SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report July 29, 1998
(Date of earliest event reported) (June 23, 1998)
USCI, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-22282 13-3702647
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
6115-A Jimmy Carter Blvd., Norcross, Georgia 30071
(Address of principal executive offices) (Zip Code)
(770) 840-8888
(Registrant's telephone number including area code)
(Former name or former address if changed since last report)
<PAGE>
Item 5.
On June 23, 1998, the Registrant issued an aggregate of 343,356 shares
of Common Stock to George Karfunkel and Ace Foundation upon conversion
of an aggregate of $1,150,000 principal amount of 10% convertible notes
(plus $1,188,013 accrued interest) dated February 24, 1998 at a
conversion rate of 3.46 per share.
On July 16, 1998, USCI, Inc. issued 119,281 shares of Common Stock to
Ace Foundation upon conversion of $350,000 principal amount of 10%
convertible notes (plus $363,806 accrued interest) dated February 24,
1998 at a conversion rate of 3.05 per share.
On July 16, 1998, USCI, Inc. issued 50,774 shares of Common Stock upon
conversion of 15 shares of 6% Series A Convertible Preferred Stock
(valued at $150,000 plus $2,850 accrued dividends) held by JNC
Opportunity Fund Ltd. at a conversion rate of 3.0104.
On July 17, 1998, USCI, Inc. issued 118,492 shares of Common Stock upon
conversion of 35 shares of 6% Series A Convertible Preferred Stock
(valued at $350,000 plus $6,708 accrued dividends) held by JNC
Opportunity Fund Ltd. at a conversion rate of 3.0104.
On July 28, 1998, USCI, Inc. issued an aggregate of 34,000 shares of
Common Stock to George Karfunkel, Michael Karfunkel, Laura
Huberfeld/Naomi Bodner Partnership and Huberfeld Bodner Family
Foundation, Inc.(the "Noteholders"), representing the payment of 8%
interest for the period February 24, 1998 through July 28, 1998
totaling $136,000 on the aggregate principal amount of $4 million
convertible notes (total amount of interest $136,000), at a conversion
rate of $4.00 per share.
On July 29, 1998, the Registrant entered into a Convertible Preferred
Stock Purchase Agreement with the Noteholders, under the terms of which
the Noteholders agreed to exchange the aggregate of $4 million 8%
unsecured Convertible Restated Notes due on or before July 31, 1998 for
500 shares of convertible preferred stock of the Registrant. The
preferred stock is entitled to a dividend of 6% per annum, payable
quarterly in arrears and is convertible, together with accrued
dividends, at a conversion price equal to 120% of the average closing
bid price for 5 trading days immediately preceding the closing date or
85% of the average of the three lowest closing prices per share of
Common Stock for the 25 trading days preceding the conversion notice,
with a floor of not less than $4.00 per share and a ceiling of not more
than $6.00 per share. The Preferred Stock is redeemable at the option
of the Registrant at the then applicable conversion price. The shares
of Common Stock issuable upon conversion of the preferred stock are
subject to registration rights. Reference is made to the Certificate
of Designation and financing documents which are filed as exhibits to
this Current Report for a complete description of all terms.
If the Registrant does not complete a high yield private offering by
October 15, 1998, the shares of convertible preferred stock shall be
convertible into shares of Common Stock at a conversion price equal to
the lesser of $5.00 per share of 80% of the average closing sales price
of the Registrant's Common Stock during the last five trading days
prior to conversion.
Each of the parties have agreed that no conversion of any shares of
convertible preferred stock shall occur to the extent it causes such
person to then be the "beneficial owner", as defined in Section 13(d)
of the Exchange Act, of more than 4.99% of the then outstanding Common
Stock of the Registrant.
The Registrant intends to seek shareholder approval of the transaction
as required by NASD Rule 4460(i)(D)(ii).
All unregistered securities were issued by the Registrant in private
transactions exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
Item 7c. Exhibits.
3.1 Certificate of Designation for Series D Convertible Preferred
Stock.
10.1 Convertible Preferred Stock Purchase Agreement dated as of July
29, 1998 among the Registrant, George Karfunkel, Michael
Karfunkel, Laura Huberfeld/Naomi Bodner Partnership and Huberfeld
Bodner Family Foundation, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
USCI, Inc.
(Registrant)
By: /s/ Robert J. Kostrinsky
Robert J. Kostrinsky
Executive Vice President
July 29, 1998
EXHIBIT 3.1
CERTIFICATE OF DESIGNATION
OF
USCI, INC.
The undersigned corporation hereby certifies as follows:
FIRST: The name of the corporation is USCI, Inc.
SECOND: The following resolutions establishing a new series of
Preferred Shares were adopted by the Board of Directors in accordance
with Section 151 of the General Corporation Laws of the State of
Delaware:
RESOLVED, that 500 Preferred shares, with a par value of
$.01 per share, are to be designated Series D; and be it
further
RESOLVED, that the relative rights, privileges, preferences,
restrictions and/or limitations or those shares designated
Series D are as follows:
Terms of Series D Preferred Stock
Section 1. Designation, Amount and Par Value. The series of
preferred stock shall be designated as 6% Series D Convertible Preferred
Stock (the "Preferred Stock") and the number of shares so designated
shall be 500 (which shall not be subject to increase without the consent
of the holders of the Preferred Stock ("Holder"). Each share of
Preferred Stock shall have a par value of $.01 per share and a stated
value of $8,000.00 per share (the "Stated Value").
Section 2. Dividends.
(a) Holders of Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors out of funds legally
available therefor, and USCI, Inc. (the "Company") shall pay, cumulative
dividends at the rate per share (as a percentage of the Stated Value per
share) equal to 6% per annum, payable on a quarterly basis on March 31,
June 30, September 30 and December 31 of each year during the term
hereof (each a "Dividend Payment Date"), commencing on September 30,
1998, in cash or shares of Common Stock (as defined in Section 8) at
(subject to the terms and conditions set fort herein) the option of the
Company. Any dividends not paid on any Dividend Payment Date shall
accrue and shall be due and payable upon conversion of the Preferred
Stock. A party that holds shares of Preferred Stock on a Dividend
Payment Date will be entitled to receive such dividend payment and any
other accrued and unpaid dividends which accrued prior to such Dividend
Payment Date, without regard to any sale or disposition of such
Preferred Stock subsequent to the applicable record date. All overdue
accrued and unpaid dividends and other amounts due herewith shall entail
a late fee at the rate of 15% per annum (to accrue daily, from the date
such dividend is due hereunder through and including the date of
payment). Except as otherwise provided herein, if at any time the
Company pays less than the total amount of dividends then accrued on
account of the Preferred Stock, such payment shall be distributed
ratably among the holders of the Preferred Stock based upon the number
of shares held by each Holder. Payment of dividends on the Preferred
Stock is further subject to the provisions of Section 5(c)(i). The
Company shall provide the Holders notice of its intention to pay
dividends in cash or shares of Common Stock not less than 10 Trading
Days prior to the Dividend Payment Date for so long as shares of
Preferred Stock are outstanding, and in the event the Company fails to
provide such notice, it shall pay such dividends in shares of Common
Stock. If dividends are paid in shares of Common Stock, the number of
shares of Common Stock payable as such dividend to each Holder shall be
equal to the cash amount of such dividend payable to such Holder on such
Dividend Payment Date divided by the Conversion Price at such time (as
defined below).
(b) Notwithstanding anything to the contrary contained
herein, the Company may not issue shares of Common Stock in payment of
dividends (and must deliver cash in respect thereof) on the Preferred
Stock if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes is insufficient to
pay such dividends in shares of Common Stock;
(ii) the shares of Common Stock to be issued in
respect of such dividends are not registered for resale pursuant to an
effective registration statement that names the recipient of such
dividend as a selling stockholder thereunder and may not be sold without
volume restrictions pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), as determined
by counsel to the Company pursuant to a written opinion letter,
addressed to the Company's transfer agent in the form and substance
acceptable to the Holder and such transfer agent;
(iii) the shares of Common Stock to be issued in
respect of such dividends are not listed on the Nasdaq National Market
System (the "NASDAQ") and any other exchange or quotation system on
which the Common Stock is then listed for trading;
(iv) the Company has failed to timely satisfy its
obligations pursuant to any Conversion Notice (as defined in Section
5(a)(ii)); or
(v) the issuance of such shares would result in the
recipient thereof beneficially owning, as determined in accordance with
Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), more than 4.999% of the then issued and
outstanding shares of Common Stock.
(c) So long as any Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any junior securities, nor
shall the Company directly or indirectly pay or declare any dividend or
make any distribution (other than a dividend or distribution described
in Section 5) upon, nor shall any distribution be made in respect of,
any junior securities, nor shall any monies be set aside for or applied
to the purchase or redemption (through a sinking fund or otherwise) of
any junior securities or shares pari passu with the Preferred Stock,
except for repurchases effected by the Company on the open market,
pursuant to a direct stock purchase plan.
Section 3. Voting Rights. Except as otherwise provided
herein and as otherwise required by law, the Preferred Stock shall have
no voting rights. However, so long as any shares of Preferred Stock are
outstanding, the Company shall not and shall cause its subsidiaries not
to, without the affirmative vote of the Holders of all of the shares of
the Preferred Stock then outstanding, (a) alter or change adversely the
powers, preferences or rights given to the Preferred Stock, (b) alter or
amend this Certificate of Designation, (c) authorize or create any class
of stock ranking as to dividends or distribution of assets upon a
Liquidation (as defined in Section 4) or otherwise senior to the
Preferred Stock, except for any series of Preferred Stock issued and
sold in accordance with the Purchase Agreement, (d) amend its
Certificate of Incorporation, bylaws or other charter documents so as to
affect adversely any rights of any Holders, (e) increase the authorized
number of shares of Preferred Stock, or (f) enter into any agreement
with respect to the foregoing.
