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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 31, 1998
CAM DESIGNS INC.
(Exact name of registrant as specified in its charter)
Delaware 1-13886 75-2257039
(State or other (Commission File Number) (IRS Employer Identification No.)
jurisdiction of
incorporation)
Birmingham Road, Allesley, Coventry CV59QE, England
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 011-44-1-203-407-700
(Former name or former address, if changed since last report)
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Item 5. Other Events.
As reported by CAM Designs Inc. (the "Company") in its press release
dated March 25, 1998, The Nasdaq Stock Market phased down the Company's shares
of Class A Common Stock, par value $.001 per share ("Common Stock") from the
National Market System to the SmallCap Market. In so doing, NASDAQ required
the Company to submit a filing to NASDAQ and the Securities and Exchange
Commission on or before April 26, 1998, showing that the Company had net
tangible assets of no less than $3 million. As a result of the financing
indicated below, the Company believes it has met these requirements. Attached
as an Exhibit hereto is the Company's Balance Sheet as of March 31, 1998 and a
letter from KPMG Peat Marwick, its independent accountants, expressing their
view that the financing described below constituted the issuance of equity
securities.
On March 27, 1998 the Company executed, and on March 31, 1998
consummated, a Securities Purchase Agreement between the Company, as Issuer,
and JNC Strategic Fund Ltd., as Purchaser, whereby the Company sold to
Purchaser, on a private placement basis for an aggregate purchase price of
$800,000, eight hundred (800) shares of the Company's Series A Convertible
Preferred Stock, par value $.001 per share ("Preferred Stock"), convertible
into shares of Common Stock and warrants to acquire 56,000 shares of Common
Stock (the "Warrants"), which Preferred Stock is convertible into shares of
Common Stock as provided in the Certificate of Designations, Preferences and
Rights, which Certificate of Designations, Preferences and Rights was filed
with the Secretary of State of the State of Delaware on March 27, 1998. The
underlying Common Stock is required to be registered on a Form S-3
Registration Statement.
Exhibits.
4.1 Certificate of Designations, Preferences and Rights dated as of
March 27, 1998
4.2 Securities Purchase Agreement dated as of March 27, 1998 by and between
the Company and Purchaser
4.3 Stock Purchase Warrant dated March 31, 1998 issued by the Company
to the Purchaser
4.4 Registration Rights Agreement dated as of March 27, 1998 by and
between the Company and Purchaser
99.1 Company's balance sheet as at March 31, 1998
99.2 KPMG Peat Marwick letter, dated March 31, 1998
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CAM DESIGNS INC.
Date: April 13, 1998 By: /s/ John R. Davidson
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John R. Davidson
President and Chief Executive Officer
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EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
CAM DESIGNS INC.
(Pursuant to Section 151 of the Delaware General Corporation Law)
CAM Designs Inc., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies that the
following resolutions were adopted by the Board of Directors of the
Corporation pursuant to authority of the Board of Directors as required by
Section 151 of the Delaware General Corporation Law.
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the
"Board") in accordance with the provisions of its Certificate of Incorporation
and Bylaws, each as amended and restated through the date hereof, the Board of
Directors hereby authorizes a series of the Corporation's previously
authorized Preferred Stock, par value $.001 per share (the "Preferred Stock"),
and hereby states the designation and number of shares, and fixes the relative
rights, preferences, privileges, powers and restrictions thereof as follows:
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I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 800 shares of
Preferred Stock, is the Series A Convertible Preferred Stock (the "Series A
Preferred Stock") and the face amount shall be One Thousand U.S.
Dollars ($1000.00) per share (the "Face Amount").
II. DIVIDENDS
The Series A Preferred Stock shall bear no dividends, and the holders
of the Series A Preferred Stock shall not be entitled to receive dividends on
the Series A Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
A. "Closing Bid Price" means, for any security as of any date, the
closing bid price of such security on the principal United States securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg Financial Markets or a comparable reporting service of national
reputation selected by the Corporation and reasonably acceptable to holders of
a majority of the then outstanding shares of Series A Preferred Stock if
Bloomberg Financial Markets is not then reporting closing bid prices of such
security (collectively, "Bloomberg"), or if the foregoing does not apply, the
last reported sale price of such security on the principal United States
securities exchange or trading market where such security is listed or traded
as reported by Bloomberg, or if the foregoing does not apply, the last
reported sale price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if
no sale price is reported for such security by Bloomberg, the average of the
bid prices of any market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc., in each case for such date or,
if such date was not a trading date for such security, on the next preceding
date which was a trading date. If the Closing Bid Price cannot be calculated
for such security as of either of such dates on any of the foregoing bases,
the Closing Bid Price of such security on such date shall be the fair market
value as reasonably determined by an investment banking firm selected by the
Corporation and reasonably acceptable to the holders of a majority of the then
outstanding shares of Series A Preferred Stock, with the costs of such
appraisal to be borne by the Corporation.
B. "Conversion Date" means, for any Conversion, the date specified
in the notice of conversion in the form attached hereto (the "Notice of
Conversion"), so long as the copy of the Notice of Conversion is faxed (or
delivered by other means resulting in notice) to the Corporation at or before
11:59 p.m., New York City time, on the Conversion Date indicated in the Notice
of Conversion; provided, however, that if the Notice of Conversion is not so
faxed or otherwise
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delivered before such time, then the Conversion Date shall be the date the
holder faxes or otherwise delivers the Notice of Conversion to the
Corporation.
C. "Conversion Percentage" shall initially mean eighty percent
(80%). In the event the Corporation's Class A Common Stock, par value $.001
per share ("Common Stock"), is no longer designated for quotation on the
Nasdaq SmallCap Market ("SmallCap"), the Conversion Percentage shall be
permanently reduced by ten percent (10%) to seventy percent (70%). The
Conversion Percentage also shall be subject to adjustment as provided herein.
D. "Conversion Price" means, with respect to any Conversion Date,
the lower of the Variable Conversion Price and the Fixed Conversion Price,
each in effect as of such date and subject to adjustment as provided herein;
provided, however, that in no event shall the Conversion Price in effect on
any Conversion Date be less than the Floor Price in effect on such Conversion
Date unless a Reserved Amount Trigger Event (as defined in Article V hereof),
a Conversion Default (as defined in Article VI hereof), a Cap Amount Trigger
Event (as defined in Article VII hereof) or a Mandatory Redemption Event (as
defined in Article VIII.A hereof) shall have occurred and be then continuing;
provided, further, however, that the restriction contained in the immediately
preceding proviso shall not apply on any Conversion Date occurring after an
Announcement Date (as defined in Article XI.C hereof) and prior to the sixth
(6th) trading day following (i) the consummation of the proposed transaction
or tender offer, exchange offer or other transaction to which the Announcement
Date relates or (ii) the Abandonment Date (as defined in Article XI.C hereof).
E. "Fixed Conversion Price" means $3.50, and shall be subject to
adjustment as provided herein (including, without limitation, Articles V.D,
VI.B, VII.C and XI).
F. "Floor Price" means, with respect to any Conversion Date, the
lowest of (i) $2.75, (ii) the Fixed Conversion Price then in effect and (iii)
the amount obtained by multiplying the Conversion Percentage then in effect by
the average of the Closing Bid Prices for the Common Stock during the twenty
(20) consecutive trading days ending on the trading day immediately preceding
such date of determination (subject to equitable adjustment for any stock
splits, stock dividends, reclassifications or similar events during such
twenty (20) trading day period), and shall be subject to adjustment as
provided herein.
G. "Issuance Date" means the date of the closing under that certain
Securities Purchase Agreement by and between the Corporation and the purchaser
named therein with respect to the issuance of the Series A Preferred Stock
(the "Securities Purchase Agreement").
H. "N" means the number of days from, but excluding, the Issuance
Date.
I. "Premium" means an amount equal to (.07)x(N/365)x(1,000).
J. "Variable Conversion Price" means, as of any date of
determination, the amount obtained by multiplying the Conversion Percentage
then in effect by the average of the two (2)
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lowest sale prices for the Common Stock during the thirty (30) consecutive
trading days ending on the trading day immediately preceding such date of
determination (subject to equitable adjustment for any stock splits, stock
dividends, reclassifications or similar events during such thirty (30) trading
day period), and shall be subject to adjustment as provided herein. For the
avoidance of doubt, the trading day immediately preceding any Conversion Date
is the last calendar day that is a trading day and which is immediately
preceding the Conversion Date.
K. "business day" and "trading day" means any day on which the New
York Stock Exchange is open for trading.
IV. CONVERSION
A. Conversion at the Option of the Holder. (i) Subject to the
limitations on conversions contained in Paragraph C of this Article IV, each
holder of shares of Series A Preferred Stock may, at any time and from time to
time on or after the earlier of (x) the seventy-fifth (75th) day following the
Issuance Date and (y) the date on which the registration statement required to
be filed by the Corporation pursuant to Section 2(a) of that certain
Registration Rights Agreement, dated as of March 27, 1998, by and among the
Corporation and the other signatories thereto (the "Registration Rights
Agreement") is declared effective by the United States Securities and Exchange
Commission, convert (an "Optional Conversion") each of its shares of Series A
Preferred Stock into a number of fully paid and nonassessable shares of Common
Stock determined in accordance with the following formula if the Corporation
timely redeems the Premium thereon in cash in accordance with subparagraph
(ii) below:
1,000
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Conversion Price
or in accordance with the following formula if the Corporation does not timely
redeem the Premium thereon in accordance with subparagraph (ii) below:
1,000 + the Premium
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Conversion Price
(ii) (a) The Corporation shall have the right, in its sole
discretion, upon receipt of a Notice of Conversion, or in the event of a
Required Conversion at Maturity, to redeem the Premium subject to such
conversion for a sum of cash equal to the amount of the Premium being so
redeemed. All cash redemption payments hereunder shall be paid in lawful money
of the United States of America at such address for the holder as appears on
the record books of the Corporation (or at such other address as such holder
shall hereafter give to the Corporation by written notice). In the event the
Corporation so elects to redeem the Premium in cash and fails to pay such
holder the applicable redemption amount to which such holder is entitled by
depositing a check in the U.S. Mail to such holder within three (3) business
days of receipt by the Corporation of a Notice of
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Conversion (in the case of a redemption in connection with an Optional
Conversion) or the Maturity Date (in the case of a redemption in connection
with a Required Conversion at Maturity), the Corporation shall thereafter
forfeit its right to redeem such Premium in cash and such Premium shall
thereafter be converted into shares of Common Stock in accordance with Article
IV.A(i).
(b) Each holder of Series A Preferred Stock shall
have the right to require the Corporation to provide advance notice to such
holder stating whether the Corporation will elect to redeem the Premium in
cash pursuant to the Corporation's redemption rights discussed in subparagraph
(a) of this Article IV.A(ii). A holder may exercise such right from time to
time by sending notice (an "Election Notice") to the Corporation, by
facsimile, requesting that the Corporation disclose to such holder whether the
Corporation would elect to redeem the Premium for cash in lieu of issuing
shares of Common Stock therefor if such holder were to exercise its right of
conversion pursuant to this Article IV.A. The Corporation shall, no later than
the close of business on the next business day following receipt of an
Election Notice, disclose to such holder whether the Corporation would elect
to redeem the Premium in connection with a conversion pursuant to a Notice of
Conversion delivered over the subsequent five (5) business day period. If the
Corporation does not respond to such holder within such one business day
period via facsimile, the Corporation shall, with respect to any conversion
pursuant to a Conversion Notice delivered within the subsequent five (5)
business day period, forfeit its right to redeem such Premium in accordance
with subparagraph (a) of this Article IV.A(ii) and shall be required to
convert such Premium into shares of Common Stock.
B. Mechanics of Conversion. In order to effect an Optional
Conversion, a holder shall: (x) fax (or otherwise deliver) a copy of the fully
executed Notice of Conversion to the Corporation or the transfer agent for the
Common Stock and (y) surrender or cause to be surrendered the original
certificates representing the Series A Preferred Stock being converted (the
"Preferred Stock Certificates"), duly endorsed, along with a copy of the
Notice of Conversion as soon as practicable thereafter to the Corporation or
the transfer agent. Upon receipt by the Corporation of a facsimile copy of a
Notice of Conversion from a holder, the Corporation shall immediately send,
via facsimile, a confirmation to such holder stating that the Notice of
Conversion has been received, the date upon which the Corporation expects to
deliver the Common Stock issuable upon such conversion and the name and
telephone number of a contact person at the Corporation regarding the
conversion. The Corporation shall not be obligated to issue shares of Common
Stock upon a conversion unless either the Preferred Stock Certificates are
delivered to the Corporation or the transfer agent as provided above, or the
holder notifies the Corporation or the transfer agent that such certificates
have been lost, stolen or destroyed and delivers the documentation to the
Company required by Article XIV.B hereof.
(i) Delivery of Common Stock Upon Conversion. Upon the
surrender of Preferred Stock Certificates from a holder of Series A Preferred
Stock accompanied by a Notice of Conversion, the Corporation shall, no later
than the later of (a) the second business day following the Conversion Date
and (b) the business day following the date of such surrender (or, in the case
of lost, stolen or destroyed certificates, after provision of indemnity
pursuant to Article XIV.B) (the
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"Delivery Period"), issue and deliver to the holder or its nominee (x) that
number of shares of Common Stock issuable upon conversion of such shares of
Series A Preferred Stock being converted and (y) a certificate representing
the number of shares of Series A Preferred Stock not being converted, if any.
If the Corporation's transfer agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer program, and so long as the
certificates therefor do not bear a legend and the holder thereof is not
obligated to return such certificate for the placement of a legend thereon,
the Corporation shall cause its transfer agent to electronically transmit the
Common Stock issuable upon conversion to the holder by crediting the account
of the holder or its nominee with DTC through its Deposit Withdrawal Agent
Commission system ("DTC Transfer"). If the aforementioned conditions to a DTC
Transfer are not satisfied, the Corporation shall deliver to the holder
physical certificates representing the Common Stock issuable upon conversion.
Further, a holder may instruct the Corporation to deliver to the holder
physical certificates representing the Common Stock issuable upon conversion
in lieu of delivering such shares by way of DTC Transfer.
(ii) Taxes. The Corporation shall pay any and all taxes
which may be imposed upon it with respect to the issuance and delivery of the
shares of Common Stock upon the conversion of the Series A Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series A
Preferred Stock would result in the issuance of a fractional share of Common
Stock, such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock shall be
the next higher whole number of shares.
(iv) Conversion Disputes. In the case of any dispute with
respect to a conversion, the Corporation shall promptly issue such number of
shares of Common Stock as are not disputed in accordance with subparagraph (i)
above. If such dispute involves the calculation of the Conversion Price, the
Corporation shall submit the disputed calculations to an independent outside
accountant via facsimile within two (2) business days of receipt of the Notice
of Conversion. The accountant, at the Corporation's sole expense, shall audit
the calculations and notify the Corporation and the holder of the results no
later than two (2) business days from the date it receives the disputed
calculations. The accountant's calculation shall be deemed conclusive, absent
manifest error. The Corporation shall then issue the appropriate number of
shares of Common Stock in accordance with subparagraph (i) above.
C. Limitations on Conversions. The conversion of shares of Series A
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
(i) Cap Amount. Unless permitted by the applicable rules
and regulations of the principal securities market on which the Common Stock
is listed or traded, in no event shall the total number of shares of Common
Stock issued upon conversion of the Series A Preferred Stock exceed the
maximum number of shares of Common Stock that the Corporation can so issue
pursuant to any
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rule of the principal United States securities market on which the Common
Stock trades (including Rules 4310(c)(25)(H) and 4460(i) of the National
Association of Securities Dealers, Inc. ("NASD") or any successor rules) (the
"Cap Amount") which, as of the date of issuance of the Series A Preferred
Stock, shall be 513,500 shares (19.99% of total shares of Common Stock
outstanding on the Issuance Date). The Cap Amount shall be allocated pro rata
to the holders of Series A Preferred Stock as provided in Article XIV.C. In
the event the Corporation is prohibited from issuing shares of Common Stock as
a result of the operation of this subparagraph (i), the Corporation shall
comply with Article VII.
(ii) No Five Percent Holders. Unless a holder of shares of
Series A Preferred Stock delivers a waiver in accordance with the last
sentence of this subparagraph (ii), except in connection with a Required
Conversion at Maturity, in no event shall a holder of shares of Series A
Preferred Stock be entitled to receive shares of Common Stock upon a
conversion to the extent that the sum of (x) the number of shares of Common
Stock beneficially owned by the holder and its affiliates (exclusive of shares
issuable upon conversion of the unconverted portion of the shares of Series A
Preferred Stock or the unexercised or unconverted portion of any other
securities of the Corporation (including, without limitation, the warrants
(the "Warrants") issued by the Corporation pursuant to the Securities Purchase
Agreement) subject to a limitation on conversion or exercise analogous to the
limitations contained herein) and (y) the number of shares of Common Stock
issuable upon the conversion of the shares of Series A Preferred Stock with
respect to which the determination of this subparagraph is being made, would
result in beneficial ownership by the holder and its affiliates of more than
4.99% of the outstanding shares of Common Stock. For purposes of this
subparagraph, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13 D-G thereunder, except as otherwise provided in clause (x)
above. Except as provided in the immediately succeeding sentence, the
restriction contained in this subparagraph (ii) shall not be altered, amended,
deleted or changed in any manner whatsoever unless the holders of a majority
of the outstanding shares of Common Stock and each holder of outstanding
shares of Series A Preferred Stock shall approve such alteration, amendment,
deletion or change. Notwithstanding the foregoing, a holder of shares of
Series A Preferred Stock may waive the restriction set forth in this
subparagraph (ii) upon not less than 61 days prior written notice to the
Corporation (with such waiver taking effect only upon the expiration of such
61-day period).
D. Required Conversion at Maturity. Subject to the limitations set
forth in Paragraph C(i) of this Article IV and provided all shares of Common
Stock issuable upon conversion of all outstanding shares of Series A Preferred
Stock are then (i) authorized and reserved for issuance, (ii) registered under
the Securities Act of 1933, as amended (the "Securities Act"), for resale by
the holders of such shares of Series A Preferred Stock and (iii) eligible to
be traded on either the New York Stock Exchange ("NYSE"), the American Stock
Exchange ("AMEX"), the Nasdaq National Market ("NNM") or the SmallCap, each
share of Series A Preferred Stock issued and outstanding on the fifth (5th)
anniversary of the Issuance Date (the "Maturity Date") automatically shall be
converted into shares of Common Stock on such date in accordance with the
conversion formulas set forth in Paragraph A of this Article IV (the "Required
Conversion at
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Maturity"). If the Required Conversion at Maturity occurs, the Corporation and
the holders of Series A Preferred Stock shall follow the applicable conversion
procedures set forth in Paragraph B of this Article IV; provided, however,
that the holders of Series A Preferred Stock are not required to deliver a
Notice of Conversion to the Corporation or its transfer agent. If the Required
Conversion at Maturity does not occur, each holder of Series A Preferred Stock
shall thereafter have the option, exercisable in whole or in part at any time
and from time to time by delivery of a Mandatory Redemption Notice (as defined
in Article VIII.C) to the Corporation, to require the Corporation to purchase
for cash, at an amount per share equal to the Mandatory Redemption Amount (as
defined in Article VIII.B), the holder's Series A Preferred Stock. If the
Corporation fails to redeem any of such shares within five (5) business days
after the day on which the Corporation receives such Mandatory Redemption
Notice , then such holder shall be entitled to the remedies provided in
Article VIII.C.
