UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission File Number 0-22282.
USCI, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3702647
(State or other jurisdiction of (IRS Employer
incorporation or organization) 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)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's
classes of Common Stock, as of the latest practicable date:
As of May 13, 1998, 10,692,513 shares of $.0001 par value
Common Stock were outstanding
<PAGE>
USCI, INC.
FORM 10-Q
INDEX
<TABLE>
<S> <C> <C>
Part I FINANCIAL INFORMATION PAGE NO.
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as
of March 31, 1998 and December 31, 1997 3
Condensed Consolidated Statements of
Operations and Accumulated Deficit for
the Three month period ended
March 31, 1998 and March 31, 1997 4
Condensed Consolidated Statements of Cash
Flows for the Three months ended
March 31, 1998 and March 31, 1997 5
Notes to Condensed Consolidated
Financial Statements 6-7
Item 2 Management's Discussion and Analysis of 8-14
Financial Condition and Results of
Operations for the Three months ended
March 31, 1998 and March 31, 1997
PART II OTHER INFORMATION
Item 1 Legal Proceedings - None
Item 2 Changes in Securities 15
Item 3 Default Upon Senior Securities - None
Item 4 Submission of Matters to a Vote of
Security Holders - None
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 16-17
</TABLE>
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USCI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31
1998 1997*
(unaudited)
------------ ------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents, including restricted
cash of $648,193 in 1998 and $731,500 in 1997 $ 2,439,513 $ 1,105,530
Accounts receivable--trade, net of allowances of
$1,750,000 in 1998 and $1,250,000 in 1997 9,234,050 4,895,952
Accounts receivable--other, net of allowances of
$107,000 in 1998 and $137,000 in 1997 861,822 1,102,084
Inventory 2,926 25,458
Prepaid expenses 62,726 134,510
------------ ------------
Total current assets 12,601,037 7,263,534
------------ ------------
PROPERTY AND EQUIPMENT, net 2,992,645 3,422,476
OTHER ASSETS 2,656,811 2,908,037
------------ ------------
Total Assets $18,250,493 $13,594,047
============ =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable $ 4,571,000 $ 3,305,000
Commissions payable 9,383,408 6,651,597
Accounts payable 7,051,142 3,939,212
Accrued expenses 4,610,272 4,315,161
Promotional deposits 1,496,055 1,696,055
------------ ------------
Total current liabilities 27,111,877 19,907,025
------------ ------------
STOCKHOLDERS' DEFICIT:
Convertible preferred stock, $.01 par value;
5,000 shares authorized, 500 shares issued at
March 31, 1998 and no shares issued at
December 31, 1997 5 0
Common stock, $.0001 par value; 100,000,000 shares
authorized; 10,692,513 shares issued at March 31,
1998 and 10,267,309 shares issued at December 31,
1997 1,070 1,027
Additional paid-in capital 40,455,858 33,714,623
Warrants 5,391,000 3,122,000
Accumulated deficit (54,681,267) (43,122,578)
Treasury stock, at cost, 5,500 shares in 1998 and 1997 (28,050) (28,050)
------------ -------------
Total stockholders' deficit (8,861,384) (6,312,978)
------------ -------------
Total liabilities and stockholders' deficit $18,250,493 $13,594,047
============ =============
</TABLE>
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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USCI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
ACCUMULATED DEFICIT
Three Months Ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
============ ============
<S> <C> <C>
REVENUES
Subscriber Sales $9,364,697 $ 154,231
Activation Commissions 8,250 1,410,219
Other Operating Revenue 0 18,752
------------ ------------
Total Revenues 9,372,947 1,583,202
------------ ------------
COST OF SALES
Cost of subscriber sales 5,474,305 76,645
Cost of activation commissions 6,600 795,453
------------ ------------
Total cost of sales 5,480,905 872,098
------------ ------------
GROSS MARGIN 3,892,042 711,104
------------ ------------
OPERATING EXPENSES
Selling, general and administrative 6,245,685 3,874,502
Subscriber acquisition and promotional costs 6,777,298 125,000
------------ ------------
Total Operating Expenses 13,022,983 3,999,502
------------ ------------
OPERATING LOSS (9,130,941) (3,288,398)
Interest expense (income), Net 2,427,748 (172,034)
------------ ------------
LOSS BEFORE INCOME TAXES (11,558,689) (3,116,364)
Income Taxes 0 0
------------ ------------
NET LOSS (11,558,689) (3,116,364)
Deficit at Beginning of Period (43,122,578) (14,335,976)
------------ -------------
Deficit at End of Period $(54,681,267) $(17,452,340)
============= ============
Basic and Diluted Net Loss per Share $ (1.11) $ (0.30)
============ ============
Basic and Diluted Weighted
Average Shares Outstanding 10,409,044 10,225,746
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
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USCI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
============= =============
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(11,558,689) $(3,116,364)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 597,941 489,063
Amortization of discount on notes payable 2,035,000 0
Amortization of deferred financing costs 310,750 0
Provision for losses on accounts receivable 548,381 (61,548)
Changes in operating assets and liabilities:
Accounts receivable - trade (4,916,479) (167,039)
Accounts receivable - other 270,262 370,286
Inventory 22,532 105,887
Prepaids and other assets (50,802) (310,337)
Commissions payable 2,731,811 (311,774)
Accounts payable and accrued expenses 3,407,041 (837,979)
Promotional deposits (200,000) (189,060)
----------- -------------
Total adjustments 4,756,437 (912,501)
----------- ------------
Net cash used in operating activities (6,802,252) (4,028,865)
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (105,047) (396,044)
----------- -------------
Net cash used for investing activities (105,047) (396,044)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 6,000,000 0
Repayments of notes payable (4,500,000) 0
Issuance of common stock 2,437,500 0
Costs associated with issuance of common stock (170,625) 0
Issuance of preferred stock 5,000,000 0
Costs associated with issuance of
preferred stock (530,237) 0
Issuance of stock upon exercise of warrants 3,751 0
Issuance of stock upon exercise of options 893 0
------------ ------------
Net cash provided by financing activities 8,241,282 0
------------ ------------
NET INCREASE (DECREASE) IN CASH 1,333,983 (4,424,909)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 1,105,530 15,581,244
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,439,513 $11,156,335
============ =============
INTEREST PAID DURING THE PERIOD $ 102,042 $ 1,958
============ =============
WARRANTS ISSUED IN CONNECTION WITH DEBT
FINANCING $ 2,269,000 $ 0
============ =============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
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USCI, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 1998
(Unaudited)
Note 1: BASIS OF PRESENTATION
The unaudited financial information furnished herein in the opinion of
management reflects all adjustments which are necessary to fairly state the
Company's financial position, the results of its operations and its cash
flows. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Form 10-K for
the year ended December 31, 1997. Footnote disclosure which would
substantially duplicate the disclosure contained in those documents has
been omitted. Operating results for the three month period ended March
31, 1998 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1998.
Note 2: MERGER WITH TRINITY SIX INC.
On May 15, 1995, Trinity Six Inc. (Trinity) completed a merger (the "Merger")
with U.S. Communications, Inc. Under the terms of the Merger each share of
U.S. Communications Inc. stock was exchanged for approximately 0.79 shares of
Trinity stock. In connection therewith, Trinity issued approximately
3,250,000 shares of its common stock in exchange for all of the issued and
outstanding shares of U.S. Communications, Inc. As a result of the Merger,
U.S. Communications, Inc. became a wholly owned subsidiary of Trinity and
Trinity's Certificate of Incorporation was amended as of the effective date of
the Merger to change Trinity's name to USCI, Inc. (the "Company"). The Merger
has been treated for accounting purposes as a capital transaction, equivalent
to the issuance of common stock by U.S. Communications, Inc. for the net
monetary assets of Trinity, accompanied by a recapitalization of U.S.
Communications, Inc. The net monetary assets realized by U.S. Communications,
Inc., consisting of cash and cash equivalents amounted to approximately
$9,750,000. All costs incurred in connection with the merger have been
charged o equity s a reduction of additional paid in capital. Such costs
amounted to approximately $596,290. These costs have been charged to equity
as a reduction of additional paid in capital.
The common stock issued to U.S. Communications, Inc. stockholders as a result
of the Merger was previously recorded as temporary equity. The Company was
advised of a possible violation of Section 5 of the Securities Act which would
result in these shares constituting temporary equity due to the right of
rescission that may be afforded such stockholders. The valuation of the
temporary equity was based on management's estimate of USCI's fair market
value as of the date of the Merger determined to be $10,829,484. This amount
was determined by dividing Trinity's pre-Merger equity of $9,996,447 by 48%
(Trinity's ownership percentage after the Merger) and applying 52% (USCI's
ownership percentage after the Merger) to that amount. During the fiscal year
ended December 31, 1995, 1,276,784 shares of common stock of the Company with
rights of rescission attached were sold by stockholders at prices above the
rescission value of $3.33 per share. Accordingly, these shares were
reclassified as common stock and additional paid in capital and are included
in equity as of March 31, 1997.
During the fiscal year ended December 31,1996, the right of rescission expired
on the remaining shares associated with the Merger. Accordingly, these shares
were reclassified as common stock and additional paid in capital and are
included in equity at March 31, 1997.
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Note 3: LOSS PER SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share," effective for fiscal years ending after December 15, 1997.
The Company has adopted the new guidelines for the calculation and
presentation of earnings per share, and all prior periods have been
restated. Basic earnings per share are based on the weighted average
number of shares outstanding. For 1996 and 1995, weighted average shares
include shares that were subject to recision Diluted earnings
per share are based on the weighted average number of shares outstanding
and the dilutive effect of outstanding stock options and warrants (using
the treasury stock method). For all periods presented, outstanding
options and warrants have been excluded from diluted weighted average
shares outstanding, as their impact was antidilutive.
Note 4: CONVERTIBLE PREFERRED STOCK
On March 31, 1998, the Company entered into an agreement for the private
placement of up to $15 million in Series A, B, and C convertible preferred
stock, of which $5 million was provided to the Company for the first
tranche of Series A Convertible Preferred Stock. The holders of the Series
A and B Convertible Preferred Stock (and Series C, if and when issued) are
entitled to dividends at a rate of 6% per annum, payable quarterly in cash
or registered common stock. All outstanding principal and accrued dividends
may be converted into the Company's common stock at the lower of 120% of the
average closing price for five days immediately preceding the conversion
notice or 85% of the average of the three lowest closing prices of the common
stock for the 25 trading days preceding the conversion notice, and
automatically converts three years from issuance. Additionally, the holder
is entitled to one warrant for every eight shares of common stock that are
issuable pursuant to the conversion feature. The exercise price of each
warrant is 120% of the average closing price for five days immediately
preceding the closing date. The securities are mandatorily redeemable by
the Company upon the occurrence of certain events, primarily the failure to
effect a registration statement covering the shares of common stock issuable
upon conversion of the Preferred Stock and upon exercise of the warrants.
In connection with the financing, the Company paid a finder's fee of
$500,000 and issued five-year warrants to purchase 62,500 shares of common
stock at an exercise price of $6.89 per share.
Subsequent to the end of the first quarter on May 7, 1998, the second tranche
of $5 million was provided to the Company which issued 500 shares of Series B
Convertible Preferred Stock. Funding of the remaining tranche of $5 million
is subject to the Company meeting certain conditions, including effecting a
registration statement of the underlying common stock and the common stock
maintaining a minimum trading price.
Note 5: RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
7
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF USCI, INC.
OVERVIEW
The Company was organized as U.S. Communications, Inc. in 1991 and
commenced operations in mid-1993 as a cellular activation processing
agent with OfficeMax, its first retail mass merchandiser channel of
distribution. Prior to that time, U.S. Communications, Inc. was
principally engaged in organizational activities, raising capital and
in the development of its activation and processing systems. On May
15, 1995, U.S. Communications, Inc. merged with Trinity Six Inc.
("Trinity"), a publicly-traded company, pursuant to which U.S.
