<PAGE>
As filed with the Securities and Exchange Commission on August 23, 1996
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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MONTEREY PASTA COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 2096 77-0227341
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
353 SACRAMENTO STREET, SUITE 500
SAN FRANCISCO, CA 94111
(415) 397-7782
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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CAROLYN MAR
VICE PRESIDENT-LEGAL AFFAIRS AND SECRETARY
MONTEREY PASTA COMPANY
353 SACRAMENTO STREET, SUITE 500
SAN FRANCISCO, CA 94111
(415) 397-7782
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies to:
JAMES E. TOPINKA, ESQ. CAROLYN MAR
Graham & James LLP Vice President-Legal Affairs and Secretary
One Maritime Plaza, Suite 300 Monterey Pasta Company
San Francisco, CA 94111 353 Sacramento Street, Suite 500
San Francisco, CA 94111
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: /x/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF REGISTRATION
TO BE REGISTERED REGISTERED OFFERING PRICE PER SHARE AGGREGATE OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock ($.001 par value
per share) 2,622,073(1) $5.50(2) $14,421,401.50(3) $4,972.90
</TABLE>
(1) Includes all of the shares of Common Stock that may be offered from time to
time by the Selling Stockholders.
(2) Estimated solely for the purpose of computing the registration fee
calculated pursuant to Rule 457(c) and based on the average of the high and
low prices of the Common Stock of Monterey Pasta Company as reported on the
Nasdaq National Market on August 20, 1996.
(3) This registration statement covers an additional indeterminate number of
shares of Common Stock which may be issued in accordance with Rule 416.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to such Section 8(a),
may determine.
<PAGE>
2,622,073 SHARES
MONTEREY PASTA COMPANY
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COMMON STOCK
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Of the 2,622,073 shares of common stock of Monterey Pasta Company
("Monterey Pasta" or the "Company") being offered hereby (the "Shares"),
916,000 shares were issued in April and May 1996, 5,323 shares were issued in
June 1996, 400,750 shares may be issued upon exercise of warrants issued in
July 1996, 1,100,000 shares may be issued upon conversion of the Company's
Series A Convertible Preferred Stock issued in August 1996 and 200,000 shares
may be issued upon conversion of the Company's Series B Convertible Preferred
Stock issued in August 1996 (the Series A Convertible Preferred Stock and the
Series B Convertible Preferred Stock are collectively referred to herein as
the "Preferred Stock"). All of such Shares may be sold from time to time by
or on behalf of shareholders of the Company (the "Selling Stockholders")
described in this Prospectus under "Selling Stockholders". The Selling
Stockholders acquired the common stock and the Preferred Stock from the
Company in private placement transactions exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"). The Company is
obligated to register under the Securities Act the Shares issuable upon
conversion of the Preferred Stock and to use its best efforts to cause this
Registration Statement covering the Shares to be declared effective and to
remain effective for up to thirty (30) months following the effective date of
this Registration Statement. The holders of the Shares issued in April, May,
June, and July 1996 have the right to participate in such registration.
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholders.
The Company has been advised by the Selling Stockholders that they may sell
all or a portion of the Shares in the Nasdaq National Market, in negotiated
transactions or otherwise, and on terms and at prices then obtainable. The
Selling Stockholders and any broker-dealers, agents or underwriters that
participate with the Selling Stockholders in the distribution of any of the
Shares may be deemed to be "underwriters" within the meaning of the Securities
Act, and any commission received by them and any profit on the resale of the
Shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. The Company and the Selling Stockholders
have agreed to certain indemnification and contribution arrangements. See "Plan
of Distribution."
The Company will bear the cost of preparing and printing the Registration
Statement, the Prospectus and any Prospectus Supplements and all filing fees and
legal and accounting expenses associated with registration under federal and
state securities laws. The Selling Stockholders will pay all other expenses
related to the distribution of the Shares.
THE SHARES HAVE NOT BEEN REGISTERED FOR SALE UNDER THE
SECURITIES LAWS OF ANY STATE OR JURISDICTION AS OF THE DATE
OF THIS PROSPECTUS. BROKERS OR DEALERS EFFECTING TRANSACTIONS
IN THE SHARES SHOULD CONFIRM THE REGISTRATION OF THE SHARES
UNDER THE SECURITIES LAWS OF THE STATES IN WHICH SUCH TRANSACTIONS
OCCUR, OR THE EXISTENCE OF ANY EXEMPTIONS FROM SUCH REGISTRATION.
The Company's common stock is listed on the National Market of the National
Association of Securities Dealers, Inc. (the "NASD") and is traded under the
symbol "PSTA". On August 20, 1996, the last sales price of the Company's common
stock as reported on the NASD Automatic Quotation System was $5.625.
---------------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 HEREOF FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED HEREBY.
---------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is August , 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information filed by the Company may
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the Commission's Regional Offices located at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material may be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Documents filed with the Commission
via the Electronic Data Gathering, Analysis and Retrieval System ("EDGAR") may
be obtained through the Commission's website at http://www.sec.gov. Reports,
proxy and information statements and other information concerning the Company
may be inspected at, and also be obtained at, the National Association of
Securities Dealers, Inc., Market Listing Section, 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company has also filed with the Commission a Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Shares offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus or in any document incorporated by reference herein
as to the contents of any contract or other document referred to herein or
therein are not necessarily complete and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement or incorporated herein by reference. Each such statement
is qualified in all respects by such reference to such exhibit. For further
information with respect to the Company and the Shares offered hereby, reference
is made to the Registration Statement and the exhibits and schedules thereto.
The Registration Statement may be inspected without charge, and copies thereof
may be obtained at prescribed rates from, the Public Reference Section of the
Commission, at 450 Fifth Street, N.W., Washington, D.C. 20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are incorporated herein by reference: (1) the Company's
Annual Report on Form 10-K for the year ended December 31, 1995, as amended by
Form 10-K/A for the year ended December 31, 1995; (2) the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996; (3) the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996; (4) the
Company's Current Reports on Form 8-K, filed on February 9, 1996, May 3, 1996
and May 28, 1996; and (5) the description of the Company's common stock
contained in the Company's Registration Statements on Forms 8-A, as filed with
the Commission on October 8, 1993 and May 28, 1996.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act prior to the termination of this offering shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated by reference herein or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request, a copy of any or all of the foregoing documents incorporated by
reference in this Prospectus (not including the exhibits to such documents,
unless such exhibits are specifically incorporated by reference into such
documents or into this Prospectus). Requests for such documents should be
directed to Monterey Pasta Company at 353 Sacramento Street, Suite 500, San
Francisco, California, CA 94111, Attn: Secretary (telephone: (415) 397-7782).
GENERAL
The following discussion should be read in conjunction with the financial
statements and related notes and other information, reports and documents
incorporated by reference included in this Prospectus. Other than the
historical facts contained herein, this Prospectus contains forward-looking
statements that involve substantial risks and uncertainties. For a discussion
of such risks and uncertainties, please see the Company's Annual and Quarterly
Reports incorporated by reference herein.
2.
<PAGE>
In addition to the risks and uncertainties discussed in such reports and
discussed below, the following factors should be considered. As the Company has
continued to expand its retail distribution, it has expended substantial
resources on slotting allowances and other incentives in order to attract new
customers. There can be no assurance that such expenditures will generate
sufficient revenues to cover costs or that such new customers will be retained.
New markets increase the risk of significant product returns resulting from
slower selling product than expected. In addition, grocery and club store
chains continually re-evaluate the products carried in their stores and no
assurance can be given that the chains currently offering the Company's products
will continue to do so in the future. Should these channels choose to reduce or
eliminate products, the Company could experience a significant reduction in
product sales. The Company also adjusts its manufacturing schedules in
accordance with sales forecasts with the result that it may incur additional
fixed manufacturing expenses in anticipation of sales increases. In the
event that such sales increases are not achieved or such forecasts prove to
be inaccurate, such increased manufacturing expenses would negatively affect
the Company's profitability. The Company's business continues to be dominated
by several very large competitors which have significantly greater resources
than the Company; such competitors can outspend the Company and negatively
affect the Company's market share and results of operations. The Company also
continues to be dependent on common carriers to distribute its products. Any
disruption in the Company's distribution system or increase in the costs thereof
could have a material adverse impact on the Company's business.
THE COMPANY
The Company produces and markets premium quality refrigerated and frozen
pasta and pasta sauces. The Company seeks to build national brand recognition
and customer loyalty by employing targeted marketing and advertising programs
that focus on developing complementary channels of distribution and multiple
points of sale for the Company's products. The Company markets and sells its
products through grocery and club stores, national food service
distributors/contract feeders and nontraditional venues such as sports coliseums
and universities.
The Company sells its pasta and pasta sauces through leading grocery store
chains, including A & P, Albertsons, Cala/Bell, Giant Foods, Hannaford Bros.,
Harris-Teeter Super, Kroger, Nob Hill, Pathmark, Petrini's, QFC, Safeway,
Smitty's, Stop & Shop, Vons and Winn-Dixie, and club store chains such as
Price/Costco and BJs. As of June 30, 1996, more than 6,000 grocery and club
stores offered the Company's products.
The Company currently offers over 30 unique and delicious varieties of
pasta and sauce products that are produced using the Company's proprietary
recipes, including refrigerated cut pasta, ravioli, tortelloni, tortellini and
pasta sauces. The Company believes its pasta products appeal to value-conscious
consumers who are seeking excellent quality and convenience.
As part of the Company's efforts to build national brand recognition and
loyalty, the Company has introduced new product labels and promotional
materials. The Company has also continued its capital investment program at its
Monterey County manufacturing facility. The expenditures include the completion
of a new production line to increase manufacturing capacity.
Subsequent to the year ended December 31, 1995, the Company decided to
discontinue the business of its restaurant and franchise subsidiaries. In 1995,
the Company wrote off its entire investment in its restaurant and franchise
subsidiaries and reclassified these subsidiaries as discontinued operations. On
April 19, 1996, the Company closed the sale of its restaurant subsidiary
pursuant to a Stock Purchase Agreement between itself and Upscale Acquisitions,
Inc., a California corporation ("Upscale"), dated as of April 1, 1996 (the
"Agreement"). The purchase price of the shares was $1,000 in cash and a note
executed by Upscale in the principal amount of $2,500,000 (the "Note"). Mr.
Lance H. Mortensen is the sole shareholder, Chief Executive Officer, President
and a director of Upscale. Mr. Mortensen is also a director of the Company and
a former Chairman of the Board, Chief Executive Officer and President of the
Company. The Company has elected to use the "cost recovery method" to account
for the transaction, which defers recognition of income until payments are
received. The Agreement also provided for advances by the Company to be added
to the principal amount of the Note. Advances totaling $300,000 have been added
to the Note during the quarter ended June 30, 1996. These advances are not
accounted for using the "cost recovery method." While most discontinued
operational issues have been resolved, some issues are not expected to be fully
settled until year-end, and therefore the Company continues to carry a net
liability of $680,000 for discontinued operations.
As noted below, there can be no assurance that these changes and the sale
to Upscale will lead to improved operating results for the Company.
The Company's executive offices are located at 353 Sacramento Street, Suite
500, San Francisco, CA 94111; its telephone number at that address is
(415) 397-7782.
3.
<PAGE>
RISK FACTORS
IN ADDITION TO OTHER INFORMATION CONTAINED IN THIS PROSPECTUS OR
INCORPORATED BY REFERENCE, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY
IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE SHARES OFFERED
HEREBY.
HISTORY OF LOSSES
The Company was founded in 1989 and, until 1993, sold its products
primarily to grocery and club stores in California. In 1993 and 1994, the
Company shifted its focus to the establishment and expansion of restaurant
operations and franchises through two wholly-owned subsidiaries of the Company,
which opened as many as 41 restaurants in California, Colorado and Washington.
However, due to the lower than expected revenues from some of the restaurants,
which contributed in part, to the losses reflected in 1994 and the first two
quarters of 1995, the Company decided in July 1995 to close or sell at least 28
of such restaurants operated by one of its subsidiaries.
At December 31, 1995, the Company had an accumulated deficit of
approximately $25 million. In addition, while the Company achieved net income
of approximately $177,000 and $250,000 in the fiscal years ended December 31,
1992 and 1993, respectively, the Company experienced net losses of approximately
$3 million for the fiscal year ended January 1, 1995 and $22 million for the
fiscal year ended December 31, 1995, which included a restructuring charge of
$6,822,300 and an estimated phase-out charge of $2,802,622.
As noted above, subsequent to the year ended December 31, 1995, the Company
decided to discontinue the business of its restaurant and franchise
subsidiaries. As a result of this decision, the Company wrote off its entire
investment in its restaurant and franchise subsidiaries totaling $7,692,954.
The Company has continued to experience net losses in the first two quarters
of 1996. There can be no assurance that the Company will be profitable in the
quarters or years to come.
EMPHASIS ON GROCERY AND CLUB STORE SALES; NONTRADITIONAL VENUES
The success of the Company's efforts in its restructured business will
depend on a number of factors, including whether grocery and club store chains
will continue to expand the number of their stores offering the Company's
products and whether the Company can continue to increase the number of grocery
and club store chains offering its products. Grocery and club store chains
continually re-evaluate the products carried in their stores and no assurance
can be given that the chains currently offering the Company's products will
continue to do so in the future.
The success of the Company's nontraditional venues will depend on a number
of factors, including whether its foodservice customers who currently serve its
gourmet pastas and sauces in sports coliseums, such as the Oakland Coliseum and
3 COM Park (formerly Candlestick Park) in California, will continue to offer the
Company's products and whether the Company can continue to procure additional
licensing agreements for other venues that utilize the Company's cart/kiosk
programs to serve its pasta and sauce products, such as in ski resorts,
airports, universities, office buildings and school programs. No assurances can
be given that the foodservice customers currently offering the Company's
products will continue to do so in the future, that the Company will be able to
increase such market penetration or that the Company can continue to expand its
cart/kiosk program in the coming years.
DEPENDENCE UPON MAJOR CUSTOMERS
For the years 1993, 1994 and 1995, Price/Costco and Safeway each
accounted for approximately 44% and 22%, 45% and 13%, and 47% and 12%,
respectively, of total revenues. No other customer accounted for greater
than 10% of the Company's total revenues during this period. The Company
currently sells its products to three separate Price/Costco regions which
make purchasing decisions independently of one another. These regions
re-evaluate, on a regular basis, the products carried in their stores.
Through July, 1996, Price/Costco and Safeway accounted for approximately 30%
and 9%, respectively, of total revenues. There can be no assurance that
these Price/Costco regions will continue to offer Monterey Pasta's products
in the future or continue to allocate Monterey Pasta the same amount of shelf
space. The loss of or significant decrease in products sold to either of
those customers would materially adversely affect the Company's business
operations.
COMPETITION
The Company's business is subject to significant competition. The
refrigerated pasta and pasta sauce category is highly competitive and is
dominated by a small number of very large national companies, such as Nestle
with its Contadina-Registered Trademark- brand, and Kraft, with its
DiGiorno-Registered Trademark- brand, along with a number of regional
competitors, such as Mallards, Romance and Trios. Regional competitors also
include grocery chains such as Safeway that offer private label refrigerated
pasta. The national competitors and many of the regional competitors have
significantly more brand
4.
<PAGE>
name recognition, marketing personnel, and cash resources than the Company.
Moreover, competition for shelf space in grocery stores is intense and poses
great difficulty for smaller food companies. The Company seeks to compete in
the premium segment of the category, by selling high quality, innovative
products with flavor and appearance which it believes compare favorably with its
competitors' products.
To date, the Company has benefitted from the marketing efforts of Nestle
and Kraft and certain large regional companies. These companies have committed
significant financial resources towards advertisement, promotion and development
of the refrigerated pasta and pasta sauce category. No assurance can be given
that these large companies will continue to expend such resources in the future
or that the Company will continue to enjoy such benefits. The Company in the
future may be required to incur significantly greater expenses for promotion,
advertisement and marketing, which could adversely affect profitability. There
can be no assurance that the Company will be able to commit funds to promotion,
advertisement and marketing while operating profitably.
The Company believes that access to substantially greater capital resources
coupled with continued expansion of its infrastructure will be key requirements
in the Company's efforts to enhance its competitive position and increase its
market penetration in the near future. In order to support its expansion
program, the Company has developed, and is continuing to develop, a significant
corporate infrastructure including the hiring of senior management, operations,
accounting and other personnel. There can be no assurance that the Company will
be able to increase its net revenues from grocery and club stores, national food
service distributors/contract feeders and nontraditional venues to the degree
expected. Because the Company will continue to make substantial expenditures
associated with the expansion of its business, the Company's results of
operations will be negatively affected.
GOVERNMENT REGULATION
The Company is subject to various federal, state and local regulations
relating to cleanliness, maintenance of food production equipment, food storage,
cooking and cooling temperatures and food handling, and is subject to
unannounced on-site inspections of production facilities. As a producer and
distributor of foods, the Company is subject to the regulations of the U.S. Food
and Drug Administration, state food and health boards and local health boards
for the production, handling, storage, transportation, labeling and processing
of food products. Regulations in new markets and future changes in existing
regulations may adversely impact the Company by raising the cost of production
and delivery of pasta and pasta sauces and/or by affecting the perceived
healthfulness of the Company's products. A failure to comply with one or more
regulatory requirements could result in a variety of sanctions, including fines
and the withdrawal of the Company's products from store shelves. The Company is
not aware of any currently existing facts or circumstances that would cause it
to fail to comply with any of the regulations to which it is currently subject.
CAPITAL REQUIREMENTS
The Company required additional capital in 1995 and, to date, in 1996 to
continue to meet its expected growth needs and to finance its operations and
restructuring plans.
In April and May 1996, the Company received approximately $4,000,000 from
its sale of 916,000 shares in a private offering to accredited investors at
$4.375 per share. The shares of common stock are restricted securities with
registration rights and certain of such shares are included in the Shares
being offered hereby. Purchasers of the common stock agreed not to sell
such shares for one year from the date of purchase without the consent of the
placement agent. Spelman & Co., Inc. acted as placement agent (the
"Placement Agent") on a "best efforts, "any or all" basis. The Placement
Agent received no cash commissions in the offering but received warrants to
purchase one share of common stock for each $10 in shares sold, exercisable
at a price of $6.50 per share, for a term of seven years. Warrants for
400,750 shares have been issued, and the shares underlying such warrants are
included in the Shares being offered hereby. The net proceeds from the
offering have been used by the Company for advertising, marketing, promotion,
capital equipment and working capital.
In August 1996 the Company sold 3,000 shares of Series A Convertible
Preferred Stock and 500 shares of Series B Convertible Preferred Stock at a
price of $1,000 per share, with aggregate gross proceeds of approximately
$3,500,000 to be used for capital expenditures, working capital and other
general corporate purposes. Such Preferred Stock is convertible 90 days
after issuance and may be converted into the Shares offered by this
Prospectus at 80% of the market value of the Company's Common Stock and sold
at any time.
There can be no assurance that the Company will not require additional
financing or, if the Company requires additional financing, that it will secure
adequate financing on satisfactory terms when needed.
5.
<PAGE>
DECLINE IN INDUSTRY
Industry sources report that from 1987 to 1992, the refrigerated pasta
sauce category experienced dramatic double digit growth as major players, Nestle
and Kraft, rolled out their brands nationally with strong advertising and
promotional support. The refrigerated pasta and pasta sauce category has
experienced modest single digit declines since 1992. No assurance can be given
that the fresh pasta and pasta sauce category will experience any further
growth.
NEW PRODUCTS
The Company is investing resources into expanding its existing product
lines and developing new products and product lines. The Company's goal is to
introduce new products on a timely and regular basis to maintain customer
interest. There can be no assurance that such investment of resources will
result in successful new products or product lines or that new products can be
developed and introduced on a timely and regular basis. If the Company's new
products are not successful, the Company's grocery and club store and food
service sales may be adversely affected as customers seek new products.
DISTRIBUTION
The Company's success depends upon an effective system of distribution for
its products. The Company uses its direct store delivery system ("DSD") to
deliver its products in Northern California. To distribute its products to
other parts of the country, the Company uses common carriers. The dependence on
other companies for delivery of its products poses a risk to the Company,
particularly as the Company increases its distribution to the eastern United
States. While this method of delivery has been reliable and available at
acceptable rates thus far, there can be no assurance that the Company will
continue to be able to negotiate acceptable freight rates in the future or that
delivery will not be disrupted for reasons including, but not limited to,
adverse weather, natural disasters or labor disputes in the trucking industry.
PRODUCTION FACILITY
The Company currently produces and distributes its pasta and pasta sauce
products for its grocery and club store and food service accounts from its
production facility in Monterey County, California, which was expanded from
10,000 square feet to 37,666 square feet in March 1995. The Company expects
that the present facility will be adequate to accommodate the Company's growth
needs for 1996. There can be no assurance, however, that this facility will be
adequate to meet future demand for the Company's products. Furthermore, since
the Company's business is heavily dependent upon production and delivery from
one production facility, adverse weather, natural disasters such as earthquakes,
local strikes and other occurrences may have a severe adverse impact upon the
Company's operations. The Company develops its manufacturing schedules in
accordance with sales forecasts with the result that it may incur additional
fixed manufacturing expenses in anticipation of sales increases. In the event
that such sales increases are not achieved or such forecasts prove to be
inaccurate, such increased manufacturing expenses would negatively affect the
Company's profitability. There can be no assurance that the Company will sell
enough products to cover its production and operating costs.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's grocery and club store accounts are expected to experience
minor seasonal fluctuations. The Company's business in general may be affected
by a variety of other factors, including, but not limited to, general economic
trends, competition, marketing programs and special or unusual events. Such
effects, however, may not be apparent in the Company's operating results during
a period of significant expansion.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends to a large extent upon the continued
services of key managerial, sales and marketing employees, the majority of whom
were recently hired by the Company. The loss of the services of any of the
Company's key employees could have a material adverse effect on the Company.
The Company believes that its future success depends on its continuing ability
to attract and retain highly qualified, managerial, marketing and sales
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will be able to attract, assimilate or retain such
personnel. If the Company is unable to retain new personnel, the Company's
business, financial condition and results of operations may be materially
adversely affected.
6.
<PAGE>
CONTROL BY CURRENT STOCKHOLDERS
As of July 31, 1996, the management and directors of the Company owned
approximately 18% of the issued and outstanding shares of common stock. In
addition, the Company has an option plan pursuant to which options for up to
1,740,000 shares of the Company's common stock may be granted to its officers
and employees. As of July 31, 1996, options for approximately 1,359,364 shares
of the Company's common stock were outstanding to its officers and employees.
POSSIBLE VOLATILITY OF STOCK PRICES
The market price of the Company's common stock has been and may continue to
be volatile. Fluctuations in the Company's quarterly operating results or other
announcements by the Company or its competitors may have a significant impact on
the market price of the Company's stock. In addition, market prices for
securities of many emerging and small capitalization companies have experienced
wide fluctuations in response to variations in general economic indicators and
conditions, as well as other factors beyond the control of the Company and
unrelated to the Company's operations or performance.
SHARES ELIGIBLE FOR FUTURE SALE
As of July 31, 1996, 8,713,911 shares of the Company's common stock were
issued and outstanding, substantially all of which are either freely tradeable
without restriction or further registration under the Securities Act or saleable
in the public market pursuant to Rule 144 or 701 under the Securities Act.
LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary,
routine litigation incidental to the Company's business, to which the Company is
a party or to which any of its property is subject. As noted above, the Company
sold Upscale Food Outlets, Inc. ("UFO"), which was a defendant in approximately
14 lawsuits relating to restaurants closed in the second and third quarters of
1995. The Company anticipates that UFO will continue to have responsibility for
such litigation. Although there can be no assurance given as to the results of
such legal proceedings, based upon information currently available to
management, the Company does not believe that its potential liability with
respect to these proceedings will have a material adverse effect on its
financial position or results of operations.
GENERAL LIABILITY AND COMMERCIAL INSURANCE; PRODUCT LIABILITY INSURANCE
Although the Company carries general liability, product liability and
commercial insurance, there can be no assurance that this insurance will be
adequate to protect the Company against any general, commercial and/or product
liability claims. Any general, commercial and/or product liability claim which
is not covered by such policy, or is in excess of the limits of liability of
such policy, could have a material adverse effect on the financial condition of
the Company. There can be no assurance that the Company will be able to
maintain this insurance on reasonable terms.
TRADEMARKS AND SERVICE MARKS
The Company has registered the "Monterey Pasta Company" name and logo
design with the United States Patent and Trademark Office. There can be no
assurance that competitors will not adopt similar names or logo designs outside
the protection of the Company's trademark registration.
ABILITY TO ISSUE PREFERRED STOCK; REGISTRATION RIGHTS AND WARRANTS
The Board of Directors has the authority to issue up to 1,000,000 shares of
preferred stock and to fix the rights, preferences, privileges and restrictions,
including dividend, liquidation, conversion, voting, redemption or other rights
without any further vote or action by the stockholders, which rights could
adversely affect the voting power or other rights of the holders of common
stock. As indicated above, the Company has issued to certain of the Selling
Stockholders 3,500 shares of Preferred Stock at a price of $1,000 per share
("Preferred Stock"), which are convertible into shares of common stock of the
Company. The rights of the holders of the common stock will be subject to, and
may be adversely affected by, the rights of the holders of such Preferred Stock
and any holders of Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing desired flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company, thereby delaying, deferring or
preventing a change in control of the Company. Furthermore, such Preferred
Stock, has other rights, including economic rights
7.
<PAGE>
senior to the common stock, and, as a result, the issuance thereof could have a
material adverse effect on the market value of the common stock.
The Company has issued warrants to Franklin-Lord, Inc., the representative
of the underwriters in the Company's initial public offering in December 1993,
and three affiliates of Franklin-Lord (the "Franklin-Lord Warrants"), which are
exercisable at any time through December 7, 1998, to purchase up to an aggregate
of 205,000 shares of common stock for $8.40 per share. The exercise of the
Franklin-Lord Warrants will further dilute the ownership interest of the holders
of common stock. The holders of the Franklin-Lord Warrants also received
piggy-back registration rights and one demand registration right which also may
be exercised through December 7, 1998.
The Company also issued warrants to purchase one share of the Company's
common stock, for each $10 in shares sold, exercisable at a price of $6.50 per
share, for a total of 400,750 shares, for a term of seven years, to Spelman &
Co., Inc. (the "Placement Agent"), in connection with its services in soliciting
and obtaining purchasers of 916,000 shares of the Company's common stock, in
April 1996. Such Placement Agent warrants ("Placement Agent Warrants") provide
for piggy-back registration rights at any time until May 1, 2003 and one demand
registration right for a term of three years. The exercise of the Placement
Agent Warrants will further dilute the ownership interest of the holders of
common stock. The shares underlying such Placement Agent Warrants are
included in the Shares being offered hereby.
LACK OF DIVIDENDS
The Company has never paid any cash dividends on its capital stock. The
Company presently intends to retain future earnings for use in its business and
does not anticipate paying cash dividends in the foreseeable future.
Additionally, the terms of the Company's bank credit facility obtained in
December 1995 prohibit the payment of cash dividends on its capital stock.
MATERIAL CHANGES
REINCORPORATION IN DELAWARE
On August 7, 1996, the Company changed its state of incorporation from
California to Delaware. In connection with the reincorporation, the Company
increased the number of shares of common stock authorized from 20,000,000 to
70,000,000 and decreased the number of shares of Preferred Stock authorized from
5,000,000 to 1,000,000. The Delaware Certificate of Incorporation and Bylaws
provide that a director may be removed with or without cause by the affirmative
vote of the holders of at least 66 2/3 percent of the voting power of the then
outstanding voting stock of the Company, voting together as a single class.
Under the Delaware Certificate of Incorporation and Bylaws, the Company's
stockholders do not have the ability to act by written consent without a meeting
of the stockholders, nor do they have the right to cumulative voting for
directors.
In addition, Section 203 of the Delaware General Corporation Law restricts
certain business combinations with any "interested stockholder" as defined by
such statute. Section 203 may have the effect of delaying, deferring or
preventing a change in control of the Company and limit the flexibility of
stockholders to determine the composition of the Company's Board of Directors or
make other changes, even in circumstances where a majority of the stockholders
may desire change. Further, certain other provisions of the Company's
Certificate of Incorporation and Bylaws and of Delaware law could delay or make
more difficult a merger, tender offer or proxy contest involving the Company.
ADOPTION OF SHAREHOLDER RIGHTS PLAN
As disclosed by the Company's Form 8-A and its Current Report on Form 8-K
filed with the Commission on May 28, 1996, the Company adopted a shareholder
rights plan pursuant to a Rights Agreement dated as of May 15, 1996 with
Corporate Stock Transfer, as rights agent (the "Rights Agreement"). The Company
declared a dividend of one right for each outstanding share of common stock of
the Company, payable on May 20, 1996, to shareholders
8.
<PAGE>
of record on that date. If the rights under the Rights Agreement are not
exercised, such rights will expire on the earliest of (i) December 31, 2004,
(ii) redemption by the Company or (iii) consummation of a Permitted Offer
(defined as full tender offer approved by a majority of the Company's outside
directors) on terms that are fair to the Company's stockholders.
ADOPTION OF EMPLOYEE BENEFITS PLAN
In July 1996, the Company established a voluntary defined contribution
401(k) plan to be effective as of January 1996 that covers all employees that
are not covered by a collective bargaining agreement, which includes all of the
Company's employees, beginning on the first day of the calendar quarter after
having completed six months of service. The plan allows for employer matching
contributions. The Company is currently matching fifty percent (50%) of the
first six percent (6%) contributed by employees. Employee and employer matching
contributions are one hundred (100%) percent vested. The plan also provides for
a voluntary profit sharing contribution by the Company at its election based on
the eligible employees salary as a percent of total eligible salaries. Profit
sharing contributions vest over five years at twenty percent (20%) per year.
AMENDMENT OF STOCK OPTION PLAN
Effective August 1, 1996, the Company amended its First Amended and
Restated 1993 Stock Option Plan to increase the number of shares of common stock
reserved for issuance upon exercise of options granted thereunder from 1,200,000
to 1,740,000.
SELLING STOCKHOLDERS
In August 1996, the Company issued 3,500 shares of Preferred Stock at
$1,000 per share to certain Selling Stockholders in a private offering pursuant
to an exemption from registration under the Securities Act and exemptions
available under applicable state securities laws and regulations. In connection
therewith, the Company granted such Selling Stockholders registration rights
pursuant to a Registration Rights Agreement. Pursuant to the terms of such
Registration Rights Agreement the Company has prepared this Prospectus.
The Preferred Stock is convertible into shares of common stock of the
Company at any time commencing 90 days after the date of issuance and within two
(2) years of such date of issuance. The conversion price is computed at 80% of
the average closing bid prices of the Company's common stock as quoted on NASDAQ
for the five-day trading period ending on the day prior to the date of
conversion, and such price may not be greater than $9.00 per share. The Company
shall have the right to redeem the Preferred Stock in whole or in part (i) at
115% of the subscription price at any time prior to 90 days from the closing
date and (ii) at 120% of the subscription price at any time thereafter. The
Preferred Stock has a cumulative dividend of $40.00 per annum per share,
accruing from the date of issuance and payable quarterly out of funds legally
available for such purpose.
In connection with a private offering in April and May 1996, the Company
entered into Registration Rights Agreements with each of the purchasers of
the shares, which entitle each holder to include his or her or its shares in
any registration of the Company's securities either for its own account or
the account of a security holder or holders exercising their respective
demand registration rights. All of the participants in such private offering
have elected to include their shares in this Prospectus. Notwithstanding the
inclusion of such shares in this Propectus such shares cannot be sold for one
year from the date of issuance without the Placement Agent's prior written
consent. As discussed under "Ability to Issue Preferred Stock; Registration
Rights and Warrants" above, the holders of the twelve Placement Agent Warrants
have requested that the shares underlying such warrants, which aggregate 400,750
shares, be included in this Prospectus, pursuant to Section 3 of each Placement
Agent Warrant executed by each respective holder and the Company. The exercise
of the Placement Agent Warrants will further dilute the ownership interest of
holders of the Company's common stock.
The following table sets forth the number of shares of the Company's common
stock which each Selling Stockholder owned as of July 31, 1996 or will have the
right to acquire upon conversion of the Preferred Stock and the number of shares
of the Company's common stock being registered on behalf of each Selling
Stockholder.
9.
<PAGE>
Shares
Beneficially Owned Shares
Selling Stockholder Prior to Offering Being Registered
- ------------------- ------------------ ----------------
GFL Performance Fund Limited(1) 1,100,000 1,100,000
Pangaea Fund Limited(1) 200,000 200,000
Scott Coyle 122,978.5 122,978.5
Lincoln Heritage Life Insurance
Company 115,000 115,000
Infinity Fund L.P. 100,000 100,000
Sunbeam Ventures 100,000 100,000
Paul B. Sigfusson and Becky B. Sigfusson 100,000 100,000
Spelman & Co., Inc. 67,882 67,882
T.P.B. Investment Limited Partnership 50,000 50,000
Bradley T. Shaw 71,241 71,241
Daniel J. Gallery 35,500 10,000
Madsen Specialties, Inc. 30,000 30,000
Howard Falco 29,314 29,314
William R. Maines 25,000 25,000
Monica Koechlin 23,000 23,000
Vernon & Grace Thomsen, Inc. 22,000 22,000
James K. Farrelly 142,978.5 142,978.5
James M. Carrazza 20,429 20,429
Lyonshare Venture Capital 15,000 15,000
Harry A. and Lynda H. Khasigian,
Trustees f/b/o Khasigian Revocable
Living Trust dated 7-24-91 15,000 15,000
Nicholas Rizzo and Lori Rizzo,
Co-Trustees for Trust Account
dated 11-7-94 12,500 12,500
Lori Rizzo 12,500 12,500
Glen C. Cook 12,000 12,000
Glen C. Cook IRA 12,000 12,000
T. Charles Fial 11,000 11,000
Jeffrey T. Bartlett and
Adelynn R. Bartlett 10,000 10,000
Bert & Sandra Coyle 10,000 10,000
Phoenix Metropolitan Investors, Ltd. 10,000 10,000
Rainwater Ltd. 10,000 10,000
The 1990 Dean Family Revocable
Trust UA May 1, 1990 20,000 10,000
Greg Stoia 10,143 10,143
Christopher G. Gillam 10,000 10,000
Ronald J. Faust 10,000 10,000
Lanny B. Lahr 10,000 10,000
Sharon H. Semple 10,000 10,000
The Moone Family Trust Established 1986 10,000 10,000
Greg K. Smith 6,625 6,625
NBD Bank, Trustee for Alfred J.
Zacker HR-10 Profit Sharing Plan 6,000 6,000
Blackhawk Corporation 5,323 5,323
10.
<PAGE>
Shares
Beneficially Owned Shares
Selling Stockholder Prior to Offering Being Registered
- ------------------- ------------------ ----------------
Lanny Stout 5,143 5,143
Vincenzo Mammana 5,000 5,000
Steven L. Chinskey and
Faith H. Chinsky 5,000 5,000
Thomas G. & Susan E. Lusty 5,000 5,000
John E. Cramer, Trustee f/b/o 5,000 5,000
John E. Cramer Defined
Benefit Plan dated 12-28-85
Richard C. Feinberg 5,000 5,000
Dwight & Judy Hiscox 5,000 5,000
Charles Edward Hikes III 5,000 5,000
Donohue Bunch & Nancy Bunch 5,000 5,000
Satoru Niimoto 5,000 5,000
Vestal Venture Capital 5,000 5,000
Howard S. Falco Profit Sharing Plan 4,000 4,000
Marshall C. Stevens and
Kimberly Stevens 4,000 2,000
Gary Falco 2,500 2,500
Ann McCarty 2,500 2,500
Robert J. Otto and Lynn Ann Otto
1985 Trust Dated 12/23/85 2,000 2,000
Gary A. Parsons 2,000 2,000
James V. Stoia 2,000 2,000
Steve Mallia 1,286 1,286
Anthony W. Giannini 500 500
Carolyn Mar 230 230
----- -----
Total: 2,659,573 2,622,073
(1) The Certificate of Designations designating the Company's Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock provides
that GFL Performance Fund Limited and Pangaea Fund Limited may not convert the
Preferred Stock at any time to acquire a number of shares of common stock in
excess of that number which would result in beneficial ownership of more than
4.9% of the Company's outstanding common stock at any time.
Because the Selling Stockholders may offer all or some of the shares of
common stock which they hold pursuant to the offering contemplated by this
Prospectus, and because such offering is not being underwritten on a firm
commitment basis, no estimate can be given as to the number of shares that will
be held by the Selling Stockholders after completion of such offering.
Norman E. Dean is Trustee of the 1990 Dean Family Revocable Trust UA May
1990, a Selling Stockholder, and is the President, Chief Executive Officer
and a director of the Company. E. Michael Moone is Trustee of the Moone
Family Trust established 1986, and he, Daniel J. Gallery and Christopher G.
Gillam, each a Selling Stockholder, are directors of the Company. Marshall C.
Stevens, a Selling Stockholder, is Senior Vice President of Manufacturing of
the Company. Robert J. Otto, a Selling Stockholder, is Executive Vice President
of the Company. Carolyn Mar, a Selling Stockholder, is the Vice President-Legal
Affairs and Secretary of the Company.
PLAN OF DISTRIBUTION
The Company has been advised by the Selling Stockholders that they may sell
all or a portion of the Shares from time to time on the Nasdaq National Market,
or otherwise, at prices and on terms prevailing at the time of sale or at prices
related to the then current market price, or in negotiated transactions. The
Shares may be sold by one or more of the following methods: (a) a block trade
in which the broker or dealer so engaged will attempt to sell the Shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer as principal and
resale by such broker or dealer for its own account pursuant to this Prospectus;
(c) an over-the-counter distribution in accordance with the rules of the Nasdaq
National Market; (d) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; and (e) in privately negotiated transactions.
There is no assurance that the Selling Stockholders will offer or sell any or
all of the Shares registered hereunder.
11.
<PAGE>
The Selling Stockholders and any underwriters, dealers or agents that
participate in the distribution of the Shares may be deemed to be underwriters
within the meaning of the Securities Act and any discounts, commissions or
concessions received by them and any provided pursuant to the sale of the shares
by them might be deemed to be underwriting discounts and commissions under the
Securities Act.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless such Shares have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares may not simultaneously engage in
market making activities with respect to such Shares for a period of nine
business days prior to the commencement of such distribution. In addition and
without limiting the foregoing, each Selling Stockholder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Rules 10b-2, 10b-6 and 10b-7, which
may limit the timing of purchases and sales of the Shares by the Selling
Stockholders. All of the foregoing may affect the marketability of the Shares.
The Shares registered hereby are being registered pursuant to
Registration Rights Agreements and Warrants between the Selling Stockholders and
the Company. Pursuant to such Registration Rights Agreements and Warrants the
Company has agreed to bear certain expenses of registration of the Shares
under the Securities Act. In addition, the Registration Rights Agreements
provide for cross-indemnification and contribution of the Company and the
Selling Stockholders against certain liabilities, including liabilities under
the Securities Act.
The Company has agreed with certain of the Selling Stockholders to keep the
Registration Statement of which this Prospectus constitutes a part hereof
effective for up to thirty (30) months following the date on which such
Registration Statement becomes effective. The Company intends to de-register
any of the Shares not sold by the Selling Stockholder at the end of such thirty
(30) month period.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Shares by the
Selling Stockholders.
LEGAL MATTERS
The legality of the Shares is being passed upon by Graham & James LLP, a
California registered limited liability partnership including professional
corporations, San Francisco, California.
EXPERTS
The consolidated financial statements for the year ended December 31, 1995
of the Company incorporated in this Prospectus by reference from the Company's
Annual Report on Form 10-K for the year ended December 31, 1995, as amended by
Form 10-K/A, have been audited by Deloitte & Touche LLP, independent public
auditors, as set forth in their report which is incorporated herein by
reference in reliance upon such report given upon their authority of such firm
as experts in auditing and accounting.
The consolidated financial statements for the years ended December 31,
1993 and January 1, 1995 of the Company included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, as amended by Form
10-K/A have been audited by Arthur Andersen LLP, independent public
accountants, as set forth in their report included therein, and are
incorporated herein by reference in reliance upon such report of said firm
as experts in auditing and accounting.
As disclosed in the Company's Current Reports on Form 8-K filed on
December 26, 1995 and December 27, 1995, the Company engaged Deloitte & Touche
LLP to serve as its independent public accountants, replacing Arthur
Andersen LLP, who resigned as the Company's independent public accountants. The
reports of Arthur Andersen LLP on the financial statements of the Company
neither contained any adverse opinion or disclaimer of opinion nor were
qualified or modified as to uncertainty, audit scope or accounting principles.
The Company's Current Reports on Form 8-K referenced above set forth the only
disagreements between the Company and Arthur Andersen LLP with respect to any
matters of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which if not resolved to the satisfaction of Arthur
Andersen LLP, would have caused it to make reference
12.
<PAGE>
to the subject matter of the disagreement in its report. Such matters were
resolved to the satisfaction of Arthur Andersen LLP.
13.
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON
IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
2,622,073 SHARES
MONTEREY PASTA COMPANY
COMMON STOCK
-----------------------------
PROSPECTUS
-----------------------------
-----------------------------
TABLE OF CONTENTS
PAGE
----
Available Information. . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain
Documents by Reference . . . . . . . . . . . . . . . . . . . . 2
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Material Changes . . . . . . . . . . . . . . . . . . . . . . . . 8
Selling Stockholders . . . . . . . . . . . . . . . . . . . . . . 9
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . 11
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 12
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . 12
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
----------------------
August , 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission registration fees and the NASD
filing fee. The Company intends to pay all expenses of registration, issuance
and distribution, excluding Underwriter's discounts and commissions, with
respect to the Shares being sold by the Selling Stockholders.