Section 4. Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a
"Liquidation"), the Holders shall be entitled to receive out of the
assets of the Company, whether such assets are capital or surplus, for
each share of Preferred Stock an amount equal to the Stated Value plus
all due but unpaid dividends per share, whether declared or not, before
any distribution or payment shall be made to the holders of any junior
securities, and if the assets of the Company shall be insufficient to
pay in full such amounts, then the entire assets to be distributed to
the Holders of Preferred Stock shall be distributed among the Holders of
Preferred Stock ratably in accordance with the respective amounts that
would be payable on such shares if all amounts payable thereon were paid
in full. A sale, conveyance or disposition of all or substantially all
of the assets of the Company or the effectuation by the Company of a
transaction or series of related transactions in which more than 50% of
the voting power of the Company is disposed of, or a consolidation or
merger of the Company with or into any other company or companies shall
not be treated as a Liquidation, but instead shall be subject to the
provisions of Section 5. The Company shall mail written notice of any
such Liquidation, not less than 45 days prior to the payment date stated
therein, to each record Holder of Preferred Stock.
Section 5. Conversion.
(a)(i) Each share of Preferred Stock (in minimum amounts of
$50,000 or such lesser amounts as the Company agrees or as may then be
held by the converting Holder) shall be convertible into shares of
Common Stock (subject to reduction pursuant to Section 5(a)(iii) hereof
and Section 3.8 of the Purchase Agreement) at the Conversion Ratio (as
defined in Section 6) at the option of the Holder in whole or in part at
any time after the earlier of (i) the 90th day following the Original
Issue Date (as defined in Section 8) or (ii) the date the Underlying
Shares Registration Statement is declared effective by Securities and
Exchange Commission (the "Commission"). The Holders shall effect
conversions by surrendering the certificate or certificates representing
the shares of Preferred Stock to be converted to the Company, together
with the form of conversion notice attached hereto as Exhibit A (a
"Conversion Notice"). Each Conversion Notice shall specify the number
of shares of Preferred Stock to be converted and the date on which such
conversion is to be effected, which date may not be prior to the date
the Holder delivers such Conversion Notice by facsimile (the "Conversion
Date"). If no Conversion Date is specified in a Conversion Notice, the
Conversion Date shall be the date that the Conversion Notice is deemed
delivered pursuant to Section 5(i). Subject to Sections 5(b) and
5(a)(iii) hereof, each Conversion Notice, once given, shall be
irrevocable. If the Holder is converting less than all shares of
Preferred Stock represented by the certificate or certificates tendered
by the Holder with the Conversion Notice, or if a conversion hereunder
cannot be effected in full for any reason, the Company shall promptly
deliver to such Holder (in the manner and within the time set forth in
Section 5(b)) a certificate for such number of shares as have not been
converted.
(ii) Any outstanding shares of Preferred Stock not
theretofore converted on the third anniversary of the Original Issue
Date shall automatically be converted into shares of Common Stock at the
Conversion Price then in effect. Notwithstanding the foregoing, no such
conversion shall occur unless (a) the Underlying Shares that would then
be issuable upon such conversion could either be resold by such Holder
pursuant to Rule 144(k) promulgated under the Securities Act or there is
then an effective Underlying Shares Registration Statement naming the
recipient of such shares as a selling stockholder thereunder, (b) the
Company has a sufficient number of authorized and unreserved Common
Stock to issue upon such conversion. Further, the number of shares of
Preferred Stock that are subject to conversion pursuant to this section
shall be limited to the number of Underlying Shares which may be issued
upon such conversion at the prevailing Conversion Price in accordance
with Rule 4460(i) promulgated under the Rules of the Nasdaq Stock
Market. Any shares of Preferred Stock which cannot be converted at the
then Conversion Price as a result of such Rule shall be subject to the
provisions of Section 5(a)(iii).
(iii) If on any Conversion Date (A) the Common Stock is
listed for trading on the Nasdaq National Market or the Nasdaq SmallCap
Market, (B) the Conversion Price then in effect is such that the
aggregate number of shares of Common Stock that would then be issuable
upon conversion in full of all then outstanding shares of Preferred
Stock, together with any shares of the Common Stock previously issued
upon conversion of the shares of Preferred Stock and as payment of
interest thereon, would equal or exceed 20% of the number of shares of
the Common Stock outstanding on the Original Issue Date (such number of
shares as would not equal or exceed such 20% limit, the "Issuable
Maximum"), and (C) the Company shall not have previously obtained the
vote of shareholders (the "Shareholder Approval"), if any, as may be
required by the rules and regulations of The Nasdaq Stock Market
applicable to approve the issuance of Common Stock in excess of the
Issuable Maximum in a private placement whereby shares of Common Stock
are deemed to have been issued at a price that is less than the greater
of book or fair market value of the Common Stock, then the Company shall
issue to the Holder so requesting a conversion a number of shares of
Common Stock equal to the Issuable Maximum and, with respect to the
remainder of the aggregate stated value of the shares of Preferred Stock
then held by such Holder for which a conversion in accordance with the
Conversion Price would result in an issuance of Common Stock in excess
of the Issuable Maximum, the converting Holder shall have the option to
require the Company to either (1) use its best efforts to obtain the
Shareholder Approval applicable to such issuance as soon as is possible,
but in any event not later than the 60th day after such request, or
(2)(i) issue and deliver to such Holder a number of shares of Common
Stock as equals (x) the aggregate stated value of the shares of
Preferred Stock tendered for conversion in respect of the Conversion
Notice at issue but for which a conversion in accordance with the other
terms hereof would result in an issuance of Common Stock in excess of
the Issuable Maximum, divided by (y) the Initial Conversion Price (as
defined below), and (ii) cash in an amount equal to the product of (x)
the Per Share Market Value on the Conversion Date and (y) the number of
shares of Common Stock in excess of such Holder's pro rata portion of
the Issuable Maximum that would have otherwise been issuable to the
Holder in respect of such conversion but for the provisions of this
Section (such amount of cash being hereinafter referred to as the
"Discount Equivalent"), or (3) pay cash to the converting Holder in an
amount equal to the Mandatory Redemption Amount (as defined in Section
5(b)(ii) hereunder) for the number of Underlying Shares in or issuable
upon such conversion in excess of the Issuable Maximum. If the Company
fails to pay the Discount Equivalent or the Mandatory Redemption Amount,
as the case may be, in full pursuant to this Section within seven (7)
days after the date payable, the Company will pay interest thereon at a
rate of 15% per annum to the converting Holder, accruing daily from the
Conversion Date until such amount, plus all such interest thereon, is
paid in full.
(b) (i) Not later than three (3) Trading Days after any
Conversion Date, the Company will deliver to the Holder (i) a
certificate or certificates which shall be free of restrictive legends
and trading restrictions (other than those required by Section 3.1(b) of
the Purchase Agreement) representing the number of shares of Common
Stock being acquired upon the conversion of shares of Preferred Stock
(subject to reduction pursuant to Section 5(a)(iii) and Section 3.8 of
the Purchase Agreement), (ii) one or more certificates representing the
number of shares of Preferred Stock tendered for conversion that were
not requested to be converted (or that the Company is prohibited from
converting), (iii) a bank check in the amount of accrued and unpaid
dividends (if the Company has elected to pay accrued dividends in cash),
and (iv) if the Company has elected and is permitted hereunder to pay
accrued dividends in shares of Common Stock, certificates, which shall
be free of restrictive legends and trading restrictions (other than
those required by Section 3.1 (b) of the Purchase Agreement),
representing such number of shares of Common Stock as equals such
dividend divided by the Conversion Price on the Dividend Payment Date;
provided, however, that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon
conversion of any shares of Preferred Stock until certificates
evidencing such shares of Preferred Stock are either delivered for
conversion to the Company or any transfer agent for the Preferred Stock
or Common Stock, or the Holder of such Preferred Stock notifies the
Company that such certificates have been lost, stolen or destroyed and
provides a bond (or other adequate security) reasonably satisfactory to
the Company to indemnify the Company from any loss incurred by it in
connection therewith. The Company shall, upon request of the Holder, if
available, use its best efforts to deliver any certificate or
certificates required to be delivered by the Company under this Section
electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions. If in
the case of any Conversion Notice such certificate or certificates,
including for purposes hereof, any shares of Common Stock to be issued
on the Conversion Date on account of accrued but unpaid dividends
hereunder, are not delivered to or as directed by the applicable Holder
by the third Trading Day after the Conversion Date, the Holder shall be
entitled by written notice to the Company at any time on or before its
receipt of such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return the
certificates representing the shares of Preferred Stock tendered for
conversion, (such recision shall be in addition to, and not in lieu of,
the rights set forth elsewhere herein).
(ii) If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 5(b)(i), including for
purposes hereof, any shares of Common Stock to be issued on the
Conversion Date on account of accrued but unpaid dividends hereunder,
prior to the third Trading Day after the Conversion Date, the Company
shall pay to such Holder, in cash, as liquidated damages and not as a
penalty, $5,000 for each day after such third Trading Day until such
certificates are delivered. Nothing herein shall limit a Holder's right
to pursue actual damages for the Company's failure to deliver
certificates representing shares of Common Stock upon conversion within
the period specified herein (including, without limitation, damages
relating to any purchase of shares of Common Stock by such Holder to
make delivery on a sale effected in anticipation of receiving
certificates representing shares of Common Stock upon conversion, such
damages to be in an amount equal to (A) the aggregate amount paid by
such Holder for the shares of Common Stock so purchased minus (B) the
aggregate amount of net proceeds, if any, received by such Holder from
the sale of the shares of Common Stock issued by the Company pursuant to
such conversion), and such Holder shall have the right to pursue all
remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
The exercise of any such rights shall not prohibit the Holders from
seeking to enforce damages pursuant to any other Section hereof or under
applicable law.