Communications, Inc. became a wholly-owned subsidiary of Trinity,
which changed its name to USCI, Inc.
Between 1993 and 1996 the Company expanded its operations as a sales,
marketing and activation processing agent for facilities-based
cellular and paging carriers. By late 1996, the Company had entered
into agency agreements with cellular carriers which enabled the
Company to offer cellular activation service in virtually all of the
Metropolitan Statistical Areas ("MSAs") and a majority of the Rural
Service Areas ("RSAs") in the United States.
The Company, as an independent activation agent, marketed the
carriers' wireless services through a national network of mass
merchandisers and direct response marketing companies. National
distribution of cellular service was made possible through use of the
Company's proprietary software platform, which both expedites and
simplifies the complete administrative and technical functions
necessary to initiate, complete and support activations of wireless
telephones and pagers from multiple locations in the United States and
Puerto Rico.
In the fourth quarter of 1996, the Company began a planned transition
to becoming a national reseller of wireless communications services.
The transition was undertaken to enable the Company to obtain the
benefits of retaining wireless subscribers as customers, including
access to an on-going revenue stream rather than a one-time agency
commission, the creation of a national wireless platform, the creation
of uniform national rate plans, the creation of a single service
platform for retail channels of distribution, greater ability to cross
market additional telecommunications services to its subscriber base
and the ability to create a branded identity for its Ameritel wireless
services. During 1997, the Company entered into reseller agreements
with a number of facilities-based cellular and paging carriers to
replace, on a market by market basis, its carrier agency agreements.
As of March 24, 1998, the Company was offering, through its national
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mass merchandisers network, its Ameritel cellular services in 372 MSAs
and RSAs covering a population of approximately 214 million people, or
"POPs", and paging services to areas containing 248 million POPs.
Historically, the Company's revenues have consisted of commissions
earned as an activation agent for cellular and paging carriers and,
since the last quarter of 1996, revenues from the resale of cellular
and paging services. For the three months ended March 31, 1998,
agency commissions were approximately $8,000 and reseller revenues
were $9.4 million.
The Company bills its resale customers for monthly access to the
underlying carrier's cellular or paging network, cellular usage based
on the number, time and duration of calls, the geographic location of
both the originating and terminating phone numbers, extra service
features, the applicable rate plan in effect and the time of the call.
The wholesale cost of subscriber service includes monthly access,
usage (home and roaming) and special features charges paid by the
Company to the cellular and paging carriers.
Subscriber acquisition and promotional costs includes commission
payments made by the Company to its channels of distribution (or to
equipment suppliers on their behalf) for each activation by their
customers of a cellular telephone, certain advertising costs incurred
by the Company or its distribution channels and reduced access and/or
free airtime for a limited period to its cellular subscribers. These
costs are recoverable from the long-term revenue stream created by the
continuation of subscribers services. The Company's ability to
capture such revenue streams may be adversely affected by early
service cancellations ("churn") and by losses caused by fraudulent use
of service by third persons which, by law, are not recoverable from
subscribers. Under existing agreements with the carriers providing
the Company with cellular service, access fraud is generally
recoverable and although not generally recoverable, subscriber fraud
is also recoverable under certain circumstances. The Company believes
that it will be able to mitigate churn through competitive pricing,
and retention programs. The Company has also taken steps to mitigate
losses due to fraud through improved controls and the hiring of
additional personnel to monitor fraud and install fraud prevention
procedures.
Selling expense includes the costs of providing sales and other
support services for customers including salaries and commissions to
salesforce personnel and the Company's independent sales
representatives. General and administrative expense include the costs
of the billing and information systems, other administrative expenses,
personnel required to support the Company's operations and growth as
well as all amortization expenses.
9
<PAGE>
The Company experienced significant growth in its resale operations in
the latter half of 1997 and the first quarter of 1998 and believes
that future growth will require additional funding, expansion and
enhancement of its management, personnel and information systems. To
accommodate this growth, the Company intends to continue to implement
and improve its operational, financial and management information
systems. To support its growth, the Company added various management
positions in the fourth quarter of 1997 and the first quarter of 1998.
The Company is also expanding its information systems to provide
improved recordkeeping for customer information and management of
uncollectible accounts and fraud control.
The Company has experienced and will continue to experience
significant operating and net losses and negative cash flow from
operations. The Company believes that it will achieve positive
operating margins only when gross margins from subscriber revenues
exceed subscriber acquisition and promotional costs and operating
expenses. The Company believes that it will achieve positive
operating margins over time by increasing the number of revenue-
generating customers and realizing reductions in wholesale cost from
carriers while maintaining (or decreasing) its lower than industry
average subscriber acquisition costs. The Company expects that
operating and net losses and negative operating cash flow will
continue to increase as the Company implements its growth strategy
See "Liquidity and Capital Resources."
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1997
Revenues
Total revenues for the three months ended March 31, 1998 ("1998
Quarter"), consisting primarily of subscriber sales, were $9,372,947
as compared to $1,583,202 for the three months ended March 31, 1997
("1997 Quarter").
The increased revenues for the 1998 Quarter are attributable to
increased sales of the Company's Ameritel brand cellular and paging
services. Cellular and paging subscriber revenues amounted to
$9,364,697 for the 1998 Quarter compared to $154,231 for the 1997
Quarter.
Agency activation commissions, which the Company receives from other
wireless carriers for which it performs activation processing
services, decreased significantly from the 1997 Quarter to the 1998
Quarter due to the Company's transition from agent to reseller.
Agency commissions in the 1998 Quarter were $8,250 as compared to
$1,410,219 in the 1997 Quarter.
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Cost of Sales
Costs of subscriber services, which consist of direct charges from
cellular and paging carriers for access, airtime and services resold to
the Company's subscribers, amounted to $5,474,305 and $76,645 for the
1998 Quarter and 1997 Quarter, respectively. The gross margin for
subscriber sales was $3,890,392 or 41.5% and $77,586 or 50.3% for the
1998 Quarter and 1997 Quarter, respectively.
Operating Expenses
Subscriber acquisition and promotional costs represent expenses
incurred by the Company in its efforts to acquire new subscribers for
its cellular and paging services. These costs consist primarily of
commissions paid to retailers and outside sales representatives, below
cost discounts, such as reduced monthly access charges and/or free
airtime granted to subscribers when utilizing the Company's cellular
or paging services, rebates issued to subscribers and certain
advertising costs. Subscriber acquisition and promotional costs
amounted to $6,777,298 and $125,000 for the 1998 Quarter and 1997
Quarter, respectively.
Selling, general and administrative expenses for the 1998 Quarter
aggregated $6,245,685 as compared to $3,874,502 for the 1997 Quarter,
reflecting the Company's growth. Salaries and related employee
benefits increased by 72.5% to approximately $2,766,350 for the 1998
Quarter from $1,603,592 for the 1997 Quarter, reflecting the Company's
hiring of executive, managerial, customer service and information
systems personnel to support its growth. Telecommunications expense
increased by 197% to $447,271 for the 1998 Quarter from $150,625 for
the 1997 Quarter and billing and credit review services increased to
$515,138 in the 1998 Quarter from $39,930 in the 1997 Quarter, due, in
substantial part, to increased activity and growth of the reseller
business. Depreciation and amortization for the 1998 Quarter was
$597,941 as compared to $489,063 for the 1997 Quarter as the Company
incurred additional software development costs and purchased and
placed into service additional communications devices, computers,
computer peripherals and other capital equipment. As a percentage of
revenues, the selling, general and administrative expenses were 67%
for the 1998 Quarter compared to 113% in the fourth quarter of 1997
reflecting the Company's emphasis on controlling overhead costs while
increasing revenues.
Interest expense (net of income) aggregated $2,427,748 in the 1998
Quarter and interest income (net of expense) aggregated $172,034 for
the 1997 Quarter. The increase in interest expense during the 1998
Quarter from interest income in the 1997 Quarter is related to
approximately $2.3 million of non-cash interest expense attributable
to the fair value of warrants issued in connection with three private
financings and to the Company's use of cash and cash equivalents to
fund increased operating expenses and capital expenditures discussed
above. See "Liquidity and Capital Resources."
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<PAGE>
The Company incurred net losses of $11,558,689 and $3,116,364 for the
1998 Quarter and 1997 Quarter, respectively.
Liquidity and Capital Resources
At March 31, 1998, working capital deficiency was $14,510,840, cash
and cash equivalents totaled $2,439,513 (of which $648,193 was
restricted), and there was a Stockholders' deficit of $8,861,384. The
decrease in working capital, cash and Stockholders' equity is
attributable to the Company's operating loss in the 1998 Quarter
resulting from the substantial expansion of its reseller operations.
The principal reason for the increased losses is attributable to the
subscriber acquisition and promotional costs incurred in connection
with the substantial increase in the size of the Company's reselling
subscriber base directly attributable to increased activity. The
Company continues to experience monthly negative cash flow from
operations due to its growing subscriber base. The Company's
significant growth in subscribers has created a working capital
deficiency due to the acquisition costs associated with the high rate
of subscriber growth. The Company currently requires substantial
amounts of capital to fund both current operations and to expand its
subscriber base. Due to recurring losses from operations, a net
capital deficiency and Company's inability to date to obtain
sufficient financing commitments to support current and anticipated
levels of operations, the Company's independent public accountants'
1997 audit opinion stated that these matters raise substantial doubt
about the Company's ability to continue as a going concern.
To date, the Company has funded its operations and growth primarily
through financing activities. As a consequence of the merger with
Trinity Six in May 1995, the Company received cash and cash
equivalents of approximately $9,750,000 of which $3,450,000 was used
to repay debt to private lenders. In November 1995, the Company
received net proceeds of approximately $21,850,000 from the exercise,
following a notice of redemption, of outstanding common stock purchase
warrants.
In order to fund its operations and capital requirements in the fourth
quarter of 1997 and the first quarter of 1998, the Company obtained
letter of credit financing in the amount of approximately $3.1 million
from its investment banker, and short term loans totaling $6.0 million
from private individuals (of which $500,000 was repaid in the first
quarter of 1998). In addition, the Company raised approximately $2.4
million from the private sale of Common Stock and $10 million from the
private sale of Convertible Preferred Stock in 1998. Under the terms
of the Convertible Stock Purchase Agreement, the Company will receive
an additional $5 million upon the satisfaction of certain conditions
imposed by the investor. The $3.1 million letter of credit financing
is collateralized by Company stock pledged by officers, directors and
other stockholders. The Company is obligated to replace this
collateral with 125% cash or cash equivalent (Treasury Bills) of
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approximately $3,825,000. This obligation was due on January 31, 1998
and has been orally extended. In connection with these financings,
the Company issued warrants to the lenders to purchase an aggregate of
1,500,000 shares of Common Stock as of March 31, 1998 at exercise
prices ranging from $5.00 to $6.00 per share. The Company is also in
the process of completing bank financing consisting of a revolving and
term loan in the initial amount of $20 million. Availability under
this financing will be dependent upon meeting certain formulas. There
is no assurance and no representation is made that the bank line will
be funded, or that the funding of the balance of the Preferred Stock
will take place.
Based upon the Company's current growth rate, the closing of the bank
line as proposed, of which there can be no assurance, the deferral or
conversion to Common Stock of $5.5 million in bridge loans, the
obtaining of agreements to extend the due dates for payment of certain
short-term obligations and the extension of the $3.1 million letter of
credit until 1999, the funding of the additional $5 million
Convertible Preferred Stock private placement, and $5 million of
additional funding, the Company believes that it will be able to
satisfy its capital requirements through 1998. However, there is no
assurance and no representation is made that the Company will be
successful in reaching these objectives. In the event that it is
unable to do so, it will be required to seek other sources of funding
and further restructure the payment schedule of certain short-term
obligations and/or substantially reduce current operations to the
extent that one or more of the foregoing financing sources is not
funded.