Amount to
Item be Paid
- ------------------------------ ---------
SEC Registration Fee . . . . . . . . . . . . . . . . . $ 4,973
NASD Registration Fee. . . . . . . . . . . . . . . . . 17,500
Printing and Engraving Expenses. . . . . . . . . . . . 5,000
Legal Fees and Expenses. . . . . . . . . . . . . . . . 10,000
Accounting Fees and Expenses . . . . . . . . . . . . . 20,000
Blue Sky Fees and Expenses . . . . . . . . . . . . . . 5,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . . 5,000
--------
Total . . . . . . . . . . . . . . . . . . . . . . $ 67,473
--------
--------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to indemnify such persons, under
certain circumstances, for liabilities (including reimbursement of expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). The Registrant's Certificate of Incorporation and Bylaws provide for
indemnification of its officers and directors to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law and applicable law. The
Registrant has also entered into indemnification agreements with each of its
officers and directors and certain employees providing for indemnification of
such officers and directors by the Company to the maximum extent permitted by
law.
ITEM 16. EXHIBITS.
The following exhibits are filed with this Registration Statement:
EXHIBIT
NUMBER EXHIBIT TITLE
2.1 Agreement and Plan of Merger dated August 7, 1996 by and between
Monterey Pasta Company, a California corporation and Monterey Pasta
Company, a Delaware corporation (incorporated by reference from
Exhibit A to the Company's Proxy Statement for the Special Meeting of
Shareholders held on August 1, 1996, filed with the Securities and
Exchange Commission on June 27, 1996).
3.1 Certificate of Incorporation dated August 1, 1996 (incorporated by
reference from Exhibit B to the Company's Proxy Statement for the
Special Meeting of Shareholders held on August 1, 1996, filed with the
Securities and Exchange Commission on June 27, 1996).
3.2 Certificate of Designations of Series A Convertible Preferred Stock
(incorporated by reference from Annex I to the Subscription Agreement
dated July 31, 1996, filed as Exhibit
II-1
<PAGE>
4.1 herewith).
3.3 Certificate of Designations of Series B Convertible Preferred Stock
(incorporated by reference from Annex I to the Subscription Agreement
dated August 9, 1996, filed as Exhibit 4.3 herewith).
3.4 Bylaws (incorporated by reference from Exhibit C to the Company's
Proxy Statement for the Special Meeting of Shareholders held on August
1, 1996, filed with the Securities and Exchange Commission on June 27,
1996).
4.1 Subscription Agreement, dated as of July 31, 1996.
4.2 Registration Rights Agreement, dated as of July 31, 1996.
4.3 Subscription Agreement, dated as of August 9, 1996.
4.4 Registration Rights Agreement, dated as of August 9, 1996.
4.5 Form of Warrant for purchase of the Company's Common Stock, dated as
of July 1, 1996.
5.1 Opinion and Consent of Graham & James LLP.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Arthur Andersen LLP.
23.4 Consent of Graham & James LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included in the Signature Page contained in Part II
of the Registration Statement).
ITEM 17. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by section 10(a)(3) of the Securities Act of 1933 (the
"Securities Act"); (ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement;
notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; (iii) to include any material
information with respect to the plan of distribution not previously disclosed in
the registration statement or any material change to such information in the
registration statement; PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the registration statement is on Form S-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-2
<PAGE>
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
D. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Francisco, State of California, on August 21,
1996.
MONTEREY PASTA COMPANY
By: /s/ NORMAN E. DEAN
-----------------------------------
Norman E. Dean
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the persons whose signatures appear below,
hereby constitute and appoint Norman E. Dean and Carolyn Mar, jointly and
severally, and each of them, his true and lawful attorneys-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments,
including post-effective amendments, to this Registration Statement, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agent, full power and authority to do and perform each and every act
and thing requisite and necessary to be done, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof. This Power of
Attorney may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
II-4
<PAGE>
Signature Title Date
--------- ----- ----
/s/ NORMAN E. DEAN President, Chief Executive Officer
- ----------------------- and Director (Principal Executive August 21, 1996
Norman E. Dean Officer
/s/ STEPHEN J. KENNEDY Chief Financial Officer (Principal August 21, 1996
- ----------------------- Financial Officer and Principal
Stephen J. Kennedy Accounting Officer)
/s/ CHARLES B. BONNER Director August 21, 1996
- -----------------------
Charles B. Bonner
/s/ DANIEL J. GALLERY Director August 21, 1996
- -----------------------
Daniel J. Gallery
/s/ CHRISTOPHER GILLAM Director August 21, 1996
- -----------------------
Christopher Gillam
/s/ FLOYD R. HILL Director August 21, 1996
- -----------------------
Floyd R. Hill
/s/ E. MICHAEL MOONE Director August 21, 1996
- -----------------------
E. Michael Moone
II-5
<PAGE>
/s/ LANCE H. MORTENSEN Director August 21, 1996
- -----------------------
Lance H. Mortensen
/s/ TIMOTHY J. RYAN Director August 21, 1996
- -----------------------
Timothy J. Ryan
II-6
<PAGE>
INDEX TO EXHIBITS
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- ------ ------- -------------
2.1 Agreement and Plan of Merger dated August 7, 1996 by **
and between Monterey Pasta Company, a California
corporation and Monterey Pasta Company, a Delaware
corporation (incorporated by reference from
Exhibit A to the Company's Proxy Statement for the
Special Meeting of Shareholders held on August 1,
1996, filed with the Securities and Exchange
Commission on June 27, 1996).
3.1 Certificate of Incorporation dated August 1, 1996 **
(incorporated by reference from Exhibit B to the
Company's Proxy Statement for the Special Meeting
of Shareholders held on August 1, 1996, filed with
the Securities and Exchange Commission on June 27,
1996).
3.2 Certificate of Designations of Series A Convertible **
Preferred Stock (incorporated by reference from
Annex I to the Subscription Agreement dated July
31, 1996, filed as Exhibit 4.1 herewith).
3.3 Certificate of Designations of Series B Convertible **
Preferred Stock (incorporated by reference from
Annex I to the Subscription Agreement dated August
9, 1996, filed as Exhibit 4.3 herewith).
3.4 Bylaws (incorporated by reference from Exhibit C **
to the Company's Proxy Statement for the Special
Meeting of Shareholders held on August 1, 1996,
filed with the Securities and Exchange Commission
on June 27, 1996).
4.1 Subscription Agreement, dated as of July 31, 1996.
4.2 Registration Rights Agreement, dated as of July
31, 1996.
4.3 Subscription Agreement, dated as of August 9,
1996.
4.4 Registration Rights Agreement, dated as of August
9, 1996.
4.5 Form of Warrant for purchase of the Company's
Common Stock dated as of July 1, 1996.
5.1 Opinion and Consent of Graham & James LLP.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Arthur Andersen LLP.
23.4 Consent of Graham & James LLP (included in Exhibit
5.1.)
24.1 Power of Attorney (included in the Signature Page
contained in Part II of the Registration
Statement).
- ---------------------
** Previously filed and incorporated herein by reference.
<PAGE>
SUBSCRIPTION AGREEMENT
(GFL Performance Fund Limited)
THIS SUBSCRIPTION AGREEMENT, dated as of the date of acceptance set forth
below, by and between MONTEREY PASTA COMPANY, a California corporation, with
headquarters located at 353 Sacramento Street, Suite 500, San Francisco,
California 94111 (the "Company"), and the undersigned (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon exemptions from securities registration under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, shares of nonvoting, convertible preferred stock
of the Company which will be convertible into shares of Common Stock, no par
value, including the related rights pursuant to the Rights Agreement, dated as
of May 15, 1996, between the Company and Corporate Stock Transfer, as Rights
Agent, as amended from time to time in accordance with its terms ( the "Rights
Agreement") (such shares and rights collectively the "Common Stock"), of the
Company, subject to acceptance of this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(a) SUBSCRIPTION. The undersigned hereby agrees to purchase from the
Company the number of shares (the "Preferred Shares") of Series A Convertible
Preferred Stock, no par value (the "Preferred Stock"), of the Company set forth
on the signature page of this Agreement, having the terms and conditions as set
forth in the form of Certificate of Determination of Preferences of Series A
Convertible Preferred Stock attached hereto as ANNEX I (the "Certificate of
Determinations") at the price per share and for the aggregate purchase price set
forth on the signature page of this Agreement. The purchase price for the
Preferred Shares shall be payable in United States Dollars in immediately
available funds. The shares of Common Stock issuable upon conversion of the
Preferred Shares are referred to herein as the "Common Shares." The Common
Shares and the Preferred Shares are referred to herein collectively as the
"Shares."
(b) FORM OF PAYMENT. The Buyer shall pay the purchase price for the
Preferred Shares by delivering good funds in United States Dollars to the escrow
agent (the "Escrow Agent") identified
<PAGE>
in the Joint Escrow Instructions attached hereto as ANNEX II (the "Joint Escrow
Instructions"). Such delivery of funds shall be made against delivery by the
Company of the certificates for the Preferred Shares registered in the name of
the Buyer. Promptly following payment by the Buyer to the Escrow Agent of the
purchase price of the Preferred Shares, but in no event later than the Closing
Date, the Company shall deliver certificates for the Preferred Shares,
registered in the name of the Buyer, to the Escrow Agent. By signing this
Agreement, the Buyer and the Company each agrees to all of the terms and
conditions of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth in
full.
(c) METHOD OF PAYMENT. Payment of the purchase price for the Preferred
Shares shall be made by wire transfer of funds to:
Citibank, N.A.
153 East 53rd Street
New York, New York 10043
ABA#021000089
For Further Credit to A/C#37179446
for credit to the account of Brian W. Pusch Attorney Escrow Account
Reference: GFL/Pasta
Not later than 4:00 p.m., New York City time, on the date which is one New
York Stock Exchange trading day after the Company shall have accepted this
Agreement and returned a signed counterpart of this Agreement to the Buyer, the
Buyer shall deposit with the Escrow Agent the aggregate purchase price for the
Preferred Shares.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
(a) The Buyer is purchasing the Preferred Shares for its own account for
investment only and not with a view towards the public sale or distribution
thereof;
(b) The Buyer is an "accredited investor" as that term is defined in Rule
501 of the General Rules and Regulations under the 1933 Act by reason of Rule
501(a)(3);
(c) All subsequent offers and sales of the Shares by the Buyer shall be
made pursuant to registration of the Shares being offered and sold under the
1933 Act or pursuant to an exemption from registration;
-2-
<PAGE>
(d) The Buyer understands that the Preferred Shares are being offered and
sold, and the Common Shares are being offered, to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Preferred Shares and to receive an offer of the Common Shares;
(e) The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Preferred Shares and the
offer of the Common Shares which have been requested by the Buyer. The Buyer
and its advisors, if any, have been afforded the opportunity to ask questions
of the Company and have received complete and satisfactory answers to any
such inquiries. Without limiting the generality of the foregoing, the Buyer
has had the opportunity to obtain and to review the Company's (1) Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, as amended
by Form 10-K/A (2) Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1996, (3) press release dated July 24, 1996 concerning the
Company's financial results for the fiscal quarter ended June 30, 1996, (4)
Current Reports on Form 8-K, dated April 19, 1996 and May 15, 1996, (5) the
Company's definitive Proxy Statement for its 1996 Annual Meeting of
Shareholders and (6) the Company's definitive Proxy Statement for its special
meeting of shareholders to be held on August 1, 1996, in each case as filed
with the Securities and Exchange Commission (the "SEC"). The Buyer
understands that its investment in the Shares involves a high degree of risk;
(f) The Buyer understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Shares; and
(g) This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
3. COMPANY REPRESENTATIONS, WARRANTIES, ETC.
The Company represents and warrants to, and covenants and agrees with, the
Buyer that:
(a) CONCERNING THE SHARES. The Shares have been duly authorized and the
Preferred Shares, when issued and paid for in accordance with this Agreement,
and the Common Shares, when issued
-3-
<PAGE>
upon conversion of the Preferred Shares, will be duly and validly issued, fully
paid and non-assessable and will not subject the holder thereof to personal
liability by reason of being such holder. There are no preemptive rights of any
stockholder of the Company, as such, to acquire any of the Shares. The Common
Stock is listed for trading on the Nasdaq National Market ("Nasdaq") and (1) the
Company and the Common Stock meet the criteria for continued listing and trading
on Nasdaq; (2) the Company has not been notified since January 1, 1994 by the
National Association of Securities Dealers, Inc. ("NASD") of any failure or
potential failure to meet the criteria for continued listing and trading on
Nasdaq and (3) no suspension of trading in the Common Stock is in effect.
(b) SUBSCRIPTION AGREEMENT; REGISTRATION RIGHTS AGREEMENT. This Agreement
and the Registration Rights Agreement, the form of which is attached hereto as
ANNEX III (the "Registration Rights Agreement"), have been duly and validly
authorized by the Company, this Agreement has been duly executed and delivered
on behalf of the Company and this Agreement is and the Registration Rights
Agreement, when executed and delivered by the Company, will be, valid and
binding agreements of the Company enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally; for purposes of the Rights
Agreement, this Agreement and the transactions contemplated hereby are an action
or transaction or a series of related actions or transactions approved by the
Board of Directors, as a result of which the Buyer shall not, by reason of this
Agreement and the transactions contemplated hereby, become an Acquiring Person
(as defined in the Rights Agreement); and the Rights Agreement, in the form
filed with the SEC as an exhibit to the Company's Current Report on Form 8-K,
dated May 15, 1996, is the Rights Agreement as in effect on the date hereof.
(c) NON-CONTRAVENTION. The execution and delivery of this Agreement by
the Company and the consummation by the Company of the issuance of the Preferred
Shares and the other transactions contemplated by this Agreement, the
Registration Rights Agreement and the terms of the Preferred Stock do not and
will not conflict with or result in a breach by the Company of any of the terms
or provisions of, or constitute a default under, the certificate of
incorporation or by-laws of the Company, or any indenture, mortgage, deed of
trust or other material agreement or instrument to which the Company is a party
or by which it or any of its properties or assets are bound, or any applicable
law, rule or regulation or any applicable decree, judgment or order of any
court, United States federal or state regulatory body, administrative agency or
other governmental body having jurisdiction over the Company or any of its
properties or assets.
(d) APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-
-4-
<PAGE>
regulatory organization, or stock exchange or market or the stockholders of the
Company is required to be obtained by the Company for the issuance and sale of
the Shares as contemplated by this Agreement and the Preferred Stock.
(e) INFORMATION PROVIDED. The information provided by or on behalf of the
Company to the Buyer and referred to in Section 2(e) of this Agreement does not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstance under which they are made, not misleading.
(f) ABSENCE OF CERTAIN CHANGES. Since December 31, 1995, there has been
no material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or prospects
of the Company, except as disclosed in the documents referred to in Section 2(e)
hereof.
(g) ABSENCE OF LITIGATION. There is no action, suit, proceeding, inquiry
or investigation before or by any court, public board or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company or any of its subsidiaries, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business, condition (financial or other), results of operations or
prospects of the Company and its subsidiaries taken as a whole or the
transactions contemplated by this Agreement or any of the documents contemplated
hereby or which would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, this
Agreement or any of such other documents.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(a) TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) the Preferred
Shares have not been and are not being registered under the provisions of the
1933 Act and, except as provided in the Registration Rights Agreement, the
Common Shares have not been and are not being registered under the 1933 Act, and
may not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Shares to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Shares made in reliance on
Rule 144 promulgated under the 1933 Act may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any such resale
of Shares under circumstances in which the seller, or the person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (3) neither the
Company nor any other person
-5-
<PAGE>
is under any obligation to register the Shares (other than pursuant to the
Registration Rights Agreement) under the 1933 Act or to comply with the terms
and conditions of any exemption thereunder (other than pursuant to Section 4(d)
hereof and pursuant to the Registration Rights Agreement).
(b) RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that the
certificates for the Preferred Shares and, until such time as the Common Shares
have been registered under the 1933 Act as contemplated by the Registration
Rights Agreement, the certificates for the Common Shares, may bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for the Shares):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be sold, transferred or assigned in the
absence of an effective registration statement for the securities under the
Securities Act of 1933, as amended, or an opinion of counsel that
registration is not required under said Act.
(c) REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter into
the Registration Rights Agreement on or before the Closing Date.
(d) FORM D. The Company agrees to file a Form D with respect to the Shares
as required under Regulation D and to provide a copy thereof to the Buyer
promptly after such filing. The Buyer agrees to cooperate with the Company in
connection with such filing and, upon request of the Company, to provide all
information relating to the Buyer required for such filing.
(e) AUTHORIZATION FOR TRADING; REPORTING STATUS. As soon as possible, but
in no event later than five business days after the Closing Date, the Company
shall file a listing application for the Common Shares with Nasdaq and shall
provide evidence of such filing to the Buyer. So long as the Buyer beneficially
owns any of the Preferred Shares or the Common Shares, the Company shall file
all reports required to be filed with the SEC pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination.
(f) USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Preferred Shares for the Company's internal working capital purposes and not
for the purpose of any investment in or loan to any other corporation,
partnership, enterprise or other person; PROVIDED, HOWEVER, that the proceeds
may be used for
-6-
<PAGE>
loans to companies which are wholly-owned subsidiaries at all times when such
loans are outstanding.
(g) BLUE SKY LAWS. On or before the Closing Date, the Company shall take
such action as shall be necessary to qualify, or to obtain an exemption for, the
Preferred Shares for sale to the Buyer pursuant to this Agreement and the Common
Shares for issuance to the Buyer on conversion of the Preferred Shares under
such of the securities or "blue sky" laws of jurisdictions in the United States
as shall be applicable to the sale of the Preferred Shares to the Buyer pursuant
to this Agreement and the issuance of the Common Shares to the Buyer on
conversion of the Preferred Shares. The Company shall furnish copies of all
filings, applications, orders and grants or confirmations of exemptions relating
to such securities or "blue sky" laws on or prior to the Closing Date.
(h) CERTAIN EXPENSES. If the closing occurs, the Company shall pay or
reimburse the Buyer for all reasonable legal fees and expenses of counsel to the
Buyer for the preparation and negotiation of, and closing under, this Agreement
(but not to exceed $10,000). The obligations of the Company under the
provisions of this Section 4(g) shall be in addition to the obligation of the
Company for expenses under the Registration Rights Agreement.
(i) ISSUANCE OF SHARES OF OTHER SERIES OF PREFERRED STOCK. Unless the
Company obtains Shareholder Approval (as defined in the Certificate of
Determinations) or a waiver thereof from the NASD, the Company will not issue
any other series of preferred stock (the "Additional Shares") convertible into
Common Stock of the Company which would violate the 20% rule as set forth in
Section 4460(i)(1)(D) of the rules of the NASD (or any successor or replacement
provision thereof); PROVIDED, HOWEVER, that the Company shall be permitted to
issue up to 2,000 Additional Shares, the purchase price for such Additional
Shares and all other terms and conditions with respect to such Additional Shares
shall be substantially similar to the terms and conditions of the Preferred
Shares; PROVIDED FURTHER, HOWEVER, the Company will not issue any Additional
Shares to any person at a price per share less than $1,000.00 per share and will
not pay brokerage commissions or placement agent fees in connection therewith in
excess of the customary amount thereof.
(j) MERGER. In connection with the merger (the "Merger") of the Company
with and into Monterey Pasta Company, a Delaware corporation (the "Surviving
Corporation"), contemplated by the Agreement and Plan of Merger (draft dated
June 28, 1996) (the "Merger Agreement") to be voted upon by the Company's
shareholders on August 1, 1996, the Company shall provide to the Buyer a copy of
the Merger Agreement, shall inform the Buyer in writing of any and all
amendments or changes to the Merger Agreement and shall inform the Buyer in
writing of the
-7-
<PAGE>
consummation of the Merger pursuant thereto within one business day thereafter.
The Company shall not enter into the Merger Agreement or permit the consummation
of the Merger contemplated thereby unless the Merger Agreement makes adequate
provision so that, upon consummation of the Merger each outstanding share of
Preferred Stock outstanding immediately prior thereto shall, by virtue of the
Merger, and without any action on the part of the holders of such shares or any
other person, be converted into and exchanged for one fully-paid and
nonassessable share of preferred stock of the Surviving Corporation having
substantially the same rights, priority and preferences as the Preferred Stock.
In furtherance thereof, at or before consummation of the Merger pursuant to the
Merger Agreement, the Company shall cause the Surviving Corporation to file with
the Secretary of State of the State of Delaware a certificate of designations,
rights and preferences for Series A Preferred Stock or other appropriate
instrument (the "Certificate of Designations"), which shall establish a series
of the Surviving Corporation which has such rights, priorities and preferences.
Prior to filing with the Secretary of State, the Company shall furnish to the
Buyer a copy of the Certificate of Designations for the Buyer's review and
approval.
5. TRANSFER AGENT INSTRUCTIONS; CONVERSION PROCEDURE.
(a) TRANSFER AGENT INSTRUCTIONS. Promptly following the delivery by the
Buyer of the aggregate purchase price for the Preferred Shares in accordance
with Section 1(c) hereof, and prior to the Closing Date the Company will
irrevocably instruct its transfer agent to issue certificates for the Common
Shares from time to time upon conversion of the Preferred Shares in such amounts
as specified from time to time to the transfer agent in the Conversion
Certificates surrendered in connection with such conversions and referred to in
Section 5(b) of this Agreement, such certificates to bear the restrictive legend
specified in Section 4(b) of this Agreement prior to registration of the Common
Shares under the 1933 Act, registered in the name of the Buyer or its nominee
and in such denominations to be specified by the Buyer in connection with each
conversion of Preferred Shares. The Company warrants that no instruction other
than such instructions referred to in this Section 5 and stop transfer
instructions to give effect to Section 4(a) hereof prior to registration of the
Common Shares under the 1933 Act will be given by the Company to the transfer
agent and that the Common Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement. Nothing in this Section 5(a) shall affect in any way the Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of the Shares and to comply with the terms and conditions of the
Certificate of Determinations. If the Buyer provides the Company with an
opinion of counsel reasonably satisfactory in form, scope and substance to the
Company that registration of a resale by the Buyer of any of the Shares in
accordance with clause (1) (B) of Section 4(a) of this Agreement is not required
under the 1933 Act,
-8-
<PAGE>
the Company shall permit the transfer of such Shares and, in the case of the
Common Shares, promptly, but in no event later than three business days after
receipt of such opinion, instruct the Company's transfer agent to issue upon
transfer one or more share certificates in such name and in such denominations
as specified by the Buyer. The provisions of Section 3(n) of the Registration
Rights Agreement shall supersede this Section 5(a) once said Section 3(n)
becomes applicable.
(b) CONVERSION PROCEDURE. In connection with the exercise of conversion
rights relating to the Preferred Shares, if the Common Shares issuable upon
conversion of the Preferred Shares have not been registered under the 1933 Act
prior to such conversion, the Buyer or any subsequent holder of the Preferred
Shares shall, in addition to any other requirement imposed by the terms of the
Preferred Shares as set forth in the Certificate of Designation, complete, sign
and furnish to the Company a conversion certificate in the form attached hereto
as ANNEX IV.
6. STOCK DELIVERY INSTRUCTIONS.
The certificates for the Preferred Shares shall be delivered by the Company
to the Escrow Agent pursuant to Section l(b) hereof on a delivery against
payment basis at the closing.
7. CLOSING DATE.
The date and time of the issuance and sale of the Preferred Shares (the
"Closing Date") shall be 12:00 noon, New York City time, on the date which is
one New York Stock Exchange trading day after the date on which the Buyer has
deposited the purchase price for the Preferred Shares with the Escrow Agent in
accordance with Section l(c) hereof, or such other mutually agreed to time. The
closing shall occur on the Closing Date at the offices of the Escrow Agent.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE.
The Buyer understands that the Company's obligation to sell the Preferred
Shares to the Buyer pursuant to this Agreement is conditioned upon:
(a) The receipt and acceptance by the Company of this Agreement as
evidenced by execution of this Agreement by the Company and delivery of an
executed counterpart of this Agreement to the Buyer or its legal counsel;
(b) Delivery by the Buyer to the Escrow Agent of good funds as payment in
full of an amount equal to the purchase price for the Preferred Shares in
accordance with Section 1(c) hereof; and
-9-
<PAGE>
(c) The accuracy on the Closing Date of the representations and warranties
of the Buyer contained in this Agreement as if made on the Closing Date and the
performance by the Buyer on or before the Closing Date of all covenants and
agreements of the Buyer required to be performed on or before the Closing Date.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Shares on the Closing Date is conditioned upon:
(a) Delivery by the Company to the Escrow Agent of the certificate for the
Preferred Shares in accordance with this Agreement;
(b) The accuracy on the Closing Date of the representations and warranties
of the Company contained in this Agreement as if made on the Closing Date and
the performance by the Company on or before the Closing Date of all covenants
and agreements of the Company required to be performed on or before such Closing
Date; and
(c) Receipt by the Buyer on the Closing Date of an opinion of counsel for
the Company, dated the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer, to the effect set forth in ANNEX V attached hereto.
10. GOVERNING LAW; MISCELLANEOUS.
(a) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of California.
(b) This Agreement may be executed in counterparts and by the parties
hereto on separate counterparts, all of which together shall constitute one and
the same instrument. A facsimile transmission of this signed Agreement bearing
a signature on behalf of a party hereto shall be legal and binding on such
party.
(c) The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
(d) If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
(e) This Agreement may be amended only by an instrument in writing signed
by the party to be charged with enforcement.
-10-
<PAGE>
(f) Any notices required or permitted to be given under the terms of this
Agreement shall be sent by mail or delivered personally (which shall include
telephone line facsimile transmission) or by courier and shall be effective five
days after being placed in the mail, if mailed, or upon receipt, if delivered
personally or by courier, in each case addressed to a party at such party's
address shown in the introductory paragraph or on the signature page of this
Agreement (facsimile number 415-397-7781, in the case of the Company, and 703-
476-7711, in the case of the Buyer) or such other address as a party shall have
provided by notice to the other party in accordance with this provision. The
Buyer hereby designates as its address for any notice required or permitted to
be given to the Buyer pursuant to the Certificate of Determinations the
following: GFL Performance Fund Limited, c/o Genesee Advisers, 12007 Sunrise
Valley Drive, Suite 460, Reston, Virginia 22091 (facsimile number 703-476-7711),
until the Buyer shall designate another address for such purpose.
(g) The Buyer shall have the right to assign its rights and obligations
under this Agreement with respect to the purchase of all or any portion of the
Preferred Shares to another investment fund, provided such assignee, by written
instrument duly executed by such assignee, assumes all obligations of the Buyer
hereunder with respect to the purchase of the portion of the Preferred Shares so
assigned and makes the same representations and warranties with respect thereto
as the Buyer makes in this Agreement, whereupon the Buyer shall be relieved of
any further obligations, responsibilities and liabilities with respect to the
purchase of all or the portion of the Preferred Shares the obligation for the
purchase of which has been so assigned. In the case of any such assignment, the
Company shall agree in writing with such assignee to make available to such
assignee the benefits of the Registration Rights Agreement with respect to the
Common Shares issuable on conversion of the Preferred Shares with respect to
which the purchase under this Agreement has been so assigned.
-11-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer or
one of its officers thereunto duly authorized as of the date set forth below.
NUMBER OF SHARES: 3,000
PRICE PER SHARE: $1,000.00
AGGREGATE PURCHASE PRICE: $3,000,000.00
NAME OF BUYER: GFL PERFORMANCE FUND LIMITED
SIGNATURE /s/ A.P. de Groot
-----------------
A.P. de Groot
Title: President
---------------------
Date: 7/31/96
----------------------
Address: c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
This Agreement has been accepted as of the date set forth below.
MONTEREY PASTA COMPANY
By: /s/ Norman E. Dean
--------------------------
Title: President & Chief Executive Officer
------------------------------------
Date: 7/31/96
--------
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<PAGE>
Annex I
to
Subscription
Agreement
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
MONTEREY PASTA COMPANY,
A CALIFORNIA CORPORATION
(Pursuant to Section 401 of the California Corporation Code)
---------------
The undersigned, Norman E. Dean and Carolyn Mar, hereby certify that:
1. They are the duly elected and acting President and Chief Executive
Officer and Secretary of Monterey Pasta Company, a California corporation (the
"Corporation".)
2. Under authority given by the Corporation's Articles of Incorporation,
the Board of Directors has duly adopted the following recitals and resolutions:
WHEREAS, Article Three of the articles of incorporation, as amended and
restated (as amended and restated, the "Articles of Incorporation"), of the
Corporation authorizes a class of shares known as Preferred Stock ("Preferred"),
consisting of Five Million (5,000,000) shares, divided into such number of
series as the Board may determine;
WHEREAS, Article Three of the Articles of Incorporation authorizes the
Board to determine and alter the rights, preferences, privileges and
restrictions granted to and imposed upon any wholly unissued series and to fix
the number of shares of any such series of Preferred and the designation of any
such series of Preferred;
WHEREAS, in connection with the proposed financing it is now the desire of
the Board, pursuant to the authority vested in it by the Articles of
Incorporation, to determine the rights, preferences, restrictions, and other
matters relating to a series of Preferred;
RESOLVED, that this Board hereby provides for the issuance of a series of
Preferred of the Corporation and hereby fixes and determines the rights,
preferences, restrictions, and other matters related to such series, as set
forth in the Certificate of Determination attached hereto as EXHIBIT A.
1.
<PAGE>
SERIES A CONVERTIBLE PREFERRED STOCK
SECTION 1. DESIGNATION AND AMOUNT. The shares of such Series shall be
designated as "Series A Convertible Preferred Stock" (the "Series A Convertible
Preferred Stock"), and the number of shares constituting the Series A
Convertible Preferred Stock shall be 3,000, and shall not be subject to
increase.
SECTION 2. STATED CAPITAL. The amount to be represented in stated
capital at all times for each share of Series A Convertible Preferred Stock
shall be the sum of (i) $1,000, (ii) to the extent legally available, the
accrued but unpaid dividends on such share of Series A Convertible Preferred
Stock, and (iii) to be determined on at least a quarterly basis, an amount equal
to the accrued and unpaid interest on dividends in arrears through the date of
determination (as provided in Section 4).
SECTION 3. RANK. All Series A Convertible Preferred Stock shall rank
(i) senior to the Common Stock, no par value including the related rights issued
pursuant to the Rights Agreement dated as of May 15, 1996, between the Company
and Corporate Stock Transfer, as Rights Agent, as amended from time to time in
accordance with its terms (the "Rights Agreement") (such shares and right,
collectively, the "Common Stock"), of the Corporation, now or hereafter issued,
as to payment of dividends and distribution of assets upon liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
and (ii) on a parity with any additional series of preferred stock of any class
which the Board of Directors or the stockholders, may from time to time
authorize, both as to payment of dividends and as to distributions of assets
upon liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary.
SECTION 4. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares of
Series A Convertible Preferred Stock shall be entitled to receive, when, as, and
if declared by the Board of Directors of the Corporation (the "Board of
Directors" or the "Board") out of funds legally available for such purpose,
dividends at the rate of $40.00 per annum per share, and no more, which shall be
fully cumulative, shall accrue without interest (except as otherwise provided
herein as to dividends in arrears) from the date of original issuance and shall
be payable in cash quarterly on January 1, April 1, July 1, and October 1 of
each year commencing October 1, 1996 (except that if any such date is a
Saturday, Sunday, or legal holiday, then such dividend shall be payable on the
next succeeding day that is not a Saturday, Sunday, or legal holiday) to holders
of record as they appear on the stock books of the Corporation on such record
dates, not more than 20 nor less than 10 days preceding the payment dates for
such dividends, as shall be fixed by the Board. Dividends on the Series A
Convertible Preferred Stock shall be paid in cash or, subject to the limitations
in Section 4(b) hereof, shares of Common Stock of the Corporation or any
combination of cash and shares of Common Stock, at the option of the Corporation
as hereinafter provided. The amount of the dividends payable per share of
Series A Convertible Preferred Stock for each quarterly dividend period shall be
computed by dividing the annual dividend amount by four. The amount of
dividends payable for the initial dividend period and any period shorter than a
full
2.
<PAGE>
quarterly dividend period shall be computed on the basis of a 360-day year of
twelve 30-day months. Dividends not paid on a payment date, whether or not such
dividends have been declared, will bear interest at the rate of 12% per annum or
at such rate as is legally permitted under applicable law, until paid. No
dividends or other distributions, other than dividends payable solely in shares
of Common Stock or other capital stock of the Corporation ranking junior as to
dividends to the Series A Convertible Preferred Stock (collectively, the "Junior
Dividend Stock"), shall be paid or set apart for payment on any shares of Junior
Dividend Stock, and no purchase, redemption, or other acquisition shall be made
by the Corporation of any shares of Junior Dividend Stock unless and until all
accrued and unpaid dividends on the Series A Convertible Preferred Stock and
interest on dividends in arrears at the rate specified herein shall have been
paid or declared and set apart for payment.
If at any time any dividend on any capital stock of the Corporation ranking
senior as to dividends to the Series A Convertible Preferred Stock (the "Senior
Dividend Stock") shall be in default, in whole or in part, no dividend shall be
paid or declared and set apart for payment on the Series A Convertible Preferred
Stock unless and until all accrued and unpaid dividends with respect to the
Senior Dividend Stock, including the full dividends for the then current
dividend period, shall have been paid or declared and set apart for payment,
without interest. No full dividends shall be paid or declared and set apart for
payment on any class or series or the Corporation's capital stock ranking, as to
dividends, on a parity with the Series A Convertible Preferred Stock (the
"Parity Dividend Stock") for any period unless all accrued but unpaid dividends
(and interest on dividends in arrears at the rate specified herein) have been,
or contemporaneously are, paid or declared and set apart for such payment on the
Series A Convertible Preferred Stock. No full dividends shall be paid or
declared and set apart for payment on the Series A Convertible Preferred Stock
for any period unless all accrued but unpaid dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of such full dividends. When dividends are not paid in full upon the
Series A Convertible Preferred Stock and the Parity Dividend Stock, all
dividends paid or declared and set apart for payment upon shares of Series A
Convertible Preferred Stock (and interest on dividends in arrears at the rate
specified herein) and the Parity Dividend Stock shall be paid or declared and
set apart for payment pro rata, so that the amount of dividends paid or declared
and set apart for payment per share on the Series A Convertible Preferred Stock
and the Parity Dividend Stock shall in all cases bear to each other the same
ratio that accrued and unpaid dividends per share on the shares of Series A
Convertible Preferred Stock and the Parity Dividend Stock bear to each other.
Any references to "distribution" contained in this Section 4 shall not be
deemed to include any stock dividend or distributions made in connection with
any liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary.
3.
<PAGE>
(b) If the Corporation elects in the exercise of its sole discretion to
issue shares of Common Stock in payment of dividends on the Series A Convertible
Preferred Stock, the Corporation shall issue and dispatch, or cause to be issued
and dispatched, to each holder of such shares a certificate representing the
number of whole shares of Common Stock arrived at by dividing the per share
Computed Price of such shares of Common Stock into the total amount of cash
dividends such holder would be entitled to receive if the aggregate dividends
on the Series A Convertible Preferred Stock held by such holder which are being
paid in shares of Common Stock; provided, however, that if certificates
representing shares of Common Stock are issued and dispatched to holders of
Series A Convertible Preferred Stock subsequent to the third trading day after a
dividend payment date, the percentage used to calculate the Computed Price will
be reduced by one percent for each trading day after the third trading day
following such dividend payment date to the date of dispatch of shares of Stock.
No fractional shares of Common Stock shall be issued in payment of dividends. In
lieu thereof, the Corporation may issue a number of shares of Common Stock to
each holder which reflects a rounding to the nearest whole number of shares of
Common Stock or may pay cash. The Corporation shall not exercise its right to
issue shares of Common Stock in payment of dividends on Series A Convertible
Preferred Stock if:
(i) the number of shares of Common Stock at the time authorized, unissued
and unreserved for all purposes, or held in the Corporation's treasury, is
insufficient to pay the portion of such dividends to be paid in shares of Common
Stock;
(ii) the issuance or delivery of shares of Common Stock as a dividend
payment would require registration with or approval of any governmental
authority under any law or regulation, and such registration or approval has not
been effected or obtained;
(iii) the shares of Common Stock to be issued as a dividend payment have
not been authorized for listing, upon official notice of issuance, on any
securities exchange or market on which the Common Stock is then listed; or have
not been approved for quotation if the Common Stock is traded in the over-the-
counter market;
(iv) the Shares of Common Stock (A) cannot be sold or transferred without
restriction by unaffiliated holders who receive such shares of Common Stock as a
dividend payment or (B) are no longer listed on a national securities exchange,
on the Nasdaq National Market or the Nasdaq SmallCap Market; or
(v) the issuance of shares of Common Stock in payment of dividends on
Series A Convertible Preferred Stock held by any Restricted Person (as defined
in Section 9(a) hereof) would result in any Restricted Person beneficially
owning more than 4.9% of the Common Stock, determined as provided in the proviso
to the second sentence of Section 9(a) hereof.
4.
<PAGE>
Shares of Common Stock issued in payment of dividends on Series A
Convertible Preferred Stock pursuant to this Section shall be, and for all
purposes shall be deemed to be, validly issued, fully paid and nonassessable
shares of Common Stock of the Corporation; the issuance and delivery thereof is
hereby authorized; and the dispatch thereof will be, and for all purposes shall
be deemed to be, payment in full of the cumulative dividends to which holders
are entitled on the applicable dividend payment date.
"Computed Price" of shares of Common Stock on any date means 100 percent of
the arithmetic average of the per share Closing Price (as defined in Section
9(b)) of the Common Stock on the five consecutive trading days ending on the
fifth trading day preceding the applicable dividend payment date.
SECTION 5. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series A Convertible Preferred Stock shall be entitled to receive
out of the assets of the Corporation, whether such assets constitute stated
capital or surplus of any nature, an amount per share of Series A Convertible
Preferred Stock equal to the sum of (i) all dividends accrued and unpaid thereon
to the date of final distribution to such holders, (ii) accrued and unpaid
interest on dividends in arrears to the date of distribution at the rate
specified in Section 4(a), and (iii) $1,000.00 (collectively, "the Liquidation
Preference"), and no more, before any payment shall be made or any assets
distributed to the holders of Common Stock, or any other class or series of the
Corporation's capital stock ranking junior as to liquidation rights to the
Series A Convertible Preferred Stock (collectively, the "Junior Liquidation
Stock"); PROVIDED, HOWEVER, that such rights shall accrue to the holders of
Series A Convertible Preferred Stock only in the event that the Corporation's
payments with respect to the liquidation preference of the holders of capital
stock of the Corporation ranking senior as to liquidation rights to the Series A
Convertible Preferred Stock (the "Senior Liquidation Stock") are fully met.
After the liquidation preferences of the Senior Liquidation Stock are fully met,
the entire assets of the Corporation available for distribution shall be
distributed ratably among the holders of the Series A Convertible Preferred
Stock and any other class or series of the Corporation's capital stock having
parity as to liquidation rights with the Series A Convertible Preferred Stock
(the "Parity Liquidation Stock") in proportion to the respective preferential
amounts to which each is entitled (but only to the extent of such preferential
amounts). After payment in full of the liquidation price of the shares of the
Series A Convertible Preferred Stock and the Parity Liquidation Stock, the
holders of such shares shall not be entitled to any further participation in any
distribution of assets by the Corporation. Neither a consolidation or merger of
the Corporation with another corporation nor a sale or transfer of all or part
of the Corporation's assets for cash, securities, or other property in and of
itself will be considered a liquidation, dissolution, or winding up of the
Corporation.
SECTION 6. NO MANDATORY REDEMPTION. The shares of Series A Convertible
Preferred Stock shall not be subject to mandatory redemption by the Corporation.
5.
<PAGE>
SECTION 7. NO SINKING FUND. The shares of Series A Convertible
Preferred Stock shall not be subject to the operation of a purchase, retirement,
or sinking fund.
SECTION 8. OPTIONAL REDEMPTION. So long as the Corporation is in
compliance in all material respects with its obligations to the holders of
shares of Series A Convertible Preferred Stock (including, without limitation,
its obligations under the Registration Rights Agreement between the Corporation
and the holder of the Series A Convertible Preferred Stock (the "Registration
Rights Agreement") and the provisions of this Certificate of Determination), the
Corporation shall have the right, exercisable on not less than 15 days or more
than 20 days written notice to the holders of record of the shares of Series A
Convertible Preferred Stock to be redeemed, at any time on or after the date of
initial issuance of shares of Series A Convertible Preferred Stock (the
"Issuance Date") to redeem at any time all, and from time to time any part of
the Series A Convertible Preferred Stock in accordance with this Section 8. Any
notice of redemption (a "Notice of Redemption") under this Section shall be
delivered to the holders of the shares of Series A Convertible Preferred Stock
at their addresses appearing on the records of the Corporation; PROVIDED,
HOWEVER, that any failure or defect in the giving of notice to any such holder
shall not affect the validity of notice to or the redemption of shares of Series
A Convertible Preferred Stock of any other holder. Any Notice of Redemption
shall state (1) that the Corporation is exercising its right to redeem all or a
portion of the outstanding shares of Series A Convertible Preferred Stock
pursuant to this Section 8, (2) the number of shares of Series A Convertible
Preferred Stock held by such holder which are to be redeemed (3) the
Redemption Price (as hereinafter defined) per share of Series A Convertible
Preferred Stock to be redeemed, determined in accordance with this Section and
(4) the date of redemption of such shares of Series A Convertible Preferred
Stock, determined in accordance with this Section (the "Redemption Date"). On
the Redemption Date, the Corporation shall make payment of the applicable
Redemption Price (as hereinafter defined) to each holder of shares of Series A
Convertible Preferred Stock to be redeemed to or upon the order of such holder
as specified by such holder in writing to the Corporation at least one business
day prior to the Redemption Date. If the Corporation exercises its right to
redeem all or a portion of the outstanding shares of Series A Convertible
Preferred Stock the Corporation shall make payment to the holders of the shares
of Series A Convertible Preferred Stock to be redeemed in respect of each share
of Series A Convertible Preferred Stock to be redeemed of an amount equal to (i)
$1,150, plus all accrued but unpaid dividends to the Redemption Date on the
share of Series A Convertible Preferred Stock being redeemed and accrued but
unpaid interest on the dividends on the share of Series A Convertible Preferred
Stock being redeemed in arrears to the Redemption Date, if the Redemption Date
is before 90 days after the Issuance Date and (ii) if the Redemption Date is on
or after 90 days after the Issuance Date, the greater of (a) $1,200, plus all
accrued but unpaid dividends thereon and any accrued and unpaid interest on
dividends thereon in arrears to the Redemption date and (b) an equal amount to
the product obtained by multiplying (x) the number of shares of Common Stock
which would, but for the redemption pursuant to this Section 8, be issuable on
conversion in accordance with Section 9(a) of one share of Series A Convertible
Preferred
6.