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. Upon the initial issuance of shares of Series A
Preferred Stock, the Corporation shall reserve 704,000 shares (200% of the
maximum number of shares of Common Stock which would be issuable if all shares
of Series A Preferred Stock are converted in their entirety on the Issuance
Date) of the authorized but unissued shares of Common Stock for issuance upon
conversion of the Series A Preferred Stock and thereafter the number of
authorized but unissued shares of Common Stock so reserved (the "Reserved
Amount") shall not be decreased and shall at all times be sufficient to
provide for the conversion of the shares of Series A Preferred Stock then
outstanding at the then current Conversion Price. The Reserved Amount shall be
allocated to the holders of Series A Preferred Stock as provided in Article
XIV.C.
B. Increases to Reserved Amount. If the Reserved Amount for any
three (3) consecutive trading days (the last of such three (3) trading days
being the "Authorization Trigger Date") shall be less than 135% of the number
of shares of Common Stock issuable upon conversion of the then outstanding
shares of Series A Preferred Stock, the Corporation shall immediately notify
the holders of Series A Preferred Stock of such occurrence and shall take
immediate action (including, if necessary, seeking stockholder approval to
authorize the issuance of additional shares of Common Stock) to increase the
Reserved Amount to 200% of the number of shares of Common Stock then issuable
upon conversion of the outstanding Series A Preferred Stock. In the event the
Corporation fails to so increase the Reserved Amount within ninety (90) days
after an Authorization Trigger Date, each holder of Series A Preferred Stock
shall thereafter have the option, exercisable in whole or in part at any time
and from time to time by delivery of a Mandatory Redemption Notice (as defined
in Article VIII.C) to the Corporation, to require the Corporation to purchase
for cash, at an amount per share equal to the Mandatory Redemption Amount (as
defined in Article VIII.B), a portion of the holder's Series A Preferred Stock
such that, after giving effect to such purchase, such holder's allocated
portion of the Reserved Amount exceeds 135% of the total number of shares of
Common Stock issuable to such holder upon conversion of the holder's Series A
Preferred Stock. If the Corporation fails to redeem any of such shares within
five (5) business days after its receipt
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of a Mandatory Redemption Notice, then such holder shall be entitled to the
remedies provided in Article VIII.C.
C. Limitations on Redemption Right. Notwithstanding the provisions
of Paragraph B of this Article V, the holders of Series A Preferred Stock
shall have no right to require the Corporation to effect a redemption of their
outstanding shares of Series A Preferred Stock as provided in Paragraph B of
this Article V so long as (i) the Corporation has not, at any time, decreased
the Reserved Amount below 704,000 shares of Common Stock; (ii) the Corporation
shall have taken immediate action following the applicable Authorization
Trigger Date (including, if necessary, seeking stockholder approval to
authorize the issuance of additional shares of Common Stock) to increase the
Reserved Amount to 200% of the number of shares of Common Stock then issuable
upon conversion of the outstanding Series A Preferred Stock; and (iii) the
Corporation continues to use its good faith best efforts (including the
resolicitation of stockholder approval to authorize the issuance of additional
shares of Common Stock) to increase the Reserved Amount to 200% of the number
of shares of Common Stock then issuable upon conversion of the outstanding
Series A Preferred Stock. The Corporation will be deemed to be using "its good
faith best efforts" to increase the Reserved Amount so long as it solicits
stockholder approval to authorize the issuance of additional shares of Common
Stock not less than three (3) times during each twelve month period following
the applicable Authorization Trigger Date during which any shares of Series A
Preferred Stock remain outstanding.
D. Adjustment to Conversion Price. If the Corporation is
prohibited, at any time, from issuing shares of Common Stock upon conversion
of Series A Preferred Stock to any holder because the Corporation does not
then have available a sufficient number of authorized and reserved shares of
Common Stock (a "Reserved Amount Trigger Event"), then the Fixed Conversion
Price in respect of any shares of Series A Preferred Stock held by any holder
(including shares of Series A Preferred Stock submitted to the Corporation for
conversion, but for which shares of Common Stock have not been issued to any
such holder) shall thereafter be the lesser of (i) the Fixed Conversion Price
on the date of the Reserved Amount Trigger Event and (ii) the lowest
Conversion Price in effect during the period beginning on, and including the
date of, the Reserved Amount Trigger Event through and including the date on
which the Corporation shall have taken all action necessary to increase the
number of authorized shares of Common Stock and to increase the Reserved
Amount to 200% of the number of shares of Common Stock then issuable upon
conversion of the then outstanding Series A Preferred Stock. Upon the
occurrence of each reset of the Fixed Conversion Price pursuant to this
Paragraph D, the Corporation, at its expense, shall promptly compute the new
Fixed Conversion Price and prepare and furnish to each holder of Series A
Preferred Stock a certificate setting forth such new Fixed Conversion Price
and showing in detail each Conversion Price in effect during such reset
period.
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VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Default Payments. If, at any time, (x) a holder of
shares of Series A Preferred Stock submits a Notice of Conversion and the
Corporation fails for any reason (other than because such issuance would
exceed such holder's allocated portion of the Reserved Amount or Cap Amount,
for which failures the holders shall have the remedies set forth in Articles V
and VII, respectively) to deliver, on or prior to the fourth (4th) business
day following the expiration of the Delivery Period for such conversion, such
number of freely tradeable shares of Common Stock to which such holder is
entitled upon such conversion, or (y) the Corporation provides notice to any
holder of shares of Series A Preferred Stock at any time of its intention not
to issue freely tradeable shares of Common Stock upon exercise by any holder
of its conversion rights in accordance with the terms of this Certificate of
Designation (other than because such issuance would exceed such holder's
allocated portion of the Reserved Amount or Cap Amount) (each of (x) and (y)
being a "Conversion Default"), then the Corporation shall pay to the affected
holder, in the case of a Conversion Default described in clause (x) above, and
to all holders, in the case of a Conversion Default described in clause (y)
above, an amount equal to:
(.24) x (D/365) x (Default Amount)
where:
"D" means the number of days after the expiration of the Delivery
Period through and including the Default Cure Date;
"Default Amount" means (i) the total Face Amount of all shares of
Series A Preferred Stock held by such holder, plus (ii) the total accrued
Premium as of the first day of the Conversion Default on all shares of Series
A Preferred Stock included in clause (i) of this definition; and
"Default Cure Date" means (i) with respect to a Conversion Default
described in clause (x) of its definition, the date the Corporation effects
the conversion of the full number of shares of Series A Preferred Stock and
(ii) with respect to a Conversion Default described in clause (y) of its
definition, the date the Corporation issues freely tradeable shares of Common
Stock in satisfaction of all conversions of Series A Preferred Stock in
accordance with Article IV.A, and (iii) with respect to either type of a
Conversion Default, the date on which the Corporation redeems shares of Series
A Preferred Stock held by such holder pursuant to Paragraph D of this Article
VI.
The payments to which a holder shall be entitled pursuant to this
Paragraph A are referred to herein as "Conversion Default Payments." A holder
may elect to receive accrued Conversion Default Payments in cash or to convert
all or any portion of such accrued Conversion Default Payments, at any time,
into Common Stock at the lowest Conversion Price in effect during the period
beginning on the date of the Conversion Default through the Conversion Date
with respect to such Conversion Default Payments. In the event a holder elects
to receive any Conversion Default Payments in cash, it shall so notify the
Corporation in writing. Such payment shall be made in
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accordance with and be subject to the provisions of Article XIV.E. In the
event a holder elects to convert all or any portion of the Conversion Default
Payments into Common Stock, the holder shall indicate on a Notice of
Conversion such portion of the Conversion Default Payments which such holder
elects to so convert and such conversion shall otherwise be effected in
accordance with the provisions of Article IV.
B. Adjustment to Conversion Price. If a holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Delivery Period with respect to a conversion
of Series A Preferred Stock for any reason (other than because such issuance
would exceed such holder's allocated portion of the Reserved Amount or Cap
Amount, for which failures the holders shall have the remedies set forth in
Articles V and VII), then the Fixed Conversion Price in respect of any shares
of Series A Preferred Stock held by such holder (including shares of Series A
Preferred Stock submitted to the Corporation for conversion, but for which
shares of Common Stock have not been issued to such holder) shall thereafter
be the lesser of (i) the Fixed Conversion Price on the Conversion Date
specified in the Notice of Conversion which resulted in the Conversion Default
and (ii) the lowest Conversion Price in effect during the period beginning on,
and including, such Conversion Date through and including the earlier of (x)
the day such shares of Common Stock are delivered to the holder and (y) the
day on which the holder regains its rights as a holder of Series A Preferred
Stock with respect to such unconverted shares of Series A Preferred Stock
pursuant to the provisions of Article XIV.F hereof. If there shall occur a
Conversion Default of the type described in clause (y) of Article VI.A, then
the Fixed Conversion Price with respect to any conversion thereafter shall be
the lowest Conversion Price in effect at any time during the period beginning
on, and including, the date of the occurrence of such Conversion Default
through and including the Default Cure Date. The Fixed Conversion Price shall
thereafter be subject to further adjustment for any events described in
Article XI.
C. Buy-In Cure. Unless the Corporation has notified the applicable
holder in writing prior to the delivery by such holder of a Notice of
Conversion that the Corporation is unable to honor conversions, if (i) (a) the
Corporation fails for any reason to deliver during the Delivery Period shares
of Common Stock to a holder upon a conversion of shares of Series A Preferred
Stock or (b) there shall occur a Legend Removal Failure (as defined in Article
VIII.A(iii) below) and (ii) thereafter, such holder purchases (in an open
market transaction or otherwise) shares of Common Stock to make delivery in
satisfaction of a sale by such holder of the unlegended shares of Common Stock
(the "Sold Shares") which such holder anticipated receiving upon such
conversion (a "Buy-In"), the Corporation shall pay such holder (in addition to
any other remedies available to the holder) the amount by which (x) such
holder's total purchase price (including brokerage commissions, if any) for
the unlegended shares of Common Stock so purchased exceeds (y) the net
proceeds received by such holder from the sale of the Sold Shares. For
example, if a holder purchases unlegended shares of Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to shares of
Common Stock it sold for $10,000, the Corporation will be required to pay the
holder $1,000. A holder shall provide the Corporation written notification and
supporting documentation indicating any amounts payable to such holder
pursuant to this Paragraph C. The Corporation shall
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make any payments required pursuant to this Paragraph C in accordance with and
subject to the provisions of Article XIV.E.
D. Redemption Right. If the Corporation fails, and such failure
continues uncured for five (5) business days after the Corporation has been
notified thereof in writing by the holder, for any reason (other than because
such issuance would exceed such holder's allocated portion of the Reserved
Amount or Cap Amount, for which failures the holders shall have the remedies
set forth in Articles V and VII) to issue shares of Common Stock within ten
(10) business days after the expiration of the Delivery Period with respect to
any conversion of Series A Preferred Stock, then the holder may elect at any
time and from time to time prior to the Default Cure Date for such Conversion
Default, by delivery of a Mandatory Redemption Notice to the Corporation, to
have all or any portion of such holder's outstanding shares of Series A
Preferred Stock purchased by the Corporation for cash, at an amount per share
equal to the Mandatory Redemption Amount (as defined in Article VIII.B). If
the Corporation fails to redeem any of such shares within five (5) business
days after its receipt of such Mandatory Redemption Notice, then such holder
shall be entitled to the remedies provided in Article VIII.C.
VII. INABILITY TO CONVERT DUE TO CAP AMOUNT
A. Obligation to Cure. If at any time the then unissued portion of
any Holder's Cap Amount is less than 135% of the number of shares of Common
Stock then issuable upon conversion of such holder's shares of Series A
Preferred Stock (a "Trading Market Trigger Event"), the Corporation shall
immediately notify the holders of Series A Preferred Stock of such occurrence
and shall take immediate action (including, if necessary, seeking the approval
of its stockholders to authorize the issuance of the full number of shares of
Common Stock which would be issuable upon the conversion of the then
outstanding shares of Series A Preferred Stock but for the Cap Amount) to
eliminate any prohibitions under applicable law or the rules or regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Corporation or any of its securities
on the Corporation's ability to issue shares of Common Stock in excess of the
Cap Amount (collectively, the "Trading Market Prohibitions").
B. Remedies. In the event the Corporation fails to eliminate all
such prohibitions on its ability to issue shares of Common Stock in excess of
the Cap Amount within ninety (90) days after the Trading Market Trigger Event
and thereafter the Corporation is prohibited, at any time, from issuing shares
of Common Stock upon conversion of Series A Preferred Stock to any holder
because such issuance would exceed the then unissued portion of such holder's
Cap Amount because of applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or its securities, any holder who is so
prohibited from converting its Series A Preferred Stock may elect either or
both of the following remedies:
(i) to require, with the consent of holders of at least
fifty percent (50%) of the outstanding shares of Series A Preferred Stock
(including any shares of Series A Preferred Stock
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held by the requesting holder), the Corporation to terminate the listing of its
Common Stock on the SmallCap (or any other stock exchange, interdealer quotation
system or trading market) and to cause its Common Stock to be eligible for
trading on the over-the-counter electronic bulletin board; or
(ii) to require the Corporation to issue shares of Common
Stock in accordance with such holder's Notice of Conversion at a conversion
price equal to the greater of (x) the Closing Bid Price of the Common Stock
and (y) the book value per share of Common Stock, each in effect as of the
date of the holder's written notice to the Corporation of its election to
receive shares of Common Stock pursuant to this subparagraph (ii);
provided, however, that the Corporation may, at its option, by delivery of an
Optional Redemption Notice within five (5) business days after the
Corporation's receipt of any notice of election delivered by a holder pursuant
to this Article VII.B, elect to purchase for cash, at an amount per share
equal to the Optional Redemption Amount, a number of the holder's shares of
Series A Preferred Stock such that, after giving effect to such redemption,
the then unissued portion of such holder's Cap Amount exceeds 135% of the
total number of shares of Common Stock issuable upon conversion of such
holder's shares of Series A Preferred Stock.
C. Adjustment to Conversion Price. If the Corporation is
prohibited, at any time, from issuing shares of Common Stock upon conversion
of Series A Preferred Stock to any holder because such issuance would exceed
the then unissued portion of such holder's Cap Amount because of applicable
law or the rules or regulations of any stock exchange, interdealer quotation
system or other self-regulatory organization with jurisdiction over the
Corporation or its securities (a "Cap Amount Trigger Event"), then the Fixed
Conversion Price in respect of any shares of Series A Preferred Stock held by
any holder (including shares of Series A Preferred Stock submitted to the
Corporation for conversion, but for which shares of Common Stock have not been
issued to any such holder) shall thereafter be the lesser of (i) the Fixed
Conversion Price in effect on the date of the Cap Amount Trigger Event and
(ii) the lowest Conversion Price in effect during the period beginning on, and
including, the date of the Cap Amount Trigger Event through and including the
date on which the Corporation shall have eliminated all of the Trading Market
Prohibitions. Upon the occurrence of each reset of the Fixed Conversion Price
pursuant to this Paragraph C, the Corporation, at its expense, shall promptly
compute the new Fixed Conversion Price and prepare and furnish to each holder
of Series A Preferred Stock a certificate setting forth such new Fixed
Conversion Price and showing in detail each Conversion Price in effect during
each reset period.
VIII. EVENTS OF DEFAULT
A. Events of Default. In the event (each of the events described in
clauses (i) - (vi) below after expiration of the applicable cure period (if
any) being a "Mandatory Redemption Event"):
(i) the Common Stock (including any of the shares of
Common Stock issuable upon conversion of the Series A Preferred Stock) is
suspended from trading on any of, or is not listed
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(and authorized) for trading on at least one of, the NYSE, the AMEX, the NNM
or the SmallCap for an aggregate of ten (10) trading days in any nine (9)
month period;
(ii) the Registration Statement required to be filed by
the Corporation pursuant to Section 2(a) of the Registration Rights Agreement
has not been declared effective by the 180th day following the Issuance Date
or such Registration Statement, after being declared effective, cannot be
utilized by the holders of Series A Preferred Stock for the resale of all of
their Registrable Securities (as defined in the Registration Rights Agreement)
for an aggregate of more than thirty (30) days;
(iii) the Corporation fails to remove any restrictive
legend on any certificate or any shares of Common Stock issued to the holders
of Series A Preferred Stock upon conversion of the Series A Preferred Stock as
and when required by this Certificate of Designation, the Securities Purchase
Agreement or the Registration Rights Agreement (a "Legend Removal Failure"),
and any such failure continues uncured for five (5) business days after the
Corporation has been notified thereof in writing by the holder;
(iv) the Corporation provides notice to any holder of
Series A Preferred Stock, including by way of public announcement, at any
time, of its intention not to issue shares of Common Stock to any holder of
Series A Preferred Stock upon conversion in accordance with the terms of this
Certificate of Designation (other than due to the circumstances contemplated
by Articles V or VII for which the holders shall have the remedies set forth
in such Articles);
(v) the Corporation shall:
(a) sell, convey or dispose of all or substantially
all of its assets (the presentation of any such transaction for stockholder
approval being conclusive evidence that such transaction involves the sale of
all or substantially all of the assets of the Corporation); or
(b) merge, consolidate or engage in any other
business combination with any other entity (other than pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Corporation and other than pursuant to a merger in which
the Corporation is the surviving or continuing entity and its capital stock is
unchanged); or
(c) have approved, recommended or consented to any
transaction or series of related transactions which result in fifty percent
(50%) or more of the voting power of its capital stock being owned
beneficially by one person, entity or "group" (as such term is used under
Section 13(d) of the Securities Exchange Act of 1934, as amended); or
(vi) the Corporation breaches any material covenant or
other material term hereunder (other than as specifically provided in
subparagraphs (i)-(v) of this Paragraph A), or under the Securities Purchase
Agreement or the Registration Rights Agreement and such breach continues
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uncured for ten (10) business days after the Corporation has been notified
thereof in writing by the holder;
then, upon the occurrence of any such Mandatory Redemption Event, each holder
of shares of Series A Preferred Stock shall thereafter have the option,
exercisable in whole or in part at any time and from time to time by delivery
of a Mandatory Redemption Notice (as defined in Paragraph C below) to the
Corporation while such Mandatory Redemption Event continues, to require the
Corporation to purchase for cash any or all of the then outstanding shares of
Series A Preferred Stock held by such holder for an amount per share equal to
the Mandatory Redemption Amount (as defined in Paragraph B below) in effect at
the time of the redemption hereunder. For the avoidance of doubt, the
occurrence of any event described in clauses (i), (ii), (iv) or (v) above
shall immediately constitute a Mandatory Redemption Event and there shall be
no cure period; provided, however, that the holders of Series A Preferred
Stock shall have no right to deliver a Mandatory Redemption Notice following
the occurrence of a Mandatory Redemption Event specified in clauses (i), (ii),
(iii) or (vi) above if the Corporation pays to each holder within five (5)
business days after the occurrence of such Mandatory Redemption Event, as
liquidated damages for the decrease in the value of the Series A Preferred
Stock (and the shares of the Corporation's Common Stock issuable upon
conversion thereof) which will result from the occurrence of such Mandatory
Redemption Event, an amount (the "Damages Amount") equal to twenty-five
percent (25%) of the aggregate Face Amount of the shares of Series A Preferred
Stock then held by each such holder. The Damages Amount shall be payable, at
the Corporation's option, in cash or shares of Common Stock (based upon a
price per share of Common Stock equal to fifty percent (50%) of the Conversion
Price in effect as of the date of such Mandatory Redemption Event). Upon the
initial issuance of shares of Series A Preferred Stock, the Corporation shall
reserve 250,000 shares of Common Stock to satisfy its obligation with respect
to the Damages Amount and thereafter the number of authorized but unissued
shares of Common Stock so reserved shall not be decreased. In the event that
the number of shares required to be issued by the Corporation with respect to
the Damages Amount exceeds 250,000 shares of Common Stock and the Corporation
does not have a sufficient number of shares of Common Stock authorized and
available for issuance to satisfy its obligation with respect to the Damages
Amount, the Corporation shall issue and deliver to the holders, on a pro-rata
basis based on the number of shares of Series A Preferred Stock then held by
each such holder, a number of shares of Common Stock equal to the greater of
(i) the number of shares authorized and available for issuance by the
Corporation to satisfy such obligation and (ii) all 250,000 shares of Common
Stock so reserved for such purpose and, upon such issuance, the holders shall
have no right of redemption with respect to such Mandatory Redemption Event,
but shall retain all other remedies to which they may be entitled at law or in
equity (which remedies shall not include the right of redemption).
