InControl, Inc., a Delaware corporation
(the "Company"), with this letter in respect of the terms of an additional
investment of up to $7,500,000 in preferred stock of the Company upon the terms
and subject to the conditions set forth below. Capitalized terms used herein
without definition shall have the respective meanings given them in the
Subscription Agreement, dated as of April 16, 1998, between the Company and
Advantage relating to the sale of shares (the "Series B Shares") of Series B
Convertible Preferred Stock of the Company (the "Series B Subscription
Agreement") or, if not defined in the Series B Subscription Agreement, as
defined in the Certificate of Designations.
1. THE TRANSACTION. If the closing under the Series B
Subscription Agreement occurs on the Closing Date, then thereafter Advantage
and/or one or more Persons designated by Advantage (each an "Other Buyer" and
collectively, the "Other Buyers") shall purchase shares (the "Series C Shares")
of a new series of preferred stock of the Company to be designated Series C
Convertible Preferred Stock (the "Series C Preferred Stock") in a single
transaction (the "Transaction"), upon the terms and subject to the conditions of
this letter agreement, for an aggregate purchase price of up to $7,500,000, with
the exact amount within such limitation to be determined by the Company as
provided in Section 2. The Series C Shares will have substantially the same
terms and be subject to substantially the same conditions as the Series B
Shares. The purchase of the Series C Shares will be made pursuant to one or more
Subscription Agreements and related documents (collectively, the "Series C
Transaction Documents") having terms and conditions substantially similar to the
terms of the Series B Subscription Agreement and related documents (the "Series
B Transaction Documents"). The several obligations of Advantage and any Other
Buyers to purchase Series C Shares are each referred to herein as a
"Commitment."
2. DRAWDOWN OF THE COMMITMENT. (a) The Commitment will be
available for drawdown by the Company in a single transaction by notice (the
"Drawdown Notice") given to Advantage on or after July 1, 1998 and prior to
August 1, 1998. The Drawdown Notice shall
<PAGE> 2
specify the aggregate purchase price (not in excess of $7,500,000) of the Series
C Shares to be issued and sold by the Company. Upon the terms and subject to the
conditions of this letter agreement and the Series C Transaction Documents, the
closing of the issuance and sale of the Series C Shares and the purchase and
payment therefor shall occur on the date which is 20 days after the Drawdown
Notice is given (or, if such 20th day is not a Business Day, the next succeeding
day which is a business day) or such other date as mutually agreed by the
Company and Advantage and any Other Buyer.
(b) If the Company shall have given the Drawdown Notice to
Advantage in accordance with this letter agreement, and Advantage intends to
designate any Other Buyer, Advantage shall so notify the Company as promptly as
possible after the Drawdown Notice is given to Advantage. Each such notice by
Advantage shall specify the name of such Other Buyer and the amount of Series C
Shares (expressed in the dollar amount of the purchase price thereof) to be
purchased by each such Person, and which notice shall be executed by such Other
Buyer. From and after the giving of such notice by Advantage (so signed by such
Other Buyer), Advantage shall be deemed for all purposes to have assigned to
such Other Buyer the rights and obligations under this letter agreement with
respect to the purchase of the amount of Series C Shares covered by such notice
and such Other Buyer shall be deemed a party to this letter agreement with
respect to the purchase of such amount of Series C Shares upon the terms and
subject to the conditions of this Agreement.
(c) If the Company shall have given a Drawdown Notice, the
Company, Advantage and each such Other Buyer shall use their best efforts to
document and complete the Transaction within the time provided in Section 2(a).
Notwithstanding any other provision hereof, neither Advantage nor any Other
Buyer shall be obligated to execute any Series C Transaction Documents if upon
the execution of any thereof (1) the Company would be in default thereunder, (2)
Advantage or any Other Buyer would be entitled to terminate any of such
agreements in accordance with its terms or (3) any of the conditions precedent
set forth in Section 3 shall not have been satisfied. If any Series B Shares are
outstanding at the time of such exercise by the Company, Advantage shall deliver
to the Company a written consent to the Transaction pursuant to Section 12 of
the Certificate of Designations and Section 4(i) of the Series B Subscription
Agreement.