<PAGE>
Stock, and any accrued and unpaid dividends thereon and any accrued and unpaid
interest on dividends thereon in arrears if a notice of conversion were given by
the holder of such Series A Convertible Preferred Stock on the Redemption Date
(determined without regard to any limitation on conversion contained in Section
9(a)) TIMES (y) the arithmetic average of the Closing Price (as defined in
Section 9(b)) of the Common Stock for the five consecutive trading days ending
one trading day prior to the Redemption Date (such amount referred to in (i) or
such greater amount referred to in (ii) being referred to herein as the
"Redemption Price"). Upon redemption of less than all of the shares of Series
A Convertible Preferred Stock evidenced by a particular certificate, promptly,
but in no event later than three business days after surrender of such
certificate to the Corporation, the Corporation shall issue a replacement
certificate for the shares of Series A Convertible Preferred Stock which have
not been redeemed. Only whole shares of Series A Convertible Preferred Stock
may be redeemed. If the Corporation exercises its right to redeem less than
all outstanding shares of Series A Convertible Preferred Stock, then such
redemption shall be made, as nearly as practical, pro rata among the holders
of record of the Series A Convertible Preferred Stock. No share of Series A
Convertible Preferred Stock as to which the holder exercises the right of
conversion pursuant to Section 9 hereof may be redeemed by the Corporation
pursuant to this Section 8 on or after the date of exercise of such conversion
right regardless of whether the Notice of Redemption shall have been given
prior to the date of exercise of such conversion right.
SECTION 9. CONVERSION.
(a) CONVERSION AT OPTION OF HOLDER. The holders of the Series A
Convertible Preferred Stock may, on or before two (2) years after the Issuance
Date, upon surrender of the certificates therefor, convert all or any part of
their shares of Series A Convertible Preferred Stock into fully paid and
nonassessable shares of Common Stock and such other securities and property as
hereinafter provided. Commencing on the date which is 90 days after the
Issuance Date, and at any time thereafter, each share of Series A Convertible
Preferred Stock may be converted at the principal executive offices of the
Corporation, the office of any transfer agent for the Series A Convertible
Preferred Stock, if any, the office of any transfer agent for the Common Stock
or at such other office or offices, if any, as the Board of Directors may
designate, initially into such number of fully paid and nonassessable shares of
Common Stock (calculated as to each conversion to the nearest 1/100th of a
share) determined by dividing (x) the sum of (i) the Conversion Amount, (ii)
accrued but unpaid dividends to the Conversion Date on the shares of Series A
Convertible Preferred Stock being converted and (iii) accrued but unpaid
interest on the dividends on the share of Series A Convertible Preferred Stock
being converted in arrears to the Conversion Date by (y) the lower of (1) the
product of the Conversion Percentage TIMES (B) the arithmetic average of the
Closing Price of the Common Stock on the five consecutive trading days
immediately preceding the Conversion Date or (2) $9.00 (subject to equitable
adjustments for stock splits, stock dividends, combinations, recapitalization,
reclassifications and similar events occurring on or after the day of filing of
this Certificate of Determination with the Secretary of State of the State of
California), in each case subject to adjustment as
7.
<PAGE>
hereinafter provided (the "Conversion Rate"); PROVIDED, HOWEVER, that in no
event shall any holder be entitled to convert any shares of Series A Convertible
Preferred Stock in excess of that number of shares of Series A Convertible
Preferred Stock upon conversion of which the sum of (1) the number of shares of
Common Stock beneficially owned by such holder and any person whose beneficial
ownership of shares of Common Stock would be aggregated with such holder's
beneficial ownership of shares of Common Stock for purposes of Section 13(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
Regulation 13D-G thereunder (each a "Restricted Person" and collectively, the
"Restricted Persons") (other than shares of Common Stock deemed beneficially
owned through the ownership of unconverted shares of Series A Convertible
Preferred Stock) and (2) the number of shares of Common Stock issuable upon the
conversion of the number of shares of Series A Convertible Preferred Stock with
respect to which the determination in this proviso is being made, would result
in beneficial ownership by any Restricted Person of more than 4.9% of the
outstanding shares of Common Stock. For purposes of the provisio to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and Regulation 13D-G
thereunder, except as otherwise provided in clause (1) of the proviso to the
immediately preceding sentence. The "Conversion Price" shall be equal to the
Conversion Amount divided by the Conversion Rate.
(b) CERTAIN DEFINITIONS.
As used herein, the "Closing Price" of any security on any date shall mean
the closing bid price of such security as reported by 4:00 p.m. Eastern Time on
such date on the principal securities exchange on which such security is traded.
As used herein, the "Conversion Amount" initially shall be equal to
$1,000.00, subject to adjustment as hereinafter provided.
As used herein, "Conversion Date" shall mean the date on which the notice
of conversion is actually received by the Corporation, in case of a conversion
at the option of the holder pursuant to Section 9(a).
As used herein, "Conversion Percentage" shall mean 80 percent.
As used herein, "Registration Effective Date" shall mean, with respect to
any share of Series A Convertible Preferred Stock, the date on which the
Registration Statement is first ordered effective by the SEC.
As used herein, "Registration Statement" shall mean the Registration
Statement required to be filed by the Corporation with the SEC pursuant to
Section 2(a) of the Registration Rights Agreements.
8.
<PAGE>
As used herein, "SEC" shall mean the United States Securities and Exchange
Commission.
(c) OTHER PROVISIONS. Notwithstanding anything in this Section 9 to the
contrary, no change in the Conversion Amount shall actually be made until the
cumulative effect of the adjustments called for by this Section 9 since the date
of the last change in the Conversion Amount would change the Conversion Amount
by more than 1%. However, once the cumulative effect would result in such a
change, then the Conversion Rate shall actually be changed to reflect all
adjustments called for by this Section 9 and not previously made.
The holders of shares of Series A Convertible Preferred Stock at the close
of business on the record date for any dividend payment to holders of Series A
Convertible Preferred Stock shall be entitled to receive the dividend payable on
such shares on the corresponding dividend payment date notwithstanding the
conversion thereof after such dividend payment record date or the Corporation's
default in payment of the dividend due on such dividend payment date; PROVIDED,
HOWEVER, that shares of Series A Convertible Preferred Stock surrendered for
conversion during the period between the close of business on any record date
for a dividend payment and the opening of business on the corresponding dividend
payment date must be accompanied by payment of an amount equal to the dividend
payable on such shares on such dividend payment date if such dividend shall have
been declared by the Board of Directors of the Corporation prior to the time of
such surrender. A holder of shares of Series A Convertible Preferred Stock on a
record date for a dividend payment who (or whose transferee) tenders any of such
shares for conversion into shares of Common Stock on or after such dividend
payment date will receive the dividend payable by the Corporation on such shares
of Series A Convertible Preferred Stock on such date, and the converting holder
need not include payment of the amount of such dividend upon surrender of shares
of Series A Convertible Preferred Stock for conversion. Except as provided
above, no adjustment shall be made in respect of cash dividends on Common Stock
or Series A Convertible Preferred Stock that may be accrued and unpaid at the
date of surrender for conversion.
The right of the holders of Series A Convertible Preferred Stock to convert
their shares shall be exercised by delivering to the Corporation or its agent,
as provided above, a written notice, duly signed by or on behalf of the holder,
stating the number of shares of Series A Convertible Preferred Stock to be
converted. Promptly, but in no event later than ten business days after
delivery of a notice of conversion, such holder shall surrender for such purpose
to the Corporation or its agent, as provided above, certificates representing
shares to be converted, duly endorsed in blank or accompanied by proper
instruments of transfer. If such holder shall fail to deliver certificates
representing shares to be converted in such form on or prior to such tenth
business day, such notice of conversion shall not be effective, unless otherwise
agreed by the Corporation, but such failure shall not affect such holder's right
to convert such shares at a date after the date such notice of conversion was
given. The Corporation shall pay any tax arising in connection with any
9
<PAGE>
conversion of shares of Series A Convertible Preferred Stock except that the
Corporation shall not, however, be required to pay any income tax or any tax
which may be payable in respect of any transfer involved in the issue and
delivery upon conversion of shares of Common Stock or other securities or
property in a name other than that of the holder of the shares of the Series A
Convertible Preferred Stock being converted, and the Corporation shall not be
required to issue or deliver any such shares or other securities or property
unless and until the person or persons requesting the issuance thereof shall
have paid to the Corporation the amount of any such tax or shall have
established to the satisfaction of the Corporation that such tax has been paid.
The Corporation (and any successor corporation) shall take all action
necessary so that a number of shares of the authorized but unissued Common
Stock (or common stock in the case of any successor corporation) sufficient
to provide for the conversion of the Series A Convertible Preferred Stock
outstanding upon the basis hereinbefore provided are at all times reserved by
the Corporation (or any successor corporation), free from preemptive rights,
for such conversion, subject to the provisions of the next succeeding
paragraph. If the Corporation shall issue any securities or make any change
in its capital structure which would change the number of shares of Common
Stock into which each share of the Series A Convertible Preferred Stock shall
be converted as herein provided, the Corporation shall at the same time also
make proper provision so that thereafter there shall be a sufficient number
of shares of Common Stock authorized and reserved, free from preemptive
rights, for conversion of the outstanding Series A Convertible Preferred
Stock on the new basis. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of
all of the outstanding shares of Series A Convertible Preferred Stock, the
Corporation promptly shall seek such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares
of Common Stock to such number of shares as shall be sufficient for such
purpose.
In case of any consolidation or merger of the Corporation with any other
corporation (other than a wholly-owned subsidiary of the Corporation) in which
the Corporation is not the surviving corporation, or in case of any sale or
transfer of all or substantially all of the assets of the Corporation, or in
the case of any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property, the Corporation
shall make appropriate provision or cause appropriate provision to be made so
that each holder of shares of Series A Convertible Preferred Stock then
outstanding shall have the right thereafter to convert such shares of Series A
Convertible Preferred Stock into the kind and amount of shares of stock and
other securities and property receivable upon such consolidation, merger, sale,
transfer, or share exchange by a holder of the number of shares of Common Stock
into which such shares of Series A Convertible Preferred Stock could have been
converted immediately prior to the effective date of such consolidation, merger,
sale, transfer, or share exchange. If, in connection with any such
consolidation, merger, sale, transfer, or share exchange, each holder of shares
of Common Stock is entitled to elect to receive either securities, cash, or
other assets upon completion of such transaction, the Corporation shall provide
or cause to be provided to each holder of
10.
<PAGE>
Series A Convertible Preferred Stock the right to elect the securities, cash, or
other assets into which the Series A Convertible Preferred Stock held by such
holder shall be convertible after completion of any such transaction on the same
terms and subject to the same conditions applicable to holders of the Common
Stock (including, without limitation, notice of the right to elect, limitations
on the period in which such election shall be made, and the effect of failing to
exercise the election). The Corporation shall not effect any such transaction
unless the provisions of this paragraph have when complied with. The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers, or share exchanges.
If a holder shall have given a notice of conversion of shares of Series A
Convertible Preferred Stock, upon surrender of certificates representing shares
of Series A Convertible Preferred Stock for conversion, the Corporation shall
issue and deliver to such person certificates for the Common Stock issuable
upon such conversion within three business days after such surrender of
certificates and the person converting shall be deemed to be the holder of
record of the Common Stock issuable upon such conversion, and all rights with
respect to the shares surrendered shall forthwith terminate except the right to
receive the Common Stock or other securities, cash, or other assets as herein
provided.
No fractional shares of Common Stock shall be issued upon conversion of
Series A Convertible Preferred Stock but, in lieu of any fraction of a share of
Common Stock which would otherwise be issuable in respect of the aggregate
number of such shares surrendered for conversion at one time by the same holder,
the Corporation at its option (a) may pay in cash an amount equal to the product
of (i) the arithmetic average of the Closing Price of a share of Common Stock on
the three consecutive trading days ending on the trading day immediately
preceding the Conversion Date and (ii) such fraction of a share or(b) may issue
an additional share of Common Stock.
The Conversion Amount shall be adjusted from time to time under certain
circumstances, subject to the provisions of the first three sentences of the
first paragraph of this Section 9(c), as follows:
(i) In case the Corporation shall issue rights or warrants on a pro rata
basis to all holders of the Common Stock entitling such holders to subscribe for
or purchase Common Stock on the record date referred to below at a price per
share less than the average daily Closing Prices of the Common Stock on the 30
consecutive business days commencing 45 business days before the record date
(the "Current Market Price") excluding, however, any rights issued pursuant to
the Rights Agreement, then in each such case the Conversion Amount in effect on
such record date shall be adjusted in accordance with the formula
C(1) = C x O + N
______
O + N x P
______
M
11.
<PAGE>
where
C(1) = the adjusted Conversion Amount
C = the current Conversion Amount
O = the number of shares of Common Stock outstanding on the
record date.
N = the number of additional shares of Common Stock issuable
pursuant to the exercise of such rights or warrants.
P = the offering price per share of the additional shares (which
amount shall include amounts received by the Corporation in
respect of the issuance and the exercise of such rights or
warrants).
M = the Current Market Price per share of Common Stock on the
record date.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not so issued or expire or terminate
before being exercised, the Conversion Amount then in effect shall be readjusted
appropriately.
(ii) In case the Corporation shall, by dividend or otherwise, distribute to
all holders of its Junior Stock (as hereinafter defined) evidences of its
indebtedness or assets (including securities, but excluding any warrants or
subscription rights referred to in subparagraph (i) above and any dividend of
distribution paid in cash out of the retained earnings of the Corporation), then
in each such case the Conversion Amount then in effect shall be adjusted in
accordance with the formula
C(1) = C x M
___
M - F
where
C(1) = the adjusted Conversion Amount
C = the current Conversion Amount
M = the Current Market Price per share of Common Stock on the
record date mentioned below.
F = the aggregate amount of such cash dividend and/or the fair
market value on the record date of the assets or securities
to be distributed divided by the number of shares of Common
Stock outstanding on the record date. The Board of
Directors shall determine such fair market value, which
determination shall be conclusive.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this subparagraph (ii), "Junior Stock" shall include any class
of capital stock ranking junior as to dividends or upon liquidation to the
Series A Convertible Preferred Stock.
12.
<PAGE>
(iii) All calculations hereunder shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant to the fifth
paragraph of this Section 9(c), the holder of any Series A Convertible Preferred
Stock thereafter surrendered for conversion shall become entitled to receive
securities, cash, or assets other than Common Stock, the number or amount of
such securities or property so receivable, upon conversion shall be subject to
adjustment from time to time in a manner and on terms nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (i) to (iii) above.
Except as otherwise provided above in this Section 9, no adjustment in the
Conversion Amount shall be made in respect of any conversion for share
distributions or dividends theretofore declared and paid or payable on the
Common Stock.
Whenever the Conversion Amount is adjusted as herein provided, the
Corporation shall send to each transfer agent, if any, for the Series A
Convertible Preferred Stock and the Common Stock, and to the principal
securities exchange, if any, on which the Series A Convertible Preferred Stock
and the Common Stock is traded, or the Nasdaq National Market if the Series A
Convertible Preferred Stock or Common Stock is admitted for a quotation thereon,
a statement signed by the Chairman of the Board, the President, or any Vice
President of the Corporation and by its Treasurer or its Secretary or an
Assistant Secretary stating the adjusted Conversion Amount determined as
provided in this Section 9, and any adjustment so evidenced, given in good
faith, shall be binding upon all stockholders and upon the Corporation.
Whenever the Conversion Amount is adjusted, the Corporation will give notice by
mail to the holders of record of Series A Convertible Preferred Stock, which
notice shall be made within 15 days after the effective date of such adjustment
and shall state the adjustment and the Conversion Amount. Notwithstanding the
foregoing notice provisions, failure by the Corporation to give such notice or
a defect in such notice shall not affect the binding nature of such corporate
action of the Corporation.
Whenever the Corporation shall propose to take any of the actions specified
in the fifth paragraph of this Section 9(c) or in subparagraphs(i) or (ii) of
the eighth paragraph of this Section 9(c) which would result in any adjustment
in the Conversion Amount under this Section 9(c), the Corporation shall cause a
notice to be mailed at least 20 days prior to the date on which the books of the
Corporation will close or on which a record will be taken for such action, to
the holders of record of the outstanding Series A Convertible Preferred Stock on
the date of such notice. Such notice shall specify the action proposed to be
taken by the Corporation and the date as of which holders of record of the
Common Stock shall participate in any such actions or be entitled to exchange
their Common Stock for securities or other property, as the case may be.
Failure by the Corporation to mail the notice or any defect in such notice shall
not affect the validity of the transaction.
13.
<PAGE>
Notwithstanding any other provision of this Section 9, no adjustment in the
Conversion Amount need be made (a) for a transaction referred to in
subparagraphs (i) or (ii) of the eighth paragraph of this Section 9(c) if
holders of Series A Convertible Preferred Stock are to participate in the
transaction or distribution on a basis and with notice that the Board of
Directors determines such transaction to be fair to the holders of the Series A
Convertible Preferred Stock and appropriate in light of the basis on which
holders of the Common Stock or, in the case of a transaction referred to in
said subparagraph (ii), holders of Junior Stock participate in the
transaction; (b) for sales of Common Stock pursuant to a plan for reinvestment
of dividends and interest, PROVIDED that the purchase price in any such sale
is at least equal to the fair market value of the Common Stock at the time of
such purchase, or pursuant to any plan adopted by the Corporation for the
benefit of its employees, directors, or consultants; or (c) after such time as
a holder of shares of Series A Convertible Preferred Stock becomes entitled to
receive only cash upon conversion of such shares (in which case no interest
shall accrue on the amount of such cash for any period prior to the date which
is three business days after surrender of the certificates for such shares for
conversion).
(d) MANDATORY CONVERSION. So long as the Corporation shall be in
compliance in all material respects with its obligations to the holders of the
Series A Convertible Preferred Stock (including its obligations under the
Registration Rights Agreement and the provisions of this Certificate of
Determination) and so long as the Registration Statement shall be effective, on
the date which is 730 days after the Registration Effective Date (the "Mandatory
Conversion Date") all of the shares of Series A Convertible Preferred Stock then
outstanding shall be converted, in accordance with the provisions, and subject
to the limitations, of Section 9(a), into shares of Common Stock to the extent
the same are at such time convertible into shares of Common Stock. On the
Mandatory Conversion Date, the Corporation shall mail by first class mail or
otherwise deliver to each holder of Series A Convertible Preferred Stock a
notice (a "Section 9(d) Notice"), which shall state (1) the number of shares of
Series A Convertible Preferred Stock held by such holder which have been
converted into shares of Common Stock in accordance with this Section 9(d) and
(2) the Mandatory Conversion Date. If the Corporation shall give a Section 9(d)
Notice, then, unless theretofore converted by the holder in accordance herewith
or redeemed by the Corporation, and so long as the Registration Statement shall
remain effective on the Mandatory Conversion Date and the Corporation shall be
in compliance in all material respects with its obligations to the holders of
the Series A Convertible Preferred Stock (including its obligations under the
Registration Rights Agreements and the provisions of this Certificate of
Determination) on the Mandatory Conversion Date, then on the Mandatory
Conversion Date properly set forth therein, all shares of Series A Convertible
Preferred Stock which, on the Mandatory Conversion Date are convertible in
accordance with Section 9(a) hereof, shall be converted into such number of
shares of Common Stock as shall be determined pursuant to this Section 9 as if
the conversion of such number of shares of Series A Convertible Preferred Stock
were made by the holders thereof in accordance herewith and as if the Mandatory
Conversion Date were the Conversion Date. Upon the surrender of certificates
for shares of Series A Convertible Preferred Stock by the holder
14.
<PAGE>
after a Section 9(d) Notice is given, the Corporation shall issue and, within
three trading days after such surrender, deliver to or upon the order of such
holder that number of shares of Common Stock as shall be issuable in respect to
the conversion of the number of shares of Series A Convertible Preferred Stock
converted, together with accrued and unpaid dividends thereon to the date of
conversion and accrued and unpaid interest on dividends on such shares which are
in arrears, into Common Stock as shall be determined in accordance herewith.
(e) LIMITATION ON NUMBER OF SHARES ISSUED ON CONVERSION; MANDATORY
REDEMPTION. (1) Notwithstanding any other provision herein, unless the
Shareholder Approval (or a waiver thereof from the National Association of
Securities Dealers, Inc.) has been obtained, the Corporation shall not be
required to issue upon conversion of shares of Series A Convertible Preferred
Stock, more than 1,100,000 shares of Common Stock, such amount to be subject to
adjustment from time to time for stock splits, stock dividends, combinations,
capital reorganizations and similar events relating to the Common Stock
occurring after the date of filing of this Certificate of Determination with the
Secretary of State of the State of California, upon conversion of shares of
Series A Convertible Preferred Stock (the "Maximum Share Amount"). The Maximum
Share Amount shall be allocated pro rata among the initial holders of the Series
A Convertible Preferred Stock in the ratio that the respective number of shares
of Series A Convertible Preferred Stock issued to each holder bears to 3,000
shares and each certificate for such shares initially issued shall bear a
notation to that effect. Upon each surrender of a certificate for conversion of
a portion of the shares of Series A Convertible Preferred Stock, the certificate
issued for the unconverted balance of shares of Series A Convertible Preferred
Stock represented thereby shall bear a notation as to the remaining portion of
the Maximum Shares Amount allocated to the shares of Series A Convertible
Preferred Stock represented by such certificate. Upon any split up of a
certificate for outstanding shares of Series A Convertible Preferred Stock into
two or more certificates for shares of Series A Convertible Preferred Stock
(including, without limitation, in connection with a transfer thereof), each new
certificate shall bear a notation as to the portion of the Maximum Share Amount
allocated to conversions of the shares of Series A Convertible Preferred Stock
represented by such new certificate (which shall be determined as a pro rata
portion of the portion of the Maximum Share Amount represented by the
certificate so split up).
(2) The Corporation shall promptly, but in no event later than five
business days after the occurrence, give notice to each holder (by first class
mail, postage prepaid, at such holder's address as the same appears on the stock
books of the Corporation) if on any date the Corporation would not have been
required to convert shares of Series A Convertible Preferred Stock as a
consequence of the limitation set forth in Section 9(e)(1) had all outstanding
shares of Series A Convertible Preferred Stock been surrendered for conversion
into Common Stock on such date. If the Corporation shall have given or been
required to give such notice, the Corporation shall promptly, but in no event
later than fifteen business days thereafter, redeem, out of funds legally
available for such redemption, all or such portion of the outstanding shares of
Series A Convertible Preferred Stock as shall not,
15
<PAGE>
on the business day prior to the date of giving notice of such redemption, be
convertible into shares of Common Stock by reason of the limitations set forth
in Section 9(e)(1), at a redemption price per share equal to the Redemption
Price which would be payable on the date such share is redeemed pursuant to this
Section if such share were redeemed on such date pursuant to Section 8 (the
"Special Redemption Price"). The Corporation shall not have the right to delay
or to defer any redemption required by this Section 9(e)(2) in order to seek the
Shareholder Approval unless consented to by the holders of all outstanding
shares of Series A Convertible Preferred Stock.
(3) The provisions of Section 9(e)(2) shall continue to apply
notwithstanding the giving of any notice or any redemption of shares of Series A
Convertible Preferred Stock pursuant thereto on any particular occasion.
(4) Any notice of redemption (a Section 9(e) Notice") under this Section
9(e) shall be delivered to the holders of the shares of Series A Convertible
Preferred Stock at their addresses appearing on the records of the Corporation;
PROVIDED, HOWEVER, that any failure or defect in the giving of notice to any
such holder shall not affect the validity of notice to, or the redemption of
shares of Series A Convertible Preferred Stock of, any other holder. Any
Section 9(e) Notice shall state (1) that the Corporation is redeeming all or a
portion of the outstanding shares of Series A Convertible Preferred Stock
pursuant to this Section 9(e), (2) the number of shares of Series A Convertible
Preferred Stock held by such holder which are to be redeemed, (3) that the
shares are to be redeemed at the Special Redemption Price per share of Series A
Convertible Preferred Stock, determined in accordance with this Section 9(e),
and (4) the date of redemption of such shares of Series A Convertible Preferred
Stock, determined in accordance with this Section 9(e) (the "Special Redemption
Date"). On the Special Redemption Date, the Corporation shall make payment in
immediately available funds, out of funds legally available for such redemption,
of the applicable redemption price to each holder of shares of Series A
Convertible Preferred Stock to be redeemed to or upon the order of such holder
as specified by such holder in writing to the Corporation at least two business
days prior to the Redemption Date. Upon redemption of less than all of the
shares of Series A Convertible Preferred Stock evidenced by a particular
certificate, promptly, but in no event later than three business days after
surrender of such certificate to the Corporation, the Corporation shall issue a
replacement certificate for the shares of Series A Convertible Preferred Stock
which have not been redeemed. Only whole shares of Series A Convertible
Preferred Stock may be redeemed. If the Corporation is required to redeem less
than all outstanding shares of Series A Convertible Preferred Stock, then such
redemption shall be made, as nearly as practical, pro rata among the holders of
record of the Series A Convertible Preferred Stock. Notwithstanding any other
provision of this Certificate of Determination or any Section 9(e) Notice, no
share of Series A Convertible Preferred Stock as to which the holder has
exercised at any time prior to the applicable Special Redemption Date, the right
of conversion pursuant to Section 9 hereof may be redeemed by the Corporation on
or after the date of exercise of such conversion right (whether such conversion
right is exercised prior to, on or after the giving of a Section 9(e) Notice).
16.
<PAGE>
(5) As used in this Section 9(e), "Shareholder Approval" means the
approval by a majority of the votes cast by the holders of share of Common Stock
(in person or by proxy) at a meeting of the shareholders of the Corporation
(duly convened at which a quorum was present), or a written consent of holders
of shares of Common Stock entitled to such number of votes given without a
meeting of the issuance by the Corporation of 20% or more of the outstanding
Common Stock of the Corporation for less than the greater of the book or market
value of such Common Stock on conversion of the Series A Convertible Preferred
Stock, as and to the extent required under Section 4460(i)(1)(D) of the rules of
the National Association of Securities Dealers, Inc. (or any successor or
replacement provisions thereof).
SECTION 10. VOTING RIGHTS. Except as otherwise required by law or
expressly provided herein, shares of Series A Convertible Preferred Stock shall
not be entitled to vote on any matter.
The affirmative vote or consent of the holders of a majority of the
outstanding shares of the Series A Convertible Preferred Stock, voting
separately as a class, will be required for (1) any amendment, alteration, or
repeal, whether by merger or consolidation or otherwise, of the Corporation's
Certificate of Incorporation if the amendment, alteration, or repeal materially
and adversely affects the powers, preferences, or special rights of the Series A
Convertible Preferred Stock, or (2) the creation and issuance of any Senior
Dividend Stock or Senior Liquidation Stock; PROVIDED, HOWEVER, that any increase
in the authorized preferred stock of the Corporation or the creation and
issuance of any stock which is both Junior Dividend Stock and Junior Liquidation
Stock or any other capital stock of the Corporation ranking on a parity with the
Series A Convertible Preferred Stock shall not be deemed to affect materially
and adversely such powers, preferences, or special rights.
SECTION 11. OUTSTANDING SHARES. For purposes of this Certificate of
Determination, all shares of Series A Convertible Preferred Stock shall be
deemed outstanding except (i) from the date of surrender of certificates
representing shares of Series A Convertible Preferred Stock for conversion into
Common Stock, all shares of Series A Convertible Preferred Stock converted into
Common Stock; (ii) from the date of registration of transfer, all shares of
Series A Convertible Preferred Stock held of record by the Corporation or any
subsidiary or Affiliate (as defined herein) of the Corporation and (iii) from
the Redemption Date, all shares of Series A Convertible Preferred Stock which
are redeemed, so long as in each case the Redemption Price of such shares of
Series A Convertible Preferred Stock shall have been paid by the Corporation as
and when required hereby. For the purposes of this Certificate of
Determination, "Affiliate" means any person directly or indirectly controlling
or controlled by or under direct or indirect common control with the
Corporation. "Control" is the power to direct the management and policies of a
person, directly or through one or more intermediaries, whether through the
ownership of voting securities, by contract, or otherwise.
17.
<PAGE>
The undersigned, Norman E. Dean and Carolyn Mar, the President and Chief
Executive Officer and Secretary, respectively, of Monterey Pasta Company, each
declares under penalty of perjury under the laws of the State of California that
the matters set forth in the foregoing Certificate are true and correct of his
or her own knowledge.
Executed at San Francisco, California on _______________, 1996.
/s/ Norman E. Dean
-----------------------------------
Norman E. Dean, President and Chief
Executive Officer
/s/ Carolyn Mar
------------------------------------
Carolyn Mar, Secretary
18.
<PAGE>
ANNEX II
TO
SUBSCRIPTION
AGREEMENT
JOINT ESCROW INSTRUCTIONS
Dated as of the date of the
Subscription Agreement to Which
These Joint Escrow Instructions Are
Attached
Law offices of Brian W Pusch
Penthouse Suite
29 West 57th Street
New York, New York 10019
Attention: Brian W. Pusch, Esq.
Dear Sir or Madam:
As Escrow Agent for both Monterey Pasta Company, a California corporation
(the "Company"), and the purchaser of shares (the Preferred Shares") of
Preferred Stock of the Company (the "Buyer"), who is named in the Subscription
Agreement between the Company and the Buyer to which a copy of these Joint
Escrow Instructions is attached as ANNEX II (the "Agreement"), the Escrow Agent
is hereby authorized and directed to hold the documents and the funds (together
with any interest thereon, the "Escrow Funds") delivered to the Escrow Agent
pursuant to the terms of the Agreement, in accordance with the following
instructions:
1. After receipt of written or oral notice from the Company and the Buyer
to the Escrow Agent that their respective conditions precedent to the purchase
and sale of the Preferred Shares have been satisfied or waived by the Company
and the Buyer, the Escrow Agent shall, after deduction of the amount referred to
in the next succeeding sentence, release the Escrow Funds to or upon the order
of the Company in immediately available funds and shall release the certificate
for the Preferred Shares to the Buyer. After receipt of such notices, a portion
of the Escrow Funds shall be released to or upon the order of the Buyer in
payment of the expenses of the Buyer payable by the Company in accordance with
Section 4(h) of the Agreement in such amount as shall be specified in writing by
the Buyer to the Escrow Agent prior to release of the Escrow Funds. If Escrow
Funds are released to or upon the order of the Company, the amount thereof shall
be reduced by all wire transfer fees in respect of release of the Escrow Funds.
If the Company or the Buyer notifies the Escrow Agent that on the Closing Date
(as defined in the Agreement), the conditions precedent to the obligations of
the Company or the Buyer, as the case may be, under the Agreement were not
satisfied or waived, then the Escrow Agent shall return the
II-1
<PAGE>
Escrow Funds to the Buyer and shall return the certificates for the Preferred
Shares to the Company. Prior to return of the Escrow Funds to the Buyer, the
Buyer shall furnish such tax reporting or other information as shall be
appropriate for the Escrow Agent to comply with applicable United States laws.
The Escrow Agent shall deposit all funds received hereunder in the Escrow
Agent's attorney escrow account at Citibank, N.A.
2. The Escrow Agent's duties hereunder may be altered, amended, modified
or revoked only by a writing signed by the Company, the Buyer and the Escrow
Agent.
3. The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed by
the Escrow Agent to be genuine and to have been signed or presented by the
proper party or parties. The Escrow Agent shall not be personally liable for
any act the Escrow Agent may do or omit to do hereunder as Escrow Agent while
acting in good faith, and any act done or omitted by the Escrow Agent pursuant
to the advice of the Escrow Agent's attorneys-at-law shall be conclusive
evidence of such good faith. In no event shall the Escrow Agent incur any
liability or be held responsible, if any certificate for Preferred Shares, once
released from escrow hereunder, shall become lost, stolen, destroyed, mutilated
or misplaced while in transit to any person, provided the Escrow Agent shall
have dispatched the same by a means customarily used by the Escrow Agent.
4. The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person, firm or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
5. The Escrow Agent shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
6. The Escrow Agent shall not be liable for the outlawing of any rights
under the Statute of Limitations with respect to these Joint Escrow Instructions
or any documents or Escrow Funds deposited with or held by the Escrow Agent.
7. The Escrow Agent shall be entitled to employ such legal counsel and
other experts as the Escrow Agent may deem
II-2
<PAGE>
necessary properly to advise the Escrow Agent in connection with the Escrow
Agent's obligations hereunder, may rely upon the advice of such counsel, and may
pay such counsel reasonable compensation therefor. The Escrow Agent has acted
as legal counsel for the Buyer in connection with the transactions contemplated
by the Agreement and may continue to act as legal counsel for the Buyer
notwithstanding its duties as Escrow Agent hereunder.
8. The Escrow Agent's responsibilities as Escrow Agent hereunder shall
terminate if the Escrow Agent shall resign by written notice to the Company and
the Buyer. In the event of any such resignation, the Buyer shall appoint a
successor Escrow Agent.
9. If the Escrow Agent reasonably requires other or further instruments
in connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
10. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the documents or
Escrow Funds held by the Escrow Agent hereunder, the Escrow Agent is authorized
and directed, in its sole discretion (a) to retain in the Escrow Agent's
possession without liability to anyone all or any part of said documents or
Escrow Funds until such disputes shall have been settled either by mutual
written agreement of the parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but the Escrow Agent shall be under no
duty whatsoever to institute or defend any such proceedings or (b) at any time,
to deposit the documents or Escrow Funds with any court of competent
jurisdiction in the state of New York, in which event the Escrow Agent shall
give notice thereof to the Buyer and the Company and shall thereupon be relieved
and discharged from all further obligations hereunder.
11. The Company and the Buyer jointly and severally agree to indemnify and
hold harmless the Escrow Agent from any and all claims, liabilities, costs or
expenses in any way arising from or relating to the duties or performance of the
Escrow Agent hereunder other than any such claim, liability, cost or expense to
the extent the same shall have been determined by final, unappealable judgment
of a court of competent jurisdiction to have resulted from the gross negligence
or willful misconduct of the Escrow Agent.
12. Any notice required or permitted hereunder shall be given in writing
(unless otherwise specified herein) and shall be deemed effectively given upon
personal delivery or transmission by telephone line facsimile transmission or
three business days after deposit in the United States Postal Service, by
registered or certified mail with postage and fees prepaid, addressed to each of
the other parties thereunto entitled at the following addresses,
II-3
<PAGE>
or at such other addresses as a party may designate by ten days advance written
notice to each of the other parties hereto.
CORPORATION: At the address set forth in the introductory paragraph
of the Agreement
Attention: Chief Financial Officer
Facsimile No. (415) 397-7781
BUYER: At the address set forth in the Agreement
Facsimile No. (703) 476-7711
ESCROW AGENT: Law Offices of Brian W Pusch
Penthouse Suite
29 West 57th Street
New York, New York 10019
Facsimile No. (212) 980-7055
13. By signing these Joint Escrow Instructions, the Escrow Agent becomes a
party hereto only for the purpose of these Joint Escrow instructions; the Escrow
Agent does not become a party to the Agreement. The Company and the Buyer have
become parties hereto by their execution and delivery of the Agreement, as
provided therein.
14. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns and shall
be governed by the laws of the State of New York.
15. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings provided in the Agreement.
ACCEPTED BY ESCROW AGENT:
/s/ Brian W. Pusch
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Brian W. Pusch
II-4
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ANNEX III
TO
SUBSCRIPTION
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of July 31, 1996 (this
"Agreement"), is made by and between MONTEREY PASTA COMPANY, a California
corporation (the "Company"), and the person named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, in connection with the Subscription Agreement, dated as of July
31, 1996, between the Initial Investor and the Company (the "Subscription
Agreement"), the Company has agreed, upon the terms and subject to the
conditions of the Subscription Agreement, to issue and sell to the Initial
Investor 3,000 shares (the "Preferred Shares") of Preferred Stock of the Company
as provided in the Subscription Agreement, which shares of Preferred Stock are
convertible into shares (the "Conversion Shares") of Common Stock, no par value,
including the related rights issued pursuant to the Rights Agreement, dated as
of May 15, 1996, between the Company and Corporate Stock Transfer, as Rights
Agent, as amended from time to time in accordance with its terms (the "Rights
Agreement") (such shares and rights collectively the "Common Stock") of the
Company; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investor hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investor" means the Initial Investor and any transferee or assignee
who agrees to become bound by the provisions of this Agreement in accordance
with Section 9 hereof.
<PAGE>
(ii) "register," "registered," and "registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(iii) "Registrable Securities" means the Conversion Shares and any
shares of Common Stock issuable to any Investor as a dividend on Preferred
Shares.
(iv) "Registration Statement" means a registration statement of the Company
under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i) each
Investor (as defined above) and (ii) each person who is a permitted transferee
or assignee of the Registrable Securities pursuant to Section 9 of this
Agreement.
(c) Capitalized terms defined in the introductory paragraph or the
recitals to this Agreement shall have the respective meanings therein provided.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Subscription Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare, and on or prior to
the date which is 25 days after the date of the closing under the Subscription
Agreement (the "Closing Date"), file with the SEC a Registration Statement on
Form S-3 covering at least 1,100,000 shares of Common Stock as Registrable
Securities, and which Registration Statement shall state that, in accordance
with Rule 416 under the Securities Act, such Registration Statement also covers
such indeterminate number of additional shares of Common Stock as may become
issuable upon conversion of the Preferred Shares to prevent dilution resulting
from stock splits, stock dividends or similar transactions or by reason of
changes in the conversion price of the Preferred Shares in accordance with the
terms thereof. If at any time the number of shares of Common Stock included in
the Registration Statement required to be filed as provided in the first
sentence of this Section 2(a) shall be insufficient to cover the number of
shares of Common Stock issuable on conversion in full of the unconverted
Preferred Shares, then promptly, but in no event later than 20 days after such
insufficiency shall occur, the Company shall file with the SEC an additional
Registration Statement on Form S-3 (which shall not constitute a post-effective
amendment to the Registration Statement required to be filed pursuant to the
first sentence of this Section 2(a)) or other applicable form covering such
number of shares of Common Stock as shall be sufficient to
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permit such conversion. For all purposes of this Agreement (other than Section
2(c) hereof) such additional Registration Statement shall be deemed to be the
Registration Statement required to be filed by the Company pursuant to Section
2(a) of this Agreement, and the Company and the Investors shall have the same
rights and obligations (other than Section 2(c) hereof) with respect to such
additional Registration Statement as they shall have with respect to the initial
Registration Statement required to be filed by the Company pursuant to this
Section 2(a).
(b) CERTAIN OFFERINGS. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors who hold a majority in interest of the Registrable Securities subject
to such underwritten offering shall have the right to select one legal counsel
and an investment banker or bankers and manager or managers to administer the
offering, which investment banker or bankers or manager or managers shall be
reasonably satisfactory to the Company. The Investors who hold the Registrable
Securities to be included in such underwriting shall pay all underwriting
discounts and commissions and other fees and expenses of such investment banker
or bankers and manager or managers so selected in accordance with this Section
2(b) (other than fees and expenses relating to registration of Registrable
Securities under federal or state securities laws, which are payable by the
Company pursuant to Section 5 hereof) with respect to their Registrable
Securities and the fees and expenses of such legal counsel so selected by the
Investors.
(c) PAYMENTS BY THE COMPANY. If the Registration Statement covering the
Registrable Securities which is required to be filed by the Company pursuant to
Section 2(a) hereof is not effective within 90 days after the Closing Date, then
the Company will make payments to the Initial Investor in such amounts and at
such times as shall be determined pursuant to this Section 2(c). The amount to
be paid by the Company to the Initial Investor shall be determined as of each
Computation Date, and such amount shall be equal to (1) in the case of the first
Computation Date, two percent (2%) and (2) in the case of the second Computation
Date and each Computation Date thereafter, three percent (3%), in each case of
the aggregate subscription price paid by the Initial Investor for the Preferred
Shares pursuant to the Subscription Agreement (each, a "Periodic Amount");
PROVIDED, HOWEVER, that if any Computation Date is less than 30 days subsequent
to another Computation Date (or, in case the first Computation Date is the date
specified in clause (3) of the definition of Computation Date, if such
Computation Date is less than 120 days after the Closing Date), then the
Periodic Amount payable on the later Computation Date shall be pro rated. The
Periodic Amount shall be paid by the Company within five business days after
each Computation Date and shall be payable in cash; PROVIDED, HOWEVER, that the
Company may elect in lieu of payment of any Periodic Amount in cash to deliver
to the Initial Investor shares of Common
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Stock having an Aggregate Market Value equal to the amount of the Periodic
Amount if, but only if, such shares are freely tradable by the Initial Investor
without any restriction under the Securities Act or any state securities or
"blue sky" law.
As used in this Section 2(c), the following terms shall have the following
meanings:
"Aggregate Market Value" of any shares of Common Stock as of any
Computation Date means the product obtained by multiplying (a) such number of
shares of Common Stock times (b) the Average Market Price of the Common Stock
for the Measurement Period for such Computation Date.
"Average Market Price" of any security for any period shall be computed as
the arithmetic average of the closing bid of such security for each trading day
in such period on the principal trading market for such security, as reported by
such market.
"Computation Date" means (1) the date which is 120 days after the Issuance
Date, unless the Registration Statement theretofore has been declared effective
by the SEC, (2) if the Registration Statement has not theretofore been declared
effective by the SEC, each date which is 30 days after a Computation Date and
(3) if the Registration Statement has not been declared effective by the SEC
within 90 days after the Issuance Date, the date on which the Registration
Statement is declared effective by the SEC.
"Measurement Period" means the period of five consecutive trading days for
the Common Stock ending on (or, if such Computation Date is not a trading day,
on the last trading day preceding) each Computation Date.