Upon the Corporation's receipt of any Mandatory Redemption Notice
hereunder (other than during the three (3) trading day period following the
Corporation's delivery of a Mandatory Redemption Announcement (as defined
below) to all of the holders in response to the Corporation's initial receipt
of a Mandatory Redemption Notice from a holder of Series A Preferred Stock),
the Corporation shall immediately (and in any event within one (1) business
day following such receipt) deliver a written notice (a "Mandatory Redemption
Announcement") to all holders of Series A
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Preferred Stock stating the date upon which the Corporation received such
Mandatory Redemption Notice and the amount of Series A Preferred Stock covered
thereby. The Corporation shall not redeem any shares of Series A Preferred
Stock during the three (3) trading day period following the delivery of a
required Mandatory Redemption Announcement hereunder. At any time and from
time to time during such three (3) trading day period, each holder of Series A
Preferred Stock may request (either orally or in writing) information from the
Corporation with respect to the instant redemption (including, but not limited
to, the aggregate number of shares of Series A Preferred Stock covered by
Mandatory Redemption Notices received by the Corporation) and the Corporation
shall furnish (either orally or in writing) as soon as practicable such
requested information to such requesting holder.
B. Definition of Mandatory Redemption Amount. The "Mandatory
Redemption Amount" with respect to a share of Series A Preferred Stock means
an amount equal to the greater of:
(i) V
------ x M
CP
and
(ii) The sum of (x) the product of (I) one hundred percent
(100%) divided by the Conversion Percentage in effect on the date on which the
Corporation receives the Mandatory Redemption Notice, times (II) the Face
Amount thereof, plus (y) the accrued Premium thereon and all unpaid Conversion
Default Payments owing (if any) with respect thereto through the date of
payment of the Mandatory Redemption Amount.
where:
"V" means the Face Amount thereof plus the accrued Premium thereon
and all unpaid Conversion Default Payments owing (if any) with respect thereto
through the date of payment of the Mandatory Redemption Amount;
"CP" means the Conversion Price in effect on the date on which the
Corporation receives the Mandatory Redemption Notice; and
"M" means (i) with respect to all redemptions other than redemptions
pursuant to Article VIII.A(v) hereof, the highest Closing Bid Price of the
Corporation's Common Stock during the period beginning on the date on which
the Corporation receives the Mandatory Redemption Notice and ending on the
date immediately preceding the date of payment of the Mandatory Redemption
Amount and (ii) with respect to redemptions pursuant to Article VIII.A(v)
hereof, the greater of (a) the amount determined pursuant to clause (i) of
this definition or (b) the fair market value, as of the date on which the
Corporation receives the Mandatory Redemption Notice, of the consideration
payable to the holder of a share of Common Stock pursuant to the transaction
which triggers the
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redemption. For purposes of this definition, "fair market value" shall be
determined by the mutual agreement of the Corporation and holders of a
majority-in-interest of the shares of Series A Preferred Stock then
outstanding, or if such agreement cannot be reached within five (5) business
days prior to the date of redemption, by an investment banking firm selected
by the Corporation and reasonably acceptable to holders of a
majority-in-interest of the then outstanding shares of Series A Preferred
Stock, with the costs of such appraisal to be borne by the Corporation.
C. Redemption Defaults. If the Corporation fails to pay any holder
the Mandatory Redemption Amount with respect to any share of Series A
Preferred Stock within five (5) business days after its receipt of a notice
requiring such redemption (a "Mandatory Redemption Notice"), then the holder
of Series A Preferred Stock delivering such Mandatory Redemption Notice (i)
shall be entitled to interest on the Mandatory Redemption Amount at a per
annum rate equal to the lower of twenty-four percent (24%) and the highest
interest rate permitted by applicable law from the date on which the
Corporation receives the Mandatory Redemption Notice until the date of payment
of the Mandatory Redemption Amount hereunder, and (ii) shall have the right,
at any time and from time to time prior to payment thereof in cash, to require
the Corporation, upon written notice, to immediately convert (in accordance
with the terms of Paragraph A of Article IV) all or any portion of the
Mandatory Redemption Amount, plus interest as aforesaid, into shares of Common
Stock at the lowest Conversion Price in effect during the period beginning on
the date on which the Corporation receives the Mandatory Redemption Notice and
ending on the Conversion Date with respect to the conversion of such Mandatory
Redemption Amount. In the event the Corporation is not able to redeem all of
the shares of Series A Preferred Stock subject to Mandatory Redemption Notices
delivered prior to the date upon which such redemption is to be effected, the
Corporation shall redeem shares of Series A Preferred Stock from each holder
pro rata, based on the total number of shares of Series A Preferred Stock
outstanding at the time of redemption included by such holder in all Mandatory
Redemption Notices delivered prior to the date upon which such redemption is
to be effected relative to the total number of shares of Series A Preferred
Stock outstanding at the time of redemption included in all of the Mandatory
Redemption Notices delivered prior to the date upon which such redemption is
to be effected.
D. Redemption at the Corporation's Option.
(i) The Corporation shall have the right, at any time and
from time to time, so long as no Conversion Default or Mandatory Redemption
Event shall have occurred and be continuing, to redeem (an "Optional
Redemption") all or any portion of the then outstanding shares of Series A
Preferred Stock (excluding shares of Series A Preferred Stock subject to a
Notice of Conversion delivered to the Corporation prior to the date of the
Optional Redemption Notice (as defined in subparagraph (iii) below)) for cash,
at an amount per share equal to the Optional Redemption Amount (as defined
below), by delivering an Optional Redemption Notice to the holders of Series A
Preferred Stock. Subject to the provisions of Article IV.C hereof, holders of
Series A Preferred Stock may convert all or any part of their shares of Series
A Preferred Stock selected for redemption hereunder into Common Stock by
delivering a Notice of Conversion to the
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Corporation at any time prior to the Effective Date of Redemption. For
purposes hereof, the "Optional Redemption Amount" with respect to a share of
Series A Preferred Stock means an amount equal to the greater of:
(a) V
----- x M
C P
and
(b) The sum of (x) the product of (I) one hundred
percent (100%) divided by the Conversion Percentage in effect on the date of
the Optional Redemption Notice, times (II) the Face Amount thereof, plus (y)
the accrued Premium thereon and all unpaid Conversion Default Payments owing
(if any) with respect thereto through the Effective Date of Redemption (as
defined in subparagraph (iii) below).
where:
"V" means the Face Amount thereof plus the accrued Premium thereon
and all unpaid Conversion Default Payments owing (if any) with respect thereto
through the Effective Date of Redemption;
"CP" means the Conversion Price in effect on the date of the Optional
Redemption Notice; and
"M" means the Closing Bid Price of the Corporation's Common Stock on
the date of the Optional Redemption Notice.
(ii) The Corporation may not deliver an Optional
Redemption Notice to the holders of Series A Preferred Stock unless on or
prior to the date of delivery of such Optional Redemption Notice, the
Corporation shall have deposited with an escrow agent reasonably acceptable to
holders of a majority of the then outstanding shares of Series A Preferred
Stock, as a trust fund, cash sufficient in amount to pay all amounts to which
the holders of Series A Preferred Stock are entitled upon such redemption
pursuant to subparagraph (i) of this Paragraph D, with irrevocable
instructions and authority to such escrow agent to complete the redemption
thereof in accordance with this Paragraph D. Any Optional Redemption Notice
delivered in accordance with the immediately preceding sentence shall be
accompanied by a statement executed by a duly authorized officer of its escrow
agent, certifying the amount of funds which have been deposited with such
escrow agent and that the escrow agent has been instructed and agrees to act
as redemption agent hereunder.
(iii) The Corporation shall effect an Optional Redemption
under this Section VIII.D by giving at least twenty (20) business days prior
written notice (the "Optional Redemption Notice") of the date on which such
redemption is to become effective (the "Effective Date of
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Redemption") and the Optional Redemption Amount to (i) the holders of Series A
Preferred Stock at the address and facsimile number of each holder appearing
in the Corporation's register for the Series A Preferred Stock and (ii) the
transfer agent for the Common Stock, which Optional Redemption Notice shall be
deemed to have been delivered on the business day after the Corporation's fax
(with a copy sent by overnight courier to the holders of Series A Preferred
Stock) of such notice to the holders of Series A Preferred Stock.
(iv) The Optional Redemption Amount shall be paid to the
holder of the Series A Preferred Stock being redeemed within three (3)
business days of the Effective Date of Redemption; provided, however, that the
Corporation shall not be obligated to deliver any portion of the Optional
Redemption Amount until either the certificates evidencing the Series A
Preferred Stock being redeemed are delivered to the office of the Corporation
or the escrow agent or the holder notifies the Corporation or the escrow agent
that such certificates have been lost, stolen or destroyed and delivers the
documentation in accordance with Article XIV.B hereof. Notwithstanding
anything herein to the contrary, in the event that the certificates evidencing
the Series A Preferred Stock being redeemed are not delivered to the
Corporation or the escrow agent prior to the third business day following the
Effective Date of Redemption, the redemption of the Series A Preferred Stock
pursuant to this Article VIII.D shall still be deemed effective as of the
Effective Date of Redemption and the Optional Redemption Amount shall be paid
to the holder of Series A Preferred Stock being redeemed within five (5)
business days of the date the certificates evidencing the Series A Preferred
Stock being redeemed are actually delivered to the Corporation or the escrow
agent.
IX. RANK
All shares of the Series A Preferred Stock shall rank (i) prior to
the Corporation's Common Stock; (ii) prior to any class or series of capital
stock of the Corporation hereafter created (unless, with the consent of the
holders of Series A Preferred Stock obtained in accordance with Article XIII
hereof, such class or series of capital stock specifically, by its terms,
ranks senior to or pari passu with the Series A Preferred Stock) (collectively
with the Common Stock, "Junior Securities"); (iii) pari passu with any class
or series of capital stock of the Corporation hereafter created (with the
consent of the holders of Series A Preferred Stock obtained in accordance with
Article XIII hereof) specifically ranking, by its terms, on parity with the
Series A Preferred Stock (the "Pari Passu Securities"); and (iv) junior to any
class or series of capital stock of the Corporation hereafter created (with
the consent of the holders of Series A Preferred Stock obtained in accordance
with Article XIII hereof) specifically ranking, by its terms, senior to the
Series A Preferred Stock (collectively, the "Senior Securities"), in each case
as to distribution of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary.
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X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the
U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the U.S. Federal bankruptcy laws or
any other applicable bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for
a period of 60 consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up, including, but not limited to, the
sale or transfer of all or substantially all of the Corporation's assets in
one transaction or in a series of related transactions (a "Liquidation
Event"), no distribution shall be made to the holders of any shares of capital
stock of the Corporation (other than Senior Securities) upon liquidation,
dissolution or winding up unless prior thereto the holders of shares of Series
A Preferred Stock shall have received the Liquidation Preference with respect
to each share. If, upon the occurrence of a Liquidation Event, the assets and
funds available for distribution among the holders of the Series A Preferred
Stock and holders of Pari Passu Securities shall be insufficient to permit the
payment to such holders of the preferential amounts payable thereon, then the
entire assets and funds of the Corporation legally available for distribution
to the Series A Preferred Stock and the Pari Passu Securities shall be
distributed ratably among such shares in proportion to the ratio that the
Liquidation Preference payable on each such share bears to the aggregate
Liquidation Preference payable on all such shares.
B. The purchase or redemption by the Corporation of stock of any
class, in any manner permitted by law, shall not, for the purposes hereof, be
regarded as a liquidation, dissolution or winding up of the Corporation.
Neither the consolidation or merger of the Corporation with or into any other
entity nor the sale or transfer by the Corporation of less than substantially
all of its assets shall, for the purposes hereof, be deemed to be a
liquidation, dissolution or winding up of the Corporation.
C. The "Liquidation Preference" with respect to a share of Series A
Preferred Stock means an amount equal to the Face Amount thereof plus the
accrued Premium thereon through the date of final distribution. The
Liquidation Preference with respect to any Pari Passu Securities shall be as
set forth in the Certificate of Designation filed in respect thereof.
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XI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price and the Floor Price shall be subject to
adjustment from time to time as follows:
A. Stock Splits, Stock Dividends, Etc. If at any time on or after
the Issuance Date, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, combination, reclassification or
other similar event, the Fixed Conversion Price and the Floor Price shall be
proportionately reduced, or if the number of outstanding shares of Common
Stock is decreased by a reverse stock split, combination or reclassification
of shares, or other similar event, the Fixed Conversion Price and the Floor
Price shall be proportionately increased. In such event, the Corporation shall
notify the Corporation's transfer agent of such change on or before the
effective date thereof.
B. Adjustment Due to Merger, Consolidation, Etc. If, at any time
after the Issuance Date, there shall be (i) any reclassification or change of
the outstanding shares of Common Stock (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any consolidation or merger of
the Corporation with any other entity (other than a merger in which the
Corporation is the surviving or continuing entity and its capital stock is
unchanged), (iii) any sale or transfer of all or substantially all of the
assets of the Corporation or (iv) any share exchange pursuant to which all of
the outstanding shares of Common Stock are converted into other securities or
property (each of (i) - (iv) above being a "Corporate Change"), then the
holders of Series A Preferred Stock shall thereafter have the right to receive
upon conversion, in lieu of the shares of Common Stock otherwise issuable,
such shares of stock, securities and/or other property as would have been
issued or payable in such Corporate Change with respect to or in exchange for
the number of shares of Common Stock which would have been issuable upon
conversion (without giving effect to the limitations contained in Article
IV.C) had such Corporate Change not taken place, and in any such case,
appropriate provisions shall be made with respect to the rights and interests
of the holders of the Series A Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Price and the Floor Price and of the number of shares of Common
Stock issuable upon conversion of the Series A Preferred Stock) shall
thereafter be applicable, as nearly as may be practicable in relation to any
shares of stock or securities thereafter deliverable upon the conversion
thereof. The Corporation shall not effect any Corporate Change unless (i) each
holder of Series A Preferred Stock has received written notice of such
transaction at least seventy-five (75) days prior thereto, but in no event
later than twenty (20) days prior to the record date for the determination of
stockholders entitled to vote with respect thereto, and (ii) the resulting
successor or acquiring entity (if not the Corporation) assumes by written
instrument the obligations of this Certificate of Designation. The above
provisions shall apply regardless of whether or not there would have been a
sufficient number of shares of Common Stock authorized and available for
issuance upon conversion of the shares of Series A Preferred Stock outstanding
as of the date of such transaction, and shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
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C. Adjustment Due to Major Announcement. In the event the
Corporation at any time after the Issuance Date (i) makes a public
announcement that it intends to consolidate or merge with any other entity
(other than a merger in which the Corporation is the surviving or continuing
entity and its capital stock is unchanged) or to sell or transfer all or
substantially all of the assets of the Corporation or (ii) any person, group
or entity (including the Corporation) publicly announces a tender offer,
exchange offer or another transaction to purchase 50% or more of the
Corporation's Common Stock or otherwise publicly announces an intention to
replace a majority of the Corporation's Board of Directors by waging a proxy
battle or otherwise (the date of the announcement referred to in clause (i) or
(ii) of this Paragraph C is hereinafter referred to as the "Announcement
Date"), then the Conversion Price shall, effective upon the Announcement Date
and continuing through the sixth (6th) trading day following the earlier of
the consummation of the proposed transaction or tender offer, exchange offer
or another transaction or the Abandonment Date (as defined below), be equal to
the lower of (x) the Conversion Price which would have been applicable for an
Optional Conversion occurring on the Announcement Date and (y) the Conversion
Price determined in accordance with Article III.D on the Conversion Date set
forth in the Notice of Conversion for the Optional Conversion. From and after
the sixth (6th) trading day following the Abandonment Date, the Conversion
Price shall be determined as set forth in Article III.D. "Abandonment Date"
means with respect to any proposed transaction or tender offer, exchange offer
or another transaction for which a public announcement as contemplated by this
Paragraph C has been made, the date upon which the Corporation (in the case of
clause (i) above) or the person, group or entity (in the case of clause (ii)
above) publicly announces the termination or abandonment of the proposed
transaction or tender offer, exchange offer or another transaction which
caused this Paragraph C to become operative.
D. Adjustment Due to Distribution. If, at any time after the
Issuance Date, the Corporation shall declare or make any distribution of its
assets (or rights to acquire its assets) to holders of Common Stock as a
partial liquidating dividend, by way of return of capital or otherwise
(including any dividend or distribution to the Corporation's stockholders in
cash or shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e. a spin-off)) (a "Distribution"), then the holders of Series A Preferred
Stock shall be entitled, upon any conversion of shares of Series A Preferred
Stock after the date of record for determining stockholders entitled to such
Distribution, to receive the amount of such assets which would have been
payable to the holder with respect to the shares of Common Stock issuable upon
such conversion (without giving effect to the limitations contained in Article
IV.C) had such holder been the holder of such shares of Common Stock on the
record date for the determination of stockholders entitled to such
Distribution.
