<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ______________
Commission file number 0-22534-LA
MONTEREY PASTA COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 77-0227341
(State of incorporation) (IRS employer identification number)
1528 Moffett Street
Salinas, California 93905
(408) 753-6262
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par
value
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ _____ ]
The approximate aggregate market value of the voting stock held by
non-affiliates of the issuer as of April 25, 1997 was $19,600,000. The number
of shares outstanding of the issuer's common stock as of April 25, 1997, was
10,474,908.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the directors and executive officers of the Company
is set forth in Part I of this Report under the caption "Management."
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than 10% of a registered class of the Company's equity securities, to
file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than 10% beneficial owners are required by
SEC regulations to furnish the Company with copies of all reports they file
under Section 16(a). To the Company's knowledge, based solely on its review
of the copies of such reports furnished to the Company and written
representations that no other reports were required, all Section 16(a) filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with during the fiscal year ended December
29, 1996, except that for Messrs. Chris Gilliam, a former Director, Marshall
Stevens, a former President, and Ken Steel, the current Chief Executive
Officer, initial reports on Form 3 following their appointments were filed
late. In addition, certain reports on Form 4 for John Abrams, a former
Officer and Director, were filed late.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Securities
Name and Underlying All
Principal Position Year Salary $ Bonus $ Other $ Options (#) Other $
- ------------------ ---- --------- -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
KENNETH A. STEEL, JR. 1996 $ - (1) $ - $ - $ - (1) $ -
Interim Chief 1995 N/A N/A N/A N/A N/A
Executive Officer 1994 N/A N/A N/A N/A N/A
NORMAN E . DEAN 1996 $ 167,599 (2) $ - $ 4,850 (3) $ - $ -
Former President and 1995 $ 57,692 (2) $ - $ 1,200 (3) $610,000 (4) $ -
Chief Executive 1994 N/A N/A N/A $ 10,000 (4) N/A
Officer
ANTHONY W. GIANNINI 1996 $ 85,064 $ - $ 4,150 (5) $ 60,000 (6) $ 31,125 (7)
Former Senior Vice 1995 $ 107,520 $ 36,950 $ 6,600 (5) $ 55,000 (6) $ -
President of Sales 1994 $ 101,124 $ 15,676 $ - $ - $ -
</TABLE>
Notes:
(1) Mr. Steel was appointed Chief Executive Officer on October 5, 1996. He
receives no salary compensation, but was granted rights to purchase 550,000
shares of Common stock on March 20, 1997 with a full recourse
2
<PAGE>
promissory note for the full amount at a per share price of $1.875, subject
to time served and performance restrictions.
(2) Mr. Dean resigned as Chief Executive Officer and President of the Company
on October 4, 1996. He was appointed to those positions effective October 2,
1995, upon the resignation of Mr. Mortensen.
(3) Mr. Dean received an auto allowance of $400 per month through April 1996
and $650 per month thereafter.
(4) As a Director, Mr. Dean received stock options totaling 10,000 on March 3,
1994 and 10,000 on January 6, 1995. Fifteen thousand of these shares are
exercisable as of December 29, 1996; the balance expired unvested upon his
resignation. Mr. Dean also received options, as an employee, on 600,000
shares on September 7, 1995, outside the 1993 Stock Option Plan, vesting on
various performance targets, all of which expired unvested upon his resignation.
(5) Mr. Giannini received an auto allowance of $550 per month through May 1996
and $650 per month thereafter.
(6) Mr. Giannini received stock options on 55,000 shares of common stock
which expired unvested upon his termination; however, he received an option for
60,000 shares of common stock on December 19, 1996 in connection with a
separation agreement.
(7) Subsequent to his termination in July 1996, Mr. Giannini was a consultant
to the Company until March 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth for the fiscal year ended December 29, 1996,
the options granted to the executive officers named below. During the fiscal
year ended December 29, 1996, there were no exercises of stock options by the
executive officers named in the table below.
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------
Number of % of Total Potential Realizable
Securities Options Value on 12/29/96
Underlying Granted to Exercise ------------------------------
Options Employees or Base Expiration Alternative Grant
Name Granted (2) in 1996 Price Date Date Value (1)
- --------------------- ------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
K.A.Steel, Jr. 0 0 0 0 0
N.E.Dean 0 0 0 0 0
A.W. Giannini 60,000 11.9% $1.875 12/18/2007 $60,796
</TABLE>
(1) The alternative grant date values are based on the modified Black-Scholes
option pricing model, assuming no dividend yield, expected volatility of
approximately 54%, risk free rate of return of 6%, and expected time of
exercise generally at half of the original contractual life. Actual values
realized on stock options are dependent on actual future performance of the
Company's stock, among other factors. Accordingly, the amounts may not
necessarily be realized.
(2) The 1993 Stock Option Plan provides that upon, among other things, the
dissolution, liquidation, reorganization, merger or consolidation of the Company
or the sale of all or substantially all of the assets of the Company, or
transfer of control (as such term is defined under Section 7.1 of the Plan), all
outstanding options under the 1993 Stock Option Plan shall become immediately
exercisable as of the date
3
<PAGE>
30 days prior to the date of transfer of control if such options would otherwise
terminate upon consummation of the transaction or if the surviving or successor
corporation as the case may be, does not assume the Company's obligations under
the 1993 Stock Option Plan or substitute for such outstanding options.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying In-The-Money
Unexercised Options at Options at
December 29, 1996 December 29, 1996
--------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
K.A. Steel, Jr. 0 0 0 0
N.E. Dean 10,000 0 0 0
5,000 0 0 0
A.W. Giannini 60,000 0 $ 3,750 0
</TABLE>
EMPLOYMENT CONTRACTS
James B. Serbin, Chief Financial Officer, has a 13-26 week employment
contract with the Company expiring September 26, 1997. Permanent placement
will be considered by both parties at that time.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 24, 1997 (except as noted in
the footnotes to the table), certain information with respect to the beneficial
ownership of the Company's Common Stock by (i) all persons known by the Company
to be the beneficial owners of more than 5% of the outstanding Common Stock of
the Company, (ii) each director and director-nominee of the Company, (iii) the
Chief Executive Officer as of April 24, 1997, and (iv) all executive officers
and directors of the Company for fiscal year 1996 through April 24, 1997,
as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP (2) PERCENT OF CLASS (2)
- --------------------------------------- ------------------------ --------------------
<S> <C> <C>
Wellington Management Company, LLP (3) 722,000 4.84%
75 State Street
Boston, MA 02109
Wellington Trust Company, N.A. (4) 361,000 2.42%
7575 State Street
Boston, MA 02109
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP (2) PERCENT OF CLASS (2)
- --------------------------------------- ------------------------ --------------------
<S> <C> <C>
GFL Performance Fund Limited (5) 2,000,000 13.40%
C/O Genesee Advisers
12007 Sunrise Valley Drive, Suite 460
Reston, VA 22091
Kenneth A. Steel, Jr. (6) 735,000 4.93%
Robert F. Steel (7) 200,000 1.34%
Daniel J. Gallery (8) 73,000 .49%
Timothy J. Ryan (9) 54,000 .36%
Van Tunstall 25,000 .17%
Floyd R. Hill (10) 210,000 1.41%
James Wong -- --
Charles B. Bonner (11) 28,727 .19%
All Officers and Directors as a group 1,330,727 8.92%
(9 persons)
</TABLE>
(1) Unless otherwise noted, the address of each named person is: Care of
Monterey Pasta Company, 1528 Moffett Street, Salinas, CA 93905
(2) Includes shares of Monterey Pasta Company Common Stock underlying the
options and convertible securities outstanding held by the beneficial owners
with respect to whom the calculation is made, but does not include shares of
Common Stock that may not be acquired until more than 60 days after April 25,
1997.
(3) According to a Schedule 13D filed with the Securities and Exchange
Commission on January 24, 1997, Wellington Management Company, LLP, in its
capacity as investment adviser, may be deemed to be the beneficial owner of all
722,000 shares owned by its investment counseling clients. Wellington
Management Company, LLP, has shared dispositive power over all 772,000 shares.
(4) According to a Schedule 13D filed with the Securities and Exchange
Commission on January 24, 1997, Wellington Trust Company, N.A., in its
capacity as an investment adviser, may be deemed to be the beneficial owner of
all 361,000 shares owned by its investment counseling clients. Wellington
Management Company, LLP, has shared dispositive voting power over all 361,000
shares.
(5) Includes 2,000,000 shares related to convertible preferred stock (based on
share price at April 24, 1997).
5
<PAGE>
(6) Includes 550,000 restricted shares to be purchased with a full recourse
note under rights granted on March 20, 1997.
(7) Includes 50,000 exercisable options granted under the 1993 Stock Option
Plan.
(8) Includes 60,000 exercisable options granted under the 1993 Stock Option
Plan.
(9) Includes 54,000 exercisable options granted under the 1993 Stock
Option Plan.
(10) Includes 10,000 exercisable options granted under the 1993 Stock
Option Plan.
(11) Includes 5,000 exercisable options granted under the 1993 Stock Option
Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leased office space from a partnership in which Mr. Lance
Mortensen is a limited partner. Mr. Mortensen is a Shareholder, former
Director, former President and former Chairman of the Board of the Company.
Rent expense under this lease in 1996 was $150,108. The Company vacated this
space in February 1996, and paid $65,000 plus 5,323 shares of its common
stock in settlement of the lease obligation.
In April 1996, the Company's restaurant subsidiary Upscale Food Outlets,
Inc. (UFO), was sold to Upscale Acquisitions, Inc. (Upscale), which is
wholly-owned by Mr. Lance Mortensen. The purchase price for the shares of UFO
sold to Upscale was $1,000 cash plus a note executed by Upscale for
$2,500,000. In addition, under the agreement, the Company advanced $350,000
to UFO subsequent to the purchase. The purchase note is accounted for under
the cost recovery method which defers recognition of income (or reduction of
loss) until payments are received. The cash advances are not accounted for
under the cost recovery method, but have been fully reserved as possibly
uncollectible. During 1996, the Company sold $62,350 in food products to UFO.
Of this amount, $18,738 is uncollected and is fully reserved at December 29,
1996.
During 1996, the Company purchased certain office furniture and equipment
under a prior agreement from the Shareholder referred to above for $100,000.
Certain of the furniture purchased was reduced to its estimated fair value at
the end of 1996, resulting in a writedown of $55,000.
6
<PAGE>
Mr. Kenneth A. Steel, Jr., the Company's Chief Executive Officer, who is
also a Director and Shareholder, is a director and shareholder of an entity from
whom the Company contracted certain co-packing service and obtained raw
materials. Mr. Floyd R. Hill, who is another director, shareholder and chief
executive officer of the related entity, is also a Co-founder, Director and
Shareholder of the Company. Payments to the related entity were $186,513 during
1996. These arrangements are continuing in 1997.
On March 20, 1997, Mr. Steel, was granted rights to purchase 550,000 shares
of Common Stock with a full recourse promissory note for the full amount at a
per share price of $1.875 per share, subject to time served and performance
restrictions.
During 1996, the Company made payments of $137,252 in connection with
purchases of carts and kiosks from another entity. A $222,000 loss was
recorded in the third quarter of 1996, reducing the related assets (including
prior purchases, upgrades and additions purchased from other vendors) to
their estimated fair values. Mr. Daniel Gallery, co-founder, director and
executive vice president of this entity is a Director of the Company.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the of San Francisco, State
of California, on the 28th day of April, 1997.
MONTEREY PASTA COMPANY
By: \s\ KENNETH A. STEEL, Jr.
------------------------------
Kenneth A. Steel Jr.
Chief Executive Officer
By: \s\ JAMES S. SERBIN
-----------------------
James S. Serbin
Chief Financial Officer
As of April 28, 1997, no Proxy statements or Annual reports have yet been
furnished to securityholders. The Company anticipates furnishing its Annual
Report to securityholders by the end of May, 1997, and will provide copies of
such report to the Commission at that time.
8
<PAGE>
INDEX TO EXHIBITS
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 5 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 to this Form 10-K)
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 to this Form 10-K)
3.4 Bylaws of the Company (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)
3.5 Certificate of Designations of Series A-1 Convertible Preferred Stock
3.6 Certificate of Designations of Series B-1 Convertible Preferred Stock
4.1 Subscription Agreement, dated as of July 31, 1996 (incorporated by
reference from Exhibits with corresponding numbers filed with the
Company's Registration Statement on Form S-3 on August 23, 1996)
4.2 Registration Rights Agreement, dated as of July 31, 1996
(incorporated by reference from Exhibits with corresponding numbers
filed with the Company's Registration Statement on Form S-3 on August
23, 1996)
4.3 Subscription Agreement, dated as of August 9, 1996 (incorporated by
reference from Exhibits with corresponding numbers filed with the
Company's Registration Statement on Form S-3 on August 23, 1996)
4.4 Registration Rights Agreement, dated as of August 9, 1996
(incorporated by reference from Exhibits with corresponding numbers
filed with the Company's Registration Statement on Form S-3 on August
23, 1996)
4.5 Form of Warrant for purchase of the Company's Common Stock, dated as
of July 1, 1996 (incorporated by reference from Exhibits with
corresponding numbers filed with the Company's Registration Statement
on Form S-3 on August 23, 1996)
4.6 Form of Registration Rights Agreement dated April 1996, among the
Company, Spelman & Co., Inc. and investor (incorporated by
reference from Exhibits with corresponding numbers filed with the
Company's Quarterly Report on Form 10-Q on June 21, 1996).
4.7 Shareholder Rights Agreement dated as of May 15, 1996 between the
Company and Corporate Stock Transfer, as rights agent (incorporated
by reference from Item 2 of Form 8-A filed with the Securities and
Exchange Commission on May 28, 1996)
4.8 Form of Subscription Agreement dated April 1996, among the Company,
Spelman & Co., Inc. and investor
4.9 Amendment to Registration Rights Agreement dated as of April 20, 1997
among the Company, Spelman & Co., Inc. and investor,
amending the Registration Rights Agreement entered into as of April
1996
9
<PAGE>
4.10 Series A Convertible Preferred Stock Exchange Agreement dated as of
March 10, 1997 by and between the Company and GFL Performance
Fund Limited
4.11 Series B Convertible Preferred Stock Exchange Agreement dated as of
April 2, 1997 by and between the Company and Pangaea Fund Limited
4.12 Registration Rights Agreement dated as of December 31, 1996 among the
Company, Sentra Securities Corporation and investor
10.1(*) Second Amended and Restated 1993 Stock Option Plan (as amended on
August 1, 1996) (incorporated by reference to the Company's Annual
Report on Form 10-K filed April 14, 1997)
10.2(*) 1995 Employee Stock Purchase Plan (incorporated by reference from
Exhibit 10.15 to the Company's 1994 Form 10-K)
10.3 Blackhawk Plaza Lease of the Company (incorporated by reference from
Exhibit 10.02 to the Company's Registration Statement No. 33-69590-LA
on Form SB-2 (the "SB-2")
10.4 353 Sacramento Street Office Lease dated as of December 27, 1995 with
John Hancock Mutual Life Insurance Company, together with letter
agreement dated March 20, 1996 regarding basement storage
(incorporated by reference to the Company's Annual Report on Form 10-K
filed April 1, 1996 (the "1995 Form 10-K")
10.5 Monterey County Production Facility Lease of the Company, as amended
(incorporated by reference from Exhibit 10.03 to the SB-2)
10.6 Amendment No. 1 dated February 1, 1995 and Amendment No. 2 dated March
1, 1995 to Monterey County Production Facility Lease of the Company
(incorporated by reference from Exhibits with corresponding numbers
filed with the 1995 Form 10-K)
10.7 Christie Avenue Warehouse Lease of the Company (incorporated by
reference from Exhibit 10.04 to the SB-2)
10.8 Loan and Security Agreement dated December 8, 1995 with Coast Business
Credit, a Division of Southern Pacific Thrift and Loan Association,
and Schedule thereto (incorporated by reference from Exhibits with
corresponding numbers filed with the 1995 Form 10-K)
10.9 Equipment Collateral Security Agreement dated December 8, 1995 with
Coast Business Credit (incorporated by reference from Exhibits with
corresponding numbers filed with the 1995 Form 10-K)
10.10 Secured Promissory Note dated December 8, 1995 in the original
principal amount of $500,000 in favor of Coast Business Credit
(incorporated by reference from Exhibits with corresponding numbers
filed with the 1995 Form 10-K)
10.11 Secured Promissory Note dated December 8, 1995 in the original
principal amount of $750,000 in favor of Coast Business Credit
(incorporated by reference from Exhibits with corresponding numbers
filed with the 1995 Form 10-K)
10.12 Investment Agreement dated July 12, 1995 with The Seychelles Fund,
Ltd. (incorporated by reference from Exhibits with corresponding
numbers filed with the 1995 Form 10-K)
10.13 Master Lease dated August 1, 1995 with Sentry Financial Corporation
(incorporated by reference from Exhibits with corresponding numbers
filed with the 1995 Form 10-K)
10.14 Letter Agreement dated July 26, 1995 between Monterey Pasta
Development Company and California Pasta Company (incorporated by
reference from Exhibit 10.21 to the Company's Quarterly Report on Form
10-Q for the quarter ended October 2, 1995 ("Q3 10-Q"))
10.15 Asset Purchase Agreement dated July 26, 1995 between Upscale Food
Outlets, Inc. and California Pasta Company (incorporated by
reference from Exhibit 10.22 to the Company's Q3 10-Q)
10
<PAGE>
10.16 Franchise Termination Agreement and Release dated March 8, 1996 among
the Company, Upscale Food Outlets, Inc., Monterey Pasta
Development Company, The Lance H. Mortensen Unitrust dated December 3,
1994, and LBJ Restaurants, LLC (incorporated by reference from
Exhibits with corresponding numbers filed with the 1995 Form 10-K)
10.17 Acquisition Agreement between the Company and Upscale Food Outlets,
Inc. (incorporated by reference from Exhibit 10.05 to the
SB-2)
10.18* Employment Agreement with Lance H. Mortensen (incorporated by
reference from Exhibit 10.06 to the SB-2)
10.19* Employment Agreement dated September 5, 1995 with Mr. Norman E. Dean
(incorporated by reference from Exhibit 10.20 to the Company's Q3
10-Q)
10.20* Consulting Agreement dated May 25, 1995 with Daniel J. Gallery
(incorporated by reference from Exhibit 10.18 to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 2, 1995 ("Q2
10-Q"))
10.21* Employment Agreement dated June 30, 1993 with Anthony W. Giannini
(incorporated by reference from Exhibits with corresponding numbers
filed with the 1994 Form 10-K.
10.22* Employment Agreement with Mr. David J. Massara (incorporated by
reference from Exhibit 10.18 to the Company's 1994 Form 10-K)
10.23 Trademark Registration -- MONTEREY PASTA COMPANY, under Registration
No. 1,664,278, registered on November 12, 1991 with the U.S. Patent
and Trademark Office (incorporated by reference from Exhibit 10.09 to
the SB-2)
10.24 Trademark Registration -- MONTEREY PASTA COMPANY, under Registration
No. 1,943,602, registered on December 26, 1995 with the U.S. Patent
and Trademark Office (incorporated by reference from Exhibits with
corresponding numbers filed with the 1995 Form 10-K)
10.25 Trademark Registration -- MONTEREY PASTA COMPANY and Design, under
Registration No. 1,945,131, registered on January 2, 1996 with the
U.S. Patent and Trademark Office (incorporated by reference from
Exhibits with corresponding numbers filed with the 1995 Form 10-K)
10.26 Trademark Registration -- MONTEREY PASTA COMPANY and Design, under
Registration No. 1,951,624, registered on January 23, 1996 with the
U.S. Patent and Trademark Office (incorporated by reference from
Exhibits with corresponding numbers filed with the 1995 Form 10-K)
10.27 Trademark Registration -- MONTEREY PASTA COMPANY, under Registration
No. 1,953,489, registered on January 30, 1996 with the U.S. Patent and
Trademark Office (incorporated by reference from Exhibits with
corresponding numbers filed with the 1995 Form 10-K)
10.28 Subscription Agreement dated as of June 21, 1995 with GFL Advantage
Fund Limited (incorporated by reference from Exhibit 10.19 to the
Company's Q2 10-Q)
10.29 Registration Rights Agreement dated as of June 15, 1995 with GFL
Advantage Fund Limited, as amended on October 13 and 19, 1995,
respectively (incorporated by reference from Exhibit 10.2 to the
Company's Q2 10-Q, and Exhibits 10.6 and 10.7 to the Company's S-3
Registration Statement No. 33-96684, filed on December 12, 1995 (the
"S-3"))
10.30 Joint Escrow Instructions dated as of October 1995 (incorporated by
reference from Exhibit 10.5 to the Company's S-3)
11
<PAGE>
10.31 Note Purchase Agreement dated as of October 19, 1995 with GFL
Advantage Fund Limited (incorporated by reference from Exhibit 10.3 to
the Company's S-3)
10.32 Convertible Note dated as of October 25, 1995, executed by the Company
in favor of GFL Advantage Fund Limited (incorporated by reference from
Exhibits with corresponding numbers filed with the 1995 Form 10-K)
10.33 Trademark Purchase (Burns) (incorporated by reference from Exhibit
10.12 of the SB-2)
10.34 Purchase of Stock and Exhibits (Burns- Mortensen-Hill) (incorporated
by reference from Exhibit 10.13 of the SB-2)
10.35 Non-Recourse Promissory Note (Hill-Mortensen) (incorporated by
reference from Exhibit 10.15 of the SB-2)
10.36 Asset Purchase Agreement dated March 1, 1994 between Upscale Food
Outlets, Inc., Lucca's Pasta Bar, Inc., Timothy John
Morris and Marian Kathryn Morris (incorporated by reference from
Exhibit 10.16 to the Company's 1993 Form 10-K)
10.39 Franchise Termination Agreement and Release dated as of March 27,
1996, among the Company, Upscale Food Outlets, Inc., Monterey
Pasta Development Company, California Pasta Company, and James G.