(iii) In addition to any other rights available to the
Holder, if the Company fails to deliver to the Holder such certificate
or certificates pursuant to Section 5(b)(i), including for purposes
hereof, any shares of Common Stock to be issued on the Conversion Date
on account of accrued but unpaid dividends hereunder, prior to the third
Trading Day after the Conversion Date, and if after such the third
Trading Day the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale
by such Holder of the Underlying Shares which the Holder anticipated
receiving upon such conversion (a "Buy-In"), then the Company shall pay
in cash to the Holder (in addition to any remedies available to or
elected by the Holder) the amount by which (x) the Holder's total
purchase price (including brokerage commissions, if any) for the shares
of Common Stock so purchased exceeds (y) the aggregate stated value of
the shares of Preferred Stock for which such conversion was not timely
honored. For example, if the Holder purchases shares of Common Stock
having a total purchase price of $11,000 to cover a Buy-In with respect
to an attempted conversion of $10,000 aggregate stated value of the
shares of Preferred Stock, the Company shall be required to pay the
Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
(c) (i) The conversion price for each share of Preferred
Stock (the "Conversion Price") in effect on any Conversion Date shall be
the lesser of (a) 120% of the average of the Per Share Market Values for
the five (5) Trading Days immediately preceding the Original Issue Date
(the "Initial Conversion Price") or (b) 85% of the average of the three
(3) lowest Per Share Market Values during the twenty five (25) Trading
Days prior to the date of the applicable Conversion Notice, which Per
Share Market Values shall be chosen by the converting Holder; provided,
however, that such Conversion Price shall not be less than $4.00 per
share (the "Floor") and shall not exceed $6.00 per share (the "Cap"),
and further provided, that notwithstanding the formula set forth above,
if the Company does not close a High Yield Debt Offering by October 15,
1998, the Conversion Price for the shares of Preferred Share shall be
the lesser of $5.00 per share or 80% of the average closing price per
share of Common Stock during the last five trading days prior to
conversion. If on any such date, there are no sales, the closing bid
price per share of Common Stock on such date shall be used, and further
provided, however, (a) if the Underlying Shares Registration Statement
(as defined in the Registration Rights Agreement) is not filed on or
prior to the Filing Date (as defined in the Registration Rights
Agreement), or (b) if the Company fails to file with the Commission a
request for acceleration in accordance with Rule 12d1-2 promulgated
under the Exchange Act within five (5) days of the date that the Company
is notified (orally or in writing, whichever is earlier) by the
Commission that an Underlying Shares Registration Statement will not be
"reviewed," or not subject to further review, or (c) if the Underlying
Shares Registration Statement is not declared effective by the
Commission on or prior to the 90th day after the Original Issue Date, or
(d) if such Underlying Shares Registration Statement is filed with and
declared effective by the Commission but thereafter ceases to be
effective as to all Registrable Securities (as such term is defined in
the Registration Rights Agreement) at any time prior to the expiration
of the "Effectiveness Period" (as such term is defined in the
Registration Rights Agreement), without being succeeded within 10
Trading Days by a subsequent Underlying Shares Registration Statement
filed with and declared effective by the Commission, or (e) if trading
in the Common Stock shall be suspended, or if the Common Stock shall be
delisted, for more than three (3) Trading Days, or (f) if the conversion
rights of the Holders are suspended for any reason, or if a Holder is
not permitted to resell Registrable Securities under an Underlying
Shares Registration Statement, or (g) if the Company is required to
convene a shareholders meeting pursuant to Section 5(a)(iii) and fails
to convene a meeting of shareholders within the time periods specified
in Section 5(a)(iii) or does so convene a meeting of shareholders within
such time period but fails to obtain Shareholder Approval at such
meeting, or (h) if an amendment to the Underlying Securities
Registration Statement is not filed by the Company with the Commission
within ten (10) days of the Commission's notifying the Company that such
amendment is required in order for the Underlying Securities
Registration Statement to be declared effective, or (i) the Company
fails to comply with requests for conversion of any Preferred Stock into
shares of Common Stock in accordance with the terms hereof (any such
failure or breach being referred to as an "Event," and for purposes of
clauses (a), (c), (f) and (g) the date on which such Event occurs, or
for purposes of clause (b) the date on which such five (5) day period is
exceeded, or for purposes of clauses (d) and (h) the date which such 10
Trading Day-period is exceeded, or for purposes of clause (e) the date
on which such three Trading Day period is exceeded, being referred to as
"Event Date"), the Conversion Price shall be decreased by 2.5% each
month (i.e., the Conversion Price would decrease by 2.5% as of the Event
Date and an additional 2.5% as of each monthly anniversary of the Event
Date) until the earlier to occur of the second month anniversary after
the Event Date and such time as the applicable Event is cured.
Commencing the second month anniversary after the Event Date, the
Company shall pay to each Holder 2.5% of the product of the Stated Value
and the number of shares of Preferred Stock then held by such Holder, in
cash as liquidated damages, and not as a penalty, on the first day of
each monthly anniversary of the Event Date until such time as the
applicable Event, is cured. Any decrease in the Conversion Price
pursuant to this Section shall continue notwithstanding the fact that
the Event causing such decrease has been subsequently cured.
(ii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall (a) pay a stock dividend or
otherwise make a distribution or distributions on shares of its junior
securities or pari passu securities payable in shares of Common Stock,
(b) subdivide outstanding shares of Common Stock into a larger number of
shares, (c) combine outstanding shares of Common Stock into a smaller
number of shares, or (d) issue by reclassification of shares of Common
Stock any shares of capital stock of the Company, the Initial Conversion
Price shall be multiplied by a fraction of which the numerator shall be
the number of shares of Common Stock outstanding before such event and
of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this
Section 5(c)(ii) shall become effective immediately after the record
date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after
the effective date in the case of a subdivision, combination or
re-classification.
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights or warrants to all
holders of Common Stock entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the Per Share
Market Value of the Common Stock at the record date mentioned below, the
Initial Conversion Price shall be multiplied by a fraction, of which the
denominator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of 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 Per Share Market
Value. Such adjustment shall be made whenever such rights or warrants
are issued, and shall become effective immediately after the record date
for the determination of stockholders entitled to receive such rights or
warrants. However, upon the expiration of any right or warrant to
purchase Common Stock the issuance of which resulted in an adjustment in
the Initial Conversion Price pursuant to this Section 5(c)(iii), if any
such right or warrant shall expire and shall not have been exercised,
the Initial Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased
to the price which it would have been (but reflecting any other
adjustments in the Initial Conversion Price made pursuant to the
provisions of this Section 5 after the issuance of such rights or
warrants) had the adjustment of the Initial Conversion Price made upon
the issuance of such rights or warrants been made on the basis of
offering for subscription or purchase only that number of shares of
Common Stock actually purchased upon the exercise of such rights or
warrants actually exercised.
(iv) If the Company, at any time while shares of
Preferred Stock are outstanding, shall distribute to all holders of
Common Stock (and not to Holders of Preferred Stock) evidences of its
indebtedness or assets or rights or warrants to subscribe for or
purchase any security (excluding those referred to in Sections 5(c)(ii)
and (iii) above), then in each such case the Conversion Price at which
each share of Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the
denominator shall be the Per Share Market Value of Common Stock
determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value of the Common Stock on
such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of Common Stock as determined by the
Board of Directors in good faith; provided, however, that in the event
of a distribution exceeding ten percent (10%) of the net assets of the
Company, if the Holders of a majority in interest of the Preferred Stock
dispute such valuation, such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or firm
of independent certified public accountants of recognized standing
(which may be the firm that regularly examines the financial statements
of the Company) (an "Appraiser") selected in good faith by the Holders
of a majority in interest of the shares of Preferred Stock then
outstanding; and provided, further, that the Company, after receipt of
the determination by such Appraiser shall have the right to select an
additional Appraiser, in good faith, in which case the fair market value
shall be equal to the average of the determinations by each such
Appraiser. In either case the adjustments shall be described in a
statement provided to the Holders of Preferred Stock of the portion of
assets or evidences of indebtedness so distributed or such subscription
rights applicable to one share of Common Stock. Such adjustment shall
be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
(v) All calculations under this Section 5 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case
may be.
(vi) Whenever the Conversion Price is adjusted pursuant
to Section 5(c)(i),(ii),(iii) or (iv), the Company shall promptly mail
to each Holder of Preferred Stock, a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment.
(vii) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another
person pursuant to which (i) a majority of the Company's Board of
Directors will not constitute a majority of the board of directors of
the surviving entity or (ii) less than 50% of the outstanding shares of
the capital stock of the surviving entity will be held by the same
shareholders of the Company prior to such reclassification,
consolidation or merger (a "Change of Control Transaction"), the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property, the Holders of the
Preferred Stock then outstanding shall have the right thereafter to
convert such shares only into the shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger,
sale, transfer or share exchange, and the Holders of the Preferred Stock
shall be entitled upon such event to receive such amount of securities,
cash or property as the shares of the Common Stock of the Company into
which such shares of Preferred Stock could have been converted
immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange would have been entitled. The terms of any
such consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the Holder of Preferred
Stock the right to receive the securities, cash or property set forth in
this Section 5(c)(vii) upon any conversion or redemption following such
consolidation, merger, sale, transfer or share exchange. This provision
shall similarly apply to successive reclassifications, consolidations,
mergers, sales, transfers or share exchanges. With respect to any such
reclassification, consolidation or merger, each Holder shall have the
option to require the Company to redeem its shares of Preferred Stock at
a price per share equal to the product of (i) the average Per Share
Market Value for the five (5) Trading Days immediately preceding (1) the
effective date, the date of the closing or the date of the announcement,
as the case may be, of the reclassification, consolidation, merger,
sale, transfer or share exchange the triggering such redemption right or
(2) the date of payment in full by the Company of the redemption price
hereunder, whichever is greater, and (ii) the Conversion Ratio
calculated on the date of the closing or the effective date, as the case
may be, of the reclassification, consolidation, merger, sale, transfer
or share exchange triggering such redemption right, as the case may be.