E. Issuance of Other Securities With Variable Conversion Price. If,
at any time after the Issuance Date, the Corporation shall issue any
securities which are convertible into or exchangeable for Common Stock
("Convertible Securities") at a conversion or exchange rate based on a
discount to the market price of the Common Stock at the time of conversion or
exercise, then the Conversion Percentage in respect of any conversion of
Series A Preferred Stock after such issuance shall be calculated utilizing the
higher of the greatest discount applicable to any such Convertible Securities
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<PAGE>
and the difference between one hundred percent (100%) and the Conversion
Percentage then in effect hereunder.
F. Purchase Rights. If, at any time after the Issuance Date, the
Corporation issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro rata to the
record holders of any class of Common Stock, then the holders of Series A
Preferred Stock will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock
acquirable upon complete conversion of the Series A Preferred Stock (without
giving effect to the limitations contained in Article IV.C) immediately before
the date on which a record is taken for the grant, issuance or sale of such
Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights.
G. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price and/or Floor Price pursuant to this
Article XI, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment and prepare and furnish to each holder of Series A
Preferred Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any
holder of Series A Preferred Stock, furnish to such holder a like certificate
setting forth (i) such adjustment or readjustment, (ii) the Conversion Price
and/or Floor Price at the time in effect and (iii) the number of shares of
Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of a share of Series A Preferred
Stock.
XII. VOTING RIGHTS
The holders of the Series A Preferred Stock shall have no voting
rights whatsoever, except as otherwise provided by the Delaware General
Corporation Law (the "Business Corporation Law"), in this Article XII and in
Article XIII below.
Notwithstanding the above, the Corporation shall provide each holder
of Series A Preferred Stock with prior notification of any meeting of the
stockholders (and copies of proxy materials and other information sent to
stockholders). If the Corporation takes a record of its stockholders for the
purpose of determining stockholders entitled to (a) receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property,
or to receive any other right, or (b) to vote in connection with any proposed
sale, lease or conveyance of all or substantially all of the assets of the
Corporation, or any proposed merger, consolidation, liquidation, dissolution
or winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least twenty (20) days prior to the record date specified therein
(or seventy-five (75) days prior to the consummation of the transaction or
event, whichever is earlier, but in no event earlier than public announcement
of such proposed transaction), of the date on which any such record is to
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be taken for the purpose of such vote, dividend, distribution, right or other
event, and a brief statement regarding the amount and character of such vote,
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the Business Corporation Law the vote of the
holders of the Series A Preferred Stock, voting separately as a class or
series, as applicable, is required to authorize a given action of the
Corporation, the affirmative vote or consent of the holders of at least a
majority of the then outstanding shares of the Series A Preferred Stock
represented at a duly held meeting at which a quorum is present or by written
consent of the holders of at least a majority of the then outstanding shares
of Series A Preferred Stock (except as otherwise may be required under the
Business Corporation Law) shall constitute the approval of such action by the
class. To the extent that under the Business Corporation Law holders of the
Series A Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series A Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible (subject to the limitations
contained in Article IV.C(ii)) using the record date for the taking of such
vote of stockholders as the date as of which the Conversion Price is
calculated.
XIII. PROTECTION PROVISIONS
So long as any shares of Series A Preferred Stock are outstanding,
the Corporation shall not without first obtaining the approval (by vote or
written consent, as provided by the Business Corporation Law) of the holders
of all of the then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or
privileges of the Series A Preferred Stock;
(b) alter or change the rights, preferences or
privileges of any capital stock of the Corporation so as to affect adversely
the Series A Preferred Stock;
(c) create any new class or series of capital stock
having a preference over the Series A Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article IX hereof, "Senior Securities");
(d) create any new class or series of capital stock
ranking pari passu with the Series A Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article IX hereof, "Pari Passu Securities");
(e) increase the authorized number of shares of
Series A Preferred Stock;
(f) issue any shares of Senior Securities or Pari
Passu Securities;
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(g) issue any shares of Series A Preferred Stock
other than pursuant to the Securities Purchase Agreement;
(h) redeem, or declare or pay any cash dividend or
distribution on, any Junior Securities; or
(i) increase the par value of the Common Stock.
Notwithstanding the foregoing, no change pursuant to this Article XIII shall
be effective to the extent that, by its terms, it applies to less than all of
the holders of shares of Series A Preferred Stock then outstanding.
XIV. MISCELLANEOUS
A. Cancellation of Series A Preferred Stock. If any shares of
Series A Preferred Stock are converted pursuant to Article IV, the shares so
converted shall be canceled, shall return to the status of authorized, but
unissued preferred stock of no designated series, and shall not be issuable by
the Corporation as Series A Preferred Stock.
B. Lost or Stolen Certificates. Upon receipt by the Corporation of
(i) evidence of the loss, theft, destruction or mutilation of any Preferred
Stock Certificate(s) and (ii) (y) in the case of loss, theft or destruction,
of indemnity reasonably satisfactory to the Corporation, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Corporation shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date. However, the Corporation shall not be
obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the
holder contemporaneously requests the Corporation to convert such Series A
Preferred Stock.
C. Allocation of Cap Amount and Reserved Amount. The initial Cap
Amount and Reserved Amount shall be allocated pro rata among the holders of
Series A Preferred Stock based on the number of shares of Series A Preferred
Stock issued to each holder. Each increase to the Cap Amount and the Reserved
Amount shall be allocated pro rata among the holders of Series A Preferred
Stock based on the number of shares of Series A Preferred Stock held by each
holder at the time of the increase in the Cap Amount or Reserved Amount. In
the event a holder shall sell or otherwise transfer any of such holder's
shares of Series A Preferred Stock, each transferee shall be allocated a pro
rata portion of such transferor's Cap Amount and Reserved Amount. Any portion
of the Cap Amount or Reserved Amount which remains allocated to any person or
entity which does not hold any Series A Preferred Stock shall be allocated to
the remaining holders of shares of Series A Preferred Stock, pro rata based on
the number of shares of Series A Preferred Stock then held by such holders.
D. Quarterly Statements of Available Shares. For each calendar
quarter beginning in the quarter in which the registration statement required
to be filed pursuant to Section 2(a) of the Registration Rights Agreement is
declared effective and thereafter so long as any shares of Series
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A Preferred Stock are outstanding, the Corporation shall deliver (or cause its
transfer agent to deliver) to each holder a written report notifying the
holders of any occurrence which prohibits the Corporation from issuing Common
Stock upon any such conversion. The report shall also specify (i) the total
number of shares of Series A Preferred Stock outstanding as of the end of such
quarter, (ii) the total number of shares of Common Stock issued upon all
conversions of Series A Preferred Stock prior to the end of such quarter,
(iii) the total number of shares of Common Stock which are reserved for
issuance upon conversion of the Series A Preferred Stock as of the end of such
quarter and (iv) the total number of shares of Common Stock which may
thereafter be issued by the Corporation upon conversion of the Series A
Preferred Stock before the Corporation would exceed the Cap Amount and the
Reserved Amount. The Corporation (or its transfer agent) shall deliver the
report for each quarter to each holder prior to the tenth day of the calendar
month following the quarter to which such report relates. In addition, the
Corporation (or its transfer agent) shall provide, within fifteen (15) days
after delivery to the Corporation of a written request by any holder, any of
the information enumerated in clauses (i) - (iv) of this Paragraph D as of the
date of such request.
E. Payment of Cash; Defaults. Whenever the Corporation is required
to make any cash payment to a holder under this Certificate of Designation (as
a Conversion Default Payment, upon redemption or otherwise), such cash payment
shall be made to the holder within five (5) business days after delivery by
such holder of a notice specifying that the holder elects to receive such
payment in cash and the method (e.g., by check, wire transfer) in which such
payment should be made. If such payment is not delivered within such five (5)
business day period, such holder shall thereafter be entitled to interest on
the unpaid amount at a per annum rate equal to the lower of twenty-four
percent (24%) and the highest interest rate permitted by applicable law until
such amount is paid in full to the holder.
F. Status as Stockholder. Upon submission of a Notice of Conversion
by a holder of Series A Preferred Stock, (i) the shares covered thereby (other
than the shares, if any, which cannot be issued because their issuance would
exceed such holder's allocated portion of the Reserved Amount or Cap Amount)
shall be deemed converted into shares of Common Stock and (ii) the holder's
rights as a holder of such converted shares of Series A Preferred Stock shall
cease and terminate, excepting only the right to receive certificates for such
shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such holder because of a failure by the
Corporation to comply with the terms of this Certificate of Designation. In
situations where Article VI.B is applicable, the number of shares of Common
Stock referred to in clauses (i) and (ii) of the immediately preceding
sentence shall be determined on the date on which such shares of Common Stock
are delivered to the holder. Notwithstanding the foregoing, if a holder has
not received certificates for all shares of Common Stock prior to the tenth
(10th) business day after the expiration of the Delivery Period with respect
to a conversion of Series A Preferred Stock for any reason, then (unless the
holder otherwise elects to retain its status as a holder of Common Stock by so
notifying the Corporation within five business days after the expiration of
such ten (10) business day period after expiration of the Delivery Period) the
holder shall regain the rights of a holder of Series A Preferred Stock with
respect to such unconverted shares of Series A Preferred Stock and the
Corporation shall, as soon as practicable, return such unconverted shares to
the holder. In all
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cases, the holder shall retain all of its rights and remedies (including,
without limitation, (i) the right to receive Conversion Default Payments
pursuant to Article VI.A to the extent required thereby for such Conversion
Default and any subsequent Conversion Default and (ii) the right to have the
Conversion Price with respect to subsequent conversions determined in
accordance with Article VI.B) for the Corporation's failure to convert Series
A Preferred Stock.
G. Remedies Cumulative. The remedies provided in this Certificate
of Designation shall be cumulative and in addition to all other remedies
available under this Certificate of Designation, at law or in equity
(including a decree of specific performance and/or other injunctive relief),
and nothing herein shall limit a holder's right to pursue actual damages for
any failure by the Corporation to comply with the terms of this Certificate of
Designation. The Corporation acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of Series A
Preferred Stock and that the remedy at law for any such breach may be
inadequate. The Corporation therefore agrees, in the event of any such breach
or threatened breach, that the holders of Series A Preferred Stock shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 24th day of March, 1998.
CAM DESIGNS INC.
By:/s/ JR Davidson
-------------------------
Name: JR Davidson
Title:
<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________ shares of
Series A Preferred Stock (the "Conversion"), represented by stock certificate
Nos(s). ___________ (the "Preferred Stock Certificates"), into shares of Class
A Common Stock ("Common Stock") of CAM DESIGNS INC. (the "Corporation")
according to the conditions of the Certificate of Designations, Preferences
and Rights of Series A Convertible Preferred Stock (the "Certificate of
Designation"), as of the date written below. If securities are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto. No fee will be charged to the
holder for any conversion, except for transfer taxes, if any. A copy of each
Preferred Stock Certificate is attached hereto (or evidence of loss, theft or
destruction thereof).
The Corporation shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or its
nominee (which is _________________) with DTC through its Deposit Withdrawal
Agent Commission System ("DTC Transfer").
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of
the Series A Preferred Stock shall be made pursuant to registration of the
Common Stock under the Securities Act of 1933, as amended (the "Act"), or
pursuant to an exemption from registration under the Act.
/ / In lieu of receiving the shares of Common Stock issuable pursuant to
this Notice of Conversion by way of DTC Transfer, the undersigned
hereby requests that the Corporation issue and deliver to the
undersigned physical certificates representing such shares of Common
Stock.
Date of Conversion:
--------------------------------
Applicable Conversion Price:
-----------------------
Amount of Conversion Default
Payments to be Converted, if any:
------------------
Number of Shares of
Common Stock to be Issued:
-------------------------
Signature:
------------------------
Name:
-----------------------------
Address:
--------------------------
--------------------------
--------------------------
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of March
27, 1998, by and between CAM DESIGNS INC., a corporation organized under the
laws of the State of Delaware (the "Company"), and the purchaser (the
"Purchaser") set forth on the execution page hereof (the "Execution Page").
WHEREAS:
A. The Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act").
B. The Company desires to sell, and the Purchaser desires to
purchase, upon the terms and conditions stated in this Agreement, for an
aggregate purchase price equal to Eight Hundred Thousand Dollars ($800,000)
(the "Purchase Price"), (i) Eight Hundred (800) shares of the Company's Series
A Convertible Preferred Stock, par value $.001 per share (the "Preferred
Shares"), convertible into shares of the Company's Class A Common Stock, par
value $.001 per share (the "Common Stock"), and (ii) warrants, in the form
attached hereto as Exhibit B, to acquire Fifty-Six Thousand (56,000) shares of
Common Stock (the "Warrants"). The rights, preferences and privileges of the
Preferred Shares, including the terms upon which such Preferred Shares are
convertible into shares of Common Stock, are set forth in the form of
Certificate of Designations, Preferences and Rights attached hereto as Exhibit
A (the "Certificate of Designation"). The shares of Common Stock issuable upon
conversion of the Preferred Shares or otherwise pursuant to the Certificate of
Designation are referred to herein as the "Conversion Shares" and the shares
of Common Stock issuable upon exercise of or otherwise pursuant to the
Warrants are referred to herein as the "Warrant Shares." The Preferred Shares,
the Warrants, the Conversion Shares and the Warrant Shares are collectively
referred to herein as the "Securities" and each of them may individually be
referred to herein as a "Security."
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as Exhibit C (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights under the Securities Act and the rules and regulations
promulgated thereunder, and applicable state securities laws.
<PAGE>
NOW, THEREFORE, the Company and the Purchaser hereby agree as
follows:
1. PURCHASE AND SALE OF SECURITIES.
a. Purchase. On the Closing Date (as defined below), subject to the
satisfaction (or waiver) of the conditions set forth in Section 6 and Section
7 below, the Company shall issue and sell to the Purchaser, and the Purchaser
agrees to purchase from the Company, the Preferred Shares and the Warrants.
b. Form of Payment. On the Closing Date, the Purchaser shall pay
the aggregate Purchase Price hereunder by wire transfer to the Company, in
accordance with the Company's written wiring instructions, against delivery of
duly executed certificates representing the Preferred Shares and duly executed
Warrants and the Company shall deliver such duly executed certificates and
Warrants against delivery of such aggregate Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Preferred Shares and Warrants pursuant to
this Agreement (the "Closing") shall be 12:00 noon, New York City time, on
March 27, 1998, subject to a two (2) business day grace period at either
party's option, but in no event later than March 31, 1998, or such other time
as may be mutually agreed upon by the Company and the Purchaser (the "Closing
Date"). The Closing shall occur at the offices of Klehr, Harrison, Harvey,
Branzburg & Ellers, LLP, 1401 Walnut Street, Philadelphia, Pennsylvania 19102.
2. PURCHASER'S REPRESENTATIONS AND WARRANTIES
The Purchaser represents and warrants to the Company as follows:
a. Investment Purpose. The Purchaser is purchasing the Preferred
Shares and the Warrants for the Purchaser's own account and not with a present
view towards the public sale or distribution thereof, except pursuant to sales
that are exempt from the registration requirements of the Securities Act
and/or sales registered under the Securities Act. The Purchaser understands
that the Purchaser must bear the economic risk of this investment
indefinitely, unless the Securities are registered pursuant to the Securities
Act and any applicable state securities or blue sky laws or an exemption from
such registration is available, and that the Company has no present intention
of registering the resale of any such Securities other than as contemplated by
the Registration Rights Agreement. Notwithstanding anything in this Section
2(a) to the contrary, by making the representations herein, the Purchaser does
not agree to hold the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption from the registration
requirements under the Securities Act.
b. Accredited Investor Status. The Purchaser is an "Accredited
Investor" as that term is defined in Rule 501(a) of Regulation D.
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<PAGE>
c. Reliance on Exemptions. The Purchaser understands that the
Preferred Shares and the Warrants are being offered and sold to the Purchaser
in reliance upon 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 Purchaser's compliance with,
the representations, warranties, agreements, acknowledgments and
understandings of the Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of the Purchaser to
acquire the Preferred Shares and the Warrants.
d. Information. The Purchaser and its counsel, if any, have been
furnished all materials relating to the business, finances and operations of
the Company and materials relating to the offer and sale of the Preferred
Shares and the Warrants which have been specifically requested by the
Purchaser or its counsel. The Purchaser and its counsel have been afforded the
opportunity to ask questions of the Company and have received what the
Purchaser believes to be satisfactory answers to any such inquiries. Neither
such inquiries nor any other investigation conducted by the Purchaser or its
counsel or any of its representatives shall modify, amend or affect the
Purchaser's right to rely on the Company's representations and warranties
contained in Section 3 below. The Purchaser understands that the Purchaser's
investment in the Securities involves a high degree of risk.
e. Governmental Review. The Purchaser understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. The Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the sale or resale of the
Securities have not been and are not being registered under the Securities Act
or any state securities laws, and the Securities may not be transferred unless
(a) the resale of the Securities has been registered thereunder; or (b) the
Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions) to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an exemption from
such registration; or (c) the Securities are sold under Rule 144 promulgated
under the Securities Act (or a successor rule) ("Rule 144"); or (d) the
Securities are sold or transferred to an affiliate of the Purchaser who agrees
to sell or otherwise transfer the Securities only in accordance with the
provisions of this Section 2(f) and who is an Accredited Investor; and (ii)
neither the Company nor any other person is under any obligation to register
such Securities under the Securities Act or any state securities laws (other
than pursuant to the Registration Rights Agreement). Notwithstanding the
foregoing or anything else contained herein to the contrary, the Securities
may be pledged as collateral in connection with a bona fide margin account or
other lending arrangement.
g. Legends. The Purchaser understands that the Preferred Shares and
the Warrants and, until such time as the Conversion Shares and the Warrant
Shares have been registered under the Securities Act (including registration
pursuant to Rule 416 thereunder) as contemplated by the Registration Rights
Agreement or otherwise may be sold by the Purchaser under Rule 144, the
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<PAGE>
certificates for the Conversion Shares and the Warrant Shares may bear a
restrictive legend in substantially the following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or the
securities laws of any state of the United States. The securities
represented hereby may not be offered, sold, transferred or assigned
in the absence of an effective registration statement for the
securities under applicable securities laws unless offered, sold,
transferred or assigned under an available exemption from the
registration requirements of those laws.