Schlicher (incorporated by reference from Exhibits with corresponding
numbers filed with the Company's Quarterly Report on Form 10-Q on June
21, 1996)
10.40 Stock Purchase Agreement dated April 1, 1996 between Upscale
Acquisitions, Inc. and the Company (incorporated by reference
from Exhibits with corresponding numbers filed with the Company's
Quarterly Report on Form 10-Q on June 21, 1996).
10.41 Placement Agent Agreement dated April 12, 1996 between the Company and
Spelman & Co., Inc. (incorporated by reference from Exhibits
with corresponding numbers filed with the Company's Quarterly Report
on Form 10-Q on June 21, 1996).
10.44* The Company's 401(k) Plan, established to be effective as of January
1, 1996, adopted by the Board of Directors on June 7, 1996
(incorporated by reference from Exhibit 10.24 to the Company's
Quarterly Report on Form 10-Q filed June 21, 1996)
10.45* Directed Employee Benefit Trust Agreement dated June 17, 1996 between
the Company and The Charles Schwab Trust Company, as Trustee of the
Company's 401(k) Plan (incorporated by reference from Exhibit 10.24 to
the Company's Quarterly Report on Form 10-Q filed June 21, 1996)
10.46* Employment Agreement dated February 12, 1996 with Mr. Robert J. Otto
(incorporated by reference from Exhibit 10.24 to the Company's
Quarterly Report on Form 10-Q filed June 21, 1996).
16.1 Letter from Deloitte & Touche LLP dated October 31, 1996 (incorporated
by reference to the Company's Report on Form 8-K/A filed November 8,
1996)
21.1 Subsidiaries of the Company (incorporated by reference to the
Company's Annual Report on Form 10-K filed April 14, 1997)
27.1 Financial Data Schedule (incorporated by reference to the
Company's Annual Report on Form 10-K filed April 14, 1997)
12
<PAGE>
* Management contract or compensatory plan or arrangement covering
executive officers or directors of Monterey Pasta Company and its
subsidiary, Upscale Food Outlets, Inc.
13
<PAGE>
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
---------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "MONTEREY PASTA COMPANY", FILED IN THIS OFFICE ON THE FIRST DAY
OF MARCH, A.D. 1997, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEED FOR RECORDING.
[SEAL]
/s/Edward J. Freel
-----------------------------------
EDWARD J. FREEL, SECRETARY OF STATE
AUTHENTICATION: 8385130
03-21-97
DATE:
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/21/1997
971092500 - 2649613
MONTEREY PASTA COMPANY
A DELAWARE CORPORATION
CERTIFICATE OF DESIGNATIONS
OF
SERIES A-1 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 the 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, at a meeting duly called and held on
March 12, 1997, adopted a resolution providing for the creation of a series of
the Corporation's Preferred Stock, $.001 par value, which Series is designated
"Series A-1 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 A-1 convertible Preferred Stock"
(hereinafter referred to as "Series A-1 Convertible Preferred Stock"),
consisting of 3,000 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 this reference.
The undersigned, Kenneth a. Steel, Jr. and George Hammond, the President
and Chief Executive Officer and Secretary, respectively, of Monterey Pasta
company, each declares under penalty of perjury that the matters set forth in
the foregoing Certificate are true and correct of his own knowledge.
Executed at Salinas, California on March 14, 1997.
/s/ Kenneth A. Steel, Jr.
--------------------------
Kenneth A. Steel, Jr. President and Chief
Executive Officer
/s/ George Hammond
---------------------------
George Hammond, Secretary
<PAGE>
SERIES A-1 CONVERTIBLE PREFERRED STOCK
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A-1 Convertible Preferred Stock" (the Series A-1
Convertible Preferred Stock") and the number of shares constituting the Series
A-1 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-1 Convertible Preferred Stock
shall be the sum of (i) $1,000 and (ii) to the extend legally available, the
accrued but unpaid dividends on such share of Series A-1 Convertible Preferred
Stock.
Section 3. RANK. All Series A-1 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
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 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 distribution of assets upon
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary.
Section 4. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series A-1 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-1
Convertible Preferred Stock equal to the sum of (i) all dividends declared 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, 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-1 Convertible Preferred
Stock (collectively, the "Junior Liquidation Stock"); PROVIDED, HOWEVER, that
such rights shall accrue to the holders of Series A-1 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-1 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-1 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-1 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
2
<PAGE>
preferential amounts). After payment in full of the liquidation price of the
shares of the Series A-1 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 not 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 5. NO MANDATORY REDEMPTION. The shares of Series A-1
Convertible Preferred Stock shall not be subject to mandatory redemption by the
Corporation.
Section 6. CONVERSION AT OPTION OF HOLDER. The holders of the Series
A-1 Convertible Preferred Stock may, on or after the Registration Effective Date
but on or before two (2) years after the Issuance Date, upon surrender of the
certificates therefor, convert any or all of their shares of Series A-1
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-1 Convertible Preferred Stock may be
converted at the principal executive offices of the Corporation, the office of
any transfer agent for the Series A-1 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) declared but unpaid dividends to the
Conversion Date on the share of Series A-1 Convertible Preferred Stock being
converted and (iii) accrued but unpaid interest on the dividends on the share of
Series A-1 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)
$4.40 (subject to equitable adjustments for stock splits, stock dividends,
combinations, recapitalizations, 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"). 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.
3
<PAGE>
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 6(a).
As used herein, "Registration Effective Date" shall mean, with
respect to any share of Series A-1 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.
As used herein "SEC" shall mean the United States Securities and
Exchange Commission.
(c) OTHER PROVISIONS. Notwithstanding anything in this Section 6 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 6 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 6 and not previously made.
The right of the holders of Series A-1 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-1 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 be 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 A-1 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-1
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.
4
<PAGE>
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-1 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-1 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 A-1 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-1 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 share 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-1
Convertible Preferred Stock then outstanding shall have the right thereafter
to convert such shares of Series A-1 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-1 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 securities, cash, or other assets upon
completion of such transaction, the Corporation shall provide or cause to be
provided to each holder of Series A-1 Convertible Preferred Stock the right
to elect the securities, cash, or other assets into which the Series A-1
Convertible Preferred Stock held by such holder shall be convertible after
completion of any such transaction on the same terms and subject to the same
conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made, and the effect of failing to exercise the
election). The Corporation shall not effect any such transaction unless the
provisions of this paragraph have been complied with. The above provisions
shall similarly apply to successive consolidations, mergers, sales,
transfers, or share exchanges.
If a holder shall have given a notice of conversion of shares of Series A-1
Convertible Preferred Stock, upon surrender of certificates representing shares
of Series A-1 Convertible
5
<PAGE>
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-1 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 6(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 = C x O + N
1 -----
O + N x P
M
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock issuable pursuant
to the exercise of such rights or warrants.
P = the offering price per share of the additional shares (which
amount shall include amounts received by the Corporation in
respect of the issuance and the exercise of such rights or
warrants).
M = the Current Market Price per share of Common Stock on the record
date.
6
<PAGE>
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 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 = C x M
1
M - F
where
C1 = 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-1 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
fifth paragraph of this Section 6(c), the holder of any Series A-1
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.
7
<PAGE>
Except as otherwise provided above in this Section 6, 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-1
Convertible Preferred Stock and the Common Stock, and to the principal
securities exchange, if any, on which the Series A-1 Convertible Preferred Stock
and the Common Stock is traded, or the Nasdaq National Market if the Series A-1
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 6, 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-1 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 this Section 6(c) which would result in any adjustment in the
Conversion Amount under this Section 6(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-1 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 6, no adjustment in
the Conversion Amount need be made (a) for a transaction referred to in
subparagraphs (i) or (ii) of the seventh paragraph of this Section 6(c) if
holders of Series A-1 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-1 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-1 Convertible Preferred Stock becomes
entitled to receive only cash
8
<PAGE>
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-1 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 A-1 Convertible
Preferred Stock then outstanding shall be converted, in accordance with the
provisions, and subject to the limitations, of Section 6(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, the Corporation shall mail by
first class mail or otherwise deliver to each holder of Series A-1
Convertible Preferred Stock a notice (a "Section 6(d) Notice"), which shall
state (1) the number of shares of Series A-1 Convertible Preferred Stock held
by such holder which have been converted into shares of Common Stock in
accordance with this Section 6(d) and (2) the Mandatory Conversion Date. If
the Corporation shall give a Section 6(d) Notice, then, unless theretofore
converted by the holder in accordance herewith or redeemed by the Corporation
Date, 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-1
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 Coversion Date properly
set forth therein, all shares of Series A-1 Convertible Preferred Stock
which, on the Mandatory Conversion Date are convertible in accordance with
Section 6(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-1 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-1 Convertible Preferred Stock by the holder after a
Section 6(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-1 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.
Section 7. VOTING RIGHTS. Except as otherwise required by law or
expressly provided herein, share of Series A-1 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 Series A-1 Convertible Preferred Stock, voting separately
as a class, will be required for (1) any amendment, alteration, or repeal,
whether by merger of consolidation or
9
<PAGE>
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-1 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-1
Convertible Preferred Stock shall not be deemed to affect materially and
adversely such powers, preferences, or special rights.
Section 8. OUTSTANDING SHARES. For purposes of this Certificate of
Designations, all shares of Series A-1 Convertible Preferred Stock shall be
deemed outstanding except (i) from the date of surrender of certificates
representing shares of Series A-1 Convertible Preferred Stock for conversion
into Common Stock, all shares of Series A-1 Convertible Preferred Stock
converted into Common Stock; and (ii) from the date of registration of transfer,
all shares of Series A-1 Convertible Preferred Stock held of record by the
Corporation or any subsidiary or Affiliate (as defined herein) of the
Corporation. 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.
10
<PAGE>
SUBSCRIPTION AGREEMENT
Monterey Pasta Company
353 Sacramento Street
San Francisco, CA 94111
Attention: President
Gentlemen:
Please accept this letter as my offer and agreement (hereinafter referred
to as the "Subscription Agreement") to purchase Units ("Units") of
Monterey Pasta Company, a Delaware corporation (the "Company") at $1,350 per
Unit ("Subscription Price"), each Unit consisting of 1,000 shares of Common
Stock of the Company, subject to the terms, conditions, acknowledgments,
representations and warranties stated herein, in the Company's Private
Placement Memorandum dated December 31, 1996 (the "Memorandum"), and in the
Registration Rights Agreement between the Company and the investors in this
offering (the "Registration Rights Agreement"). Simultaneously with the
execution and delivery hereof, I am executing and delivering a Registration
Rights Agreement and I am transmitting a check payable to the order of the
Company in the amount of the Subscription Price for the Units I am purchasing.
I understand that this Subscription Agreement and the Registration Rights
Agreement are not binding on the Company unless and until it is accepted by
the Company. In order to induce the Company to accept this Subscription
Agreement and as further consideration for such acceptance, I hereby make the
following acknowledgments, representations and warranties with the full
knowledge that the Company will expressly rely on the following
acknowledgments, representations and warranties in making a decision to
accept or reject this Subscription Agreement:
1. I recognize that an investment in the Company involves substantial
risk and I am fully cognizant of and understand all of the risk factors
related to purchase of the Units, including, but not limited to, the
significant write-downs and continuing operating losses incurred by the
Company and the lack of liquidity of my investment in the Company. I
understand that, although the Company's common stock is currently traded on
the NASDAQ National Market, the underlying Units have not been registered
under the Securities Act of 1933 ("Securities Act") and cannot be publicly
traded until they are registered and until such time can be traded only in
accordance with an exemption from registration (such as Rule 144) and in
accordance with the Registration Rights Agreement.
2. I can bear and am willing to accept the economic risk of losing my
entire investment.
<PAGE>
3. I am aware that the Company has not operated profitably the past
two fiscal years, continues to accrue significant operating losses, has an
accumulated deficit of approximately $32,000,000 and may not achieve
profitability in the near future, or ever. I understand that the Company has
significantly changed its business plan and plan of operations in 1996.
4. I recognize that the retail food industry is a competitive
business, and that brief periods of revenue shortfalls, loss of a key
customer, changes in consumer preferences or other economic downturn can
result in significant operating losses.
5. I am aware that the Company has recently not generated sufficient
revenues from operations to meet its operating costs and has relied on
capital infusions from the private debt and equity markets in order to meet
those costs; I understand that there can be no assurance that such funds will be
available if additional capital infusions are necessary in the future.
6. I am aware that the Company is currently conducting, and has
retained counsel to assist with, an internal investigation of stock trades by
current and former directors of the Company to determine if any such trades
were made in violation of Section 16(b) of the Securities and Exchange Act of
1934. I am aware that the Securities and Exchange Commission is conducting
an informal inquiry of the Company.
7. I have received copies of and have carefully read the Memorandum
and the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995; the Company's Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 1996, June 30, 1996 and September 30, 1996;
and the Company's Current Reports on Form 8-K filed on May 28, 1996, October
19, 1996 and October 25, 1996, and on Form 8-K/A filed on November 8, 1996;
and understand that I may receive from the Company upon request the other
documents incorporated by reference into the Memorandum.
8. My overall commitment to investments that are not readily
marketable is not disproportionate to my individual net worth, and my
investment in the Units will not cause such overall commitment to become
excessive.
9. I have adequate means of providing for my financial requirements,
both current and anticipated, and have no need for liquidity in this
investment.
10. I hereby warrant, represent and acknowledge that I am an
"accredited investor" for purposes of Regulation D and Rule 230.501(a)
promulgated under the Securities Act, in that I qualify under the following
designated categories (check all applicable categories):
___a. I am an institutional investor within the meaning of Rule
501(a)(1) of Regulation D of the Act, with total assets
of $ .
2
<PAGE>
____b. I am a private business development company as defined in
Section 202(a)(22) of the Investment Advisors Act of 1940.
____c. I am a tax exempt organization described in Section 501(c)(3)
of the Internal Revenue Code, with total assets of $ .
____d. I am a natural person whose present net worth (or whose joint
net worth of my spouse and me) exceeds $1,000,000.
____e. I am a natural person who had individual income in excess of
$200,000 in each of the last two years and I reasonably expect
to have an income in excess of $200,000 in the current year.
or
____ I am a natural person who (together with my spouse) had joint
income in excess of $300,000 in each of the last two years, and
we reasonably expect to have joint income in excess of $300,000
in the current year.
____f. I am a corporation, partnership, Massachusetts or similar
business trust with total assets of $5,000,000 whose purchase of
the securities is directed by a sophisticated person as described
in Rule 506(b)(c)(ii) of Regulation D.
____g. I am an entity, all of whose equity owners are accredited
investors under paragraphs a-f above.
11. I am purchasing the Units for my own account and for investment
purposes only and have no present intention, agreement or arrangement for the
distribution, transfer, assignment, resale or subdivision of the Units. I
understand that, due to the restrictions referred to in Paragraphs 12, 13 and
14 below, and the lack of any current market existing for the Units, my
investment in the Company will be highly illiquid and may have to be held
indefinitely. I acknowledge that although the Company has covenanted to
grant certain demand and "piggyback" registration rights for the shares of
Common Stock ("Shares") underlying the Units as set forth in the Registration
Rights Agreement, there can be no assurance that the Company will be
successful in its efforts to register the Shares, or that such registration
will take place.
12. I am fully aware that the Units and the Shares underlying such
Units subscribed for herein, have not been registered with the Securities and
Exchange Commission in reliance on the exemption specified in representations
set forth herein. Accordingly, I understand that the Units and the Shares
underlying such Units can be transferred only if they are registered with the
3
<PAGE>
Securities and Exchange Commission or pursuant to a transaction that is
exempt from registration under the Securities Act.
13. I understand that the Units and the Shares underlying such Units
subscribed for herein have not been registered under applicable state
securities laws and are being offered and sold pursuant to the exemptions
specified in said laws, and unless they are registered, they may not be
reoffered for sale or resold except in a transaction or as a security exempt
under those laws. I further understand that the specific approval of such
resales by the state securities administrator may be required in some states.
14. I understand that legends will be placed on any instruments
evidencing the Units and the Shares underlying such Units, with respect to
restrictions on distribution, transfer, resale, assignment or subdivision
imposed by applicable federal and state securities laws.
15. In order for the Company to determine whether I am a qualified
purchaser under the California Corporate Securities Law of 1968, I represent
and warrant that I qualify under the following categories (check applicable
categories):
____a. I have a preexisting personal or business relationship with the
Company or any of its officers or directors of a
nature and duration as would allow me to be aware
of the character, business acumen, general business and
financial circumstances of the Company or of the
person with whom such relationship exists.
(Please describe relationship, and, if applicable, duration of
relationship.)
__________________________________________________________________
__________________________________________________________________
____b. By reason of my business or financial experience, I have the
capacity to protect my interests in connection with
the purchase of the Units. (Please describe such experience.)
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
____c. My investment in the Units does not exceed ten percent (10%)
of my net worth or joint net worth with my spouse.
4
<PAGE>
16. All information that I have provided to the Company herein
concerning my suitability to invest in the Company is complete, accurate and
correct as of the date of my signature on the last page of this Subscription
Agreement. I hereby agree to notify the Company immediately of any material
change in any such information occurring prior to the acceptance of this
Subscription Agreement, including any information about changes concerning my
net worth and financial position. I agree to execute such further documents
as reasonably requested by the Company relating to the registration rights
and lockup provisions set forth in the Memorandum and this Agreement.
17. I acknowledge that the sale of the Units has not been accompanied
by the publication of any advertisement or by any general solicitation.
18. I acknowledge that I have been represented by my own independent
counsel and advisors in this transaction, that I have not relied on the
Company's counsel and advisors in any way in connection with this
transaction, and that the Company's counsel and advisors do not owe me any
duty whatsoever.
19. I have conducted my own independent investigation of the Company,
its officers and its business with the assistance of my counsel and advisors,
and I am basing my decision to invest in the Company on that examination.
20. I have not relied upon any representations made by the Company's
directors or officers or any other person. I have not relied upon any
representation, opinions or services made or rendered by the Company's
counsel or advisors. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
SUBSCRIPTION AGREEMENT IN CONNECTION WITH THE OFFER BEING MADE HEREBY, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY.
21. I have had the opportunity to ask questions of, and receive answers
from, the Company and the officers, directors and employees of the Company
concerning the Company, the creation or operation of the Company or terms and
conditions of the offering of the Units, and to obtain any additional
information deemed necessary to verify the accuracy of information provided
to me by officers of the Company. I understand that the Company is a
reporting company and that I have reviewed, or had the opportunity to review,
all the public filings made by the Company. I have been provided with all
materials requested to verify any information furnished to me.
22. I (we) wish to own my (our) Units as follows:
5
<PAGE>
____a. Separate or individual property. (In community property
status, if the purchaser married, his (her) spouse must
submit written consent if community funds will be used to
purchase the Units.)
____b. Husband and wife as community property. (Community property
states only. Husband and Wife should both sign all required
documents unless advised by their attorney that one signature
is sufficient.)
____c. Joint Tenants with right of survivorship. (Both parties must
sign all required documents unless advised by their attorneys
that one signature is sufficient.
____d. Other (indicate):
______________________________________________________________
______________________________________________________________
(NOTE: Prospective investors should seek the advice of their
own attorney in deciding which of the above forms of ownership of the
Units should be utilized, since different forms of ownership can have
the varying gift tax, estate tax, income tax and other consequences,
depending on the State of the subscriber's domicile and his particular
personal circumstances.)
23. The address below is my true and correct principal residence address.
24. This Agreement shall be construed in accordance with and governed by
the laws of the State of California, except as to Paragraph 22 above (type of
registration of ownership of Units), in which case this Agreement shall be
construed in accordance with and governed by the laws of the State of
principal residence of the subscribing investor.
25. Notice to Residents of All States: THE SECURITIES OFFERED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF CERTAIN STATES AND ARE BEING OFFERED AND SOLD IN RELIANCE
ON EXCEPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS.
THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH
LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE SECURITIES HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION,
ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY
OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
6
<PAGE>
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE MEMORANDUM. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF
THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE
NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR
REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT
CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES ACT OF 1933 AND THE SECURITIES LAWS OF CERTAIN
JURISDICTIONS GRANT PURCHASERS OF SECURITIES SOLD IN VIOLATION OF THE
REGISTRATION OR QUALIFICATION PROVISIONS OF SUCH LAWS THE RIGHT TO RESCIND
THEIR PURCHASE OF SUCH SECURITIES AND TO RECEIVE BACK THEIR CONSIDERATION
PAID. THE COMPANY BELIEVES THAT THE OFFERING DESCRIBED IN THIS SUBSCRIPTION
AGREEMENT IS NOT REQUIRED TO BE REGISTERED OR QUALIFIED. MANY OF THESE LAWS
GRANTING THE RIGHT OF RESCISSION ALSO PROVIDE THAT SUITS FOR SUCH VIOLATIONS
MUST BE BROUGHT WITHIN A SPECIFIED TIME, USUALLY ONE YEAR FROM DISCOVERY OF
FACTS CONSTITUTING SUCH VIOLATION. SHOULD ANY INVESTOR INSTITUTE SUCH AN
ACTION ON THE THEORY THAT THE OFFERING CONDUCTED AS DESCRIBED HEREIN WAS
REQUIRED TO BE REGISTERED OR QUALIFIED, THE COMPANY WILL CONTEND THAT THE
CONTENTS OF THIS SUBSCRIPTION AGREEMENT CONSTITUTED NOTICE OF THE FACTS
CONSTITUTING SUCH VIOLATION.
26. I hereby covenant and agree that any dispute, claims and/or
controversy arising under, out of, in connection with or relating to this
Subscription Agreement or the transaction evidenced thereby, and any
amendment thereof, or the breach thereof, shall be determined and settled by
arbitration in the State of California, in accordance with the rules and
procedures of the American Arbitration Association. The arbitration shall be
governed by and subject to the applicable laws of the State of California and
the then-prevailing rules of the American Arbitration Association. The
prevailing party shall be entitled to an award of its reasonable costs and
expenses including but not limited to attorneys' fees, in addition to any
other available remedies. Any award rendered therein shall be final and
binding on each and all of the parties thereto and their personal
representatives, and judgement may be entered therein in any court of
competent jurisdiction.