The Company expects that its capital requirements for 1998, if it were
to execute a plan of current client store expansion to increase
subscriber growth, will require it to obtain additional financing
which may include the sale or issuance of additional equity and debt
securities to one or more strategic investors. The Company also
intends to restructure part of its short-term debt and to negotiate
further deferrals of certain accounts and commissions payable. There
can be no assurance that the Company will be successful in raising
sufficient additional capital upon terms acceptable to the Company or
that the Company will be successful in negotiating deferrals of
certain of its short term obligations. In the event that the Company
is not successful in obtaining adequate financing or in restructuring
its debt, the Company will be required to seek other sources of
funding and further restructure the payment schedule for certain
short-term obligations and/or substantially reduce current operations
to the extent that one or more of the foregoing financing sources is
not funded.
Because the Company's cost of expanding its distribution network and
operating business, as well as the Company's revenues, will depend on
a variety of factors (including the ability of the Company to
negotiate additional distribution agreements and increase its
penetration of existing distribution channels, the ability of the
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Company to negotiate favorable wholesale prices from carriers, the
number of customers and the services for which they subscribe, the
nature and penetration of new services that may be offered by the
Company, regulatory changes and changes in technology), actual costs
and revenues will vary from expected amounts, possibly to a material
degree, and such variations are likely to affect the Company's future
capital requirements. Accordingly, there can be no assurance that the
Company's actual capital requirements will not exceed the anticipated
amounts described above or that the Company will be successful in
obtaining such capital and if so, on terms satisfactory to the
Company. Further, the exact amount of the Company's future capital
requirements will depend upon many factors, including the extent of
competition and pricing of telecommunications services in its markets,
the acceptance of the Company's services and the development of new
products.
INFLATION
To date, inflation has not had any significant impact on the Company's
business.
In addition to historical information, this Quarterly Report contains
forward-looking statements made in good faith by the Company pursuant
to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995 including, but not limited to, those statements
regarding the Company's intention to continue to seek additional
distribution channels, the proposed expansion of the Company's
reseller operations, and the expected financial position, business and
financing plans of the Company. Although the Company believes that
the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove
to be correct. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual
results to differ materially from those reflected in the forward-
looking statements. Factors that might cause such a difference
include, but are not limited to , those discussed in the section
entitled Management's Discussion and Analysis of Financial Condition
and Results of Operations; the availability of financing to fund the
Company's operations for the fiscal year ended December 31, 1998;
technological, regulatory or other developments in the Company's
business; changes in the competitive climate in which the Company
operates; the ability of the Company to operate as a reseller; and the
emergence of future opportunities. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect
management's analysis as of the date hereof. The Company undertakes
no obligation to publicly revise these forward-looking statements to
reflect events or circumstances that arise after the date hereof.
14
<PAGE>
PART II
ITEM 2 - CHANGES IN SECURITIES
Previously reported under Part II, Item 5b of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
ITEM 5 - OTHER INFORMATION
On May 7, 1998, in a private transaction exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, as amended, the Company issued
for investment to JNC Opportunity Fund Ltd. ("JNC"), an institutional
investor, 500 shares of Series B Convertible Preferred Stock ("Series B
Preferred Stock") representing the second $5 million tranche purchased by JNC
pursuant to the terms and conditions of the Convertible Preferred Stock
Purchase Agreement between the Company and JNC dated as of March 24, 1998,
under the terms of which JNC agreed to purchase for investment up to $15
million in convertible preferred stock of the Company. The first $5 million
tranche was funded on March 24, 1998. Reference is made to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 and the
exhibits filed thereto for a complete description and terms of the March 24,
1998 initial $5 million financing.
The Series B 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. The Preferred Stock is
redeemable at the option of the Company at the then applicable conversion
price. In addition, JNC receive five-year warrants to purchase 149,522
shares of Common Stock at a purchase price of $5.85 per share. The Company
paid a finder's fee of 10% of the gross proceeds of the second tranche to
Wharton Capital Ltd. ("Wharton"), a New York-based financial consulting firm
and an unaffiliated individual. Wharton Capital also received five-year
warrants to purchase 62,500 shares of Common Stock at a purchase price of
$5.85 per share. The shares issuable upon conversion of the Preferred Stock
and exercise of the Warrants are subject to registration rights. The
purchase of the balance of $5 million is subject to the satisfaction of
certain conditions. Reference is made to the Certificate of Designation and
financing documents which were filed as Exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 with respect to the
first $5 million of financing and to the Certificate of Designation and the
financing documents which are filed as exhibits to this Quarterly Report for
a complete description of all terms.
The Company intends to seek shareholder approval of the transaction as
required by NASD Rule 4460(i)(D)(ii). To the extent that shares of Preferred
Stock cannot be converted, the Company is obligated, in addition to other
remedies, to pay in cash to the holder of the Preferred Stock the difference
between the conversion price and the net proceeds that such holder would have
received from the sale of the shares issued by the Company pursuant to such
conversion. Reference is made to the Certificates of Designation for the 6%
Series A and Series B Convertible Preferred Stock filed as exhibits to this
Quarterly Report.
The Company has agreed to include the shares of Common Stock issuable upon
conversion of the Series B Preferred Stock and issuable upon exercise of the
warrants in a registration statement to be filed for the purpose of
permitting the resale of such shares.
The Company intends to use the proceeds of the private placement for working
capital.
15
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
NUMBER DESCRIPTION OF EXHIBIT
3.1 Certificate of Incorporation, as amended, including
Certificates of Designation for 6% Series A Convertible
Preferred Stock and 6% Series B Convertible Preferred Stock (5)
3.2 By-Laws of Registrant (1).
10.1 Warrant issued by the Registrant to Alan R. Dresher.(2)
10.2 Promissory Note issued by the Registrant to Alan R.
Dresher. (2)
10.3 Warrant issued by the Registrant to Decameron Partners.(2)
10.4 Promissory Note issued by the Registrant to Decameron
Partners.(2)
10.5 Warrant issued by the Registrant to Alan Baron. (2)
10.6 Warrant dated February 2, 1998 issued by the Registrant to
Decameron Partners, Inc.(3)
10.7 Warrant dated February 2, 1998 issued by the Registrant to
Alan R. Dresher.(3)
10.8 Warrant dated February 2, 1998 issued by the Registrant to
Alan Baron.(3)
10.9 Private Placement Purchase Agreement dated February 24, 1998
among the Registrant, George Karfunkel, Michael Karfunkel,
Huberfeld Bodner Family Foundation, Inc., Laura Huberfeld/
Naomi Bodner Partnership and Ace Foundation, Inc.(3)
10.10 Convertible Restated Note dated February 24, 1998 issued by
the Registrant in favor of George Karfunkel.(3)
10.11 Convertible Restated Note dated February 24, 1998 issued by
the Registrant in favor of Michael Karfunkel.(3)
10.12 Convertible Restated Note dated February 24, 1998 issued by
the Registrant in favor of Laura Huberfeld/Naomi Bodner
Partnership.(3)
10.13 Convertible Restated Note dated February 24, 1998 issued by
the Registrant in favor of Huberfeld Bodner Family
Foundation, Inc.(3)
10.14 Warrant dated February 24, 1998 issued by the Registrant to
George Karfunkel.(3)
10.15 Warrant dated February 24, 1998 issued by the Registrant to
Michael Karfunkel.(3)
10.16 Warrant dated February 24, 1998 issued by the Registrant to
Laura Huberfeld/Naomi Bodner Partnership.(3)
10.17 Warrant dated February 24, 1998 issued by the Registrant to
Huberfeld Bodner Family Foundation, Inc.(3)
10.18 Convertible Note dated February 24, 1998 issued by the
Registrant in favor of George Karfunkel.(3)
10.19 Convertible Note dated February 24, 1998 issued by the
Registrant in favor of Ace Foundation.(3)
10.20 Warrant dated March 5, 1998 issued by the Registrant to Alan
R. Dresher.(3)
10.21 Warrant dated March 5, 1998 issued by the Registrant to
Bulldog Capital Management.(3)
10.22 Warrant dated March 5, 1998 issued by the Registrant to Alan
Baron. (3)
10.23 Convertible Preferred Stock Purchase Agreement between the
Registrant and JNC Opportunity Fund Ltd. dated March 24, 1998(4).
16
<PAGE>
10.24 Registration Rights Agreement dated March 24, 1998 between
the Registrant and JNC Opportunity Fund, Ltd. (4)
10.25 Escrow Agreement dated March 24, 1998 among the Registrant,
JNC Opportunity Fund, Ltd. and Robinson Silverman Pearce Aronsohn &
Berman LLP (4)
10.26 Warrant dated March 24, 1998 granted by the Registrant to
JNC Opportunity Fund Ltd. (4)
10.27 Warrant dated March 24, 1998 granted by the Registrant to
Wharton Capital Partners, Ltd. (4)
10.28 Escrow Agreement dated May 7, 1998 among the Registrant,
JNC Opportunity Fund, Ltd. and Robinson Silverman Pearce Aronsohn &
Berman LLP (5)
10.29 Warrant dated May 7, 1998 granted by the Registrant to
JNC Opportunity Fund Ltd. (5)
10.30 Warrant dated May 7, 1998 granted by the Registrant to
Wharton Capital Partners, Ltd. (5)
11 Computation of Earnings per Share (5)
27 Financial Data Schedule (5)
- ----------------------------
(1) Incorporated by reference to an Exhibit filed as part of
Trinity's Registration Statement on Form S-1 (File No. 33-64489).
(2) Incorporated by reference to an Exhibit filed as part of the
Registrant's Form 8-K dated and filed on January 13, 1998.
(3) Incorporated by reference to an Exhibit filed as part of the
Registrant's Form 8-K dated and filed on March 12, 1998.
(4) Incorporated by reference to an Exhibit filed as part of the
Registrant's Form 10-K for the year ended December 31, 1997
filed on March 31, 1998.
(5) Filed herewith.
(b) REPORTS ON FORM 8-K
On January 13, 1998, the Registrant filed a report on Form 8-K disclosing
under Item 5 that (i) that its wholly owned subsidiary had entered into
certain wireless services agreements, (ii) it had entered into an agreement
with PaineWebber Incorporated whereby PaineWebber had agreed to establish
irrevocable standby letter of credit financing (iii) it had received
unsecured loans aggregating $4.5 million and had issued warrants to the
lenders in consideration therewith, and (iv) that Stephen E. Pazian was
elected to the Registrant's Board of Directors.
On March 12, 1998, the Registrant filed a report on Form 8-K disclosing under
Item 5 (i) that it had issued warrants to certain lenders in consideration of
their extending the due date of their loans, and (ii) the terms and
conditions of two private placements.
17
<PAGE>
FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by the
undersigned thereunto duly authorized.
USCI, INC.
/S/ ROBERT J. KOSTRINSKY
---------------------------
Robert J. Kostrinsky,
Executive Vice President;
Chief Financial Officer
Date: May 15, 1998
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
TRINITY SIX INC.
The undersigned, being of legal age, in order to form a corporation
under and pursuant to the laws of the State of Delaware, do hereby set forth
as follows:
FIRST: The name of the corporation is
TRINITY SIX INC.
SECOND: The address of the initial registered and principal office
of this corporation in this state is c/o United Corporate Services, Inc., 15
East North Street, in the City of Dover, County of Kent, State of Delaware
19901 and the name of the registered agent at said address is United
Corporate Services, Inc.
THIRD: The purpose of the corporation is to engage in any lawful
act of activity for which corporations may be organized under the corporation
laws of the State of Delaware.
FOURTH: a) The corporation shall be authorized to issue the
following shares:
Class Number of Shares Par Value
Common 100,000,000 .0001
Preferred 5,000 . 01
b) The designations and the powers, preferences and
rights, and the qualifications or restrictions
thereof are as follows:
The Preferred shares shall be issued from time to time in one or
more series, with such distinctive serial designations as shall be
stated and expressed in the resolution or resolutions providing for the
issue of such shares from time to time adopted by the Board of
Directors; and in such resolution or resolutions providing for the
issue of shares of each particular series, the Board of Directors is
expressly authorized to fix the annual rate of rates of dividends for
the particular series; the dividend payment dates for the particular
series and the date from which dividends on all shares of such series
issued prior to the record date for the first dividend payment date
shall be cumulative; the redemption price or prices for the particular
series; the voting powers for the particular series; the rights, if
any, of holders of the shares of the particular series to convert the
same into shares of any other series or class or other securities of
the corporation, with any provisions for the subsequent adjustment of
such conversion rights; and to classify or reclassify any unissued
preferred shares by fixing or altering from time to time any of the
foregoing rights, privileges and qualifications.