(d) PIGGY-BACK REGISTRATIONS. If at any time the Company shall determine
to prepare and file with the SEC a Registration Statement relating to an
offering for its own account or the account of others under the Securities Act
any of its equity securities, other than on Form S-4 or Form S-8 or their then
equivalents relating to equity securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each Investor, who is entitled to registration rights under this Section
2(a) written notice of such determination and, if within twenty (20) days after
receipt of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that if, in
connection with any underwritten public offering for the account of the Company
the managing underwriter(s) thereof shall impose a limitation on the number of
shares of Common Stock which may be included in the Registration Statement
because, in such underwriter(s)' judgment, such limitation is necessary to
effect
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<PAGE>
an orderly public distribution, then the Company shall be obligated to include
in such Registration Statement only such limited portion of the Registrable
Securities with respect to which such Investor has requested inclusion
hereunder. Any exclusion of Registrable Securities shall be made pro rata among
the Investors seeking to include Registrable Securities, in proportion to the
number of Registrable Securities sought to be included by such Investors;
PROVIDED, HOWEVER, that the Company shall not exclude any Registrable Securities
unless the Company has first excluded all outstanding securities the holders of
which are not entitled by right to inclusion of securities in such Registration
Statement; and PROVIDED FURTHER, HOWEVER, that, after giving effect to the
immediately preceding proviso, any exclusion of Registrable Securities shall be
made pro rata with holders of other securities having the right to include such
securities in the Registration Statement. No right to registration of
Registrable Securities under this Section 2(a) shall be construed to limit any
registration required under Section 2(b) hereof. The obligations of the Company
under this Section 2(a) may be waived by Investors holding a majority in
interest of the Registrable Securities and shall expire after the Company has
afforded the opportunity for the Investors to exercise registration rights under
this Section 2(a) for two registrations; PROVIDED, HOWEVER, that any investor
who shall have had any Registrable Securities excluded from any Registration
Statement in accordance with this Section 2(a) shall be entitled to include in
an additional Registration Statement filed by the Company the Registrable
Securities so excluded.
(e) ELIGIBILITY FOR FORM S-3. The Company represents and warrants that it
meets the requirements for the use of Form S-3 for registration of the sale by
the Initial Investor and any Investor of the Registrable Securities and the
Company shall file all reports required to be filed by the Company with the SEC
in a timely manner so as to maintain such eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration of
the Registrable Securities, the Company shall:
(a) prepare promptly and file with the SEC promptly (but in no event later
than 25 days) after the Closing Date a Registration Statement with respect to
all Registrable Securities, and thereafter use its best efforts to cause the
Registration Statement to become effective as soon as reasonably possible after
such filing, and keep the Registration Statement effective pursuant to Rule 415
at all times until such date as is the earlier of (i) 30 months after the date
such Registration Statement is first ordered effective by the SEC and (ii) the
date on which all Registrable Securities have been sold by the Investors under
circumstances in which the buyers may resell such Registrable Securities without
registration under the Securities Act, which Registration Statement (including
any amendments or
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<PAGE>
supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; PROVIDED, HOWEVER, that,
subject to the conditions set forth in Section 4(a) below, each Investor may
notify the Company in writing that it wishes to exclude all or a portion of its
Registrable Securities from such Registration Statement;
(b) prepare and file with the SEC such amendments (including post-
effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times until such
date as is the earlier of (i) 30 months after the date such Registration
Statement is first ordered effective by the SEC and (ii) the date on which all
Registrable Securities have been sold by the Investors under circumstances in
which the buyers may resell such Registrable Securities without registration
under the Securities Act, and, during such period, comply with the provisions of
the Securities Act with respect to the disposition of all Registrable Securities
of the Company covered by the Registration Statement until such time as all of
such Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
the Registration Statement;
(c) furnish to each Investor whose Registrable Securities are included in
the Registration Statement and its legal counsel, (1) promptly after the same is
prepared and publicly distributed, filed with the SEC or received by the
Company, one copy of the Registration Statement and any amendment thereto, each
preliminary prospectus and prospectus and each amendment or supplement thereto,
each letter written by or on behalf of the Company to the SEC or the staff of
the SEC and each item of correspondence from the SEC or the staff of the SEC
relating to such Registration Statement (other than any portion of any thereof
which contains information for which the Company has sought confidential
treatment) and (2) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) use reasonable efforts to (1) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request, (2)
prepare and file in those jurisdictions such amendments (including post-
effective amendments) and supplements, (3) take such other actions as may be
necessary to maintain such registrations and
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<PAGE>
qualifications in effect at all times until the such date as is the earlier of
(i) 30 months after the date such Registration Statement is first ordered
effective by the SEC and (ii) the date on which all Registrable Securities have
been sold by the investors under circumstances in which the buyers may resell
such Registrable Securities without registration under the Securities Act, and
(4) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; PROVIDED, HOWEVER, that
the Company shall not be required in connection therewith or as a condition
thereto to (I) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (II) subject itself
to general taxation in any such jurisdiction, (III) file a general consent to
service of process in any such jurisdiction, (IV) provide any undertakings that
cause more than nominal expense or burden to the Company or (V) make any change
in its charter or by-laws, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the Company and its
stockholders;
(e) in the event Investors who hold a majority in interest of the
Registrable Securities being offered in the offering select underwriters for the
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering;
(f) as promptly as practicable after becoming aware of such event, notify
each Investor of the happening of any event of which the Company has knowledge,
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to each
Investor as such Investor may reasonably request;
(g) as promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriter) of the issuance by the SEC
of any stop order or other suspension of effectiveness of the Registration
Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling stockholders'
counsel by the Investors who hold a majority in interest of the Registrable
Securities being sold to review the Registration Statement and all amendments
and supplements thereto
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<PAGE>
a reasonable period of time prior to their filing with the SEC, and shall not
file any document in a form to which such counsel reasonably objects;
(i) make generally available to its security holders as soon as practical,
but not later than ninety (90) days after the close of the period covered
thereby, an earnings statement (in form complying with the provisions of Rule
158 under the Securities Act) covering a twelve-month period beginning not later
than the first day of the Company's fiscal quarter next following the effective
date of the Registration Statement;
(j) at the request of the Investors who hold a majority in interest of the
Registrable Securities being sold, furnish on the date that Registrable
Securities are delivered to an underwriter for sale in connection with the
Registration Statement (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters; and (ii) an
opinion, dated such date, from counsel representing the Company for purposes of
such Registration Statement, in form and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors;
(k) make available for inspection by any Investor, any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by any such Investor or underwriter
(collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; PROVIDED, HOWEVER, that
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (ii) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction or (iii)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
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3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. The Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the Company
pursuant to Section 4(e) hereof unless (i) disclosure of such information is
necessary to comply with federal or state securities laws, (ii) the disclosure
of such information is necessary to avoid or correct a misstatement or omission
in any Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other order from a court or governmental body of
competent jurisdiction or (iv) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Company agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to such Investor, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, such information;
(l) use its best efforts either to (i) cause all the Registrable
Securities covered by the Registration Statement to be listed on a national
securities exchange and on each additional national securities exchange on which
similar securities issued by the Company are then listed, if any, if the listing
of such Registrable Securities is then permitted under the rules of such
exchange or (ii) secure designation of all the Registrable Securities covered by
the Registration Statement as a National Association of Securities Dealers
Automated Quotations System ("NASDAQ") "national market system security" within
the meaning of Rule 11Aa2-1 of the SEC under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the quotation of the Registrable
Securities on the NASDAQ National Market System or, if, despite the Company's
best efforts to satisfy the preceding clause (i) or (ii), the Company is
unsuccessful in satisfying the preceding clause (i) or (ii), to secure listing
on a national securities exchange or NASDAQ authorization and quotation for such
Registrable Securities and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register with the National Association
of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities;
(m) provide a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(n) cooperate with the Investors who hold Registrable Securities being
offered and the managing underwriter or underwriters, if any, to facilitate the
timely preparation and delivery of certificates (not bearing any restrictive
legends)
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representing Registrable Securities to be offered pursuant to the Registration
Statement and enable such certificates to be in such denominations or amounts as
the case may be, as the managing underwriter or underwriters, if any, or the
Investors may reasonably request and registered in such names as the managing
underwriter or underwriters, if any, or the Investors may request; and, within
three business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction in the
form attached hereto as EXHIBIT 1 and an opinion of such counsel in the form
attached hereto as EXHIBIT 2; and
(o) take all other reasonable actions necessary to expedite and facilitate
disposition by the Investor of the Registrable Securities pursuant to the
Registration Statement;
4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Agreement with respect to each Investor that
such Investor shall furnish to the Company such information regarding itself,
the Registrable Securities held by it and the intended method of disposition of
the Registrable Securities held by it as shall be reasonably required to effect
the registration of the Registrable Securities and shall execute such documents
in connection with such registration as the Company may reasonably request. At
least fifteen (15) days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's Registrable
Securities included in the Registration Statement. If within five (5) business
days prior to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then the Company may
file the Registration Statement without including Registrable securities of such
Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement;
(c) In the event Investors holding a majority in interest of the
Registrable Securities being registered determine
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to engage the services of an underwriter, each Investor agrees to enter into and
perform such Investor's obligations under an underwriting agreement, in usual
and customary form, including, without limitation, customary indemnification and
contribution obligations, with the managing underwriter of such offering and
take such other actions as are reasonably required in order to expedite or
facilitate the disposition of the Registrable Securities, unless such Investor
has notified the Company in writing of such Investor's election to exclude all
of such Investor's Registrable Securities from the Registration Statement;
(d) Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(f) or 3(g),
such Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(f) or 3(g) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice; and
(e) No Investor may participate in any underwritten registration hereunder
unless such Investor (i) agrees to sell such Investor's Registrable Securities
on the basis provided in any underwriting arrangements approved by the Investors
entitled hereunder to approve such arrangements, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and other fees and expenses of investment bankers and
any manager or managers of such underwriting and legal expenses of the
underwriters applicable with respect to its Registrable Securities, in each case
to the extent not payable by the Company pursuant to the terms of this
Agreement.
5. EXPENSES OF REGISTRATION. All expenses, other than underwriting fees,
discounts and commissions and other fees and expenses of investment bankers and
other than brokerage commissions, incurred in connection with registrations,
filings or qualifications pursuant to Section 3, including, without limitation,
all registration, listing and qualifications fees, printers and accounting fees
and the fees and disbursements of counsel for the Company and the Investors,
shall be borne by the Company; PROVIDED, HOWEVER, that the Investors shall bear
the fees and out-of-pocket expenses of the one legal counsel selected by the
Investors pursuant to Section 2(b) hereof.
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6. INDEMNIFICATION. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act, any underwriter (as defined in the Securities Act) for the
Investors, the directors, if any, of such underwriter and the officers, if any,
of such underwriter, and each person, if any, who controls any such underwriter
within the meaning of the Securities Act or the Exchange Act (each, an
"Indemnified Person"), against any losses, claims, damages, expenses or
liabilities (joint or several) incurred (collectively, "Claims") to which any of
them may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations in the Registration Statement, or
any post-effective amendment thereof, or any prospectus included therein: (i)
any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any post-effective amendment thereof or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation under the
Securities Act, the Exchange Act or any state securities law (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject
to the restrictions set forth in Section 6(d) with respect to the number of
legal counsel, the Company shall reimburse the Investors and each such
underwriter or controlling person, promptly as such expenses are incurred and
are due and payable, for any legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a):(I) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if
-12-
<PAGE>
such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (II) with respect to any preliminary prospectus shall not inure to
the benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such prospectus was
timely made available by the Company pursuant to Section 3(c) hereof; and (III)
shall not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to indemnify and hold harmless, to the
same extent and in the same manner set forth in Section 6(a), the Company, each
of its directors, each of its officers who signs the Registration Statement,
each person, if any, who controls the Company within the meaning of the
Securities Act or the Exchange Act, any underwriter and any other stockholder
selling securities pursuant to the Registration Statement or any of its
directors or officers or any person who controls such stockholder or underwriter
within the meaning of the Securities Act or the Exchange Act (collectively and
together with an Indemnified Person, an "Indemnified Party"), against any Claim
to which any of them may become subject, under the Securities Act, the Exchange
Act or otherwise, insofar as such Claim arises out of or is based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; PROVIDED, HOWEVER, that the indemnity agreement
contained in this Section 6(b) shall not apply to amounts paid in settlement of
any Claim if such settlement is effected without the prior written consent of
such Investor, which consent shall not be unreasonably withheld; PROVIDED,
FURTHER, HOWEVER, that the Investor shall be liable under this Section 6(b) for
only that amount of a Claim as does not exceed the amount of the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement
-13-
<PAGE>
contained in this Section 6(b) with respect to any preliminary prospectus shall
not inure to the benefit of any Indemnified Party if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing by such
persons expressly for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the Indemnified Person or
the Indemnified Party, as the case may be; PROVIDED, HOWEVER, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The Company shall
pay for only one separate legal counsel for the Investors; such legal counsel
shall be selected by the Investors holding a majority in interest of the
Registrable Securities included in the Registration Statement to which the Claim
relates. The failure to deliver written notice to the indemnifying party within
a reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action. The indemnification required
by this Section 6 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as such expense, loss, damage
or liability is incurred and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; PROVIDED,
-14-
<PAGE>
HOWEVER, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6, (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
and without imposing restrictions arising under the federal securities laws on
the purchasers thereof ("Rule 144") the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon written request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to transferees or assignees of all or
any portion of such securities only if: (a) the Investor agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment, (b)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee or
assignee and (ii) the securities with respect to which such registration rights
are being transferred or assigned, (c) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state
-15-
<PAGE>
securities laws, and (d) at or before the time the Company received the written
notice contemplated by clause (b) of this sentence the transferee or assignee
agrees in writing with the Company to be bound by all of the provisions
contained herein.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold a majority in interest of
the Registrable Securities. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission or other means)
or sent by certified mail, return receipt requested, properly addressed and with
proper postage pre-paid (i) if to the Company, at Monterey Pasta Company, 353
Sacramento Street, Suite 500, San Francisco, California 94111, Attention:
President (telephone line facsimile No. (415) 397-7781), (ii) if to the Initial
Investor, at c/o Genesee Advisers, 12007 Sunrise Valley Drive, Suite 460,
Reston, Virginia 22091 (telephone line facsimile No. (703) 476-7711) and (iii)
if to any other Investor, at such address as such Investor shall have provided
in writing to the Company, or at such other address as each such party furnishes
by notice given in accordance with this Section 11(b), and shall be effective,
when personally delivered, upon receipt and, when so sent by certified mail,
four days after deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of California applicable to agreements
made and to be performed entirely within such State. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent
-16-
<PAGE>
that it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
(i) The Company acknowledges that any failure by the Company to perform
its obligations under this Agreement, including, without limitation, the
Company's obligations under Section 3(n), or any delay in such performance could
result in both direct and consequential damages to the Investors and the Company
agrees that, in addition to any other liability the Company may have by reason
of any such failure or delay, the Company shall be liable for all direct and
consequential damages caused by any such failure or delay. So long as the
Company files a Registration Statement in a timely manner as required by
Sections 2(b) and 3(a) and uses its best efforts to obtain effectiveness of such
Registration Statement and otherwise complies with its obligations under this
Agreement with respect to such Registration Statement, the Company shall not be
deemed to be in breach of this Agreement by reason of delay in the effectiveness
of such Registration Statement arising from any review thereof by the staff of
the SEC, it being understood and agreed that in such case the Company shall not
be liable to any Investor for consequential damages under this Section 11(i) but
that in such circumstances the Company shall be obligated to make payments
pursuant to Section 2(d) of this Agreement.
(j) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
-17-
<PAGE>
this Agreement bearing the signature of the party so delivering this
Agreement.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of day and
year first above written.
MONTEREY PASTA COMPANY
By
--------------------------
Name:
Title:
INITIAL INVESTOR:
GFL PERFORMANCE FUND LIMITED
By
--------------------------
Name:
Title:
-19-
<PAGE>
EXHIBIT 1
TO
REGISTRATION
RIGHTS
AGREEMENT
[Company Letterhead]
[Name and address of Transfer Agent]
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and direction to
you (1) to transfer or re-register the certificates for the shares of Common
Stock, no par value (the "Common Stock"), of Monterey Pasta Company, a
California corporation (the "Company"), represented by certificate numbers _____
and _____ for an aggregate of ______ shares (the "Outstanding Shares") of Common
Stock presently registered in the name of [Name of Investor] upon surrender of
such certificate to you, notwithstanding the legend appearing on such
certificates, and (2) to issue shares (the "Conversion Shares") of Common Stock
to or upon the order of the holder from time to time on conversion of the shares
(the "Preferred Shares") of Series A Convertible Preferred Stock, no par value,
of the Company, issued by the Company upon surrender to you by such holder for
conversion of Preferred Shares. The transfer or re-registration of the
certificates for the Outstanding Shares by you should be made at such time as
you are requested to do so by the record holder of the Outstanding Shares. The
certificate issued upon such transfer or re-registration should be registered in
such name as requested by the holder of record of the certificate surrendered to
you and should not bear any legend which would restrict the transfer of the
shares represented thereby. In addition, you are hereby directed to remove any
stop-transfer instruction relating to the Outstanding Shares. Certificates for
the Conversion Shares should not bear any restrictive legend and should not be
subject to any stop-transfer restriction.
Contemporaneous with the delivery of this letter, the Company is delivering
to you an opinion of __________ as to registration of the Outstanding Shares and
the Conversion Shares under the Securities Act of 1933, as amended.
1-1
<PAGE>
Should you have any questions concerning this matter, please contact me.
Very truly yours,
MONTEREY PASTA COMPANY
BY:
--------------------
Name:
Title:
1-2
<PAGE>
EXHIBIT 2
TO
REGISTRATION
RIGHTS
AGREEMENT
[Date]
[Name and address
of transfer agent]
MONTEREY PASTA COMPANY
SHARES OF COMMON STOCK
----------------------
Ladies and Gentlemen:
We are counsel to Monterey Pasta Company, a California corporation (the
"Company"), and we understand that [Name of Investor] (the "Holder") has
purchased from the Company an aggregate of ___________ shares (the "Preferred
Shares") of the Company's Series A Convertible Preferred Stock, no par value
(the "Preferred Stock"). The Preferred Shares were purchased by the Holder
pursuant to a Subscription Agreement, dated as of July ____, 1996, between
the Holder and the Company (the "Subscription Agreement"). Pursuant to a
Registration Rights Agreement, dated as of July ____ , 1996, between the
Company and the Holder (the "Registration Rights Agreement") entered into in
connection with the purchase by the Holder of the Preferred Shares, the
Company agreed with the Holder, among other things, to register the shares of
Common Stock, no par value, of the Company issuable upon conversion of the
Preferred Shares (the "Conversion Shares") under the Securities Act of 1933,
as amended (the "Securities Act"), upon the terms provided in the
Registration Rights Agreement. Pursuant to the Registration Rights Agreement,
on ________, the Company filed a Registration Statement on Form S-3 (File No.
333- ______) (the "Registration Statement") with the Securities and Exchange
Commission (the "SEC") relating to the Conversion Shares, which names the
Holder as a selling shareholder thereunder.
[Other introductory and scope of examination language to be inserted]
Based on the foregoing, we are of the opinion that the Conversion Shares
have been registered under the Securities Act.
2-1
<PAGE>
[Other appropriate language to be included.
Very truly yours,
cc: [Name of Investor]
2-2
<PAGE>
ANNEX IV
TO
SUBSCRIPTION
AGREEMENT
NOTICE OF CONVERSION
OF CONVERTIBLE PREFERRED STOCK
TO: Monterey Pasta Company
(1) Pursuant to the terms of the Series [X] Convertible Preferred Stock
(the "Preferred Stock") , the undersigned hereby elects to convert _________
shares of the Preferred Stock into shares of Common Stock, no par value (the
"Common Stock"), of Monterey Pasta Company, a California corporation (the
"Company"), or such other securities into which the Preferred Stock is currently
convertible.
(2) Please issue a certificate or certificates for the number of shares of
Common Stock or other securities into which such number of shares of Preferred
Stock is convertible in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:
---------------------- -----------------------
Name Name
---------------------- ------------------------
Address Address
---------------------- ------------------------
SS or Tax ID Number SS or Tax ID Number
(3) The Conversion Date is ________________ and the Closing Price of the
Common Stock on the five consecutive trading days preceding the Conversion Date
and the arithmetic average thereof are as follows:
Date Closing Price
---- -------------
________ ______________
________ ______________
________ ______________
________ ______________
________ ______________
IV-1
<PAGE>
Arithmetic Average: $ __________
(4) In the event of partial exercise, please reissue an appropriate
certificate for the number of shares of Preferred Stock which shall not have
been converted. Capitalized terms used in this Notice of Conversion and not
otherwise defined herein shall have the respective meanings provided in the
Certificate of Designations for the Preferred Stock.
(5) If the shares of Common Stock issuable upon conversion of the
Preferred Stock have not been registered under the Securities Act of 1933, as
amended (the "Act"), the undersigned represents and warrants that (i) the shares
of Common Stock not so registered are being acquired for the account of the
undersigned for investment, and not with a view to, or for resale in connection
with, the distribution thereof, and that the undersigned has no present
intention of distributing or reselling the shares of Common Stock not so
registered and (ii) the undersigned is an "accredited investor" as defined in
Regulation D under the Act. The undersigned further agrees that (A) the shares
of Common Stock not so registered shall not be sold or transferred unless either
(i) they first shall have been registered under the Act and applicable state
securities laws or (ii) the Company first shall have been furnished with an
opinion of legal counsel reasonably satisfactory to the Company to the effect
that such sale or transfer is exempt from the registration requirements of the
Act and (B) the Company may place a legend on the certificate(s) for the shares
of Common Stock not so registered to that effect and place a stop-transfer
restriction in its records relating to the shares of Common Stock not so
registered, all in accordance with the Certificate of Designations.
Date
------------------------- ----------------------------
Signature of Holder must be
signed exactly as name appears
on the Preferred Stock
Certificate.
IV-2
<PAGE>
ANNEX V
TO
SUBSCRIPTION
AGREEMENT
[LETTERHEAD]
August 1, 1996
GFL Performance Fund Limited
c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
RE: MONTEREY PASTA COMPANY
Ladies and Gentlemen:
We have acted as counsel to Monterey Pasta Company, a California
corporation (the "Company"), in connection with the preparation, execution and
delivery of the Subscription Agreement dated as of July 30, 1996 (the
"Agreement"), between the Company and GFL Performance Fund Limited, a British
Virgin Islands corporation ("GFL"). All capitalized terms used herein shall,
unless otherwise defined herein or the context otherwise requires, have the
meanings assigned to them in the Agreement.
In our capacity as counsel, we have examined, such corporate instruments,
documents, proceedings and certificates of corporate officers as we have deemed
appropriate in rendering the opinions set forth below. We have assumed the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all documents submitted to us as copies. We have also
assumed without investigation, the accuracy of the representations, warranties
and covenants as to factual matters made by the Company in the Agreement and the
Registration Rights Agreement and the accuracy of representations and statements
as to factual matters made by the officers and employees of the Company and by
government officials.
Whenever a statement herein is qualified by the phrase "to our knowledge,"
"known to us," or similar phrase, it indicates that in the course of our
representation of the Company no information that would give us actual knowledge
of the inaccuracy of such statement has come to the attention of the attorneys
in this firm who have rendered legal services in connection with this
transaction. We have not made any independent investigation to determine the
accuracy of such statement (including any search of litigation filings in any
court), except as expressly described herein. No inference as to our knowledge
of any matters bearing on the accuracy of such statement should be drawn from
the fact of our
<PAGE>
GFL Performance Fund Limited
August 1, 1996
Page 2
representation of the Company in other matters in which such attorneys are not
involved.
Our opinion is subject to the following qualifications:
1. Our opinion in paragraph 2 below is subject to (a) the effect of
bankruptcy, insolvency, reorganization, moratorium and other similar laws now or
hereafter in effect affecting creditors' rights or by general equity principles,
regardless of whether such enforceability is considered in a proceeding in
equity or at law; and (b) general principles of equity, including, without
limitation, (i) the effect of federal or state laws, rules or regulations and
court decisions upon the enforceability of the Agreement, the Registration
Rights Agreement, including but not limited to the position of the Securities
and Exchange Commission that indemnification by an issuer of securities of its
directors and officers and controlling persons for liabilities arising under
Securities Act of 1933, as amended (the "1933 Act"), is against public policy
expressed under the 1933 Act and is therefore unenforceable, and (ii) the
effect of court decisions which have held that certain covenants and provisions
of agreements are unenforceable where: (A) the breach of such covenants or
provisions imposes restrictions or burdens upon a party and it cannot be
demonstrated that the enforcement of such restrictions or burdens is reasonably
necessary for the protection of the other party; or (B) a party's enforcement of
such covenants or provisions under the circumstances would violate such party's
implied covenants of good faith and fair dealing.
2. Our opinion is limited to the effect of the laws of the State of
California and the federal laws of the United States on the transaction
contemplated by the Agreement and the Registration Rights Agreement, and we
express no opinion as to matters governed by other laws.
3. In making our examination of documents and instruments executed by
persons or entities other than the Company, we have assumed, without
investigation the power and legal capacity of each such person or other entity
to enter into and perform all its obligations under such documents and
instruments, the due authorization by each such other person or entity of such
documents and instruments, and the due execution and delivery by each such other
person or entity of such documents and instruments.
<PAGE>
GFL Performance Fund Limited
August 1, 1996
Page 3
4. Our opinions are limited to the matters expressly set forth in this
opinion letter, and no opinion is to be implied or may be inferred beyond the
matters expressly so stated.
5. This opinion letter is dated as of the Closing Date and, therefore,
relates only to events that exist as of that time. We disclaim any obligation
to update this opinion letter for any events, and any changes in law or the
interpretation thereof, occurring after the date of this opinion letter.
6. Our opinion as to the good standing of the Company is based solely
upon certificates from public officials, dated July 30, 1996 as to the good
standing of the Company under applicable law.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of California and has all requisite corporate power
and authority to conduct its business as now being conducted.
2. The Company has all requisite corporate power and authority to enter
into the Agreement and the Registration Rights Agreement and to consummate the
transactions contemplated thereby. The execution, delivery and performance of
the Agreement and the Registration Rights Agreement and the consummation of the
transactions contemplated thereby have been duly authorized by all necessary
corporate action on the part of the Company. The Agreement and the Registration
Rights Agreement have been duly executed and delivered by the Company and
constitutes legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms.
3. The Preferred Shares have been duly authorized and, when issued and
paid for in accordance with the Agreement, will be validly issued, fully paid
and non-assessable.
4. The Common Shares have been duly authorized and, when issued upon
conversion of the Preferred Shares in accordance with the terms thereof will be
validly issued, fully paid and non-assessable.
<PAGE>
GFL Performance Fund Limited
August 1, 1996
Page 4
5. As of the date hereof, the authorized capital stock of the Company
consisted of (a) twenty (20) million shares of Common Stock, of which, as of
July 31, 1996, 8,713,911 shares are validly issued and outstanding, fully paid
and non-assessable and with respect to which warrants to purchase 400,750 shares
are outstanding and (b) five (5) million shares of Preferred Stock, no par value
per share, of which three thousand (3,000) shares have been designated "Series A
Convertible Preferred Stock" and three thousand (3,000) shares are issued and
outstanding. There are no preemptive rights of any stockholder of the Company,
as such, to acquire the Shares. The Common Stock is listed for trading on the
Nasdaq National Market("Nasdaq"), and, to the best of our knowledge, (a) no
suspension of trading in the Common Stock is in effect or threatened, (b) the
Company and the Common Stock meet the criteria for continued listing and trading
on Nasdaq and (c) the Company has not been notified since January 1, 1994 by the
National Association of Securities Dealers, Inc. of any failure or potential
failure to meet the criteria for continued listing and trading of the Common
Stock on Nasdaq.
6. The Preferred Shares may be issued to you pursuant to the Agreement
and the Common Shares may be issued to you upon conversion of the Preferred
Shares, in each case without registration under the 1933 Act.
7. No authorization or consent of, or filing with, any court, government
body, regulatory agency, self-regulatory organization, or stock exchange or
market or the shareholders of the Company is required to be obtained or made by
the Company for the issuance and sale of the Preferred Shares as contemplated by
the Agreement or the issuance of the Common Shares on conversion of the
Preferred Shares except such as have been obtained or made and other than such
as may be required under the securities or "blue sky" laws of certain
jurisdictions (as to which we express no opinion).
8. To the best of our knowledge and except as disclosed in the documents
referred to in Section 2(e) of the Agreement, there is no action, suit,
proceeding, inquiry or investigation before or by any court, public board or
body pending or threatened against or affecting the Company or any of its
subsidiaries, wherein an unfavorable decision, ruling or finding would have a
material adverse effect on the properties, business, condition (financial or
other), results of operations or prospects of the Company and its subsidiaries
taken as a whole or the transactions contemplated by the Agreement or any of the
documents contemplated
<PAGE>
GFL Performance Fund Limited
August 1, 1996
Page 5
thereby or which would adversely affect the validity or unenforceabillty of, or
the authority or ability of the Company to perform its obligations under, the
Agreement, or any of such other documents.
This opinion letter is rendered solely for the benefit of GFL in connection
with the above transaction. Without our prior written consent, this opinion
letter may not be: (i) relied upon by any other party or for any other purpose,
except that the opinions expressed in paragraphs 4 and 6 may be relied upon by
Corporate Stock Transfer as Transfer Agent and Registrar for the Common Stock;
(ii) quoted in whole or in part or otherwise referred to in any report or
document other than a closing memorandum relating to the subject transaction or
(iii) furnished (the original or copies thereof) to any party except in
connection with the enforcement of the Agreement or in connection with the
closing of the transactions contemplated by the Agreement.
Very truly yours,
/s/ Graham & James LLP
GRAHAM & JAMES LLP
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of July 31, 1996 (this
"Agreement"), is made by and between MONTEREY PASTA COMPANY, a California
corporation (the "Company"), and the person named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, in connection with the Subscription Agreement, dated as of
July 31, 1996, between the Initial Investor and the Company (the "Subscription
Agreement"), the Company has agreed, upon the terms and subject to the
conditions of the Subscription Agreement, to issue and sell to the Initial
Investor 3,000 shares (the "Preferred Shares") of Preferred Stock of the Company
as provided in the Subscription Agreement, which shares of Preferred Stock are
convertible into shares (the "Conversion Shares") of Common Stock, no par value,
including the related rights issued pursuant to the Rights Agreement, dated as
of May 15, 1996, between the Company and Corporate Stock Transfer, as Rights
Agent, as amended from time to time in accordance with its terms (the "Rights
Agreement") (such shares and rights collectively the "Common Stock") of the
Company; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investor" means the Initial Investor and any transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
"Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of
<PAGE>
such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion Shares and any
shares of Common Stock issuable to any Investor as a dividend on Preferred
Shares.
(iv) "Registration Statement" means a registration statement of the
Company under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i) each
investor (as defined above) and (ii) each person who is a permitted transferee
or assignee of the Registrable Securities pursuant to Section 9 of this
Agreement.
(c) Capitalized terms defined in the introductory paragraph or the
recitals to this Agreement shall have the respective meanings therein provided.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Subscription Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare, and on or
prior to the date which is 25 days after the date of the closing under the
Subscription Agreement (the "Closing Date"), file with the SEC a Registration
Statement on Form S-3 covering at least 1,100,000 shares of Common Stock as
Registrable Securities, and which Registration Statement shall state that, in
accordance with Rule 416 under the Securities Act, such Registration Statement
also covers such indeterminate number of additional shares of Common Stock, as
may become issuable upon conversion of the Preferred Shares to prevent dilution
resulting from stock splits, stock dividends or similar transactions or by
reason of changes in the conversion price of the Preferred Shares in accordance
with the terms thereof. If at any time the number of shares of Common Stock
included in the Registration Statement required to be filed as provided in the
first sentence of this Section 2(a) shall be insufficient to cover the number of
shares of Common Stock issuable on conversion in full of the unconverted
Preferred Shares, then promptly, but in no event later than 20 days after such
insufficiency shall occur, the Company shall file with the SEC an additional
Registration Statement on Form S-3 (which shall not constitute a post-effective
amendment to the Registration Statement required to be filed pursuant to the
first sentence of this Section 2(a)) or other applicable form covering such
number of shares of Common Stock as shall be sufficient to permit such
conversion. For all purposes of this Agreement (other than Section 2(c) hereof)
such additional Registration Statement shall be deemed to be the Registration
Statement required to be filed by the Company pursuant to Section 2(a) of this
Agreement, and the Company and the Investors shall have the same rights and
obligations (other than Section 2(c) hereof) with respect to such
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additional Registration Statement as they shall have with respect to the initial
Registration Statement required to be filed by the Company pursuant to this
Section 2(a).
(b) CERTAIN OFFERINGS. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors who hold a majority in interest of the Registrable Securities subject
to such underwritten offering shall have the right to select one legal counsel
and an investment banker or bankers and manager or managers to administer the
offering, which investment banker or bankers or manager or managers shall be
reasonably satisfactory to the Company. The Investors who hold the Registrable
Securities to be included in such underwriting shall pay all underwriting
discounts and commissions and other fees and expenses of such investment banker
or bankers and manager or managers so selected in accordance with this Section
2(b) (other than fees and expenses relating to registration of Registrable
Securities under federal or state securities laws, which are payable by the
Company pursuant to Section 5 hereof) with respect to their Registrable
Securities and the fees and expenses of such legal counsel so selected by the
Investors.
(c) PAYMENTS BY THE COMPANY. If the Registration Statement covering
the Registrable Securities which is required to be filed by the Company pursuant
to Section 2(a) hereof is not effective within 90 days after the Closing Date,
then the Company will make payments to the Initial Investor in such amounts and
at such times as shall be determined pursuant to this Section 2(c). The amount
to be paid by the Company to the Initial Investor shall be determined as of each
Computation Date, and such amount shall be equal to (1) in the case of the first
Computation Date, two percent (2%) and (2) in the case of the second Computation
Date and each Computation Date thereafter, three percent (3%), in each case of
the aggregate subscription price paid by the Initial Investor for the Preferred
Shares pursuant to the Subscription Agreement (each, a "Periodic Amount");
PROVIDED, HOWEVER, that if any Computation Date is less than 30 days subsequent
to another Computation Date (or, in case the first Computation Date is the date
specified in clause (3) of the definition of Computation Date, if such
Computation Date is less than 120 days after the Closing Date), then the
Periodic Amount payable on the later Computation Date shall be pro rated. The
Periodic Amount shall be paid by the Company within five business days after
each Computation Date and shall be payable in cash; PROVIDED, HOWEVER, that the
Company may elect in lieu of payment of any Periodic Amount in cash to deliver
to the Initial Investor shares of Common Stock having an Aggregate Market Value
equal to the amount of the Periodic Amount if, but only if, such shares are
freely tradable by the Initial Investor without any restriction under the
Securities Act or any state securities or "blue sky" law.
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As used in this Section 2(c), the following terms shall have the
following meanings:
"Aggregate Market Value" of any shares of Common Stock as of any
Computation Date means the product obtained by multiplying (a) such number of
shares of Common Stock times (b) the Average Market Price of the Common Stock
for the Measurement Period for such Computation Date.
"Average Market Price" of any security for any period shall be
computed as the arithmetic average of the closing bid of such security for each
trading day in such period on the principal trading market for such security, as
reported by such market.
"Computation Date" means (1) the date which is 120 days after the
Issuance Date, unless the Registration Statement theretofore has been declared
effective by the SEC, (2) if the Registration Statement has not theretofore been
declared effective by the SEC, each date which is 30 days after a Computation
Date and (3) if the Registration Statement has not been declared effective by
the SEC within 90 days after the Issuance Date, the date on which the
Registration Statement is declared effective by the SEC.
"Measurement Period" means the period of five consecutive trading days
for the Common Stock ending on (or, if such Computation Date is not a trading
day, on the last trading day preceding) each Computation Date.
(d) PIGGY-BACK REGISTRATIONS. If at any time the Company shall
determine to prepare and file with the SEC a Registration Statement relating to
an offering for its own account or the account of others under the Securities
Act any of its equity securities, other than on Form S-4 or Form S-8 or their
then equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each Investor, who is entitled to registration rights under this Section
2(a) written notice of such determination and, if within twenty (20) days after
receipt of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that if, in
connection with any underwritten public offering for the account of the Company
the managing underwriter(s) thereof shall impose a limitation on the number of
shares of Common Stock which may be included in the Registration Statement
because, in such underwriter(s)' judgment, such limitation is necessary to
effect an orderly public distribution, then the Company shall be obligated to
include in such Registration Statement only such limited portion of the
Registrable Securities with respect to which such Investor has requested
inclusion hereunder. Any exclusion of Registrable Securities shall be made pro
rata among
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<PAGE>
the Investors seeking to include Registrable Securities, in proportion to the
number of Registrable Securities sought to be included by such Investors;
PROVIDED, HOWEVER, that the Company shall not exclude any Registrable Securities
unless the Company has first excluded all outstanding securities the holders of
which are not entitled by right to inclusion of securities in such Registration
Statement; and PROVIDED FURTHER, HOWEVER, that, after giving effect to the
immediately preceding proviso, any exclusion of Registrable Securities shall be
made pro rata with holders of other securities having the right to include such
securities in the Registration Statement. No right to registration of
Registrable Securities under this Section 2(a) shall be construed to limit any
registration required under Section 2(b) hereof. The obligations of the Company
under this Section 2(a) may be waived by Investors holding a majority in
interest of the Registrable Securities and shall expire after the Company has
afforded the opportunity for the Investors to exercise registration rights under
this Section 2(a) for two registrations; PROVIDED, HOWEVER, that any Investor
who shall have had any Registrable Securities excluded from any Registration
Statement in accordance with this Section 2(a) shall be entitled to include in
an additional Registration Statement filed by the Company the Registrable
Securities so excluded.
(e) ELIGIBILITY FOR FORM S-3. The Company represents and warrants
that it meets the requirements for the use of Form S-3 for registration of the
sale by the initial Investor and any Investor of the Registrable Securities and
the Company shall file all reports required to be filed by the Company with the
SEC in a timely manner so as to maintain such eligibility for the use of Form S-
3.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration
of the Registrable Securities, the Company shall:
(a) prepare promptly and file with the SEC promptly (but in no event
later than 25 days) after the Closing Date a Registration Statement with respect
to all Registrable Securities, and thereafter use its best efforts to cause the
Registration Statement to become effective as soon as reasonably possible after
such filing, and keep the Registration Statement effective pursuant to Rule 415
at all times until such date as is the earlier of (i) 30 months after the date
such Registration Statement is first ordered effective by the SEC and (ii) the
date on which all Registrable Securities have been sold by the Investors under
circumstances in which the buyers may resell such Registrable Securities without
registration under the Securities Act, which Registration Statement (including
any amendments or supplements thereto and prospectuses contained therein) shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein, or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading; PROVIDED,
HOWEVER, that, subject
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<PAGE>
to the conditions set forth in Section 4(a) below, each Investor may notify the
Company in writing that it wishes to exclude all or a portion of its Registrable
Securities from such Registration Statement;
(b) prepare and file with the SEC such amendments (including post-
effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times until such
date as is the earlier of (i) 30 months after the date such Registration
Statement is first ordered effective by the SEC and (ii) the date on which all
Registrable Securities have been sold by the Investors under circumstances in
which the buyers may resell such Registrable Securities without registration
under the Securities Act, and, during such period, comply with the provisions of
the Securities Act with respect to the disposition of all Registrable Securities
of the Company covered by the Registration Statement until such time as all of
such Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
the Registration Statement;
(c) furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel, (1) promptly after
the same is prepared and publicly distributed, filed with the SEC or received by
the Company, one copy of the Registration Statement and any amendment thereto,
each preliminary prospectus and prospectus and each amendment or supplement
thereto, each letter written by or on behalf of the Company to the SEC or the
staff of the SEC and each item of correspondence from the SEC or the staff of
the SEC relating to such Registration Statement (other than any portion of any
thereof which contains information for which the Company has sought confidential
treatment) and (2) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) use reasonable efforts to (1) register and qualify the
Registrable Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as the Investors who hold a
majority in interest of the Registrable Securities being offered reasonably
request, (2) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements, (3) take such other actions as may
be necessary to maintain such registrations and qualifications in effect at all
times until the such date as is the earlier of (i) 30 months after the date such
Registration Statement is first ordered effective by the SEC and (ii) the date
on which all Registrable Securities have been sold by the Investors under
circumstances in which the buyers may resell such Registrable Securities without
registration under the Securities
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<PAGE>
Act, and (4) take all other actions reasonably necessary or advisable to qualify
the Registrable Securities for sale in such jurisdictions; PROVIDED, HOWEVER,
that the Company shall not be required in connection therewith or as a condition
thereto to (I) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (II) subject itself
to general taxation in any such jurisdiction, (III) file a general consent to
service of process in any such jurisdiction, (IV) provide any undertakings that
cause more than nominal expense or burden to the Company or (V) make any change
in its charter or by-laws, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the Company and its
stockholders;
(e) in the event Investors who hold a majority in interest of the
Registrable Securities being offered in the offering select underwriters for the
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering;
(f) as promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to each
Investor as such Investor may reasonably request;
(g) as promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of any stop order or other suspension of effectiveness of the
Registration Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling
stockholders' counsel by the Investors who hold a majority in interest of the
Registrable Securities being sold to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time prior to their
filing with the SEC, and shall not file any document in a form to which such
counsel reasonably objects;
(i) make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the
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<PAGE>
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a twelve-
month period beginning not later than the first day of the Company's fiscal
quarter next following the effective date of the Registration Statement;
(j) at the request of the Investors who hold a majority in interest
of the Registrable Securities being sold, furnish on the date that Registrable
Securities are delivered to an underwriter for sale in connection with the
Registration Statement (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters; and (ii) an
opinion, dated such date, from counsel representing the Company for purposes of
such Registration Statement, in form and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors;
(k) make available for inspection by any Investor, any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by any such Investor or underwriter
(collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; PROVIDED, HOWEVER, that
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (ii) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction or (iii)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
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<PAGE>
confidential. The Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the Company
pursuant to Section 4 (e) hereof unless (i) disclosure of such information is
necessary to comply with federal or state securities laws, (ii) the disclosure
of such information is necessary to avoid or correct a misstatement or omission
in any Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other order from a court or governmental body of
competent jurisdiction or (iv) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Company agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to such Investor, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, such information;
(1) use its best efforts either to (i) cause all the Registrable
Securities covered by the Registration Statement to be listed on a national
securities exchange and on each additional national securities exchange on which
similar securities issued by the Company are then listed, if any, if the listing
of such Registrable Securities is then permitted under the rules of such
exchange or (ii) secure designation of all the Registrable Securities covered by
the Registration Statement as a National Association of Securities Dealers
Automated Quotations System ("NASDAQ"s) "national market system security" within
the meaning of Rule llAa2-1 of the SEC under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the quotation of the Registrable
Securities on the NASDAQ National Market System or, if, despite the Company's
best efforts to satisfy the preceding clause (i) or (ii), the Company is
unsuccessful in satisfying the preceding clause (i) or (ii), to secure listing
on a national securities exchange or NASDAQ authorization and quotation for such
Registrable Securities and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register with the National Association
of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities;
(m) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(n) cooperate with the Investors who hold Registrable Securities
being offered and the managing underwriter or underwriters, if any, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legends) representing Registrable Securities to be offered pursuant
to the Registration Statement and enable such certificates to be in such
denominations or amounts as the case may be, as the managing underwriter or
underwriters, if any, or the Investors may reasonably request and registered in
such names as the managing underwriter or underwriters, if any, or the Investors
may request;
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and, within three business days after a Registration Statement which includes
Registrable Securities is ordered effective by the SEC, the Company shall
deliver, and shall cause legal counsel selected by the Company to deliver, to
the transfer agent for the Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement) an
instruction in the form attached hereto as EXHIBIT 1 and an opinion of such
counsel in the form attached hereto as EXHIBIT 2; and
(o) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant to
the Registration Statement;
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Agreement with respect to each
Investor that such Investor shall furnish to the Company such information
regarding itself, the Registrable Securities held by it and the intended method
of disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of the Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request. At least fifteen (15) days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify each
Investor of the information the Company requires from each such Investor (the
"Requested Information") if such Investor elects to have any of such Investor's
Registrable Securities included in the Registration Statement. If within five
(5) business days prior to the filing date the Company has not received the
Requested Information from an Investor (a "Non-Responsive Investor'), then the
Company may file the Registration Statement without including Registrable
Securities of such Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement;
(c) In the event Investors holding a majority in interest of the
Registrable Securities being registered determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to
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expedite or facilitate the disposition of the Registrable Securities, unless
such Investor has notified the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from the Registration
Statement;
(d) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice; and
(e) No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and other fees and expenses of investment
bankers and any manager or managers of such underwriting and legal expenses of
the underwriters applicable with respect to its Registrable Securities, in each
case to the extent not payable by the Company pursuant to the terms of this
Agreement.