3. CONDITIONS PRECEDENT. The several obligations of Advantage and
any Other Buyers to proceed with and complete the Transaction shall be subject
to the following conditions precedent, any one or more of which may be waived by
Advantage or such Other Buyer for itself only in its discretion:
(a) The Company shall not have failed or defaulted in the timely
performance of any material obligation to Advantage or any holder of
Series B Shares under the Series B Transaction Documents;
(b) The representations and warranties of the Company made in the
Series B Transaction Documents continue at all times to be true and
correct in all material respects;
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<PAGE> 3
(c) The Registration Statement shall be available for use by the
selling stockholders named therein;
(d) On or after the Closing Date, there shall not have occurred
any Optional Redemption Event (as defined in the Certificate of
Designations) as to which a holder of Series B Shares is entitled to
exercise redemption rights pursuant to Section 11 of the Certificate of
Designations with respect thereto or as to which any such holder has
exercised such rights and the Company has not paid the Optional
Redemption Price;
(e) No Change of Control in the Company shall have occurred on or
after the Closing Date. "Change of Control" means the occurrence of any
of (1) an acquisition on or after the Closing Date by an individual or
legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated
under the 1934 Act) of in excess of 33% of the voting securities of the
Company, (2) a replacement of more than one-half of the members of the
Company's board of directors which is not approved by those individuals
who are members of the board of directors on the date hereof in one or a
series of related transactions, (3) the merger of the Company with or
into another entity, or the consolidation or sale of all or
substantially all of the assets of the Company in one or a series of
related transactions or (4) the execution by the Company of an agreement
to which the Company is a party or by which it is bound, providing for
any of the events set forth above in (1), (2) or (3);
(f) The Registration Statement shall have been declared effective
by the SEC under the 1933 Act; and on the closing date under the
respective Series C Subscription Agreement, the Registration Statement
shall be effective, not subject to any actual or threatened stop order
and not be subject to any actual or threatened suspension at any time
between the Closing Date and the closing date under the respective
Series C Subscription Agreement;
(g) On the date the Drawdown Notice is given, on the date of
execution and delivery by the Company and Advantage or such Other Buyer
of the respective Series C Subscription Agreement and on the date of the
closing under such Series C Subscription Agreement (collectively, the
"Specified Dates"), and determined on the basis of the financial
statements of the Company most recently filed with the SEC under the
1934 Act and prepared as of a date not more than 60 days prior to each
Specified Date, as of each Specified Date;
(1) total stockholders' equity of the Company and its
subsidiaries ("Total Stockholders' Equity"), is at least
$3,500,000; and
(2) Total Stockholders' Equity is at least equal to 70% of
Indebtedness; (as used herein, "Indebtedness" means all
indebtedness of the Company (which, for purposes of this
definition, shall include its subsidiaries) for borrowed money,
the deferred purchase price of property, goods and services and
obligations under leases which are required to be capitalized in
accordance with
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<PAGE> 4
generally accepted accounting principles and shall include all
such indebtedness guaranteed in any manner by the Company or in
effect guaranteed by the Company through a contingent agreement
to purchase and all indebtedness for the payment or purchase of
which the Company has contingently agreed to advance or supply
funds and all indebtedness secured by mortgage or other lien
upon property owned by the Company, although the Company has not
assumed or become liable for the payment of such indebtedness,
and, for all purposes hereof, such indebtedness shall be treated
as though it has been assumed by the Company);
(h) The closing bid price of the Common Stock on Nasdaq on each
of the trading days in the period of five consecutive trading days
ending on the trading day prior to each Specified Date shall be at least
$4.00 per share (subject to equitable adjustments from time to time on
terms reasonably acceptable to Advantage for (i) stock splits, (ii)
stock dividends, (iii) combinations, (iv) capital reorganizations, (v)
issuance to all holders of Common Stock of rights or warrants to
purchase shares of Common Stock at a price per share less than $4.00,
(vi) the distribution by the Company to all holders of Common Stock of
evidences of indebtedness of the Company or cash (other than regular
quarterly cash dividends), (vii) tender offers by the Company or any
subsidiary of the Company or other repurchases of shares of Common Stock
in one or more transactions which, individually or in the aggregate,
result in the purchase of more than 10% of the Common Stock outstanding
and (viii) similar events relating to the Common Stock, in each such
case which occurs on or after the Closing Date), as reported by
Bloomberg, L.P.