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Security upon
which it is stamped, if, unless otherwise required by state securities laws,
(a) the sale of such Security is registered under the Securities Act
(including registration pursuant to Rule 416 thereunder) as contemplated by
the Registration Rights Agreement; (b) such holder provides the Company with
an opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or
transfer of such Security may be made without registration under the
Securities Act; or (c) such holder provides the Company with reasonable
assurances that such Security can be sold under Rule 144. The Purchaser agrees
to sell all Securities, including those represented by a certificate(s) from
which the legend has been removed, pursuant to an effective registration
statement or under an exemption from the registration requirements of the
Securities Act. In the event the above legend is removed from any Security and
thereafter the effectiveness of a registration statement covering such
Security is suspended or the Company determines that a supplement or amendment
thereto is required by applicable securities laws, then upon reasonable
advance notice to the Purchaser the Company may require that the above legend
be placed on any such Security that cannot then be sold pursuant to an
effective registration statement or under Rule 144 and the Purchaser shall
cooperate in the replacement of such legend. Such legend shall thereafter be
removed when such Security may again be sold pursuant to an effective
registration statement or under Rule 144.
h. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable in accordance with their terms.
i. Residency. The Purchaser is a resident of the jurisdiction set
forth under the Purchaser's name on the Execution Page hereto executed by the
Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Purchaser as follows:
a. Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing
under the laws of the jurisdiction in which it is incorporated, and has the
requisite corporate power to own its properties and to carry on its
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business as now being conducted. The Company and each of its subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted by it
makes such qualification necessary and where the failure so to qualify would
have a Material Adverse Effect. "Material Adverse Effect" means any material
adverse effect on (i) the Securities, (ii) the ability of the Company to
perform its obligations hereunder or under the Certificate of Designation, the
Warrants or the Registration Rights Agreement or (iii) the business,
operations, properties, prospects or financial condition of the Company and
its subsidiaries, taken as a whole.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Warrants and the Registration Rights Agreement, to issue
and sell the Preferred Shares and the Warrants in accordance with the terms
hereof, and to issue the Conversion Shares upon conversion of the Preferred
Shares in accordance with the terms of the Certificate of Designation and to
issue the Warrant Shares upon exercise of the Warrants in accordance with the
terms of such Warrants; (ii) the execution, delivery and performance of this
Agreement, the Warrants and the Registration Rights Agreement by the Company
and the consummation by it of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Preferred Shares and the
Warrants and the issuance and reservation for issuance of the Conversion
Shares and the Warrant Shares) have been duly authorized by the Company's
Board of Directors and no further consent or authorization of the Company, its
Board of Directors, any committee of the Board of Directors, or its
stockholders is required (except for such stockholder approvals as may be
required under Rules 4310(c)(25)(H) or 4460(i) promulgated by the National
Association of Securities Dealers ("NASD") or otherwise in order to issue
Conversion Shares in excess of the Cap Amount (as such term is defined under
Article IV.C(i) of the Certificate of Designation)); (iii) this Agreement has
been duly executed and delivered by the Company; and (iv) this Agreement
constitutes, and, upon execution and delivery by the Company of the Warrants
and the Registration Rights Agreement, such agreements will constitute, valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms.
c. Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued
and outstanding, the number of shares issuable and reserved for issuance
pursuant to the Company's stock option plans, the number of shares issuable
and reserved for issuance pursuant to securities (other than the Preferred
Shares and the Warrants) exercisable or exchangeable for, or convertible into,
any shares of capital stock and the number of shares to be reserved for
issuance upon conversion of the Preferred Shares and exercise of the Warrants
is set forth on Schedule 3(c). All of such outstanding shares of capital stock
have been, or upon issuance in accordance with the terms of any such warrants,
options or preferred stock, will be, validly issued, fully paid and
non-assessable. None of the authorized but unissued shares of capital stock of
the Company (including the Preferred Shares, the Conversion Shares and the
Warrant Shares) are subject to preemptive rights or any other similar rights
of the stockholders of the Company or any liens or encumbrances. Except for
the Securities and as set forth on Schedule 3(c), as of the date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
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subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its subsidiaries, or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries, and (ii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
its or their securities under the Securities Act (except the Registration
Rights Agreement). Except as set forth on Schedule 3(c), there are no
securities or instruments containing antidilution or similar provisions that
will be triggered by the issuance of the Securities in accordance with the
terms of this Agreement, the Certificate of Designation or the Warrants. The
Company has furnished to the Purchaser true and correct copies of the
Company's Certificate of Incorporation as in effect on the date hereof
("Certificate of Incorporation"), the Company's By-laws as in effect on the
date hereof (the "By-laws"), and all other instruments and agreements
governing securities convertible into or exercisable or exchangeable for
capital stock of the Company. The Certificate of Designation, in the form
attached hereto, will be duly filed prior to Closing with the Secretary of
State of the State of Delaware and, upon issuance of the Preferred Shares in
accordance with the terms hereof, the Purchaser shall be entitled to the
rights set forth therein.
d. Issuance of Shares. The Preferred Shares are duly authorized
and, upon issuance in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and free from all taxes, liens,
claims and encumbrances and will not be subject to any preemptive or other
similar rights of stockholders of the Company and will not impose personal
liability on the holders thereof. The Conversion Shares and Warrant Shares are
duly authorized and reserved for issuance, and, upon conversion of the
Preferred Shares and exercise of the Warrants, as applicable, in accordance
with the terms thereof, will be validly issued, fully paid and non-assessable,
and free from all taxes, liens, claims and encumbrances and will not be
subject to any preemptive or other similar rights of stockholders of the
Company and will not impose personal liability upon the holder thereof.
e. No Conflicts. The execution, delivery and performance of this
Agreement, the Warrants and the Registration Rights Agreement by the Company,
the performance by the Company of its obligations under the Certificate of
Designation and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance
and reservation for issuance, as applicable, of the Preferred Shares, the
Conversion Shares and the Warrant Shares) will not (i) result in a violation
of the Certificate of Incorporation or By-laws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment (including, without limitation, the triggering of any anti-dilution
provisions), acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or
result in a violation of any law, rule, regulation, order, judgment or decree
(including U.S. federal and state securities laws and regulations and rules or
regulations of any self-regulatory organizations to which either the Company
or its securities are subject) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or
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affected (except, with respect to clause (ii), for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect).
Neither the Company nor any of its subsidiaries is in violation of its
Certificate of Incorporation, By-laws or other organizational documents and
neither the Company nor any of its subsidiaries is in default (and no event
has occurred which, with notice or lapse of time or both, would put the
Company or any of its subsidiaries in default) under, nor has there occurred
any event giving others (with notice or lapse of time or both) any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, except for actual or possible violations, defaults or rights as would
not, individually or in the aggregate, have a Material Adverse Effect. The
businesses of the Company and its subsidiaries are not being conducted, and
shall not be conducted so long as the Purchaser owns any of the Securities, in
violation of any law, ordinance or regulation of any governmental entity,
except for possible violations the sanctions for which either singly or in the
aggregate would not have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and the Registration Rights Agreement, the
Company is not required to obtain any consent, approval, authorization or
order of, or make any filing or registration with, any court or governmental
agency or any regulatory or self regulatory agency in order for it to execute,
deliver or perform any of its obligations under this Agreement, the Warrants
or the Registration Rights Agreement or to perform its obligations under the
Certificate of Designation, in each case in accordance with the terms hereof
or thereof. Effective on March 26, 1998, the Company's Common Stock was
delisted from the Nasdaq National Market ("NNM") and became listed for trading
on the Nasdaq SmallCap Market ("SmallCap"). The Nasdaq Stock Market, Inc.
informed the Company on March 24, 1998 that it must increase its net tangible
assets (as defined in Rule 4450(a)(3) promulgated by the NASD) to three
million dollars ($3,000,000) on or before April 27, 1998 in order to maintain
the listing of the Common Stock on the SmallCap.
f. SEC Documents, Financial Statements. Since July 27, 1995, the
Company has timely filed (within applicable extension periods) all reports,
schedules, forms, statements and other documents required to be filed by it
with the SEC pursuant to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (all of the foregoing and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being hereinafter referred to
herein as the "SEC Documents"). The Company has delivered to the Purchaser
true and complete copies of the SEC Documents. As of their respective dates,
the SEC Documents complied in all material respects with the requirements of
the Exchange Act or the Securities Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the statements made in any such SEC Documents is, or
has been, required to be amended or updated under applicable law (except for
such statements as have been amended or updated in subsequent filings made
prior to the date hereof). As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable
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accounting requirements and the published rules and regulations of the SEC
applicable with respect thereto. Such financial statements have been prepared
in accordance with U.S. generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to immaterial year-end audit adjustments).
Except as set forth in the financial statements of the Company included in the
SEC Documents filed prior to the date hereof, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to the date of such financial statements, (ii)
liabilities not required by generally accepted accounting principles ("GAAP")
to be disclosed on a balance sheet prepared in accordance with GAAP, and (iii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under GAAP to be reflected in such financial
statements, which liabilities and obligations referred to in clauses (i), (ii)
and (iii), individually or in the aggregate, are not material to the financial
condition or operating results of the Company.
g. Absence of Certain Changes. Since May 31, 1997, there has been
no material adverse change and no material adverse development in the
business, properties, operations, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole, except as
disclosed in Schedule 3(g) or in the SEC Documents filed prior to the date
hereof.
h. Absence of Litigation. Except as disclosed in the SEC Documents
filed prior to the date hereof and except as disclosed in Section 3(e) hereof
with respect to the continued listing and inclusion of the Common Stock on the
SmallCap, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company or any of its
subsidiaries, threatened against or affecting the Company, any of its
subsidiaries, or any of their respective directors or officers in their
capacities as such, which could reasonably be expected to have a Material
Adverse Effect. There are no facts which, if known by a potential claimant or
governmental authority, could give rise to a claim or proceeding which, if
asserted or conducted with results unfavorable to the Company or any of its
subsidiaries, could reasonably be expected to have a Material Adverse Effect.
i. Intellectual Property. Each of the Company and its subsidiaries
owns or is licensed to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, permits, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures) and other similar rights and proprietary knowledge
(collectively, "Intangibles") necessary for the conduct of its business as now
being conducted and as described in the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1997. To the best knowledge of the Company,
neither the Company nor any subsidiary of the Company infringes or is in
conflict with any right of any other person with respect to any Intangibles
which, individually or in the aggregate, if the
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<PAGE>
subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Effect. Neither the Company nor any of its subsidiaries has received
written notice of any pending conflict with or infringement upon such third
party Intangibles, which alleged pending conflict or alleged infringement, if
adversely determined, would result in a Material Adverse Effect. Except as
disclosed in the SEC Documents, the termination of the Company's ownership of,
or right to use, any single Intangible would not result in a Material Adverse
Effect on the Company. Neither the Company nor any of its subsidiaries has
entered into any consent agreement, indemnification agreement, forbearance to
sue or settlement agreement with respect to the validity of the Company's or
its subsidiaries' ownership or right to use its Intangibles and, to the best
knowledge of the Company, there is no reasonable basis for any such claim to
be successful. The Intangibles are valid and enforceable and no registration
relating thereto has lapsed, expired or been abandoned or canceled or is the
subject of cancellation or other adversarial proceedings, and all applications
therefor are pending and in good standing. The Company and its subsidiaries
have complied, in all material respects, with their respective contractual
obligations relating to the protection of the Intangibles used pursuant to
licenses. To the best knowledge of the Company, no person is infringing on or
violating the Intangibles owned or used by the Company or its subsidiaries.
j. Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any subsidiary has, in the course of his
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
k. Disclosure. All information relating to or concerning the
Company set forth in this Agreement or provided to the Purchaser pursuant to
Section 2(d) hereof and otherwise in connection with the transactions
contemplated hereby is true and correct in all material respects and the
Company has not omitted to state any material fact necessary in order to make
the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or its subsidiaries or their respective
businesses, properties, prospects, operations or financial conditions, which
has not been publicly disclosed but, under applicable law, rule or regulation,
would be required to be disclosed by the Company in a registration statement
filed on the date hereof by the Company under the Securities Act with respect
to the primary issuance of the Company's securities.
l. Acknowledgment Regarding Purchaser's Purchase of the Securities.
The Company acknowledges and agrees that the Purchaser is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement or the transactions contemplated hereby, the
relationship between the Company and the Purchaser is "arms-length" and any
statement made by the Purchaser or any of its representatives or agents in
connection with this Agreement and the transactions contemplated hereby is not
advice or a recommendation and is
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merely incidental to the Purchaser's purchase of Securities and has not been
relied upon by the Company, its officers or directors in any way. The Company
further acknowledges that the Company's decision to enter into this Agreement
has been based solely on an independent evaluation by the Company and its
representatives.
m. Form S-3 Eligibility. The Company is currently eligible to
register the resale of its Common Stock on a registration statement on Form
S-3 under the Securities Act. There exist no facts or circumstances that would
prohibit or delay the preparation and filing of a registration statement on
Form S-3 with respect to the Registrable Securities (as defined in the
Registration Rights Agreement).
n. No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
o. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this
offering of Securities to be integrated with any prior offering of securities
of the Company for purposes of the Securities Act or any applicable
stockholder approval provisions.
p. No Brokers. Except for fees payable to Century City Securities,
Inc., no fees or commissions will be payable by the Company to any broker,
financial advisor, finder, investment banker, or bank with respect to the
transactions contemplated hereby. The Purchaser shall have no obligation with
respect to such fees or with respect to any claims made by or on behalf of
other persons for fees of a type contemplated in this Section 3(p) that may be
due in connection with the transactions contemplated hereby. The Company shall
indemnify and hold harmless the Purchaser, its respective employees, officers,
directors, agents and partners, and their respective Affiliates (as such term
is defined under Rule 405 promulgated under the Securities Act), from and
against all claims, losses, damages, costs (including the costs of preparation
and reasonable attorney's fees) and expenses suffered in respect of any such
claimed or existing fees.
q. Acknowledgment of Dilution. The number of Conversion Shares
issuable upon conversion of the Preferred Shares may increase substantially in
certain circumstances, including the circumstance wherein the trading price of
the Common Stock declines. The Company's executive officers have studied and
fully understand the nature of the Securities being sold hereunder. The
Company acknowledges that its obligation to issue Conversion Shares upon
conversion of the Preferred Shares in accordance with the terms of the
Certificate of Designation is absolute and unconditional, regardless of the
dilution that such issuance may have on the ownership interests of other
stockholders. Taking the foregoing into account, the Company's Board of
Directors has
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determined in its good faith business judgment that the issuance of the
Preferred Shares hereunder and the consummation of the other transactions
contemplated hereby are in the best interests of the Company and its
stockholders.
r. Title. The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the
Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(r) or such
as do not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries. Any real property and facilities held under
lease by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not materially interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries.
s. Tax Status. Except as set forth on Schedule 3(s), the Company
and each of its subsidiaries has made or filed all foreign, federal, state and
local income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that
the Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and
has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or
declarations apply. Except as set forth on Schedule 3(s), there are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim. The Company has not executed a waiver with respect to any statute of
limitations relating to the assessment or collection of any federal, state or
local tax. Except as set forth on Schedule 3(s), none of the Company's tax
returns is presently being audited by any taxing authority.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and Section 7 of this
Agreement.
b. Form D: Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to the Purchaser promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Purchaser
pursuant to this Agreement under applicable securities or "blue sky" laws of
the states of the United States or obtain exemption therefrom, and shall
provide evidence of any such action so taken to the Purchaser on or prior to
the Closing Date.
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c. Reporting Status. So long as the Purchaser beneficially owns any
of the Securities, the Company shall timely file all reports required to be
filed with the SEC pursuant to the Exchange Act, and the Company shall not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would
permit such termination. In addition, the Company shall take all actions
necessary to continue to be eligible to register the resale of its Common
Stock on a registration statement on Form S-3 under the Securities Act.
d. Use of Proceeds. The Company shall use the proceeds from the sale
of the Securities as set forth in Schedule 4(d).
e. Additional Equity Capital; Right of First Offer. The Company
agrees that during the period beginning on the date hereof and ending on the
date which is 180 days following the Closing Date (the "Lock-Up Period"), the
Company will not contract with any party to obtain additional financing in
which any equity or equity-linked securities are issued (including any debt
financing with an equity component) ("Future Offerings") unless it shall have
first delivered to the Purchaser, at least ten (10) business days prior to the
closing of such Future Offering, written notice describing the proposed Future
Offering, including the terms and conditions thereof, and providing the
Purchaser and its affiliates an option during the ten (10) business day period
following delivery of such notice to purchase all of the securities being
offered in the Future Offering on the same terms as contemplated by such
Future Offering (the limitation referred to in this Section 4(e) is referred
to as the "Capital Raising Limitation"). The Capital Raising Limitation shall
not apply to any transaction involving issuances of securities as
consideration in a merger, consolidation or acquisition of assets, or in
connection with any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital), or as consideration for the
acquisition of a business, product or license by the Company. The Capital
Raising Limitation also shall not apply to (i) the issuance of securities
pursuant to an underwritten public offering, (ii) the issuance of securities
upon exercise or conversion of the Company's options, warrants or other
convertible securities outstanding as of the date hereof or (iii) the grant of
additional options or warrants, or the issuance of additional securities,
under any duly authorized Company stock option or restricted stock plan for
the benefit of the Company's employees or directors.
f. Expenses. The Company shall pay to the Purchaser, or at its
direction, at the Closing, reimbursement for the expenses reasonably incurred
by the Purchaser and its affiliates and advisors in connection with the
negotiation, preparation, execution and delivery of this Agreement and the
other agreements to be executed in connection herewith, including, without
limitation, the Purchaser's and its affiliates' and advisors' reasonable due
diligence and attorneys' fees and expenses (the "Expenses"). In addition, from
time to time thereafter, upon the Purchaser's written request, the Company
shall pay to the Purchaser such additional Expenses, if any, not covered by
such payment, in each case to the extent reasonably incurred by the Purchaser
in connection with the negotiation, preparation, execution and delivery of
this Agreement and the other agreements to be executed in connection herewith.
Notwithstanding the foregoing, the Company shall not be obligated to reimburse
the Purchaser for more than $35,000 pursuant to this Section 4(f).