5. EXPENSES OF REGISTRATION. All expenses, other than underwriting
fees, discounts and commissions and other fees and expenses of investment
bankers and other than brokerage commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 3, including,
without limitation, all registration, listing and qualifications fees, printers
and accounting fees and the fees and disbursements of counsel for the Company
and the Investors, shall be borne by the Company; PROVIDED, HOWEVER, that the
Investors shall bear the fees and out-of-pocket expenses of the one legal
counsel selected by the Investors pursuant to Section 2(b) hereof.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who
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controls any Investor within the meaning of the Securities Act or the Exchange
Act, any underwriter (as defined in the Securities Act) for the Investors, the
directors, if any, of such underwriter and the officers, if any, of such
underwriter, and each person, if any, who controls any such underwriter within
the meaning of the Securities Act or the Exchange Act (each, an "Indemnified
Person"), against any losses, claims, damages, expenses or liabilities (joint or
several) incurred (collectively, "Claims") to which any of them may become
subject under the Securities Act, the Exchange Act or otherwise, insofar as such
Claims (or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations in the Registration Statement, or any post-effective
amendment thereof, or any prospectus included therein: (i) any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or any post-effective amendment thereof or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state'
securities law or any rule or regulation under the Securities Act, the Exchange
Act or any state securities law (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations"). Subject to the restrictions
set forth in Section 6(d) with respect to the number of legal counsel, the
Company shall reimburse the Investors and each such underwriter or controlling
person, promptly as such expenses are incurred and are due and payable, for any
legal fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a):(I) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by any Indemnified Person or underwriter for
such Indemnified Person expressly for use in connection with the preparation of
the Registration Statement or any such amendment thereof or supplement thereto,
if such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (II) with respect to any preliminary prospectus shall not inure to
the benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus, was corrected
in the prospectus, as then amended or supplemented,
-12-
<PAGE>
if such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; and (III) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to indemnify and hold
harmless, to the same extent and in the same manner set forth in Section 6(a),
the Company, each of its directors, each of its officers who signs the
Registration Statement, each person, if any, who controls the Company within the
meaning of the Securities Act or the Exchange Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an "Indemnified Party") ,
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and such Investor will reimburse
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such Claim; PROVIDED, HOWEVER, that the indemnity
agreement contained in this Section 6(b) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of such Investor, which consent shall not be unreasonably withheld;
PROVIDED, FURTHER, HOWEVER, that the Investor shall be liable under this Section
6(b) for only that amount of a Claim as does not exceed the amount of the net
proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 6(b)
with respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar
-13-
<PAGE>
securities industry professionals participating in any distribution, to the same
extent as provided above, with respect to information such persons so furnished
in writing by such persons expressly for inclusion in the Registration
Statement.
(d) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
Indemnified Person or the Indemnified Party, as the case may be; PROVIDED,
HOWEVER, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The Company shall pay for only one separate legal counsel for the
Investors; such legal counsel shall be selected by the Investors holding a
majority in interest of the Registrable Securities included in the Registration
Statement to which the Claim relates. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as such expense, loss, damage or liability is incurred and is due
and payable.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; PROVIDED, HOWEVER, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6, (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation and (c) contribution by any seller of
-14-
<PAGE>
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
and without imposing restrictions arising under the federal securities laws on
the purchasers thereof ("Rule 144") the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon written request, (i) a written statement
by the Company that it has complied with the reporting requirements of Rule 144,
the Securities Act and the Exchange Act, (ii) a copy of the most recent annual
or quarterly report of the Company and such other reports and documents so filed
by the Company and (iii) such other information as may be reasonably requested
to permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to transferees or assignees of all or
any portion of such securities only if: (a) the Investor agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment, (b)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee or
assignee and (ii) the securities with respect to which such registration rights
are being transferred or assigned, (c) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws, and (d) at or before the time the Company received the written notice
contemplated by clause (b) of this sentence the transferee or assignee agrees in
writing with the Company to be bound by all of the provisions contained herein.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the
-15-
<PAGE>
written consent of the Company and Investors who hold a majority in interest of
the Registrable Securities. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission or other means)
or sent by certified mail, return receipt requested, properly addressed and with
proper postage pre-paid (i) if to the Company, at Monterey Pasta Company, 353
Sacramento Street, Suite 500, San Francisco, California 94111, Attention:
President (telephone line facsimile No. (415) 397-7781), (ii) if to the Initial
Investor, at c/o Genesee Advisers, 12007 Sunrise Valley Drive, Suite 460,
Reston, Virginia 22091 (telephone line facsimile No. (703) 476-7711) and (iii)
if to any other Investor, at such address as such Investor shall have provided
in writing to the Company, or at such other address as each such party furnishes
by notice given in accordance with this Section 11(b), and shall be effective,
when personally delivered, upon receipt and, when so sent by certified mail,
four days after deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of California applicable to agreements
made and to be performed entirely within such State. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or
-16-
<PAGE>
undertakings, other than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(i) The Company acknowledges that any failure by the Company to
perform its obligations under this Agreement, including, without limitation, the
Company's obligations under Section 3(n), or any delay in such performance could
result in both direct and consequential damages to the Investors and the
Company agrees that, in addition to any other liability the Company may have by
reason of any such failure or delay, the Company shall be liable for all direct
and consequential damages caused by any such failure or delay. So long as the
Company files a Registration Statement in a timely manner as required by
Sections 2(b) and 3(a) and uses its best efforts to obtain effectiveness of such
Registration Statement and otherwise complies with its obligations under this
Agreement with respect to such Registration Statement, the Company shall not be
deemed to be in breach of this Agreement by reason of delay in the effectiveness
of such Registration Statement arising from any review thereof by the staff of
the SEC, it being understood and agreed that in such case the Company shall not
be liable to any Investor for consequential damages under this Section 11(i) but
that in such circumstances the Company shall be obligated to make payments
pursuant to Section 2(d) of this Agreement.
(j) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of day and
year first above written.
MONTEREY PASTA COMPANY
By /s/Norman E. Dean
----------------------
Name: Norman E. Dean
Title: President & Chief Executive Officer
INITIAL INVESTOR:
GFL PERFORMANCE FUND LIMITED
By
----------------------
Name:
Title:
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of day and
year first above written.
MONTEREY PASTA COMPANY
By
-------------------
Name:
Title:
INITIAL INVESTOR:
GFL PERFORMANCE FUND LIMITED
By /s/A.P. de Groot
-------------------
Name: A.P. de Groot
Title: President
-18-
<PAGE>
EXHIBIT 1
TO
REGISTRATION
RIGHTS
AGREEMENT
[Company Letterhead]
[Name and address of Transfer Agent]
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and direction
to you [(1) to transfer or re-register the certificates for the shares of Common
Stock, no par value (the "Common Stock"), of Monterey Pasta Company, a
California corporation (the "Company"), represented by certificate numbers
and for an aggregate of shares (the
"Outstanding Shares") of Common Stock presently registered in the name of [Name
of Investor] upon surrender of such certificate to you, notwithstanding the
legend appearing on such certificates, and (2)]* to issue shares (the
"Conversion Shares") of Common Stock to or upon the order of the holder from
time to time on conversion of the shares (the "Preferred Shares") of Series A
Convertible Preferred Stock, no par value, of the Company, issued by the Company
upon surrender to you by such holder for conversion of Preferred Shares. The
transfer or re-registration of the certificates for the Outstanding Shares by
you should be made at such time as you are requested to do so by the record
holder of the Outstanding Shares. The certificate issued upon such transfer or
re-registration should be registered in such name as requested by the holder of
record of the certificate surrendered to you and should not bear any legend
which would restrict the transfer of the shares represented thereby. In
addition, you are hereby directed to remove any stop-transfer instruction
relating to the Outstanding Shares. Certificates for the Conversion Shares
should not bear any restrictive legend and should not be subject to any stop-
transfer restriction.
Contemporaneous with the delivery of this letter, the Company is
delivering to you an opinion of as to registration of the
Outstanding Shares and the Conversion Shares under the Securities Act of 1933,
as amended.
- --------------------
* Omit if no conversions of Preferred Stock have occurred before SEC
registration is declared effective.
1-1
<PAGE>
Should you have any questions concerning this matter, please contact me.
Very truly yours,
MONTEREY PASTA COMPANY
BY:
--------------------
Name:
Title:
1-2
<PAGE>
EXHIBIT 2
TO
REGISTRATION
RIGHTS
AGREEMENT
[Date]
[Name and address
of transfer agent]
MONTEREY PASTA COMPANY
SHARES OF COMMON STOCK
------------------------
Ladies and Gentlemen:
We are counsel to Monterey Pasta Company, a California corporation (the
"Company") , and we understand that [Name of Investor] (the "Holder") has
purchased from the Company an aggregate of shares (the "Preferred
Shares") of the Company's Series A Convertible Preferred Stock, no par value
(the "Preferred Stock"). The Preferred Shares were purchased by the Holder
pursuant to a Subscription Agreement, dated as of July , 1996, between the
Holder and the Company (the "Subscription Agreement"). Pursuant to a
Registration Rights Agreement, dated as of July , 1996, between the Company
and the Holder (the "Registration Rights Agreement") entered into in connection
with the purchase by the Holder of the Preferred Shares, the Company agreed with
the Holder, among other things, to register the shares of Common Stock, no par
value, of the Company issuable upon conversion of the Preferred Shares (the
"Conversion Shares") under the Securities Act of 1933, as amended (the
"Securities Act"), upon the terms provided in the Registration Rights Agreement.
Pursuant to the Registration Rights Agreement, on , the Company filed
a Registration Statement on Form S-3 (File No. 333- ) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Conversion Shares, which names the Holder as a selling
shareholder thereunder.
[Other introductory and scope of examination language to be inserted]
Based on the foregoing, we are of the opinion that the Conversion Shares
have been registered under the Securities Act.
2-1
<PAGE>
[Other appropriate language to be included.
Very truly yours,
cc: [Name of Investor]
2-2
<PAGE>
EXHIBIT 4.3
SUBSCRIPTION AGREEMENT
(PANGAEA FUND LIMITED)
THIS SUBSCRIPTION AGREEMENT, dated as of the date of acceptance set
forth below, by and between MONTEREY PASTA COMPANY, a Delaware corporation, with
headquarters located at 353 Sacramento Street, Suite 500, San Francisco,
California 94111 (the "Company"), and the undersigned (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon exemptions from securities registration under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to
the conditions of this Agreement, shares of non-voting, convertible preferred
stock of the Company which will be convertible into shares of Common Stock,
$.001 par value, including the related rights pursuant to the Rights
Agreement, dated as of May 15, 1996, between the Company and Corporate Stock
Transfer, as Rights Agent, as amended from time to time in accordance with
its terms (the "Rights Agreement") (such shares and rights collectively the
"Common Stock"), of the Company, subject to acceptance of this Agreement by
the Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(a) SUBSCRIPTION. The undersigned hereby agrees to purchase from the
Company the number of shares (the "Preferred Shares") of Series B Convertible
Preferred Stock, $.001 par value (the "Preferred Stock"), of the Company set
forth on the signature page of this Agreement, having the terms and conditions
as set forth in the form of Certificate of Designations of Series B Convertible
Preferred Stock attached hereto as ANNEX I (the "Certificate of Designations")
at the price per share and for the aggregate purchase price set forth on the
signature page of this Agreement. The purchase price for the Preferred Shares
shall be payable in United States Dollars in immediately available funds. The
shares of Common Stock issuable upon conversion of the Preferred Shares are
referred to herein as the "Common Shares." The Common Shares and the Preferred
Shares are referred to herein collectively as the "Shares."
(b) FORM OF PAYMENT. The Buyer shall pay the purchase price for the
Preferred Shares by delivering good funds in United States Dollars to the escrow
agent (the "Escrow Agent") identified in the Joint Escrow Instructions attached
hereto as ANNEX II (the "Joint Escrow Instructions"). Such delivery of funds
shall be made against delivery by the Company of the certificates for the
Preferred Shares registered in the name of the Buyer. Promptly following
payment by the Buyer to the Escrow Agent of the purchase price of the Preferred
<PAGE>
Shares, but in no event later than the Closing Date, the Company shall deliver
certificates for the Preferred Shares, registered in the name of the Buyer, to
the Escrow Agent. By signing this Agreement, the Buyer and the Company each
agrees to all of the terms and conditions of, and becomes a party to, the Joint
Escrow Instructions, all of the provisions of which are incorporated herein by
this reference as if set forth in full.
(C) METHOD OF PAYMENT. Payment of the purchase price for the
Preferred Shares shall be made by wire transfer of funds to:
Citibank, N.A.
153 East 53rd Street
New York, New York 10043
ABA#021000089
For Further Credit to A/C#37179446
for credit to the account of Brian W. Pusch Attorney Escrow
Account
Reference: Pangaea/Pasta
Not later than 4:00 p.m., New York City time, on the date which is one New York
Stock Exchange trading day after the Company shall have accepted this Agreement
and returned a signed counterpart of this Agreement to the Buyer, the Buyer
shall deposit with the Escrow Agent the aggregate purchase price for the
Preferred Shares.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
(a) The Buyer is purchasing the Preferred Shares for its own account
for investment only and not with a view towards the public sale or distribution
thereof;
(b) The Buyer is an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3);
(c) All subsequent offers and sales of the Shares by the Buyer shall
be made pursuant to registration of the Shares being offered and sold under the
1933 Act or pursuant to an exemption from registration;
(d) The Buyer understands that the Preferred Shares are being offered
and sold, and the Common Shares are being offered, to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Preferred Shares and to receive an offer of the Common Shares;
<PAGE>
(e) The Buyer and its advisors, if any, have been furnished with
all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Preferred Shares
and the offer of the Common Shares which have been requested by the Buyer.
The Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory answers
to any such inquiries. Without limiting the generality of the foregoing, the
Buyer has had the opportunity to obtain and to review the Company's (1)
Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as
amended by Form 10-K/A, (2) Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1996, (3) press release dated July 24, 1996
concerning the Company's financial results for the fiscal quarter ended June
30, 1996, (4) Current Reports on Form 8-K, dated April 19, 1996 and May 15,
1996, (5) the Company's definitive Proxy Statement for its 1996 Annual
Meeting of Shareholders and (6) the Company's definitive Proxy Statement for
its special meeting of shareholders held on August 1, 1996, in each case as
filed with the Securities and Exchange Commission (the "SEC"). The Buyer
understands that its investment in the Shares involves a high degree of risk;
(f) The Buyer understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Shares; and
(g) This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
3. COMPANY REPRESENTATIONS, WARRANTIES, ETC.
The Company represents and warrants to, and covenants and agrees with,
the Buyer that:
(a) CONCERNING THE SHARES. The Shares have been duly authorized and
the Preferred Shares, when issued and paid for in accordance with this
Agreement, and the Common Shares, when issued upon conversion of the Preferred
Shares, will be duly and validly issued, fully paid and non-assessable and will
not subject the holder thereof to personal liability by reason of being such
holder. There are no preemptive rights of any stockholder of the Company, as
such, to acquire any of the Shares. The Common Stock is listed for trading on
the Nasdaq National Market ("Nasdaq") and (1) the Company and the Common Stock
meet the criteria for continued listing and trading on Nasdaq; (2) the Company
has not been notified since January 1, 1994 by the National Association of
Securities Dealers, Inc. ("NASD") of any failure or potential failure to meet
the criteria for continued listing and trading on Nasdaq and (3) no suspension
of trading in the Common Stock is in effect.
(b) SUBSCRIPTION AGREEMENT; REGISTRATION RIGHTS AGREEMENT. This
Agreement and the Registration Rights Agreement, the form of which
<PAGE>
is attached hereto as ANNEX III (the "Registration Rights Agreement"), have been
duly and validly authorized by the Company, this Agreement has been duly
executed and delivered on behalf of the Company and this Agreement is and the
Registration Rights Agreement, when executed and delivered by the Company, will
be, valid and binding agreements of the Company enforceable in accordance with
their respective terms, subject as to enforceability to general principles of
equity and to bankruptcy, insolvency, moratorium and other similar laws
affecting the enforcement of creditors' rights generally; for purposes of the
Rights Agreement, this Agreement and the transactions contemplated hereby are an
action or transaction or a series of related actions or transactions approved by
the Board of Directors, as a result of which the Buyer shall not, by reason of
this Agreement and the transactions contemplated hereby, become an Acquiring
Person (as defined in the Rights Agreement); and the Rights Agreement, in the
form filed with the SEC as an exhibit to the Company's Current Report on Form
8-K, dated May 15, 1996, is the Rights Agreement as in effect on the date
hereof.
(c) NON-CONTRAVENTION. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the issuance of the
Preferred Shares and the other transactions contemplated by this Agreement, the
Registration Rights Agreement and the terms of the Preferred Stock do not and
will not conflict with or result in a breach by the Company of any of the terms
or provisions of, or constitute a default under, the certificate of
incorporation or by-laws of the Company, or any indenture, mortgage, deed of
trust or other material agreement or instrument to which the Company is a party
or by which it or any of its properties or assets are bound, or any applicable
law, rule or regulation or any applicable decree, judgment or order of any
court, United States federal or state regulatory body, administrative agency or
other governmental body having jurisdiction over the Company or any of its
properties or assets.
(d) APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Shares as contemplated by this
Agreement and the Preferred Stock.
(e) INFORMATION PROVIDED. The information provided by or on behalf
of the Company to the Buyer and referred to in Section 2(e) of this Agreement
does not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstance under which they are made, not misleading.
(f) ABSENCE OF CERTAIN CHANGES. Since December 31, 1995, there has
been no material adverse change and no material adverse development in the
business, properties, operations, financial condition, results of operations or
prospects of the Company, except as disclosed in the documents referred to in
Section 2(e) hereof.
(g) ABSENCE OF LITIGATION. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board or body pending
or, to the knowledge of the Company or any of its
<PAGE>
subsidiaries, threatened against or affecting the Company or any of its
subsidiaries, wherein an unfavorable decision, ruling or finding would have a
material adverse effect on the properties, business, condition (financial or
other), results of operations or prospects of the Company and its subsidiaries
taken as a whole or the transactions contemplated by this Agreement or any of
the documents contemplated hereby or which would adversely affect the validity
or enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of such other documents.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(a) TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) the
Preferred Shares have not been and are not being registered under the provisions
of the 1933 Act and, except as provided in the Registration Rights Agreement,
the Common Shares have not been and are not being registered under the 1933 Act,
and may not be transferred unless (A) subsequently registered thereunder or (B)
the Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Shares to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Shares made in reliance on
Rule 144 promulgated under the 1933 Act may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any such resale
of Shares under circumstances in which the seller, or the person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (3) neither the
Company nor any other person is under any obligation to register the Shares
(other than pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder (other than
pursuant to Section 4(d) hereof and pursuant to the Registration Rights
Agreement).
(b) RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that the
certificates for the Preferred Shares and, until such time as the Common Shares
have been registered under the 1933 Act as contemplated by the Registration
Rights Agreement, the certificates for the Common Shares, may bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for the Shares):
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities have been acquired for investment and may not be sold,
transferred or assigned in the absence of an effective registration
statement for the securities under the Securities Act of 1933, as
amended, or an opinion of counsel that registration is not required
under said Act.
(c) REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter
into the Registration Rights Agreement on or before the Closing Date.
(d) FORM D. The Company agrees to file a Form D with
<PAGE>
respect to the Shares as required under Regulation D and to provide a copy
thereof to the Buyer promptly after such filing. The Buyer agrees to cooperate
with the Company in connection with such filing and, upon request of the
Company, to provide all information relating to the Buyer required for such
filing.
(e) AUTHORIZATION FOR TRADING; REPORTING STATUS. As soon as
possible, but in no event later than five business days after the Closing Date,
the Company shall file a listing application for the Common Shares with Nasdaq
and shall provide evidence of such filing to the Buyer. So long as the Buyer
beneficially owns any of the Preferred Shares or the Common Shares, the Company
shall file all reports required to be filed with the SEC pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
and the Company shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and regulations
thereunder would permit such termination.
(f) USE OF PROCEEDS. The Company will use the proceeds from the sale
of the Preferred Shares for the Company's internal working capital purposes and
not for the purpose of any investment in or loan to any other corporation,
partnership, enterprise or other person; PROVIDED, HOWEVER, that the proceeds
may be used for loans to companies which are wholly-owned subsidiaries at all
times when such loans are outstanding.
(g) BLUE SKY LAWS. On or before the Closing Date, the Company shall
take such action as shall be necessary to qualify, or to obtain an exemption
for, the Preferred Shares for sale to the Buyer pursuant to this Agreement and
the Common Shares for issuance to the Buyer on conversion of the Preferred
Shares under such of the securities or "blue sky" laws of jurisdictions in the
United States as shall be applicable to the sale of the Preferred Shares to the
Buyer pursuant to this Agreement and the issuance of the Common Shares to the
Buyer on conversion of the Preferred Shares. The Company shall furnish copies
of all filings, applications, orders and grants or confirmations of exemptions
relating to such securities or "blue sky" laws on or prior to the Closing Date.
(h) CERTAIN EXPENSES. If the closing occurs, the Company shall pay
or reimburse the Buyer for all reasonable legal fees and expenses of counsel to
the Buyer for the preparation and negotiation of, and closing under, this
Agreement (but not to exceed $5,000). The obligations of the Company under the
provisions of this Section 4(g) shall be in addition to the obligation of the
Company for expenses under the Registration Rights Agreement.
(i) CERTAIN ISSUANCES OF SECURITIES. Unless the Company obtains
Shareholder Approval (as defined in the Certificate of Designations) or a waiver
thereof from the NASD, the Company will not issue any shares of Common Stock or
shares of any other series of preferred stock or other securities convertible
into Common Stock of the Company which would be integrated as a transaction with
the offer and sale of the Preferred Shares to the Buyer and the conversion
thereof into Common Shares for purposes of the rule set forth in Section
4460(i)(1)(D) of the rules of the NASD (or any successor or
<PAGE>
replacement provision thereof).
5. TRANSFER AGENT INSTRUCTIONS; CONVERSION PROCEDURE.
(a) TRANSFER AGENT INSTRUCTIONS. Promptly following the delivery by
the Buyer of the aggregate purchase price for the Preferred Shares in accordance
with Section 1(c) hereof, and prior to the Closing Date the Company will
irrevocably instruct its transfer agent to issue certificates for the Common
Shares from time to time upon conversion of the Preferred Shares in such amounts
as specified from time to time to the transfer agent in the Conversion
Certificates surrendered in connection with such conversions and referred to in
Section 5(b) of this Agreement, such certificates to bear the restrictive legend
specified in Section 4(b) of this Agreement prior to registration of the Common
Shares under the 1933 Act, registered in the name of the Buyer or its nominee
and in such denominations to be specified by the Buyer in connection with each
conversion of Preferred Shares. The Company warrants that no instruction other
than such instructions referred to in this Section 5 and stop transfer
instructions to give effect to Section 4(a) hereof prior to registration of the
Common Shares under the 1933 Act will be given by the Company to the transfer
agent and that the Common Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement. Nothing in this Section 5(a) shall affect in any way the Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of the Shares and to comply with the terms and conditions of the
Certificate of Designations. If the Buyer provides the Company with an opinion
of counsel reasonably satisfactory in form, scope and substance to the Company
that registration of a resale by the Buyer of any of the Shares in accordance
with clause (1)(B) of Section 4(a) of this Agreement is not required under the
1933 Act, the Company shall permit the transfer of such Shares and, in the case
of the Common Shares, promptly, but in no event later than three business days
after receipt of such opinion, instruct the Company's transfer agent to issue
upon transfer one or more share certificates in such name and in such
denominations as specified by the Buyer. The provisions of Section 3(n) of the
Registration Rights Agreement shall supersede this Section 5(a) once said
Section 3(n) becomes applicable.
(b) CONVERSION PROCEDURE. In connection with the exercise of
conversion rights relating to the Preferred Shares, if the Common Shares
issuable upon conversion of the Preferred Shares have not been registered under
the 1933 Act prior to such conversion, the Buyer or any subsequent holder of the
Preferred Shares shall, in addition to any other requirement imposed by the
terms of the Preferred Shares as set forth in the Certificate of Designations,
complete, sign and furnish to the Company a conversion certificate in the form
attached hereto as ANNEX IV.
6. STOCK DELIVERY INSTRUCTIONS.
The certificates for the Preferred Shares shall be delivered by the
Company to the Escrow Agent pursuant to Section 1(b) hereof on a delivery
against payment basis at the closing.
7. CLOSING DATE.
<PAGE>
The date and time of the issuance and sale of the Preferred Shares
(the "Closing Date") shall be 12:00 noon, New York City time, on the date which
is one New York Stock Exchange trading day after the date on which the Buyer has
deposited the purchase price for the Preferred Shares with the Escrow Agent in
accordance with Section 1(c) hereof, or such other mutually agreed to time. The
closing shall occur on the Closing Date at the offices of the Escrow Agent.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE.
The Buyer understands that the Company's obligation to sell the
Preferred Shares to the Buyer pursuant to this Agreement is conditioned upon:
(a) The receipt and acceptance by the Company of this Agreement as
evidenced by execution of this Agreement by the Company and delivery of an
executed counterpart of this Agreement to the Buyer or its legal counsel;
(b) Delivery by the Buyer to the Escrow Agent of good funds as
payment in full of an amount equal to the purchase price for the Preferred
Shares in accordance with Section 1(c) hereof; and
(c) The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Closing
Date and the performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on or before the
Closing Date.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Shares on the Closing Date is conditioned upon:
(a) Delivery by the Company to the Escrow Agent of the certificate
for the Preferred Shares in accordance with this Agreement;
(b) The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date and the performance by the Company on or before the Closing Date of all
covenants and agreements of the Company required to be performed on or before
such Closing Date; and
(c) Receipt by the Buyer on the Closing Date of an opinion of counsel
for the Company, dated the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer, to the effect set forth in ANNEX V attached hereto.
10. GOVERNING LAW; MISCELLANEOUS.
(a) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of California.
(b) This Agreement may be executed in counterparts and by
<PAGE>
the parties hereto on separate counterparts, all of which together shall
constitute one and the same instrument. A facsimile transmission of this signed
Agreement bearing a signature on behalf of a party hereto shall be legal and
binding on such party.
(c) The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
(d) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(e) This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement.
(f) Any notices required or permitted to be given under the terms of
this Agreement shall be sent by mail or delivered personally (which shall
include telephone line facsimile transmission) or by courier and shall be
effective five days after being placed in the mail, if mailed, or upon receipt,
if delivered personally or by courier, in each case addressed to a party at such
party's address shown in the introductory paragraph or on the signature page of
this Agreement (facsimile number 415-397-7781, in the case of the Company, and
914-533-2222, in the case of the Buyer) or such other address as a party shall
have provided by notice to the other party in accordance with this provision.
The Buyer hereby designates as its address for any notice required or permitted
to be given to the Buyer pursuant to the Certificate of Designations the
following: c/o Pangaea Asset Management, Inc. 250 Kitchawan Road, South Salem,
New York 10590(facsimile number 914-533-2222), until the Buyer shall designate
another address for such purpose.
(g) The Buyer shall have the right to assign it rights and
obligations under this Agreement with respect to the purchase of all or any
portion of the Preferred Shares to another investment fund, provided such
assignee, by written instrument duly executed by such assignee, assumes all
obligations of the Buyer hereunder with respect to the purchase of the portion
of the Preferred Shares so assigned and makes the same representations and
warranties with respect thereto as the Buyer makes in this Agreement, whereupon
the Buyer shall be relieved of any further obligations, responsibilities and
liabilities with respect to the purchase of all or the portion of the Preferred
Shares the obligation for the purchase of which has been so assigned. In the
case of any such assignment, the Company shall agree in writing with such
assignee to make available to such assignee the benefits of the Registration
Rights Agreement with respect to the Common Shares issuable on conversion of the
Preferred Shares with respect to which the purchase under this Agreement has
been so assigned.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer
or one of its officers thereunto duly authorized as of the date set forth below.
NUMBER OF SHARES: 500
PRICE PER SHARE: $1,000.00
AGGREGATE PURCHASE PRICE: $500,000.00
NAME OF BUYER: PANGAEA FUND LIMITED
SIGNATURE /s/ RHONDA D. MCDEIGAN-ELDRIDGE
--------------------------------
Title: President & Director
-------------------------------
Date: August 8, 1996
----------------------------
Address: c/o MeesPierson Fund Services (Bahamas) Limited
Windermere House
404 East Bay Street
P.O. Box 55-6238
Nassau, The Bahamas
This Agreement has been accepted as of the date set forth below.
MONTEREY PASTA COMPANY
By: /s/ NORMAN E. DEAN
------------------------
Title: President & Chief Executive Officer
------------------------------------
Date: August 9, 1996
---------------------
<PAGE>
Annex I
to
Subscription
Agreement
MONTEREY PASTA COMPANY,
A DELAWARE CORPORATION
CERTIFICATE OF DESIGNATIONS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151, of the General Corporation Law of the
State of Delaware)
------------
Monterey Pasta Company, A Delaware corporation (the "Corporation") in
accordance with the provisions of Section 103 of the General Corporation Law of
the State of Delaware (the "DGCL") DOES HEREBY CERTIFY:
That pursuant to authority vested in the Board of Directors of the
Corporation by the Certificate of Incorporation, as amended, of the Corporation,
the Board of Directors of the Corporation, by unanimous written consent, dated
August 1, 1996, adopted a resolution providing for the creation of a series of
the Corporation's Preferred Stock, $.001 par value, which Series is designated
"Series B Convertible Preferred Stock," which resolution is as follows:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation by the Certificate of Incorporation of the
Corporation, a series of Preferred Stock, par value $.001 per share, of the
Corporation be, and hereby is, created to be designated "Series B Convertible
Preferred Stock" (hereinafter referred to as "Series B Convertible Preferred
Stock"), consisting of 500 shares, having the powers, preferences and rights,
and the qualifications, limitations and restrictions thereof, as set forth in
Annex 1, which is attached hereto and incorporated herein by reference.
1.
<PAGE>
The undersigned, Norman E. Dean, the President and Chief Executive
Officer of Monterey Pasta Company, declares under penalty of perjury that the
matters sets forth on the foregoing Certificate are true and correct of his
knowledge.
Executed at San Francisco, California on August , 1996.
-----------------------------------
Norman E. Dean, President and Chief
Executive Officer
2.
<PAGE>
ANNEX 1
SERIES B CONVERTIBLE PREFERRED STOCK
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as Series B Convertible Preferred Stock (the "Series B
Convertible Preferred Stock"), and the number of shares constituting the Series
B Convertible Preferred Stock shall be 500, and shall not be subject to
increase.
SECTION 2. STATED CAPITAL. The amount to be represented in stated
capital at all times for each share of Series B Convertible Preferred Stock
shall be the sum of (i) $1,000, (ii) to the extent legally available, the
accrued but unpaid dividends on such share of Series B Convertible Preferred
Stock, and (iii) to be determined on at least a quarterly basis, an amount equal
to the accrued and unpaid interest on dividends in arrears through the date of
determination (as provided in Section 4).
SECTION 3. RANK. All Series B Convertible Preferred Stock shall
rank (i) senior to the Common Stock, par value $.001 including the related
rights issued pursuant to the Rights Agreement, dated as of May 15, 1996,
between the Company and Corporate Stock Transfer, as Rights Agent, as amended
from time to time in accordance with its terms (the "Rights Agreement") (such
shares and rights, collectively, the "Common Stock"), of the Corporation, now or
hereafter issued, as to payment of dividends and distribution of assets upon
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary, and (ii) on a parity with the Series A Convertible Preferred Stock
and any additional series of preferred stock of any class which the Board of
Directors or the stockholders may from time to time authorize, both as to
payment of dividends and as to distributions of assets upon liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary.
SECTION 4. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares
of Series B Convertible Preferred Stock shall be entitled to receive, when, as,
and if declared by the Board of Directors of the Corporation (the "Board of
Directors" or the "Board") out of funds legally available for such purpose,
dividends at the rate of $40.00 per annum per share, and no more, which shall be
fully cumulative, shall accrue without interest (except as otherwise provided
herein as to dividends in arrears) from the date of original issuance and shall
be payable in cash quarterly on January 1, April 1, July 1, and October 1 of
each year commencing October 1, 1996 (except that if any such date is a
Saturday, Sunday, or legal holiday, then such dividend shall be payable on the
next succeeding day that is not a Saturday, Sunday, or legal holiday) to holders
of record as they appear on the stock books of the Corporation on such record
dates, not more than 20 nor less than 10 days preceding the payment dates for
such dividends, as shall be fixed by the Board. Dividends on the Series B
Convertible Preferred Stock shall be paid in cash or, subject to the limitations
in Section 4(b) hereof, shares of Common Stock of the Corporation or any
combination of cash and shares of Common Stock, at the option of the
Corporation as hereinafter provided. The amount of the dividends payable per
share of Series B Convertible Preferred Stock for each quarterly dividend period
shall be computed by dividing the annual dividend amount by four. The amount of
dividends payable for the initial dividend period and any period shorter than a
full quarterly dividend period shall be computed on the basis of a 360-day year
of twelve 30-day months. Dividends not paid on a payment date, whether or not
such dividends have been declared, will bear interest at the rate of 12% per
annum or at such rate as is legally permitted under applicable law, until paid.
No dividends or other distributions, other than dividends payable solely in
shares of Common Stock or other
1.
<PAGE>
capital stock of the Corporation ranking junior as to dividends to the Series B
Convertible Preferred Stock (collectively, the "Junior Dividend Stock"), shall
be paid or set apart for payment on any shares of Junior Dividend Stock, and no
purchase, redemption, or other acquisition shall be made by the Corporation of
any shares of Junior Dividend Stock unless and until all accrued and unpaid
dividends on the Series B Convertible Preferred Stock and interest on dividends
in arrears at the rate specified herein shall have been paid or declared and set
apart for payment.
If at any time any dividend on any capital stock of the Corporation
ranking senior as to dividends to the Series B Convertible Preferred Stock (the
"Senior Dividend Stock") shall be in default, in whole or in part, no dividend
shall be paid or declared and set apart for payment on the Series B Convertible
Preferred Stock unless and until all accrued and unpaid dividends with respect
to the Senior Dividend Stock, including the full dividends for the then current
dividend period, shall have been paid or declared and set apart for payment,
without interest. No full dividends shall be paid or declared and set apart for
payment on any class or series or the Corporation's capital stock ranking, as to
dividends, on a parity with the Series B Convertible Preferred Stock (the
"Parity Dividend Stock") for any period unless all accrued but unpaid dividends
(and interest on dividends in arrears at the rate specified herein) have been,
or contemporaneously are, paid or declared and set apart for such payment on the
Series B Convertible Preferred Stock. No full dividends shall be paid or
declared and set apart for payment on the Series B Convertible Preferred Stock
for any period unless all accrued but unpaid dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of such full dividends. When dividends are not paid in full upon the
Series B Convertible Preferred Stock and the Parity Dividend Stock, all
dividends paid or declared and set apart for payment upon shares of Series B
Convertible Preferred Stock (and interest on dividends in arrears at the rate
specified herein) and the Parity Dividend Stock shall be paid or declared and
set apart for payment pro rata, so that the amount of dividends paid or declared
and set apart for payment per share on the Series B Convertible Preferred Stock
and the Parity Dividend Stock shall in all cases bear to each other the same
ratio that accrued and unpaid dividends per share on the shares of Series B
Convertible Preferred Stock and the Parity Dividend Stock bear to each other.
Any references to "distribution" contained in this Section 4 shall not
be deemed to include any stock dividend or distributions made in connection with
any liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary.
(b) If the Corporation elects in the exercise of its sole discretion
to issue shares of Common Stock in payment of dividends on the Series B
Convertible Preferred Stock, the Corporation shall issue and dispatch, or cause
to be issued and dispatched, to each holder of such shares a certificate
representing the number of whole shares of Common Stock arrived at by dividing
the per share Computed Price of such shares of Common Stock into the total
amount of cash dividends such holder would be entitled to receive if the
aggregate dividends on the Series B Convertible Preferred Stock held by such
holder which are being paid in shares of Common Stock were being paid in cash;
provided, however, that if certificates representing shares of Common Stock are
issued and dispatched to holders of Series B Convertible Preferred Stock
subsequent to the third trading day after a dividend payment date, the
percentage used to calculate the Computed Price will be reduced by one percent
for each trading day after the third trading day following such dividend payment
date to the date of dispatch of shares of Stock. No fractional shares of Common
Stock shall be issued in payment of dividends. In lieu thereof, the Corporation
may issue a number of
2.
<PAGE>
shares of Common Stock to each holder which reflects a rounding to the nearest
whole number of shares of Common Stock or may pay cash. The Corporation shall
not exercise its right to issue shares of Common Stock in payment of dividends
on Series B Convertible Preferred Stock if:
(i) the number of shares of Common Stock at the time authorized,
unissued and unreserved for all purposes, or held in the Corporation's
treasury, is insufficient to pay the portion of such dividends to be paid
in shares of Common Stock;
(ii) the issuance or delivery of shares of Common Stock as a
dividend payment would require registration with or approval of any
governmental authority under any law or regulation, and such registration
or approval has not been effected or obtained;
(iii) the shares of Common Stock to be issued as a dividend payment
have not been authorized for listing, upon official notice of issuance, on
any securities exchange or market on which the Common Stock is then listed;
or have not been approved for quotation if the Common Stock is traded in
the over-the-counter market;
(iv) The Computed Price (determined without regard to the proviso to
the definition thereof) is less than the par value of the shares of Common
Stock;
(v) the shares of Common Stock (A) cannot be sold or transferred
without restriction by unaffiliated holders who receive such shares of
Common Stock as a dividend payment or (B) are no longer listed on a
national securities exchange, on the Nasdaq National Market or the Nasdaq
SmallCap Market; or
(vi) the issuance of shares of Common Stock in payment of dividends
on Series B Convertible Preferred Stock held by any Restricted Person (as
defined in Section 9(a) hereof) would result in any Restricted Person
beneficially owning more than 4.9% of the Common Stock, determined as
provided in the proviso to the second sentence of Section 9(a) hereof.
Shares of Common Stock issued in payment of dividends on Series B
Convertible Preferred Stock pursuant to this Section shall be, and for all
purposes shall be deemed to be, validly issued, fully paid and nonassessable
shares of Common Stock of the Corporation; the issuance and delivery thereof is
hereby authorized; and the dispatch thereof will be, and for all purposes shall
be deemed to be, payment in full of the cumulative dividends to which holders
are entitled on the applicable dividend payment date.
"Computed Price" of shares of Common Stock on any date means 100
percent of the arithmetic average of the per share Closing Price (as defined in
Section 9(b)) of the Common Stock on the five consecutive trading days ending on
the fifth trading day preceding the applicable dividend payment date.
SECTION 5. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series B Convertible Preferred Stock shall be entitled to receive
out of the assets of the Corporation, whether such assets constitute stated
capital or surplus of any nature, an amount per share of Series B Convertible
Preferred Stock equal to the sum of (i) all
3.
<PAGE>
dividends accrued and unpaid thereon to the date of final distribution to such
holders, (ii) accrued and unpaid interest on dividends in arrears to the date of
distribution at the rate specified in Section 4(a), and (iii) $1,000.00
(collectively, the "Liquidation Preference"), and no more, before any payment
shall be made or any assets distributed to the holders of Common Stock or any
other class or series of the Corporation's capital stock ranking junior as to
liquidation rights to the Series B Convertible Preferred Stock (collectively,
the "Junior Liquidation Stock"); PROVIDED, HOWEVER, that such rights shall
accrue to the holders of Series B Convertible Preferred Stock only in the event
that the Corporation's payments with respect to the liquidation preference of
the holders of capital stock of the Corporation ranking senior as to liquidation
rights to the Series B Convertible Preferred Stock (the "Senior Liquidation
Stock") are fully met. After the liquidation preferences of the Senior
Liquidation Stock are fully met, the entire assets of the Corporation available
for distribution shall be distributed ratably among the holders of the Series B
Convertible Preferred Stock and any other class or series of the Corporation's
capital stock having parity as to liquidation rights with the Series B
Convertible Preferred Stock (the "Parity Liquidation Stock") in proportion to
the respective preferential amounts to which each is entitled (but only to the
extent of such preferential amounts). After payment in full of the liquidation
price of the shares of the Series B Convertible Preferred Stock and the Parity
Liquidation Stock, the holders of such shares shall not be entitled to any
further participation in any distribution of assets by the Corporation. Neither
a consolidation or merger of the Corporation with another corporation nor a sale
or transfer of all or part of the Corporation's assets for cash, securities, or
other property in and of itself will be considered a liquidation, dissolution,
or winding up of the Corporation.