27. I hereby agree to indemnify and hold harmless the Company and all of
its shareholders, officers, directors, affiliates, and advisors from any and
all damages, losses, liabilities, costs and expenses (including reasonable
attorneys' fees) that they may incur by reason
7
<PAGE>
of my failure to fulfill all of the terms and conditions of this Subscription
Agreement or by reason of the untruth or inaccuracy of any of the
representations, warranties or agreements contained herein or in any other
documents I have furnished to any of the foregoing in connection with this
transaction. This indemnification includes, but is not limited to, any
damages, losses, liabilities, costs and expenses (including reasonable
attorneys' fees) incurred by the Company or any of its shareholders,
officers, directors, affiliates or advisors defending against any alleged
violation of federal or state securities laws which is based upon or related
to any untruth or inaccuracy of any of the representations, warranties or
agreements contained herein or in any other documents I have furnished to any
of the foregoing in connection with this transaction.
28. MISCELLANEOUS.
a. I may not transfer or assign this Subscription Agreement, or
any interest herein, and any purported transfer shall be void.
b. I hereby acknowledge and agree that I am not entitled to
cancel, terminate or revoke this Subscription Agreement and that this
Subscription Agreement will be binding on my heirs, successors and personal
representatives; provided, however, that if the Company rejects this
Subscription Agreement, this Subscription Agreement shall be automatically
canceled, terminated and revoked.
c. This Subscription Agreement constitutes the entire agreement
among the parties hereto with respect to the sale of the Units and may be
amended, modified or terminated only by a writing executed by all parties
(except as provided herein with respect to rejection of this Subscription
Agreement by the Company).
d. Within five days after receipt of a written request from the
Company, the undersigned agrees to provide such information and to execute
and deliver such documents as may be reasonably necessary to comply with any
and all laws and regulations to which the Company is subject.
e. The representations and warranties of the undersigned set forth
herein shall survive the sale of the Units, pursuant to this Subscription
Agreement.
IN WITNESS WHEREOF, I (we) have executed this Subscription Agreement this
____day of ____________, 1997.
SUBSCRIBER:
- --------------------------- ----------------------------
Signature Signature
- --------------------------- ----------------------------
8
<PAGE>
Name (please print) Name (please print)
- -------------------------- -----------------------------
Street Address (Residence) Street Address (Residence)
- -------------------------- -----------------------------
City, State, Zip City, State, Zip
- -------------------------- ------------------------------
Social Security or Employer Social Security or Employer
Identification Number Identification Number
(SPECIAL INSTRUCTIONS: Investors must list their principal place of
residence rather than their office or other address on the signature page so
that the Company can confirm compliance with appropriate securities laws. If
you wish correspondence sent to some address other that your principal
residence, please provide a mailing address in the blank provided below.)
- --------------------------
Street Address
- --------------------------
City, State, Zip
This subscription for____________Units is hereby accepted this ____day of
_________, 1997.
MONTEREY PASTA COMPANY,
a Delaware corporation
By:
--------------------------
Its:
--------------------------
9
<PAGE>
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
---------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "MONTEREY PASTA COMPANY", FILED IN THIS OFFICE ON THE SEVENTH DAY
OF APRIL, A.D. 1997, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEED FOR RECORDING.
[SEAL]
/s/ Edward J. Freel
-----------------------------------
EDWARD J. FREEL, SECRETARY OF STATE
AUTHENTICATION: 8408362
04-07-97
DATE:
2649613 8100
971112232
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 04/07/1997
971112232 - 2649613
MONTEREY PASTA COMPANY
CERTIFICATE OF DESIGNATIONS
OF
SERIES B-1 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 the 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, at a meeting duly called and held on
March 12, 1997, 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-1 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-1 Cumulative
Preferred Stock" (hereinafter referred to as "Series B-1 Preferred Stock"),
consisting of 250 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 this reference.
<PAGE>
IN WITNESS WHEREOF, Monterey Pasta Company has caused its corporate
seal to be hereunto affixed and this certificate to be signed by Kenneth A.
Steel, Jr., its President and Chief Executive Officer, as of the 4th day of
April 1997.
/s/ Kenneth A. Steel Jr.
--------------------------------
-2-
<PAGE>
ANNEX 1
TO
CERTIFICATE
OF
DESIGNATIONS
SERIES B-1 CONVERTIBLE PREFERRED STOCK
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series B-1 Convertible Preferred Stock" (the "Series B-1
Convertible Preferred Stock"), and the number of shares constituting the Series
B-1 Convertible Preferred Stock shall be 250, 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-1 Convertible Preferred Stock
shall be the greater of (a) the sum of (1) $1,150, (2) to the extent legally
available, the accrued but unpaid dividends on such share of Series B-1
Convertible Preferred Stock, PLUS (3) an amount equal to the accrued and unpaid
interest on dividends in arrears (as provided in Section 4) through the date of
determination and (b) an amount equal to the product obtained by multiplying (x)
the number of shares of Common Stock which would, at the time of such
determination, be issuable on conversion in accordance with Section 9(a) of one
share of Series B-1 Convertible Preferred Stock and any accrued and unpaid
dividends thereon and any accrued and unpaid interest on dividends thereon in
arrears if a Conversion Notice (as defined herein) were given by the holder of
such share of Series B-1 Convertible Preferred Stock on the date of such
determination (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 date of such
determination. The Corporation shall take such action as may be required to
maintain the amount required by this Section 2 to be represented in stated
capital for the Series B-1 Convertible Preferred Stock not less frequently
than monthly.
SECTION 3. RANK. All Series B-1 Convertible Preferred Stock shall
rank (1) 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 payments 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 the Corporation, whether voluntary or involuntary.
SECTION 4. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of
shares of Series B-1 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 $80.00 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 April 1, 1997 and shall be payable in cash quarterly on March 1, June 1,
September 1, and December 1 of each year commencing June 1, 1997 (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-1 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
A-1
<PAGE>
Corporation is hereinafter provided. The amount of the dividends payable per
share of Series B-1 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 capital stock of the Corporation
ranking junior as to dividends to the Series B-1 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-1 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-1 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-1
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, 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-1
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-1 Convertible Preferred Stock. No
full dividends shall be paid or declared and set apart for payment on the Series
B-1 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-1 Convertible Preferred Stock and the Parity
Dividend Stock, all dividends paid or declared and set apart for payment upon
shares of Series B-1 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-1
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-1 Convertible Preferred Stock and the Parity Dividend
Stock bear to each other.
Any reference 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-1 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-1 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-1
Convertible Preferred Stock subsequent to the third trading day after a
dividend payment date, the percentage used to
A-2
<PAGE>
<PAGE>
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 B-1 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 inssuance 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-1 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-1
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-1 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-1
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)
A-3
<PAGE>
$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-1 Convertible Preferred Stock
(collectively, the "Junior Liquidation Stock"); PROVIDED, HOWEVER, that such
rights shall accrue to the holders of Series B-1 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-1 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-1 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-1 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-1 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-1
Convertible Preferred Stock shall not be subject to mandatory redemption by the
Corporation.
SECTION 7. NO SINKING FUND. The shares of Series B-1 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-1 Convertible Preferred Stock (including, without
limitation, its obligations under the Registration Rights Agreement between
the Corporation and the original holder of the Series B-1 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-1 Convertible Preferred Stock
to be redeemed, at any time on or after the date of initial issuance of
shares of Series X Convertible Preferred Stock (the "Issuance Date") to
redeem at any time all, and from time to time any part of the Series B-1
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-1 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-1 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 B-1 Convertible
Preferred Stock pursuant to this Section 8, (2) the number of shares of
Series B-1 Convertible Preferred Stock held by such holder which are to be
redeemed, (3) the Redemption Price (as hereinafter defined) per share of
Series B-1 Convertible Preferred Stock to be redeemed, determined in
accordance with this Section and (4) the date of redemption of such shares of
Series B-1 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-1 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-1 Convertible Preferred Stock
the Corporation shall make
A-4
<PAGE>
payment to the holders of the shares of Series B-1 Convertible Preferred
Stock to be redeemed in respect of each share of Series B-1 Convertible
Preferred Stock to be redeemed of an amount equal to the greater of (a)
$1.150, plus all accrued but unpaid dividends to the Redemption Date on the
share of Series B-1 Convertible Preferred Stock being redeemed and accrued
but unpaid interest on the dividends on the share of Series B-1 Convertible
Preferred Stock being redeemed 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 B-1 Convertible Preferred Stock, and any accrued and unpaid dividends
thereon and any accrued and unpaid interest on dividends thereon in arrears
if a Conversion Notice were given by the holder of such Series B-1
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 being referred to herein as the
"Redemption Price"). Upon redemption of less than all of the shares of Series
B-1 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-1 Convertible Preferred
Stock which have not been redeemed. Only whole shares of Series B-1
Convertible Preferred Stock may be redeemed. If the Corporation exercises its
right to redeem less than all outstanding shares of Series B-1 Convertible
Preferred Stock, then such redemption shall be made, as nearly as practical,
pro rata among the holders of record of the Series B-1 Convertible Preferred
Stock. No share of Series B-1 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-1 Convertible Preferred Stock may, at any time after the earlier of (x)
July 31, 1997 and (y) the date on which the Registration Statement is first
declared effective by the SEC and on or before two (2) years after the
Issuance Date, upon surrender of the certificates therefor, convert any or
all of their shares of Series B-1 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-1
Convertible Preferred Stock may be converted at the principal executive
offices of the Corporation, the office of any transfer agent for the Series
B-1 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 share of Series B-1 Convertible Preferred Stock being converted, and
(iii) accrued but unpaid interest on the dividends on the share of Series B-1
convertible Preferred Stock being converted in arrears to the Conversion Date
by (y) the lower of (1) the product of (A) 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) the product of (A) $5.50 (subject to equitable adjustments for stock
splits, stock dividends, combinations, recapitalizations, 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) TIMES (B) the Conversion Percentage, in each case subject to
adjustment as hereinafter provided (the "Conversion Rate"); PROVIDED,
HOWEVER, that in no event shall any holder be entitled to convert any shares
of Series B-
A-5
<PAGE>
1 Convertible Preferred Stock in excess of that number of shares of Series
B-1 Convertible Preferred Stock upon conversion of which the sum of (1) the
number of shares of Common Stock benefically 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-1 Convertible Preferred Stock) and (2) the
number of shares of Common Stock issuable upon the conversion of the number
of shares of Series B-1 Convertible Preferred Stock with respect to which the
determination in this proviso is being made, would result in benefical
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 on such date on the principal
securities exchange on which such security is traded.
As used herein, "Computation Date" means
(1) if the Registration Statement is not filed by the Corporation
with the SEC on or before April 30, 1997:
(A) May 7, 1997, if the Corporation has not filed the Registration
Statement with the SEC on or before such date;
(B) each date which is seven days subsequent to May 7, 1997, in
each such case if the Corporation has not filed the Registration Statement
with the SEC on or before such subsequent date; and
(C) the date on which the Corporation files the Registration
Statement with the SEC; and
(2) if the Registration Statement has not been declared effective
by the SEC on or before July 31, 1997;
(A) August 7, 1997, unless the Registration Statement has been
declared effective by the SEC on or before August 7, 1997;
(B) each date which is seven days subsequent to August 7, 1997, in
each such case unless the Registration Statement has not been declared
effective by the SEC on or before such subsequent date; and
(C) the date on which the Registration Statement is declared
effective by the SEC;
PROVIDED, HOWEVER, that if more than one event which could give rise to a
Computation Date during any period shall have occurred, only one of such events
shall be deemed to result in a Computation Date so that the adjustments in the
Conversion Percentage provided herein by
A-6
<PAGE>
reason of the occurrence of a Computation Date shall be made only once in
respect of any period of time and then in the maximum amount based on all such
Computation Dates.
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 with respect to a
Conversion Date or a dividend payment date 80%; PROVIDED, HOWEVER, that
notwithstanding any other provision hereof (1) if (x) the Corporation shall
fail to file the Registration Statement with the SEC on or before April 30,
1997, or (y) the Registration Statement is not ordered effective by the SEC
on or before July 31, 1997, and in any such case the Corporation shall fail
to make cash payment on a timely basis in the amount specified in Section
2(c) of the Registration Rights Agreement, then in each such case the
applicable percentage stated above in this paragraph shall be reduced by one
percentage point on each Computation Date (pro rated in the case of any
Computation Date which is less than seven days after a Computation Date) and
(2) the Conversion Percentage applicable to a particular conversion shall be
subject to reduction as provided in Section 9(c)(6); PROVIDED FURTHER,
HOWEVER, that no adjustment pursuant to clause (1) of the first proviso to
this definition shall be made after the date on which the shares of Common
Stock issued or issuable upon conversion of shares of Series B Convertible
Preferred Stock may be sold by all holders thereof pursuant to Rule 144 under
the Securities Act of 1933, as amended, in a period of 90 consecutive days
(in which case the Conversion Percentage shall be adjusted to such date as if
such date were a Computation Date).
As used herein, "Registration Effective Date" shall mean, with respect
to any share of Series B-1 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 Agreement.
As used herein, "SEC" shall mean the United States Securities and
Exchange Commission.
(c) OTHER PROVISIONS. (1) Notwithstanding anything in this
Section 9(c) to the contrary, no change in the Conversion Amount pursuant to
Section 9(c) shall actually be made until the cumulative effect of the
adjustments called for by this Section 9(c) 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(c) and not previously made. Notwithstanding anything in this
Section 9(c), 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-1 Convertible Preferred Stock are at the time convertible.
(2) The holders of shares of Series B-1 Convertible Preferred
Stock at the close of business on the record date for any dividend payment to
holders of Series B-1 Convertible Preferred Stock shall be entitled to receive
the dividend payable on such shares on
A-7
<PAGE>
the corresponding dividend payment date notwithstanding the conversion
thereof after such dividend payment record date or the Corporation's default
in payment of the dividend due on such dividend payment date; PROVIDED,
HOWEVER, that the holder of shares of Series B-1 Convertible Preferred Stock
surrendered for conversion during the period between the close of business on
any record date for a dividend payment and the opening of business on the
corresponding dividend payment date must pay to the Corporation, within five
days after receipt by such holder, an amount equal to the dividend payable on
such shares on such dividend payment date if such dividend is paid by the
Corporation to such holder. A holder of shares of Series B-1 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-1 Convertible Preferred
Stock on such date, and the converting holder need not make any payment of
the amount of such dividend in connection with such conversion of shares of
Series B-1 Convertible Preferred Stock. Except as provided above, no
adjustment shall be made in respect of cash dividends on Common Stock or
Series B-1 Convertible Preferred Stock that may be accrued and unpaid at the
date of surrender of shares of Series B-1 Convertible Preferred Stock.
(3) The right of the holders of Series B-1 Convertible Preferred
Stock to convert their shares shall be exercised by delivering (which may be
done by telephone line facsimile transmission) to the Conversion agent, as
provided above, a written notice, duly signed by or on behalf of the holder,
stating the number of shares of Series B-1 Convertible Preferred Stock to be
converted in the form specified in the Subscription Agreements (the
"Conversion Notice"). If a holder of Series B-1 Convertible Preferred Stock
elects to convert any shares of Series B-1 Convertible Preferred Stock in
accordance with Section 9(a), such holder shall not be required to physically
surrender the certificate(s) representing such shares of Series B-1
Convertible Preferred Stock to the Corporation unless all of the shares of
Series B-1 Convertible Preferred Stock represented thereby are so converted.
Each holder of shares of Series B-1 Convertible Preferred Stock and the
Corporation shall maintain records showing the number of shares so converted
and the dates of such conversions or shall use such other method,
satisfactory to such holder and the Corporation, so as to not require
physical surrender of such certificates upon each such conversion. In the
event of any dispute or discrepancy, such records of the Corporation shall be
controlling and determinative in the absence of manifest error.
Notwithstanding the foregoing, if any shares of Series B-1 Convertible
Preferred Stock evidenced by a particular certificate therefor are converted
as aforesaid, the holder of Series B-1 Convertible Preferred Stock may not
transfer the certificate(s) representing such shares of Series B-1
Convertible Preferred Stock unless such holder first physically surrenders
such certificate(s) to the Corporation, whereupon the Corporation will
forthwith issue and deliver upon the order of such holder of shares of Series
B-1 Convertible Preferred Stock new certificate(s) of like tenor, registered
as such holder of shares of Series B-1 Convertible Preferred Stock (upon
payment by such holder of shares of Series B-1 Convertible Preferred Stock of
any applicable transfer taxes) may request, representing in the aggregate the
remaining number of shares of Series B-1 Convertible Preferred Stock
represented by such certificate(s). Each holder of shares of Series B-1
Convertible Preferred Stock, by acceptance of a certificate for such shares,
acknowledges and agrees that (1) by reason of the provisions of this
paragraph and Section 8, following conversion of any shares of Series B-1
Convertible Preferred Stock represented by such certificate, the number of
shares of Series B-1 Convertible Preferred Stock represented by such
certificate may be less than the number of shares stated on such certificate
and the number of shares of Common Stock from the Maximum Share Amount
allocated to the shares of Series B-1 Convertible Preferred Stock represented
by such certificate for purposes of conversion of such shares may be less
than the number thereof on such certificate and (2) the Corporation may place
a legend on the certificates for shares of Series B-1 Convertible Preferred
Stock which refers to or describes the provisions of this paragraph. The
Corporation shall pay any tax arising in connection with any conversion of
shares of Series B-1 Convertible Preferred Stock except that
A-8
<PAGE>
the Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery upon
conversion of shares of Common Stock or other securities or property in a
name other than that of the holder of the shares of the Series B-1
Convertible Preferred Stock being converted, and the Corporation shall not be
required to issue or deliver any such shares or other securities or property
unless and until the person or persons requesting the issuance thereof shall
have paid to the Corporation the amount of any such tax or shall have
established to the satisfaction of the Corporation that such tax has been
paid. The number of shares of Common Stock to be issued upon each conversion
of shares of Series C Convertible Preferred Stock shall be the number set
forth in the applicable Conversion Notice which number shall be conclusive
absent manifest error. The Corporation shall notify a holder who has given a
Conversion Notice of any claim of manifest error within one business day
after such holder gives such Conversion Notice and no such claim of error
shall limit or delay performance of the Corporation's obligation to issue
upon such conversion the number of shares of Common Stock which are not in
dispute. A Conversion Notice shall be deemed for all purposes to be in
proper form unless the Corporation notifies a holder of shares of Series B-1
Convertible Preferred Stock being converted within one business day after a
Conversion Notice has been given (which notice shall specify all defects in
the Conversion Notice) and any Conversion Notice containing any such defect
shall nonetheless be effective on the date given if the converting holder
promptly undertakes in writing to correct all such defects.
(4) The Corporation (and any successor corporation) shall take
all action necessary so that a number of shares of the authorized but
unissued Common Stock (or common stock in the case of any successor
corporation) sufficient to provide for the conversion of the Series B-1
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-1
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-1 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-1 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.
(5) In case of any consolidation or merger of the Corporation with
any other corporation (other than a wholly-owned subsidiary of the Corporation)
in which the Corporation is not the surviving corporation, or in case of any
sale or transfer of all or substantially all of the assets of the Corporation,
or in the case of any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property, the
Corporation shall make appropriate provision or cause appropriate provision to
be made so that each holder of shares of Series B-1 Convertible Preferred Stock
then outstanding shall have the right thereafter to convert such shares of
Series B-1 Convertible Preferred Stock into the kind of shares of stock and
other securities and property receivable upon such consolidation, merger, sale,
transfer, or share exchange by a holder of shares of Common Stock into which
such shares of Series B-1 Convertible Preferred Stock could have been converted
immediately prior to the effective date of such consolidation, merger, sale,
transfer, or share exchange and on a basis which preserves the economic benefits
of the conversion rights of the holders of shares of Series B-1 Convertible
Preferred Stock on a basis as nearly as practical as such rights exist hereunder
prior thereto. If, in connection with any such consolidation, merger, sale,
transfer, or share exchange, each holder of shares of Common Stock is entitled
to elect to receive securities, cash,
A-9
<PAGE>
or other assets upon completion of such transaction, the Corporation shall
provide or cause to be provided to each holder of Series B-1 Convertible
Preferred Stock the right to elect the securities, cash, or other assets into
which the Series B-1 Convertible Preferred Stock held by such holder shall be
convertible after completion of any such transaction on the same terms and
subject to the same conditions applicable to holders of the Common Stock
(including, without limitation, notice of the right to elect, limitations on the
period in which such election shall be made, and the effect of failing to
exercise the election). The Corporation shall not effect any such transaction
unless the provisions of this paragraph have been complied with. The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers, or share exchanges.
(6) If a holder shall have given a Conversion Notice for shares
of Series B-1 Convertible Preferred Stock, the Corporation shall issue and
deliver to such person certificates for the Common Stock issuable upon such
conversion within three business days after such Conversion Notice is given
and the person converting shall be deemed to be the holder of record of the
Common Stock issuable upon such conversion, and all rights with respect to
the shares surrendered shall forthwith terminate except the right to receive
the Common Stock or other securities, cash, or other assets as herein
provided. If a holder shall have given a Conversion Notice as provided
herein, the Corporation's obligation to issue and deliver the certificates
for Common Stock shall be absolute and unconditional, irrespective of any
action or inaction by the converting holder to enforce the same, any waiver
or consent with respect to any provision thereof, the recovery of any
judgment against any person or any action to enforce the same, any failure or
delay in the enforcement of any other obligation of the Corporation to the
holder of record, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the holder of any obligation
to the Corporation, and irrespective of any other circumstance which might
otherwise limit such obligation of the Corporation to the holder in
connection with such conversion. If the Corporation fails to issue and
deliver the certificates for the Common Stock to the holder converting shares
of Series B-1 Convertible Preferred Stock pursuant to the first sentence of
this paragraph as and when required to do so, in addition to any other
liabilities the Corporation may have hereunder and under applicable law (1)
the Corporation shall pay or reimburse such holder on demand for all
out-of-pocket expenses including, without limitation, fees and expenses of
legal counsel incurred by such holder as a result of such failure, (2) the
Conversion Percentage applicable to such conversion shall be reduced by
two-and-one-half percentage points from the Conversion Percentage applicable
to such conversion and (3) such holder may by written notice (which may be
given by mail, courier, personal service or telephone line facsimile
transmission) or oral notice (promptly confirmed in writing) given at any
time prior to delivery to such holder of the certificates for the shares of
Common Stock issuable upon such conversion of shares of Series B-1
Convertible Preferred Stock, rescind such conversion, whereupon such holder
shall have the right to convert such shares of Series B-1 Convertible
Preferred Stock thereafter in accordance herewith.