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g. Financial Information. The Company agrees to send the following
reports to the Purchaser until such Purchaser transfers, assigns or sells all
of its Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q,
its proxy statements and any Current Reports on Form 8-K; and (ii) within one
(1) day after release, copies of all press releases issued by the Company or
any of its subsidiaries.
h. Reservation of Shares. The Company shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Preferred Shares and the issuance of the Conversion Shares in connection
therewith and the full exercise of the Warrants and the issuance of the
Warrant Shares in connection therewith subject to and as otherwise required by
the Certificate of Designation and the Warrants. In that regard, a "sufficient
number of shares" with respect to the Preferred Shares shall be deemed to be
equal to the number of shares of Common Stock required to be reserved for
issuance by the Company pursuant to Article V of the Certificate of
Designation. The Company shall not reduce the number of shares reserved for
issuance upon conversion of the Preferred Shares and the full exercise of the
Warrants (except as a result of any such conversion or exercise) without the
consent of the Purchaser.
i. Listing. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
the Purchaser (or any of its affiliates) own any Securities, such listing of
all Conversion Shares from time to time issuable upon conversion of the
Preferred Shares and all Warrant Shares from time to time issuable upon
exercise of the Warrants. The Company will take all action necessary to
continue the listing and trading of its Common Stock on the New York Stock
Exchange ("NYSE"), the American Stock Exchange ("AMEX"), the NNM or the
SmallCap and will comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the NASD and such
exchanges, as applicable. The Company shall promptly provide to the Purchaser
copies of any notices it receives regarding the continued eligibility of the
Common Stock for trading on the SmallCap or, if applicable, any securities
exchange or automated quotation system on which securities of the same class
or series issued by the Company are then listed or quoted, if any.
j. Corporate Existence. Subject to the provisions of the
Certificate of Designation and the Warrants, so long as the Purchaser (or any
of its affiliates) beneficially owns any Securities, the Company shall
maintain its corporate existence, and in the event of a merger, consolidation
or sale of all or substantially all of the Company's assets, the Company shall
ensure that the surviving or successor entity in such transaction (i) assumes
the Company's obligations hereunder and under the Certificate of Designation,
the Warrants and the agreements and instruments entered into in connection
herewith regardless of whether or not the Company would have had a sufficient
number of shares of Common Stock authorized and available for issuance in
order to effect the full conversion of all Preferred Shares and the exercise
in full of all Warrants outstanding as of the date of such transaction and
(ii) is a publicly traded corporation whose common stock is listed for trading
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on the NNM, SmallCap, NYSE or AMEX; provided, however, that, subject to the
provisions of the Certificate of Designation and the Warrants, the foregoing
restrictions shall not apply to any consolidation or merger of the Company
with or into, or sale of all or substantially all of its assets to, another
corporation or entity, so long as (i) the Company provides written notice of
such proposed transaction to the Purchaser not less than seventy-five (75)
days prior to the date on which such transaction will take place, (ii) the
Common Stock is listed and included for quotation on the SmallCap at all times
during the period following the delivery of such notice by the Company until
the date on which such transaction takes place and (iii) the registration
statement required to be filed by the Company pursuant to Section 2(a) of the
Registration Rights Agreement is effective under the Securities Act at all
times during the period following the delivery of such notice by the Company
until the date on which such transaction takes place.
k. No Integrated Offerings. The Company shall not make any offers
or sales of any security (other than the Securities) under circumstances that
would require registration of the Securities being offered or sold hereunder
under the Securities Act or cause this offering of Securities to be integrated
with any other offering of securities by the Company for purposes of any
stockholder approval provision applicable to the Company or its securities.
l. Legal Compliance. The Company shall conduct its business and the
business of its subsidiaries in compliance with all laws, ordinances or
regulations of governmental entities applicable to such businesses, except
where the failure to do so would not have a Material Adverse Effect.
m. Stockholder Approval. The Company shall hold an annual or
special meeting of its stockholders no later than September 30, 1998 and use
its best efforts to obtain at such meeting such approvals of the Company's
stockholders as may be required to issue all of the shares of Common Stock
issuable upon conversion of, or otherwise with respect to, the Preferred
Shares without violating NASD Rules 4310(c)(25)(H) or 4460(i) (or any
successor rules thereto which may then be in effect) (the "Stockholder
Approval"). The Company shall comply with the filing and disclosure
requirements of Section 14 promulgated under the Exchange Act in connection
with the solicitation, acquisition and disclosure of such Stockholder
Approval. The Company represents and warrants that its Board of Directors has
unanimously recommended that the Company's stockholders approve the proposal
contemplated by this Section 4(m) and shall so indicate such recommendation in
the proxy statement used to solicit such Stockholder Approval.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company shall instruct its transfer agent to issue
certificates, registered in the name of the Purchaser or its nominee, for the
Conversion Shares and the Warrant Shares in such amounts as specified from
time to time by the Purchaser to the Company upon conversion of the Preferred
Shares or exercise of the Warrants, as applicable. To the extent and during
the periods provided in Sections 2(f) and 2(g) of this Agreement, all such
certificates shall bear the restrictive legend specified in Section 2(g) of
this Agreement.
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b. The Company warrants that no instruction other than such
instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof in the case of the transfer of the
Conversion Shares and the Warrant Shares, as applicable, prior to registration
thereof under the Securities Act or without an exemption therefrom, will be
given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as
and to the extent provided in this Agreement, the Certificate of Designation,
the Warrants and the Registration Rights Agreement. Nothing in this Section
shall affect in any way the Purchaser's obligations and agreement set forth in
Section 2(g) hereof to resell the Securities pursuant to an effective
registration statement or under an exemption from the registration
requirements of applicable securities law.
c. If (i) (A) the Conversion Shares and the Warrant Shares, as
applicable, have been registered under the Securities Act as contemplated by
the Registration Rights Agreement, or (B) the Purchaser provides the Company
and the transfer agent with an opinion of counsel, which opinion of counsel
shall be in form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from
registration, or (C) the Purchaser provides the Company with reasonable
assurances that such Securities may be sold under Rule 144, and (ii) (A) the
Purchaser has delivered to the Company certificates representing the
Conversion Shares and/or Warrant Shares, as applicable, along with a written
request for the removal of any restrictive legend set forth thereon or (B) in
the case of the conversion by the Purchaser of the Preferred Shares or the
exercise by the Purchaser of the Warrants, the Purchaser has complied with the
procedures for conversion set forth in Article IV of the Certificate of
Designation and the procedures for exercise set forth in the Warrants, the
Company shall permit the transfer and promptly instruct its transfer agent to
issue the Conversion Shares and/or Warrant Shares, as applicable, in such name
and in such denominations as specified by the Purchaser. If the Company's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, the Company shall cause its transfer
agent to electronically transmit the Conversion Shares and/or Warrant Shares,
as applicable, to the Purchaser or its transferee by crediting the account of
the Purchaser or its transferee with DTC through its Deposit Withdrawal Agent
Commission system ("DTC Transfer"). If the aforementioned conditions to a DTC
Transfer are not satisfied, the Company shall deliver to the Purchaser or its
transferee physical certificates representing the Conversion Shares and/or
Warrant Shares, as applicable, which certificates shall not bear any legend
restricting transfer of the Conversion Shares and/or Warrant Shares
represented thereby. Further, a Purchaser may instruct the Company to deliver
to the Purchaser or its transferee unlegended physical certificates
representing the Conversion Shares and/or Warrant Shares, as applicable, in
lieu of delivering such shares by way of DTC Transfer.
d. If the Company fails (a "Legend Removal Failure") to deliver
such unlegended Conversion Shares and/or Warrant Shares to the Purchaser or
its transferee in accordance with Section 5(c) within five (5) business days
after the conditions to such delivery have been satisfied (the "Legend Removal
Period"), then the Company shall pay to the Purchaser an amount equal to:
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(.24) x (N/365) x (MP)
where:
"N" means the number of days after the expiration of the Legend
Removal Period through and including the Legend Removal Cure Date;
"MP" means the product of (x) the Closing Bid Price (as defined in
the Certificate of Designation) of the Common Stock in effect on the date of
the Legend Removal Failure and (y) the number of Conversion Shares and/or
Warrant Shares which are the subject of such Legend Removal Failure; and
"Legend Removal Cure Date" means the date the Company issues freely
tradeable shares of Common Stock in accordance with Section 5(c).
The payments to which a holder shall be entitled pursuant to this
Section 5(d) are referred to herein as "Legend Removal Payments." The
Purchaser may elect to receive accrued Legend Removal Payments in cash or to
convert all or any portion of such accrued Legend Removal Payments, at any
time, into Common Stock at the lowest Conversion Price (as defined in the
Certificate of Designation) in effect during the period beginning on the date
of the Legend Removal Failure through the date of conversion of such Legend
Removal Payments. In the event the Purchaser elects to take such payment in
cash, cash payment will be made by the Company within five (5) days after its
receipt of written notice of such election from the Purchaser. In the event
the Purchaser elects to convert all or any portion of the Legend Removal
Payment into Common Stock, the Purchaser shall provide written notice of such
election specifying the amount of such Legend Removal Payment to be converted
and the applicable Conversion Price at which such amount is to be converted.
The Company shall deliver the shares of Common Stock issuable upon any such
conversion to the Purchaser within five (5) days of its receipt of such
written notice from the Purchaser.
Nothing herein shall limited the Purchaser's right to pursue actual
damages for the Company's failure to deliver unlegended Conversion Shares and
Warrant Shares pursuant to Section 5(c), and the Purchaser shall have the
right to pursue all remedies available at law or in equity (including a decree
of specific performance and/or injunctive relief).
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Preferred Shares and Warrants to the Purchaser at the Closing is subject to
the satisfaction, on or before the Closing Date, of each of the following
conditions thereto, provided that these conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole discretion:
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<PAGE>
a. The Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement, and delivered the same to the
Company.
b. The Purchaser shall have delivered the Purchase Price for the
Preferred Shares and Warrants in accordance with Section 1(b) above.
c. The representations and warranties of the Purchaser shall be
true and correct as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of
a specific date, which representations and warranties shall be true and
correct as of such date), and the Purchaser shall have performed, satisfied
and complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Purchaser at or prior to the Closing Date.
d. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction or
any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
7. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of the Purchaser hereunder to purchase the Preferred
Shares and Warrants at the Closing is subject to the satisfaction, on or
before the Closing Date, of each of the following conditions, provided that
these conditions are for the Purchaser's sole benefit and may be waived by the
Purchaser at any time in the Purchaser's sole discretion:
a. The Company shall have executed this Agreement, the Warrants and
the Registration Rights Agreement, and delivered the same to the Purchaser.
b. The Certificate of Designation shall have been accepted for
filing with the Secretary of State of the State of Delaware and a copy thereof
certified by the Secretary of State of the State of Delaware shall have been
delivered to the Purchaser.
c. The Company shall have delivered to the Purchaser duly executed
Warrants and certificates (in such denominations as the Purchaser shall
request) representing the Preferred Shares in accordance with Section 1(b)
above.
d. The Common Stock shall be authorized for quotation and listed on
the SmallCap and trading in the Common Stock (or the SmallCap generally) shall
not have been suspended by the SEC or the SmallCap, nor shall any such
suspension be pending or threatened.
e. The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations
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<PAGE>
and warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date) and the Company shall
have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date. The Purchaser shall have received a certificate, executed by the
Chief Executive Officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested
by the Purchaser.
f. No litigation, statute, rule, regulation, executive order,
decree, ruling, injunction, action or proceeding shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority
over the matters contemplated hereby which questions the validity of, or
challenges or prohibits the consummation of any of the transactions
contemplated by this Agreement.
g. The Purchaser shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Purchaser and in substantially the form of Exhibit D
attached hereto.
h. The Company shall have delivered evidence reasonably
satisfactory to the Purchaser that the Company's transfer agent has agreed to
act in accordance with irrevocable instructions in the form attached hereto as
Exhibit E.
i. There shall have been no material adverse changes and no
material adverse developments in the business, properties, operations,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, since the date hereof, and no information, of
which the Purchaser is not currently aware, shall come to the attention of the
Purchaser that is materially adverse to the Company.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware applicable
to contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts
and the state courts located in the State of Delaware in any suit or
proceeding based on or arising under this Agreement and irrevocably agrees
that all claims in respect of such suit or proceeding may be determined in
such courts. The Company irrevocably waives the defense of an inconvenient
forum to the maintenance of such suit or proceeding. The Company further
agrees that service of process mailed by first class mail shall be deemed in
every respect effective service of process in any such suit or proceeding.
Nothing herein shall affect the right of the Purchaser to serve process in any
other manner permitted by law. The Company agrees that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
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<PAGE>
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this
Agreement. In the event any signature is delivered by facsimile transmission,
the party using such means of delivery shall cause the manually executed
Execution Page(s) to be physically delivered to the other party within five
(5) days of the execution hereof.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. 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. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein. No provision of this Agreement may
be waived other than by an instrument in writing signed by the party to be
charged with enforcement and no provision of this Agreement may be amended
other than by an instrument in writing signed by the Company and the
Purchaser.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
CAM Designs Inc.
Birmingham Road
Allesley, Coventry
CV 59 QE
England, UK
Telecopy: 011 44 1203 407 335
Attention: John R. Davidson
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<PAGE>
with a copy simultaneously transmitted by like
means to:
Hartman & Craven LLP
460 Park Avenue
New York, NY 10022
Telecopy: (212) 688-2870
Attention: Edward I. Tishelman, Esq.
If to the Purchaser, to the address set forth under the Purchaser's
name on the Execution Page hereto executed by the Purchaser.
Each party shall provide notice to the other parties of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Except
as provided herein or therein, neither the Company nor the Purchaser shall
assign this Agreement, the Registration Rights Agreement or the Warrants or
any rights or obligations hereunder or thereunder. Notwithstanding the
foregoing, the Purchaser may assign its rights hereunder to any of its
"affiliates" (as that term is defined under the Exchange Act) who are
Accredited Investors without the consent of the Company (provided such
assignees agree to be bound by all of the terms and conditions hereof), or to
any other person or entity with the consent of the Company, which consent
shall not be unreasonably withheld. This provision shall not limit the
Purchaser's right to transfer the Securities pursuant to the terms of the
Certificate of Designation, the Warrants and this Agreement or to assign the
Purchaser's rights hereunder and/or thereunder to any such transferee.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. The representations, warranties, agreements and
covenants of the Company set forth in Sections 3, 4, 5 and 8 hereof shall
survive the Closing hereunder notwithstanding any investigation conducted by
or on behalf of the Purchaser. Moreover, none of the representations and
warranties made by the Company herein shall act as a waiver of any rights or
remedies the Purchaser may have under applicable federal or state securities
laws. The Company agrees to indemnify and hold harmless the Purchaser and each
of the Purchaser's officers, directors, employees, partners, members, agents
and affiliates for loss or damage arising as a result of or related to any
breach or alleged breach by the Company of any of its representations or
covenants set forth herein, including advancement of reasonable expenses as
they are incurred.
j. Publicity. The Company and the Purchaser shall have the right to
review before issuance any press releases, SEC or NASD filings, or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
review of the Purchaser, to make any press release or SEC or NASD filings with
respect
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<PAGE>
to such transactions as is required by applicable law and regulations
(although the Purchaser shall be consulted by the Company in connection with
any such press release and filing prior to its release and shall be provided
with a copy thereof).
k. Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing shall not have
occurred on or before March 31, 1998, unless the parties agree otherwise, this
Agreement shall terminate at the close of business on such date.
Notwithstanding any termination of this Agreement, any party not in breach of
this Agreement shall preserve all rights and remedies it may have against the
other party hereto for a breach of this Agreement prior to or relating to the
termination hereof.
m. Joint Participation in Drafting. Each party to this Agreement
has participated in the negotiation and drafting of this Agreement, the
Certificate of Designation, the Warrants and the Registration Rights
Agreement. As such, the language used herein and therein shall be deemed to be
the language chosen by the parties hereto to express their mutual intent, and
no rule of strict construction will be applied against any party to this
Agreement.
n. Equitable Relief. The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the Purchaser by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of
its obligations hereunder (including, but not limited to, its obligations
pursuant to Section 5 hereof) will be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Agreement
(including, but not limited to, its obligations pursuant to Section 5 hereof),
that the Purchaser shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring immediate
issuance and transfer of the Securities, without the necessity of showing
economic loss and without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Purchaser and the Company have caused this
Agreement to be duly executed as of the date first above written.
CAM DESIGNS INC.
By:
Name:
Title:
PURCHASER:
JNC STRATEGIC FUND LTD.
By:
Name:
Title:
RESIDENCE: Cayman Islands
ADDRESS:
c/o Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House
20 Reid Street
Hamilton HM11
Bermuda
Telecopy: (441) 295-2305
Attention: Thomas Davis
with copies of all notices to:
Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive
Suite 460
Reston, VA 20191
Telecopy: (703) 476-7711
Attention: Neil T. Chau
<PAGE>
EXHIBIT B
to Securities
Purchase
Agreement
VOID AFTER 5:00 P.M., NEW YORK CITY
TIME, ON MARCH 31, 2003
(UNLESS EXTENDED PURSUANT TO SECTION 2 HEREOF)
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER JURISDICTION. THE SECURITIES REPRESENTED
HEREBY MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
Right to Purchase 56,000 Shares of Class A
Common Stock, par value $.001 per share
Date: March 31, 1998
CAM DESIGNS INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, JNC STRATEGIC FUND LTD., or
its registered assigns, is entitled to purchase from CAM DESIGNS INC., a
corporation organized under the laws of the State of Delaware (the "Company"),
at any time or from time to time during the period specified in Section 2
hereof, Fifty-Six Thousand (56,000) fully paid and nonassessable shares of the
Company's Class A Common Stock, par value $.001 per share (the "Common
Stock"), at an exercise price per share (the "Exercise Price") equal to $3.93
(110% of the Market Price (as defined in Section 4(l) hereof) in effect on the
Issue Date (as defined in Section 2 hereof)). The number of shares of Common
Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are
subject to adjustment as provided in Section 4 hereof. The term "Warrants"
means this Warrant and the other warrants of the Company, if any, issued
pursuant to that certain Securities Purchase Agreement, dated as of March 27,
1998, by and between the Company and the initial holder hereof (the
"Securities Purchase Agreement").
<PAGE>
This Warrant is subject to the following terms, provisions and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for
Shares. Subject to the provisions hereof, including, without limitation, the
limitations contained in Section 7 hereof, this Warrant may be exercised by
the holder hereof, in whole or in part, by the surrender of this Warrant,
together with a completed exercise agreement in the form attached hereto (the
"Exercise Agreement"), to the Company during normal business hours on any
business day at the Company's principal executive offices (or such other
office or agency of the Company as it may designate by notice to the holder
hereof), and upon (i) payment to the Company in cash, by certified or official
bank check or by wire transfer for the account of the Company, of the Exercise
Price for the Warrant Shares specified in the Exercise Agreement or (ii) if
the holder is effectuating a Cashless Exercise (as defined in Section 11(c)
hereof) pursuant to Section 11(c) hereof, delivery to the Company of a written
notice of an election to effect a Cashless Exercise for the Warrant Shares
specified in the Exercise Agreement. The Warrant Shares so purchased shall be
deemed to be issued to the holder hereof or such holder's designee, as the
record owner of such shares, as of the close of business on the date on which
this Warrant shall have been surrendered, the completed Exercise Agreement
shall have been delivered, and payment shall have been made for such shares as
set forth above or, if such date is not a business date, on the next
succeeding business date. The Warrant Shares so purchased, representing the
aggregate number of shares specified in the Exercise Agreement, shall be
delivered to the holder hereof within a reasonable time, not exceeding two (2)
business days, after this Warrant shall have been so exercised in accordance
with the foregoing (the "Delivery Period"). If the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, and so long as the certificates therefor do not
bear a legend and the holder is not obligated to return such certificate for
the placement of a legend thereon, the Company shall cause its transfer agent
to electronically transmit the Warrant Shares so purchased to the holder by
crediting the account of the holder or its nominee with DTC through its
Deposit Withdrawal Agent Commission system ("DTC Transfer"). If the
aforementioned conditions to a DTC Transfer are not satisfied, the Company
shall deliver to the holder physical certificates representing the Warrant
Shares so purchased. Further, the holder may instruct the Company to deliver
to the holder physical certificates representing the Warrant Shares so
purchased in lieu of delivering such shares by way of DTC Transfer. Any
certificates so delivered shall be in such denominations as may be reasonably
requested by the holder hereof, shall be registered in the name of such holder
or such other name as shall be designated by such holder and, following the
date on which the Warrant Shares have been registered under the Securities Act
pursuant to that certain Registration Rights Agreement, dated as of March 27,
1998, by and between the Company and the other signatories thereto (the
"Registration Rights Agreement") or otherwise may be sold by the holder
pursuant to Rule 144 promulgated under the Securities Act (or a successor
rule), shall not bear any restrictive legend. If this Warrant shall have been
exercised only in part, then, unless this Warrant has expired, the Company
shall, at its expense, at the time of delivery of such certificates, deliver
to the holder a new Warrant representing the number of shares with respect to
which this Warrant shall not then have been exercised.