All the Preferred shares of any one series shall be identical
with each other in all respects, except that shares of any one series
issued at different times may differ as to the dates from which
dividends thereon shall be cumulative; and all Preferred shares shall
be of equal rank, regardless of series, and shall be identical in all
respects except as to the particulars fixed by the Board as
hereinabove provided or as fixed herein.
FIFTH: The name and address of the incorporator are as follows:
Name Address
Ira Roxland 529 Fifth Avenue
New York, New York 10017
(1) SIXTH: The following provisions are inserted for the
management of the business and for the conduct of the affairs of the
corporation, and for further definition, limitation and regulation of the
powers of the corporation and of its directors and stockholders:
(1) The number of directors of the corporation shall be such as
from time to time shall be fixed by, or in the manner provided in the
by-laws. Election of directors need not be by ballot unless the by-
laws so provide.
(2) The Board of Directors shall have power without the assent
or vote of the stockholders:
(a) To make, alter, amend, change, add to or repeal the
by-laws of the corporation; to fix and vary the amount to be
reserved for any proper purpose; to authorize and cause to be
executed mortgages and liens upon all or any part of the property
of the corporation; to determine the use and disposition of any
surplus or net profits; and to fix the times for the declaration
and payment of dividends
(b) To determine from time to time whether, and to what
times and places and under what conditions the accounts and books
of the corporation (other than the stock ledger) or any of them,
shall be open to the inspection of the stockholders.
(3) The directors in their discretion may submit any contract
or act for approval or ratification at any annual meeting of the
stockholders or at any meeting of the stockholders called for the
purpose of considering any such act or contract, and any contract or
act that shall be approved or be ratified by the vote of the holders of
a majority of the stock of the corporation which is represented in
person or by proxy at such meeting and entitled to vote thereat
(provided that a lawful quorum of stockholders be there represented in
person or by proxy) shall be as valid and as binding upon the
corporation and upon all the stockholders as though it had been
approved or ratified by every stockholder of the corporation, whether
or not the contract or act would otherwise be open to legal attack
because of directors' interest, or for any other reason.
(4) In addition to the powers and authorities hereinbefore or
by statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the corporation; subject, nevertheless,
to the provisions of the statutes of Delaware, of this certificate, and
to any by-laws from time to time made by the stockholders; provided,
however, that no by-laws so made shall invalidate any prior act of the
directors which would have been valid if such by-law had not been made.
SEVENTH: No director shall be liable to the corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director,
except with respect to (1) a breach of the director's duty of loyalty to the
corporation or its stockholders, (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3)
liability under Section 174 of the Delaware General Corporation Law or (4) a
transaction from which the director derived an improper personal benefit, it
being the intention of the foregoing provision to eliminate the liability of
the corporation's directors to the corporation or its stockholders to the
fullest extent permitted by Section 102(b)(7) of the Delaware General
Corporation Law, as amended from time to time. The corporation shall
indemnify to the fullest extent permitted by Sections 102(b)(7) and 145 of
the Delaware General Corporation Law, as amended from time to time, each
person that such Sections grant the corporation the power to indemnify.
EIGHTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware, may, on the application in a
summary way of this corporation or of any creditor or stockholder thereof or
on the application of any receiver or receivers appointed for this
corporation under the provisions of Section 291 of Title 8 of the Delaware
Code or on the application of trustees in dissolution or of any receiver or
receivers appointed for this corporation under the provisions of Section 279
of Title 8 of the Delaware Code order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths (3/4) in
value of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this corporation, as the case maybe, agree to any
compromise or arrangement and to any reorganization of this corporation as a
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders,
of this corporation, as the case may be, and also on this corporation.
NINTH: The corporation reserves the right to amend, alter, change
or repeal any provision contained in this certificate or incorporation in the
manner now or hereafter prescribed by law, and all rights and powers
conferred herein on stockholders, directors and officers are subject to this
reserved power.
IN WITNESS WHEREOF, the undersigned hereby executes this document and
affirms that the facts set forth herein are true under the penalties of
perjury this 15th day of September, 1992.
______________________________________
Ira Roxland, Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TRINITY SIX INC.
TRINITY SIX INC., a corporation organized an existing under and
by virtue of the General Corporation Law of the State of Delaware DOES HEREBY
CERTIFY:
That
pursuant to the unanimous written consent of the Board of Directors of
Trinity Six, Inc., (the "Corporation") taken as of August 27, 1993,
resolutions were duly adopted setting forth a proposed amendment to the
Certificate of Incorporation of said Corporation, declaring said amendment to
be advisable and directing that the stockholders of said Corporation consider
approval thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Board of Directors does hereby declare advisable the
amendment of the Certificate of Incorporation of this corporation to
add to the Certificate of Incorporation a new Article Tenth as follows:
TENTH: The following provisions (A) through (D) shall apply
during the period commencing upon the consummation of the initial
public offering of the securities of this corporation effectuated
through Registration Statement No. 33-64489 ("IPO") and terminating
upon the consummation of any "Business Combination" and may not be
amended prior to the consummation of any Business Combination. A
"Business Combination" shall mean any merger, exchange or capital
stock, asset acquisition of other similar business combination of the
corporation with any operating business ("Acquired Business") in any
"Target Industry". "Target Industry" shall mean any of the following:
(i) The manufacture of analytical and controlling equipment, chemicals
and allied products, electronic equipment and medical instrumentation;
(ii) health services (including HMOs, laboratories and nursing homes;
(iii) environmental services and products; (iv) engineering and
construction; (v) wholesale and retail distribution (including discount
operations) of home furnishings, office supplies, computers and related
products, medical equipment and supplies, apparel and accessories,
automotive parts and supplies and food and beverage products; and (vi)
communications and entertainment.
A. Prior to the consummation of any Business Combination, the
corporation shall submit such Business Combination to its stockholders
for approval regardless of whether the Business Combination is of a
type which normally would require such stockholder approval under the
General Corporation Law. In the event that the holders of a majority
of the outstanding Common Stock vote for the approval of the Business
Combination, the corporation shall be authorized to consummate the
Business Combination. Notwithstanding the foregoing, in the event that
the holders of 20 % or more of the Common Stock (excluding, for this
purpose, those persons who were stockholders prior to the consummation
of the IPO ("Insiders") vote against the Business Combination, the
corporation shall not be authorized to consummate such Business
Combination.
B. In the event that a Business Combination is approved in
accordance with the above paragraph A and is consummated by the
corporation, the shares of Common Stock owned as of the record date for
determination of stockholders entitled to vote on the Business
Combination (the "Record Date") by any stockholder of the corporation
other that an Insider (a "Public Stockholder") who (i) delivered to the
corporation a written notice of objection to the Business Combination
prior to the stockholder vote on the Business Combination; and (ii) who
voted against the Business Combination shall be redeemed at a per share
redemption price (the "Redemption Price") equal to the quotient
determined by dividing (i) the amount of the Trust Account (as defined
below), inclusive of any interest income thereon, as of the Record
Date, by (ii) the number of shares of Common Stock held by all
stockholders of the Company (excluding, for this purpose, shares
outstanding prior to the IPO). Payment of the Redemption Price shall
be within ten business days after receipt by the corporation or its
transfer agent of the certificate or certificates evidencing the shares
of Common Stock being redeemed. "Trust Account" shall mean the trust
account established by the corporation at the consummation of its IPO
and into which certain amounts of the net proceeds of the IPO are
deposited.
C. In the event that the corporation does not consummate a
Business Combination by the later of (i) 18 months after the
consummation of the IPO or (ii) 27 months after the consummation of the
IPO in the event that a letter of intent, an agreement in principle or
a definitive agreement for a Business Combination has been signed prior
to the expiration of such 18 month period but such Business Combination
has not been consummated for any reason other than a negative vote with
respect thereto actually cast by at least 20 % in interest of the
Public Stockholders (such later date being referred to as the
"Termination Date") the officers of the corporation shall take all such
action necessary to dissolve and liquidate the corporation within sixty
days of the Termination Date. In the event that the corporation is so
dissolved and liquidated pursuant to this paragraph C, shares of Common
Stock issued prior to the IPO shall not be entitled to receive
liquidating distributions.
D. An Insider with respect to shares of Common Stock not issued
prior to the IPO and a Public Stockholder shall be entitled to receive
distributions from the Trust Account only in the event of a liquidation
of the corporation or, in the case of a Public Stockholder only, in the
event he demands redemption of his shares in accordance with paragraph
B, above. In no other circumstances shall a Public Stockholder or an
Insider have any right or interest of any kind in or to the Trust
Account.
That thereafter, pursuant to a resolution of the Board of
Directors, directing that such amendment be considered by the stockholders of
the Corporation, the stockholders of the Corporation, holding more than a
majority of the outstanding shares of Common Stock of the Corporation, in
accordance with Section 228 of the General Corporation Law of the State of
Delaware, consented in writing to and approved said amendment and delivered
such written consents to the Corporation. The Corporation thereafter provided
to the other stockholders of the Corporation the notice called for in Section
228 of the General Corporation Law.
That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Trinity Six Inc. has caused this certificate
to be signed by its Chairman, Barry Goldin, and attested by its Assistant
Secretary, Ira Roxland this 30th day of August, 1993.
TRINITY SIX INC.
By: _________________________
Barry Goldin, Chairman
ATTEST:
By: _____________________________________
Ira Roxland, Assistant Secretary
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
BE IT REMEMBERED that on this 30th day of August, 1993. personally
came before me, a Notary Public in and for the County and State aforesaid,
Barry Goldin, Chairman of Trinity Six Inc., a corporation of the State of
Delaware and he duly executed said certificate before me and acknowledged the
said certificate to be his act and deed and the act and deed of said
Corporation and the facts stated therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of
office the day and year aforesaid.
_______________________________
Notary Public
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF AMENDMENT (filed 8/31/93)
OF
TRINITY SIX INC.
The undersigned corporation hereby certifies as follows:
FIRST: The name of the corporation is:
TRINITY SIX INC.
SECOND: In the Certificate of Amendment to the Certificate of
Incorporation filed in the Office of the Secretary of State of Delaware on
August 31, 1993, setting forth amendments to the Certificate of
Incorporation, the Certificate of Amendment inadvertently and incorrectly
omitted to include the text of paragraph (c) of Article FOURTH.
THIRD: The correction to the Certificate of Amendment to the
Certificate of Incorporation filed on August 31, 1993 in the Office of the
Secretary of State of Delaware to be effected hereby is as follows:
RESOLVED, that ARTICLE FOURTH of the Certificate of Incorporation of
the Corporation be amended to add the following provision to said
article:
(c) At the time and date this Certificate of Amendment to the
Certificate of Incorporation of the Corporation is filed with the
Secretary of State of the State of Delaware, all outstanding shares of
Common Stock held by each holder of record on such time and date shall
be automatically combined at the rate of .83-for-one without any
further action on the part of the holders thereof or this Corporation.
No fractional shares will be issued. All fractional shares for one-
half share or more shall be increased to the next higher whole number
of shares and all fractional shares of less than one-half share shall
be decreased to the next lower whole number of shares, respectively."
FOURTH: The correction effected herein is authorized by Section
103(f) of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate
to be executed by Lawrence Burstein, its President, and attested to by Ira
Roxland, its Assistant Secretary, the 7th day of August, 1993.
TRINITY SIX INC.
By: Lawrence Burstein, President
ATTEST: By: Ira Roxland, Assistant Secretary
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TRINITY SIX INC.