(7) No fractional shares of Common Stock shall be issued upon
conversion of Series B-1 Convertible Preferred Stock but, in lieu of any
fraction of a share of Common Stock to purchase fractional shares of Common
Stock which would otherwise be issuable in respect of the aggregate number of
such shares surrendered for conversion at one time by the same holder, the
Corporation 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.
(8) The Conversion Amount shall be adjusted from time to time
under certain circumstances, subject to the provisions of the first three
sentences of Section 9(c)(1), 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
A-10
<PAGE>
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 case the Conversion Amount in effect on such record date shall be adjusted
in accordance with the formula
C1 = C x O + N
-----
O + N x P
-----
M
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock issuable pursuant
to the exercise of such rights or warrants.
P = the offering price per share of the additional shares (which
amount shall include amounts received by the Corporation in
respect of the issuance and the exercise of such rights or
warrants).
M = the Current 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 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
C1 = C x M
--
M - F
where
C1 = 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.
A-11
<PAGE>
F = the aggregate amount of such cash dividend and/or the fair market
value on the record date of the assets or securities to be
distributed divided by the number of shares of Common Stock
outstanding on the record date. The Board of Directors shall
determine such fair market value, which determination shall be
conclusive.
Such adjustment shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution. For purposes of this subparagraph (ii), "Junior Stock" shall
include any class of capital stock ranking junior as to dividends or upon
liquidation to the Series B-1 Convertible Preferred Stock.
(iii) All calculations hereunder shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant to
Section 9(c)(5), the holder of any Series B-1 Convertible Preferred Stock
thereafter surrendered for conversion shall become entitled to receive
securities, cash, or assets other than Common Stock, the number or amount of
such securities or property so receivable upon conversion shall be subject to
adjustment from time to time in a manner and on terms nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (i) to (iii) above.
(9) Except as otherwise provided above in this Section 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.
(10) Whenever the Conversion Amount is adjusted as herein
provided, the Corporation shall send to each transfer agent, if any, for the
Series B-1 Convertible Preferred Stock and the Common Stock, and to the
principal securities exchange, if any, on which the Series B-1 Convertible
Preferred Stock and the Common Stock is traded, or the Nasdaq National Market
if the Series B-1 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 B-1
Convertible Preferred Stock, which notice shall be made within 15 days after
the effective date of such adjustment and shall state the adjustment and the
Conversion Amount. Notwithstanding the foregoing notice provisions, failure
by the Corporation to give such notice or a defect in such notice shall not
affect the binding nature of such corporate action of the Corporation.
(11) Whenever the Corporation shall propose to take any of the
actions specified in Section 9(c)(5) or in subparagraphs (i) or (ii) of
Section 9(c)(8) 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-1 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.
(12) 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 Section 9(c)(8) if holders of
Series B-1 Convertible Preferred Stock are to participate in the
A-12
<PAGE>
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-1 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-1 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-1 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,
(1) on the date the Registration Statement is first declared effective by the
SEC or on any date within five business days thereafter the Corporation may,
by notice to the holders of the shares of Series B-1, require all of the
outstanding shares of Series B-1 Convertible Preferred Stock to be converted
and (2) on the date which is 730 days after the Registration Effective Date
(the "Mandatory Conversion Date") all of the shares of Series B-1 Convertible
Preferred Stock then outstanding shall be converted, in either such case, 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-1 Convertible Preferred Stock a notice (a "Section 9(d)
Notice"), which shall state (1) the number of shares of Series B-1
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 B-1 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-1 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-1 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-1 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-1 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 Stockholder Approval (or waiver 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-1 Convertible
A-13
<PAGE>
Preferred Stock, more than 321,191 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 the Secretary of State of the State of Delaware, upon
conversion of shares of Series B-1 Convertible Preferred Stock (the "Maximum
Share Amount"). The Maximum Share Amount shall be allocated pro rata among
the initial holders of the Series B-1 Convertible Preferred Stock in the rato
that the respective number of shares of Series B-1 Convertible Preferred
Stock issued to each holder bears to 250 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-1 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-1 Convertible Preferred Stock represented by such a
certificate. Upon any split up of a certificate for outstanding shares of
Series B-1 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 Maximum Share Amount allocated to
conversions of the shares of Series B-1 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-1 Convertible Preferred
Stock as a consequence of the limitation set forth in Section 9(e)(1) had all
outstanding shares of Series B-1 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-1 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(a)(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-1 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-1 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-1
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-1 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-1
Convertible Preferred Stock pursuant to this Section 9(e), (2) the number of
shares of Series B-1 Convertible Preferred Stock held by such holder which
are to be redeemed, (3) that the share are to be redeemed at the Special
Redemption Price per share of Series B-1 Convertible Preferred Stock,
determined in accordance with this Section 9(e), and (4) the date of
redemption of such shares of Series B-1 Convertible Preferred Stock,
determined in accordance with this Section 9(e) (the "Special Redemption
Date"). On the Special Redemption
A-14
<PAGE>
Date, the Corporation shall make payment in immediately available funds, out
of funds legally available for such redemption, of the Special Redemption
Price to each holder of shares of Series B-1 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 Special
Redemption Date. Upon redemption of less than all of the shares of Series B-1
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-1 Convertible Preferred Stock which
have not been redeemed. Only whole shares of Series B-1 Convertible Preferred
Stock may be redeemed. If the Corporation is required to redeem less than
all outstanding shares of Series B-1 Convertible Preferred Stock, then such
redemption shall be made, as nearly as practical, pro rata among the holders
of record the Series B-1 Convertible Preferred Stock. Notwithstanding any
other provision of this Certificate of Designations or any Section 9(e)
Notice, no share of Series B-1 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). "Stockholder Approval" means
the approval by a majority of the votes cast by the holders of shares of
Common Stock (in person or by proxy) at a meeting of the 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-1
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-1 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-1 Convertible Preferred Stock, voting
separately as a class, will be required for (1) any amendment, alteration, or
repeal, whether by merger or consolidation of 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-1 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-1 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-1 Convertible Preferred Stock shall
be deemed outstanding except (i) from the date of surrender of certificates
representing shares of Series B-1 Convertible Preferred Stock for conversion
into Common Stock, all shares of Series B-1 Convertible Preferred Stock
converted into Common Stock; (ii) from the date of registration of transfer,
all shares of Series B-1 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-1
Convertible Preferred Stock which are redeemed, so long as in each case the
Redemption Price of such shares of Series B-1 Convertible Preferred Stock
shall have been paid by the Corporation as and when required hereby. For the
purposes of this Certificate of
A-15
<PAGE>
Designations, "Affiliate" means any person directly or indirectly 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.
A-16
<PAGE>
SUBSCRIPTION AGREEMENT
Monterey Pasta Company
353 Sacramento Street
San Francisco, CA 94111
Attention: President
Gentlemen:
Please accept this letter as my offer and agreement (hereinafter referred
to as the "Subscription Agreement") to purchase ______ shares of Common Stock
("Shares") of Monterey Pasta Company, a California corporation (the "Company")
at $4.375 per share ("Subscription Price"), subject to the terms, conditions,
acknowledgments, representations and warranties stated herein, in the Company's
Private Placement Memorandum dated April 10, 1996 (the "Memorandum"), and in the
Registration Rights Agreement between the Company and the investors in this
offering (the "Registration Rights Agreement"). Simultaneously with the
execution and delivery hereof, I am executing and delivering a Registration
Rights Agreement and I am transmitting a check payable to the order of the
Company in the amount of the Subscription Price for the Shares I am purchasing.
I understand that this Subscription Agreement and the Registration Rights
Agreement are not binding on the Company unless and until it is accepted by the
Company. In order to induce the Company to accept this Subscription Agreement
and as further consideration for such acceptance, I hereby make the following
acknowledgments, representations and warranties with the full knowledge that the
Company will expressly rely on the following acknowledgments, representations
and warranties in making a decision to accept or reject this Subscription
Agreement:
1. I recognize that an investment in the Company involves substantial
risk and I am fully cognizant of and understand all of the risk factors related
to purchase of the Shares, including, but not limited to, the significant write-
downs and continuing operating losses incurred by the Company and the lack of
liquidity of my investment in the Company. I understand that, although the
Company's common stock is currently traded on the Nasdaq National Market, the
Shares have not been registered under the Securities Act of 1933 and cannot be
publicly traded until they are registered and until such time can be traded only
in accordance with an exemption from registration (such as Rule 144) and in
accordance with the Registration Rights Agreement.
2. I can bear and am willing to accept the economic risk of losing my
entire investment.
3. I am aware that the Company has not operated profitably the past two
fiscal years, continues to accrue significant operating losses, has an
accumulated deficit of approximately $25 million and may not achieve
profitability in the near future. I understand that the Company has
significantly changed its business plan and plan of operations in 1996.
4. I recognize that the retail food industry is a competitive business,
and that brief periods of revenue shortfalls, loss of a key customer, changes in
consumer preferences or other economic downturn can result in significant
operating losses.
<PAGE>
5. I am aware that the Company has recently not generated sufficient
revenues from operations to meet its operating costs and has relied on capital
infusions from the private debt and equity markets in order to meet those costs;
I understand that there can be no assurance that such funds will be available if
additional capital infusions are necessary in the future.
6. I have received copies of and have carefully read the Memorandum and
the Company's Annual Report on Form 10-K as amended by Form 10-K/A for the
fiscal year ended December 31, 1995 and understand that I may receive from the
Company upon request the other documents incorporated by reference into the
Memorandum.
7. My overall commitment to investments that are not readily marketable
is not disproportionate to my individual net worth, and my investment in the
Shares will not cause such overall commitment to become excessive.
8. I have adequate means of providing for my financial requirements, both
current and anticipated, and have no need for liquidity in this investment.
9. I hereby warrant, represent and acknowledge that I am an "accredited
investor" for purposes of Regulation D and Rule 230.501(a) promulgated under the
Securities Act of 1933 (the "Securities Act"), in that I qualify under the
following designated categories (check all applicable categories):
_____a. I am an institutional investor within the meaning of Rule
501(a)(1) of Regulation D of the Act, with total assets of
$__________.
_____b. I am a private business development company as defined in
Section 202(a)(22) of the Investment Advisors Act of 1940.
_____c. I am a tax exempt organization described in Section
501(c)(3) of the Internal Revenue Code, with total assets of
$_________.
_____d. I am a natural person whose present net worth (or whose
joint net worth of my spouse and me) exceeds $1,000,000.
_____e. I am a natural person who had individual income in excess of
$200,000 in each of the last two years and I reasonably
expect to have an income in excess of $200,000 in the
current year.
or
_____f. I am a natural person who (together with my spouse) had
joint income in excess of$300,000 in each of the last two
years, and we reasonably expect to have joint income in
excess of $300,000 in the current year.
_____g. I am a corporation, partnership, Massachusetts or similar
business trust with total assets of $5,000,000 whose
purchase of
2.
<PAGE>
the securities is directed by a sophisticated person as
described in Rule 506(b)(c)(ii) of Regulation D.
_____h. I am an entity, all of whose equity owners are accredited
investors under paragraphs a-f above.
10. I am purchasing the Shares for my own account and for investment
purpose only and have no present intention, agreement or arrangement for the
distribution, transfer, assignment, resale or subdivision of the Shares. I
understand that, due to the restrictions referred to in Paragraphs 11, 12 and 13
below, and the lack of any current market existing for the Shares, my investment
in the Company will be highly illiquid and may have to be held indefinitely. I
acknowledge that although the Company has covenanted to grant certain demand and
"piggyback" registration rights for the Shares as set forth in the Registration
Rights Agreement. There can be no assurance that the Company will be successful
in its efforts to register the Shares, or that such registration will take
place.
11. I am fully aware that the Shares subscribed for herein, have not been
registered with the Securities and Exchange Commission in reliance on the
exemption specified in representations set forth herein. Accordingly, I
understand that the Shares can be transferred only if they are registered with
the Securities and Exchange Commission or pursuant to a transaction that is
exempt from registration under the Securities Act of 1933.
12. I understand that the Shares subscribed for herein have not been
registered under applicable state securities laws and are being offered and sold
pursuant to the exemptions specified in said laws, and unless they are
registered, they may not be reoffered for sale or resold except in a transaction
or as a security exempt under those laws. I further understand that the specific
approval of such resales by the state securities administrator may be required
in some states.
13. I understand that legends will be placed on any instruments evidencing
the Shares, with respect to restrictions on distribution, transfer, resale,
assignment or subdivision imposed by applicable federal and state securities
laws. I acknowledge that the Shares are subject to a 12-month lock up agreement
as set forth in the Registration Rights Agreement, and that I may not transfer
the Shares, or any portion thereof during that period without the prior consent
of the Company even if such transfer would otherwise comply with applicable
securities laws.
14. In order for the Company to determine whether I am a qualified
purchaser under the California Corporate Securities Law of 1968, I represent and
warrant that I qualify under the following categories (check applicable
categories):
3.
<PAGE>
_____a. I have a preexisting personal or business relationship with
the Company or any of its officers or directors of a nature
and duration as would allow me to be aware of the character,
business acumen, general business and financial
circumstances of the Company or of the person with whom such
relationship exist. (Please describe relationship, and, if
applicable, duration of relationship.)
------------------------------------------------------------
-----------------------
------------------------------------------------------------
-----------------------
_____b. By reason of my business or financial experience, I have the
capacity to protect my interests in connection with the
purchase of the Shares. (Please describe such experience.)
------------------------------------------------------------
----------------------
------------------------------------------------------------
- -------------------------
------------------------------------------------------------
- -------------------------
_____c. My investment in the Shares does not exceed ten percent
(10%) of my net worth or joint net worth with my spouse.
15. All information that I have provided to the Company herein concerning
my suitability to invest in the Company is complete, accurate and correct as of
the date of my signature on the last page of this Subscription Agreement. I
hereby agree to notify the Company immediately of any material change in any
such information occurring prior to the acceptance of this Subscription
Agreement, including any information about changes concerning my net worth and
financial position. I agree to execute such further documents as reasonably
requested by the Company relating to the registration rights and lockup
provisions set forth in the Memorandum and this Agreement.
16. I acknowledge that the sale of the Shares has not been accompanied by
the publication of any advertisement or by any general solicitation.
17. I acknowledge that I have been represented by my own independent
counsel and advisors in this transaction, that I have not relied on the
Company's counsel and advisors in any way in connection with this transaction,
and that the Company's counsel and advisors doe not owe me any duty whatsoever.
18. I have conducted my own independent investigation of the Company, its
officers and its business with the assistance of my counsel and advisors, and I
am basing my decision to invest in the Company on that examination.
4.
<PAGE>
19. I have not relief upon any representations mad by the Company's
directors or officers, the Placement Agent or any other person. I have not
relief upon any representation, opinions or services made or rendered by the
Company's counsel or advisors. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
SUBSCRIPTION AGREEMENT IN CONNECTION WITH THE OFFER BEING MADE HEREBY, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIEF UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY.
20. I have had the opportunity to ask questions of, and receive answers
from, the Company and the officers, directors and employees of the Company
concerning the Company, the creation or operation of the Company or terms and
conditions of the offering of the Shares, and to obtain any additional
information deemed necessary to verify the Company is a reporting company and
that I have reviewed, or had the opportunity to review, all the public filings
made by the Company. I have been provided with all material requested to verify
any information furnished to me.
21. I (we) wish to own my (our) Shares as follows:
_____a. Separate or individual property. (In community property
status, if the purchaser is married, his (her) spouse must
submit written consent if community funds will be used to
purchase the Shares.)
_____b. Husband and wife as community property. (Community property
states only. Husband and Wife should both sign all required
documents unless advised by their attorney that one
signature is sufficient.)
_____c. Joint Tenants with right of survivorship. (Both parties must
sign all required documents unless advised by their
attorneys that one signature is sufficient.)
_____d. Other (indicate):
------------------------------------------------------------
-----------------------
------------------------------------------------------------
- -----------------------
(NOTE: Prospective investors should seek the advice of
their own attorney in deciding which of the above forms of
ownership of the Shares should be utilized, since difference
forms of ownership can have varying gift tax, estate tax and
other consequences, depending on the State of the subscriber's
domicile and his particular personal circumstances.)
5.
<PAGE>
22. The address below is my true and correct principal residence address.
23. This Agreement shall be construed in accordance with and governed by
the laws of the State of California, except as to Paragraph 21 above (type of
registration of ownership of Shares), in which case this Agreement shall be
construed in accordance with and governed by the laws of the State of principal
residence of the subscribing investor.
24. Notice to Residents of All States: THE SECURITIES OFFERED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF CERTAIN STATES AND ARE BEING OFFERED AND SOLD IN RELIANCE ON
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE
SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE
FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE
ACCURACY OR ADEQUACY OF THE MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE
OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT
BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES ACT OF 1933 AND THE SECURITIES LAWS OF CERTAIN JURISDICTIONS
GRANT PURCHASERS OF SECURITIES SOLD IN VIOLATION OF THE REGISTRATION OR
QUALIFICATION PROVISIONS OF SUCH LAWS THE RIGHT TO RESCIND THEIR PURCHASE OF
SUCH SECURITIES AND TO RECEIVE BACK THEIR CONSIDERATION PAID. THE COMPANY
BELIEVES THAT THE OFFERING DESCRIBED IN THIS SUBSCRIPTION AGREEMENT IS NOT
REQUIRED TO BE REGISTERED OR QUALIFIED. MANY OF THESE LAWS GRANTING THE RIGHT OF
RESCISSION ALSO PROVIDE THAT SUITS FOR SUCH VIOLATIONS MUST BE BROUGHT WITHIN A
SPECIFIED TIME, USUALLY ONE YEAR FROM DISCOVERY OF FACTS CONSTITUTING SUCH
VIOLATION. SHOULD ANY INVESTOR INSTITUTE SUCH AN ACTION ON THE THEORY THAT THE
OFFERING CONDUCTED AS DESCRIBED HEREIN WAS REQUIRED TO BE REGISTERED OR
QUALIFIED, THE COMPANY WILL CONTEND THAT THE CONTENTS OF THIS SUBSCRIPTION
AGREEMENT CONSTITUTED NOTICE OF THE FACTS CONSTITUTING SUCH VIOLATION.
25. I hereby covenant and agree that any dispute, claims and/or
controversy arising under, out of, in connection with or relating to this
Subscription Agreement or the transaction evidenced thereby, and any amendment
thereof, or the breach thereof, shall be
6.
<PAGE>
determined and settled by arbitration in the State of California, in accordance
with the rules and procedures of the American Arbitration Association. The
arbitration shall be governed by and subject to the applicable laws of the State
of California and the then-prevailing rules of the American Arbitration
Association. The prevailing party shall be entitled to an award of its
reasonable costs and expenses including but not limited to attorneys' fees, in
addition to any other available remedies. Any award rendered therein shall be
final and binding on each and all of the parties thereto and their personal
representatives, and judgment may be entered therein in any court of competent
jurisdiction.
26. I hereby agree to indemnify and hold harmless the Company and all of
its shareholders, officers, directors, affiliates, and advisors from any and all
damages, losses, liabilities, costs and expenses (including reasonable
attorneys' fees) that they may incur by reason of my failure to fulfill all of
the terms and conditions of this Subscription Agreement or by reason of the
untruth or inaccuracy of any of the representations, warranties or agreements
contained herein or in any other documents I have furnished to any of the
foregoing in connection with this transaction. This indemnification includes,
but is not limited to, any damages, losses, liabilities, costs and expenses
(including reasonable attorneys' fees) incurred by the Company or any of its
shareholders, officers, directors, affiliates or advisors defending against any
alleged violation of federal or state securities laws which is based upon or
related to any untruth or inaccuracy of any of the representations, warranties
or agreements contained herein or in any other documents I have furnished to any
of the foregoing in connection with this transaction.
27. MISCELLANEOUS.
a. I may not transfer or assign this Subscription Agreement, or any
interest herein, and any purported transfer shall be void.
b. I hereby acknowledge and agree that I am not entitled to cancel,
terminate or revoke this Subscription Agreement and that this Subscription
Agreement will be binding on my heirs, successors and personal representatives;
provided, however, that if the Company rejects this Subscription Agreement, this
Subscription Agreement shall be automatically canceled, terminated and revoked.
c. This Subscription Agreement constitutes the entire agreement
among the parties hereto with respect to the sale of the Shares and may be
amended, modified or terminated only by a writing executed by all parties
(except as provided herein with respect to rejection of this Subscription
Agreement by the Company).
d. Within five days after receipt of a written request from the
Company, the undersigned agrees to provide such information and to execute and
deliver such documents as may be reasonably necessary to comply with any and all
laws and regulations to which the Company is subject.
e. The representations and warranties of the undersigned set forth
herein shall survive the sale of the Shares, pursuant to this Subscription
Agreement.
7.
<PAGE>
IN WITNESS WHEREOF, I (we) have executed this Subscription Agreement this
____ day of ______________, 1996.
SUBSCRIBER:
____________________________ _______________________________
Signature Signature
____________________________ _______________________________
Name (please print) Name (please print)
____________________________ ________________________________
Street Address (Residence) Street Address (Residence)
____________________________ ________________________________
City, State, Zip City, State, Zip
_____________________________ ________________________________
Social Security or Employer Social Security or Employer
Identification Number Identification Number
(SPECIAL INSTRUCTIONS: Investors must list their principal place of residence
rather than their office or other address on the signature page so that the
Company can confirm compliance with appropriate securities laws. If you wish
correspondence sent to some address other than your principal residence, please
provide a mailing address in the blank provided below.)