(i) After consulting with responsible personnel within the
Company, neither the executive officers nor the Board of Directors of
the Company shall have learned of any material information or
development relating to the Company's METRIX System (including, without
limitation, clinical trial data, trends in clinical trial data or the
evaluation of clinical trial data), which would reasonably be likely (1)
to increase the possibility that either the Food and Drug Administration
(the "FDA") or an advisory panel appointed by the FDA would reject a
Pre-Marketing Approval application of the Company relating to the METRIX
System or (2) cause the FDA to withdraw its approval for clinical trials
by the Company of the METRIX System;
(j) The conditions precedent to be included in the Series C
Transaction Documents which conditions will be comparable to the
conditions precedent to closing which are contained in the Series B
Transaction Documents;
(k) The Company shall have provided to Advantage or such Other
Buyer such information as shall have been reasonably requested by
Advantage or such Other Buyer to confirm the satisfaction of the
conditions precedent set forth in this Section 3; and
(l) On the date of the closing under the Series C Transaction
Documents, Advantage and the Other Buyers shall have received a
certificate signed by the Chief Executive Officer or the Chief Financial
Officer of the Company confirming such matters
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<PAGE> 5
as referred to in this Section 3 and such other matters as reasonably
requested by Advantage or any Other Buyer.
4. INDEMNITY. The Company hereby agrees to indemnify and hold
harmless Advantage, each Other Buyer and their respective directors, officers,
stockholders, employees, agents, advisors, successors and assigns, and each
person, if any, who controls any such person within the meaning of the 1933 Act
or the 1934 Act (collectively, the "Indemnified Persons"), against any losses,
claims, damages, liabilities asserted by or due to a person other than the
Company or another Indemnified Person or any expenses (including reasonable
attorneys' fees) incurred by the Indemnified Persons in connection therewith
(such losses, claims, damages, liabilities and expenses are collectively
referred to herein as "Losses") arising out of, or in connection with, or as a
result of: (i) the execution and delivery of this letter agreement, (ii) any
public disclosure by the Company of the terms of this letter agreement or (iii)
any claim, litigation, investigation or proceeding relating to any of the
foregoing, whether or not the Indemnified Person is a party hereto; provided,
however, that the indemnification obligations in this Section 4 shall only apply
to (w) Losses which, in whole or in part, result from, or arise from claims of
third parties whose damages, in whole or in part, are alleged to have resulted
from, any act, omission, misrepresentation or breach of contract, or alleged
act, omission, misrepresentation or breach of contract, of or by the Company or
its directors, officers, employees, agents, advisors, successors and assigns,
and (x) Losses arising from any claim against an Indemnified Person relating to
the termination of the Commitment by Advantage or the refusal of Advantage or
any Other Buyer to proceed with or complete the Transaction by reason of the
assertion in good faith by Advantage that it is not obligated to proceed with
the Transaction pursuant to the second sentence of Section 2(c) or that the
Company shall have failed to satisfy any of the conditions in Section 3, and;
provided, further, that such indemnification obligations shall not apply to (y)
any Losses asserted by or due to an Indemnified Person in their capacity which
causes them to be an Indemnified Person, or (z) Losses which result solely and
directly from the gross negligence or willful misconduct of an Indemnified
Person. The provisions of this Section 4 shall survive any termination of this
letter and shall survive the closing of the Transaction to the extent, and only
to the extent, that the Losses are substantially related to the giving of the
Commitment and clauses (i), (ii) and (iii) above and not to the investment made
in the Company upon such closing.