The entire redemption price shall be paid in cash, and if any portion of
the applicable redemption price shall not be paid by the Company within
seven (7) calendar days after the date due, late fees shall accrue
thereon at the rate of 15% per annum until the redemption price plus all
such late fees are paid in full (which amount shall be paid as
liquidated damages and not as a penalty). In addition, if any portion
of such redemption price remains unpaid for more than seven (7) calendar
days after the date due, the Holder of the Preferred Stock subject to
such redemption may elect, by written notice to the Company given within
30 days after the date due, to either (i) demand conversion in
accordance with the formula and the time frame therefor set forth in
Section 5 of all of the shares of Preferred Stock for which such
redemption price, plus accrued liquidated damages thereof, has not been
paid in full (the "Unpaid Redemption Shares"), in which event the Per
Share Market Value for such shares shall be the lower of the Per Share
Market Value calculated on the date such redemption price was originally
due and the Per Share Market Value as of the Holder's written demand for
conversion, or (ii) invalidate ab initio such redemption,
notwithstanding anything herein contained to the contrary. If the
Holder elects option (i) above, the Company shall within three (3)
Trading Days of its receipt of such election deliver to the Holder the
shares of Common Stock issuable upon conversion of the Unpaid Redemption
Shares subject to such Holder conversion demand and otherwise perform
its obligations hereunder with respect thereto; or, if the Holder elects
option (ii) above, the Company shall promptly, and in any event not
later than three (3) Trading Days from receipt of Holder's notice of
such election, return to the Holder all of the Unpaid Redemption Shares.
(viii) If:
A. the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
B. the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
C. the Company shall authorize the granting to
all holders of the Common Stock rights or
warrants to subscribe for or purchase any
shares of capital stock of any class or of
any rights; or
D. the approval of any stockholders of the
Company shall be required in connection with
any reclassification of the Common Stock of
the Company, any consolidation or merger to
which the Company is a party, any sale or
transfer of all or substantially all of the
assets of the Company, of any compulsory
share of exchange whereby the Common Stock
is converted into other securities, cash or
property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or
winding up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of Preferred Stock, and shall
cause to be mailed to the Holders of Preferred Stock at their last
addresses as they shall appear upon the stock books of the Company, at
least 20 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record
is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the
date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to
become effective or close, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale,
transfer or share exchange; provided, however, that the failure to mail
such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in
such notice. Holders are entitled to convert shares of Preferred Stock
during the 20-day period commencing the date of such notice to the
effective date of the event triggering such notice.
(ix) If the Company (i) makes a public announcement
that it intends to enter into a Change of Control Transaction or (ii)
any person, group or entity (including the Company, but excluding a
Holder or any affiliate of a Holder) publicly announces a bona fide
tender offer, exchange offer or other transaction to purchase 50% or
more of the Common Stock (such announcement being referred to herein as
a "Major Announcement" and the date on which a Major Announcement is
made, the "Announcement Date"), then, in the event that a Holder seeks
to convert shares of Preferred Stock on or following the Announcement
Date, the Conversion Price shall, effective upon the Announcement Date
and continuing through the earlier to occur of the consummation of the
proposed transaction or tender offer, exchange offer or other
transaction and the Abandonment Date (as defined below), be equal to the
lower of (x) the average Per Share Market Value on the five Trading Days
immediately preceding (but not including) the Announcement Date and (y)
the Conversion Price in effect on the Conversion Date for such Preferred
Stock. "Abandonment Date" means with respect to any proposed
transaction or tender offer, exchange offer or other transaction for
which a public announcement as contemplated by this paragraph has been
made, the date upon which the Company (in the case of clause (i) above)
or the person, group or entity (in the case of clause (ii) above)
publicly announces the termination or abandonment of the proposed
transaction or tender offer, exchange offer or another transaction which
caused this paragraph to become operative.
(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued Common Stock
solely for the purpose of issuance upon conversion of Preferred Stock
and payment of dividends on Preferred Stock, each as herein provided,
free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders of Preferred Stock, not less
than such number of shares of Common Stock as shall (subject to any
additional requirements of the Company as to reservation of such shares
set forth in the Purchase Agreement) be issuable (taking into account
the adjustments and restrictions of Section 5(a) and Section 5(c)) upon
the conversion of all outstanding shares of Preferred Stock and payment
of dividends hereunder. The Company covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and freely tradeable,
subject to the legend requirements of Section 3.1 (b) of the Purchase
Agreement.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of
Common Stock, but may if otherwise permitted, make a cash payment in
respect of any final fraction of a share based on the Per Share Market
Value at such time. If the Company elects not, or is unable, to make
such a cash payment, the Holder of a share of Preferred Stock shall be
entitled to receive, in lieu of the final fraction of a share, one whole
share of Common Stock.
(f) The issuance of certificates for shares of Common Stock
on conversion of Preferred Stock shall be made without charge to the
Holders thereof for any documentary stamp or similar taxes that may be
payable in respect of the issue or delivery of such certificate,
provided that the Company shall not be required to pay any tax that may
be payable in respect of any transfer involved in the issuance and
delivery of any such certificate upon conversion in a name other than
that of the Holder of such shares of Preferred Stock so converted and
the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof
shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been
paid.
(g) Shares of Preferred Stock converted into Common Stock
shall be canceled and shall have the status of authorized but unissued
shares of undesignated stock.
(h) Any and all notices or other communications or
deliveries to be provided by the Holders of the Preferred Stock
hereunder, including, without limitation, any Conversion Notice, shall
be in writing and delivered personally, by facsimile or sent by a
nationally recognized overnight courier service, addressed to the
attention of the Chief Executive Officer of the Company at the facsimile
telephone number or address of the principal place of business of the
Company as set forth in the Purchase Agreement. Any and all notices or
other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile or
sent by a nationally recognized overnight courier service, addressed to
each Holder of Preferred Stock at the facsimile telephone number or
address of such Holder appearing on the books of the Company, or if no
such facsimile telephone number or address appears, at the principal
place of business of the Holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest
of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in
this Section prior to 8:00 p.m. (Eastern Standard Time), (ii) the date
after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in
this Section later than 8:00 p.m. (Eastern Standard Time) on any date
and earlier than 11:59 p.m. (Eastern Standard Time) on such date, (iii)
upon receipt, if sent by a nationally recognized overnight courier
service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.
Section 6. Redemption Upon Certain Events. Upon the
occurrence of a Triggering Event (as defined below), each Holder shall
(in addition to all other rights it may have hereunder or under
applicable law), have the right, exercisable at the sole option of such
Holder, to require the Company to redeem all or a portion of the
Preferred Stock then held by such Holder for a redemption price, in
cash, equal to the sum of (i) the Mandatory Redemption Amount (as
defined in Section 8) plus (ii) the product of (A) the number of
Underlying Shares issued in respect of conversions or as payment of
dividends hereunder and then held by the Holder and (B) the Per Share
Market Value on the date such redemption is demanded or the date the
redemption price hereunder is paid in full, whichever is greater. For
purposes of this Section, a share of Preferred Stock is outstanding
until such date as the Holder shall have received Underlying Shares upon
a conversion (or attempted conversion) thereof.
A "Triggering Event" means any one or more of the following
events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any
judgement, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):
(i) the failure of the Registration Statement to be
declared effective by the Commission on or prior to the 180th day after
the Original Issue Date;
(ii) if, during the "Effectiveness Period" (as
defined in Registration Rights Agreement), the effectiveness of the
Registration Statement lapses for any reason or the Holder shall not be
permitted to resell Registrable Securities (as defined in the
Registration Rights Agreement) under the Underlying Shares Registration
Statement;
(iii) the failure of the Common Stock to be listed on
the Nasdaq National Market or the Nasdaq SmallCap Market for a period of
15 days (which need not be consecutive days);
(iv) the Company shall fail for any reason to deliver
certificates representing Underlying Shares issuable upon a conversion
hereunder that comply with the provisions hereof prior to the 10th day
after the Conversion Date or the Company shall provide notice to any
Holder, including by way of public announcement, at any time, of its
intention not to comply with requests for conversion of any Preferred
Stock in accordance with the terms hereof;
(v) the Company shall be a party to any merger or
consolidation pursuant to which the Company shall not be the surviving
entity or shall sell, transfer or otherwise dispose of in excess of 50%
of its assets or voting securities in one or more transactions, or shall
redeem more than a de minimis number of shares of Common Stock or other
junior securities (other than redemptions of Underlying Shares);
(vi) an Event shall not have been cured to the
satisfaction of the Holder prior to the expiration of thirty (30) days
from the Event Date relating thereto;
(vii) the Company shall fail for any reason to deliver
the certificate or certificates required pursuant to a Buy-In and
Section 5(b)(iii) within seven (7) days after notice is deemed delivered
hereunder;
(viii) the Company shall fail to have available a
sufficient number of authorized and unreserved shares of Common Stock to
issue to such Holder upon a conversion hereunder.
Section 7. Redemption at Option of Company.
(a) The Company shall have the right, exercisable at any
time upon 20 Trading Days notice (an "Optional Redemption Notice") to
the Holders of the Preferred Stock given at any time after the Original
Issue Date to redeem all or any portion of the shares of Preferred Stock
which have not previously been converted or redeemed, at a price equal
to the Optional Redemption Price (as defined below). The entire
Optional Redemption Price shall be paid in cash. Holders of Preferred
Stock may convert (and the Company shall honor such conversions in
accordance with the terms hereof) any shares of Preferred Stock,
including shares subject to an Optional Redemption Notice, during the
period from the date thereof through the 20th Trading Day after the
receipt of an Optional Redemption Notice.
(b) If any portion of the Optional Redemption Price shall
not be paid by the Company within seven (7) calendar days after the 20th
Trading Day after the delivery of an Optional Redemption Notice,
interest shall accrue thereon at the rate of 15% per annum until the
Optional Redemption Price plus all such interest is paid in full (any
such amount shall be paid as liquidated damages and not as a penalty).