Trinity Six Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of Trinity Six Inc. adopted a resolution
proposing and declaring advisable the following amendment to the Certificate
of Incorporation of the Corporation, and declaring that such proposed
amendment to be submitted for consideration by the stockholders of the
Corporation entitled to vote in respect thereof. The resolution setting
forth the proposed amendment is as follows:
RESOLVED, that ARTICLE FIRST of the Certificate of Incorporation,
relating to the name of the Corporation is hereby amended and restated
in its entirety to read as follows:
"FIRST: The name of the corporation is USCI, Inc."
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
the proposed amendment was considered at a special meeting of stockholders,
which meeting of stockholders was duly called and held, upon notice in
accordance with Section 222 of the General Corporation Law of the state of
Delaware and at such meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
THIRD: The amendment effected herein were duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, said TRINITY SIX INC. has caused this certificate to be
signed by Lawrence Burstein, its President, and by Ira I. Roxland, its
Assistant Secretary, this 15th day of May, 1995.
TRINITY SIX INC.
By: ____________________________
Lawrence Burstein, President
ATTEST:
_______________________________
Ira I. Roxland, Secretary
<PAGE>
CERTIFICATE OF DESIGNATION
OF
USCI, INC. (filed with the Delaware Secretary of State on 3/23/98)
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 A; and be it
further
RESOLVED, that the relative rights, privileges,
preferences, restrictions and/or limitations or those
shares designated Series A are as follows:
Terms of Series A Preferred Stock
Section 1. Designation, Amount and Par Value. The series of preferred
stock shall be designated as 6% Series A 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
$10,000.00 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 March 31, 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 (as
defined in Section 8), 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, (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 (j) 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 (other than with respect to the Series B Preferred
Stock or Series C Stock) 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.
"Junior Securities" means the Common Stock and all other equity
securities of the Company, other than the Series B Stock and Series C
Stock, provided they are issued to the Holders of the Preferred Stock.
"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 and the shares of Common Stock
issuable upon exercise of the Warrant in accordance with the terms
hereof, the Purchase Agreement and the Warrant.
"Warrant" means the common stock purchase warrant issued to the original
Holder pursuant to the Purchase Agreement.
<PAGE>
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 A 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 23rd day of March, 1998.
USCI, Inc.
By: /s/ Robert J. Kostrinsky
Robert J. Kostrinsky,
Executive Vice President
ATTEST:
/s/ Basil H. Ford, Secretary
Basil H. Ford, Secretary
<PAGE>
CERTIFICATE OF DESIGNATION
OF
USCI, INC. (filed with the Delaware Secretary of State on May 5, 1998)
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 B; and be it
further
RESOLVED, that the relative rights, privileges,
preferences, restrictions and/or limitations or those
shares designated Series B are as follows:
Terms of Series B Preferred Stock
Section 1. Designation, Amount and Par Value. The series of preferred
stock shall be designated as 6% Series B 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
$10,000.00 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 June 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 (as
defined in Section 8), 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, (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 (j) 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 (other than with respect to the Series A Preferred
Stock or Series C Stock) 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.
"Junior Securities" means the Common Stock and all other equity
securities of the Company, other than the Series A Stock and Series C
Stock, provided they are issued to the Holders of the Preferred Stock.
"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 and the shares of Common Stock
issuable upon exercise of the Warrant in accordance with the terms
hereof, the Purchase Agreement and the Warrant.
"Warrant" means the common stock purchase warrant issued to the original
Holder pursuant to the Purchase Agreement.
<PAGE>
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 B 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 5th day of May, 1998.
USCI, Inc.
By: /s/ Robert J. Kostrinsky
Robert J. Kostrinsky,
Executive Vice President
ATTEST:
/s/ Basil H. Ford, Secretary
Basil H. Ford, Secretary
EXHIBIT 10.28
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Agreement"), dated as of MaY 7, 1998,
by and among USCI, Inc. (the "Company"), JNC Opportunity Fund Ltd. (the
"Purchaser") and Robinson Silverman Pearce Aronsohn & Berman LLP (the
"Escrow Agent").
Recitals
Simultaneously with the execution of this Agreement, the Company
and the Purchaser have previously entered into a Convertible Preferred
Stock Purchase Agreement, dated as of March 24, 1998 (the "Purchase
Agreement"), pursuant to which the Company is currently selling to the
Purchaser 500 shares of 6% Series A Convertible Preferred Stock, par value
$.01 per share (the "Preferred Stock") and a certain common stock purchase
warrant of the Company (the "Warrant"). Capitalized terms that are used
and not otherwise defined in this Agreement that are defined in the
Purchase Agreement shall have the meaning set forth in the Purchase
Agreement.
B. The Escrow Agent is willing to act as escrow agent
pursuant to the terms of this Agreement with respect to the receipt and
then delivery of the Series B Purchase Price to be paid for the
Preferred Stock pursuant to Section 1.3(b)(ii) of the Purchase Agreement
less any amounts the Purchaser is to be reimbursed by the Company under
the Purchase Agreement (the "Purchase Price") and the delivery of the
Preferred Stock and the Warrant, together with the Ancillary Closing
Documents (as defined below) and the Purchase Price (collectively, the
"Consideration").
C. Upon the closing of the transaction contemplated by the
Purchase Agreement (the "Closing") and the occurrence of an event
described in Section 2 below, the Escrow Agent shall cause the
distribution of the Consideration in accordance with the terms of this
Agreement.
NOW, THEREFORE, IT IS AGREED:
1. Deposit of Consideration.
a. Concurrently with the execution of this Agreement,
the Purchaser shall deposit with the Escrow Agent the portion of the
Purchase Price due for the Preferred Stock and the Warrant to be
purchased by it at the Closing in accordance with Section 1.3(a) of the
Purchase Agreement and the Company shall deliver to the Escrow Agent the
shares of Preferred Stock and the Warrant, registered in the name of the
Purchaser, in accordance with Section 1.3(a) of the Purchase Agreement
and wiring instructions for transfer of the Purchase Price by the Escrow
Agent into an account specified by the Company for such purpose. In
addition, the Purchaser and the Company shall deposit with the Escrow
Agent all other certificates and other documents required under the
Purchase Agreement to be delivered by them at the Closing (such
certificates and other documents being hereinafter referred to as the
"Ancillary Closing Documents").
(i) The Purchase Price shall be delivered by the
Purchaser to the Escrow Agent by wire transfer to the following account:
Citibank, N.A.
153 East 53rd Street
New York, NY 10043
ABA No.: 021-000-089
For the Account of
Robinson Silverman Pearce Aronsohn
& Berman LLP
Attorney Trust Account
Account No.: 37-204-162
Attention: Alexis Laurenceau
Reference: USCI, Inc. (10739- 19)
(ii) The Preferred Stock, Warrant and the
Ancillary Documents shall be delivered to the Escrow Agent at its
address for notice indicated in Section 5(a).
b. Until termination of this Agreement as set forth
in Section 2, all additional Consideration paid by or which becomes
payable between the Company and the Purchaser shall be deposited with
the Escrow Agent.
c. The Purchaser and the Company understand that all
Consideration delivered to the Escrow Agent pursuant to Section 1(a)
hereof shall be held in escrow in the Escrow Agent's interest bearing
business account until the Closing. After the Purchase Price has been
received by the Escrow Agent and all other conditions of Closing are
met, the parties hereto hereby authorize and instruct the Escrow Agent
to promptly effect the Closing.
d. At the Closing, Escrow Agent is authorized and
directed to deduct from the Purchase Price (i) $300,000 which will be
paid to Wharton Capital Partners, Ltd. ("Wharton") in accordance with
the engagement letter between the Company and Wharton relating to the
transactions contemplated by the Purchase Agreement (the "Engagement
Letter"), for remittance to Wharton in accordance with its instructions,
(ii) $15,000 which will be retained by the Escrow Agent in accordance
with the Purchase Agreement and (iii) $5,000, which will be remitted to
or as directed by the Purchaser pursuant to the Purchase Agreement. In
addition, the portion of the Purchase Price released to the Company
hereunder shall be reduced by all wire transfer fees incurred in
connection with the wire transfers contemplated hereby.
2. Terms of Escrow.
a. The Escrow Agent shall hold the Consideration in
escrow until the earlier to occur of (i) the receipt by the Escrow Agent
of the Purchase Price, the Preferred Stock, the Warrant and the
Ancillary Closing Documents and a writing instructing the Closing and
(ii) the receipt by the Escrow Agent of a written notice, executed by
the Company or the Purchaser, stating that the Purchase Agreement has
been terminated in accordance with its terms and instructing the Escrow
Agent with respect to the Purchase Price, the Preferred Stock, the
Warrant and the Ancillary Closing Documents.
b. If the Escrow Agent receives the items referenced
in clause (i) of Section 2(a) prior to its receipt of the notice
referenced in clause (ii) of Section 2(a), then, promptly thereafter,
the Escrow Agent shall deliver (i) the Preferred Stock, the Warrant, any
interest earned on account of the Purchase Price through the Closing and
the amounts payable to the Purchaser pursuant to Section 1(d), (ii) the
Purchase Price (net of amounts described under Section 1(d)) to the
Company, (ii) the amounts payable to Wharton under the Engagement Letter
to Wharton or in accordance with its instructions and (iv) the Ancillary
Closing Documents to the party entitled to receive the same. In
addition, the Escrow Agent shall retain $15,000 of the Purchase Price on
account of its fees pursuant to the Purchase Agreement.
c. If the Escrow Agent receives the notice referenced
in clause (ii) of Section 2(a) prior to its receipt of the items
referenced in clause (i) of Section 2(a), then the Escrow Agent shall
promptly upon receipt of such notice return (i) the Purchase Price
(together with any interest earned thereon through such date) to the
Purchaser, (ii) the Preferred Stock and Warrant to the Company and (iii)
the Ancillary Closing Documents to the party that delivered the same.
d. If the Escrow Agent, prior to delivering or
causing to be delivered the Consideration in accordance herewith,
receives notice of objection, dispute, or other assertion in accordance
with any of the provisions of this Agreement, the Escrow Agent shall
continue to hold the Consideration until such time as the Escrow Agent
shall receive (i) written instructions jointly executed by the Purchaser
and the Company, directing distribution of such Consideration, or (ii) a
certified copy of a judgment, order or decree of a court of competent
jurisdiction, final beyond the right of appeal, directing the Escrow
Agent to distribute said Consideration to any party hereto or as such
judgment, order or decree shall otherwise specify (including any such
order directing the Escrow Agent to deposit the Consideration into the
court rendering such order, pending determination of any dispute between
any of the parties). In addition, the Escrow Agent shall have the right
to deposit any of the Consideration with a court of competent
jurisdiction pursuant to Section 1006 of the New York Civil Practice Law
and Rules without liability to any party if said dispute is not resolved
within 30 days of receipt of any such notice of objection, dispute or
otherwise.