_______________________________
Street Address
________________________________
City, State, Zip
This Subscription for _________Shares is hereby accepted this _____ day of
_________ 1996.
MONTEREY PASTA COMPANY
a California corporation
By:______________________________
Norman E. Dean, President and
Chief Executive Officer
8.
<PAGE>
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
This Amendment (the "Amendment") dated as of April 20, 1997, by and among
Monterey Pasta Company, a Delaware corporation (the "Company"), Spelman & Co.,
Inc., a California corporation ("Spelman") and the undersigned investor
("Investor"), amends the Registration Rights Agreement by and among the Company,
Spelman and Investor dated as of ______________, 1996 (the "Rights Agreement").
RECITALS
--------
A. Investor purchased shares of the Company's common stock, no par value,
pursuant to the terms of a Subscription Agreement dated __________, 1996 (the
"Subscription Agreement") relating to the sale by the Company of up to a maximum
of 915,000 shares of common stock (the "Common Stock") to several investors
through Spelman as placement agent for the offering.
B. In connection with its purchase of Common Stock, Investor entered into
the Rights Agreement, pursuant to which the Company agreed to register such
certain shares of Common Stock with the Securities and Exchange Commission,
subject to the terms and conditions contained in the Rights Agreement.
C. The Rights Agreement may be amended with the consent of the Company
and Holders of a majority of the Registrable Securities.
D. Subsequent to execution of the Rights Agreement, Rule 144 under the
Securities Act of 1933, as amended, was revised to reduce the holding period,
after which Investor may sell Investor's Common Stock in the public market, from
two years to one year.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. The Rights Agreement is hereby amended to add a new Section 13.8 to
read as follows: "TERMINATION. The Company shall not be obligated to register
any Registrable Securities held by a Holder pursuant to the registration rights
granted in Sections 3 ("Requested Registration") and 4 ("Company Registration")
for any period subsequent to the date on which such Holder may sell all such
Registrable Securities pursuant to Rule 144 under the Securities Act in a period
of 90 consecutive days."
This Agreement may be executed in any number of counterparts, each of which
shall be an original, but all of which together shall constitute one instrument.
-1-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of the day and year first above written.
MONTEREY PASTA COMPANY
a Delaware corporation
By:______________________________
Kenneth A. Steel, President
SPELMAN & CO., INC.
By:_____________________________
Richard P. Woltman, President
INVESTOR
________________________________
-2-
<PAGE>
AGREEMENT
This agreement (the "Agreement") between Monterey Pasta Company, a Delaware
corporation, with its principal place of business located at 1528 Moffett
Street, Salinas, California 93905 (the "Company"), and GFL Performance Fund
Limited (the "Buyer") dated as of March 10, 1997 (the "Effective Date") amends
and restates certain terms and conditions set forth in the (i) the Subscription
Agreement between Company and Buyer dated as of July 31, 1996 (the "Subscription
Agreement") and (ii) the Registration Rights Agreement between Company and Buyer
dated as of July 31, 1996 (the "Rights Agreement"). Capitalized terms used
herein, unless specifically defined herein, have the meaning assigned them in
the Subscription Agreement or the Rights Agreement.
RECITALS
A. Company and Buyer entered into the Subscription Agreement and the
Rights Agreement in connection with Buyer's purchase of 3,000 shares the
Company's Series A Convertible Preferred Stock (the "Series A Preferred Stock").
The rights, preferences and privileges related to the Series A Preferred Stock
are set forth in the Subscription Agreement, the Rights Agreement and the
Certificate of Designations of Series A Preferred Stock as filed by the Company
with Secretary of State of the state of Delaware on August 7, 1996 (the
Certificate").
B. The Company is currently negotiating with certain investors
("Investors") for the sale and purchase of up to 1,600,000 shares (the
"Shares") of the Company's Common Stock (the "Private Placement"). As a
condition to investing in the Company, the Investors require that Company and
Buyer agree to certain changes to the agreements with Buyer as set forth in
the Subscription Agreement, the Rights Agreement and the Certificate.
C. As part of the consideration and inducement to the Investors for
investing in the Company, the Company and Buyer are willing to agree to and
abide by such changes to the Rights Agreement and the Subscription Agreement as
hereinafter provided and Buyer agrees to exchange the Series A Preferred Stock
for 3,000 shares of Series A-1 Preferred Stock (the "Series A-1 Preferred
Stock") having the rights, preferences and privileges set forth in the
Certificate of Designations of Series A-1 Convertible Preferred Stock attached
hereto as EXHIBIT A (the "Series A-1 Certificate").
NOW, THEREFORE, in consideration of the forgoing, the parties agree as
follows:
1. Company agrees, in lieu of all dividends originally set forth in the
Certificate, to pay Buyer $50,000, which constitutes an annualized dividend
equal to four percent (4.0%) of the purchase price (the "Aggregate Purchase
Price") of the Series A of Preferred Stock (the "Dividend") for the period
beginning August 1, 1996 through December 31, 1996. The Dividend shall be paid
to Buyer in the form of shares of Common Stock of the Company at the fair market
value of such shares of Common Stock on the date the Securities and Exchange
Commissions ("SEC") declares effective the Registration Statement on Form S-3 or
similar form (the "Registration Statement") filed by the Company with the SEC
registering the Common Stock of the Company issuable on conversion of the Series
A-1 Preferred Stock (the "Fair Market Value"), less a twenty percent (20.0%)
discount. The maximum Fair Market Value shall be set at $5.50 per share of
Common Stock.
1
<PAGE>
2. Section 2(a) of the Rights Agreement (the "Mandatory Registration")
is hereby amended to provide that the Company agrees to file with the SEC on or
before April 30, 1997, an amendment (the "Amendment") to its Registration
Statement. Company agrees that if the Amendment or a new Registration Statement
is not filed with the SEC on or before April 30, 1997, then beginning on May 1,
1997, and ending on the date the Amendment or a new Registration Statement is
actually filed with the SEC, Company shall pay Buyer a prorated penalty payment
equal to two percent (2%) per month of the Aggregate Purchase Price. Buyer
agrees that Company shall bear no responsibility for or accrue any penalty
payments for the time associated with the SEC's review of the Registration
Statement, the Amendment and any subsequent amendments thereto provided that the
Company is using its best efforts to cause the Registration Statement to be
declared effective.
3. Section 2(e) of the Rights Agreement (the "Payments by the Company")
is hereby amended to provide that the penalty payments due from the Company to
Buyer on each of the Computation Dates (as defined in the Rights Agreement)
terminated as of January 31, 1997. Company agrees that within five business
days of the closing of the Private Placement (the "Series A-1 Closing") Company
shall pay Buyer a total amount equal to Two Hundred Forty Thousand Dollars
($240,000) in lieu of all penalty payments accrued under the original terms of
the Rights Agreement. In addition, at the Series A-1 Closing, the Company shall
deliver to Buyer a certificate representing the Series A-1 Preferred Stock and
Buyer shall deliver to the Company its certificate representing the Series A
Preferred Stock.
4. Buyer, its affiliates and its assigns agree not to effectuate any
short sale of the Company's Common Stock so long as Buyer, its affiliates or
assigns remains a stockholder of the Company, unless such short sales relates to
a liquidation associated with conversion of the Preferred Shares into shares of
Common Stock of the Company.
5. The Company represents and warrants to Buyer as follows:
(a) CONCERNING THE SHARES. The Series A-1 Preferred Stock has been
duly authorized and when issued and paid for in accordance with this
Agreement, and the Common Shares, when issued upon conversion of the Series
A-1 Preferred Stock, 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 Series A-1
Preferred Stock. 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; (s) 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) VALID AND BINDING AGREEMENT. This Agreement has been duly and
validly authorized by the Company, has been duly executed and delivered on
behalf of the Company and constitutes a valid and binding agreement of the
Company 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;
this Agreement and the transactions contemplated hereby are an action or
transaction or a series of related actions or transactions
2
<PAGE>
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).
(c) NON-CONTRAVENTION. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the exchange of
the Series A-1 Preferred Stock and the other transactions contemplated by this
Agreement, and the terms of the Series A-1 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 of the Series A-1 Preferred Stock as
contemplated by this Agreement.
6. At the Series A-1 Closing, upon exchange of the Series A Preferred
Stock for the Series A-1 Preferred Stock, the Company shall deliver to Buyer, a
certificate, executed by an officer of the Company certifying that the Series
A-1 Certificate has been duly filed in Delaware and as to such other matters as
Buyer shall reasonably request.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the day and year first above written.
BUYER COMPANY
GAL. Performance Fund Limited Monterey Pasta Company
/s/Hans Frederic Heye /s/Kenneth A. Steel Jr.
- ---------------------------- ---------------------------
By: Hans Frederic Heye By: Kenneth A. Steel Jr.
------------------------ -----------------------
Its: Director Its: President
------------------------ -----------------------
3
<PAGE>
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT, dated as of April 2, 1997, by and between
MONTEREY PASTA COMPANY, a Delaware corporation, with headquarters located at
1528 Moffat Street, Salinas, California 93905 (the "Company"), and the
PANGAEA FUND LIMITED, a British Virgin Islands corporation (the "Buyer").
W I T N E S S E T H
WHEREAS, the Company and the Buyer wish to exchange, upon the terms
and subject to the conditions of this Agreement, outstanding shares (the
"Series B Preferred Shares") of Series B Convertible Preferred Stock, $.001
par value (the "Series B Preferred Stock"), held by Buyer for newly issued
shares of Series B-1 Convertible Preferred Stock of the Company which will be
convertible into shares of Common Stock, $.001 par value, of the Company,
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"); and
WHEREAS, the Company and the Buyer are executing this Agreement and
intend to complete the transactions contemplated hereby in reliance upon one
or more exemptions from securities registration under the Securities Act of
1933, as amended (the "1933 Act"), including, without limitation, the
exemption provided by Section 3(a)(9) of the 1933 Act;
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 hereto
agree as follows:
1. AGREEMENT TO EXCHANGE.
(a) EXCHANGE. The Buyer agrees to exchange on the Closing Date
(as defined herein) 250 Series B Preferred Shares for 250 shares (the "Series
B-1 Preferred Shares") of Series B-1 Convertible Preferred Stock, $.001 par
value (the "Series B-1 Preferred Stock"), of the Company. In addition, on the
Closing Date the Company shall pay to the Buyer an amount equal to $30,000
(the "Cash Payment") as payment in full for all accrued and unpaid dividends
on the Series B Preferred Stock and any and all amounts payable to the Buyer
pursuant to Section 2(c) of the Registration Rights Agreement. The Series B-1
Preferred Shares shall have the rights, designations and terms as set forth
in the form of Certificate of Designations attached hereto as ANNEX I (the
"Certificate of Designations"). The shares of Common Stock issuable upon
conversion of the Series B-1 Preferred Shares are referred to herein as the
"Common Shares." The Common Shares and the Series B-1 Preferred Shares are
referred to herein collectively as the "Shares."
(b) CLOSING. The exchange of Series B-1 Preferred Shares for
Series B Preferred Shares shall occur at a closing (the "Closing") to be held
on the date which is four New York Stock Exchange trading days after the date
on which the Company and the Buyer shall have executed and delivered this
Agreement one to the other. The Closing shall occur on the Closing Date at
the offices of the Escrow Agent.
(c) ESCROW DELIVERIES. The Buyer shall deliver the Series B
Preferred Shares to be exchanged pursuant to this Agreement to the escrow
agent (the "Escrow Agent") identified in the Joint Escrow Instructions
attached hereto as ANNEX II (the "Joint Escrow Instructions") within two
business days after the execution and delivery of this Agreement by the
parties hereto. Such delivery of certificates shall be made against delivery
by the Company of the certificates
<PAGE>
for the Series B-1 Preferred Shares to be issued in accordance with this
Agreement registered in the name of the Buyer. Promptly following delivery by
the Buyer to the Escrow Agent of the Series B Preferred Shares to be
exchanged pursuant to this Agreement, but in no event later than the Closing
Date, the Company shall deliver (x) certificates for the Series B-1 Preferred
Shares to be issued in accordance with this Agreement, registered in the name
of the Buyer, and (y) an amount equal to the sum of the Cash Payment plus the
expenses of the Buyer payable pursuant to Section 4(e) in immediately
available funds 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.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.
The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:
(a) The Buyer is purchasing the Series B-1 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 Series B-1 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, acknowledgements 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 Series B 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 Series B-1
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 following documents of the Company: (1) Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, (2) Quarterly Reports on Form 10-Q
for the fiscal quarters ended March 31, 1996, June 30, 1996 and September 30,
1996, (3) Current Reports on Form 8-K, dated October 17, 1996, October 25,
1996 and Amendment No. 1 on Form 8-K/A dated November 8, 1996 and (4)
definitive Proxy Statement for the Company's 1996 Annual Meeting of
Stockholders, in each case as filed with 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
-2-
<PAGE>
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 Series B-1 Preferred Shares have
been duly authorized and the Series B-1 Preferred Shares, when issued in
exchange for the Series B Preferred Shares in accordance with this Agreement,
and the Common Shares, when issued upon conversion of the Series B-1
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,
1995 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) EXCHANGE AGREEMENT. This Agreement has been duly and validly
authorized, executed and delivered by the Company and is the valid and
binding agreement of the Company 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; 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 Series B-1 Preferred Shares and the other transactions contemplated by
this Agreement and the terms of the Series B-1 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 or filing
with 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 Series B-1 Preferred Stock,
other than (1) listing of the Common Shares on Nasdaq and (2) the
requirements of any applicable blue sky laws.
(e) SEC REPORTING STATUS AND FILINGS. The Company has timely
filed with
-3-
<PAGE>the SEC all reports and other information required to be filed under
Sections 13(a), 14 and 15(d) of the Securities Act of 1934, as amended (the
"1934 Act"). All of such forms, reports and other documents complied, when
filed, in all material respects, with all applicable requirements of the 1933
Act and the 1934 Act. Since December 31, 1995, the Company has not filed any
reports or other information with the SEC pursuant to Sections 13(a), 14 and
15(d) of the 1934 Act other than the reports and other information identified
in Section 2(e) hereof.
(f) INFORMATION PROVIDED. The information provided by or on
behalf of the Company to the Buyer in connection with the transactions
contemplated by this Agreement, including, without limitation, the
information 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
circumstances under which they are made, not misleading.
(g) 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, condition (financial or other), results
of operations or prospects of the Company, except as disclosed in the
documents referred to in Section 2(e) hereof.
(h) ABSENCE OF CERTAIN PROCEEDINGS. 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.
(i) EXCHANGE OF STOCK; NO BROKERS, ETC. The Company has not and
will not pay any commission or other remuneration for soliciting exchanges of
Series B Preferred Shares for Series B-1 Preferred Shares. No broker, finder
or similar person is entitled to any commission, fee or other compensation by
reason of the transactions contemplated by this Agreement and the Company
shall pay, and indemnify and hold harmless the Buyer from, any claim made
against the Buyer by any person for any such conversion, fee or other
compensation.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(a) TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) the
Series B-1 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, dated as of August 9, 1996, by and between the Company and
the Buyer (as amended hereby, 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
-4-
<PAGE>
the terms and conditions of any exemption thereunder (other than pursuant to
the Registration Rights Agreement).
(b) RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that
the certificates for the Series B-1 Preferred 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 Series B-1 Preferred
Shares);
The securities representing 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) REPORTING STATUS. So long as the Buyer beneficially owns any
of the Series B-1 Preferred Shares of 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 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.
(d) 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 Series B-1 Preferred Shares for sale to the Buyer pursuant
to this Agreement and the Common Shares for issuance to the Buyer on
conversion of the Series B-1 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 Series B-1 Preferred Shares to the Buyer pursuant to this
Agreement and the issuance of the Common Shares to the Buyer on conversion of
the Series B-1 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.
(e) CERTAIN EXPENSES. Whether or not 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 (not to exceed $15,000 if the Closing Date is
on or before April 4, 1997). The obligations of the Company under the
provisions of this Section 4(e) shall be in addition to the obligation of the
Company for expenses under the Registration Rights Agreement.
(f) CERTAIN ISSUANCES OF SECURITIES. Unless the Company obtains
Stockholder 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 Series B-1 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 replacement provision thereof).
(g) BEST EFFORTS. Each of the parties shall use its best efforts
timely to satisfy each of the conditions to the other party's obligations to
exchange Series B Preferred Shares for Series B-1 Preferred Shares set forth
in Section 6 or 7, as the case may be, of this Agreement on or before the
Closing Date.
(h) REGISTRATION STATEMENT. In addition to its obligations under
Section 2(a) of the Registration Rights Agreement, the Company shall file a
Registration Statement on Form S-3 (the "Registration Statement") relating to
the Registrable Securities (as defined in the
-5-
<PAGE>
Registration Rights Agreement) with the SEC on or before April 30, 1997.
(i) AMENDMENTS OF REGISTRATION RIGHTS AGREEMENT. If the Closing
shall occur, from and after the Closing Date the Registration Rights
Agreement shall be amended as follows:
(1) The two recitals to the Registration Rights Agreement shall be
so amended by deleting the existing text of such recitals in their entirety
and substituting in lieu thereof the following:
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 "Series B Preferred
Shares") of Preferred Stock of the Company as provided in the
Subscription Agreement and in connection with the Exchange Agreement,
dated as of April 2, 1997, between the Initial Investor and the Company
(the "Exchange Agreement"), the Company and the Buyer have agreed to
exchange 250 Series B Preferred Shares for 250 shares (the Series B-1
Preferred Shares, and, together with the Series B Preferred Shares,
the "Preferred Shares") of a new series of Preferred Stock of the
Company, which Preferred Shares are convertible into shares (including
the related rights, the "Conversion Shares") of Common Stock, $.001 par
value, of the Company 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"); and
WHEREAS, to induce the Initial Investor to execute and deliver
the Subscription Agreement and the Exchange 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;
(2) The first sentence of Section 2(a) of the Registration Rights
Agreement is so amended by deleting the figure "200,000" and substituting in
lieu thereof the figure "500,000".
(3) Section 2(c) of the Registration Rights Agreement is so
amended by deleting the existing text of Section 2(c) in its entirety and
substituting in lieu thereof the following:
(c) Pursuant to the Exchange Agreement, all amounts
originally payable pursuant to this Section 2(c) are deemed to have been
satisfied and the Initial Investor has waived any further claim with
respect to such amounts. 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 (1) filed with the SEC on or
before April 30, 1997 or (2) declared effective by the SEC on or before
July 31, 1997, then in either such case 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 one percent (1%) of
the aggregate subscription price paid by the Initial Investor for 250
Series B Preferred Shares pursuant to the Subscription Agreement (each,
a "Periodic Amount"); PROVIDED, HOWEVER, that if any Computation Date is
less than seven days subsequent to another Computation Date, then the
Periodic Amount payable
-6-
<PAGE>
on the later Computation Date shall be pro rated. The Periodic Amount shall
be paid by the Company within two business days after each Computation Date
and shall be payable in cash by wire transfer of immediately available funds
to the Initial Investor. If the Company fails to make any payment of a
Periodic Amount in full when due hereunder then, in lieu of such payment of a
Periodic Amount the Conversion Percentage (as defined in the Certificate of
Designations for the Series B-1 Preferred Shares (the "Certificate of
Designations")) applicable to the Series B-1 Preferred Shares shall be
reduced as provided in the Certificate of Designations. Notwithstanding any
other provision of this Section 2(c), in no event shall the Company be
obligated to pay any Payment Amount for any period subsequent to on the date
on which Investors may sell all Registrable Securities (as defined in the
Rights Agreement) pursuant to Rule 144 under the Securities Act in a period
of 90 consecutive days (in which case a Payment Amount shall be due with
respect to such date as if such date were a Computation Date).
As used in this Section 2(c), the following term shall have the
following meaning:
"Computation Date" means
(1) if the Registration Statement is not filed by the Company with
the SEC on or before April 30, 1997:
(A) May 7, 1997, if the Company has not filed the
Registration Statement with the SEC on or before such date;
(B) each date which is seven calendar days subsequent to May 7,
1997, in each such case if the Company has not filed the Registration Statement
with the SEC on or before such subsequent date; and
(C) the date on which the Company files the Registration
Statement with the SEC; and
(2) if the Registration Statement has not been declared effective
by the SEC on or before July 31, 1997:
(A) August 7, 1997, unless the Registration Statement has been
declared effective by the SEC on or before August 7, 1997;
(B) each date which is seven calendar days subsequent to
August 7, 1997, in each such case unless the Registration Statement has not been
declared effective by the SEC on or before such subsequent date; and
(C) the date on which the Registration Statement is declared
effective by the SEC;
PROVIDED, HOWEVER, that if more than one event which could give rise to a
Computation Date during any period shall have occurred, only one of such
events shall be deemed to result in a Computation Date so that the Periodic
Payments provided herein by reason of the occurrence of a Computation Date
shall be made only once in respect of any period of time and then in the
maximum amount based on all such Computation Dates.
5. TRANSFER AGENT INSTRUCTIONS; CONVERSION PROCEDURE.
(a) TRANSFER AGENT INSTRUCTIONS. Promptly following the delivery
by the
-7-
<PAGE>
Buyer of the certificates for the Series B Preferred Shares in accordance
with Section 1(c) hereof, and in any event prior to the Closing Date, the
Company will (1) irrevocably instruct Corporate Stock Transfer, as Transfer
Agent and Registrar (the "Transfer Agent"), pursuant to an agreement
substantially in the form attached hereto as ANNEX III (the "Transfer Agent
Agreement") to issue certificates for the Common Shares from time to time
upon conversion of the Series B-1 Preferred Shares in such amounts as
specified from time to time to the Transfer Agent in the Notices of
Conversion surrendered in connection with such conversions and referred to in
Section 5(b) of this Agreement and (2) appoint the Transfer Agent the
conversion agent for the Series B-1 Preferred Stock. The Company agrees to
enter into the Transfer Agent Agreement substantially in the form attached
hereto as ANNEX III on or prior to the Closing Date. The certificates for the
Common Shares may bear the restrictive legend specified in Section 4(b) of
this Agreement prior to registration of the resale of the Common Shares under
the 1933 Act. Common Shares shall be issued and 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 Series B-1 Preferred Shares. The
Company warrants that no instruction other than (x) such instructions
referred to in this Section 5, (y) stop transfer instructions to give effect
to Section 4(a) hereof prior to registration of the resale of the Common
Shares under the 1933 Act and (z) the instructions required by Section 3(n)
of the Registration Rights Agreement 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 limit in any
way the Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of the Shares. 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 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. Nothing in this
Section 5(a) shall limit the obligations of the Company under Section 3(n) of
the Registration Rights Agreement.