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<PAGE>
If, at any time, a holder of this Warrant submits this Warrant, an
Exercise Agreement and payment to the Company of the Exercise Price for each
of the Warrant Shares specified in the Exercise Agreement (including pursuant
to a Cashless Exercise), and the Company fails for any reason to deliver, on
or prior to the fourth business day following the expiration of the Delivery
Period for such exercise, the number of shares of Common Stock to which the
holder is entitled upon such exercise (an "Exercise Default"), then the
Company shall pay to the holder payments ("Exercise Default Payments") for an
Exercise Default in the amount of (a) (N/365), multiplied by (b) the amount by
which the Market Price on the date the Exercise Agreement giving rise to the
Exercise Default is transmitted in accordance with this Section 1 (the
"Exercise Default Date") exceeds the Exercise Price, multiplied by (c) the
number of shares of Common Stock the Company failed to so deliver in such
Exercise Default, multiplied by (d) .24, where N = the number of days from the
Exercise Default Date to the date that the Company effects the full exercise
of this Warrant which gave rise to the Exercise Default. The accrued Exercise
Default Payment for each calendar month shall be paid in cash or shall be
convertible into Common Stock, at the holder's option, as follows:
(a) In the event holder elects to take such payment in
cash, cash payment shall be made to holder by the fifth (5th) day of the month
following the month in which it has accrued; and
(b) In the event holder elects to take such payment in
Common Stock, the holder may convert such payment amount into Common Stock (in
accordance with the terms contained in Article IV of the Certificate of
Designations, Preferences and Rights (the "Certificate of Designation")
governing the Company's Series A Convertible Preferred Stock (the "Series A
Preferred Stock")) at the lower of the Exercise Price or the Market Price (as
in effect at the time of conversion) at any time after the fifth (5th) day of
the month following the month in which it has accrued.
Nothing herein shall limit the holder's right to pursue actual
damages for the Company's failure to maintain a sufficient number of
authorized shares of Common Stock as required pursuant to the terms of Section
3(b) hereof or to otherwise issue shares of Common Stock upon exercise of this
Warrant in accordance with the terms hereof, and the holder shall have the
right to pursue all remedies available at law or in equity (including a decree
of specific performance and/or injunctive relief).
2. Period of Exercise.
(a) This Warrant is immediately exercisable, at any time
or from time to time on or after the date of initial issuance of this Warrant
(the "Issue Date") and before 5:00 p.m., New York City time, on the fifth
(5th) anniversary of the Issue Date (the "Exercise Period"). The Exercise
Period shall automatically be extended by one (1) day for each day (i) on
which the Company
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<PAGE>
does not have a number of shares of Common Stock reserved for issuance upon
exercise hereof at least equal to the number of shares of Common Stock
issuable upon exercise hereof and (ii) after the seventy-fifth (75th) day
following the Issue Date on which the registration statement required to be
filed by the Company pursuant to Section 2(a) of the Registration Rights
Agreement has not been declared effective by the United States Securities and
Exchange Commission.
3. Certain Agreements of the Company. The Company hereby covenants
and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued,
fully paid, and nonassessable and free from all taxes, liens, claims and
encumbrances.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of
Common Stock to provide for the exercise in full of this Warrant (without
giving effect to the limitations on exercise set forth in Section 7(g)
hereof).
(c) Listing. The Company shall promptly secure the listing
of the shares of Common Stock issuable upon exercise of this Warrant upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed or become listed (subject to official
notice of issuance upon exercise of this Warrant) and shall maintain, so long
as any other shares of Common Stock shall be so listed, such listing of all
shares of Common Stock from time to time issuable upon the exercise of this
Warrant; and the Company shall so list on each national securities exchange or
automated quotation system, as the case may be, and shall maintain such
listing of, any other shares of capital stock of the Company issuable upon the
exercise of this Warrant if and so long as any shares of the same class shall
be listed on such national securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed by it hereunder, but will at all
times in good faith assist in the carrying out of all the provisions of this
Warrant and in the taking of all such action as may reasonably be requested by
the holder of this Warrant in order to protect the economic benefit inuring to
the holder hereof and the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company
(i) will not increase the par value of any shares of Common Stock receivable
upon the exercise of this Warrant above the Exercise Price then in effect, and
(ii) will take all such actions as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding
upon any entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all of the Company's assets.
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<PAGE>
(f) Blue Sky Laws. The Company shall, on or before the
date of issuance of any Warrant Shares, take such actions as the Company shall
reasonably determine are necessary to qualify the Warrant Shares for, or
obtain exemption for the Warrant Shares for, sale to the holder of this
Warrant upon the exercise hereof under applicable securities or "blue sky"
laws of the states of the United States, and shall provide evidence of any
such action so taken to the holder of this Warrant prior to such date;
provided, however, that the Company shall not be required to qualify as a
foreign corporation or file a general consent to service of process in any
such jurisdiction.
4. Antidilution Provisions. During the Exercise Period, the
Exercise Price and the number of Warrant Shares issuable hereunder and for
which this Warrant is then exercisable pursuant to Section 2 hereof shall be
subject to adjustment from time to time as provided in this Section 4.
In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded
up or down to the nearest cent.
(a) Adjustment of Exercise Price. Except as otherwise
provided in Sections 4(c) and 4(e) hereof, if and whenever during the Exercise
Period the Company issues or sells, or in accordance with Section 4(b) hereof
is deemed to have issued or sold, any shares of Common Stock for no
consideration or for a consideration per share less than the Market Price on
the date of issuance (a "Dilutive Issuance"), then effective immediately upon
the Dilutive Issuance, the Exercise Price will be adjusted in accordance with
the following formula:
E' = E x O + P/M
-------------------
CSDO
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
M = the then current Market Price;
O = the number of shares of Common Stock
outstanding immediately prior to the
Dilutive Issuance;
P = the aggregate consideration, calculated
as set forth in Section 4(b) hereof,
received by the Company upon such Dilutive
Issuance; and
CSDO = the total number of shares of Common
Stock Deemed Outstanding (as defined in
Section 4(l)(i)) immediately after the
Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under Section 4(a) hereof, the
following will be applicable:
(i) Issuance of Rights or Options. If the Company
in any manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for
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or to purchase Common Stock or other securities exercisable, convertible into
or exchangeable for Common Stock ("Convertible Securities") (such warrants,
rights and options to purchase Common Stock or Convertible Securities are
hereinafter referred to as "Options") and the price per share for which Common
Stock is issuable upon the exercise of such Options is less than the Market
Price on the date of issuance ("Below Market Options"), then the maximum total
number of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full exercise, conversion or exchange of Convertible
Securities, if applicable) will, as of the date of the issuance or grant of
such Below Market Options, be deemed to be outstanding and to have been issued
and sold by the Company for such price per share. For purposes of the
preceding sentence, the "price per share for which Common Stock is issuable
upon the exercise of such Below Market Options" is determined by dividing (i)
the total amount, if any, received or receivable by the Company as
consideration for the issuance or granting of all such Below Market Options,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the exercise of all such Below Market Options, plus, in
the case of Convertible Securities issuable upon the exercise of such Below
Market Options, the minimum aggregate amount of additional consideration
payable upon the exercise, conversion or exchange thereof at the time such
Convertible Securities first become exercisable, convertible or exchangeable,
by (ii) the maximum total number of shares of Common Stock issuable upon the
exercise of all such Below Market Options (assuming full conversion of
Convertible Securities, if applicable). No further adjustment to the Exercise
Price will be made upon the actual issuance of such Common Stock upon the
exercise of such Below Market Options or upon the exercise, conversion or
exchange of Convertible Securities issuable upon exercise of such Below Market
Options.
(ii) Issuance of Convertible Securities.
(A) If the Company in any manner issues
or sells any Convertible Securities, whether or not immediately convertible
(other than where the same are issuable upon the exercise of Options) and the
price per share for which Common Stock is issuable upon such exercise,
conversion or exchange (as determined pursuant to Section 4(b)(ii)(B) if
applicable) is less than the Market Price on the date of issuance, then the
maximum total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of all such Convertible Securities will, as of the date
of the issuance of such Convertible Securities, be deemed to be outstanding
and to have been issued and sold by the Company for such price per share. For
the purposes of the preceding sentence, the "price per share for which Common
Stock is issuable upon such exercise, conversion or exchange" is determined by
dividing (i) the total amount, if any, received or receivable by the Company
as consideration for the issuance or sale of all such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the exercise, conversion or exchange thereof at the time
such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon exercise, conversion or exchange of
such Convertible Securities.
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<PAGE>
(B) If the Company in any manner issues or
sells any Convertible Securities with a fluctuating conversion or exercise
price or exchange ratio (a "Variable Rate Convertible Security"), then the
"price per share for which Common Stock is issuable upon such exercise,
conversion or exchange" for purposes of the calculation contemplated by
Section 4(b)(ii)(A) shall be deemed to be the lowest price per share which
would be applicable (assuming all holding period and other conditions to any
discounts contained in such Convertible Security have been satisfied) if the
Market Price on the date of issuance of such Convertible Security was 75% of
the Market Price on such date (the "Assumed Variable Market Price"). Further,
if the Market Price at any time or times thereafter is less than or equal to
the Assumed Variable Market Price last used for making any adjustment under
this Section 4 with respect to any Variable Rate Convertible Security, the
Exercise Price in effect at such time shall be readjusted to equal the
Exercise Price which would have resulted if the Assumed Variable Market Price
at the time of issuance of the Variable Rate Convertible Security had been 75%
of the Market Price existing at the time of the adjustment required by this
sentence.
(iii) Change in Option Price or Conversion Rate.
If there is a change at any time in (i) the amount of additional consideration
payable to the Company upon the exercise of any Options; (ii) the amount of
additional consideration, if any, payable to the Company upon the exercise,
conversion or exchange of any Convertible Securities; or (iii) the rate at
which any Convertible Securities are convertible into or exchangeable for
Common Stock (in each such case, other than under or by reason of provisions
designed to protect against dilution), the Exercise Price in effect at the
time of such change will be readjusted to the Exercise Price which would have
been in effect at such time had such Options or Convertible Securities still
outstanding provided for such changed additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Option or upon exercise, conversion or
exchange of any Convertible Securities is not, in fact, issued and the rights
to exercise such Option or to exercise, convert or exchange such Convertible
Securities shall have expired or terminated, the Exercise Price then in effect
will be readjusted to the Exercise Price which would have been in effect at
the time of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of shares of Common
Stock issued upon exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued, granted or sold
for cash, the consideration received therefor for purposes of this Warrant
will be the amount received by the Company therefor, before deduction of
reasonable commissions, underwriting discounts or allowances or other
reasonable expenses paid or incurred by the Company in connection with such
issuance, grant or sale. In case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration part or all of which shall
be other than cash, the amount of the consideration other than cash received
by the
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<PAGE>
Company will be the fair market value of such consideration, except where such
consideration consists of securities, in which case the amount of
consideration received by the Company will be the Market Price thereof as of
the date of receipt. In case any Common Stock, Options or Convertible
Securities are issued in connection with any merger or consolidation in which
the Company is the surviving corporation, the amount of consideration therefor
will be deemed to be the fair market value of such portion of the net assets
and business of the non-surviving corporation as is attributable to such
Common Stock, Options or Convertible Securities, as the case may be. The fair
market value of any consideration other than cash or securities will be
determined in good faith by an investment banker or other appropriate expert
of national reputation selected by the Company and reasonably acceptable to
the holder hereof, with the costs of such appraisal to be borne by the
Company.
(vi) Exceptions to Adjustment of Exercise Price.
No adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and outstanding on the
Issue Date and set forth on Schedule 3(c) of the Securities Purchase Agreement
in accordance with the terms of such securities as of such date; (ii) upon the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee benefit plan of the Company now existing or to be
implemented in the future, so long as the issuance of such stock or options is
approved by a majority of the non-employee members of the Board of Directors
of the Company or a majority of the members of a committee of non-employee
directors established for such purpose; (iii) upon the issuance of any shares
of Series A Preferred Stock or Warrants issued or issuable in accordance with
the terms of the Securities Purchase Agreement; or (iv) upon conversion of any
shares of Series A Preferred Stock or upon exercise of any Warrants.
(c) Subdivision or Combination of Common Stock. If the
Company, at any time during the Exercise Period, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced.
If the Company, at any time during the Exercise Period, combines (by reverse
stock split, recapitalization, reorganization, reclassification or otherwise)
its shares of Common Stock into a smaller number of shares, then, after the
date of record for effecting such combination, the Exercise Price in effect
immediately prior to such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Section 4, the number
of shares of Common Stock issuable upon exercise of this Warrant and for which
this Warrant is or may become exercisable shall be adjusted by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock issuable or for which this
Warrant is or may become exercisable (as applicable) upon exercise of this
Warrant immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
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<PAGE>
(e) Consolidation, Merger or Sale. In case of any
consolidation of the Company with, or merger of the Company into, any other
corporation in which the consideration payable to the holders of the Company's
Common Stock consists, in whole or in part, of shares of stock or other
securities, then as a condition of such consolidation or merger, adequate
provision will be made whereby the holder of this Warrant will have the right
to acquire and receive upon exercise of this Warrant in lieu of the shares of
Common Stock immediately theretofore acquirable upon the exercise of this
Warrant, such shares of stock or other securities as may be issued or payable
with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of this
Warrant had such consolidation or merger not taken place. In any such case,
the Company will make appropriate provision to insure that the provisions of
this Section 4 will thereafter be applicable as nearly as may be in relation
to any shares of stock or securities thereafter deliverable upon the exercise
of this Warrant. The Company will not effect any such consolidation or merger
unless (i) prior to the consummation thereof, the successor corporation (if
other than the Company) assumes by written instrument the obligations under
this Warrant and the obligations to deliver to the holder of this Warrant such
shares of stock or other securities as, in accordance with the foregoing
provisions, the holder may be entitled to acquire and (ii) the successor
corporation is a publicly traded corporation whose common stock is listed for
trading on the New York Stock Exchange, the American Stock Exchange, the
Nasdaq National Market or the Nasdaq SmallCap Market. In the case of any sale
or conveyance of all or substantially all of the Company's assets (other than
in connection with a plan of complete liquidation of the Company) or in the
case of any consolidation of the Company with, or merger of the Company into,
any other corporation which involves the receipt of cash consideration by the
holders of the Company's capital stock or in which the surviving or continuing
entity is not a publicly traded corporation whose common stock is listed for
trading on the New York Stock Exchange, the American Stock Exchange, the
Nasdaq National Market or the Nasdaq SmallCap Market, the holder of this
Warrant shall be entitled to receive, in connection with such transaction,
cash consideration equal to the fair market value (as determined by the holder
of this Warrant) of this Warrant.
(f) Distribution of Assets. In case the Company shall
declare or make any distribution of its assets (or rights to acquire its
assets) to holders of Common Stock as a partial liquidating dividend, stock
repurchase by way of return of capital or otherwise (including any dividend or
distribution to the Company's stockholders of cash or shares (or rights to
acquire shares) of capital stock of a subsidiary) (a "Distribution"), at any
time during the Exercise Period, then the holder of this Warrant shall be
entitled upon exercise of this Warrant for the purchase of any or all of the
shares of Common Stock subject hereto, to receive the amount of such assets
(or rights) which would have been payable to the holder had such holder been
the holder of such shares of Common Stock on the record date for the
determination of stockholders entitled to such Distribution.
(g) Notice of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant,
which notice shall state the Exercise Price resulting from such adjustment and
the increase or decrease in the number of Warrant Shares purchasable at such
price upon exercise, setting forth in reasonable detail the method of
calculation and the facts upon which
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<PAGE>
such calculation is based. Such calculation shall be certified by the chief
financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of
the Exercise Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such adjustment is otherwise required to be made,
but any such lesser adjustment shall be carried forward and shall be made at
the time and together with the next subsequent adjustment which, together with
any adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the Company
shall pay a cash adjustment in respect of any fractional share which would
otherwise be issuable in an amount equal to the same fraction of the Market
Price of a share of Common Stock on the date of such exercise.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution (other than dividends or distributions payable in cash out of
retained earnings consistent with the Company's past practices with respect to
declaring dividends and making distributions) to the holders of the Common
Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or consolidation or
merger of the Company with or into, or sale of all or substantially all of its
assets to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a
record shall be taken for determining the holders of Common Stock entitled to
receive any such dividend, distribution, or subscription rights or for
determining the holders of Common Stock entitled to vote in respect of any
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, notice of the date (or, if not then known, a
reasonable estimate thereof by the Company) when the same shall take place.
Such notice shall also specify the date on which the holders of Common Stock
shall be entitled to receive such dividend, distribution, or subscription
rights or to exchange their Common Stock for stock or other securities or
property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-up, as the
case may be. Such notice shall be given at least seventy-five (75) days prior
to
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<PAGE>
the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall
not affect the validity of the proceedings referred to in clauses (i), (ii),
(iii) and (iv) above.
(k) Certain Events. If, at any time during the Exercise
Period, any event occurs of the type contemplated by the adjustment provisions
of this Section 4 but not expressly provided for by such provisions, the
Company will give notice of such event as provided in Section 4(g) hereof, and
the Company's Board of Directors will make an appropriate adjustment in the
Exercise Price and the number of shares of Common Stock acquirable upon
exercise of this Warrant so that the rights of the holder shall be neither
enhanced nor diminished by such event.
(l) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the
number of shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) in the case of any
adjustment required by Section 4(a) resulting from the issuance of any
Options, the maximum total number of shares of Common Stock issuable upon the
exercise of the Options for which the adjustment is required (including any
Common Stock issuable upon the conversion of Convertible Securities issuable
upon the exercise of such Options), and (y) in the case of any adjustment
required by Section 4(a) resulting from the issuance of any Convertible
Securities, the maximum total number of shares of Common Stock issuable upon
the exercise, conversion or exchange of the Convertible Securities for which
the adjustment is required, as of the date of issuance of such Convertible
Securities, if any.
(ii) "Common Stock," for purposes of this Section 4,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall include only Common
Stock in respect of which this Warrant is exercisable, or shares resulting
from any subdivision or combination of such Common Stock, or in the case of
any reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
(iii) "Closing Bid Price" means, as of any date, (i)
the closing bid price for the shares of Common Stock as reported on the Nasdaq
SmallCap Market by Bloomberg Financial Markets or a comparable reporting
service of national reputation selected by the Company and reasonably
acceptable to the holder hereof if Bloomberg Financial Markets is not then
reporting closing bid prices for the Common Stock (collectively, "Bloomberg"),
or (ii) if the Nasdaq SmallCap Market is not the principal trading market for
the shares of Common Stock, the last reported sale price reported by Bloomberg
on the principal trading market for the Common Stock, or, if there is no sale
price reported, the last bid price reported by Bloomberg, or (iii) if the
foregoing do not apply, the last sale price of such security in the
over-the-counter market on the pink sheets or bulletin board for such security
as reported by Bloomberg, or if no sale price is so reported for such
security, the last bid price of such security as reported by Bloomberg, or
(iv) if the Closing Bid
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Price cannot be calculated as of such date on any of the foregoing bases, the
Closing Bid Price of the Common Stock on such date shall be the fair market
value as reasonably determined by an investment banking firm selected by the
Company and reasonably acceptable to the holder, with the costs of the
appraisal to be borne by the Company. The manner of determining the Closing
Bid Price of the Common Stock set forth in the foregoing definition shall
apply with respect to any other security in respect of which a determination
as to market value must be made hereunder.