3. Duties and Obligations of the Escrow Agent.
a. The parties hereto agree that the duties and
obligations of the Escrow Agent are only such as are herein specifically
provided and no other. The Escrow Agent's duties are as a depositary
only, and the Escrow Agent shall incur no liability whatsoever, except
as a direct result of its willful misconduct.
b. The Escrow Agent may consult with counsel of its
choice, and shall not be liable for any action taken, suffered or
omitted by it in accordance with the advice of such counsel.
c. The Escrow Agent shall not be bound in any way by
the terms of any other agreement to which the Purchaser and the Company
are parties, whether or not it has knowledge thereof, and the Escrow
Agent shall not in any way be required to determine whether or not any
other agreement has been complied with by the Purchaser and the Company,
or any other party thereto. The Escrow Agent shall not be bound by any
modification, amendment, termination, cancellation, rescission or
supersession of this Agreement unless the same shall be in writing and
signed by each of the Purchaser and the Company, and agreed to in
writing by the Escrow Agent.
d. In the event that the Escrow Agent shall be
uncertain as to its duties or rights hereunder or shall receive
instructions, claims or demands which, in its opinion, are in conflict
with any of the provisions of this Agreement, it shall be entitled to
refrain from taking any action, other than to keep safely, all
Considerations held in escrow until it shall jointly be directed
otherwise in writing by the Purchaser and the Company or by a final
judgment of a court of competent jurisdiction.
e. The Escrow Agent shall be fully protected in
relying upon any written notice, demand, certificate or document which
it, in good faith, believes to be genuine. The Escrow Agent shall not
be responsible for the sufficiency or accuracy of the form, execution,
validity or genuineness of documents or securities now or hereafter
deposited hereunder, or of any endorsement thereon, or for any lack of
endorsement thereon, or for any description therein; nor shall the
Escrow Agent be responsible or liable in any respect on account of the
identity, authority or rights of the persons executing or delivering or
purporting to execute or deliver any such document, security or
endorsement.
f. The Escrow Agent shall not be required to
institute legal proceedings of any kind and shall not be required to
defend any legal proceedings which may be instituted against it or in
respect of the Consideration.
g. If the Escrow Agent at any time, in its sole
discretion, deems it necessary or advisable to relinquish custody of the
Consideration, it may do so by giving five (5) days written notice to
the parties of its intention and thereafter delivering the Consideration
to any other escrow agent mutually agreeable to the Purchaser and the
Company and, if no such escrow agent shall be selected within three days
of the Escrow Agent's notification to the Purchaser and the Company of
its desire to so relinquish custody of the Consideration, then the
Escrow Agent may do so by delivering the Consideration (a) to any bank
or trust company in the Borough of Manhattan, City and State of New
York, which is willing to act as escrow agent thereunder in place and
instead of the Escrow Agent, or (b) to the clerk or other proper officer
of a court of competent jurisdiction as may be permitted by law within
the State, County and City of New York. The fee of any such bank or
trust company or court officer shall be borne one-half by the Purchaser
and one-half by the Company. Upon such delivery, the Escrow Agent shall
be discharged from any and all responsibility or liability with respect
to the Consideration and the Company and the Purchaser shall promptly
pay to the Escrow Agent all monies which may be owed it for its services
hereunder, including, but not limited to, reimbursement of its out-of-
pocket expenses pursuant to paragraph (i) below.
h. This Agreement shall not create any fiduciary duty
on the Escrow Agent's part to the Purchaser or the Company, nor
disqualify the Escrow Agent from representing either party hereto in any
dispute with the other, including any dispute with respect to the
Consideration. The Company understands that the Escrow Agent has acted
and will continue to act as counsel to the Purchaser.
i. The reasonable out-of-pocket expenses paid or
incurred by the Escrow Agent in the administration of its duties
hereunder, including, but not limited to, all counsel and advisors' and
agents' fees and all taxes or other governmental charges, if any, shall
be paid by one-half by the Purchaser and one-half by the Company.
4. Indemnification. The Purchaser and the Company,
jointly and severally, hereby indemnify and hold the Escrow Agent, its
employees, partners, members and representatives harmless from and
against any and all losses, damages, taxes, liabilities and expenses
that may be incurred, directly or indirectly, by the Escrow Agent and/or
any such person, arising out of or in connection with its acceptance of
appointment as the Escrow Agent hereunder and/or the performance of its
duties pursuant to this Agreement, including, but not limited to, all
legal costs and expenses of the Escrow Agent and any such person
incurred defending itself against any claim or liability in connection
with its performance hereunder and the costs of recovery of amounts
pursuant to this Section 4.
5. Miscellaneous.
a. All notices, requests, demands and other
communications hereunder shall be in writing, with copies to all the
other parties hereto, and shall be deemed to have been duly given when
(i) if delivered by hand, upon receipt, (ii) if sent by facsimile, upon
receipt of proof of sending thereof, (iii) if sent by nationally
recognized overnight delivery service (receipt requested), the next
business day or (iv) if mailed by first-class registered or certified
mail, return receipt requested, postage prepaid, four days after posting
in the U.S. mails, in each case if delivered to the following addresses:
If to the Company: 6115 Jimmy Carter Boulevard
Norcross, Maryland 30071
Facsimile: (770) 840-0905
Attn: Robert J. Kostrinsky
With copies to: The Law Firm of Leonard R. Glass,
P.A.
45 Central Avenue, P.O. Box 579
Tenafly, NJ 07670
Facsimile: (201) 894-1718
Attn: Leonard R. Glass, Esq.
If to the
Purchaser: JNC Opportunity Fund Ltd.
Olympia Capital (Cayman) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to: Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Managing Member
-and-
Robinson Silverman Pearce
Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen, Esq.
If to the Escrow Agent Robinson Silverman Pearce
Aronsohn &
(the Escrow Agent shall Berman LLP
receive copies of all 1290 Avenue of the Americas
communications under New York, NY 10104
this Agreement) Facsimile No.: (212) 541-
4630
Attn: Eric L. Cohen, Esq.
or at such other address as any of the parties to this Agreement may
hereafter designate in the manner set forth above to the others.
(b) This Agreement shall be construed and enforced in
accordance with the law of the State of New York applicable to contracts
entered into and performed entirely within New York.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Escrow Agreement to be signed the day and year first above written.
USCI, INC.
By: ___________________________
Name:
Title:
JNC OPPORTUNITY FUND LTD.
By: ___________________________
Name:
Title:
ROBINSON SILVERMAN PEARCE
ARONSOHN & BERMAN LLP
By: ___________________________
A Member of the Firm
EXHIBIT 10.29
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS
EXERCISABLE HAVE 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 THE
REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH APPLICABLE
STATE SECURITIES OR BLUE SKY LAWS.
USCI, INC.
WARRANT
Warrant No. 3 Dated May 7, 1998
USCI, Inc., a corporation organized and existing under the laws of
Delaware (the "Company"), hereby certifies that, for value received, JNC
Opportunity Fund Ltd. or its registered assigns ("Holder"), is entitled,
subject to the terms set forth below, to purchase from the Company up to
a total of 203,749 shares of Common Stock, $.0001 par value per share
(the "Common Stock"), of the Company (each such share, a "Warrant Share"
and all such shares, the "Warrant Shares") at an exercise price equal to
$5.85 per share (as adjusted from time to time as provided in Section 8,
the "Exercise Price"), at any time and from time to time from and after
the date hereof and through and including May 7, 2003 (the
"Expiration Date"), and subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register
this Warrant, upon records to be maintained by the Company for that
purpose (the "Warrant Register"), in the name of the record Holder
hereof from time to time. The Company may deem and treat the registered
Holder of this Warrant as the absolute owner hereof for the purpose of
any exercise hereof or any distribution to the Holder, and for all other
purposes, and the Company shall not be affected by notice to the
contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any
portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and
signed, to the Company at the office specified in or pursuant to Section
3(b). Upon any such registration or transfer, a new warrant to purchase
Common Stock, in substantially the form of this Warrant (any such new
warrant, a "New Warrant"), evidencing the portion of this Warrant so
transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if
any, shall be issued to the transferring Holder. The acceptance of the
New Warrant by the transferee thereof shall be deemed the acceptance of
such transferee of all of the rights and obligations of a holder of a
Warrant.
(b) This Warrant is exchangeable, upon the surrender
hereof by the Holder to the office of the Company specified in or
pursuant to Section 3(b) for one or more New Warrants, evidencing in the
aggregate the right to purchase the number of Warrant Shares which may
then be purchased hereunder. Any such New Warrant will be dated the
date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the
registered Holder on any business day before 5:30 P.M., Eastern Standard
Time, at any time and from time to time on or after the date hereof to
and including the Expiration Date. At 5:30 P.M., Eastern Standard Time
on the Expiration Date, the portion of this Warrant not exercised prior
thereto shall be and become void and of no value. This Warrant may not
be redeemed by the Company.
(b) Subject to Sections 2(b), 6 and 11, upon surrender
of this Warrant, with the Form of Election to Purchase attached hereto
duly completed and signed, to the Company at its address for notice set
forth in Section 11 and upon payment of the Exercise Price multiplied by
the number of Warrant Shares that the Holder intends to purchase
hereunder, in lawful money of the United States of America, in cash or
by certified or official bank check or checks, all as specified by the
Holder in the Form of Election to Purchase, the Company shall promptly
(but in no event later than 3 business days after the Date of Exercise
(as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or
names as the Holder may designate, a certificate for the Warrant Shares
issuable upon such exercise, free of restrictive legends other than as
required by applicable law. Any person so designated by the Holder to
receive Warrant Shares shall be deemed to have become holder of record
of such Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the
Company shall have received (i) this Warrant (or any New Warrant, as
applicable), with the Form of Election to Purchase attached hereto (or
attached to such New Warrant) appropriately completed and duly signed,
and (ii) payment of the Exercise Price for the number of Warrant Shares
so indicated by the holder hereof to be purchased.
(c) This Warrant shall be exercisable, either in its
entirety or, from time to time, for a portion of the number of Warrant
Shares. If less than all of the Warrant Shares which may be purchased
under this Warrant are exercised at any time, the Company shall issue or
cause to be issued, at its expense, a New Warrant evidencing the right
to purchase the remaining number of Warrant Shares for which no exercise
has been evidenced by this Warrant.
4. Piggyback Registration Rights. During the term of this
Warrant, the Company may not file any registration statement with the
Securities and Exchange Commission (other than registration statements
of the Company filed on Form S-8 or Form S-4, each as promulgated under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant
to which the Company is registering securities pursuant to a Company
employee benefit plan or pursuant to a merger, acquisition or similar
transaction including supplements thereto, but not additionally filed
registration statements in respect of such securities) at any time when
there is not an effective registration statement covering the resale of
the Warrant Shares and naming the Holder as a selling stockholder
thereunder, unless the Company provides the Holder with not less than 20
days notice to each of the Holder and Robinson Silverman Pearce Aronsohn
& Berman LLP, attention Eric L. Cohen, notice of its intention to file
such registration statement and provides the Holder the option to
include any or all of the applicable Warrant Shares therein. The
piggyback registration rights granted to the Holder pursuant to this
Section shall continue until all of the Holder's Warrant Shares have
been sold in accordance with an effective registration statement or upon
the expiration of this Warrant. The Company will pay all registration
expenses in connection therewith.
5. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the
exercise of this Warrant; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any
transfer involved in the registration of any certificates for Warrant
Shares or Warrants in a name other than that of the Holder, and the
Company shall not be required to issue or cause to be issued or deliver
or cause to be delivered the certificates for Warrant Shares 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. The Holder
shall be responsible for all other tax liability that may arise as a
result of holding or transferring this Warrant or receiving Warrant
Shares upon exercise hereof.
6. Replacement of Warrant. If this Warrant is mutilated,
lost, stolen or destroyed, the Company shall issue or cause to be issued
in exchange and substitution for and upon cancellation hereof, or in
lieu of and substitution for this Warrant, a New Warrant, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction and indemnity, if reasonably satisfactory to it.
Applicants for a New Warrant under such circumstances shall also comply
with such other reasonable regulations and procedures and pay such other
reasonable charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants
that it will at all times reserve and keep available out of the
aggregate of its authorized but unissued Common Stock, solely for the
purpose of enabling it to issue Warrant Shares upon exercise of this
Warrant as herein provided, the number of Warrant Shares which are then
issuable and deliverable upon the exercise of this entire Warrant, free
from preemptive rights or any other actual contingent purchase rights of
persons other than the Holder (taking into account the adjustments and
restrictions of Section 8). The Company covenants that all Warrant
Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the
terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.
8. Certain Adjustments. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to
adjustment from time to time as set forth in this Section 8. Upon each
such adjustment of the Exercise Price pursuant to this Section 8, the
Holder shall thereafter prior to the Expiration Date be entitled to
purchase, at the Exercise Price resulting from such adjustment, the
number of Warrant Shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant
Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or on any
other class of capital stock (and not the Common Stock) payable in
shares of Common Stock, other than the dividends payable under the
Purchase Agreement, (ii) subdivide outstanding shares of Common Stock
into a larger number of shares, or (iii) combine outstanding shares of
Common Stock into a smaller number of shares, the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number
of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this
Section 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 or combination, and shall apply to
successive subdivisions and combinations.