SECTION 6. NO MANDATORY REDEMPTION. The shares of Series B
Convertible Preferred Stock shall not be subject to mandatory redemption by the
Corporation.
SECTION 7. NO SINKING FUND. The shares of Series B Convertible
Preferred Stock shall not be subject to the operation of a purchase, retirement,
or sinking fund.
SECTION 8. OPTIONAL REDEMPTION. So long as the Corporation is in
compliance in all material respects with its obligations to the holders of
shares of Series B Convertible Preferred Stock (including, without limitation,
its obligations under the Registration Rights Agreement between the Corporation
and the holder of the Series B Convertible Preferred Stock (the "Registration
Rights Agreement") and the provisions of this Certificate of Designations), the
Corporation shall have the right, exercisable on not less than 15 days or more
than 20 days written notice to the holders of record of the shares of Series B
Convertible Preferred Stock to be redeemed, at any time on or after the date of
initial issuance of shares of Series B Convertible Preferred Stock (the
"Issuance Date") to redeem at any time all, and from time to time any part of
the Series B Convertible Preferred Stock in accordance with this Section 8. Any
notice of redemption (a "Notice of Redemption") under this Section shall be
delivered to the holders of the shares of Series B Convertible Preferred Stock
at their addresses appearing on the records of the Corporation; PROVIDED,
HOWEVER, that any failure or defect in the giving of notice to any such holder
shall not affect the validity of notice to or the redemption of shares of Series
B Convertible Preferred Stock of any other holder. Any Notice of Redemption
shall state (1) that the Series B Convertible Preferred Stock pursuant to this
Section 8, (2) the number of shares of Series B Convertible Preferred Stock held
by such holder which are to be redeemed, (3) the Redemption Price (as
hereinafter defined) per share of Series B Convertible Preferred Stock
4.
<PAGE>
to be redeemed, determined in accordance with this Section and (4) the date of
redemption of such shares of Series B Convertible Preferred Stock, determined in
accordance with this Section (the "Redemption Date"). On the Redemption Date,
the Corporation shall make payment of the applicable Redemption Price (as
hereinafter defined) to each holder of shares of Series B Convertible Preferred
Stock to be redeemed to or upon the order of such holder as specified by such
holder in writing to the Corporation at least one business day prior to the
Redemption Date. If the Corporation exercises its right to redeem all or a
portion of the outstanding shares of Series B Convertible Preferred Stock the
Corporation shall make payment to the holders of the shares of Series B
Convertible Preferred Stock to be redeemed in respect of each share of Series B
Convertible Preferred Stock to be redeemed of an amount equal to (i) $1,150,
plus all accrued but unpaid dividends to the Redemption Date on the share of
Series B Convertible Preferred Stock being redeemed and accrued but unpaid
interest on the dividends on the share of Series B Convertible Preferred Stock
being redeemed in arrears to the Redemption Date, if the Redemption Date is
before 90 days after the Issuance Date and (ii) if the Redemption Date is on or
after 90 days after the Issuance Date, the greater of (a) $1,200, plus all
accrued but unpaid dividends thereon and any accrued and unpaid interest on
dividends thereon in arrears to the Redemption Date and (b) an amount equal to
the product obtained by multiplying (x) the number of shares of Common Stock
which would, but for the redemption pursuant to this Section 8, be issuable on
conversion in accordance with Section 9(a) of one share of Series B Convertible
Preferred Stock, and any accrued and unpaid dividends thereon and any accrued
and unpaid interest on dividends thereon in arrears if a notice of conversion
were given by the holder of such Series B Convertible Preferred Stock on the
Redemption Date (determined without regard to any limitation on conversion
contained in Section 9(a)) TIMES (y) the arithmetic average of the Closing Price
(as defined in Section 9(b)) of the Common Stock for the five consecutive
trading days ending one trading day prior to the Redemption Date (such amount
referred to in (i) or such greater amount referred to in (ii) being referred to
herein as the "Redemption Price"). Upon redemption of less than all of the
shares of Series B Convertible Preferred Stock evidenced by a particular
certificate, promptly, but in no event later than three business days after
surrender of such certificate to the Corporation, the Corporation shall issue a
replacement certificate for the shares of Series B Convertible Preferred Stock
which have not been redeemed. Only whole shares of Series B Convertible
Preferred Stock may be redeemed. If the Corporation exercises its right to
redeem less than all outstanding shares of Series B Convertible Preferred Stock,
then such redemption shall be made, as nearly as practical, pro rata among the
holders of record of the Series B Convertible Preferred Stock. No share of
Series B Convertible Preferred Stock as to which the holder exercises the right
of conversion pursuant to Section 9 hereof may be redeemed by the Corporation
pursuant to this Section 8 on or after the date of exercise of such conversion
right regardless of whether the Notice of Redemption shall have been given prior
to the date of exercise of such conversion right.
SECTION 9. CONVERSION
(a) CONVERSION AT OPTION OF HOLDER. The holders of the Series B
Convertible Preferred Stock may, on or before two (2) years after the Issuance
Date, upon surrender of the certificates therefor, convert all or any part of
their shares of Series B Convertible Preferred Stock into fully paid and
nonassessable shares of Common Stock and such other securities and property as
hereinafter provided. Commencing on the date which is 90 days after the
Issuance Date, and at any time thereafter, each share of Series B Convertible
Preferred Stock may be converted at the principal executive offices of the
Corporation, the office of any transfer agent for the Series B Convertible
Preferred Stock, if any, the office of any transfer agent for the Common Stock
or at such other office or
5.
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offices, if any, as the Board of Directors may designate, initially into such
number of fully paid and nonassessable shares of Common Stock (calculated as to
each conversion to the nearest 1/100th of a share) determined by dividing (x)
the sum of (i) the Conversion Amount, (ii) accrued but unpaid dividends to the
Conversion Date on the share of Series B Convertible Preferred Stock being
converted and (iii) accrued but unpaid interest on the dividends on the share of
Series B Convertible Preferred Stock being converted in arrears to the
Conversion Date by (y) the lower of (1) the product of the Conversion
Percentage TIMES (B) the arithmetic average of the Closing Price of the Common
Stock on the five consecutive trading days immediately preceding the Conversion
Date or (2) $9.00 (subject to equitable adjustments for stock splits, stock
dividends, combinations, recapitalization, reclassifications and similar events
occurring on or after the date of filing of this Certificate of Designations
with the Secretary of State of the State of Delaware), in each case subject to
adjustment as hereinafter provided (the "Conversion Rate"); PROVIDED, HOWEVER,
that in no event shall any holder of shares of Series B Convertible Preferred
Stock be entitled to convert any shares of Series B Convertible Preferred Stock
in excess of that number of shares of Series B Convertible Preferred Stock upon
conversion of which the sum of (1) the number of shares of Common Stock
beneficially owned by such holder and any person whose beneficial ownership of
shares of Common Stock would be aggregated with such holder's beneficial
ownership of shares of Common Stock for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Regulation
13D-G thereunder (each a "Restricted Person" and collectively, the "Restricted
Persons") (other than shares of Common Stock deemed beneficially owned through
the ownership of unconverted shares of Series B Convertible Preferred Stock) and
(2) the number of shares of Common Stock issuable upon the conversion of the
number of shares of Series B Convertible Preferred Stock with respect to which
the determination in this proviso is being made, would result in beneficial
ownership by any Restricted Person of more than 4.9% of the outstanding shares
of Common Stock. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and Regulation 13D-G thereunder, except as otherwise
provided in clause (1) of the proviso to the immediately preceding sentence.
The "Conversion Price" shall be equal to the Conversion Amount divided by the
Conversion Rate.
(b) CERTAIN DEFINITIONS.
As used herein, the "Closing Price" of any security on any date shall
mean the closing bid price of such security as reported by 4:00 p.m. Eastern
Time on such date on the principal securities exchange on which such security is
traded.
As used herein, the "Conversion Amount" initially shall be equal to
$1,000.00, subject to adjustment as hereinafter provided.
As used herein, "Conversion Date" shall mean the date on which the
notice of conversion is actually received by the Corporation, in case of a
conversion at the option of the holder pursuant to Section 9(a).
As used herein, "Conversion Percentage" shall mean 80 percent.
As used herein, "Registration Effective Date" shall mean, with respect
to any share of Series B Convertible Preferred Stock, the date on which the
Registration Statement is first ordered effective by the SEC.
6.
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As used herein, "Registration Statement" shall mean the Registration
Statement required to be filed by the Corporation with the SEC pursuant to
Section 2(a) of the Registration Rights Agreements.
As used herein, "SEC" shall mean the United States Securities and
Exchange Commission.
(c) OTHER PROVISIONS. Notwithstanding anything in this Section 9 to
the contrary, no change in the Conversion Amount shall actually be made until
the cumulative effect of the adjustments called for by this Section 9 since the
date of the last change in the Conversion Amount would change the Conversion
Amount by more than 1%. However, once the cumulative effect would result in
such a change, then the Conversion Rate shall actually be changed to reflect all
adjustments called for by this Section 9 and not previously made.
Notwithstanding anything in this Section 9, no change in the Conversion Amount
shall be made that would result in a Conversion Price of less than the par value
of the Common Stock into which shares of Series B Convertible Preferred Stock
are at the time convertible.
The holders of shares of Series B Convertible Preferred Stock at the
close of business on the the record date for any dividend payment to holders of
Series B Convertible Preferred Stock shall be entitled to receive the dividend
payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof after such dividend payment record date
or the Corporation's default in payment of the dividend due on such dividend
payment date; PROVIDED, HOWEVER, that shares of Series B Convertible Preferred
Stock surrendered for conversion during the period between the close of business
on any record date for a dividend payment and the opening of business on the
corresponding dividend payment date must be accompanied by payment of an amount
equal to the dividend payable on such shares on such dividend payment date if
such dividend shall have been declared by the Board of Directors of the
Corporation prior to the time of such surrender. A holder of shares of Series B
Convertible Preferred Stock on a record date for a dividend payment who (or
whose transferee) tenders any of such shares for conversion into shares of
Common Stock on or after such dividend payment date will receive the dividend
payable by the Corporation on such shares of Series B Convertible Preferred
Stock on such date, and the converting holder need not include payment of the
amount of such dividend upon surrender of shares of Series B Convertible
Preferred Stock for conversion. Except as provided above, no adjustment shall
be made in respect of cash dividends on Common Stock or Series B Convertible
Preferred Stock that may be accrued and unpaid at the date of surrender for
conversion.
The right of the holders of Series B Convertible Preferred Stock to
convert their shares shall be exercised by delivering to the Corporation or its
agent, as provided above, a written notice, duly signed by or on behalf of the
holder, stating the number of shares of Series B Convertible Preferred Stock to
be converted. Promptly, but in no event later than ten business days after
delivery of a notice of conversion, such holder shall surrender for such purpose
to the Corporation or its agent, as provided above, certificates representing
shares to be converted, duly endorsed in blank or accompanied by proper
instruments of transfer. If such holder shall fail to deliver certificates
representing shares to be converted in such form on or prior to such tenth
business day, such notice of conversion shall not be effective, unless otherwise
agreed by the Corporation, but such failure shall not affect such holder's right
to convert such shares at a date after the date such notice of conversion was
given. The Corporation shall pay any tax arising in connection with any
conversion of shares of Series B Convertible Preferred Stock except that the
Corporation
7.
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shall not, however, be required to pay any income tax or any tax which may be
payable in respect of any transfer involved in the issue and delivery upon
conversion of shares of Common Stock or other securities or property in a name
other than that of the holder of the shares of the Series B Convertible
Preferred Stock being converted, and the Corporation shall not be required to
issue or deliver any such shares or other securities or property unless and
until the person or persons requesting the issuance thereof shall have paid to
the Corporation the amount of any such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.
The Corporation (and any successor corporation) shall take all action
necessary so that a number of shares of the authorized but unissued Common
Stock (or common stock in the case of any successor corporation) sufficient
to provide for the conversion of the Series B Convertible Preferred Stock
outstanding upon the basis hereinbefore provided are at all times reserved by
the Corporation (or any successor corporation), free from preemptive rights,
for such conversion, subject to the provisions of the next succeeding
paragraph. If the Corporation shall issue any securities or make any change
in its capital structure which would change the number of shares of Common
Stock into which each share of the Series B Convertible Preferred Stock shall
be convertible as herein provided, the Corporation shall at the same time
also make proper provision so that thereafter there shall be a sufficient
number of shares of Common Stock authorized and reserved, free from
preemptive rights, for conversion of the outstanding Series B Convertible
Preferred Stock on the new basis. If at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all of the outstanding shares of Series B Convertible Preferred
Stock, the Corporation promptly shall seek such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
In case of any consolidation or merger of the Corporation with any
other corporation (other than a wholly-owned subsidiary of the Corporation) in
which the Corporation is not the surviving corporation, or in case of any
sale or transfer of all or substantially all of the assets of the
Corporation, or in the case of any share exchange pursuant to which all of
the outstanding shares of Common Stock are converted into other securities or
property, the Corporation shall make appropriate provision or cause
appropriate provision to be made so that each holder of shares of Series B
Convertible Preferred Stock then outstanding shall have the right thereafter
to convert such shares of Series B Convertible Preferred Stock into the kind
and amount of shares of stock and other securities and property receivable
upon such consolidation, merger, sale, transfer, or share exchange by a
holder of the number of shares of Common Stock into which such shares of
Series B Convertible Preferred Stock could have been converted immediately
prior to the effective date of such consolidation, merger, sale, transfer, or
share exchange. If, in connection with any such consolidation, merger, sale,
transfer, or share exchange, each holder of shares of Common Stock is
entitled to elect to receive either securities, cash, or other assets upon
completion of such transaction, the Corporation shall provide or cause to be
provided to each holder of Series B Convertible Preferred Stock the right to
elect the securities, cash, or other assets into which the Series B
Convertible Preferred Stock held by such holder shall be convertible after
completion of any such transaction on the same terms and subject to the same
conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made, and the effect of failing to exercise the
election). The Corporation shall not effect any such transaction unless the
provisions of this paragraph have been complied with. The above
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<PAGE>
provisions shall similarly apply to successive consolidations, mergers,
sales, transfers, or share exchanges.
If a holder shall have given a notice of conversion of shares of
Series B Convertible Preferred Stock, upon surrender of certificates
representing shares of Series B Convertible Preferred Stock for conversion,
the Corporation shall issue and deliver to such person certificates for the
Common Stock issuable upon such conversion within three business days after
such surrender of certificates and the person converting shall be deemed to
be the holder of record of the Common Stock issuable upon such conversion,
and all rights with respect to the shares surrendered shall forthwith
terminate except the right to receive the Common Stock or other securities,
cash, or other assets as herein provided.
No fractional shares of Common Stock shall be issued upon conversion
of Series B Convertible Preferred Stock but, in lieu of any fraction of a share
of Common Stock which would otherwise be issuable in respect of the aggregate
number of such shares surrendered for conversion at one time by the same
holder, the Corporation at its option (a) may pay in cash an amount equal to
the product of (i) the arithmetic average of the Closing Price of a share of
Common Stock on the three consecutive trading days ending on the trading day
immediately preceding the Conversion Date and (ii) such fraction of a share
or (b) may issue an additional share of Common Stock.
The Conversion Amount shall be adjusted from time to time under
certain circumstances, subject to the provisions of the first three sentences to
the first paragraph of this Section 9(c), as follows:
(i) In case the Corporation shall issue rights or warrants on a pro rata
basis to all holders of the Common Stock entitling such holders to subscribe
for or purchase Common Stock on the record date referred to below at a price
per share less than the average daily Closing Prices of the Common Stock on
the 30 consecutive business days commencing 45 business days before the record
date (the "Current Market Price") excluding, however, any rights issued pursuant
to the Rights Agreement, then in each such case the Conversion Amount in effect
on such record date shall be adjusted in accordance with the formula
C(1) = C x O + N
_____
O + N x P
_____
M
where
C(1) = the adjusted Conversion Amount
C = the current Conversion Amount
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock issuable
pursuant to the exercise of such rights or warrants.
P = the offering price per share of the additional shares (which
amount shall include amounts received by the Corporation in
respect of the issuance and the exercise of such rights or
warrants).
M = the Current Market Price per share of Common Stock on the
record date.
Such adjustment shall become effective immediately after the record date for
the determination of stockholders entitled to receive such rights or
warrants. If any or all such
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rights or warrants are not so issued or expire or terminate before being
exercised, the Conversion Amount then in effect shall be readjusted
appropriately.
(ii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Junior Stock (as hereinafter defined)
evidences of its indebtedness or assets (including securities, but excluding
any warrants or subscription rights referred to in subparagraph (i) above and
any dividend or distribution paid in cash out of the retained earnings of the
Corporation), then in each such case the Conversion Amount then in effect
shall be adjusted in accordance with the formula
C(1) = C x M
_____
M - F
where
C(1) = the adjusted Conversion Amount
C = the current Conversion Amount
M = the Current Market Price per share of Common Stock on the record
date mentioned below.
F = the aggregate amount of such cash dividend and/or the fair market
value on the record date of the assets or securities to be
distributed dividend by the number of shares of Common Stock
outstanding on the record date. The Board of Directors shall
determine such fair market value, which determination shall be
conclusive.
Such adjustment shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution. For purposes of this subparagraph (ii), "Junior Stock" shall
include any class of capital stock ranking junior as to dividends or upon
liquidation to the Series B Convertible Preferred Stock.
(iii) All calculations hereunder shall be made to the nearest cent
or to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant to
the fifth paragraph of this Section 9(c), the holder of any Series B Convertible
Preferred Stock thereafter surrendered for conversion shall become entitled to
receive securities, cash, or assets other than Common Stock, the number or
amount of such securities or property so receivable upon conversion shall be
subject to adjustment from time to time in a manner and on terms nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in subparagraphs (i) to (iii) above.
Except as otherwise provided above in this Section 9, no adjustment
in the Conversion Amount shall be made in respect of any conversion for share
distributions or dividends thereafter declared and paid or payable on the
Common Stock.
Whenever the Conversion Amount is adjusted as herein provided, the
Corporation shall send to each transfer agent, if any, for the Series B
Convertible Preferred Stock and the Common Stock, and to the principal
securities exchange, if any, on which the Series B Convertible Preferred
Stock and the Common Stock is traded, or the Nasdaq National Market if the
Series B Convertible Preferred Stock or Common Stock is admitted for a
quotation thereon, a statement signed by the Chairman of the Board, the
President, or any Vice President of the Corporation and by its Treasurer or
its Secretary or an Assistant
10.
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Secretary stating the adjusted Conversion Amount determined as provided in
this Section 9, and any adjustment so evidenced, given in good faith, shall
be binding upon all stockholders and upon the Corporation. Whenever the
Conversion Amount is adjusted, the Corporation will give notice by mail to
the holders of record of Series B Convertible Preferred Stock, which notice
shall be made within 15 days after the effective date of such adjustment and
shall state the adjustment and the Conversion Amount. Notwithstanding the
foregoing notice provisions, failure by the Corporation to give such notice
or a defect in such notice shall not affect the binding nature of such
corporate action of the Corporation.
Whenever the Corporation shall propose to take any of the actions
specified in the fifth paragraph of this Section 9(c) or in subparagraphs (i)
or (ii) of the eighth paragraph of this Section 9(c) which would result in
any adjustment in the Conversion Amount under this Section 9(c), the Corporation
shall cause a notice to be mailed at least 20 days prior to the date on which
the books of the Corporation will close or on which a record will be taken for
such action, to the holders of record of the outstanding Series B Convertible
Preferred Stock on the date of such notice. Such notice shall specify the
action proposed to be taken by the Corporation and the date as of which holders
of record of the Common Stock shall participate in any such actions or be
entitled to exchange their Common Stock for securities or other property, as the
case may be. Failure by the Corporation to mail the notice or any defect in such
notice shall not affect the validity of the transaction.
Notwithstanding any other provision of this Section 9, no adjustment
in the Conversion Amount need be made (a) for a transaction referred to in
subparagraphs (i) or (ii) of the eighth paragraph of this Section 9(c) if
holders of Series B Convertible Preferred Stock are to participate in the
transaction or distribution on a basis and with notice that the Board of
Directors determines such transaction to be fair to the holders of the Series
B Convertible Preferred Stock and appropriate in light of the basis on which
holders of the Common Stock or, in the case of a transaction referred to in
said subparagraph (ii), holders of Junior Stock participate in the
transaction; (b) for sales of Common Stock pursuant to a plan for
reinvestment of dividends and interest, PROVIDED that the purchase
price in any such sale is at least equal to the fair market value of the
Common Stock at the time of such purchase, or pursuant to any plan adopted by
the Corporation for the benefit of its employees, directors, or consultants;
or (c) after such time as a holder of shares of Series B Convertible
Preferred Stock becomes entitled to receive only cash upon conversion of such
shares (in which case no interest shall accrue on the amount of such cash for
any period prior to the date which is three business days after surrender of
the certificates for such shares for conversion).
(d) MANDATORY CONVERSION. So long as the Corporation shall be in
compliance in all material respects with its obligations to the holders of
the Series B Convertible Preferred Stock (including its obligations under the
Registration Rights Agreement and the provisions of this Certificate of
Designations) and so long as the Registration Statement shall be effective,
on the date which is 730 days after the Registration Effective Date (the
"Mandatory Conversion Date") all of the shares of Series B Convertible
Preferred Stock then outstanding shall be converted, in accordance with the
provisions, and subject to the limitations, of Section 9(a), into shares of
Common Stock to the extent the same are at such time convertible into shares
of Common Stock. On the Mandatory Conversion Date, the Corporation shall mail
by first class mail or otherwise deliver to each holder of Series B
Convertible Preferred Stock a notice (a "Section 9(d) Notice"), which shall
state (1) the number of shares of Series B Convertible Preferred Stock held
by such holder which have been converted into shares of Common Stock in
accordance with this Section 9(d) and (2) the Mandatory Conversion Date. If
the Corporation shall give
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a Section 9(d) Notice, then, unless theretofore converted by the holder in
accordance herewith or redeemed by the Corporation, and so long as the
Registration Statement shall remain effective on the Mandatory Conversion
Date and the Corporation shall be in compliance in all material respects with
its obligations to the holders of the Series B Convertible Preferred Stock
(including its obligations under the Registration Rights Agreements and the
provisions of this Certificate of Designations) on the Mandatory Conversion
Date, then on the Mandatory Conversion Date properly set forth therein, all
shares of Series B Convertible Preferred Stock which, on the Mandatory
Conversion Date are convertible in accordance with Section 9(a) hereof, shall
be converted into such number of shares of Common Stock as shall be
determined pursuant to this Section 9 as if the conversion of such number of
shares of Series B Convertible Preferred Stock were made by the holders
thereof in accordance herewith and as if the Mandatory Conversion Date were
the Conversion Date. Upon the surrender of certificates for shares of Series
B Convertible Preferred Stock by the holder after a Section 9(d) Notice is
given, the Corporation shall issue and, within three trading days after such
surrender, deliver to or upon the order of such holder that number of shares
of Common Stock as shall be issuable in respect to the conversion of the
number of shares of Series B Convertible Preferred Stock converted, together
with accrued and unpaid dividends thereon to the date of conversion and
accrued and unpaid interest on dividends on such shares which are in arrears,
into Common Stock as shall be determined in accordance herewith.
(e) LIMITATION ON NUMBER OF SHARES ISSUED ON CONVERSION; MANDATORY
REDEMPTION. (1) Notwithstanding any other provision herein, unless the
Shareholder Approval (or a waiver thereof from the National Association of
Securities Dealers, Inc.) has been obtained, the Corporation shall not be
required to issue upon conversion of shares of Series B Convertible Preferred
Stock, more than 642,782 shares of Common Stock, such amount to be subject to
adjustment from time to time for stock splits, stock dividends, combinations,
capital reorganizations and similar events relating to the Common Stock
occurring after the date of filing of this Certificate of Designations with
he Secretary of State of the State of Delaware, upon conversion of shares of
Series B Convertible Preferred Stock (the "Maximum Share Amount"). The
Maximum Share Amount shall be allocated pro rata among the initial holders of
the Series B Convertible Preferred Stock in the ratio that the respective
number of shares of Series B Convertible Preferred Stock issued to each
holder bears to 500 shares and each certificate for such shares initially
issued shall bear a notation to that effect. Upon each surrender of a
certificate for conversion of a portion of the shares of Series B Convertible
Preferred Stock, the certificate issued for the unconverted balance of shares
of Series B Convertible Preferred Stock represented thereby shall bear a
notation as to the remaining portion of the Maximum Shares Amount allocated
to the shares of Series B Convertible Preferred Stock represented by such
certificate. Upon any split up of a certificate for outstanding shares of
Series B Convertible Preferred Stock into two or more certificates for shares
of Series B Convertible Preferred Stock (including, without limitation, in
connection with a transfer thereof), each new certificate shall bear a
notation as to the portion of the Maximum Share Amount allocated to
conversions of the shares of Series B Convertible Preferred Stock represented
by such new certificate (which shall be determined as a pro rata portion of
the portion of the Maximum Share Amount represented by the certificate so
split up).
(2) The Corporation shall promptly, but in no event later than five
business days after the occurrence, give notice to each holder (by first class
mail, postage prepaid, at such holder's address as the same appears on the stock
books of the Corporation) if on any date the Corporation would not have been
required to convert shares of Series B Convertible Preferred Stock as a
consequence of the limitation set forth in Section 9(e)(1) had all
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outstanding shares of Series B Convertible Preferred Stock been surrendered
for conversion into Common Stock on such date. If the Corporation shall have
given or been required to give any such notice, the Corporation shall
promptly, but in no event later than fifteen business days thereafter,
redeem, out of funds legally available for such redemption, all or such
portion of the outstanding shares of Series B Convertible Preferred Stock as
shall not, on the business day prior to the date of giving notice of such
redemption, be convertible into shares of Common Stock by reason of the
limitations set forth in Section 9(e)(1), at a redemption price per share
equal to the Redemption Price which would be payable on the date such share
is redeemed pursuant to this Section if such share were redeemed on such date
pursuant to Section 8 (the "Special Redemption Price"). The Corporation shall
not have the right to delay or to defer any redemption required by this
Section 9(e)(2) in order to seek the Shareholder Approval unless consented to
by the holders of all outstanding shares of Series B Convertible Preferred
Stock.
(3) The provisions of Section 9(e)(2) shall continue to apply
notwithstanding the giving of any notice or any redemption of shares of
Series B Convertible Preferred Stock pursuant thereto on any particular
occasion.
(4) Any notice of redemption (a "Section 9(e) Notice") under this
Section 9(e) shall be delivered to the holders of the shares of Series B
Convertible Preferred Stock at their addresses appearing on the records of
the Corporation; PROVIDED, HOWEVER, that any failure or defect in the giving
of notice to any such holder shall not affect the validity of notice to, or
the redemption of shares of Series B Convertible Preferred Stock of, any
other holder. Any Section 9(e) Notice shall state (1) that the Corporation is
redeeming all or a portion of the outstanding shares of Series B Convertible
Preferred Stock pursuant to this Section 9(e), (2) the number of shares of
Series B Convertible Preferred Stock held by such holder which are to be
redeemed, (3) that the shares are to be redeemed at the Special Redemption
Price per share of Series B Convertible Preferred Stock, determined in
accordance with this Section 9(e), and (4) the date of redemption of such
shares of Series B Convertible Preferred Stock, determined in accordance with
this Section 9(e) (the "Special Redemption Date"). On the Special Redemption
Date, the Corporation shall make payments in immediately available funds, out
of funds legally available for such redemption, of the applicable redemption
price to each holder of shares of Series B Convertible Preferred Stock to be
redeemed to or upon the order of such holder as specified by such holder in
writing to the Corporation at least two business days prior to the Redemption
Date. Upon redemption of less than all of the shares of Series B Convertible
Preferred Stock evidenced by a particular certificate, promptly, but in no
event later than three business days after surrender of such certificate to
the Corporation, the Corporation shall issue a replacement certificate for
the shares of Series B Convertible Preferred Stock which have not been
redeemed. Only whole shares of Series B Convertible Preferred Stock may be
redeemed. If the Corporation is required to redeem less than all outstanding
shares of Series B Convertible Preferred Stock, then such redemption shall be
made, as nearly as practical, pro rata among the holders of record of the Series
B Convertible Preferred Stock. Notwithstanding any other provision of this
Certificate of Designations or any Section 9(e) Notice, no share of Series B
Convertible Preferred Stock as to which the holder has exercised at any time
prior to the applicable Special Redemption Date the right of conversion
pursuant to Section 9 hereof may be redeemed by the Corporation on or after
the date of exercise of such conversion right (whether such conversion right
is exercised prior to, on or after the giving of a Section 9(e) Notice).
(5) As used in this Section 9(e), "Shareholder Approval" means the
approval by a majority of the votes cast by the holders of shares of Common
Stock (in
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person or by proxy) at a meeting of the shareholders of the Corporation (duly
convened at which a quorum was present), or a written consent of holders of
shares of Common Stock entitled to such number of votes given without a
meeting of the issuance by the Corporation of 20% or more of the outstanding
Common Stock of the Corporation for less than the greater of the book or
market value of such Common Stock on conversion of the Series B Convertible
Preferred Stock, as and to the extent required under Section 4460(i)(1)(D) of
the rules of the National Association of Securities Dealers, Inc. (or any
successor or replacement provisions thereof).
SECTION 10. VOTING RIGHTS. Except as otherwise required by law or
expressly provided herein, shares of Series B Convertible Preferred Stock shall
not be entitled to vote on any matter.
The affirmative vote or consent of the holders of a majority of the
outstanding shares of the Series B Convertible Preferred Stock, voting
separately as a class, will be required for (1) any amendment, alteration,
or repeal, whether by merger or consolidation or otherwise, of the
Corporation's Certificate of Incorporation if the amendment, alteration, or
repeal materially and adversely affects the powers, preferences, or special
rights of the Series B Convertible Preferred Stock, or (2) the creation and
issuance of any Senior Dividend Stock or Senior Liquidation Stock; PROVIDED,
HOWEVER, that any increase in the authorized preferred stock of the
Corporation or the creation and issuance of any stock which is both Junior
Dividend Stock and Junior Liquidation Stock or any other capital stock of the
Corporation ranking on a parity with the Series B Convertible Preferred Stock
shall not be deemed to affect materially and adversely such powers, preferences,
or special rights.
SECTION 11. OUTSTANDING SHARES. For purposes of this Certificate
of Designations, all shares of Series B Convertible Preferred Stock shall be
deemed outstanding except (i) from the date of surrender of certificates
representing shares of Series B Convertible Preferred Stock for conversion
into Common Stock, all shares of Series B Convertible Preferred Stock
converted into Common Stock; (ii) from the date of registration of transfer,
all shares of Series B Convertible Preferred Stock held of record by the
Corporation or any subsidiary or Affiliate (as defined herein) of the
Corporation and (iii) from the Redemption Date, all shares of Series B
Convertible Preferred Stock which are redeemed, so long as in each case the
Redemption Price of such shares of Series B Convertible Preferred Stock shall
have been paid by the Corporation as and when required hereby. For the
purposes of this Certificate of Designations, "Affiliate" means any person
directly or indirectly controlling or controlled by or under direct or
indirect common control with the Corporation. "Control" is the power to
direct the management and policies of a person, directly or through one or
more intermediaries, whether through the ownership of voting securities, by
contract, or otherwise.
14.
<PAGE>
ANNEX II
TO
SUBSCRIPTION
AGREEMENT
JOINT ESCROW INSTRUCTIONS
Dated as of the date of the Subscription
Agreement to Which These Joint Escrow
Instructions Are Attached
Law Offices of Brian W Pusch
Penthouse Suite
29 West 57th Street
New York, New York 10019
Attention: Brian W. Pusch, Esq.
Dear Sir or Madam:
As Escrow Agent for both Monterey Pasta Company, a Delaware
corporation (the "Company"), and the purchaser of shares (the "Preferred
Shares") of Preferred Stock of the Company (the "Buyer"), who is named in the
Subscription Agreement between the Company and the Buyer to which a copy of
these Joint Escrow Instructions is attached as ANNEX II (the "Agreement"), the
Escrow Agent is hereby authorized and directed to hold the documents and the
funds (together with any interest thereon, the "Escrow Funds") delivered to the
Escrow Agent pursuant to the terms of the Agreement, in accordance with the
following instructions:
1. After receipt of written or oral notice from the Company and the
Buyer to the Escrow Agent that their respective conditions precedent to the
purchase and sale of the Preferred Shares have been satisfied or waived by the
Company and the Buyer, the Escrow Agent shall, after deduction of the amount
referred to in the next succeeding sentence, release the Escrow Funds to or upon
the order of the Company in immediately available funds and shall release the
certificate for the Preferred Shares to the Buyer. After receipt of such
notices, a portion of the Escrow Funds shall be released to or upon the order of
the Buyer in payment of the expenses of the Buyer payable by the Company in
accordance with Section 4(h) of the Agreement in such amount as shall be
specified in writing by the Buyer to the Escrow Agent prior to release of the
Escrow Funds. If Escrow Funds are released to or upon the order of the Company,
the amount thereof shall be reduced by all wire transfer fees in respect of
release of the Escrow Funds. If the Company or the Buyer notifies the Escrow
Agent that on the Closing Date (as defined in the Agreement), the conditions
precedent to the obligations of the Company or the Buyer, as the case may be,
under the Agreement were not satisfied or waived, then the Escrow Agent shall
return the Escrow Funds to the Buyer and shall return the certificates for the
Preferred Shares to the Company. Prior to return of the Escrow Funds to the
Buyer, the Buyer shall furnish such tax reporting or other information as shall
be appropriate for the
<PAGE>
Escrow Agent to comply with applicable United States laws. The Escrow Agent
shall deposit all funds received hereunder in the Escrow Agent's attorney escrow
account at Citibank, N.A.
2. The Escrow Agent's duties hereunder may be altered, amended,
modified or revoked only by a writing signed by the Company, the Buyer and the
Escrow Agent.
3. The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein and may rely and shall be
protected in relying or refraining from acting on any instrument reasonably
believed by the Escrow Agent to be genuine and to have been signed or presented
by the proper party or parties. The Escrow Agent shall not be personally liable
for any act the Escrow Agent may do or omit to do hereunder as Escrow Agent
while acting in good faith, and any act done or omitted by the Escrow Agent
pursuant to the advice of the Escrow Agent's attorneys-at-law shall be
conclusive evidence of such good faith. In no event shall the Escrow Agent
incur any liability or be held responsible, if any certificate for Preferred
Shares, once released from escrow hereunder, shall become lost, stolen,
destroyed, mutilated or misplaced while in transit to any person, provided the
Escrow Agent shall have dispatched the same by a means customarily used by the
Escrow Agent.
4. The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person, firm
or corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
5. The Escrow Agent shall not be liable in any respect on account of
the identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
6. The Escrow Agent shall not be liable for the outlawing of any
rights under the Statute of Limitations with respect to these Joint Escrow
Instructions or any documents or Escrow Funds deposited with or held by the
Escrow Agent.
7. The Escrow Agent shall be entitled to employ such legal counsel
and other experts as the Escrow Agent may deem necessary properly to advise the
Escrow Agent in connection with the Escrow Agent's obligations hereunder, may
rely upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor. The Escrow Agent has acted as legal counsel for the
Buyer in connection with the transactions contemplated by the Agreement and may
continue to act as legal counsel for the Buyer notwithstanding its duties as
Escrow Agent hereunder.
8. The Escrow Agent's responsibilities as Escrow Agent
<PAGE>
hereunder shall terminate if the Escrow Agent shall resign by written notice to
the Company and the Buyer. In the event of any such resignation, the Buyer
shall appoint a successor Escrow Agent.
9. If the Escrow Agent reasonably requires other or further
instruments in connection with these Joint Escrow Instructions or obligations in
respect hereto, the necessary parties hereto shall join in furnishing such
instruments.
10. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the documents
or Escrow Funds held by the Escrow Agent hereunder, the Escrow Agent is
authorized and directed, in its sole discretion (a) to retain in the Escrow
Agent's possession without liability to anyone all or any part of said documents
or Escrow Funds until such disputes shall have been settled either by mutual
written agreement of the parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but the Escrow Agent shall be under no
duty whatsoever to institute or defend any such proceedings or (b) at any time,
to deposit the documents or Escrow Funds with any court of competent
jurisdiction in the state of New York, in which event the Escrow Agent shall
give notice thereof to the Buyer and the Company and shall thereupon be relieved
and discharged from all further obligations hereunder.
11. The Company and the Buyer jointly and severally agree to
indemnify and hold harmless the Escrow Agent from any and all claims,
liabilities, costs or expenses in any way arising from or relating to the duties
or performance of the Escrow Agent hereunder other than any such claim,
liability, cost or expense to the extent the same shall have been determined by
final, unappealable judgment of a court of competent jurisdiction to have
resulted from the gross negligence or willful misconduct of the Escrow Agent.
12. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given upon personal delivery or transmission by telephone line facsimile
transmission or three business days after deposit in the United States Postal
Service, by registered or certified mail with postage and fees prepaid,
addressed to each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by ten days
advance written notice to each of the other parties hereto.
CORPORATION: At the address set forth in the introductory paragraph of the
Agreement
Attention: Chief Financial Officer
Facsimile No. (415) 397-7781
BUYER: At the address set forth in the Agreement
Facsimile No. (914) 533-2222
ESCROW AGENT: Law Offices of Brian W Pusch
Penthouse Suite
<PAGE>
29 West 57th Street
New York, New York 10019
Facsimile No. (212) 980-7055
13. By signing these Joint Escrow Instructions, the Escrow Agent
becomes a party hereto only for the purpose of these Joint Escrow Instructions;
the Escrow Agent does not become a party to the Agreement. The Company and the
Buyer have become parties hereto by their execution and delivery of the
Agreement, as provided therein.
14. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns and
shall be governed by the laws of the State of New York.
15. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided in the Agreement.
ACCEPTED BY ESCROW AGENT:
/s/ BRIAN W. PUSCH
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Brian W. Pusch
<PAGE>
ANNEX III
TO
SUBSCRIPTION AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of August 9, 1996 (this
"Agreement"), is made by and between MONTEREY PASTA COMPANY, a Delaware
corporation (the "Company"), and the person named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, in connection with the Subscription Agreement, dated as of
August 9, 1996, between the Initial Investor and the Company (the "Subscription
Agreement"), the Company has agreed, upon the terms and subject to the
conditions of the Subscription Agreement, to issue and sell to the Initial
Investor 500 shares (the "Preferred Shares") of Preferred Stock of the Company
as provided in the Subscription Agreement, which shares of Preferred Stock are
convertible into shares (the "Conversion Shares") of Common Stock, $.001 par
value, including the related rights issued pursuant to the Rights Agreement,
dated as of May 15, 1996, between the Company and Corporate Stock Transfer, as
Rights Agent, as amended from time to time in accordance with its terms (the
"Rights Agreement") (such shares and rights collectively the "Common Stock")
of the Company; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investor" means the Initial Investor and any transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule
<PAGE>
providing for offering securities on a continuous basis ("Rule 415"), and the
declaration or ordering of effectiveness of such Registration Statement by the
United States Securities and Exchange Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion Shares and any
shares of Common Stock issuable to any Investor as a dividend on Preferred
Shares.
(iv) "Registration Statement" means a registration statement of the
Company under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i) each
Investor (as defined above) and (ii) each person who is a permitted transferee
or assignee of the Registrable Securities pursuant to Section 9 of this
Agreement.
(c) Capitalized terms defined in the introductory paragraph or the
recitals to this Agreement shall have the respective meanings therein provided.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Subscription Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare, and on or
prior to the date which is 25 days after the date of the closing under the
Subscription Agreement (the "Closing Date"), file with the SEC a Registration
Statement on Form S-3 covering at least 200,000 shares of Common Stock as
Registrable Securities, and which Registration Statement shall state that, in
accordance with Rule 416 under the Securities Act, such Registration Statement
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of the Preferred Shares to prevent dilution
resulting from stock splits, stock dividends or similar transactions or by
reason of changes in the conversion price of the Preferred Shares in accordance
with the terms thereof. If at any time the number of shares of Common Stock
included in the Registration Statement required to be filed as provided in the
first sentence of this Section 2(a) shall be insufficient to cover the number of
shares of Common Stock issuable on conversion in full of the unconverted
Preferred Shares, then promptly, but in no event later than 20 days after such
insufficiency shall occur, the Company shall file with the SEC an additional
Registration Statement on Form S-3 (which shall not constitute a post-effective
amendment to the Registration Statement required to be filed pursuant to the
first sentence of this Section 2(a)) or other applicable form covering such
number of shares of Common Stock as shall be sufficient to permit such
conversion. For all purposes of this Agreement (other than Section 2(c) hereof)
such additional Registration Statement shall be deemed to be the Registration
Statement required to be filed by the Company pursuant to Section 2(a) of this
Agreement, and the Company and the Investors shall have the same rights and
obligations (other than Section 2(c) hereof) with respect to such additional
Registration Statement as they shall have with respect to the initial
Registration Statement required to be filed by the Company pursuant to this
Section 2(a).
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<PAGE>
(b) CERTAIN OFFERINGS. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors who hold a majority in interest of the Registrable Securities subject
to such underwritten offering shall have the right to select one legal counsel
and an investment banker or bankers and manager or managers to administer the
offering, which investment banker or bankers or manager or managers shall be
reasonably satisfactory to the Company. The Investors who hold the Registrable
Securities to be included in such underwriting shall pay all underwriting
discounts and commissions and other fees and expenses of such investment banker
or bankers and manager or managers so selected in accordance with this Section
2(b) (other than fees and expenses relating to registration of Registrable
Securities under federal or state securities laws, which are payable by the
Company pursuant to Section 5 hereof) with respect to their Registrable
Securities and the fees and expenses of such legal counsel so selected by the
Investors.