5. TERMINATION. The Commitment shall be subject to termination by
the Company at any time upon ten days' prior written notice to Advantage given
prior to the giving of the Drawdown Notice. The Commitment shall be subject to
termination by Advantage or any Other Buyer as to itself as follows: (a) at any
time upon the Company's failure to satisfy the conditions set forth in Sections
3(a), 3(b), 3(c), 3(e) or 3(i) or the Company's failure to comply with or
perform, as and when required, any of its material obligations set forth in this
letter agreement, in any such case by notice given by Advantage or such Other
Buyer to the Company; or (b) if on any Specified Date the Company fails to
satisfy any of the conditions set forth in Sections 3(g) or 3(h), in any such
case upon notice given by Advantage or such Other Buyer to the Company. In
addition, the Commitment shall terminate automatically, without any action by
any party hereto, upon the commencement of any voluntary or involuntary case or
other proceeding by or against the Company seeking liquidation, reorganization
or other relief with respect to the Company or its debts under any bankruptcy,
insolvency or other similar law now or
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<PAGE> 6
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or similar official of it or a substantial part of its
property, or the Company shall consent to any such relief or appointment, or the
Company shall make a general assignment for the benefit of creditors, or the
Company shall fail generally to pay its debts as they become due.
6. LIMITATION OF REMEDIES. In case of any breach or alleged
breach by Advantage or any Other Buyer of its obligations arising under or in
connection with this letter agreement, the Company's sole remedy shall be to
seek monetary damages for direct damages only arising from such breach. In no
event shall Advantage or any Other Buyer have any liability whatsoever under or
in connection with this letter agreement for consequential (including but not
limited to claims for lost profits) or punitive damages the rights to which are
hereby expressly waived by the Company. In no event shall the Company be
entitled by reason of any claim of breach of this letter agreement by Advantage
or any Other Buyer to claim any right of offset, excuse of performance,
rescission or other claim or damages in respect of its obligations arising under
or in connection with the Series B Transaction Documents, all of which are
hereby expressly waived by the Company.
7. MISCELLANEOUS. All notices hereunder to the Company and
Advantage shall be given to the addresses and in the manner provided in the
Series B Subscription Agreement. All notices hereunder to any Other Buyer shall
be given to such address or telephone line facsimile transmission number as such
Other Buyer shall advise the Company in writing and in the manner provided in
the Subscription Agreement as if given pursuant to the Series B Subscription
Agreement. This letter agreement is solely for the benefit of the parties hereto
and, with respect to Section 4, the Indemnified Persons and nothing contained
herein shall be deemed to confer upon anyone other than the Company, Advantage,
any Other Buyer and, with respect to Section 4, the Indemnified Persons any
right to insist on or enforce the performance of any of the obligations
contained herein. This letter agreement and the Series B Transaction Documents
together set forth the entire agreement between the Company and Advantage with
respect to the subject matter hereof and thereof and supersede any prior
agreements, commitments or communications, whether written or oral, with respect
to the subject matter hereof and thereof. This letter agreement shall be
governed by the internal laws of the State of Washington. Time shall be of the
essence in the performance by the parties hereto of their respective obligations
hereunder. This letter agreement may be executed in counterparts and by the
parties hereto on separate counterparts, all of which together shall form a
single instrument; and a facsimile transmission hereof bearing a signature on
behalf of a party hereto shall be binding on such party.
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<PAGE> 7
----------
If this letter correctly sets forth the Company's understanding
of the subject matter hereof, please indicate the Company's acceptance of the
commitment set forth herein by signing a copy of this letter in the space
provided below, whereupon this letter shall become a binding agreement in
accordance with its terms.
Very truly yours,
ADVANTAGE FUND II LTD.
By: /s/ W.R. Weber
----------------------------
W.R. Weber
President
Accepted and agreed as of
the date first written above:
INCONTROL, INC.
By: /s/ Donald F. Seaton III
--------------------------------
Name: Donald F. Seaton III
Title: Vice President, Finance,
Chief Financial Officer
and Secretary
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