(b) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another
person, the sale or transfer of all or substantially all of the assets
of the Company in which the consideration therefor is equity or equity
equivalent securities or any compulsory share exchange pursuant to which
the Common Stock is converted into other securities or property, then
the Holder shall have the right thereafter to exercise this Warrant only
into the shares of stock and other securities 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 Holder shall be entitled upon such event to receive
such amount of securities or property of the Company's business
combination partner equal to the amount of Warrant Shares such Holder
would have been entitled to had such Holder exercised this Warrant
immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. 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 the right to receive the securities or
property set forth in this Section 8(b) upon any exercise following any
such reclassification, consolidation, merger, sale, transfer or share
exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to
holders of this Warrant) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security (excluding
those referred to in Sections 8(a), (b) and (d)), then in each such case
the Exercise Price shall be determined by multiplying the Exercise 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 Exercise Price determined as of the
record date mentioned above, and of which the numerator shall be such
Exercise Price 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 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")
mutually selected in good faith by the holders of a majority in interest
of the Warrants then outstanding and the Company. Any determination
made by the Appraiser shall be final.
(d) If, at any time while this Warrant is outstanding,
the Company shall issue or cause to be issued rights or warrants to
acquire or otherwise sell or distribute shares of Common Stock to all
holders of Common Stock for a consideration per share less than the Per
Share Market Value (as defined in the Purchase Agreement) in effect on
the date of issuance of such rights or warrants, then, forthwith upon
such issue or sale, the Exercise Price shall be reduced to the price
(calculated to the nearest cent) determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Exercise
Price, and (B) the consideration, if any, received or receivable by the
Company upon such issue or sale by (ii) the total number of shares of
Common Stock outstanding immediately after such issue or sale.
(e) For the purposes of this Section 8, the following
clauses shall also be applicable:
(i) Record Date. In case the Company shall take
a record of the holders of its Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in Common
Stock or in securities convertible or exchangeable into shares of Common
Stock, or (B) to subscribe for or purchase Common Stock or securities
convertible or exchangeable into shares of Common Stock, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or
the date of the granting of such right of subscription or purchase, as
the case may be.
(ii) Treasury Shares. The number of shares of
Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition
of any such shares shall be considered an issue or sale of Common Stock.
(f) All calculations under this Section 8 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case
may be.
(g) If:
(i) the Company shall declare a dividend
(or any other distribution) on its
Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
(iii) 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
(iv) 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, or any
compulsory share exchange whereby the
Common Stock is converted into other
securities, cash or property; or
(v) the Company shall authorize the
voluntary dissolution, liquidation or
winding up of the affairs of the
Company,
then the Company shall cause to be mailed to each Holder at their last
addresses as they shall appear upon the Warrant Register, at least 30
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, share exchange, dissolution, liquidation or winding up;
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.
9. Payment of Exercise Price. The Holder may pay the
Exercise Price in one of the following manners:
(a) Cash Exercise. The Holder shall deliver
immediately available funds; or
(b) Cashless Exercise. The Holder shall surrender
this Warrant to the Company together with a notice of cashless exercise,
in which event the Company shall issue to the Holder the number of
Warrant Shares determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued to
the Holder.
Y = the number of Warrant Shares with respect to
which this Warrant is being exercised.
A = the closing sale prices of the Common Stock
for the Trading Day immediately prior to the Date
of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is
intended, understood and acknowledged that the Warrant Shares issued in
a cashless exercise transaction shall be deemed to have been acquired by
the Holder, and the holding period for the Warrant Shares shall be
deemed to have been commenced, on the issue date.
10. Fractional Shares. The Company shall not be required
to issue or cause to be issued fractional Warrant Shares on the exercise
of this Warrant. The number of full Warrant Shares which shall be
issuable upon the exercise of this Warrant shall be computed on the
basis of the aggregate number of Warrant Shares purchasable on exercise
of this Warrant so presented. If any fraction of a Warrant Share would,
except for the provisions of this Section 10, be issuable on the
exercise of this Warrant, the Company shall, at its option, (i) pay an
amount in cash equal to the Exercise Price multiplied by such fraction
or (ii) round the number of Warrant Shares issuable, up to the next
whole number.
11. Notices. Any and all notices or other communications
or deliveries hereunder shall be in writing and 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, (ii) the business day
following the date of mailing, if sent by nationally recognized
overnight courier service, or (iii) upon actual receipt by the party to
whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to 6115 Jimmy Carter
Boulevard, Norcross, Georgia 30071, or to Facsimile No.: (770) 840-0905
Attention: Chief Financial Officer, or (ii) if to the Holder, to the
Holder at the address or facsimile number appearing on the Warrant
Register or such other address or facsimile number as the Holder may
provide to the Company in accordance with this Section 11.
12. Warrant Agent.
(a) The Company shall serve as warrant agent under
this Warrant. Upon thirty (30) days' notice to the Holder, the Company
may appoint a new warrant agent.
(b) Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any
consolidation to which the Company or any new warrant agent shall be a
party or any corporation to which the Company or any new warrant agent
transfers substantially all of its corporate trust or shareholders
services business shall be a successor warrant agent under this Warrant
without any further act. Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be mailed
(by first class mail, postage prepaid) to the Holder at the Holder's
last address as shown on the Warrant Register.
13. Miscellaneous.
(a) This Warrant shall be binding on and inure to the
benefit of the parties hereto and their respective successors and
permitted assigns. This Warrant may be amended only in writing signed
by the Company and the Holder.
(b) Subject to Section 13(a), above, nothing in this
Warrant shall be construed to give to any person or corporation other
than the Company and the Holder any legal or equitable right, remedy or
cause under this Warrant; this Warrant shall be for the sole and
exclusive benefit of the Company and the Holder.
(c) This Warrant 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.
(d) The headings herein are for convenience only, do
not constitute a part of this Warrant and shall not be deemed to limit
or affect any of the provisions hereof.
(e) In case any one or more of the provisions of this
Warrant shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Warrant
shall not in any way be affected or impaired thereby and the parties
will attempt in good faith to agree upon a valid and enforceable
provision which shall be a commercially reasonable substitute therefor,
and upon so agreeing, shall incorporate such substitute provision in
this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated
above.
USCI, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares
of Common Stock under the foregoing Warrant)
To USCI, Inc.:
In accordance with the Warrant enclosed with this Form of Election
to Purchase, the undersigned hereby irrevocably elects to purchase
[___________] shares of Common Stock, $.0001 par value, of USCI, Inc.
(the "Common Stock") and encloses herewith $________ in cash or
certified or official bank check or checks, which sum represents the
aggregate Exercise Price (as defined in the Warrant) for the number of
shares of Common Stock to which this Form of Election to Purchase
relates, together with any applicable taxes payable by the undersigned
pursuant to the Warrant.
The undersigned requests that certificates for the shares of
Common Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
(Please print name and address)
If the number of shares of Common Stock issuable upon this
exercise shall not be all of the shares of Common Stock which the
undersigned is entitled to purchase in accordance with the enclosed
Warrant, the undersigned requests that a New Warrant (as defined in the
Warrant) evidencing the right to purchase the shares of Common Stock not
issuable pursuant to the exercise evidenced hereby be issued in the name
of and delivered to:
(Please print name and address)
Dated: , Name of Holder:
(Print)
(By:)
(Name:)
(Title:)
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ________________________________ the right represented by
the within Warrant to purchase ____________ shares of Common Stock of
USCI, Inc. to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of USCI,
Inc. with full power of substitution in the premises.
Dated:
_______________, ____
_______________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
_______________________________________
Address of Transferee
_______________________________________
_______________________________________
In the presence of:
__________________________
EXHIBIT 10.30
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS
EXERCISABLE HAVE 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 THE
REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH APPLICABLE
STATE SECURITIES OR BLUE SKY LAWS.
USCI, INC.
WARRANT
Warrant No. 4 Dated May 7, 1998
USCI, Inc., a corporation organized and existing under the laws of
Delaware (the "Company"), hereby certifies that, for value received,
Wharton Capital Partners, Ltd. or its registered assigns ("Holder"), is
entitled, subject to the terms set forth below, to purchase from the
Company up to a total of 62,500 shares of Common Stock, $.0001 par value
per share (the "Common Stock"), of the Company (each such share, a
"Warrant Share" and all such shares, the "Warrant Shares") at an
exercise price equal to $5.85 per share (as adjusted from time to time
as provided in Section 8, the "Exercise Price"), at any time and from
time to time from and after the date hereof and through and including
May 7, 2003 (the "Expiration Date"), and subject to the following
terms and conditions:
1. Registration of Warrant. The Company shall register
this Warrant, upon records to be maintained by the Company for that
purpose (the "Warrant Register"), in the name of the record Holder
hereof from time to time. The Company may deem and treat the registered
Holder of this Warrant as the absolute owner hereof for the purpose of
any exercise hereof or any distribution to the Holder, and for all other
purposes, and the Company shall not be affected by notice to the
contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any
portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and
signed, to the Company at the office specified in or pursuant to Section
3(b). Upon any such registration or transfer, a new warrant to purchase
Common Stock, in substantially the form of this Warrant (any such new
warrant, a "New Warrant"), evidencing the portion of this Warrant so
transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if
any, shall be issued to the transferring Holder. The acceptance of the
New Warrant by the transferee thereof shall be deemed the acceptance of
such transferee of all of the rights and obligations of a holder of a
Warrant.
(b) This Warrant is exchangeable, upon the surrender
hereof by the Holder to the office of the Company specified in or
pursuant to Section 3(b) for one or more New Warrants, evidencing in the
aggregate the right to purchase the number of Warrant Shares which may
then be purchased hereunder. Any such New Warrant will be dated the
date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the
registered Holder on any business day before 5:30 P.M., Eastern Standard
Time, at any time and from time to time on or after the date hereof to
and including the Expiration Date. At 5:30 P.M., Eastern Standard Time
on the Expiration Date, the portion of this Warrant not exercised prior
thereto shall be and become void and of no value. This Warrant may not
be redeemed by the Company.
(b) Subject to Sections 2(b), 6 and 11, upon surrender
of this Warrant, with the Form of Election to Purchase attached hereto
duly completed and signed, to the Company at its address for notice set
forth in Section 11 and upon payment of the Exercise Price multiplied by
the number of Warrant Shares that the Holder intends to purchase
hereunder, in lawful money of the United States of America, in cash or
by certified or official bank check or checks, all as specified by the
Holder in the Form of Election to Purchase, the Company shall promptly
(but in no event later than 3 business days after the Date of Exercise
(as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or
names as the Holder may designate, a certificate for the Warrant Shares
issuable upon such exercise, free of restrictive legends other than as
required by applicable law. Any person so designated by the Holder to
receive Warrant Shares shall be deemed to have become holder of record
of such Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the
Company shall have received (i) this Warrant (or any New Warrant, as
applicable), with the Form of Election to Purchase attached hereto (or
attached to such New Warrant) appropriately completed and duly signed,
and (ii) payment of the Exercise Price for the number of Warrant Shares
so indicated by the holder hereof to be purchased.
(c) This Warrant shall be exercisable, either in its
entirety or, from time to time, for a portion of the number of Warrant
Shares. If less than all of the Warrant Shares which may be purchased
under this Warrant are exercised at any time, the Company shall issue or
cause to be issued, at its expense, a New Warrant evidencing the right
to purchase the remaining number of Warrant Shares for which no exercise
has been evidenced by this Warrant.