(c) PAYMENTS BY THE COMPANY. If the Registration Statement covering
the Registrable Securities which is required to be filed by the Company pursuant
to Section 2(a) hereof is not effective within 90 days after the Closing Date,
then the Company will make payments to the Initial Investor in such amounts and
at such times as shall be determined pursuant to this Section 2(c). The amount
to be paid by the Company to the Initial Investor shall be determined as of each
Computation Date, and such amount shall be equal to (1) in the case of the first
Computation Date, two percent (2%) and (2) in the case of the second Computation
Date and each Computation Date thereafter, three percent (3%), in each case of
the aggregate subscription price paid by the Initial Investor for the Preferred
Shares pursuant to the Subscription Agreement (each, a "Periodic Amount");
PROVIDED, HOWEVER, that if any Computation Date is less than 30 days subsequent
to another Computation Date (or, in case the first Computation Date is the date
specified in clause (3) of the definition of Computation Date, if such
Computation Date is less than 120 days after the Closing Date), then the
Periodic Amount payable on the later Computation Date shall be pro rated. The
Periodic Amount shall be paid by the Company within five business days after
each Computation Date and shall be payable in cash; PROVIDED, HOWEVER, that the
Company may elect in lieu of payment of any Periodic Amount in cash to deliver
to the Initial Investor shares of Common Stock having an Aggregate Market Value
equal to the amount of the Periodic Amount if, but only if, such shares are
freely tradable by the Initial Investor without any restriction under the
Securities Act or any state securities or "blue sky" law.
As used in this Section 2(c), the following terms shall have the
following meanings:
"Aggregate Market Value" of any shares of Common Stock as of any
Computation Date means the product obtained by multiplying (a) such number of
shares of Common Stock times (b) the Average Market Price of the Common Stock
for the Measurement Period for such Computation Date.
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<PAGE>
"Average Market Price" of any security for any period shall be
computed as the arithmetic average of the closing bid of such security for each
trading day in such period on the principal trading market for such security, as
reported by such market.
"Computation Date" means (1) the date which is 120 days after the
Issuance Date, unless the Registration Statement theretofore has been declared
effective by the SEC, (2) if the Registration Statement has not theretofore been
declared effective by the SEC, each date which is 30 days after a Computation
Date and (3) if the Registration Statement has not been declared effective by
the SEC within 90 days after the Issuance Date, the date on which the
Registration Statement is declared effective by the SEC.
"Measurement Period" means the period of five consecutive trading days
for the Common Stock ending on (or, if such Computation Date is not a trading
day, on the last trading day preceding) each Computation Date.
(d) PIGGY-BACK REGISTRATIONS. If at any time the Company shall
determine to prepare and file with the SEC a Registration Statement relating to
an offering for its own account or the account of others under the Securities
Act any of its equity securities, other than on Form S-4 or Form S-8 or their
then equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each Investor, who is entitled to registration rights under this Section
2(a) written notice of such determination and, if within twenty (20) days after
receipt of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that if, in
connection with any underwritten public offering for the account of the Company
the managing underwriter(s) thereof shall impose a limitation on the number of
shares of Common Stock which may be included in the Registration Statement
because, in such underwriter(s)' judgment, such limitation is necessary to
effect an orderly public distribution, then the Company shall be obligated to
include in such Registration Statement only such limited portion of the
Registrable Securities with respect to which such Investor has requested
inclusion hereunder. Any exclusion of Registrable Securities shall be made pro
rata among the Investors seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such
Investors; PROVIDED, HOWEVER, that the Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding securities the
holders of which are not entitled by right to inclusion of securities in such
Registration Statement; and PROVIDED FURTHER, HOWEVER, that, after giving effect
to the immediately preceding proviso, any exclusion of Registrable Securities
shall be made pro rata with holders of other securities having the right to
include such securities in the Registration Statement. No right to registration
of Registrable Securities under this Section 2(a) shall be construed to limit
any registration required under Section 2(b) hereof. The obligations of the
Company under this Section 2(a) may be waived by Investors holding a majority in
interest of the Registrable
-4-
<PAGE>
Securities and shall expire after the Company has afforded the opportunity for
the Investors to exercise registration rights under this Section 2(a) for two
registrations; PROVIDED, HOWEVER, that any Investor who shall have had any
Registrable Securities excluded from any Registration Statement in accordance
with this Section 2(a) shall be entitled to include in an additional
Registration Statement filed by the Company the Registrable Securities so
excluded.
(e) ELIGIBILITY FOR FORM S-3. The Company represents and warrants
that it meets the requirements for the use of Form S-3 for registration of the
sale by the Initial Investor and any Investor of the Registrable Securities and
the Company shall file all reports required to be filed by the Company with the
SEC in a timely manner so as to maintain such eligibility for the use of Form
S-3.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration
of the Registrable Securities, the Company shall:
(a) prepare promptly and file with the SEC promptly (but in no event
later than 25 days) after the Closing Date a Registration Statement with respect
to all Registrable Securities, and thereafter use its best efforts to cause the
Registration Statement to become effective as soon as reasonably possible after
such filing, and keep the Registration Statement effective pursuant to Rule 415
at all times until such date as is the earlier of (i) 30 months after the date
such Registration Statement is first ordered effective by the SEC and (ii) the
date on which all Registrable Securities have been sold by the Investors under
circumstances in which the buyers may resell such Registrable Securities without
registration under the Securities Act, which Registration Statement (including
any amendments or supplements thereto and prospectuses contained therein) shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein, or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading; PROVIDED,
HOWEVER, that, subject to the conditions set forth in Section 4(a) below, each
Investor may notify the Company in writing that it wishes to exclude all or a
portion of its Registrable Securities from such Registration Statement;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times until such
date as is the earlier of (i) 30 months after the date such Registration
Statement is first ordered effective by the SEC and (ii) the date on which all
Registrable Securities have been sold by the Investors under circumstances in
which the buyers may resell such Registrable Securities without registration
under the Securities Act, and, during such period, comply with the provisions of
the Securities Act with respect to the disposition of all Registrable Securities
of the Company covered by the Registration Statement until such time as all of
such Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
the Registration Statement;
-5-
<PAGE>
(c) furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel, (1) promptly after the same
is prepared and publicly distributed, filed with the SEC or received by the
Company, one copy of the Registration Statement and any amendment thereto, each
preliminary prospectus and prospectus and each amendment or supplement thereto,
each letter written by or on behalf of the Company to the SEC or the staff of
the SEC and each item of correspondence from the SEC or the staff of the SEC
relating to such Registration Statement (other than any portion of any thereof
which contains information for which the Company has sought confidential
treatment) and (2) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) use reasonable efforts to (1) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request, (2)
prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements, (3) take such other actions as may
be necessary to maintain such registrations and qualifications in effect at all
times until the such date as is the earlier of (i) 30 months after the date such
Registration Statement is first ordered effective by the SEC and (ii) the date
on which all Registrable Securities have been sold by the Investors under
circumstances in which the buyers may resell such Registrable Securities without
registration under the Securities Act, and (4) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions; PROVIDED, HOWEVER, that the Company shall not be required in
connection therewith or as a condition thereto to (I) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (II) subject itself to general taxation in any such
jurisdiction, (III) file a general consent to service of process in any such
jurisdiction, (IV) provide any undertakings that cause more than nominal expense
or burden to the Company or (V) make any change in its charter or by-laws, which
in each case the Board of Directors of the Company determines to be contrary to
the best interests of the Company and its stockholders;
(e) in the event Investors who hold a majority in interest of the
Registrable Securities being offered in the offering select underwriters for the
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering;
(f) as promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in
-6-
<PAGE>
light of the circumstances under which they were made, not misleading, and use
its best efforts promptly to prepare a supplement or amendment to the
Registration Statement to correct such untrue statement or omission, and deliver
a number of copies of such supplement or amendment to each Investor as such
Investor may reasonably request;
(g) as promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of any stop order or other suspension of effectiveness of the
Registration Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling
stockholders' counsel by the Investors who hold a majority in interest of the
Registrable Securities being sold to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time prior to their
filing with the SEC, and shall not file any document in a form to which such
counsel reasonably objects;
(i) make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 under the Securities Act) covering a twelve-month period beginning not
later than the first day of the Company's fiscal quarter next following the
effective date of the Registration Statement;
(j) at the request of the Investors who hold a majority in interest of
the Registrable Securities being sold, furnish on the date that Registrable
Securities are delivered to an underwriter for sale in connection with the
Registration Statement (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters; and (ii) an
opinion, dated such date, from counsel representing the Company for purposes of
such Registration Statement, in form and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors;
(k) make available for inspection by any Investor, any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by any such Investor or underwriter
(collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; PROVIDED, HOWEVER, that
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (i) the disclosure of such Records is
necessary to
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<PAGE>
avoid or correct a misstatement or omission in any Registration Statement, (ii)
the release of such Records is ordered pursuant to a subpoena or other order
from a court or government body of competent jurisdiction or (iii) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. The Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the Company
pursuant to Section 4(e) hereof unless (i) disclosure of such information is
necessary to comply with federal or state securities laws, (ii) the disclosure
of such information is necessary to avoid or correct a misstatement or omission
in any Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other order from a court or governmental body of
competent jurisdiction or (iv) such information has been made generally
available to the public other than by discloure in violation of this or any
other agreement. The Company agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to such Investor, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, such information;
(l) use its best efforts either to (i) cause all the Registrable
Securities covered by the Registration Statement to be listed on a national
securities exchange and on each additional national securities exchange on which
similar securities issued by the Company are then listed, if any, if the listing
of such Registrable Securities is then permitted under the rules of such
exchange or (ii) secure designation of all the Registrable Securities covered by
the Registration Statement as a National Association of Securities Dealers
Automated Quotations System ("NASDAQ") "national market system security" within
the meaning of Rule 11Aa2-1 of the SEC under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the quotation of the Registrable
Securities on the NASDAQ National Market System or, if, despite the Company's
best efforts to satisfy the preceding clause (i) or (ii), the Company is
unsuccessful in satisfying the preceding clause (i) or (ii), to secure listing
on a national securities exchange or NASDAQ authorization and quotation for such
Registrable Securities and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register with the National Association
of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities;
(m) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the
-8-
<PAGE>
effective date of the Registration Statement;
(n) cooperate with the Investors who hold Registrable Securities being
offered and the managing underwriter or underwriters, if any, to facilitate the
timely preparation and delivery of certificates (not bearing any restrictive
legends) representing Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates to be in such denominations
or amounts as the case may be, as the managing underwriter or underwriters, if
any, or the Investors may reasonably request and registered in such names as the
managing underwriter or underwriters, if any, or the Investors may request; and,
within three business days after a Registration Statement which includes
Registrable Securities is ordered effective by the SEC, the Company shall
deliver, and shall cause legal counsel selected by the Company to deliver, to
the transfer agent for the Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement) an
instruction in the form attached hereto as EXHIBIT 1 and an opinion of such
counsel in the form attached hereto as EXHIBIT 2; and
(o) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant to
the Registration Statement;
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Agreement with respect to each
Investor that such Investor shall furnish to the Company such information
regarding itself, the Registrable Securities held by it and the intended method
of disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of the Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request. At least fifteen (15) days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify each
Investor of the information the Company requires from each such Investor (the
"Requested Information") if such Investor elects to have any of such Investor's
Registrable Securities included in the Registration Statement. If within five
(5) business days prior to the filing date the Company has not received the
Requested Information from an Investor (a "Non-Responsive Investor"), then the
Company may file the Registration Statement without including Registrable
Securities of such Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement;
-9-
<PAGE>
(c) In the event Investors holding a majority in interest of the
Registrable Securities being registered determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement;
(d) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice; and
(e) No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and other fees and expenses of investment
bankers and any manager or managers of such underwriting and legal expenses of
the underwriters applicable with respect to its Registrable Securities, in each
case to the extent not payable by the Company pursuant to the terms of this
Agreement.
5. EXPENSES OF REGISTRATION. All expenses, other than underwriting
fees, discounts and commissions and other fees and expenses of investment
bankers and other than brokerage commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 3, including,
without limitation, all registration, listing and qualifications fees, printers
and accounting fees and the fees and disbursements of counsel for the Company
and the Investors, shall be borne by the Company; PROVIDED, HOWEVER, that the
Investors shall bear the fees and out-of-pocket expenses of the one legal
counsel selected by the Investors pursuant to Section 2(b) hereof.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Investor who holds such Registrable
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<PAGE>
Securities, the directors, if any, of such Investor, the officers, if any, of
such Investor, each person, if any, who controls any Investor within the meaning
of the Securities Act or the Exchange Act, any underwriter (as defined in the
Securities Act) for the Investors, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, expenses or liabilities (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations in the
Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Comany
of the Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to the restrictions set forth in Section 6(d) with
respect to the number of legal counsel, the Company shall reimburse the
Investors and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a):(I) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; (II) with respect to any preliminary prospectus shall not inure to the
benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such prospectus was
timely made available by the Company pursuant to Section 3(c) hereof; and (III)
shall not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written
-11-
<PAGE>
consent of the Company, which consent shall not be unreasonably withheld. Such
indemnity shall remain in full force and effect regardless of any investigation
made by o on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees to indemnify and hold harmless, to
the same extent and in the same manner set forth in Section 6(a), the Company,
each of its directors, each of its officers who signs the Registration
Statement, each person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and such Investor will reimburse
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such Claim; PROVIDED, HOWEVER, that the indemnity
agreement contained in this Section 6(b) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of such Investor, which consent shall not be unreasonably withheld;
PROVIDED, FURTHER, HOWEVER, that the Investor shall be liable under this Section
6(b) for only that amount of a Claim as does not exceed the amount of the net
proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing by such
persons expressly for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to
-12-
<PAGE>
be made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the Indemnified Person or the Indemnified Party, as the
case may be; PROVIDED, HOWEVER, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel, with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The Company shall pay for only one separate legal
counsel for the Investors; such legal counsel shall be selected by the Investors
holding a majority in interest of the Registrable Securities included in the
Registration Statement to which the Claim relates. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; PROVIDED, HOWEVER, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6, (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
and without imposing restrictions arising under the federal securities laws on
the purchasers thereof ("Rule 144") the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and
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<PAGE>
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon written request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to transferees or assignees of all or
any portion of such securities only if: (a) the Investor agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment, (b)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee or
assignee and (ii) the securities with respect to which such registration rights
are being transferred or assigned, (c) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws, and (d) at or before the time the Company received the written notice
contemplated by clause (b) of this sentence the transferee or assignee agrees in
writing with the Company to be bound by all of the provisions contained herein.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold a majority in interest of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission or other means)
or sent by certified mail, return receipt requested, properly addressed and with
proper postage pre-paid (i) if to the Company, at Monterey Pasta Company, 353
Sacramento Street,
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<PAGE>
Suite 500, San Francisco, California 94111, Attention: President (telephone
line facsimile No. (415) 397-7781), (ii) if to the Initial Investor, at c/o
Pangaea Asset Management, Inc., 250 Kitchawan Road, South Salem, New York
10590 (telephone line facsimile No. (914) 533-2222) and (iii) if to any other
Investor, at such address as such Investor shall have provided in writing to
the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 11(b), and shall be effective, when
personally delivered, upon receipt and, when so sent by certified mail, four
days after deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of California applicable to agreements
made and to be performed entirely within such State. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(i) The Company acknowledges that any failure by the Company to
perform its obligations under this Agreement, including, without limitation, the
Company's obligations under Section 3(n), or any delay in such performance could
result in both direct and consequential damages to the Investors and the Company
agrees that, in addition to any other liability the Company may have by reason
of any such failure or delay, the Company shall be liable for all direct and
consequential damages caused by any such failure or delay. So long as the
Company files a Registration Statement in a timely manner as required by
Sections 2(b) and 3(a) and uses its best efforts to obtain effectiveness of such
Registration Statement and otherwise complies
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<PAGE>
with its obligations under this Agreement with respect to such Registration
Statement, the Company shall not be deemed to be in breach of this Agreement by
reason of delay in the effectiveness of such Registration Statement arising from
any review thereof by the staff of the SEC, it being understood and agreed that
in such case the Company shall not be liable to any Investor for consequential
damages under this Section 11(i) but that in such circumstances the Company
shall be obligated to make payments pursuant to Section 2(c) of this Agreement.
(j) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of day and
year first above written.
MONTEREY PASTA COMPANY
By /s/ NORMAN E. DEAN
--------------------------
Name: Norman E. Dean
Title: President and Chief
Executive Officer
INITIAL INVESTOR:
PANGAEA FUND LIMITED
By /s/ RHONDA D. MCDEIGAN-ELDRIDGE
--------------------------------
Name: Rhonda D. McDeigan-Eldridge
Title: President and Director
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<PAGE>
EXHIBIT 1
TO
REGISTRATION
RIGHTS AGREEMENT
[Company Letterhead]
[Name and address of Transfer Agent]
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and
direction to you [(1) to transfer or re-register the certificates for the
shares of Common Stock, $.001 par value (the "Common Stock"), of Monterey
Pasta Company, a Delaware corporation (the "Company"), represented by
certificate numbers _______ and _______ for an aggregate of _______ shares
(the "Outstanding Shares") of Common Stock presently registered in the name
of [Name of Investor] upon surrender of such certificate to you,
notwithstanding the legend appearing on such certificates, and (2)](1) to
issue shares (the "Conversion Shares") of Common Stock to or upon the order
of the holder from time to time on conversion of the shares (the "Preferred
Shares") of Series B Convertible Preferred Stock, $.001 par value, of the
Company, issued by the Company upon surrender to you by such holder for
conversion of Preferred Shares. The transfer or re-registration of the
certificates for the Outstanding Shares by you should be made at such time as
you are requested to do so by the record holder of the Outstanding Shares.
The certificate issued upon such transfer or re-registration should be
registered in such name as requested by the holder of record of the
certificate surrendered to you and should not bear any legend which would
restrict the transfer of the shares represented thereby. In addition, you
are hereby directed to remove any stop-transfer instruction relating to the
Outstanding Shares. Certificates for the Conversion Shares should not bear
any restrictive legend and should not be subject to any stop-transfer
restriction.
Contemporaneous with the delivery of this letter, the Company is
delivering to you an opinion of ____________________ as to registration of the
Outstanding Shares and the Conversion Shares under the Securities Act of 1933,
as amended.
- ---------------
(1) Omit if no conversions of Preferred Stock have occurred before SEC
registration is declared effective.
1-
<PAGE>
Should you have any questions concerning this matter, please contact
me.
Very truly yours,
MONTEREY PASTA COMPANY
By:
-------------------------------
Name:
Title:
1-
<PAGE>
EXHIBIT 2
TO
REGISTRATION
RIGHTS AGREEMENT
[Date]
[Name and address
of transfer agent]
MONTEREY PASTA COMPANY
SHARES OF COMMON STOCK
Ladies and Gentlemen:
We are counsel to Monterey Pasta Company, a Delaware corporation (the
"Company"), and we understand that [Name of Investor] (the "Holder") has
purchased from the Company an aggregate of shares (the "Preferred
Shares") of the Company's Series B Convertible Preferred Stock, $.001 par value
(the "Preferred Stock"). The Preferred Shares were purchased by the Holder
pursuant to a Subscription Agreement, dated as of August , 1996, between the
Holder and the Company (the "Subscription Agreement"). Pursuant to a
Registration Rights Agreement, dated as of August , 1996, between the Company
and the Holder (the "Registration Rights Agreement") entered into in connection
with the purchase by the Holder of the Preferred Shares, the Company agreed with
the Holder, among other things, to register the shares of Common Stock, $.001
par value, of the Company issuable upon conversion of the Preferred Shares (the
"Conversion Shares") under the Securities Act of 1933, as amended (the
"Securities Act"), upon the terms provided in the Registration Rights Agreement.
Pursuant to the Registration Rights Agreement, on __________, the Company filed
a Registration Statement on Form S-3 (File No. 333-__________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Conversion Shares, which names the Holder as a selling
shareholder thereunder.
[Other introductory and scope of examination language to be inserted]
Based on the foregoing, we are of the opinion that the Conversion
Shares have been registered under the Securities Act.
[Other appropriate language to be included.
Very truly yours,
2-
<PAGE>
cc: [Name of Investor]
2-
<PAGE>
ANNEX IV
TO
SUBSCRIPTION AGREEMENT
NOTICE OF CONVERSION
OF CONVERTIBLE PREFERRED STOCK
TO: Monterey Pasta Company
(1) Pursuant to the terms of the Series B Convertible Preferred
Stock (the "Preferred Stock"), the undersigned hereby elects to convert
shares of the Preferred Stock into shares of Common Stock, $.001 par value (the
"Common Stock"), of Monterey Pasta Company, a Delaware corporation (the
"Company"), or such other securities into which the Preferred Stock is currently
convertible.
(2) Please issue a certificate or certificates for the number of
shares of Common Stock or other securities into which such number of shares of
Preferred Stock is convertible in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:
--------------------- ---------------------
Name Name
--------------------- ---------------------
Address Address
--------------------- ---------------------
SS or Tax ID Number SS or Tax ID Number
(3) The Conversion Date is and the Closing Price of the
Common Stock on the five consecutive trading days preceding the Conversion Date
and the arithmetic average thereof are as follows:
DATE CLOSING PRICE
-------------- -------------
-------------- -------------
-------------- -------------
-------------- -------------
-------------- -------------
Arithmetic Average: $
-----------
(4) In the event of partial exercise, please reissue an appropriate
certificate for the number of shares of Preferred Stock which shall not have
been converted. Capitalized terms used in this Notice of Conversion and not
otherwise defined herein shall have the respective meanings provided in the
Certificate of Designations for the Preferred Stock.
<PAGE>
(5) If the shares of Common Stock issuable upon conversion of the
Preferred Stock have not been registered under the Securities Act of 1933, as
amended (the "Act"), the undersigned represents and warrants that (i) the shares
of Common Stock not so registered are being acquired for the account of the
undersigned for investment, and not with a view to, or for resale in connection
with, the distribution thereof, and that the undersigned has no present
intention of distributing or reselling the shares of Common Stock not so
registered and (ii) the undersigned is an "accredited investor" as defined in
Regulation D under the Act. The undersigned further agrees that (A) the shares
of Common Stock not so registered shall not be sold or transferred unless either
(i) they first shall have been registered under the Act and applicable state
securities laws or (ii) the Company first shall have been furnished with an
opinion of legal counsel reasonably satisfactory to the Company to the effect
that such sale or transfer is exempt from the registration requirements of the
Act and (B) the Company may place a legend on the certificate(s) for the shares
of Common Stock not so registered to that effect and place a stop-transfer
restriction in its records relating to the shares of Common Stock not so
registered, all in accordance with the Certificate of Designations.
Date
------------------------- ------------------------------
Signature of Holder must be signed
exactly as name appears on the Preferred
Stock Certificate.)
<PAGE>
ANNEX V
TO
SUBSCRIPTION AGREEMENT
August 12, 1996
Pangaea Fund Limited
c/o MeesPierson Fund Services (Bahamas) Limited
Windermere House
404 East Bay Street
P.O. Box SS-6238
Nassau, The Bahamas
RE: MONTEREY PASTA COMPANY
Ladies and Gentlemen:
We have acted as counsel to Monterey Pasta Company, a Delaware
corporation (the "Company"), in connection with the preparation, execution and
delivery of the Subscription Agreement dated as of August 9, 1996 (the
"Agreement"), between the Company and Pangaea Fund Limited, a British Virgin
Islands corporation ("Pangaea"). All capitalized terms used herein shall,
unless otherwise defined herein or the context otherwise requires, have the
meanings assigned to them in the Agreement.
In our capacity as counsel, we have examined such corporate
instruments, documents, proceedings and certificates of corporate officers as we
have deemed appropriate in rendering the opinions set forth below. We have
assumed the authenticity of all documents submitted to us as originals and the
conformity to original documents of all documents submitted to us as copies. We
have also assumed, without investigation, the accuracy of the representations,
warranties and covenants as to factual matters made by the Company in the
Agreement and in the Registration Rights Agreement and the accuracy of
representations and statements as to factual matters made by the officers and
employees of the Company and by government officials.
Whenever a statement herein is qualified by the phrase "to our
knowledge," "known to us," or similar phrase, it indicates that in the course of
our representation of the Company no information that would give us actual
knowledge of the inaccuracy of such statement has come to the attention of the
attorneys in this firm who have rendered legal services in connection with this
transaction. We have not made any independent investigation to determine the
accuracy of such statement (including any search of litigation filings in any
court), except as expressly described herein. No inference as to our knowledge
of any matters bearing on the
<PAGE>
Pangaea Fund Limited
August 12, 1996
Page 2
accuracy of such statement should be drawn from the fact of our representation
of the Company in other matters in which such attorneys are not involved.
Our opinion is subject to the following qualifications:
1. Our opinion in paragraph 2 below is subject to (a) the effect of
bankruptcy, insolvency, reorganization, moratorium and other similar laws now or
hereafter in effect affecting creditors' rights or by general equity principles,
regardless of whether such enforceability is considered in a proceeding in
equity or at law; and (b) general principles of equity, including, without
limitation, (i) the effect of federal or state laws, rules or regulations and
court decisions upon the enforceability of the Agreement, the Registration
Rights Agreement, including but not limited to the position of the Securities
and Exchange Commission that indemnification by an issuer of securities of its
directors and officers and controlling persons for liabilities arising under
Securities Act of 1933, as amended (the "1933 Act"), is against public policy
expressed under the 1933 Act and is therefore unenforceable, and (ii) the effect
of court decisions which have held that certain covenants and provisions of
agreements are unenforceable where: (A) the breach of such covenants or
provisions imposes restrictions or burdens upon a party and it cannot be
demonstrated that the enforcement of such restrictions or burdens is reasonably
necessary for the protection of the other party; or (B) a party's enforcement of
such covenants or provisions under the circumstances would violate such party's
implied covenants of good faith and fair dealing.
2. Our opinion is limited to the effect of the laws of the State of
California and the federal laws of the United States on the transaction
contemplated by the Agreement and the Registration Rights Agreement, and we
express no opinion as to matters governed by other laws.
3. In making our examination of documents and instruments executed
by persons or entities other than the Company, we have assumed, without
investigation, the power and legal capacity of each such person or other entity
to enter into and perform all its obligations under such documents and
instruments, the due authorization by each such other person or entity of such
documents and instruments, and the due execution and delivery by each such other
person or entity of such documents and instruments.
<PAGE>
Pangaea Fund Limited
August 12, 1996
Page 3
4. Our opinions are limited to the matters expressly set forth in
this opinion letter, and no opinion is to be implied or may be inferred beyond
the matters expressly so stated.
5. This opinion letter is dated as of the Closing Date and,
therefore, relates only to events that exist as of that time. We disclaim any
obligation to update this opinion letter for any events, and any changes in law
or the interpretation thereof, occurring after the date of this opinion letter.
6. Our opinion as to the good standing of the Company is based
solely upon certificates from public officials, dated August 8, 1996 as to the
good standing of the Company under applicable law.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of Delaware and has all requisite corporate
power and authority to conduct its business as now being conducted.
2. The Company has all requisite corporate power and authority to
enter into the Agreement and the Registration Rights Agreement and to consummate
the transactions contemplated thereby. The execution, delivery and performance
of the Agreement and the Registration Rights Agreement and the consummation of
the transactions contemplated thereby have been duly authorized by all necessary
corporate action on the part of the Company. The Agreement and the Registration
Rights Agreement have been duly executed and delivered by the Company and
constitutes legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms.
3. The Preferred Shares have been duly authorized and, when issued
and paid for in accordance with the Agreement, will be validly issued, fully
paid and non-assessable.
4. The Common Shares have been duly authorized and, when issued upon
conversion of the Preferred Shares in accordance with the terms thereof will be
validly issued, fully paid and non-assessable.
<PAGE>
Pangaea Fund Limited
August 12, 1996
Page 4
5. As of the date hereof, the authorized capital stock of the
Company consisted of (a) seventy million (70,000,000) shares of Common Stock,
$.001 par value per share, of which, as of July 31, 1996, 8,713,911 shares are
validly issued and outstanding, fully paid and non-assessable and with respect
to which warrants to purchase 400,750 shares are outstanding and (b) one million
(1,000,000) shares of Preferred Stock, $.001 par value per share, of which three
thousand (3,000) shares have been designated "Series A Convertible Preferred
Stock" and five hundred (500) shares have been designated "Series B Convertible
Preferred Stock". Three thousand (3,000) shares of Series A Convertible
Preferred Stock are issued and outstanding and five hundred (500) shares of
Series B Convertible Preferred Stock are issued and outstanding. There are no
preemptive rights of any stockholder of the Company, as such, to acquire the
Shares. The Common Stock is listed for trading on the Nasdaq National Market
("Nasdaq"), and, to the best of our knowledge, (a) no suspension of trading in
the Common Stock is in effect or threatened, (b) the Company and the Common
Stock meet the criteria for continued listing and trading on Nasdaq and (c) the
Company has not been notified since January 1, 1994 by the National Association
of Securities Dealers, Inc. of any failure or potential failure to meet the
criteria for continued listing and trading of the Common Stock on Nasdaq.
6. The Preferred Shares may be issued to you pursuant to the
Agreement and the Common Shares may be issued to you upon conversion of the
Preferred Shares, in each case without registration under the 1933 Act.
7. No authorization or consent of, or filing with, any court,
government body, regulatory agency, self-regulatory organization, or stock
exchange or market or the shareholders of the Company is required to be obtained
or made by the Company for the issuance and sale of the Preferred Shares as
contemplated by the Agreement or the issuance of the Common Shares on conversion
of the Preferred Shares except such as have been obtained or made and other than
such as may be required under the securities or "blue sky" laws of certain
jurisdictions (as to which we express no opinion).
8. To the best of our knowledge and except as disclosed in the
documents referred to in Section 2(e) of the Agreement, there is no action,
suit, proceeding, inquiry or investigation before or by any court, public board
or body pending or threatened against or affecting the Company or any of its
subsidiaries, wherein an unfavorable decision, ruling
<PAGE>
Pangaea Fund Limited
August 12, 1996
Page 5
or finding would have a material adverse effect on the properties, business,
condition (financial or other), results of operations or prospects of the
Company and its subsidiaries taken as a whole or the transactions contemplated
by the Agreement or any of the documents contemplated thereby or which would
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, the Agreement, or any of such
other documents.
This opinion letter is rendered solely for the benefit of Pangaea in
connection with the above transaction. Without our prior written consent, this
opinion letter may not be: (i) relied upon by any other party or for any other
purpose, except that the opinions expressed in paragraphs 4 and 6 may be relied
upon by Corporate Stock Transfer as Transfer Agent and Registrar for the Common
Stock; (ii) quoted in whole or in part or otherwise referred to in any report or
document other than a closing memorandum relating to the subject transaction or
(iii) furnished (the original or copies thereof) to any party except in
connection with the enforcement of the Agreement or in connection with the
closing of the transactions contemplated by the Agreement.
Very truly yours,
GRAHAM & JAMES LLP
<PAGE>
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of August 9, 1996 (this
"Agreement"), is made by and between MONTEREY PASTA COMPANY, a Delaware
corporation (the "Company"), and the person named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, in connection with the Subscription Agreement, dated as of
August 9, 1996, between the Initial Investor and the Company (the "Subscription
Agreement"), the Company has agreed, upon the terms and subject to the
conditions of the Subscription Agreement, to issue and sell to the Initial
Investor 500 shares (the "Preferred Shares") of Preferred Stock of the Company
as provided in the Subscription Agreement, which shares of Preferred Stock are
convertible into shares (the "Conversion Shares") of Common Stock, $.001 par
value, including the related rights issued pursuant to the Rights Agreement,
dated as of May 15, 1996, between the Company and Corporate Stock Transfer, as
Rights Agent, as amended from time to time in accordance with its terms (the
"Rights Agreement") (such shares and rights collectively the "Common Stock")
of the Company; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investor" means the Initial Investor and any transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule
<PAGE>
providing for offering securities on a continuous basis ("Rule 415"), and the
declaration or ordering of effectiveness of such Registration Statement by the
United States Securities and Exchange Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion Shares and any
shares of Common Stock issuable to any Investor as a dividend on Preferred
Shares.
(iv) "Registration Statement" means a registration statement of the
Company under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i) each
Investor (as defined above) and (ii) each person who is a permitted transferee
or assignee of the Registrable Securities pursuant to Section 9 of this
Agreement.
(c) Capitalized terms defined in the introductory paragraph or the
recitals to this Agreement shall have the respective meanings therein provided.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Subscription Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare, and on or
prior to the date which is 25 days after the date of the closing under the
Subscription Agreement (the "Closing Date"), file with the SEC a Registration
Statement on Form S-3 covering at least 200,000 shares of Common Stock as
Registrable Securities, and which Registration Statement shall state that, in
accordance with Rule 416 under the Securities Act, such Registration Statement
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of the Preferred Shares to prevent dilution
resulting from stock splits, stock dividends or similar transactions or by
reason of changes in the conversion price of the Preferred Shares in accordance
with the terms thereof. If at any time the number of shares of Common Stock
included in the Registration Statement required to be filed as provided in the
first sentence of this Section 2(a) shall be insufficient to cover the number of
shares of Common Stock issuable on conversion in full of the unconverted
Preferred Shares, then promptly, but in no event later than 20 days after such
insufficiency shall occur, the Company shall file with the SEC an additional
Registration Statement on Form S-3 (which shall not constitute a post-effective
amendment to the Registration Statement required to be filed pursuant to the
first sentence of this Section 2(a)) or other applicable form covering such
number of shares of Common Stock as shall be sufficient to permit such
conversion. For all purposes of this Agreement (other than Section 2(c) hereof)
such additional Registration Statement shall be deemed to be the Registration
Statement required to be filed by the Company pursuant to Section 2(a) of this
Agreement, and the Company and the Investors shall have the same rights and
obligations (other than Section 2(c) hereof) with respect to such additional
Registration Statement as they shall have with respect to the initial
Registration Statement required to be filed by the Company pursuant to this
Section 2(a).
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<PAGE>
(b) CERTAIN OFFERINGS. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors who hold a majority in interest of the Registrable Securities subject
to such underwritten offering shall have the right to select one legal counsel
and an investment banker or bankers and manager or managers to administer the
offering, which investment banker or bankers or manager or managers shall be
reasonably satisfactory to the Company. The Investors who hold the Registrable
Securities to be included in such underwriting shall pay all underwriting
discounts and commissions and other fees and expenses of such investment banker
or bankers and manager or managers so selected in accordance with this Section
2(b) (other than fees and expenses relating to registration of Registrable
Securities under federal or state securities laws, which are payable by the
Company pursuant to Section 5 hereof) with respect to their Registrable
Securities and the fees and expenses of such legal counsel so selected by the
Investors.
(c) PAYMENTS BY THE COMPANY. If the Registration Statement covering
the Registrable Securities which is required to be filed by the Company pursuant
to Section 2(a) hereof is not effective within 90 days after the Closing Date,
then the Company will make payments to the Initial Investor in such amounts and
at such times as shall be determined pursuant to this Section 2(c). The amount
to be paid by the Company to the Initial Investor shall be determined as of each
Computation Date, and such amount shall be equal to (1) in the case of the first
Computation Date, two percent (2%) and (2) in the case of the second Computation
Date and each Computation Date thereafter, three percent (3%), in each case of
the aggregate subscription price paid by the Initial Investor for the Preferred
Shares pursuant to the Subscription Agreement (each, a "Periodic Amount");
PROVIDED, HOWEVER, that if any Computation Date is less than 30 days subsequent
to another Computation Date (or, in case the first Computation Date is the date
specified in clause (3) of the definition of Computation Date, if such
Computation Date is less than 120 days after the Closing Date), then the
Periodic Amount payable on the later Computation Date shall be pro rated. The
Periodic Amount shall be paid by the Company within five business days after
each Computation Date and shall be payable in cash; PROVIDED, HOWEVER, that the
Company may elect in lieu of payment of any Periodic Amount in cash to deliver
to the Initial Investor shares of Common Stock having an Aggregate Market Value
equal to the amount of the Periodic Amount if, but only if, such shares are
freely tradable by the Initial Investor without any restriction under the
Securities Act or any state securities or "blue sky" law.
As used in this Section 2(c), the following terms shall have the
following meanings:
"Aggregate Market Value" of any shares of Common Stock as of any
Computation Date means the product obtained by multiplying (a) such number of
shares of Common Stock times (b) the Average Market Price of the Common Stock
for the Measurement Period for such Computation Date.
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<PAGE>
"Average Market Price" of any security for any period shall be
computed as the arithmetic average of the closing bid of such security for each
trading day in such period on the principal trading market for such security, as
reported by such market.
"Computation Date" means (1) the date which is 120 days after the
Issuance Date, unless the Registration Statement theretofore has been declared
effective by the SEC, (2) if the Registration Statement has not theretofore been
declared effective by the SEC, each date which is 30 days after a Computation
Date and (3) if the Registration Statement has not been declared effective by
the SEC within 90 days after the Issuance Date, the date on which the
Registration Statement is declared effective by the SEC.
"Measurement Period" means the period of five consecutive trading days
for the Common Stock ending on (or, if such Computation Date is not a trading
day, on the last trading day preceding) each Computation Date.
(d) PIGGY-BACK REGISTRATIONS. If at any time the Company shall
determine to prepare and file with the SEC a Registration Statement relating to
an offering for its own account or the account of others under the Securities
Act any of its equity securities, other than on Form S-4 or Form S-8 or their
then equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each Investor, who is entitled to registration rights under this Section
2(a) written notice of such determination and, if within twenty (20) days after
receipt of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that if, in
connection with any underwritten public offering for the account of the Company
the managing underwriter(s) thereof shall impose a limitation on the number of
shares of Common Stock which may be included in the Registration Statement
because, in such underwriter(s)' judgment, such limitation is necessary to
effect an orderly public distribution, then the Company shall be obligated to
include in such Registration Statement only such limited portion of the
Registrable Securities with respect to which such Investor has requested
inclusion hereunder. Any exclusion of Registrable Securities shall be made pro
rata among the Investors seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such
Investors; PROVIDED, HOWEVER, that the Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding securities the
holders of which are not entitled by right to inclusion of securities in such
Registration Statement; and PROVIDED FURTHER, HOWEVER, that, after giving effect
to the immediately preceding proviso, any exclusion of Registrable Securities
shall be made pro rata with holders of other securities having the right to
include such securities in the Registration Statement. No right to registration
of Registrable Securities under this Section 2(a) shall be construed to limit
any registration required under Section 2(b) hereof. The obligations of the
Company under this Section 2(a) may be waived by Investors holding a majority in
interest of the Registrable
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<PAGE>
Securities and shall expire after the Company has afforded the opportunity for
the Investors to exercise registration rights under this Section 2(a) for two
registrations; PROVIDED, HOWEVER, that any Investor who shall have had any
Registrable Securities excluded from any Registration Statement in accordance
with this Section 2(a) shall be entitled to include in an additional
Registration Statement filed by the Company the Registrable Securities so
excluded.