In addition, if any portion of the Optional Redemption Price remains
unpaid for more than seven (7) calendar days after the date due, the
Holder of the Preferred Stock subject to such redemption may elect, by
written notice to the Company given at any time thereafter, to either
(i) demand conversion in accordance with the formula and the time frame
therefor set forth herein of all or any portion of the shares of
Preferred Stock for which such Optional Redemption Price, plus accrued
liquidated damages thereof, has not been paid in full (the "Unpaid
Redemption Shares"), in which event the Per Share Market Value for such
shares shall be the lower of the Per Share Market Value calculated on
the date the Optional Redemption Price was originally due and the Per
Share Market Value as of the Holder's written demand for conversion, or
(ii) invalidate ab initio such redemption, notwithstanding anything
herein contained to the contrary. If the Holder elects option
(i) above, the Company shall within three (3) Trading Days of its
receipt of such election deliver to the Holder the shares of Common
Stock issuable upon conversion of the Unpaid Redemption Shares subject
to such Holder conversion demand and otherwise perform its obligations
hereunder with respect thereto; or, if the Holder elects option
(ii) above, the Company shall promptly, and in any event not later than
three (3) Trading Days from receipt of Holder's notice of such election,
return to the Holder all of the Unpaid Redemption Shares.
(c) The "Optional Redemption Price" shall equal the sum of
(i) the product of (A) the number of shares of Preferred Stock to be
redeemed and (B) the product of (1) the average Per Share Market Value
for the five (5) Trading Days immediately preceding (x) the date of the
Optional Redemption Notice or (y) the date of payment in full by the
Company of the Optional Redemption Price, whichever is greater, and (2)
the Conversion Ratio calculated on the date of the Optional Redemption
Notice, and (ii) all other amounts, costs, expenses and liquidated
damages due in respect of such shares of Preferred Stock.
Section 8. Definitions. For the purposes hereof, the
following terms shall have the following meanings:
"Common Stock" means the Company's common stock, $.0001 par
value, and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which
the numerator is Stated Value plus accrued but unpaid dividends
(including any accrued but unpaid late fees thereon) but only to the
extent not paid in shares of Common Stock in accordance with the terms
hereof, and of which the denominator is the Conversion Price at such
time.
"Mandatory Redemption Amount" means the sum of (i) the
product of (A) the number of shares of Preferred Stock to be redeemed
and (B) the product of (1) the average Per Share Market Value for the
five (5) Trading Days immediately preceding (x) the date of the
Triggering Event or (y) the date of payment in full by the Company of
the applicable redemption price, whichever is greater, and (2) the
Conversion Ratio calculated on the date of the Triggering Event, and
(ii) all other amounts, costs, expenses and liquidated damages due in
respect of such shares of Preferred Stock.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the number
of transfers of any particular shares of Preferred Stock and regardless
of the number of certificates which may be issued to evidence such
Preferred Stock.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the
NASDAQ or any other stock exchange or quotation system on which the
Common Stock is then listed or if there is no such price on such date,
then the closing bid price on such exchange or quotation system on the
date nearest preceding such date, or (b) if the Common Stock is not
listed then on the NASDAQ or any stock exchange or quotation system, the
closing bid price for a share of Common Stock in the over-the-counter
market, as reported by the National Quotation Bureau Incorporated or
similar organization or agency succeeding to its functions of reporting
prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the National Quotation Bureau Incorporated
(or similar organization or agency succeeding to its functions of
reporting prices), then the average of the "Pink Sheet" quotes for the
relevant conversion period, as determined in good faith by the Holder,
or (d) if the Common Stock is not then publicly traded the fair market
value of a share of Common Stock as determined by an Appraiser selected
in good faith by the Holders of a majority in interest of the shares of
the Preferred Stock; provided, however, that the Company, after receipt
of the determination by such Appraiser, shall have the right to select
an additional Appraiser, in which case, the fair market value shall be
equal to the average of the determinations by each such Appraiser; and
provided, further that all determinations of the Per Share Market Value
shall be appropriately adjusted for any stock dividends, stock splits or
other similar transactions during such period.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock
Purchase Agreement, dated as of the Original Issue Date, among the
Company and the original Holder of the Preferred Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, by and among the Company
and the original Holder of the Preferred Stock.
"Trading Day" means (a) a day on which the Common Stock is
traded on the NASDAQ or other stock exchange or market on which the
Common Stock has been listed, or (b) if the Common Stock is not listed
on the NASDAQ or on such other stock exchange or market, a day on which
the Common Stock is traded, on the Nasdaq SmallCap Market, or (c) if the
Common Stock is not listed on the Nasdaq SmallCap Market or any stock
exchange or market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c)
if the Common Stock is not quoted on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices);
provided, however, that in the event that the Common Stock is not listed
or quoted as set forth in (a), (b) and (c) hereof, then Trading Day
shall mean any day except Saturday, Sunday and any day which shall be a
legal holiday or a day on which banking institutions in the State of New
York are authorized or required by law or other government action to
close.
"Underlying Shares" means shares of Common Stock into which
the Preferred Stock are convertible, the shares of Common Stock issuable
upon payment of dividends thereon in accordance with the terms hereof
and the Purchase Agreement.
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of
Series D Convertible Preferred Stock indicated below, into shares
of Common Stock, $.0001 par value (the "Common Stock"), of USCI,
INC. (the "Company") according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of
a person other than undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the
Holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Number of shares of Preferred Stock
to be Converted
______________________
Number of shares of Common Stock
to be Issued
Applicable Conversion Price
Signature
Name
Address
IN WITNESS WHEREOF, the corporation has caused this certificate to
be executed under its corporate seal this 29th day of July, 1998.
USCI, Inc.
By: /s/ Robert J. Kostrinsky
Robert J. Kostrinsky,
Executive Vice President
ATTEST:
/s/ Basil H. Ford.
Basil H. Ford, Secretary
EXHIBIT 10.1
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
USCI, INC.
and
EACH OF THE PURCHASERS NAMED IN SCHEDULE 1.
Dated as of July 29, 1998
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this
"Agreement"), dated as of July 29, 1998, between USCI, Inc., a
Delaware corporation (the "Company"), and each of the Purchasers
named in the attached Schedule 1 ( individually, a "Purchaser"
and collectively, the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the
Purchasers and the Purchasers desire to purchase from the
Company, shares of the Company's 6% Series D Convertible
Preferred Stock, par value $.01 per share (the "Series D
Preferred" ).
IN CONSIDERATION of the mutual covenants contained in this
Agreement, the Company and Purchasers agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
1.1 Purchase and Sale. (a) Subject to the terms and
conditions set forth herein, the Company shall issue and sell to
the Purchasers, and the Purchasers shall purchase from the
Company: 500 shares of Series D Preferred (the "Series D
Shares").
(b) The Series D Preferred shall have the respective
rights, preferences and privileges set forth in Exhibit A
attached hereto (the "Series D Terms"), which shall be
incorporated into a Certificate of Designation to be approved by
the Purchasers and filed prior to the Series D Closing Date (as
defined below) by the Company with the Secretary of State of
Delaware (the "Series D Designation").
For purposes of this Agreement, "Conversion Price,"
"Original Issue Date," "Conversion Date," "Trading Day" and "Per
Share Market Value" shall have the meanings set forth in Exhibit
A; and "Market Price" as at any date shall mean the average Per
Share Market Value for the five (5) Trading Days immediately
preceding such date.
1.2 Purchase Price. The purchase price per Share shall be
$8,000.
1.3 The Closing.
(a) The Series D Closing. (i) The closing of the
purchase and sale of the Series D Shares (the "Series D Closing")
shall take place at The Law Offices of Leonard R. Glass, P.A., 45
Central Avenue, Tenafly, New Jersey 07670, immediately following
the execution hereof or such later date as the parties shall
agree. The date of the Series D Closing is hereinafter referred
to as the "Series D Closing Date."
(ii) At the Series D Closing, (a) the Company
shall deliver to the Purchasers (1) stock certificates
representing 500 Series D Shares registered in the names of the
Purchasers, (2) the legal opinion of the Law Offices of Leonard
R. Glass, P.A., outside counsel to the Company, substantially in
the form attached hereto as Exhibit D, (3) payment of the accrued
interest on the $4,000,000 principal amount of the Restated Notes
of the Company dated February 24, 1998, and (4) all other
documents, instruments and writings required to have been
delivered at or prior to the Series A Closing by the Company
pursuant to this Agreement and the Registration Rights Agreement,
dated the date hereof, by and between the Company and the
Purchasers, in the form of Exhibit C (the "Registration Rights
Agreement"); and (b) the Purchasers shall deliver to the Company
(1) $4,000,000 principal amount of the Restated Notes of the
Company each dated February 24, 1998, and (2) all documents,
instruments and writings required to have been delivered at or
prior to the Series D Closing by the Purchasers pursuant to this
Agreement and the Registration Rights Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the
Company. The Company hereby makes the following representations
and warranties to the Purchasers:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, with the
requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently
conducted. The Company has no subsidiaries other than as set
forth in Schedule 2.1(a) (collectively the "Subsidiaries"). Each
of the Subsidiaries is a corporation, duly incorporated, validly
existing and in good standing under the laws of the jurisdiction
of its incorporation or organization (as applicable), with the
full corporate power and authority to own and use its properties
and assets and to carry on its business as currently conducted.
Each of the Company and the Subsidiaries is duly qualified to do
business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the
case may be, could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of the
Securities (as defined below) or any of the Transaction Documents
(as defined below) in any material respect, (y) have or result in
a material adverse effect on the results of operations, assets,
prospects, or condition (financial or otherwise) of the Company
and the Subsidiaries, taken as a whole or (z) adversely impair
the Company's ability to perform fully on a timely basis its
obligations under any of this Agreement, the Certificate of
Designation, the Warrants or the Registration Rights Agreement
(collectively, the "Transaction Documents") (any of (x), (y) or
(z), being a "Material Adverse Effect").