(b) CONVERSION PROCEDURE. In connection with the exercise of
conversion rights relating to the Series B-1 Preferred Shares, the Buyer or
any subsequent holder of the Series B-1 Preferred Shares shall complete, sign
and furnish to the Transfer Agent a Notice of Conversion in the form attached
hereto as ANNEX IV, which shall be deemed to satisfy all requirements of the
Certificate of Designations.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO EXCHANGE AND ISSUE.
The Buyer understands that the Company's obligation to issue the
Series B-1 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 the certificates
for the Series B Preferred Shares to be exchanged in accordance with Section
1(c) hereof; and
(c) The accuracy of 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.
-8-
<PAGE>
7. CONDITIONS TO THE BUYER'S OBLIGATION TO EXCHANGE.
The Company understands that the Buyer's obligation to exchange the
Series B Preferred Shares on the Closing Date is conditioned upon:
(a) Delivery by the Company to the Escrow Agent of the
certificates for the Series B-1 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 the Closing Date and receipt by the Buyer of a certificate, dated the
Closing Date, of the Chief Executive Officer or the Chief Financial Officer
of the Company confirming such matters and such other matters as the Buyer
may reasonably request;
(c) The receipt by the Buyer of confirmation of the filing with
the Secretary of State of the State of Delaware of the Certificate of
Designations in the form attached hereto as ANNEX I;
(d) The receipt by the Buyer of a certificate, dated the Closing
Date, of the Secretary of the Company certifying (1) the Certificate of
Incorporation and By-Laws of the Company as in effect on the Closing Date,
(2) all resolutions of the Board of Directors (and committees thereof) of the
Company relating to this Agreement and the transactions contemplated hereby
and (3) such other matters as reasonably requested by the Buyer; and
(e) 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.
8. MISCELLANEOUS.
(a) This Agreement shall be governed 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
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) No failure or delay by any party in exercising any right or
remedy under this Agreement or otherwise, and no course of dealing between
the parties, shall operate as a waiver thereof or amendment of this
Agreement, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right
or power, preclude any other or further exercise thereof or exercise of any
other right or power.
-9-
<PAGE>
(f) Neither this Agreement nor any term thereof (including this
paragraph) may be amended, changed, waived, discharged or terminated unless
such amendment, change, waiver, discharge or termination is in writing signed
by the party to be charged with enforcement.
(g) 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, Attention: Chief Financial Officer
(telephone line facsimile number 714-833-3990, in the case of the Company,
and as set forth on the signature page hereof, in the case of the Buyer),
with a copy to: Pangaea Asset Management, Inc., 250 Kitchawan Road, South
Salem, New York 10590 (telephone line facsimile number 914-533-5124) 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
and telephone line facsimile transmission number for any notice required or
permitted to be given to the Buyer pursuant to the Certificate of
Designations or the Registration Rights Agreement the address and telephone
line facsimile transmission number set forth on the signature page hereof,
until the Buyer shall by notice to the Company designate another address or
telephone line facsimile transmission number for such purpose.
(h) The Buyer shall have the right to assign its rights and
obligations under this Agreement with respect to the exchange of all or any
portion of the Series B 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 exchange of the
portion of the Series B 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 exchange of
all or the portion of the Series B Preferred Shares the obligation for the
exchange 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 Series B-1 Preferred
Shares with respect to which the exchange under this Agreement has been so
assigned.
(i) The respective representations, warranties, covenants and
agreements of the Buyer and the Company contained in this Agreement or made
by or on behalf of them, respectively, pursuant to this Agreement shall
survive the delivery of payment for the Preferred Shares and shall remain in
full force and effect regardless of any investigation made by or on behalf of
them or any person controlling or advising any of them.
(j) This Agreement and its Annexes and the Registration Rights
Agreement set forth the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
understandings, whether written or oral, with respect thereto.
(k) The Buyer shall have the right to terminate this Agreement by
giving notice to the Company at any time at or prior to the Closing Date if:
(1) the Company shall have failed, refused, or been unable at or
prior to the date of such termination of this Agreement to perform any of its
obligations hereunder;
(2) any other condition of the Buyer's obligations hereunder is
not fulfilled; or
(3) the closing shall not have occurred on a Closing Date on or
before April 4,
-10-
<PAGE>
1997, other than solely by reason of a breach of this Agreement by
the Buyer.
Any such termination shall be effective upon the giving of notice thereof by
the Buyer. Upon such termination, the Buyer shall have no further obligation
to the Company hereunder and the Company shall remain liable for any breach
of this Agreement or the other documents contemplated hereby which occurred
on or prior to the date of such termination.
(l) From and after the Closing Date, all references in the
Registration Rights Agreement to the Registration Rights Agreement shall be
deemed to be references to the Registration Rights Agreement as amended
hereby.
(m) The Subscription Agreement, dated as of August 9, 1996, by and
between the Company and the Buyer (the "Subscription Agreement") and, except
as amended by this Agreement, the Registration Rights Agreement, shall remain
in effect in accordance with their respective terms notwithstanding the
execution and delivery of, and Closing under, this Agreement. Notwithstanding
the foregoing, the Buyer agrees not to commence any action, suit or
proceeding relating to any claim for any breach of the Company's covenants or
obligations under the Subscription Agreement or the Registration Rights
Agreement as may have occurred prior to the execution and delivery of, and
the Closing under, this Agreement (collectively, "Prior Claims") from the
date of execution and delivery of this Agreement by the parties hereto
through July 31, 1997, subject to the following:
(1) if the Registration Statement is declared effective by
the SEC on or before July 31, 1997, then the Buyer waives forever all
rights regarding the Prior Claims;
(2) if the Registration Statement is not declared effective
by the SEC on or before July 31, 1997, then the Buyer thereafter will
not be required to forebear from commencing actions, suits or
proceedings regarding any Prior Claim; and
(3) upon conversion of all of the Series B-1 Preferred Shares
and the sale by the Buyer of all of the Common Shares, the Buyer shall
waive forever all rights regarding the Prior Claims.
-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.
PANGAEA FUND LIMITED
By: /s/ PANGAEA FUND LIMITED
------------------------
Title:
Address: MeesPierson Fund
Services (Bahamas) Ltd.
Windemere House
404 East Bay street
Nassau
The Bahamas
Facsimile Number: (242) 394-3284
MONTEREY PASTA COMPANY
By: /s/ Kenneth A. Steel Jr.
-------------------------
Title: Chief Executive Officer
-12-
<PAGE>
ANNEX I
TO
EXCHANGE
AGREEMENT
MONTEREY PASTA COMPANY
CERTIFICATE OF DESIGNATIONS
OF
SERIES B-1 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 the 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, at a meeting duly
called and held on March 12, 1997, 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-1 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-1
Cumulative Preferred Stock" (hereinafter referred to as "Series B-1 Preferred
Stock"), consisting of 250 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 this reference.
<PAGE>
IN WITNESS WHEREOF, Monterey Pasta Company has caused its corporate
seal to be hereunto affixed and this certificate to be signed by ,
its President and Chief Executive Officer, as of the day of April 1997.
-------------------------------------------
-2-
<PAGE>
ANNEX 1
TO
CERTIFICATE
OF
DESIGNATIONS
SERIES B-1 CONVERTIBLE PREFERRED STOCK
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series B-1 Convertible Preferred Stock" (the "Series
B-1 Convertible Preferred Stock"), and the number of shares constituting the
Series B-1 Convertible Preferred Stock shall be 250, 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-1 Convertible Preferred Stock
shall be the greater of(a) the sum of (1) $1,150, (2) to the extent legally
available, the accrued but unpaid dividends on such share of Series B-1
Convertible Preferred Stock, PLUS (3) an amount equal to the accrued and
unpaid interest on dividends in arrears (as provided in Section 4) through
the date of determination and (b) an amount equal to the product obtained by
multiplying (x) the number of shares of Common Stock which would, at the time
of such determination, be issuable on conversion in accordance with Section
9(a) of one share of Series B-1 Convertible Preferred Stock and any accrued
and unpaid dividends thereon and any accrued and unpaid interest on dividends
thereon in arrears if a Conversion Notice (as defined herein) were given by
the holder of such share of Series B-1 Convertible Preferred Stock on the
date of such determination (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 date of such
determination. The Corporation shall take such action as may be required to
maintain the amount required by this Section 2 to be represented in stated
capital for the Series B-1 Convertible Preferred Stock not less frequently
than monthly.
SECTION 3. RANK. All Series B-1 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-1 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 $80.00 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 April 1, 1997 and
shall be payable in cash quarterly on March 1, June 1, September 1, and
December 1 of each year commencing June 1, 1997 (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-1 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
A-1
<PAGE>
Corporation as hereinafter provided. The amount of the dividends payable per
share of Series B-1 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 capital stock of
the Corporation ranking junior as to dividends to the Series B-1 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-1 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-1 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-1 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-1 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-1 Convertible
Preferred Stock. No full dividends shall be paid or declared and set apart
for payment on the the Series B-1 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-1
Convertible Preferred Stock and Parity Dividend Stock, all dividends paid or
declared and set apart for payment upon shares of Series B-1 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-1 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-1
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 to exercise of its sole discretion
to issue shares of Common Stock in payment of dividends on the Series B-1
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-1 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-1
Convertible Preferred Stock subsequent to the third trading day after a
dividend payment date, the percentage used to
A-2
<PAGE>
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 B-1 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-1 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-1
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-1 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-1 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)
A-3
<PAGE>
$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-1 Convertible Preferred Stock
(collectively, the "Junior Liquidation Stock"); PROVIDED, HOWEVER, that such
rights shall accrue to the holders of Series B-1 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-1 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-1 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-1 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-1 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-1
Convertible Preferred Stock shall not be subject to mandatory redemption by
the Corporation.
SECTION 7. NO SINKING FUND. The shares of Series B-1 Convertible
Preferred Stock shall not be subject to the operating 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-1 Convertible Preferred Stock (including, without
limitation, its obligations under the Registration Rights Agreement between
the Corporation and the original holder of the Series B-1 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-1 Convertible Preferred Stock
to be redeemed, at any time on or after the date of initial issuance of
shares of Series X Convertible Preferred Stock (the "Issuance Date") to
redeem at any time all, and from time to time any part of the Series B-1
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-1 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-1 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 B-1 Convertible
Preferred Stock pursuant to this Section 8, (2) the number of shares of
Series B-1 Convertible Preferred Stock held by such holder which are to be
redeemed, (3) the Redemption Price (as hereinafter defined) per share of
Series B-1 Convertible Preferred Stock to be redeemed, determined in
accordance with this Section and (4) the date of redemption of such shares of
Series B-1 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-1 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-1 Convertible Preferred Stock
the Corporation shall make
A-4
<PAGE>
payment to the holders of the shares of Series B-1 Convertible Preferred
Stock to be redeemed in respect of each share of Series B-1 Convertible
Preferred Stock to be redeemed of an amount equal to the greater of (a)
$1,150, plus all accrued but unpaid dividends to the Redemption Date on the
share of Series B-1 Convertible Preferred Stock being redeemed and accrued
but unpaid interest on the dividends on the share of Series B-1 Convertible
Preferred Stock being redeemed 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 B-1 Convertible Preferred Stock, and any accrued and unpaid dividends
thereon and any accrued and unpaid interest on dividends thereon in arrears
if a Conversion Notice were given by the holder of such Series B-1
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 being referred to herein as the
"Redemption Price"). Upon redemption of less than all of the shares of Series
B-1 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-1 Convertible Preferred
Stock which have not been redeemed. Only whole shares of Series B-1
Convertible Preferred Stock may be redeemed. If the Corporation exercises its
right to redeem less than all outstanding shares of Series B-1 Convertible
Preferred Stock, then such redemption shall be made, as nearly as practical,
pro rata among the holders of record of the Series B-1 Convertible Preferred
Stock. No share of Series B-1 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-1
Convertible Preferred Stock may, at any time after the earlier of (x)
July 31, 1997 and (y) the date on which the Registration Statement is first
declared effective by the SEC and on or before two (2) years after the
Issuance Date, upon surrender of the certificates therefor, convert any or
all of their shares of Series B-1 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-1
Convertible Preferred Stock may be converted at the principal executive
offices of the Corporation, the office of any transfer agent for the Series
B-1 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 share of Series B-1 Convertible Preferred Stock being converted, and
(iii) accrued but unpaid interest on the dividends on the share of Series B-1
Convertible Preferred Stock being converted in arrears to the Conversion Date
by (y) the lower of (1) the product of (A) 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) the product of (A) $5.50 (subject to equitable adjustments for stock
splits, stock dividends, combinations, recapitalizations, 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) TIMES (B) the Conversion Percentage, in each case subject to
adjustment as hereinafter provided (the "Conversion Rate"); PROVIDED,
HOWEVER, that in no event shall any holder be entitled to convert any shares
of Series B-
A-5
<PAGE>
1 Convertible Preferred Stock in excess of that number of shares of Series
B-1 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-1 Convertible Preferred Stock) and (2) the
number of shares of Common Stock issuable upon the conversion of the number
of shares of Series B-1 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 dividend 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 on such date on the
principal securities exchange on which such security is traded.
As used herein, "Computation Date" means
(1) if the Registration Statement is not filed by the
Corporation with the SEC on or before April 30, 1997:
(A) May 7, 1997, if the Corporation has not filed the
Registration Statement with the SEC on or before such date;
(B) each date which is seven days subsequent to May 7, 1997,
in each such case if the Corporation has not filed the Registration
Statement with the SEC on or before such subsequent date; and
(C) the date on which the Corporation files the Registration
Statement with the SEC; and
(2) if the Registration Statement has not been declared
effective by the SEC on or before July 31, 1997:
(A) August 7, 1997, unless the Registration Statement has been
declared effective by the SEC on or before August 7, 1997;
(B) each date which is seven days subsequent to August 7, 1997, in
each such case unless the Registration Statement has not been declared
effective by the SEC on or before such subsequent date; and
(C) the date on which the Registration Statement is declared
effective by the SEC;
PROVIDED, HOWEVER, that if more than one event which could give rise to a
Computation Date during any period shall have occurred, only one of such
events shall be deemed to result in a Computation Date so that the
adjustments in the Conversion Percentage provided herein by
A-6
<PAGE>
reason of the occurrence of a Computation Date shall be made only once in
respect of any period of time and then in the maximum amount based on all
such Computation Dates.
As used herein, "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 with respect to
a Conversion Date or a dividend payment date 80%; PROVIDED, HOWEVER, that
notwithstanding any other provision hereof (1) if (x) the Corporation shall
fail to file the Registration Statement with the SEC on or before April 30,
1997, or (y) the Registration Statement is not ordered effective by the SEC
on or before July 31, 1997, and in any such case the Corporation shall fail
to make cash payment on a timely basis in the amount specified in Section
2(c) of the Registration Rights Agreement, then in each such case the
applicable percentage stated above in this paragraph shall be reduced by one
percentage point on each Computation Date (pro rated in the case of any
Computation Date which is less than seven days after a Computation Date) and
(2) the Conversion Percentage applicable to a particular conversion shall be
subject to reduction as provided in Section 9(c)(6); PROVIDED FURTHER,
HOWEVER, that no adjustment pursuant to clause (1) of the first proviso to
this definition shall be made after the date on which the shares of Common
Stock issued or issuable upon conversion of shares of Series B Convertible
Preferred Stock may be sold by all holders thereof pursuant to Rule 144 under
the Securities Act of 1933, as amended, in a period of 90 consecutive days
(in which case the Conversion Percentage shall be adjusted to such date as if
such date were a Computation Date).
As used herein, "Registration Effective Date" shall mean, with
respect to any shares of Series B-1 Convertible Preferred Stock, the date on
which the Registration Statement if 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 Agreement.
As used herein, "SEC" shall mean the United States Securities and
Exchange Commission.
(c) OTHER PROVISIONS. (1) Notwithstanding anything in this
Section 9(c) to the contrary, no change in the Conversion Amount pursuant to
Section 9(c) shall actually be made until the cumulative effect of the
adjustments called for by this Section 9(c) 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(c) and not previously made. Notwithstanding anything in
this Section 9(c), 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-1 Convertible Preferred Stock are at the
time convertible.
(2) The holders of shares of Series B-1 Convertible Preferred
Stock at the close of business on the record date for any dividend payment to
holders of Series B-1 Convertible Preferred Stock shall be entitled to
receive the dividend payable on such shares on
A-7
<PAGE>
the corresponding dividend payment date notwithstanding the conversion
thereof after such dividend payment record date or the Corporation's default
in payment of the dividend due on such dividend payment date; PROVIDED,
HOWEVER, that the holder of shares of Series B-1 Convertible Preferred Stock
surrendered for conversion during the period between the close of business on
any record date for a dividend payment and the opening of business on the
corresponding dividend payment date must pay to the Corporation, within five
days after receipt by such holder, an amount equal to the dividend payable on
such shares on such dividend payment date if such dividend is paid by the
Corporation to such holder. A holder of shares of Series B-1 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-1 Convertible Preferred
Stock on such date, and the converting holder need not make any payment of
the amount of such dividend in connection with such conversion of shares of
Series B-1 Convertible Preferred Stock. Except as provided above, no
adjustment shall be made in respect of cash dividends on Common Stock or
Series B-1 Convertible Preferred Stock that may be accrued and unpaid at the
date of surrender of shares of Series B-1 Convertible Preferred Stock.
(3) The right of the holders of Series B-1 Convertible Preferred
Stock to convert their shares shall be exercised by delivering (which may be
done by telephone line facsimile transmission) to the Conversion agent, as
provided above, a written notice, duly signed by or on behalf of the holder,
stating the number of shares of Series B-1 Convertible Preferred Stock to be
converted in the form specified in the Subscription Agreements (the
"Conversion Notice"). If a holder of Series B-1 Convertible Preferred Stock
elects to convert any shares of Series B-1 Convertible Preferred Stock in
accordance with Section 9(a), such holder shall not be required to physically
surrender the certificate(s) representing such shares of Series B-1
Convertible Preferred Stock to the Corporation unless all of the shares of
Series B-1 Convertible Preferred Stock represented thereby are so converted.
Each holder of shares of Series B-1 Convertible Preferred Stock and the
Corporation shall maintain records showing the number of shares so converted
and the dates of such conversions or shall use such other method,
satisfactory to such holder and the Corporation, so as to not require
physical surrender of such certificates upon each such conversion. In the
event of any dispute or discrepancy, such records of the Corporation shall be
controlling and determinative in the absence of manifest error.
Notwithstanding the foregoing, if any shares of Series B-1 Convertible
Preferred Stock evidenced by a particular certificate therefor are converted
as aforesaid, the holder of Series B-1 Convertible Preferred Stock may not
transfer the certificate(s) representing such shares of Series B-1
Convertible Preferred Stock unless such holder first physically surrenders
such certificate(s) to the Corporation, whereupon the Corporation will
forthwith issue and deliver upon the order of such holder of shares of Series
B-1 Convertible Preferred Stock new certificate(s) of like tenor, registered
as such holder of shares of Series B-1 Convertible Preferred Stock (upon
payment by such holder of shares of Series B-1 Convertible Preferred Stock of
any applicable transfer taxes) may request, representing in the aggregate the
remaining number of shares of Series B-1 Convertible Preferred Stock
represented by such certificate(s). Each holder of shares of Series B-1
Convertible Preferred Stock, by acceptance of a certificate for such shares,
acknowledges and agrees that (1) by reason of the provisions of this
paragraph and Section 8, following conversion of any shares of Series B-1
Convertible Preferred Stock represented by such certificate, the number of
shares of Series B-1 Convertible Preferred Stock represented by such
certificate may be less than the number of shares stated on such certificate
and the number of shares of Common Stock from the Maximum Share Amount
allocated to the shares of Series B-1 Convertible Preferred Stock represented
by such certificate for purposes of conversion of such shares may be less
than the number thereof on such certificate and (2) the Corporation may place
a legend on the certificates for shares of Series B-1 Convertible Preferred
Stock which refers to or describes the provisions of this paragraph. The
Corporation shall pay any tax arising in connection with any conversion of
shares of Series B-1 Convertible Preferred Stock except that
A-8
<PAGE>
the Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery upon
conversion of shares of Common Stock or other securities or property in a
name other than that of the holder of the shares of the Series B-1
Convertible Preferred Stock being converted, and the Corporation shall not be
required to issue or deliver any such shares or other securities or property
unless and until the person or persons requesting the issuance thereof shall
have paid to the Corporation the amount of any such tax or shall have
established to the satisfaction of the Corporation that such tax has been
paid. The number of shares of Common Stock to be issued upon each conversion
of shares of Series C Convertible Preferred Stock shall be the number set
forth in the applicable Conversion Notice which number shall be conclusive
absent manifest error. The Corporation shall notify a holder who has given a
Conversion Notice of any claim of manifest error within one business day
after such holder gives such Conversion Notice and no such claim of error
shall limit or delay performance of the Corporation's obligation to issue
upon such conversion the number of shares of Common Stock which are not in
dispute. A Conversion Notice shall be deemed for all purposes to be in proper
form unless the Corporation notifies a holder of shares of Series B-1
Convertible Preferred Stock being converted within one business day after a
Conversion Notice has been given (which notice shall specify all defects in
the Conversion Notice) and any Conversion Notice containing any such defect
shall nonetheless be effective on the date given if the converting holder
promptly undertakes in writing to correct all such defects.