(e) ELIGIBILITY FOR FORM S-3. The Company represents and warrants
that it meets the requirements for the use of Form S-3 for registration of the
sale by the Initial Investor and any Investor of the Registrable Securities and
the Company shall file all reports required to be filed by the Company with the
SEC in a timely manner so as to maintain such eligibility for the use of Form
S-3.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration
of the Registrable Securities, the Company shall:
(a) prepare promptly and file with the SEC promptly (but in no event
later than 25 days) after the Closing Date a Registration Statement with respect
to all Registrable Securities, and thereafter use its best efforts to cause the
Registration Statement to become effective as soon as reasonably possible after
such filing, and keep the Registration Statement effective pursuant to Rule 415
at all times until such date as is the earlier of (i) 30 months after the date
such Registration Statement is first ordered effective by the SEC and (ii) the
date on which all Registrable Securities have been sold by the Investors under
circumstances in which the buyers may resell such Registrable Securities without
registration under the Securities Act, which Registration Statement (including
any amendments or supplements thereto and prospectuses contained therein) shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein, or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading; PROVIDED,
HOWEVER, that, subject to the conditions set forth in Section 4(a) below, each
Investor may notify the Company in writing that it wishes to exclude all or a
portion of its Registrable Securities from such Registration Statement;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times until such
date as is the earlier of (i) 30 months after the date such Registration
Statement is first ordered effective by the SEC and (ii) the date on which all
Registrable Securities have been sold by the Investors under circumstances in
which the buyers may resell such Registrable Securities without registration
under the Securities Act, and, during such period, comply with the provisions of
the Securities Act with respect to the disposition of all Registrable Securities
of the Company covered by the Registration Statement until such time as all of
such Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
the Registration Statement;
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<PAGE>
(c) furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel, (1) promptly after the same
is prepared and publicly distributed, filed with the SEC or received by the
Company, one copy of the Registration Statement and any amendment thereto, each
preliminary prospectus and prospectus and each amendment or supplement thereto,
each letter written by or on behalf of the Company to the SEC or the staff of
the SEC and each item of correspondence from the SEC or the staff of the SEC
relating to such Registration Statement (other than any portion of any thereof
which contains information for which the Company has sought confidential
treatment) and (2) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) use reasonable efforts to (1) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request, (2)
prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements, (3) take such other actions as may
be necessary to maintain such registrations and qualifications in effect at all
times until the such date as is the earlier of (i) 30 months after the date such
Registration Statement is first ordered effective by the SEC and (ii) the date
on which all Registrable Securities have been sold by the Investors under
circumstances in which the buyers may resell such Registrable Securities without
registration under the Securities Act, and (4) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions; PROVIDED, HOWEVER, that the Company shall not be required in
connection therewith or as a condition thereto to (I) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (II) subject itself to general taxation in any such
jurisdiction, (III) file a general consent to service of process in any such
jurisdiction, (IV) provide any undertakings that cause more than nominal expense
or burden to the Company or (V) make any change in its charter or by-laws, which
in each case the Board of Directors of the Company determines to be contrary to
the best interests of the Company and its stockholders;
(e) in the event Investors who hold a majority in interest of the
Registrable Securities being offered in the offering select underwriters for the
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering;
(f) as promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in
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<PAGE>
light of the circumstances under which they were made, not misleading, and use
its best efforts promptly to prepare a supplement or amendment to the
Registration Statement to correct such untrue statement or omission, and deliver
a number of copies of such supplement or amendment to each Investor as such
Investor may reasonably request;
(g) as promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of any stop order or other suspension of effectiveness of the
Registration Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling
stockholders' counsel by the Investors who hold a majority in interest of the
Registrable Securities being sold to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time prior to their
filing with the SEC, and shall not file any document in a form to which such
counsel reasonably objects;
(i) make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 under the Securities Act) covering a twelve-month period beginning not
later than the first day of the Company's fiscal quarter next following the
effective date of the Registration Statement;
(j) at the request of the Investors who hold a majority in interest of
the Registrable Securities being sold, furnish on the date that Registrable
Securities are delivered to an underwriter for sale in connection with the
Registration Statement (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters; and (ii) an
opinion, dated such date, from counsel representing the Company for purposes of
such Registration Statement, in form and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors;
(k) make available for inspection by any Investor, any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by any such Investor or underwriter
(collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; PROVIDED, HOWEVER, that
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (i) the disclosure of such Records is
necessary to
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<PAGE>
avoid or correct a misstatement or omission in any Registration Statement, (ii)
the release of such Records is ordered pursuant to a subpoena or other order
from a court or government body of competent jurisdiction or (iii) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. The Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the Company
pursuant to Section 4(e) hereof unless (i) disclosure of such information is
necessary to comply with federal or state securities laws, (ii) the disclosure
of such information is necessary to avoid or correct a misstatement or omission
in any Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other order from a court or governmental body of
competent jurisdiction or (iv) such information has been made generally
available to the public other than by discloure in violation of this or any
other agreement. The Company agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to such Investor, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, such information;
(l) use its best efforts either to (i) cause all the Registrable
Securities covered by the Registration Statement to be listed on a national
securities exchange and on each additional national securities exchange on which
similar securities issued by the Company are then listed, if any, if the listing
of such Registrable Securities is then permitted under the rules of such
exchange or (ii) secure designation of all the Registrable Securities covered by
the Registration Statement as a National Association of Securities Dealers
Automated Quotations System ("NASDAQ") "national market system security" within
the meaning of Rule 11Aa2-1 of the SEC under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the quotation of the Registrable
Securities on the NASDAQ National Market System or, if, despite the Company's
best efforts to satisfy the preceding clause (i) or (ii), the Company is
unsuccessful in satisfying the preceding clause (i) or (ii), to secure listing
on a national securities exchange or NASDAQ authorization and quotation for such
Registrable Securities and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register with the National Association
of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities;
(m) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the
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<PAGE>
effective date of the Registration Statement;
(n) cooperate with the Investors who hold Registrable Securities being
offered and the managing underwriter or underwriters, if any, to facilitate the
timely preparation and delivery of certificates (not bearing any restrictive
legends) representing Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates to be in such denominations
or amounts as the case may be, as the managing underwriter or underwriters, if
any, or the Investors may reasonably request and registered in such names as the
managing underwriter or underwriters, if any, or the Investors may request; and,
within three business days after a Registration Statement which includes
Registrable Securities is ordered effective by the SEC, the Company shall
deliver, and shall cause legal counsel selected by the Company to deliver, to
the transfer agent for the Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement) an
instruction in the form attached hereto as EXHIBIT 1 and an opinion of such
counsel in the form attached hereto as EXHIBIT 2; and
(o) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant to
the Registration Statement;
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Agreement with respect to each
Investor that such Investor shall furnish to the Company such information
regarding itself, the Registrable Securities held by it and the intended method
of disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of the Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request. At least fifteen (15) days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify each
Investor of the information the Company requires from each such Investor (the
"Requested Information") if such Investor elects to have any of such Investor's
Registrable Securities included in the Registration Statement. If within five
(5) business days prior to the filing date the Company has not received the
Requested Information from an Investor (a "Non-Responsive Investor"), then the
Company may file the Registration Statement without including Registrable
Securities of such Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement;
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<PAGE>
(c) In the event Investors holding a majority in interest of the
Registrable Securities being registered determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement;
(d) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice; and
(e) No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and other fees and expenses of investment
bankers and any manager or managers of such underwriting and legal expenses of
the underwriters applicable with respect to its Registrable Securities, in each
case to the extent not payable by the Company pursuant to the terms of this
Agreement.
5. EXPENSES OF REGISTRATION. All expenses, other than underwriting
fees, discounts and commissions and other fees and expenses of investment
bankers and other than brokerage commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 3, including,
without limitation, all registration, listing and qualifications fees, printers
and accounting fees and the fees and disbursements of counsel for the Company
and the Investors, shall be borne by the Company; PROVIDED, HOWEVER, that the
Investors shall bear the fees and out-of-pocket expenses of the one legal
counsel selected by the Investors pursuant to Section 2(b) hereof.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Investor who holds such Registrable
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Securities, the directors, if any, of such Investor, the officers, if any, of
such Investor, each person, if any, who controls any Investor within the meaning
of the Securities Act or the Exchange Act, any underwriter (as defined in the
Securities Act) for the Investors, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, expenses or liabilities (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations in the
Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Comany
of the Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to the restrictions set forth in Section 6(d) with
respect to the number of legal counsel, the Company shall reimburse the
Investors and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a):(I) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; (II) with respect to any preliminary prospectus shall not inure to the
benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such prospectus was
timely made available by the Company pursuant to Section 3(c) hereof; and (III)
shall not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written
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<PAGE>
consent of the Company, which consent shall not be unreasonably withheld. Such
indemnity shall remain in full force and effect regardless of any investigation
made by o on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees to indemnify and hold harmless, to
the same extent and in the same manner set forth in Section 6(a), the Company,
each of its directors, each of its officers who signs the Registration
Statement, each person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and such Investor will reimburse
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such Claim; PROVIDED, HOWEVER, that the indemnity
agreement contained in this Section 6(b) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of such Investor, which consent shall not be unreasonably withheld;
PROVIDED, FURTHER, HOWEVER, that the Investor shall be liable under this Section
6(b) for only that amount of a Claim as does not exceed the amount of the net
proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing by such
persons expressly for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to
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<PAGE>
be made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the Indemnified Person or the Indemnified Party, as the
case may be; PROVIDED, HOWEVER, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel, with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The Company shall pay for only one separate legal
counsel for the Investors; such legal counsel shall be selected by the Investors
holding a majority in interest of the Registrable Securities included in the
Registration Statement to which the Claim relates. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; PROVIDED, HOWEVER, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6, (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
and without imposing restrictions arising under the federal securities laws on
the purchasers thereof ("Rule 144") the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and
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<PAGE>
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon written request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to transferees or assignees of all or
any portion of such securities only if: (a) the Investor agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment, (b)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee or
assignee and (ii) the securities with respect to which such registration rights
are being transferred or assigned, (c) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws, and (d) at or before the time the Company received the written notice
contemplated by clause (b) of this sentence the transferee or assignee agrees in
writing with the Company to be bound by all of the provisions contained herein.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold a majority in interest of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission or other means)
or sent by certified mail, return receipt requested, properly addressed and with
proper postage pre-paid (i) if to the Company, at Monterey Pasta Company, 353
Sacramento Street,
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<PAGE>
Suite 500, San Francisco, California 94111, Attention: President (telephone
line facsimile No. (415) 397-7781), (ii) if to the Initial Investor, at c/o
Pangaea Asset Management, Inc., 250 Kitchawan Road, South Salem, New York
10590 (telephone line facsimile No. (914) 533-2222) and (iii) if to any other
Investor, at such address as such Investor shall have provided in writing to
the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 11(b), and shall be effective, when
personally delivered, upon receipt and, when so sent by certified mail, four
days after deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of California applicable to agreements
made and to be performed entirely within such State. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(i) The Company acknowledges that any failure by the Company to
perform its obligations under this Agreement, including, without limitation, the
Company's obligations under Section 3(n), or any delay in such performance could
result in both direct and consequential damages to the Investors and the Company
agrees that, in addition to any other liability the Company may have by reason
of any such failure or delay, the Company shall be liable for all direct and
consequential damages caused by any such failure or delay. So long as the
Company files a Registration Statement in a timely manner as required by
Sections 2(b) and 3(a) and uses its best efforts to obtain effectiveness of such
Registration Statement and otherwise complies
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<PAGE>
with its obligations under this Agreement with respect to such Registration
Statement, the Company shall not be deemed to be in breach of this Agreement by
reason of delay in the effectiveness of such Registration Statement arising from
any review thereof by the staff of the SEC, it being understood and agreed that
in such case the Company shall not be liable to any Investor for consequential
damages under this Section 11(i) but that in such circumstances the Company
shall be obligated to make payments pursuant to Section 2(c) of this Agreement.
(j) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of day and
year first above written.
MONTEREY PASTA COMPANY
By /s/ NORMAN E. DEAN
--------------------------
Name: Norman E. Dean
Title: President and Chief
Executive Officer
INITIAL INVESTOR:
PANGAEA FUND LIMITED
By /s/ RHONDA D. MCDEIGAN-ELDRIDGE
---------------------------------
Name: Rhonda D. McDeigan-Eldridge
Title: President and Director
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EXHIBIT 1
TO
REGISTRATION
RIGHTS AGREEMENT
[Company Letterhead]
[Name and address of Transfer Agent]
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and direction
to you [(1) to transfer or re-register the certificates for the shares of Common
Stock, $.001 par value (the "Common Stock"), of Monterey Pasta Company, a
Delaware corporation (the "Company"), represented by certificate numbers
_______ and _______ for an aggregate of _______ shares (the "Outstanding
Shares") of Common Stock presently registered in the name of [Name of Investor]
upon surrender of such certificate to you, notwithstanding the legend
appearing on such certificates, and (2)](1) to issue shares (the "Conversion
Shares") of Common Stock to or upon the order of the holder from time to time
on conversion of the shares (the "Preferred Shares") of Series B Convertible
Preferred Stock, $.001 par value, of the Company, issued by the Company upon
surrender to you by such holder for conversion of Preferred Shares. The
transfer or re-registration of the certificates for the Outstanding Shares by
you should be made at such time as you are requested to do so by the record
holder of the Outstanding Shares. The certificate issued upon such transfer
or re-registration should be registered in such name as requested by the
holder of record of the certificate surrendered to you and should not bear
any legend which would restrict the transfer of the shares represented
thereby. In addition, you are hereby directed to remove any stop-transfer
instruction relating to the Outstanding Shares. Certificates for the
Conversion Shares should not bear any restrictive legend and should not be
subject to any stop-transfer restriction.
Contemporaneous with the delivery of this letter, the Company is
delivering to you an opinion of ____________________ as to registration of the
Outstanding Shares and the Conversion Shares under the Securities Act of 1933,
as amended.
- ---------------
(1) Omit if no conversions of Preferred Stock have occurred before SEC
registration is declared effective.
1-
<PAGE>
Should you have any questions concerning this matter, please contact
me.
Very truly yours,
MONTEREY PASTA COMPANY
By:
-------------------------------
Name:
Title:
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<PAGE>
EXHIBIT 2
TO
REGISTRATION
RIGHTS AGREEMENT
[Date]
[Name and address
of transfer agent]
MONTEREY PASTA COMPANY
SHARES OF COMMON STOCK
Ladies and Gentlemen:
We are counsel to Monterey Pasta Company, a Delaware corporation (the
"Company"), and we understand that [Name of Investor] (the "Holder") has
purchased from the Company an aggregate of shares (the "Preferred
Shares") of the Company's Series B Convertible Preferred Stock, $.001 par value
(the "Preferred Stock"). The Preferred Shares were purchased by the Holder
pursuant to a Subscription Agreement, dated as of August , 1996, between the
Holder and the Company (the "Subscription Agreement"). Pursuant to a
Registration Rights Agreement, dated as of August , 1996, between the Company
and the Holder (the "Registration Rights Agreement") entered into in connection
with the purchase by the Holder of the Preferred Shares, the Company agreed with
the Holder, among other things, to register the shares of Common Stock, $.001
par value, of the Company issuable upon conversion of the Preferred Shares (the
"Conversion Shares") under the Securities Act of 1933, as amended (the
"Securities Act"), upon the terms provided in the Registration Rights Agreement.
Pursuant to the Registration Rights Agreement, on __________, the Company filed
a Registration Statement on Form S-3 (File No. 333-__________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Conversion Shares, which names the Holder as a selling
shareholder thereunder.
[Other introductory and scope of examination language to be inserted]
Based on the foregoing, we are of the opinion that the Conversion
Shares have been registered under the Securities Act.
[Other appropriate language to be included.
Very truly yours,
2-
<PAGE>
cc: [Name of Investor]
2-
<PAGE>
THESE SECURITIES MAY NOT BE PUBLICLY OFFERED OR SOLD UNLESS AT THE TIME OF SUCH
OFFER OR SALE, THE PERSON MAKING SUCH OFFER OR SALE DELIVERS A PROSPECTUS
MEETING THE REQUIREMENTS OF SECTION 10 OF THE SECURITIES ACT OF 1933 FORMING A
PART OF A REGISTRATION STATEMENT, OR POST-EFFECTIVE AMENDMENT THERETO, WHICH IS
EFFECTIVE UNDER SAID ACT, UNLESS IN THE OPINION OF COUNSEL TO THE COMPANY SUCH
OFFER AND SALE IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF SAID ACT.
WARRANT
For the Purchase of Common Stock of
MONTEREY PASTA COMPANY
(Incorporated Under the Laws of the State of California)
Void After 5 P.M. May 1, 2003
No. ______ Warrant to Purchase
_____________ Shares
THIS IS TO CERTIFY, that, for value received, ______________________________
or registered assigns, is entitled, subject to the terms and conditions
hereinafter set forth, on or after May 1, 2003 and at any time prior to 5 P.M.,
San Diego, California Time, on May 1, 2003, but not thereafter, to purchase such
number of shares (the "Shares") of common stock, no par value (the "Common
Stock"), of MONTEREY PASTA COMPANY, a California corporation (the "Company"),
from the Company as is set forth above and upon payment to the Company of $6.50
per share (the "Purchase Price") if and to the extent this Warrant is exercised,
in whole or in part, during the period this Warrant remains in force, subject in
all cases to adjustment as provided in Article II hereof, and to receive a
certificate or certificates representing the Shares so purchased, upon
presentation and surrender to the Company of this Warrant, with the form of
subscription attached hereto duly executed, and accompanied by payment of the
Purchase Price of each Share purchased.
1. TERMS OF THE WARRANT.
1.1 TERM OF WARRANT. Subject to the provisions of Subsection 3.1
hereof, this Warrant may be exercised at any time and from time to time from
the date hereof until 5:00 P.M., May 1, 2003 (the "Expiration Time") at which
it shall become void, and all rights hereunder shall thereupon cease.
<PAGE>
1.2 MANNER OF EXERCISE. This Warrant may be exercised as follows:
(a) The holder of this Warrant (the "Holder") may exercise this
Warrant, in whole or in part, upon surrender of this Warrant with the form of
subscription attached hereto duly executed, to the Company at its corporate
office in San Francisco, California, together with the full Purchase Price for
each Share to be purchased in lawful money of the United States, or by certified
check, bank draft or postal or express money order payable in United States
dollars to the order of the Company, and upon compliance with and subject to the
conditions set forth herein. Alternatively, exercise of the Warrant may be
effected by a "cashless exercise"effected, at the election of the Holder,
through either (i) the delivery and relinquishment of a portion of the Warrants
issuable hereunder in payment of the Purchase Price (the value of each Warrant
delivered in payment of the Purchase Price shall be deemed to be equal to the
closing bid price for the Company's Common Stock on the day prior to such
exercise less the Purchase Price for the Warrant) or (ii) the establishment of
an escrow arrangement whereby the proceeds from the sale of the Warrants or
underlying Common Stock is held in an escrow account with an NASD member broker
dealer or the Company's transfer agent, and the exercise price is paid directly
to the Company from the escrow agent.
(b) Upon receipt of this Warrant with the form of subscription
duly executed and accompanied by payment of the aggregate Purchase Price for the
Shares for which this Warrant is then being exercised, the Company shall cause
to be issued certificates for the total number of whole Shares for which this
Warrant is being exercised in such denominations as are required for delivery to
the Holder, and the Company shall thereupon deliver such certificates to the
Holder or its nominee.
(c) In case the Holder shall exercise this Warrant with respect
to less than all of the Shares that may be purchased under this Warrant, the
Company shall execute a new Warrant for the balance of the Shares that may be
purchased upon exercise of this Warrant and deliver such new Warrant to the
Holder.
(d) The Company covenants and agrees that it will pay when due
and payable any and all taxes which may be payable in respect of the issuance of
this Warrant, or the issuance of any Shares upon the exercise of this Warrant.
The Company shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issuance or delivery of this Warrant
or of the Shares in a name other than that of the Holder at the time of
surrender, and until the payment of such tax the Company shall not be required
to issue such Shares.
1.3 SPLIT-UP, COMBINATION OR EXCHANGE OF WARRANTS. This Warrant may
be split-up, combined or exchanged for another Warrant or Warrants of like tenor
to purchase a like aggregate number of Shares. If the Holder desires to
split-up, combine or exchange this Warrant, he shall make such request in
writing delivered to the Company at its corporate office and shall surrender
this Warrant and any other Warrants to be so split-up, combined or exchanged,
the
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Company shall execute and deliver to the person entitled thereto a Warrant or
Warrants, as the case may be, as so requested. The Company shall not be
required to effect any split-up, combination or exchange which will result in
the issuance of a Warrant entitling the Holder to purchase upon exercise a
fraction of a Share. The Company may require the Holder to pay a sum sufficient
to cover any tax or governmental charge that may be imposed in connection with
any split-up, combination or exchange of Warrants.
1.4 HOLDER TREATED AS OWNER. Prior to due presentment for
registration of transfer of this Warrant, the Company may deem and treat the
Holder as the absolute owner of this Warrant (notwithstanding any notation of
ownership or other writing hereon) for the purpose of any exercise hereof and
for all other purposes, and the Company shall not be affected by any notice to
the contrary.
1.5 METHOD OF TRANSFER. Any assignment permitted hereunder shall be
made by surrender of this Warrant to the Company at its principal office with
the form of assignment attached hereto duly executed and funds sufficient to pay
any transfer tax. In such event, the Company shall, without charge, execute and
deliver a new Warrant in the name of the assignee named in such instrument of
assignment and this Warrant shall promptly be canceled. This Warrant may be
divided or combined with other Warrants which carry the same rights upon
presentation thereof at the corporate office of the Company together with a
written notice signed by the Holder, specifying the names and denominations in
which such new Warrants are to be issued. No transfer of this Warrant or the
rights granted to the Holder of this Warrant may be made without the express
written consent of the Company, which consent shall not be unreasonably
withheld.
1.6 STATUS OF WARRANT HOLDER; NOTICE OF CORPORATE ACTION. Nothing
contained in this Warrant shall be construed as conferring upon the Holder the
right to vote or to consent or to receive notice as a stockholder in respect of
any meetings of stockholders for the election of directors or any other matter,
or as having any rights whatsoever as a stockholder of the Company. If,
however, at any time prior to the expiration of this Warrant and prior to its
exercise, any of the following shall occur:
(a) the Company shall take a record of the holders of its shares
of Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings; as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to the holders of its Common Stock
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
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(c) there shall be proposed any capital reorganization or
reclassification of the Common Stock, or a sale of all or substantially all of
the assets of the Company, or a consolidation or merger of the Company with
another entity; or
(d) there shall be proposed a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall cause to be mailed to
the Holder, at the earliest practicable time (and, in any event, not less than
thirty (30) days before any record date or other date set for definitive
action), written notice of the date on which the books of the Company shall
close or a record shall be taken to determine the stockholders entitled to such
dividend, distribution, convertible or exchangeable securities or subscription
rights, or entitled to vote on such reorganization, reclassification, sale,
consolidation, merger, dissolution, liquidation or winding up, as the case may
be. Such notice shall also set forth such facts as shall indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Purchase Price and the kind and amount of the Common Stock and other
securities and property deliverable upon exercise of this Warrant. Such notice
shall also specify the date as of which the holders of the Common Stock of
record shall participate in said distribution or subscription rights or shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, sale, consolidation,
merger, dissolution, liquidation or winding up, as the case may be (on which
date, in the event of voluntary or involuntary dissolution, liquidation or
winding up of the Company, the right to exercise this Warrant shall terminate).
Without limiting the obligation of the Company to provide notice to the holder
of actions hereunder, it is agreed that failure of the Company to give notice
shall not invalidate such action of the Company.
1.7 LOST, STOLEN, MUTILATED OR DESTROYED CERTIFICATES. If this
Warrant is lost, stolen, mutilated or destroyed, the Company shall, on such
reasonable terms as to indemnity or otherwise as it may impose (which shall, in
the case of a mutilated Warrant, include the surrender thereof, issue a new
Warrant of like denomination and tenor as, and in substitution for, this
Warrant, which shall thereupon become void. Any such new Warrant shall
constitute an additional contractual obligation of the Company, whether or not
the Warrant so lost, stolen, destroyed or mutilated shall be at any time
enforceable by anyone.
1.8 COVENANTS OF THE COMPANY. The Company covenants and agrees that
at all times while the Warrant is outstanding as follows:
(a) The Company shall reserve and keep available for the
exercise of this Warrant such number of authorized Shares as are sufficient to
permit the exercise in full of this Warrant.
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(b) Prior to the issuance of any Shares upon exercise of this
Warrant, the Company shall secure the listing of such Shares upon any securities
exchange or automated quotation system upon which the shares of the Company's
Common Stock are listed for trading.
(c) The Company covenants that all Shares when issued upon the
exercise of this Warrant will be validly issued, fully paid, non-assessable and
free of preemptive rights.
2. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES PURCHASABLE UPON
EXERCISE.
2.1 ISSUANCE OF ADDITIONAL SHARES.
(a) If at any time or from time to time after the date of
issuance of this Warrant, the Company issues or sells, or is deemed by the
express provisions of this subsection 2.1 to have issued or sold, Additional
Shares of Common Stock (as hereinafter defined), for an Effective Price (as
hereinafter defined) less than the Purchase Price (or, if an adjusted Purchase
Price shall be in effect by reason of a previous adjustment, then less than such
adjusted Purchase Price), then and in each such case the then existing Purchase
Price shall be reduced, as of the opening of business on the date of such issue
or sale, to a price determined by multiplying that Purchase Price by a fraction
(i) the numerator of which shall be (A) the number of shares of Common Stock
outstanding at the close of business on the day next preceding the date of such
issue or sale plus (B) the number of shares of Common Stock which the aggregate
consideration received (or by express provision hereof deemed to have been
received) by the Company for the total number of Additional Shares of Common
Stock so issued would purchase at such Purchase Price and (ii) the denominator
of which shall be the number of shares of Common Stock outstanding at the close
of business on the date of such issue after giving effect to such issue of
Additional Shares of Common Stock.
(b) For the purpose of making any adjustment required under this
Subsection 2.1 the consideration received by the Company for any issue or sale
of securities shall (i) to the extent it consists of cash be computed at the net
amount of cash received by the Company after deduction of any expenses payable
by the Company and any underwriting or similar commissions, compensation or
concessions paid or allowed by the Company in connection with such issue or
sale, (ii) to the extent it consists of property other than cash, be computed at
the fair value of that property as determined in good faith by the Board of
Directors and (iii) if Additional Shares of Common Stock, Convertible Securities
(as hereinafter defined) or rights or options to purchase either Additional
Shares of Common Stock or Convertible Securities or are issued or sold together
with other stock or securities or other assets of the Company for a
consideration which covers both, be computed as the portion of the consideration
so received that may be reasonably determined in good faith by the Board of
Directors to be allocable to such Additional Shares of Common Stock, Convertible
Securities or rights or options.
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(c) For the purpose of the adjustment required under this
Subsection 2.1, if at any time or from time to time after the date of this
Warrant the Company issues or sells any rights or options for the purchase of,
or stock or other securities convertible into, Additional Shares of Common Stock
(such convertible stock or securities being hereinafter referred to as
"Convertible Securities"), then in each case the Company shall be deemed to have
issued at the time of the issuance of such rights or options or Convertible
Securities the maximum number of Additional Shares of Common Stock issuable upon
exercise or conversion thereof and to have received as consideration for the
issuance of such shares an amount equal to the total amount of the
consideration, if any, received by the Company for the issuance of such rights
or options or Convertible Securities plus, in the case of such options or
rights, the minimum amounts of consideration, if any, payable to the Company
upon the exercise of such options or rights and, in the case of Convertible
Securities, the minimum amounts of consideration, if any, payable to the Company
(other than by cancellation of liabilities or obligations evidenced by such
Convertible Securities). No further adjustment of the Purchase Price, adjusted
upon the issuance of such rights, options or Convertible Securities, shall be
made as a result of the actual issuance of Additional Shares of Common Stock on
the exercise of any such rights or options or the conversion of any such
Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire without
having been exercised, the Purchase Price adjusted upon the issuance of such
options, rights or Convertible Securities shall be readjusted to the Purchase
Price which would have been in effect had an adjustment been made on the basis
that the only Additional Shares of Common Stock so issued were the Additional
Shares of Common Stock, if any, actually issued or sold on the exercise of such
rights or options or rights of conversion of such Convertible Securities, and
such Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for the granting of all
such rights or options, whether or not exercised, plus the consideration
received for issuing or selling the Convertible Securities actually converted
plus the consideration, if any, actually received by the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion of such Convertible Securities.
(d) For the purpose of the adjustment required under this
Subsection 2.1, if at any time or from time to time after the date of this
Warrant the Company issues or sells any rights or options for the purchase of
Convertible Securities, then in each such case the Company shall be deemed to
have issued at the time of the issuance of such rights or options the maximum
number of Additional Shares of Common Stock issuable upon conversion of the
total amount of Convertible Securities covered by such rights or options and to
have received as consideration for the issuance of such Additional Shares of
Common Stock an amount equal to the amount of consideration, if any, received by
the Company for the issuance of such rights or options, plus the minimum amounts
of consideration, if any, payable to the Company upon the exercise of such
rights or options and plus the minimum amount of consideration, if any, payable
to the Company (other than by cancellation of liabilities or obligations
evidenced by such Convertible Securities) upon the conversion of such
Convertible Securities. No further adjustment of the Purchase Price, adjusted
upon the issuance of such rights or options, shall be made as a result of the
actual
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issuance of the Convertible Securities upon the exercise of such rights or
options or upon the actual issuance of Additional Shares of Common Stock upon
the conversion of such Convertible Securities. The provisions of paragraph (c)
above for the readjustment of the Purchase Price upon the expiration of rights
or options or the rights of conversion of Convertible Securities shall apply
MUTATIS MUTANDIS to the rights, options and Convertible Securities referred to
in this paragraph (d).
(e) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the date of this Warrant, whether or
not subsequently reacquired or retired by the Company, other than shares of
Common Stock issued to employees, directors, consultants or other individuals
holding options or rights of the Company or any Subsidiary to acquire such
Common Stock upon the exercise of such stock options or rights under stock
purchase or stock option plans or other arrangements that have been approved by
the Board of Directors of the Company and are in existence as of April __, 1995
(including any such options or rights granted subsequent to such date if granted
pursuant to and within the maximum limits of such a plan or an arrangement in
existence as of said date). The "Effective Price" of Additional Shares of
Common Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold by the Company under this Subsection 2.1, into the aggregate
consideration received or deemed to have been received by the Company for such
issue under this Subsection 2.1.
2.2 STOCK SPLITS. If the Company at any time or from time to time
after the issuance date of this Warrant effects a subdivision of the outstanding
Common Stock, the Purchase Price then in effect immediately before that
subdivision shall be proportionately decreased, and conversely, if the Company
at any time or from time to time after the issuance date of this Warrant
combines the outstanding shares of Common Stock, the Purchase Price then in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this Subsection 2.2 shall become effective at the close of
business on the date the subdivision or combination becomes effective.
2.3 DIVIDENDS AND DISTRIBUTIONS. In the event the Company at any
time, or from time to time after the issuance date of this Warrant makes, or
fixes a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Purchase Price then in effect shall be
decreased as of the time of such issuance or, in the event such a record date is
fixed, as of the close of business on such record date, by multiplying the
Purchase Price then in effect by a fraction (i) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution; PROVIDED, however,
that if such record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Purchase Price
shall be recomputed accordingly as of the close of business on such record date
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and thereafter the Purchase Price shall be adjusted pursuant to this Subsection
2.3 as of the time of actual payment of such dividends or distributions.
2.4 RECAPITALIZATION OR RECLASSIFICATION. If the Common Stock
issuable upon the exercise of the Warrant is changed into the same or a
different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets, provided for elsewhere in this Section 2, then
and in any such event each holder of Warrants shall have the right thereafter to
exercise such Warrant as to the kind and amount of stock and/or other securities
and property receivable upon such reclassification or other change, by the
holder of the number of shares of Common Stock as to which such Warrant might
have been exercised immediately prior to such reclassification or exchange, all
subject to further adjustment as provided herein.
2.5 SALE OF THE COMPANY. If at any time or from time to time there
is a capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 2 or a merger or consolidation of the Company with or
into another Company, or the sale of all or substantially all of the Company's
properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of the Warrants shall thereafter be entitled to receive upon
exercise of the Warrants, the number of shares of stock or other securities or
property of the Company, or of the successor Company resulting from such merger
or consolidation or sale, to which a holder of Common Stock deliverable upon
exercise would have been entitled on such capital reorganization, merger,
consolidation, or sale. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section 2 with respect to the
rights - of the holders of the Warrants after the reorganization, merger,
consolidation or sale to the end that the provisions of this Section 2
(including adjustment of the Purchase Price then in effect and number of shares
purchasable upon exercise of the Warrants) shall be applicable after that event
and be as nearly equivalent to the provisions hereof as may be practicable.
2.6 OBSERVANCE OF DUTIES. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company but will at all
times in good faith assist in the carrying out of all the provisions of this
subsection 2.6 and in the taking of all such action as may be necessary or
appropriate in order to protect the Exercise Rights of the holders of the
Warrants against dilution or other impairment.
3. REGISTRATION UNDER THE SECURITIES ACT OF 1933
3.1 NO CURRENT REGISTRATION. Neither this Warrant nor the Shares
issuable upon its execution have been registered under the Securities Act of
1933, as amended (the "Act").
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3.2 LEGENDS. Upon exercise, in part or in whole, of this Warrant,
the Shares shall bear the following legend:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD
OR TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER SUCH ACT OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED.
The Company agrees that it shall be satisfied that no new registration is
required for the public sale of the Shares if it shall be presented with a
letter from the Staff of the Securities and Exchange Commission (the
"Commission") stating in effect that, based upon stated facts which the Company
shall have no reason to believe are not true in any material respect, the Staff
will not recommend any action to the Commission if such Shares are offered and
sold without delivery of a prospectus, and that, therefore, no post-effective
amendment to the Registration Statement under which such shares are to be
registered or new registration statement is required to be filed.
3.3 DEMAND REGISTRATION. The Company has agreed, upon the
Underwriter's demand, to register the Shares underlying the Warrants, to file
all necessary post-effective amendments to the Registration Statement or a new
Registration Statement, if then required, and to file all necessary undertakings
with the Securities and Exchange Commission so as to permit the Underwriter, or
any assignee of the Underwriter, the right to sell publicly the Shares issued on
exercise of the Warrants on only one occasion at any time within three (3) years
from the date hereof.
3.4 PIGGYBACK REGISTRATION. In the event that the Underwriter does
not exercise its right to demand that the Shares underlying the Warrants be
registered, the Company agrees to include any Shares issuable upon exercise of
the Warrants in any Registration Statement filed by the Company at any time
within seven (7) years from the date hereof. The Company shall cause any such
registration to be performed on a form of Registration Statement that will
permit the Holder to register the shares underlying the Warrant and effect a
cashless exercise.
3.5 In connection with any registration under Subsection 3.3 or 3.4
hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to have any
post-effective amendment or new registration statement declared effective at the
earliest possible time, and shall furnish such number of prospectuses as shall
be reasonably requested.
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(b) The Company shall pay all costs, fees, and expenses in
connection with all post-effective amendments or new registration statements
under Subsection 3.3 and Subsection 3.4 hereof including, without limitation,
the Company's legal and accounting fees, printing expenses, blue sky fees and
expenses, except that the Company shall not pay for any of the following costs
and expenses: (i) underwriting discounts and commissions allocable to the
Shares, (ii) state transfer taxes, (iii) brokerage commissions, (iv) fees and
expenses of counsel and accountants for the holders of the Warrants and/or
Shares.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Shares included in any Registration
Statement or post-effective amendment or new registration statement for offering
and sale under the securities or blue sky laws of such states as are requested
by the holders of such Shares, provided that the Company shall not be obligated
to execute or file any general consent to service or process or to qualify as a
foreign Company to do business under the laws of any such jurisdiction.
(d) The Holder shall be entitled to pay the Purchase Price for
the Shares purchasable upon the exercise of this Warrant out of the proceeds of
any sale of the Shares purchasable upon its exercise.
3.6 INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless each person
registering securities pursuant to this Section 3 (the "Seller") and each
underwriter, within the meaning of the Act, who may purchase from or sell for
any Seller any of the Warrants or Shares from and against any and all losses,
claims, damages, and liabilities caused by any untrue statement or alleged
untrue statement of a material fact contained in any post-effective amendment
or new registration statement or any supplemented prospectus under the Act
included therein required to be filed or furnished by reason of this Section 3
or caused by any omission or alleged omission to state therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or alleged untrue statement or
omission or alleged omission based upon information furnished or required to be
furnished in writing to the Company by such Seller or underwriter within the
meaning of such Act; provided, however, that the indemnity agreement set forth
in this Subsection 3.6 with respect to any prospectus which shall be
subsequently amended prior to the written confirmation of sale of any Shares
shall not inure to the benefit of any Seller or underwriter from whom the person
asserting any such losses, claims, damages or liabilities purchased such Shares
which are the subject thereof (or to the benefit of any person controlling such
Seller or underwriter), if such Seller or underwriter failed to send or give a
copy of the prospectus as amended to such person at or prior to the written
confirmation of the sale of such Shares and if such amended prospectus did not
contain any untrue statement or alleged untrue statement or omission or alleged
omission giving rise to such cause, claim, damage, or liability.
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(b) Each Seller which avails itself of the procedures under this
Section 3 shall indemnify and secure the agreement of any underwriter which the
Seller employs to indemnify the Company, its directors, each officer signing the
related post-effective amendment or registration statement and each person, if
any, who controls the Company, within the meaning of the Act from and against
any losses, claims, damages, and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any post-effective
amendment or registration statement or any prospectus required to be filed or
furnished by reason of this Section 3 or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, insofar as such losses,
claims, damages, or liabilities are caused by any untrue statement or alleged
untrue statement or omission or alleged omission based upon information
furnished in writing to the Company by any such Seller or underwriter expressly
for use therein.
3.7 SURVIVAL. The agreements in this Section 3 shall continue in
effect regardless of the exercise and surrender of this Warrant.
4. OTHER MATTERS.
4.1 PAYMENT OF TAXES. The Company will from time to time promptly
pay, subject to the provisions of paragraph (d) of Subsection 1.2 hereof, all
taxes and charges that may be imposed upon the Company in respect of the
issuance or delivery of this Warrant or the Shares purchasable upon the exercise
of this Warrant.
4.2 PARTIES BOUND AND BENEFITTED. All of the covenants and
provisions of this Warrant by or for the benefit of the Company shall bind and
inure to the benefit of its successors and assigns hereunder.
4.3 NOTICES. Notices or demands pursuant to this Warrant to be given
or made by the Holder to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by the
Company, as follows:
Monterey Pasta Company
353 Sacramento St.
San Francisco, California 94111
Notices to the Holder provided for in this Warrant shall be deemed given or made
by the Company if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Company.
4.4 CHOICE OF LAW. The validity, interpretation and performance of
this Warrant shall be governed by the laws of the State of California.
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4.5 NO THIRD PARTY BENEFICIARIES. Nothing in this Warrant expressed
and nothing that may be implied from any of the provisions hereof is intended,
or shall be construed, to confer upon, or give to, any person or Company other
than the Company and the Holder any right, remedy or claim under promise or
agreement hereof, and all covenants, conditions, stipulations, promises and
agreements contained in this Warrant shall be for the sole and exclusive benefit
of the Company and its successors and of the Holder, its successors and, if
permitted, its assignees.
4.6 HEADINGS. The Article headings herein are for convenience only
and are not part of this Warrant and shall not affect the interpretation
thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company
under its corporate seal as of the 1st day of July 1996.
MONTEREY PASTA COMPANY
By:
-----------------------------------------------
Norman E. Dean, President
[Corporate Seal]
Attest:
- ------------------------------
Carolyn Mar, Secretary
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MONTEREY PASTA COMPANY
Assignment
FOR VALUE RECEIVED, ________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and the rights represented thereby, and
does hereby irrevocably constitute and appoint __________________, Attorney to
transfer said Warrant on the books of the Company, with full power of
substitution.
Dated:
---------------------
Signed:
-------------------------------------
Signature guaranteed
- ----------------------------
AGREED AND CONSENTED TO:
MONTEREY PASTA COMPANY
By:
--------------------------
Title:
------------------------
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Subscription Form
MONTEREY PASTA COMPANY
353 Sacramento St.
San Francisco, California 94111
The undersigned hereby irrevocably subscribes for the purchase of shares of
your Common Stock pursuant to and in accordance with the terms and conditions of
this Warrant, and herewith makes payment, covering such shares of Common Stock
which should be delivered to the undersigned at the address stated below, and,
if said number of shares shall not be all of the shares purchasable hereunder,
that a new Warrant of like tenor for the balance of the remaining shares
purchasable hereunder be delivered to the undersigned at the address stated
below.
The undersigned agrees that: (1) the undersigned will not offer, sell,
transfer or otherwise dispose of any such shares of Common Stock unless either
(a) a registration statement, or post-effective amendment thereto, covering such
shares of Common Stock has been filed with the Securities and Exchange
Commission pursuant to the Securities Act if 1933, as amended (the "Act"), and
such sale, transfer or other disposition is accompanied by a prospectus meeting
the requirements of Section 10 of the act forming a part of such registration
statement, or post-effective amendment thereto, which is in effect under the Act
covering the shares of Common Stock to be so sold, transferred or otherwise
disposed of, or (b) counsel to MONTEREY PASTA COMPANY satisfactory to the
undersigned has rendered an opinion in writing and addressed to MONTEREY PASTA
COMPANY that such proposed offer, sale, transfer or other disposition of the
shares of Common Stock is exempt from the provisions of Section 5 of the Act in
view of the circumstances of such proposed offer, sale, transfer or other
disposition; (2) MONTEREY PASTA COMPANY may notify the transfer agent for its
Common Stock that the certificates for the Common Stock acquired by the
undersigned are not to be transferred unless the transfer agent receives advice
from MONTEREY PASTA COMPANY that one or both of the conditions referred to in
(1)(a) and (1)(b) above have been satisfied; and (3) MONTEREY PASTA COMPANY may
affix the legend set forth in Section 3.1 of this Warrant to the certificates
for shares of Common Stock hereby subscribed for, if such legend is applicable.
Dated: Signed:
---------------------- -------------------------------
Signature guaranteed: Address:
------------------------------
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EXHIBIT 5.1
August 23, 1996
Monterey Pasta Company
353 Sacramento Street, Suite 500
San Francisco, California 94111
Ladies and Gentlemen:
You have requested our opinion as counsel for Monterey Pasta Company, a
Delaware corporation (the "Company"), in connection with the registration under
the Securities Act of 1933, as amended (the "Securities Act"), and the Rules and
Regulations promulgated thereunder, of an aggregate of 2,622,073 shares (the
"Shares") of the Company's common stock, par value $.001 per share (the "Common
Stock"), presently outstanding, pursuant to a Registration Statement on Form S-3
(the "Registration Statement").
This opinion is rendered pursuant to Item 601(b)(5)(i) of Registration S-K
promulgated under the Securities Act.
For purposes of this opinion, we have examined the Registration Statement
filed with the Commission on the date hereof, including the prospectus which is
a part thereof (the "Prospectus") and the exhibits thereto. We have also been
furnished with and have examined originals or copies, certified or otherwise
identified to our satisfaction, of all such records of the Company, agreements
and other instruments, certificates of officers and representatives of the
Company, certificates of public officials and other documents as we have deemed
it necessary to require as a basis for the opinions hereafter expressed. As to
questions of fact material to such opinions, we have, where relevant facts were
not independently established, relied upon certifications by principal officers
of the Company. We have made such further legal and factual examination and
investigation as we deem necessary for purposes of rendering the following
opinions.
In our examination we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the correctness of facts set forth in
certificates, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies, and the authenticity of the originals of such
copies. We have also assumed that such documents have each been duly
authorized, properly executed and delivered by each of the parties thereto other
than the Company.
We are members of the bar of the State of California. Our opinions below
are limited to the laws of the State of California, the General Corporation Law
of the State of Delaware and the federal securities laws of the United States.
Based on the foregoing, it is our opinion that all of the Shares, when sold
and delivered in the manner described in the Prospectus will be legally and
validly issued, fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and consent to the use of our name under the caption "Legal Matters"
in the Prospectus.
Very truly yours,
/s/ GRAHAM & JAMES LLP
GRAHAM & JAMES LLP
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Monterey Pasta Company on Form S-3 of our report dated March 29, 1996, appearing
in the Annual Report on Form 10-K of Monterey Pasta Company for the year ended
December 31, 1995, as amended by Form 10-K/A, and to the reference to us under
the heading "Experts" in the Prospectus, which is part of this Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
August 23, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form S-3 registration statement of our report dated March
6, 1995 included in Monterey Pasta Company's Form 10-K for the year ended
December 31, 1995, as amended by Form 10-K/A, and to all references to our
firm included in this registration statement. It should be noted that we have
performed no audit procedures subsequent to March 6, 1995, the date of our
report. Furthermore, we have not audited any financial statements of Monterey
Pasta Company as of any date or for any period subsequent to January 1, 1995.
Oakland, California /s/ Arthur Andersen LLP
August 23, 1996 ARTHUR ANDERSEN LLP