(b) Authorization; Enforcement. The
Company has the requisite corporate power and authority to enter
into and to consummate the transactions contemplated by each of
the Transaction Documents, and otherwise to carry out its
obligations thereunder. The execution and delivery of each of
the Transaction Documents by the Company and the consummation by
it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of the
Company and no further action is required by the Company. Each
of the Transaction Documents has been duly executed by the
Company and when delivered in accordance with the terms hereof
will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation
or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other
equitable principles of general application. Neither the Company
nor any Subsidiary is in violation of any of the provisions of
its respective certificate of incorporation, articles, by-laws or
other charter documents. Prior to the Series D Closing Date, the
Certificate of Designation shall have been filed with the
Secretary of State of the State of Delaware and will be in full
force and effect, enforceable against the Company in accordance
with the terms thereof.
(c) Capitalization. The authorized, issued and
outstanding capital stock of the Company is set forth in Schedule
2.1(c). No shares of Common Stock are entitled to preemptive or
similar rights, nor is any holder of the Common Stock entitled to
preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of any of the
Transaction Documents. To the knowledge of the Company, except
as specifically disclosed in the SEC Documents (as defined below)
or Schedule 2.1(c), no Person or group of related Persons
beneficially owns (as determined pursuant to Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) or has the right to acquire by agreement
with or by obligation binding upon the Company beneficial
ownership of in excess of 5% of the Common Stock. A "Person"
means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(d) Issuance of the Shares. The Shares are
duly authorized, and, when issued and paid for in accordance with
the terms hereof, shall have been validly issued, fully paid and
nonassessable, free and clear of all liens, encumbrances and
rights of first refusal of any kind (collectively, "Liens"). The
Company has on the date hereof and will, at each Closing Date,
have, and at all times while the Shares are outstanding will
maintain an adequate reserve of duly authorized shares of Common
Stock, to enable it to perform its conversion, exercise and other
obligations under this Agreement, and the Certificate of
Designation with respect to the number of Shares issued at such
Closing Date, and in no circumstances shall such reserved and
available shares of Common Stock be less than the sum of (i) 200%
of the maximum number of shares of Common Stock which would be
issuable upon conversion in full of the Shares issued pursuant to
the terms hereof assuming such conversion were effected on the
Original Issue Date for such Shares, (ii) the number of shares of
Common Stock which would be issuable upon payment of dividends on
the Shares, assuming each Share is outstanding for three years
and all dividends are paid in shares of Common Stock. All such
authorized shares of Common Stock shall be duly reserved for such
issuance to the holders of such Shares. The shares of Common
Stock issuable upon conversion of the Shares, as payment of
dividends thereon, or upon exercise of the Warrants are
collectively referred to herein as the "Underlying Shares." The
Shares and Underlying Shares are, collectively, the "Securities".
When issued in accordance with the Certificate of Designation,
the Underlying Shares have been duly authorized, validly issued,
fully paid and nonassessable, free and clear of all Liens.
(e) No Conflicts. The execution, delivery and
performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated
thereby do not and will not (i) conflict with or violate any
provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof) or
(ii) subject to obtaining the consents referred to in Section
2.1(f), conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or
instrument (evidencing a Company debt or otherwise) to which the
Company is a party or by which any property or asset of the
Company is bound or affected, or (iii) result in a violation of
any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which
the Company is subject (including Federal and state securities
laws and regulations), or by which any material property or asset
of the Company is bound or affected, except in the case of each
of clauses (ii) and (iii), such conflicts, defaults,
terminations, amendments, accelerations, cancellations and
violations as could not, individually or in the aggregate, have
or result in a Material Adverse Effect. The business of the
Company is not being conducted in violation of any law, ordinance
or regulation of any governmental authority, except for
violations which, individually or in the aggregate, would not
have a Material Adverse Effect.
(f) Consents and Approvals. Except as
specifically set forth in Schedule 2.1(f), neither the Company
nor any Subsidiary is required to obtain any consent, waiver,
authorization or order of, give any notice to, or make any filing
or registration with, any court or other Federal, state, local or
other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filings of the
Certificates of Designation with the Secretary of State of
Delaware, (ii) the filing of Underlying Shares Registration
Statement with the Securities and Exchange Commission (the
"Commission"), (iii) the application(s) or any letter(s)
acceptable to the Nasdaq National Market System (the "NASDAQ")
for the listing of the Underlying Shares with the NASDAQ (and
with any other national securities exchange or market on which
the Common Stock is then listed), and (iv) in all other cases
where the failure to obtain such consent, waiver, authorization
or order, or to give such notice or make such filing or
registration could not have or result in, individually or in the
aggregate, a Material Adverse Effect (together with the consents,
waivers, authorizations, orders, notices and filings referred to
in Schedule 2.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as
specifically disclosed in the Disclosure Materials (as
hereinafter defined) there is no action, suit, notice of
violation, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the
Company or any of its Subsidiaries or any of their respective
properties before or by any court, governmental or administrative
agency or regulatory authority (Federal, state, county, local or
foreign) which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or
the Securities or (ii) could individually or in the aggregate,
have a Material Adverse Effect.
(h) No Default or Violation. Neither the
Company nor any Subsidiary (i) is in default under or in
violation of any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or
any of its properties is bound, (ii) is in violation of any order
of any court, arbitrator or governmental body applicable to it,
or (iii) is in violation of any statute, rule or regulation of
any governmental authority to which it is subject, except as
could not, in any such case (individually or in the aggregate)
have or result in a Material Adverse Effect.
(i) Schedules. The Schedules to this Agreement
furnished by or on behalf of the Company do not contain any
untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not
misleading.
(j) Private Offering. Neither the Company nor
any Person acting on its behalf has taken or will take any action
which might subject the offering, issuance or sale of the
Securities to the registration requirements of the Securities Act
of 1933, as amended (the "Securities Act").
(k) SEC Documents; Financial Statements; No
Adverse Change. The Company has filed all reports required to be
filed by it under the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof, for the three years preceding the date
hereof (or such shorter period as the Company was required by law
to file such material) (the foregoing materials being
collectively referred to herein as the "SEC Documents" and,
together with the Schedules to this Agreement the "Disclosure
Materials") on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Documents prior
to the expiration of any such extension. As of their respective
dates, the SEC Documents complied in all material respects with
the requirements of the Securities Act and the Exchange Act and
the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, 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. All material
agreements to which the Company is a party or to which the
property or assets of the Company are subject have been filed as
exhibits to the SEC Documents as required; neither the Company
nor any of its subsidiaries is in breach of any agreement where
such breach would have or result in a Material Adverse Effect.
The financial statements of the Company included in the SEC
Documents comply in all material respects with applicable
accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied
on a consistent basis during the periods involved, except as may
be otherwise specified in such financial statements or the notes
thereto, and fairly present in all material respects the
financial position of the Company as of and for the dates thereof
and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal
year-end audit adjustments. Since the date of the financial
statements included in the Company's last filed Annual Report on
Form 10-K for the fiscal year ended December 31, 1997, there has
been no event, occurrence or development that has had or could
result in a Material Adverse Effect which has not been
specifically disclosed to the Purchaser by the Company. The
Company last filed audited financial statements with the
Commission on December 31, 1997, and has not received any
comments from the Commission in respect thereof.
(l) Seniority. No class of equity securities
of the Company is senior to the Preferred Stock in right of
payment, whether upon liquidation, dissolution or otherwise.
(m) Investment Company. The Company is not,
and is not controlled by or under common control with an
affiliate (an "Affiliate") of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(n) Certain Fees. No fees or commissions will
be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, or bank
with respect to the transactions contemplated by this Agreement.
The Purchaser shall have no obligation with respect to any fees
or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may
be due in connection with the transactions contemplated by this
Agreement. The Company shall indemnify and hold harmless the
Purchaser, its employees, officers, directors, agents, and
partners, and their respective Affiliates (as such term is
defined under Rule 405 promulgated under the Securities Act),
from and against all claims, losses, damages, costs (including
the costs of preparation and attorney's fees) and expenses
suffered in respect of any such claimed or existing fees, as such
fees and expenses are incurred.
(o) Solicitation Materials. The Company has
not (i) distributed any offering materials in connection with the
offering and sale of the Securities, other than the Disclosure
Materials and any amendments and supplements thereto or (ii)
solicited any offer to buy or sell the Securities by means of any
form of general solicitation or advertising. None of the
Disclosure Materials or any other information provided to the
Purchaser by or on behalf of the Company contain any untrue
statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading
(p) Form S-3 Eligibility. The Company is, and
at each Closing Date will be, eligible to register securities for
resale with the Commission under Form S-3 promulgated under the
Securities Act.
(q) Listing and Maintenance Requirements
Compliance. The Company has not in the two years preceding the
date hereof received notice (written or oral) from the NASDAQ or
any other stock exchange, market or trading facility on which the
Common Stock is or has been listed (or on which it has been
quoted) to the effect that the Company is not in compliance with
the listing or maintenance requirements of such exchange or
market. The Company is in compliance with all such maintenance
requirements.
(r) Patents and Trademarks. The Company has,
or has rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names,
copyrights, licenses and rights (collectively, the "Intellectual
Property Rights") which are necessary for use in connection with
its business, as currently conducted and as described in the SEC
Documents, and which the failure to so have would have a Material
Adverse Effect. To the best knowledge of the Company, there is
no existing infringement by another Person of any of the
Intellectual Property Rights which are necessary for use in
connection with the Company's business.
(s) Acknowledgement of Dilution. The Company
acknowledges that the issuance of the Underlying Shares upon (i)
conversion of the Shares and payment of dividends thereon in
accordance with the Certificate of Designation may result in
dilution of the outstanding shares of Common Stock, which
dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligation to issue
Underlying Shares upon (x) conversion of the Shares and payment
of dividends thereon in accordance with the Certificate of
Designation is unconditional and absolute, subject to the
limitations set forth herein in the Certificate of Designation,
regardless of the effect of any such dilution.
(t) Title. The Company and the Subsidiaries
have good and marketable title in fee simple to all real property
and personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free
and clear of all Liens, except for liens, claims or encumbrances
as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such
property by the Company and its Subsidiaries. Any real property
and facilities held under lease by the Company and its
Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its Subsidiaries.