(4) The Corporation (and any successor corporation) shall take all
action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series B-1 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-1 Convertible Preferred
Stock shall be convertible as herein provided, the Corporation shall at the
same time also make proper provisions 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-1
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-1
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.
(5) In case of any consolidation or merger of the Corporation with
any other corporation (other than a wholly-owned subsidiary of the
Corporation) in which the Corporation is not the surviving corporation, or in
case of any sale or transfer of all or substantially all of the assets of the
Corporation, or in the case of any share exchange pursuant to which all of
the outstanding shares of Common Stock are converted into other securities or
property, the Corporation shall make appropriate provision or cause
appropriate provision to be made so that each holder of shares of Series B-1
Convertible Preferred Stock then outstanding shall have the right thereafter
to convert such shares of Series B-1 Convertible Preferred Stock into the
kind of shares of stock and other securities and property receivable upon
such consolidation, merger, sale, transfer, or share exchange by a holder of
shares of Common Stock into which such shares of Series B-1 Convertible
Preferred Stock could have been converted immediately prior to the effective
date of such consolidation, merger, sale, transfer, or share exchange and on
a basis which preserves the economic benefits of the conversion rights of the
holders of shares of Series B-1 Convertible Preferred Stock on a basis as
nearly as practical as such rights exist hereunder prior thereto. If, in
connection with any such consolidation, merger, sale, transfer, or share
exchange, each holder of shares of Common Stock is entitled to elect to
receive securities, cash,
A-9
<PAGE>
or other assets upon completion of such transaction, the Corporation shall
provide or cause to be provided to each holder of Series B-1 Convertible
Preferred Stock the right to elect the securities, cash, or other assets into
which the Series B-1 Convertible Preferred Stock held by such holder shall be
convertible after completion of any such transaction on the same terms and
subject to the same conditions applicable to holders of the Common Stock
(including, without limitation, notice of the right to elect, limitations on
the period in which such election shall be made, and the effect of failing to
exercise the election). The Corporation shall not effect any such transaction
unless the provisions of this paragraph have been complied with. The above
provisions shall similarly apply to successive consolidations, mergers,
sales, transfers, or share exchanges.
(6) If a holder shall have given a Conversion Notice for shares of
Series B-1 Convertible Preferred Stock, the Corporation shall issue and
deliver to such person certificates for the Common Stock issuable upon such
conversion within three business days after such Conversion Notice is given
and the person converting shall be deemed to be the holder of record of the
Common Stock issuable upon such conversion, and all rights with respect to
the shares surrendered shall forthwith terminate except the right to receive
the Common Stock or other securities, cash, or other assets as herein
provided. If a holder shall have given a Conversion Notice as provided
herein, the Corporation's obligation to issue and deliver the certificates
for Common Stock shall be absolute and unconditional, irrespective of any
action or inaction by the converting holder to enforce the same, any waiver
or consent with respect to any provision thereof, the recovery of any
judgment against any person or any action to enforce the same, any failure or
delay in the enforcement of any other obligation of the Corporation to the
holder of record, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the holder of any obligation
to the Corporation, and irrespective of any other circumstance which might
otherwise limit such obligation of the Corporation to the holder in
connection with such conversion. If the Corporation fails to issue and
deliver the certificates for the Common Stock to the holder converting shares
of Series B-1 Convertible Preferred Stock pursuant to the first sentence of
this paragraph as and when required to do so, in addition to any other
liabilities the Corporation may have hereunder and under applicable law (1)
the Corporation shall pay or reimburse such holder on demand for all
out-of-pocket expenses including, without limitation, fees and expenses of
legal counsel incurred by such holder as a result of such failure, (2) the
Conversion Percentage applicable to such conversion shall be reduced by
two-and-one-half percentage points from the Conversion Percentage applicable
to such conversion and (3) such holder may by written notice (which may be
given by mail, courier, personal service or telephone line facsimile
transmission) or oral notice (promptly confirmed in writing) given at any
time prior to delivery to such holder of the certificates for the shares of
Common Stock issuable upon such conversion of shares of Series B-1
Convertible Preferred Stock, rescind such conversion, whereupon such holder
shall have the right to convert such shares of Series B-1 Convertible
Preferred Stock thereafter in accordance herewith.
(7) No fractional shares of Common Stock shall be issued upon
conversion of Series B-1 Convertible Preferred Stock but, in lieu of any
fraction of a share of Common Stock to purchase fractional shares of Common
Stock which would otherwise be issuable in respect of the aggregate number of
such shares surrendered for conversion at one time by the same holder, the
Corporation 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.
(8) The Conversion Amount shall be adjusted from time to time
under certain circumstances, subject to the provisions of the first three
sentences of Section 9(c)(1), 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
A-10
<PAGE>
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
C1 = C x O + N
-----
O + N x P
-----
M
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
O = the number of shares of Common Stock outstanding on the record date.
N = the number of additional shares of Common Stock issuable pursuant
to the exercise of such rights or warrants.
P = the offering price per share of the additional shares (which amount
shall include amounts received by the Corporation in respect of the
issuance and the exercise of such rights or warrants).
M = the Current 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 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
C1 = C x M
---
M - F
where
C1 = 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.
A-11
<PAGE>
F = the aggregate amount of such cash dividend and/or the fair market
value on the record date of the assets or securities to be distributed
divided by the number of shares of Common Stock outstanding on the record
date. The Board of Directors shall determine such fair market value, which
determination shall be conclusive.
Such adjustment shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution. For purposes of this subparagraph (ii), "Junior Stock" shall
include any class of capital stock ranking junior as to dividends or upon
liquidation to the Series B-1 Convertible Preferred Stock.
(iii) All calculations hereunder shall be made to the nearest
cent or to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant to
Section 9(c)(5), the holder of any Series B-1 Convertible Preferred Stock
thereafter surrendered for conversion shall become entitled to receive
securities, cash, or assets other than Common Stock, the number or amount of
such securities or property so receivable upon conversion shall be subject to
adjustment from time to time in a manner and on terms nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (i) to (iii) above.
(9) Except as otherwise provided above in this Section 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.
(10) Whenever the Conversion Amount is adjusted as herein provided,
the Corporation shall send to each transfer agent, if any, for the Series B-1
Convertible Preferred Stock and the Common Stock, and to the principal
securities exchange, if any, on which the Series B-1 Convertible Preferred
Stock and the Common Stock is traded, or the Nasdaq National Market if the
Series B-1 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 shall given notice by mail to the holders of record of Series B-1
Convertible Preferred Stock, which notice shall be made within 15 days after
the effective date of such adjustment and shall state the adjustment and
Conversion Amount. Notwithstanding the foregoing notice provisions, failure
by the Corporation to give such notice or a defect in such notice shall not
affect the binding nature of such corporate action of the Corporation.
(11) Whenever the Corporation shall propose to take any of the
actions specified in Section 9(c)(5) or in subparagraphs (i) or (ii) of
Section 9(c)(8) 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-1 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.
(12) 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 Section 9(c)(8) if holders of
Series B-1 Convertible Preferred Stock are to participate in the
A-12
<PAGE>
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-1 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-1 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-1 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,
(1) on the date the Registration Statement is first declared effective by the
SEC or on any date within five business days thereafter the Corporation may,
by notice to the holders of the shares of Series B-1, require all of the
outstanding shares of Series B-1 Convertible Preferred Stock to be converted
and (2) on the date which is 730 days after the Registration Effective Date
(the "Mandatory Conversion Date") all of the shares of Series B-1 Convertible
Preferred Stock then outstanding shall be converted, in either such case, 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-1 Convertible Preferred Stock a notice (a "Section 9(d)
Notice"), which shall state (1) the number of shares of Series B-1
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 B-1 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-1 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-1 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-1 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-1 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
Stockholder Approval (or waiver 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-1 Convertible
A-13
<PAGE>
Preferred Stock, more than 321,391 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 the Secretary of State of the State of Delaware, upon
conversion of shares of Series B-1 Convertible Preferred Stock (the "Maximum
Share Amount"). The Maximum Share Amount shall be allocated pro rata among
the initial holders of the Series B-1 Convertible Preferred Stock in the
ratio that the respective number of shares of Series B-1 Convertible
Preferred Stock issued to each holder bears to 250 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-1 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-1 Convertible Preferred Stock
represented by such a certificate. Upon any split up of a certificate for
outstanding shares of Series B-1 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 Maximum Share Amount
allocated to conversions of the shares of Series B-1 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-1 Convertible Preferred
Stock as a consequence of the limitation set forth in Section 9(e)(1) had all
outstanding shares of Series B-1 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-1 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-1 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-1 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-1
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-1 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-1 Convertible
Preferred Stock pursuant to this Section 9(e), (2) the number of shares of
Series B-1 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-1 Convertible Preferred Stock, determined in
accordance with this Section 9(e), and (4) the date of redemption of such
shares of Series B-1 Convertible Preferred Stock; determined in accordance
with this Section 9(e) (the "Special Redemption Date"). On the Special
Redemption
A-14
<PAGE>
Date, the Corporation shall make payment in immediately available funds, out
of funds legally available for such redemption, of the Special Redemption
Price to each holder of shares of Series B-1 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 Special
Redemption Date. Upon redemption of less than all of the shares of Series B-1
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-1 Convertible Preferred Stock which
have not been redeemed. Only whole shares of Series B-1 Convertible Preferred
Stock may be redeemed. If the Corporation is required to redeem less than all
outstanding shares of Series B-1 Convertible Preferred Stock, then such
redemption shall be made, as nearly as practical, pro rata among the holders
of record of the Series B-1 Convertible Preferred Stock. Notwithstanding any
other provision of this Certificate of Designations or any Section 9(e)
Notice, no share of Series B-1 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), "Stockholder Approval" means the
approval by a majority of the votes cast by the holders of shares of Common
Stock (in person or by proxy) at a meeting of the 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-1
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-1 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-1 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-1 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-1 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-1 Convertible Preferred Stock shall
be deemed outstanding except (i) from the date of surrender of certificates
representing shares of Series B-1 Convertible Preferred Stock for conversion
into Common Stock, all shares of Series B-1 Convertible Preferred Stock
converted into Common Stock; (ii) from the date of registration of transfer,
all shares of Series B-1 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-1
Convertible Preferred Stock which are redeemed, so long as in each case the
Redemption Price of such shares of Series B-1 Convertible Preferred Stock
shall have been paid by the Corporation as and when required hereby. For the
purposes of this Certificate of
A-15
<PAGE>
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.
A-16
<PAGE>
Annex II
to
Exchange
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, as Escrow Agent 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 holder of shares (the "Series B
Preferred Shares") of Series B Convertible 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 exchange of the Preferred Shares for shares (the "Series B Preferred
Shares") of Series B-1 Convertible Preferred Stock of the Company 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 certificates for the Series B Preferred Shares to or upon the
order of the Company and shall release the certificate for the Series B-1
Preferred Shares and the Escrow Funds 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(e) 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 (the "Expense Amount"). 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, after deducting an amount equal to the
Expense Amount, release the Escrow Funds and the certificates for the Series
B-1 Preferred Shares to the Company and shall release the certificates for
the Series B Preferred Shares and an amount equal to the Expense Amount to or
upon the order of the Buyer. The Escrow Agent shall deposit all funds
received hereunder in the Escrow Agent's attorney escrow account at Citibank,
N.A. and as promptly as practicable after receipt of such funds deposit the
same in an interest-bearing account. The Escrow Agent shall not be liable for
interest on the Escrow Funds (other than such interest as shall be paid to
the Escrow Agent by its depository
II-1
<PAGE>
bank for the Escrow Funds) for any reason, including by reason of any delay
or mistake in delivery of the Escrow Funds or any other funds held by the
Escrow Agent hereunder.
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 Series B Preferred Shares of Series B-1 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 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 thereto, 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
II-2
<PAGE>
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. (510) 736-5832
BUYER: At the address set forth in the Agreement
Facsimile No. (914) 533-2222
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.
II-3
<PAGE>
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
- ----------------------------------
Brian W. Pusch, as Escrow Agent
II-4
<PAGE> Annex III
to
Exchange
Agreement
TRANSFER AGENT AGREEMENT
THIS TRANSFER AGENT AGREEMENT, dated as of April ____, 1997, by and
among MONTEREY COMPANY, a Delaware corporation (the "Company"), CORPORATE
STOCK TRANSFER, as Transfer Agent and Registrar (the "Transfer Agent"), and
PANGAEA FUND LIMITED, a British Virgin Islands corporation (the "Holder").
W I T N E S S E T H: - - - - - -
- - - - --
WHEREAS, pursuant to an Exchange Agreement, dated as of March __,
1997, by and between the Company and the Holder (the "Exchange Agreement"),
the Holder ha s acquired or will acquire shares (the "Preferred Shares") of
Series B-1 Convertible Preferred Stock, $.001 par value (the "Series B-1
Preferred Stock"), of the Company, and
WHEREAS, as a condition precedent to the obligation of the Holder
to acquire the Preferred Shares, the Holder requires the execution and
delivery of this Agreement by the Company and the Transfer Agent to assure
that the Holder and each other holder of shares of Series B-1 Preferred Stock
will be assured of the timely issuance and receipt of shares of Common Stock,
$.001 par value (the "Common Stock"), of the Company upon conversion of
shares of Series B-1 Preferred Stock;
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 hereto
agree as follows:
1. DELIVERIES BY THE COMPANY. Contemporaneously with the
execution and delivery of this Agreement, the Company is delivering to the
Transfer Agent the following:
(a) a list showing the name and address of each holder of
record of shares of Series B-1 Preferred Stock and the certificate
number, date of issuance and number of shares of Series B-1 Preferred
Stock for each such holder;
(b) an opinion of Gray Cary Ware & Freidenrich, counsel to
the Company, as to the due authorization, validity of issuance and
fully-paid and non-assessable nature of the shares (the "Common Shares")
of Common Stock issuable upon conversion of shares of Series B-1
Preferred Stock and to the effect that the shares of Series B-1
Preferred Stock have been or will be, and the Common Shares may be,
issued to the Investors without registration under the Securities Act of
1933, as amended (the "Securities Act"); and
(c) the form of Notice of Conversion of Convertible Preferred
Stock (the "Conversion Notice") relating to the Series B-1 Preferred
Stock.
2. ISSUANCE OF COMMON SHARES. (a) The Transfer Agent hereby
agrees to act as conversion agent for the Series B-1 Preferred Stock. The
Company hereby irrevocably instructs the Transfer Agent to issue the Common
Shares upon conversion of shares of Series B-1 Preferred Stock from time to
time upon receipt of a Conversion Notice. A Conversion Notice may be given by
telephone line facsimile transmission to the Transfer Agent or otherwise
given to the Transfer Agent, in each such case at the address and in the
manner provided in Section 6(g). The
<PAGE>
certificates for shares of Series B-1 Preferred Stock need not be surrendered
in connection with the conversion thereof by the holder thereof.
(b) The certificates for Common Shares issued prior to receipt by
the Transfer Agent of an opinion of Gray Cary Ware & Freidenrich, Law Offices
of Brian W. Pusch or other counsel (who may be counsel to the Holder)
reasonably acceptable to the Company, that a registration statement under the
Securities Act relating to the resale of Common Shares has been declared
effective by the Securities and Exchange Commission (the "SEC") shall bear
the following legend:
"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."
Once the Transfer Agent receives such opinion of counsel, thereafter (1) upon
surrender of the certificate for Common Shares issued prior to the date the
Transfer Agent receives such opinion of counsel and upon request of the
Holder, the Transfer Agent will prepare and issue within three business days
after such surrender and request substitute certificates without any
restrictive legend for any certificates for Common Shares issued prior to the
date the Transfer Agent receives such opinion of counsel and shall
immediately remove any stop-transfer restriction against such Common Shares
and (2) neither the Company nor the Transfer Agent shall place any
restrictive legend or stop-transfer restriction against Common Shares issued
after the Transfer Agent receives such opinion of counsel.
(c) If the Transfer Agent receives an opinion of counsel (who may
be counsel to the Holder), which counsel shall be reasonably acceptable to
the Transfer Agent, to the effect that the Common Shares may be resold or
otherwise transferred by the holder thereof without registration under the
Securities Act and that no restrictive legend is required by the Securities
ct to appear on the certificates for the Common Shares so sold or
transferred, then upon the sale or other transfer such of Common Shares, upon
surrender of the certificates for Common Shares to be sold or otherwise
transferred and upon request of the Holder, the Transfer Agent will prepare
and issue, within three business days after such surrender and request,
certificates without any restrictive legend and not subject to any
stop-transfer restriction.
3. CONVERSION AND EXERCISE OBLIGATIONS ABSOLUTE; NO CONTRARY
INSTRUCTIONS. (a) If a holder shall have given a conversion of shares of
Series B-1 Convertible Preferred Stock in accordance with Section 2, the
Company shall be obligated to issue and deliver as stated in such Conversion
Notice, and the Transfer Agent hereby agrees to issue and deliver as stated
in such Conversion Notice, the Common Shares issuable upon such conversion
within three business days after such Conversion Notice is given and the
person converting shall be deemed to be the holder of record of the Common
Shares issuable upon such conversion, and all rights with respect to the
shares of Series B-1 Preferred Stock so converted shall forthwith terminate
except the right to receive the Common Shares or other securities, cash, or
other assets as provided in the Certificate of Designations of the Series B-1
Preferred Stock (the "Certificate of Designations"). The Transfer Agent
acknowledges and agrees that, if a holder shall have given a Conversion
Notice as provided herein, the Company's obligation to issue and deliver the
certificates for Common Shares upon such conversion shall be absolute and
unconditional, irrespective of any action or inaction by the converting
holder to enforce the same, any waiver or consent with respect to any
provision thereof, the recovery of any judgment against any person or any
action to enforce the same, any failure or delay in the enforcement of any
other obligation of the Company to the holder of record, or any set off,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the holder of any obligation to the Company, and
-2-
<PAGE>
irrespective of any other circumstance with might otherwise limit such
obligation of the Company to the holder in connection with such conversion or
exercise.
(b) The Company agrees not to give any instruction to the Transfer
Agent which is contrary to this Agreement. The Transfer Agent hereby agrees
that it will disregard any request, instruction or other communication from
or on behalf of the Company which is contrary to or inconsistent with this
Agreement. The Company shall not appoint any transfer agent (other than the
Transfer Agent) or registrar for its Common Stock unless at the time of such
appointment any such successor enters into an agreement of like tenor with
this Agreement.
(c) As set forth in Section 9(c)(3) of the Certificate of
Designations, the number of Common Shares to be issued in connection with a
particular conversion of shares of Series B-1 Preferred Stock is, absent
manifest error, conclusively the number of Common Shares stated in the
applicable Conversion Notice. If in connection with a particular conversion
of shares of Series B-1 Preferred Stock the Company determines that manifest
error has been made by virtue of the conversion price or other information
set forth in the applicable Conversion Notice, the Company shall have the
right immediately to notify the Transfer Agent of such error, which notice
shall state the number of Common Shares in dispute, and, notwithstanding such
notice from the Company, the Transfer Agent shall issue and deliver the
number of Common Shares not in dispute as and when required by this
Agreement. If the Company shall have notified the Transfer Agent of any such
manifest error, the Company shall on the date such notice is given submit the
dispute to BDO Seidman, LLP or another firm of independent public accountants
of recognized national standing (the "Auditors") for determination and shall
instruct the Auditors to resolve such dispute and to notify the Company, the
Transfer Agent and the converting holder of shares of Series B-1 Convertible
Preferred Stock within one business day after such dispute is submitted to
the Auditors. Immediately after receipt of timely notice of the Auditor's
determination (but in any event within three business days after the
applicable Notice of Conversion is given to the Transfer Agent), the Transfer
Agent shall issue to the converting holder any additional Common Shares to
which such holder is entitled based on the determination of the Auditor. The
Transfer Agent is authorized and directed to rely on the Auditor's
determination. If the Auditors shall fail to notify the Transfer Agent of
their determination within three business days after the applicable
Conversion Notice is given to the Transfer Agent, then the Transfer Agent
shall, within three business days after receipt of the applicable Notice of
Conversion, issue to the converting holder any additional shares of Common
Stock to which the holder is entitled based on the applicable Conversion
Notice. Such immediate and prompt action shall be taken by all the parties
hereto in order to assure that there shall be full compliance with the
Company's unqualified obligation that all Common Shares issuable upon such
conversion be issued by the due date therefor as provided herein and in the
Certificate of Designations.
4. TRANSFER AGENT DUTIES. The obligations and duties of the
Transfer Agent under this Agreement are at all times and in all respects
subject to the requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations of the SEC
thereunder applicable to transfer agents registered with the SEC.
5. INDEMNIFICATION. The Company agrees to indemnify and hold
harmless the Transfer Agent, each officer, director, employee and agent of
the Transfer Agent, and each person, if any, who controls the Transfer Agent
within the meaning of the Securities Act or the Exchange Act against any
losses, claims, damages or liabilities, joint or several, to which it, they
or any of them, or such controlling person, may become subject, under the
Securities Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon the performance by the Transfer Agent of its duties
pursuant to this Agreement; and will reimburse the Transfer Agent, and each
officer, director, employee and agent of the Transfer Agent, and each such
controlling person for any legal or other expenses reasonably incurred by it
or any of them in connection with investigating or defending
-3-
<PAGE>
any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that
the Company will not be liable in any case if such loss, claim, damage or
liability arises out of or is based upon any action not taken in good faith,
or any action omission that constitutes gross negligence or willful
misconduct. Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the Company under this
Section, notify in writing the Company of the commencement thereof, and
failure so to notify the Company will relieve the Company from any liability
under this Section as to the particular item for which indemnification is
then being sought if such failure shall have materially prejudiced the
Company's right to defend or contest such action, but not from any other
liability which it may have to any indemnified party. In case any such action
is brought against any indemnified party, and it notifies the Company of the
commencement thereof, the Company will be entitled to participate with any
other indemnifying party, similarly notified, to assume the defense thereof,
with counsel who shall be to the reasonable satisfaction of such indemnified
party, and after notice from indemnifying party to such indemnified party
under this Section for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonably costs of investigation. The Company shall not be liable to any
such indemnified party on account of any settlement of any claim of action
effected without the consent of the Company.