4. Piggyback Registration Rights. During the term of this
Warrant, the Company may not file any registration statement with the
Securities and Exchange Commission (other than registration statements
of the Company filed on Form S-8 or Form S-4, each as promulgated under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant
to which the Company is registering securities pursuant to a Company
employee benefit plan or pursuant to a merger, acquisition or similar
transaction including supplements thereto, but not additionally filed
registration statements in respect of such securities) at any time when
there is not an effective registration statement covering the resale of
the Warrant Shares and naming the Holder as a selling stockholder
thereunder, unless the Company provides the Holder with not less than 20
days notice to each of the Holder and Robinson Silverman Pearce Aronsohn
& Berman LLP, attention Eric L. Cohen, notice of its intention to file
such registration statement and provides the Holder the option to
include any or all of the applicable Warrant Shares therein. The
piggyback registration rights granted to the Holder pursuant to this
Section shall continue until all of the Holder's Warrant Shares have
been sold in accordance with an effective registration statement or upon
the expiration of this Warrant. The Company will pay all registration
expenses in connection therewith.
5. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the
exercise of this Warrant; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any
transfer involved in the registration of any certificates for Warrant
Shares or Warrants in a name other than that of the Holder, and the
Company shall not be required to issue or cause to be issued or deliver
or cause to be delivered the certificates for Warrant Shares 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. The Holder
shall be responsible for all other tax liability that may arise as a
result of holding or transferring this Warrant or receiving Warrant
Shares upon exercise hereof.
6. Replacement of Warrant. If this Warrant is mutilated,
lost, stolen or destroyed, the Company shall issue or cause to be issued
in exchange and substitution for and upon cancellation hereof, or in
lieu of and substitution for this Warrant, a New Warrant, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction and indemnity, if reasonably satisfactory to it.
Applicants for a New Warrant under such circumstances shall also comply
with such other reasonable regulations and procedures and pay such other
reasonable charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants
that it will at all times reserve and keep available out of the
aggregate of its authorized but unissued Common Stock, solely for the
purpose of enabling it to issue Warrant Shares upon exercise of this
Warrant as herein provided, the number of Warrant Shares which are then
issuable and deliverable upon the exercise of this entire Warrant, free
from preemptive rights or any other actual contingent purchase rights of
persons other than the Holder (taking into account the adjustments and
restrictions of Section 8). The Company covenants that all Warrant
Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the
terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.
8. Certain Adjustments. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to
adjustment from time to time as set forth in this Section 8. Upon each
such adjustment of the Exercise Price pursuant to this Section 8, the
Holder shall thereafter prior to the Expiration Date be entitled to
purchase, at the Exercise Price resulting from such adjustment, the
number of Warrant Shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant
Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or on any
other class of capital stock (and not the Common Stock) payable in
shares of Common Stock, other than the dividends payable under the
Purchase Agreement, (ii) subdivide outstanding shares of Common Stock
into a larger number of shares, or (iii) combine outstanding shares of
Common Stock into a smaller number of shares, the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number
of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this
Section 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 or combination, and shall apply to
successive subdivisions and combinations.
(b) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another
person, the sale or transfer of all or substantially all of the assets
of the Company in which the consideration therefor is equity or equity
equivalent securities or any compulsory share exchange pursuant to which
the Common Stock is converted into other securities or property, then
the Holder shall have the right thereafter to exercise this Warrant only
into the shares of stock and other securities 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 Holder shall be entitled upon such event to receive
such amount of securities or property of the Company's business
combination partner equal to the amount of Warrant Shares such Holder
would have been entitled to had such Holder exercised this Warrant
immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. 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 the right to receive the securities or
property set forth in this Section 8(b) upon any exercise following any
such reclassification, consolidation, merger, sale, transfer or share
exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to
holders of this Warrant) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security (excluding
those referred to in Sections 8(a), (b) and (d)), then in each such case
the Exercise Price shall be determined by multiplying the Exercise 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 Exercise Price determined as of the
record date mentioned above, and of which the numerator shall be such
Exercise Price 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 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")
mutually selected in good faith by the holders of a majority in interest
of the Warrants then outstanding and the Company. Any determination
made by the Appraiser shall be final.
(d) If, at any time while this Warrant is outstanding,
the Company shall issue or cause to be issued rights or warrants to
acquire or otherwise sell or distribute shares of Common Stock to all
holders of Common Stock for a consideration per share less than the Per
Share Market Value (as defined in the Purchase Agreement) in effect on
the date of issuance of such rights or warrants, then, forthwith upon
such issue or sale, the Exercise Price shall be reduced to the price
(calculated to the nearest cent) determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Exercise
Price, and (B) the consideration, if any, received or receivable by the
Company upon such issue or sale by (ii) the total number of shares of
Common Stock outstanding immediately after such issue or sale.
(e) For the purposes of this Section 8, the following
clauses shall also be applicable:
(i) Record Date. In case the Company shall take
a record of the holders of its Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in Common
Stock or in securities convertible or exchangeable into shares of Common
Stock, or (B) to subscribe for or purchase Common Stock or securities
convertible or exchangeable into shares of Common Stock, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or
the date of the granting of such right of subscription or purchase, as
the case may be.
(ii) Treasury Shares. The number of shares of
Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition
of any such shares shall be considered an issue or sale of Common Stock.
(f) All calculations under this Section 8 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case
may be.
(g) If:
(i) the Company shall declare a dividend
(or any other distribution) on its
Common Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
(iii) 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
(iv) 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, or any
compulsory share exchange whereby the
Common Stock is converted into other
securities, cash or property; or
(v) the Company shall authorize the
voluntary dissolution, liquidation or
winding up of the affairs of the
Company,
then the Company shall cause to be mailed to each Holder at their last
addresses as they shall appear upon the Warrant Register, at least 30
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, share exchange, dissolution, liquidation or winding up;
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.
9. Payment of Exercise Price. The Holder may pay the
Exercise Price in one of the following manners:
(a) Cash Exercise. The Holder shall deliver
immediately available funds; or
(b) Cashless Exercise. The Holder shall surrender
this Warrant to the Company together with a notice of cashless exercise,
in which event the Company shall issue to the Holder the number of
Warrant Shares determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued to
the Holder.
Y = the number of Warrant Shares with respect to
which this Warrant is being exercised.
A = the closing sale prices of the Common Stock
for the Trading Day immediately prior to the Date
of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is
intended, understood and acknowledged that the Warrant Shares issued in
a cashless exercise transaction shall be deemed to have been acquired by
the Holder, and the holding period for the Warrant Shares shall be
deemed to have been commenced, on the issue date.
10. Fractional Shares. The Company shall not be required
to issue or cause to be issued fractional Warrant Shares on the exercise
of this Warrant. The number of full Warrant Shares which shall be
issuable upon the exercise of this Warrant shall be computed on the
basis of the aggregate number of Warrant Shares purchasable on exercise
of this Warrant so presented. If any fraction of a Warrant Share would,
except for the provisions of this Section 10, be issuable on the
exercise of this Warrant, the Company shall, at its option, (i) pay an
amount in cash equal to the Exercise Price multiplied by such fraction
or (ii) round the number of Warrant Shares issuable, up to the next
whole number.
11. Notices. Any and all notices or other communications
or deliveries hereunder shall be in writing and 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, (ii) the business day
following the date of mailing, if sent by nationally recognized
overnight courier service, or (iii) upon actual receipt by the party to
whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to 6115 Jimmy Carter
Boulevard, Norcross, Georgia 30071, or to Facsimile No.: (770) 840-0905
Attention: Chief Financial Officer, or (ii) if to the Holder, to the
Holder at the address or facsimile number appearing on the Warrant
Register or such other address or facsimile number as the Holder may
provide to the Company in accordance with this Section 11.
12. Warrant Agent.
(a) The Company shall serve as warrant agent under
this Warrant. Upon thirty (30) days' notice to the Holder, the Company
may appoint a new warrant agent.
(b) Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any
consolidation to which the Company or any new warrant agent shall be a
party or any corporation to which the Company or any new warrant agent
transfers substantially all of its corporate trust or shareholders
services business shall be a successor warrant agent under this Warrant
without any further act. Any such successor warrant agent shall
promptly cause notice of its succession as warrant agent to be mailed
(by first class mail, postage prepaid) to the Holder at the Holder's
last address as shown on the Warrant Register.
13. Miscellaneous.
(a) This Warrant shall be binding on and inure to the
benefit of the parties hereto and their respective successors and
permitted assigns. This Warrant may be amended only in writing signed
by the Company and the Holder.
(b) Subject to Section 13(a), above, nothing in this
Warrant shall be construed to give to any person or corporation other
than the Company and the Holder any legal or equitable right, remedy or
cause under this Warrant; this Warrant shall be for the sole and
exclusive benefit of the Company and the Holder.
(c) This Warrant 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.
(d) The headings herein are for convenience only, do
not constitute a part of this Warrant and shall not be deemed to limit
or affect any of the provisions hereof.
(e) In case any one or more of the provisions of this
Warrant shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Warrant
shall not in any way be affected or impaired thereby and the parties
will attempt in good faith to agree upon a valid and enforceable
provision which shall be a commercially reasonable substitute therefor,
and upon so agreeing, shall incorporate such substitute provision in
this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated
above.
USCI, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares
of Common Stock under the foregoing Warrant)
To USCI, Inc.:
In accordance with the Warrant enclosed with this Form of Election
to Purchase, the undersigned hereby irrevocably elects to purchase
[___________] shares of Common Stock, $.0001 par value, of USCI, Inc.
(the "Common Stock") and encloses herewith $________ in cash or
certified or official bank check or checks, which sum represents the
aggregate Exercise Price (as defined in the Warrant) for the number of
shares of Common Stock to which this Form of Election to Purchase
relates, together with any applicable taxes payable by the undersigned
pursuant to the Warrant.
The undersigned requests that certificates for the shares of
Common Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
(Please print name and address)
If the number of shares of Common Stock issuable upon this
exercise shall not be all of the shares of Common Stock which the
undersigned is entitled to purchase in accordance with the enclosed
Warrant, the undersigned requests that a New Warrant (as defined in the
Warrant) evidencing the right to purchase the shares of Common Stock not
issuable pursuant to the exercise evidenced hereby be issued in the name
of and delivered to:
(Please print name and address)
Dated: , Name of Holder:
(Print)
(By:)
(Name:)
(Title:)
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ________________________________ the right represented by
the within Warrant to purchase ____________ shares of Common Stock of
USCI, Inc. to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of USCI,
Inc. with full power of substitution in the premises.
Dated:
_______________, ____
_______________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
_______________________________________
Address of Transferee
_______________________________________
_______________________________________
In the presence of:
__________________________
EXHIBIT 11
COMPUTATIONS OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
----------- -----------
<S> <C> <C>
Loss from continuing operations $(11,558,689) $(3,116,364)
Loss from discontinued operations 0 0
----------- ------------
Net Loss $(11,558,669) $(3,116,364)
============ ============
Basic and Diluted Weighted
Average Shares Outstanding 10,409,044 10,225,746
Basic and diluted net loss per share:
Loss from continued operations $ (1.11) $ (0.30)
Loss from discontinued operations 0.00 0.00
----------- -----------
Net Loss $ (1.11) $ (0.30)
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000907069
<NAME> USCI, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,439,513
<SECURITIES> 0
<RECEIVABLES> 11,952,872
<ALLOWANCES> 1,857,000
<INVENTORY> 2,926
<CURRENT-ASSETS> 12,601,037
<PP&E> 7,775,893
<DEPRECIATION> 4,783,248
<TOTAL-ASSETS> 18,250,493
<CURRENT-LIABILITIES> 27,111,877
<BONDS> 0
0
5
<COMMON> 1,070
<OTHER-SE> (8,862,459)
<TOTAL-LIABILITY-AND-EQUITY> 18,250,493
<SALES> 0
<TOTAL-REVENUES> 9,372,947
<CGS> 0
<TOTAL-COSTS> 5,480,905
<OTHER-EXPENSES> 13,022,983
<LOSS-PROVISION> 9,130,941
<INTEREST-EXPENSE> 2,427,748
<INCOME-PRETAX> (11,558,689)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,558,689)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,558,689)
<EPS-PRIMARY> (1.11)
<EPS-DILUTED> (1.11)
</TABLE>