(u) Regulatory Permits. The Company and its
Subsidiaries possess all certificates, authorizations and permits
issued by the appropriate Federal, state or foreign regulatory
authorities necessary to conduct their respective businesses as
described in the SEC Documents except where the failure to
possess such permits would not, individually or in the aggregate,
have a Material Adverse Effect ("Material Permits"), and neither
the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any
Material Permit.
2.2 Representations and Warranties of the
Purchaser. The Purchasers hereby represent and warrant to the
Company as follows:
(a) Organization; Authority. The Purchasers
have the requisite power and authority, corporate or otherwise,
to enter into and to consummate the transactions contemplated
hereby and by the Registration Rights Agreement and otherwise to
carry out its obligations hereunder and thereunder. The purchase
by the Purchasers of the Securities hereunder has been duly
authorized by all necessary action on the part of the Purchasers.
Each of this Agreement and the Registration Rights Agreement has
been duly executed and delivered by the Purchasers and
constitutes the valid and legally binding obligation of the
Purchasers, enforceable against the Purchasers, in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights
generally and to general principles of equity.
(b) Investment Intent. The Purchasers are
acquiring the Securities for its own account for investment
purposes only and not with a view to or for distributing or
reselling such Securities or any part thereof or interest
therein, without prejudice, however, to the Purchasers' right,
subject to the provisions of this Agreement and the Registration
Rights Agreement, at all times to sell or otherwise dispose of
all or any part of such Securities pursuant to an effective
registration statement under the Securities Act and in compliance
with applicable state securities laws or under an exemption from
such registration.
(c) Purchaser Status. At the time the
Purchasers were offered the Shares, it was, and at the date
hereof, it is, and at each Closing Date, it will be, an
"accredited investor" as defined in Rule 501(a) under the
Securities Act.
(d) Experience of the Purchaser. The
Purchasers either alone or together with its representatives,
have such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the
merits and risks of the prospective investment in the Securities,
and has so evaluated the merits and risks of such investment.
(e) Ability of the Purchasers to Bear Risk of
Investment. The Purchasers are able to bear the economic risk of
an investment in the Securities and, at the present time, are
able to afford a complete loss of such investment.
(f) Access to Information. The Purchasers
acknowledge receipt of the Disclosure Materials and further
acknowledge that they have been afforded (i) the opportunity to
ask such questions as they have deemed necessary of, and to
receive answers from, representatives of the Company concerning
the terms and conditions of the offering of the Securities and
the merits and risks of investing in the Securities; (ii) access
to information about the Company and the Company's financial
condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional
information which the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and
to verify the accuracy and completeness of the information
contained in the Disclosure Materials.
(g) Reliance. The Purchasers understand and
acknowledge that (i) the Securities are being offered and sold to
it without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the
Securities Act under Section 4(2) of the Securities Act or
Regulation D promulgated thereunder and (ii) the availability of
such exemption, depends in part on, and the Company will rely
upon the accuracy and truthfulness of, the foregoing
representations and the Purchaser hereby consents to such
reliance.
(h) Organization. The Purchasers represent and
warrant that they have not been organized or recapitalized
specifically for the purpose of purchasing the Securities.
The Company acknowledges and agrees that the Purchasers make
no representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in
this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) The Purchasers
may only dispose of the Securities held by them, pursuant to an
effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from the
registration requirements of the Securities Act. In connection
with any transfer of Securities other than pursuant to an
effective registration statement or to the Company, except as
otherwise set forth herein, the Company may require the
transferor thereof to provide to the Company a written opinion of
counsel experienced in the area of United States securities laws
selected by the transferor, the form and substance of which
opinion shall be reasonably satisfactory to counsel to the
Company, to the effect that such transfer does not require
registration of such transferred securities under the Securities
Act. Notwithstanding the foregoing, the Company hereby consents
to and agrees to register any transfer of Securities by
Purchasers to an Affiliate of the Purchasers, or any transfer
among any such Affiliates, provided that transferee certifies to
the Company that it is an "accredited investor" as defined in
Rule 501(a) under the Securities Act. Any such transferee shall
agree in writing to be bound by the terms of this Agreement and
shall have the rights of the Purchaser under this Agreement and
the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long
as is required by this Section 3.1(b), of the following legend on
the Securities:
[NEITHER THESE SECURITIES NOR THE SECURITIES INTO
WHICH THESE SECURITIES ARE CONVERTIBLE HAVE] [THE SECURITIES
REPRESENTED HEREBY HAVE NOT] BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
[FOR SHARES ONLY] THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON
CONVERSION SET FORTH IN A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT, DATED AS OF JULY 8, 1998, EXECUTED BY
THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON
FILE AT THE PRINCIPAL OFFICE OF USCI, INC.
The Underlying Shares issuable upon conversion of the Shares
or as payment of dividends thereon shall not contain the legend
set forth above nor any other legend if the conversion of such
Shares or the payment of such dividends thereon or exercise of
the Warrants occurs at any time while an Underlying Shares
Registration Statement is effective under the Securities Act or
in the event there is not an effective Underlying Shares
Registration Statement at such time, if in the written opinion of
counsel to the Company experienced in the area of United States
securities laws such legend is not required under applicable
requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
Commission). The Company agrees that it will provide the
Purchasers, upon request, with a certificate or certificates
representing Underlying Shares, free from such legend at such
time as such legend is no longer required hereunder.
3.2 Stop Transfer Instruction. The Company may not make
any notation on its records or give instructions to any transfer
agent of the Company which enlarge the restrictions of transfer
set forth in Section 3.1.
3.3 Furnishing of Information. As long as the Purchasers
own Securities, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company
after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act and to promptly furnish the Purchasers with true and
complete copies of all such filings. As long as the Purchasers
own Securities, if the Company is not required to file reports
pursuant to Section 13(a) or 15(d) of the Exchange Act, it will
prepare and furnish to the Purchaser and make publicly available
in accordance with Rule 144(c) promulgated under the Securities
Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be
required to be included in reports required by Section 13(a) or
15(d) of the Exchange Act, as well as any other information
required thereby, in the time period that such filings would have
been required to have been made under the Exchange Act. The
Company further covenants that it will take such further action
as any holder of the Shares may reasonably request, all to the
extent required from time to time to enable such Person to sell
Underlying Shares without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including the legal opinion
referenced above in this Section. Upon the request of any such
Person, the Company shall deliver to such Person a written
certification of a duly authorized officer as to whether it has
complied with such requirements.
3.4 Blue Sky Laws. In accordance with the Registration
Rights Agreement, the Company shall qualify or exempt the
issuance and sale of the Underlying Shares under the securities
or Blue Sky laws of such jurisdictions as the Purchasers may
request and shall continue such qualification or exemption at all
times through the third anniversary of the Closing Date;
provided, however, that neither the Company nor its Subsidiaries
shall be required in connection therewith to qualify as a foreign
corporation where they are not now so qualified or to take any
action that would subject the Company to general service of
process in any such jurisdiction where it is not then so subject
or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
3.5 Integration. The Company shall not sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect
of any security (as defined in Section 2 of the Securities Act)
that would be integrated with the offer or sale of the Securities
in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers.
3.6 Certain Agreements. As long as the Purchasers own
Shares, the Company shall not and shall cause the Subsidiaries
not to, without the consent of the holders of all of the Shares
then outstanding, (i) amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any
rights of any Purchaser; (ii) declare, authorize, set aside or
pay any dividend or other distribution with respect to the Common
Stock except as permitted under the Certificate of Designation
and as would not adversely affect the rights of any Purchasers
hereunder or under such Certificate of Designation; (iii) repay,
repurchase or offer to repay, repurchase or otherwise acquire
shares of its Common Stock in any manner; or (iv) enter into any
agreement with respect to any of the foregoing.
3.7 Listing and Reservation of Underlying Shares (a) The
Company shall (i) not later than the fifth Business Day following
the applicable Closing Date prepare and file with the NASDAQ (as
well as any other national securities exchange or market or
trading or quotation facility on which the Common Stock is then
listed) an additional shares listing application or a letter
acceptable to the NASDAQ covering and listing a number of shares
of Common Stock which is at least equal to the number of shares
required to be reserved pursuant to Section 2.1(d), (ii) take all
steps necessary to cause the such shares to be approved for
listing in the NASDAQ (as well as on any other national
securities exchange or market or trading or quotation facility on
which the Common Stock is then listed) as soon as possible
thereafter, and (iii) provide to the Purchaser evidence of such
listing, and the Company shall maintain the listing of its Common
Stock thereon. In the event that the number of Underlying Shares
as are issuable upon conversion in full of the then number of
outstanding Shares, as payment or dividends thereon, exceeds 185%
of the number of Underlying Shares previously listed on account
thereof with NASDAQ (and other required exchanges) the Company
shall take the necessary actions to immediately list a number of
Underlying Shares as equal to 200% of the number of Underlying
Shares then issuable upon conversion of the Shares and as payment
of dividends.
(b) The Company shall reserve for issuance upon conversion
of the Shares and for payment of dividends thereupon in shares of
Common Stock pursuant to the terms of the Certificate of
Designation in accordance with their terms, as many shares as may
be required to fulfill such conversion, dividend and exercise
obligations, but in no event less than the number of shares to be
listed on the NASDAQ (and such other national securities exchange
or market or trading or quotation facility on which the Common
Stock is then listed, traded or quoted) as set forth in Section
3.7(a).