6. 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
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) No failure or delay by any party in exercising any right or
remedy under this Agreement or otherwise, and no course of dealing between
the parties, shall operate as a waiver thereof or amendment of this
Agreement, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right
or power, preclude any other or further exercise thereof or exercise of any
other right or power.
(f) Neither this Agreement nor any term thereof (including this
paragraph) may be amended, changed, waived, discharged or terminated unless
such amendment, change, waiver, discharge or termination is in writing signed
by the party to be charged with enforcement.
(g) 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 as follows:
-4-
<PAGE>
if to the Company:
Monterey Pasta Company 1528 Moffat Street Salinas, California
93905
Attention: Chief Financial Officer
Facsimile No.: (714) 833-3990
if to the Transfer Agent:
Corporate Stock Transfer, as Transfer Agent and Registrar
370 17th Street, Suite 2350 Denver, Colorado 80202-4612
Attention: Carylyn Bell
Facsimile No.: (303) 592-8821
if to the Holder:
Pangaea Fund Limited c/o MeesPierson Fund Services (Bahamas)
Limited Windermere House 404 East Bay Street Nassau, Bahamas
Facsimile No.: (809) 393-8777
with a copy to:
Pangaea Asset Management, Inc. 250 Kitchawan Road South Salem,
New York 10590
Facsimile No.: (914) 533-5124
or such other address as a party shall have provided by notice to the other
party in accordance with this provision.
(h) This Agreement is expressly made for the benefit of the
holders of record from time to time of the Preferred Shares and the Common
Shares and may not be changed, amended or modified to diminish or adversely
affect the rights of such holders hereunder without the prior written consent
of all such holders so affected.
-5-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto by their respective officers or other representatives
thereunto duly authorized as of the date first set forth above.
MONTEREY PASTA COMPANY
By_____________________
Name:
Title:
CORPORATE STOCK TRANSFER,
as Transfer Agent and Registrar
By______________________
Name:
Title:
PANGAEA FUND LIMITED
By_______________________
Name:
Title:
-6-
<PAGE>
Annex IV
to
Exchange
Agreement
NOTICE OF CONVERSION OF CONVERTIBLE
PREFERRED STOCK
SERIES B-1 CONVERTIBLE PREFERRED STOCK OF
MONTEREY PASTA COMPANY
TO: Corporate Stock Transfer, as Conversion Agent 370 17th Street
Suite 2350 Denver, Colorado 80202-4612
Attention:___________
Facsimile No.: (303) _____________
(1) Pursuant to the terms of the Series B-1 Convertible Preferred
Stock (the "Preferred Stock"), the undersigned hereby elects to convert
________ shares of the Preferred Stock together with accrued and unpaid
dividends thereon in the amount of $_________ and interest on dividends in
arrears in the amount of $________ 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. Capitalized terms used in this Notice and not defined
herein have the respective meanings provided in the Certificate of
Designations for the Preferred Stock.
(2) Please issue 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 of, 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 __________. Check and complete one of
the following:
_____ The undersigned elects to convert based on
the five-day arithmetic average of the Closing Price
of the Common Stock. 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:
IV-1
<PAGE>
Date Closing Price
---- -------------
__________________ ________________________
__________________ ________________________
__________________ ________________________
__________________ ________________________
__________________ ________________________
Arithmetic Average: $______
OR
_____ The undersigned elects to convert based on
the fixed price of the Common Stock of $__________
applicable to conversions of Preferred Stock.
(4) The number of shares of Common Stock issuable upon the
conversion to which this Notice relates is _________.
(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 public distribution thereof other than pursuant to
registration under the Act, and that the undersigned has no present intention
of distributing or reselling the shares of Common Stock not so registered
other than pursuant to registration under the Act 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 Exchange Act, dated as of April ____, 1997.
Date______________________ ______________________________________
Signature of Holder (Must be
signed exactly as name appears on
the Preferred Stock Certificate.)
IV-2
<PAGE>
Annex V
to
Exchange
Agreement
[LETTERHEAD OF COMPANY COUNSEL.]
[Date of Closing]
Pangaea Fund Limited c/o MeesPierson Fund Services (Bahamas) Limited
Windemere House 404 East Bay Street P.O. Box 55-6258 Nassau, The Bahamas
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 Exchange Agreement, dated as of March ____, 1997 (the
"Agreement"), between the Company and Pangaea Fund Limited, a British Virgin
Islands corporation. All capitalized terms used herein shall, unless
otherwise defined herein or the context otherwise requires, have the
respective meanings assigned to such terms in the Agreement.
[Other introductory statements acceptable to the Buyer may be included]
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 the State of Delaware and has all
requisite corporate power and authority to conduct its business as currently
conducted;
(2) The Company has all requisite corporate power and authority to
enter into the Agreement and the Transfer Agent Agreement and to consummate
the transactions contemplated thereby. The execution, delivery and
performance by the Company of the Agreement and the Transfer Agent 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 Transfer Agent Agreement have been duly executed and
delivered by the Company and constitute 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;
V-1
<PAGE>
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,
cc: Corporate Stock Transfer
V-3
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into as of ________________, by and among Monterey Pasta Company, a Delaware
corporation (the "Company"), Sentra Securities Corporation, a California
corporation ("Sentra"), and _________________ ("Investor").
RECITALS
A. Investor purchased shares of the Company's common stock, no par value
(the "Common Stock"), pursuant to a Private Placement Memorandum dated December
31, 1996 relating to the sale by the Company of up to 1,600 units ("Unit"), each
Unit consisting of one thousand (1,000) shares of Common Stock (the
"Memorandum"), through Sentra as placement agent for the offering.
B. As a condition to such purchase, Investor has agreed to be bound by
certain restrictions on transfer as more particularly described herein.
C. As an inducement to Investor to purchase Units pursuant to the
Memorandum, the Company agreed to register the shares of Common Stock underlying
such Units, with the Commission, subject to the terms and conditions contained
herein.
D. The Company issued a Warrant to purchase shares of Common Stock to
Sentra for services rendered in the Offering and agreed to register the Shares
underlying the Warrant with the Commission, subject to the terms and conditions
contained herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, and the parties hereto further agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth below:
1.1 "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
1.2 "Effective Date" shall mean the date of the termination of the
Offering.
1.3 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
1.4 "Holder" shall mean each person who holds Registrable Securities
acquired in the Offering and any holder of Registrable Securities to whom the
registration rights conferred by this Agreement have been transferred in
compliance with Section 2 and Section 10 hereof.
<PAGE>
1.5 "Majority Holders" shall mean any Holder or Holders who in the
aggregate hold not less than fifty percent (50%) of the outstanding Registrable
Securities.
1.6 "Offering" shall mean the offering and sale of Units by the
Company pursuant to the Memorandum.
1.7 "Other Shares" shall mean shares of the Company's Common Stock
(including shares of Common Stock issued or issuable upon conversion of shares
of any currently unissued series of Preferred Stock of the Company), other than
the Shares, with registration rights.
1.8 "Other Stockholders" shall mean persons other than Holders who,
by virtue of agreements with the Company, are entitled to include their
securities in certain registrations hereunder.
1.9 "Registrable Securities" shall mean (i) the Shares and (ii) any
shares of Common Stock issued as a dividend or other distribution with respect
to or in exchange for or in replacement of the Shares and Units provided,
however, that Registrable Securities shall not include any shares of Common
Stock which have previously been registered or which have been sold to the
public, or which have been sold in a private transaction in which the
transferor's rights under this Agreement are not assigned.
1.10 The terms "register," "registered" and "registration" shall refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
1.11 "Registration Expenses" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, and expenses of any regular or special audits incident to or
required by any such registration, but shall not include Selling Expenses, fees
and disbursements of counsel for the Holders and the compensation of regular
employees of the Company, which shall be paid in any event by the Company.
1.12 "Restricted Securities" shall mean any Registrable Securities
required to bear the legend set forth in Section 2 hereof.
1.13 "Rule 144" shall mean Rule 144 as promulgated by the Commission
under the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
2
<PAGE>
1.14 "Rule 145" shall mean Rule 145 as promulgated by the Commission
under the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
1.15 "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
1.16 "Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of Registrable
Securities and fees and disbursements of counsel for any Holder (other than the
fees and disbursements of counsel included in Registration Expenses).
1.17 "Shares" shall mean the Company's common stock underlying both
the Units sold in the Offering and the Warrant.
1.18 "Warrant" shall mean the warrant issued to Sentra as placement
agent for services rendered in the Offering.
2. RESTRICTIONS ON TRANSFER.
2.1 Each Holder agrees not to make any disposition of all or any
portion of the Registrable Securities unless and until:
2.1.1 There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
2.1.2 Such Holder shall have (i) notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such disposition will not
require registration of such shares under the Securities Act. It is agreed that
the Company will not require opinions of counsel for transactions made pursuant
to Rule 144 except in unusual circumstances.
2.1.3 Notwithstanding the provisions of this Section, no such
registration statement or opinion of counsel shall be necessary for a transfer
by a Holder which is (i) a partnership to its partner or retired partners in
accordance with a partnership interests, or (ii) to the Holder's family member
or trust for the benefit of an individual Holder, provided the transferee will
be subject to the terms of this Section 2.1 to the same extent as if he were an
original Holder hereunder.
3
<PAGE>
2.2 Each certificate representing Registrable Securities shall
(unless otherwise permitted by the provisions of this Agreement) be stamped or
otherwise imprinted with a legend substantially similar to the following (in
addition to any legend required under applicable state securities laws):
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.
3. REGISTRATION.
3.1 REGISTRATION. As of the date hereof, the Company will: As soon
as practicable, use its best efforts to effect a registration of the Registrable
Securities (including, without limitation, filing post-effective amendments,
appropriate qualifications under applicable blue sky or other state securities
laws, and appropriate compliance with the Securities Act) and as would permit or
facilitate the sale and distribution of all the Registrable Securities.
3.2 FILING OF REGISTRATION STATEMENT. The registration statement
filed pursuant to Section 3.1 may, subject to the provisions of Section 3 and 11
hereof, include other securities of the Company, with respect to which
registration rights have been granted, and may include securities of the Company
being sold for the account of the Company.
3.3 UNDERWRITING. The right of any Holder to registration pursuant
to Section 3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Majority Holders and such Holder with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities he holds.
3.4 PROCEDURES. If the Company shall request inclusion in any
registration pursuant to Section 3 of securities being sold for its own account,
or if other persons shall request inclusion in any registration pursuant to
Section 3, the Majority Holder shall, on behalf of all Holders, offer to include
such securities in the underwriting and may condition such offer on their
acceptance of the further applicable provisions of this Agreement (including
Section 11). The Company shall (together with all Holders and other persons
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
4
<PAGE>
interest of the Majority Holders, which underwriters are reasonably accepted to
the Company. Notwithstanding any other provision of this Section 3, if the
representative of the underwriters advises the Majority Holders in writing that
marketing factors require limitation on the number of shares to be underwritten,
the number of shares to be included in the underwriting or registration shall be
allocated as set forth in Section 11 hereof. If a person who has requested
inclusion in such registration as provided above does not agree to the terms of
any such underwriting, such person shall be excluded therefrom by written notice
from the Company, the underwriter or the Majority Holders. The securities so
excluded shall also be withdrawn from registration. Any Registrable Securities
or other securities excluded shall also be withdrawn from such registration. If
shares are so withdrawn from the registration and if the number of shares to be
included in such registration was previously reduced as a result of marketing
factors pursuant to this Section, then the Company shall offer to all holders
who have retained rights to include securities in the registration the right to
include additional securities in the registration in an aggregate amount equal
to the number of shares so withdrawn, with such shares to be allocated among
such holders requesting additional inclusion in accordance with Section 11.
4. COMPANY REGISTRATION.
4.1 REGISTRATION OF SECURITIES. At any time after two years from the
date hereof, for Holders unable to sell all of their Registrable Securities in a
three month period pursuant to Rule 144, if the Company shall determine to
register any of its securities either for its own account or the account of a
security holder or holders exercising their respective demand registration
rights (other than pursuant to Section 3 hereof), other than a registration
relating solely to employee benefit plans, or a registration relating solely to
a Rule 145 transaction, or a registration on any registration form that does not
permit secondary sales, the Company will:
4.1.1 Promptly give to each such Holder written notice
thereof; and
4.1.2 Use its best efforts to include in such registration
(and any related qualification under blue sky laws or other compliance), except
as set forth in Section 4.2 below, and in any underwriting involved therein, all
the Registrable Securities specified in a written request or requests, made by
any such Holder and received by the Company within twenty (20) days after the
written notice from the Company described in Section 4.1.1 is mailed or
delivered by the Company. Such written request may specify all or a party of
such Holder's Registrable Securities.
4.2 UNDERWRITING. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise such Holders as a part of the written notice given
pursuant to Section 4.1.1. In such event, the right of any such Holder to
registration pursuant to this Section shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders of securities of the Company
with registration rights to participate therein distributing their securities
through such underwriting)
5
<PAGE>
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected by the Company.
4.3 Notwithstanding any other provision of this Section, if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all
Registrable Securities from or limit the number of Registrable Securities to be
included in, the registration and underwriting, the Company shall so advise all
holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and underwriting
shall be allocated first to the Company for securities being sold for its own
account and thereafter as set forth in Section 11. If any person does not agree
to the terms of any such underwriting, he shall be excluded therefrom by written
notice from the Company or the underwriter. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall be withdrawn from
such registration. If shares are so withdrawn from the registration or if the
number of shares of Registrable Securities to be included in such registration
was previously reduced as a result of marketing factors, the Company shall then
offer to all persons who have retained the right to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number os shares so withdrawn, with such shares
to be allocated among the persons requesting additional inclusion in accordance
with Section 11 hereof.
5. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 4 hereof, and the registration pursuant to Section 3 hereof and
reasonable fees of one counsel for the Holders in the case of registration
pursuant to Section 3 shall be borne by the Company. All Selling Expenses
relating to securities to registered shall be borne by the holders of such
securities pro rata on the basis of the number of shares of securities so
registered on their behalf.
6. REGISTRATION PROCEDURES. In the case of each registration effected by
the Company pursuant to this Agreement, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expanse, the Company will use its best efforts to:
6.1 Keep such registration effective until the date that is two years
after the date of the last sale in this Offering or until the
Holder or Holders have completed the distribution described in
the registration statement relating thereto, whichever first
occurs. Such two year period shall be extended for a period of
time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company;
6.2 Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospects used
in connection with such registration statement
6
<PAGE>
as may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement;
6.3 Furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a Holder
from time to time may reasonably request;
6.4 Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed; provided, however, that the Company makes
no representations or warranties with respect to its ability to register its
securities on any securities exchange, or the probable outcome or any such
attempt to register its securities on an exchange;
6.5 Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration;
6.6 Cause the transfer to remove the restrictive legend from the
Shares and deliver certificates without the restrictive legend to Holders that
make such a request; and
6.7 In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 3.1 hereof, the Company will
enter into an underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains customer
underwriting provisions and provided further that if the underwriter so requests
the underwriting agreement will contain customary contribution provisions.
INDEMNIFICATION.
7.1 The Company will indemnify each Holder, each of its legal
counsel, and accountants and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification, or compliance has been affected pursuant to this Agreement, and
each underwrite, if any, and each person who controls within the meaning of
Section 15 of the Securities Act any underwriter, against all expenses, claims,
losses, damages, and liabilities (or actions, proceedings, or settlements in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification, or the like) incident to any such registration, qualification, or
compliance, or based on 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, or any violation by the Company of the Securities Act or
any rule or regulation thereunder applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification, or compliance, and will reimburse each such Holder,
each of its legal counsel and accountants and each person controlling such
Holder, each such underwriter, and each person who controls any such
7
<PAGE>
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending or settling any such claim, loss,
damage, liability, or action, provided that the Company will not be liable in
any such case to the ext that any such claim, loss, damage, liability, or
expense arises out of or is based on untrue statement or omission based upon
written information furnished to the Company by such other or underwriter and
stated to be specifically for use therein. It is agreed that the indemnity
agreement contained in this Section shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent has not
been unreasonably withheld).
7.2 Each Holder will, if Registrable Securities held by him are
included in the securities as to which such registration, qualification, or
compliance is being affected, indemnify the Company, each of its directors,
officers, partners, legal counsel, and accountants and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, each other such Holder and Other Stockholder,
and each of their officers, directors, and partners, and each person controlling
such Holder or Other Stockholder, against all claims losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular, or other
document, or 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, and will reimburse the Company and such Holders, Other Stockholders,
directors, officers, partners, legal counsel, and accountants, persons,
underwriters, or control persons for any legal or any other expenses reasonably
incurred in connection with Investigating or defending any such claim, loss,
damage, liability, or action, in each case to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular, or other
document in reliance upon and in conformity with written information furnished
to the Company by such Holder and stated to be specifically for use therein.
The obligations of such Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld); and provided that in
no event shall in no event shall any indemnity under this Section exceed the
gross proceeds from the offering received by such Holder.
7.3 Each party entitled to indemnification under this Section 7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sou, and shall
permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be reasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any
8
<PAGE>
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement that
does not include as an unconditional term thereof the giving by the claimant
or plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required
in connection with defense of such claim and litigation resulting therefrom.
7.4 If the indemnification provided for in this Section is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or able by such Indemnified Party
as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
7.5 Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
8. INFORMATION BY HOLDER. Each Holder of Registrable Securities shall
furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification, or compliance referred to in this Agreement.
9. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission that may permit the sale of the
Restricted Securities to the public without registration, the Company agrees to
use its best efforts to:
9.1 Make and keep public information regarding the Company
available as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after ninety (90) days following the
effective date of the first registration under the Securities Act filed by the
Company for an offering of its securities to the general public;
9.2 File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act at any time after it has become subject to such reporting
requirements;
9
<PAGE>
9.3 So long as a Holder owns any Restricted Securities, furnish to
the Holder forthwith upon written request a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so
filed as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration.
10. TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause
the Company to register securities granted to a Holder by the Company hereunder
may be transferred or assigned by a Holder only to a transferee or assignee of
not less than 100,000 shares of Registrable Securities (as presently constituted
and subject to subsequent adjustments for stock splits, stock dividends, reverse
stock splits, and the like), provided that the Company is given written notice
at the time of or within a reasonable time after said transfer or assignment,
stating the name and address of the transferee or assignee and indemnifying the
securities with respect to which such registration rights are being transferred
or assigned, and, provided further, that the transferee or assignee of such
rights assumes the obligations of such Holder under this Agreement.
11. ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance
in which all of the Registrable Securities and Other Shares requested to be
included in a registration on behalf of the Holders or other selling
stockholders cannot be so included as a result of limitations of the aggregate
number of shares of Registrable Securities and Other Shares that may be so
included, the number of shares of Registrable Securities and Other Shares that
may be so included shall be allocated among the Holders and Other Stockholders
requesting inclusion of shares pro rata on the basis of the number of shares of
Registrable Securities and Other Shares that would be held by such Holders and
Other Stockholders, assuming conversion; provided, however, that such allocation
shall not operate to reduce the aggregate number of Registrable Securities and
Other Shares to be included in such registration, if any Holder or Other
Stockholder does not request inclusion of the maximum number of shares of
Registrable Securities and Other Shares allocated to him pursuant to the
above-described procedure, the remaining portion of his allocation shall be
reallocated among those requesting Holders and Other Stockholders whose
allocations did not satisfy their requests pro rata on the basis of the number
of shares of Registrable Securities and Other Shares which would be held by such
Holders and Other Stockholders, assuming conversion, and this procedure shall be
repeated until all of the shares of Registrable Securities and Other Shares
which may be included in the registration on behalf of the Holders and Other
Stockholders have been so allocated.
12. DELAY OF REGISTRATION. No Holder shall have any right to take any
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
13. MISCELLANEOUS.
13.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California.
10
<PAGE>
13.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
13.3 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement (including
the Exhibits hereto) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof. Neither
this Agreement nor any term hereof may be amended, waived, discharged or
terminated, except by a written instrument signed by the Company and the holders
of at least fifty percent (50%) of the Registrable Shares and any such
amendment, waiver, discharge or termination shall be binding on all the Holders,
but in no event shall the obligation of any Holder hereunder be materially
increased, except upon the written consent of such Holder.
13.4 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by United States
first-class mail, postage prepaid, or delivered personally by hand or nationally
recognized courier addressed (a) if to Investor, at the address set forth below
his or her name on the signature page, or at such other address as such holder
or permitted assignee shall have furnished to the Company in writing, or (b) if
to the Company, at 353 Sacramento St., San Francisco, California 94111, or at
such other address as the Company shall have furnished to each holder in
writing. All such notices and other written communications shall be effective
on the date of mailing or delivery.
13.5 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any Holder, upon any breach or default of
the Company under this Agreement shall impair any such right, power or remedy
of such Holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default therefore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any Holder of any breach or default under this
Agreement or any waiver on the part of any Holder of any provisions or
conditions of this Agreement must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies,
either under this Agreement or by law or otherwise afforded to any Holder,
shall be cumulative and not alternative.
13.6 SEVERABILITY. The provisions of this Agreement are severable,
and if any one or more provisions may be determined to be judicially
unenforceable, in whole or in part, the remaining provisions and any partially
unenforceable provisions to the extent enforceable, shall nevertheless be
binding and enforceable.
13.7 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement effective as of the day and year first above written.
MONTEREY PASTA COMPANY,
a Delaware corporation
By:
-------------------------------
Its:
-------------------------------
SENTRA SECURITIES CORPORATION,
a California corporation
By:
-------------------------------
Richard P. Woltman, President
INVESTOR
-------------------------------
Address:
-------------------------------
-------------------------------
-------------------------------
12