3.8 Purchaser Ownership of Common Stock. The Purchasers
agree not to convert Shares to the extent such conversion or
exercise would result in the Purchaser beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act
and the rules thereunder) in excess of 4.999% of the then issued
and outstanding shares of Common Stock, including shares issuable
upon conversion of the Shares held by such Purchasers after
application of this Section. To the extent that the limitation
contained in this Section applies, the determination of whether
Shares are convertible (in relation to other securities owned by
a Purchaser) and of which Shares are convertible shall be in the
sole discretion of the Purchaser, and the submission of Shares
for conversion shall be deemed to be such Purchaser's
determination of whether such Shares are convertible (in relation
to other securities owned by a Purchaser) and of which portion of
such Shares are convertible, in each case subject to such
aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such
determination. Nothing contained herein shall be deemed to
restrict the right of the Purchaser to convert Shares at such
time as such conversion will not violate the provisions of this
Section. The provisions of this Section will not apply to any
conversion pursuant to Section 5(a)(ii) of the Certificate of
Designation, and may be waived by the Purchaser upon not less
than 75 days prior notice to the Company, and the provisions of
this Section shall continue to apply until such 75th day (or
later, if stated in the notice of waiver).
3.9 No Violation of Applicable Law. Notwithstanding any
provision of this Agreement to the contrary, if the redemption of
the Shares or Underlying Shares otherwise required under this
Agreement or the Registration Rights Agreement would be
prohibited by the relevant provisions of the Delaware General
Corporation Law, such redemption shall be effected as soon as it
is permitted under such law; provided, however, that from the 5th
day after such redemption notice until such redemption price is
paid in full, interest on any such unpaid amount shall accrue at
the rate of 15% per annum.
(a) Notice of Breaches.(a) Each of the Company and the
Purchasers shall give prompt written notice to the other of any
breach of any representation, warranty or other agreement
contained in this Agreement or in the Registration Rights
Agreement, as well as any events or occurrences arising after the
date hereof which would reasonably be likely to cause any
representation or warranty or other agreement of such party, as
the case may be, contained herein to be incorrect or breached as
of such Closing Date. However, no disclosure by either party
pursuant to this Section 3.9 shall be deemed to cure any breach
of any representation, warranty or other agreement contained
herein or in the Registration Rights Agreement.
(b) Notwithstanding the generality of Section 3.9(a), the
Company shall promptly notify the Purchasers of any notice or
claim (written or oral) that it receives from any lender of the
Company to the effect that the consummation of the transactions
contemplated hereby and by the Registration Rights Agreement
violates or would violate any written agreement or understanding
between such lender and the Company, and the Company shall
promptly furnish by facsimile to the holders of the Shares a copy
of any written statement in support of or relating to such claim
or notice.
3.11 Conversion and Exercise Obligations of the Company.
The Company covenants to convert the Shares and to deliver
Underlying Shares in accordance with the terms and conditions and
time period set forth in the Certificate of Designation .
3.12 Reimbursement . In the event that the Purchasers,
other than by reason of its gross negligence or willful
misconduct, becomes involved in any capacity in any action,
proceeding or investigation brought by or against any Person,
including stockholders of the Company, in connection with or as a
result of the consummation of the transactions contemplated
pursuant to the Transaction Documents, the Company will reimburse
the Purchasers for its reasonable legal and other expenses
(including the cost of any investigation and preparation)
incurred in connection therewith. In addition, other than with
respect to any matter in which the Purchasers are named party,
the Company will pay the Purchasers the charges, as reasonably
determined by the Purchasers, for the time of any officers or
employees of the Purchaser devoted to appearing and preparing to
appear as witnesses, assisting in preparation for hearings,
trials or pretrial matters, or otherwise with respect to
inquiries, hearings, trials, and other proceedings relating to
the subject matter of this Agreement. The reimbursement
obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliate
of the Purchasers and partners, directors, agents, employees and
controlling persons (if any), as the case may be, of the
Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and
personal representatives of the Company, the Purchasers and any
such Affiliate and any such Person. The Company also agrees that
neither the Purchasers nor any such Affiliates, partners,
directors, agents, employees or controlling persons shall have
any liability to the Company or any person asserting claims on
behalf of or in right of the Company in connection with or as a
result of the consummation of the Transaction Documents except to
the extent that any losses, claims, damages, liabilities or
expenses incurred by the Company result from the gross negligence
or willful misconduct of the Purchasers or entity in connection
with the transactions contemplated by this Agreement. The
Purchasers shall not, without the prior written consent of the
Company, effect any settlement of any action in respect of which
the Company is a party.
ARTICLE IV
MISCELLANEOUS
5.1 Entire Agreement; Amendments. This Agreement,
together with the Exhibits and Schedules hereto, the Registration
Rights Agreement and the Certificate of Designation, contain the
entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters.
5.2 Notices. Any notice or other communication required
or permitted to be given
hereunder shall be in writing and shall be deemed to have been
received (a) upon hand delivery (receipt acknowledged) or
delivery by telex (with correct answer back received), telecopy
or facsimile (with transmission confirmation report) at the
address or number designated below (if delivered on a business
day during normal business hours where such notice is to be
received), or the first business day following such delivery (if
delivered on a business day after during normal business hours
where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier
service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The
addresses for such communications shall as set forth below each
parties name on Schedule 1, and if to the Company with copies to
the Law Offices of Leonard R. Glass, P.A., 45 Central Avenue,
P.O. Box 579, Tenafly, New Jersey 07670 (fax: 201-894-1718) Attn:
Leonard R. Glass, Esq., or such other address as may be
designated in writing hereafter, in the same manner, by such
Person.
5.3 Amendments; Waivers. No provision of this Agreement
may be waived or amended except in a written instrument signed,
in the case of an amendment, by both the Company and the
Purchasers; or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement
of this Agreement shall be deemed to be a continuing waiver in
the future or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either
party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
Notwithstanding the foregoing, no such amendment shall be
effective to the extent that it applies to less than all of the
holders of the Shares outstanding.
5.4 Headings. The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be
deemed to limit or affect any of the provisions hereof.
5.5 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their
successors and permitted assigns. The Company may not assign
this Agreement or any rights or obligations hereunder without the
prior written consent of the Purchasers. No Purchaser may assign
this Agreement (other than to an Affiliate of the Purchaser) or
any rights or obligations hereunder without the prior written
consent of the Company, except that any Purchaser may assign its
rights hereunder and under the Transaction Documents without the
consent of the Company as long as such assignee demonstrates to
the reasonable satisfaction of the Company its satisfaction of
the representations and warranties set forth in Section 2.2.
This provision shall not limit the Purchasers' right to transfer
securities or transfer or assign rights hereunder or under the
Registration Rights Agreement.
5.6 No Third-Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their
respective permitted successors and assigns and is not for the
benefit of, nor may any provision hereof be enforced by, any
other person.
5.7 Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the internal laws
of the State of New York without regard to the principles of
conflicts of law thereof. Each party hereby irrevocably submits
to the non-exclusive jurisdiction of the state and Federal courts
sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein,
and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit,
action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by
law.
5.8 Survival. The representations, warranties, agreements
and covenants contained herein shall survive each Closing and the
delivery and conversion of the Shares.
5.9 Execution. This Agreement may be executed in two or
more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to
the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create
a valid and binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same
force and effect as if such facsimile signature page were an
original thereof.
5.10 Publicity. The Company and the Purchasers shall
consult with each other in issuing any press releases or
otherwise making public statements with respect to the
transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public
statement without the prior written consent of the other, which
consent shall not be unreasonably withheld or delayed, except
that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall
provide the other party with prior notice of such public
statement. The Company shall not publicly or otherwise disclose
the name of the Purchasers without the Purchaser's prior written
consent.
5.11 Severability. In case any one or more of the
provisions of this Agreement shall be invalid or unenforceable in
any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be
affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a
reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Agreement.
5.12 Remedies. In addition to being entitled to exercise
all rights provided herein or granted by law, including recovery
of damages, the Purchasers will be entitled to specific
performance of the obligations of the Company under the
Transaction Documents. Each of the Company and the Purchasers
(severally and not jointly) agree that monetary damages may not
be adequate compensation for any loss incurred by reason of any
breach of its obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be
adequate.
5.13 No Reliance. Each party acknowledges that (i) it has
such knowledge in business and financial matters as to be fully
capable of evaluating this Agreement, the other Transaction
Documents and the transactions contemplated hereby and thereby,
(ii) it is not relying on any advice or representation of the
other party in connection with entering into this Agreement, the
other Transaction Documents or such transactions (other than the
representations made in this Agreement or the other Transaction
Documents), (iii) it has not received from such party any
assurance or guarantee as to the merits (whether legal,
regulatory, tax, financial or otherwise) of entering into this
Agreement or the other Transaction Documents or the performance
of its obligations hereunder and thereunder, and (iv) it has
consulted with its own legal, regulatory, tax, business,
investment, financial and accounting advisors to the extent that
it has deemed necessary, and has entered into this Agreement and
the other Transaction Documents based on its own independent
judgment and on the advice of its advisors as it has deemed
necessary, and not on any view (whether written or oral)
expressed by such party.
IN WITNESS WHEREOF, the parties hereto have caused
this Convertible Preferred Stock Purchase Agreement to be duly
executed by their respective authorized signatories as of the
date first indicated above.
USCI, INC.
By:_____________________________
________
Name:
Title:
________________________________
________
GEORGE KARFUNKEL
_________________________________________
MICHAEL KARFUNKEL
HUBERFELD BODNER FAMILY
FOUNDATION, INC.
By:
______________________________________
LAURA HUBERFELD/NAOMI BODNER
PARTNERSHIP
By:
______________________________________
Schedule 1
List of Purchasers
Name and Address Number of Shares of Aggregate Purchase
Series D Preferred Price of Purchased
Stock to be Purchased Securities
GEORGE KARFUNKEL 125 $1,000,000
6201 15th Avenue
Brooklyn, New York 11219
MICHAEL KARFUNKEL 125 $1,000,000
6201 15th Avenue
Brooklyn, New York 11219
HUBERFELD BODNER FAMILY 93.75 $ 750,000
FOUNDATION, INC.
152 West 57th Street
New York, New York 10019
LAURA HUBERFELD/NAOMI BODNER 156.25 $1,250,000
PARTNERSHIP
152 West 57th Street
New York, New York 10019