(iv) "Market Price" means, as of any date, the
average of the Closing Bid Prices for the Common Stock for the five (5)
consecutive trading days ending on the trading day immediately preceding such
date of determination (subject to equitable adjustment for any stock splits,
stock dividends, reclassifications or similar events occurring during such
five (5) trading day period).
5. Issue Tax. The issuance of certificates for Warrant Shares upon
the exercise of this Warrant shall be made without charge to the holder of
this Warrant or such shares for any issuance tax or other costs in respect
thereof, provided that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Stockholder. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no
mere enumeration herein of the rights or privileges of the holder hereof,
shall give rise to any liability of such holder for the Exercise Price or as a
stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
7. Transfer, Exchange, Redemption and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Section 7(e) below, provided, however, that any transfer or assignment shall
be subject to the conditions set forth in Sections 7(f) and (g) hereof and to
the provisions of Sections 2(f) and 2(g) of the Securities Purchase Agreement.
Until due presentment for registration of transfer on the books of the
Company, the Company may treat the registered holder hereof as the owner and
holder hereof for all purposes, and the Company shall not be affected by any
notice to the contrary. Notwithstanding anything to the contrary contained
herein, the registration rights described in Section 8 hereof are assignable
only in accordance with the provisions of the Registration Rights Agreement.
(b) Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Section 7(e) below, for new
Warrants of like tenor of different denominations
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representing in the aggregate the right to purchase the number of shares of
Common Stock which may be purchased hereunder, each of such new Warrants to
represent the right to purchase such number of shares as shall be designated
by the holder hereof at the time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory
in form and amount to the Company, or, in the case of any such mutilation,
upon surrender and cancellation of this Warrant, the Company, at its expense,
will execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender
of this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer
taxes) and all other expenses (other than legal expenses, if any, incurred by
the Holder or transferees) and charges payable in connection with the
preparation, execution, and delivery of Warrants pursuant to this Section 7.
The Company shall indemnify and reimburse the holder of this Warrant for all
costs and expenses (including legal fees) incurred by such holder in
connection with the enforcement of its rights hereunder.
(e) Warrant Register. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as
it may designate by notice to the holder hereof), a register for this Warrant,
in which the Company shall record the name and address of the person in whose
name this Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the
time of the surrender of this Warrant in connection with any exercise,
transfer, or exchange of this Warrant, this Warrant (or, in the case of any
exercise, the Warrant Shares issuable hereunder), shall not be registered
under the Securities Act and under applicable state securities or blue sky
laws, the Company may require, as a condition of allowing such exercise,
transfer, or exchange, (i) that the holder or transferee of this Warrant, as
the case may be, furnish to the Company a written opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions) to the effect that such exercise,
transfer, or exchange may be made without registration under the Securities
Act and under applicable state securities or blue sky laws (the cost of which
shall be borne by the Company if the Company's counsel renders such an opinion
and up to $250 of such cost shall be borne by the Company if the holder's
counsel is requested to render such opinion), (ii) that the holder or
transferee execute and deliver to the Company an investment letter in form and
substance acceptable to the Company and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under the
Securities Act; provided that no such opinion, letter, or status as an
"accredited investor" shall be required in connection with a transfer pursuant
to Rule 144 under the Securities Act.
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<PAGE>
(g) Additional Restrictions on Exercise or Transfer.
Notwithstanding anything contained herein to the contrary, unless the holder
hereof delivers a waiver in accordance with the last sentence of this Section
7(g), this Warrant shall not be exercisable by a holder hereof to the extent
(but only to the extent) that (a) the number of shares of Common Stock
beneficially owned by such holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of
the unexercised portion of the Warrants or the unexercised or unconverted
portion of any other securities of the Company (including the Series A
Preferred Stock) subject to a limitation on conversion or exercise analogous
to the limitation contained herein) and (b) the number of shares of Common
Stock issuable upon exercise of this Warrant (or portion hereof) with respect
to which the determination described herein is being made, would result in
beneficial ownership by such holder and its affiliates of more than 4.99% of
the outstanding shares of Common Stock. To the extent the above limitation
applies, the determination of whether and to what extent this Warrant shall be
exercisable vis-a-vis other securities owned by such holder shall be in the
sole discretion of the holder and submission of this Warrant for full or
partial exercise shall be deemed to be the holder's determination of whether
and the extent to which this Warrant is exercisable, in each case subject to
such aggregate percentage limitation. No prior inability to exercise the
Warrant pursuant to this Section shall have any effect on the applicability of
the provisions of this Section with respect to any subsequent determination of
exerciseability. For purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended, and Regulation 13D-G
thereunder, except as otherwise provided in clause (a) hereof. Except as
provided in the immediately succeeding sentence, the restrictions contained in
this Section 7(g) may not be amended without the consent of the holder of this
Warrant and the holders of a majority of the Company's then outstanding Common
Stock. Notwithstanding the foregoing, the holder hereof may waive the
restrictions set forth in this Section 7(g) by written notice to the Company
upon not less than sixty- one (61) days prior notice (with such waiver taking
effect only upon the expiration of such sixty-one (61) day notice period).
8. Registration Rights. The initial holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in the Registration
Rights Agreement, including the right to assign such rights to certain
assignees, as set forth therein.
9. Notices. Any notices required or permitted to be given under the
terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier, or by confirmed telecopy, in each case addressed to a party. The
addresses for such communications shall be:
-14-
<PAGE>
If to the Company:
CAM Designs Inc.
Birmingham Road
Allesley, Coventry
CV 59 QE
England, UK
Telecopy: 011 44 1203 407 335
Attention: John R. Davidson
with a copy simultaneously transmitted by like
means to:
Hartman & Craven LLP
460 Park Avenue
New York, NY 10022
Telecopy: (212) 688-2870
Attention: Edward I. Tishelman, Esq.
If to the holder, at such address as such holder shall have provided in
writing to the Company, or at such other address as such holder furnishes by
notice given in accordance with this Section 9.
10. Governing Law; Jurisdiction. This Warrant shall be governed by
and construed in accordance with the laws of the State of Delaware applicable
to contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts
and state courts located in the State of Delaware in any suit or proceeding
based on or arising under this Warrant and irrevocably agrees that all claims
in respect of such suit or proceeding may be determined in such courts. The
Company irrevocably waives any objection to the laying of venue and the
defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Company further agrees that service of process upon the
Company mailed by certified or registered mail shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the holder's right to serve process in
any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may
only be amended by an instrument in writing signed by the Company and the
holder hereof.
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<PAGE>
(b) Descriptive Headings. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
(c) Cashless Exercise. Notwithstanding anything to the
contrary contained in this Warrant, if the resale of the Warrant Shares by the
holder is not then registered pursuant to an effective registration statement
under the Securities Act, this Warrant may be exercised at any time after the
first anniversary of the Issue Date until the end of the Exercise Period, by
presentation and surrender of this Warrant to the Company at its principal
executive offices with a written notice of the holder's intention to effect a
cashless exercise, including a calculation of the number of shares of Common
Stock to be issued upon such exercise in accordance with the terms hereof (a
"Cashless Exercise"). In the event of a Cashless Exercise, in lieu of paying
the Exercise Price in cash, the holder shall surrender this Warrant for that
number of shares of Common Stock determined by multiplying the number of
Warrant Shares to which it would otherwise be entitled by a fraction, the
numerator of which shall be the difference between the then current Market
Price of a share of the Common Stock on the date of exercise and the Exercise
Price, and the denominator of which shall be the then current Market Price per
share of Common Stock.
(d) Business Day. For purposes of this Warrant, the term
"business day" means any day, other than a Saturday or Sunday or a day on
which banking institutions in the State of New York are authorized or
obligated by law, regulation or executive order to close.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
CAM DESIGNS INC.
By:
Name:
Title:
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
March 27, 1998, by and among CAM DESIGNS INC., a corporation organized
under the laws of the State of Delaware (the "Company"), and the
undersigned (together with affiliates, the "Initial Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement of even
date herewith by and between the Company and the Initial Investors (the
"Securities Purchase Agreement"), the Company has agreed, upon the terms
and subject to the conditions contained therein, to issue and sell to the
Initial Investors (i) Eight Hundred (800) shares of its Series A
Convertible Preferred Stock (the "Preferred Stock") that are convertible
into shares of the Company's Class A Common Stock, par value $.001 per
share (the "Common Stock"), upon the terms and subject to the limitations
and conditions set forth in the Certificate of Designations, Rights and
Preferences with respect to such Preferred Stock (the "Certificate of
Designation") and (ii) warrants to acquire Fifty-Six Thousand (56,000)
shares of Common Stock (the "Warrants"); and
B. To induce the Initial Investors to execute and deliver the
Securities Purchase 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.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and
the Initial Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall
have the following meanings:
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<PAGE>
(i) "Investors" means the Initial Investors
and any transferees or assignees who agree to become bound by the
provisions of this Agreement in accordance with Section 9 hereof.
(ii) "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
Registration Statement or Statements in compliance with the Securities
Act and pursuant to Rule 415 under the Securities Act or any successor
rule providing for offering securities on a continuous basis ("Rule
415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "Registrable Securities" means the
Conversion Shares and the Warrant Shares (including (A) any Conversion
Shares issuable with respect to the Damages Amount or with respect to
Conversion Default Payments under the Certificate of Designation or in
redemption of any Preferred Stock and (B) any Warrant Shares issuable
with respect to Exercise Default Payments under the Warrants) issued or
issuable with respect to the Preferred Stock and the Warrants, and any
shares of capital stock issued or issuable, from time to time (with any
adjustments), as a distribution on or in exchange for or otherwise with
respect to any of the foregoing.
(iv) "Registration Statement" means a
registration statement of the Company under the Securities Act.
b. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the
Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare
and, on or before the twentieth (20th) day following the Closing Date
(the "Filing Date"), file with the SEC a Registration Statement on Form
S-3 (or, if Form S-3 is not then available, on such form of Registration
Statement as is then available to effect a registration of all of the
Registrable Securities, subject to the consent of the Initial Investors
(as determined pursuant to Section 11(j) hereof)) covering the resale of
at least 1,010,000 Registrable Securities (200% of the maximum number of
shares of Common Stock issuable upon the full conversion of or otherwise
with respect to the Preferred Stock (based on the Conversion Price (as
defined in the Certificate of Designation) in effect on the Closing
Date), plus 100% of the maximum number of shares of Common Stock issuable
upon the full exercise of the Warrants), which Registration Statement, to
the extent allowable under the Securities Act and the Rules promulgated
thereunder (including Rule 416), shall state that such Registration
Statement also covers such indeterminate number of additional shares of
Common Stock as may become issuable upon conversion of the Preferred
Stock (i) to prevent dilution resulting from stock splits, stock
dividends or similar transactions or (ii) by reason of reductions in the
Conversion Price of the Preferred Stock in accordance with the terms
thereof (including, but not limited to, the terms which cause the
Variable Conversion Price to decrease to the extent the Closing Bid Price
of the Common
2
<PAGE>
Stock decreases). The Registrable Securities initially set forth in such
Registration Statement shall be allocated to the Investors as set forth
in Section 11(k) hereof. The Registration Statement (and each amendment
or supplement thereto, and each request for acceleration of effectiveness
thereof) shall be provided to (and subject to the approval of) the
Initial Investors and their counsel prior to its filing or other
submission.
b. Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an
underwritten offering, the Investors who hold a majority in interest of
the Registrable Securities subject to such underwritten offering, with
the consent of the Initial Investors, shall have the right to select one
legal counsel to represent the Investors and an investment banker or
bankers and manager or managers to administer the offering, which
investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company. In the event that any Investors elect not to
participate in such underwritten offering, the Registration Statement
covering all of the Registrable Securities shall contain appropriate
plans of distribution reasonably satisfactory to the Investors
participating in such underwritten offering and the Investors electing
not to participate in such underwritten offering (including, without
limitation, the ability of nonparticipating Investors to sell from time
to time and at any time during the effectiveness of such Registration
Statement).
c. Payments by the Company. The Company shall cause the
Registration Statement required to be filed pursuant to Section 2(a)
hereof to become effective as soon as practicable, but in no event later
than the seventy-fifth (75th) day following the date hereof (the
"Registration Deadline"). If (i) (A) the Registration Statement required
to be filed by the Company pursuant to Section 2(a) hereof is not filed
with the SEC on or before the Filing Date or (B) any Registration
Statement required to be filed by the Company pursuant to Section 3(b)
hereof is not filed with the SEC within fifteen (15) days after the
applicable Registration Trigger Date (as defined in Section 3(b) hereof),
or (ii) (A) the Registration Statement required to be filed by the
Company pursuant to Section 2(a) hereof is not declared effective by the
SEC on or before the Registration Deadline or (B) any Registration
Statement required to be filed by the Company pursuant to Section 3(b)
hereof is not declared effective by the SEC within sixty (60) days after
the applicable Registration Trigger Date, or (iii) if, after any such
Registration Statement has been declared effective by the SEC, sales of
all of the Registrable Securities (including any Registrable Securities
required to be registered pursuant to Section 3(b) hereof) cannot be made
pursuant to such Registration Statement (by reason of a stop order or the
Company's failure to update the Registration Statement or any other
reason outside the control of the Investors) or (iv) the Common Stock is
not listed or included for quotation on the Nasdaq National Market
("NNM"), the Nasdaq SmallCap Market ("SmallCap"), the New York Stock
Exchange (the "NYSE") or the American Stock Exchange (the "AMEX") at any
time after the Registration Deadline, then the Company will make payments
to the Investors in such amounts and at such times as shall be determined
pursuant to this Section 2(c) as partial relief for the damages to the
Investors by reason of any such delay in or reduction of their ability to
sell the Registrable Securities (which remedy shall not be exclusive of
any other remedies available at law or in equity). The Company shall pay
to each Investor an amount equal to the product of (i) the aggregate
Purchase Price of the Preferred Stock and Warrants held by such Investor
(including, without limitation, Preferred Stock that has been converted
into Conversion
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<PAGE>
Shares and Warrants that have been exercised for Warrant Shares then held
by such Investor) (the "Aggregate Share Price"), multiplied by (ii)
twenty-five thousandths (.025), for each thirty (30) day period (or
portion thereof) (A) after the Filing Date and prior to the date the
Registration Statement required to be filed pursuant to Section 2(a)
hereof is filed with the SEC, (B) after the fifteenth (15th) day
following a Registration Trigger Date and prior to the date on which the
Registration Statement required to be filed pursuant to Section 3(b)
hereof is filed with the SEC, (C) after the Registration Deadline and
prior to the date the Registration Statement required to be filed
pursuant to Section 2(a) hereof is declared effective by the SEC, (D)
after the sixtieth (60th) day following a Registration Trigger Date and
prior to the date the Registration Statement required to be filed
pursuant to Section 3(b) hereof is declared effective by the SEC, (E)
during which sales of any Registrable Securities cannot be made pursuant
to any such Registration Statement after the Registration Statement has
been declared effective, and (F) during which the Common Stock is not
listed or included for quotation on the NNM, SmallCap, NYSE or AMEX after
the Registration Deadline; provided, however, that there shall be
excluded from each such period any delays which are solely attributable
to changes (other than corrections of Company mistakes with respect to
information previously provided by the Investors) required by the
Investors in the Registration Statement with respect to information
relating to the Investors, including, without limitation, changes to the
plan of distribution. (For example, if the Registration Statement is not
effective by the Registration Deadline, the Company would pay $250 for
each thirty (30) day period thereafter with respect to each $10,000 of
Aggregate Share Price until the Registration Statement becomes
effective.) Such amounts shall be paid in cash or, at each Investor's
option, may be convertible into Common Stock at the "Conversion Price"
(as defined in the Certificate of Designation) then in effect. Any shares
of Common Stock issued upon conversion of such amounts shall be
Registrable Securities. If the Investor desires to convert the amounts
due hereunder into Registrable Securities it shall so notify the Company
in writing within two (2) business days after the date on which such
amounts are first payable in cash and such amounts shall be so
convertible (pursuant to the mechanics set forth under Article IV of the
Certificate of Designation) beginning on the last day upon which the cash
amount would otherwise be due in accordance with the following sentence.
Payments of cash pursuant hereto shall be made within five (5) days after
the end of each period that gives rise to such obligation, provided that,
if any such period extends for more than thirty (30) days, interim
payments shall be made for each such thirty (30) day period.
d. Piggy-Back Registrations. If at any time prior to
the expiration of the Registration Period (as hereinafter defined) the
Company shall file with the SEC a Registration Statement relating to an
offering for its own account or the account of others under the
Securities Act of any of its equity securities (other than on Form S-4 or
Form S-8 or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or
business or equity securities issuable in connection with stock option or
other employee benefit plans), the Company shall send to each Investor
who is entitled to registration rights under this Section 2(d) written
notice of such determination and, if within fifteen (15) days after the
date of such notice, such Investor shall so request in writing, the
Company shall include in such Registration Statement all or any part of
the Registrable Securities such Investor requests to be registered,
except that if, in connection with any underwritten public offering, the
managing underwriter(s) thereof shall impose a limitation on the number
of shares of Common Stock which may be included in the Registration
4
<PAGE>
Statement because, in such underwriter(s)' judgment, marketing or other
factors dictate such limitation is necessary to facilitate public
distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable
Securities with respect to which such Investor has requested inclusion
hereunder as the underwriter shall permit. Any exclusion of Registrable
Securities shall be made pro rata among the Investors seeking to include
Registrable Securities, in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however,
that the Company shall not exclude any Registrable Securities unless the
Company has first excluded all outstanding securities, the holders of
which are not entitled to inclusion of such securities in such
Registration Statement or are not entitled to pro rata inclusion with the
Registrable Securities; and provided, further, however, that, after
giving effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata with holders of other
securities having the right to include such securities in the
Registration Statement other than holders of securities entitled to
inclusion of their securities in such Registration Statement by reason of
demand registration rights. No right to registration of Registrable
Securities under this Section 2(d) shall be construed to limit any
registration required under Section 2(a) hereof. If an offering in
connection with which an Investor is entitled to registration under this
Section 2(d) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall,
unless otherwise agreed by the Company, offer and sell such Registrable
Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the
same terms and conditions as other shares of Common Stock included in
such underwritten offering.
e. Eligibility for Form S-3. The Company represents and
warrants that it meets the requirements for the use of Form S-3 for
registration of the sale by the Initial Investors and any other Investor
of the Registrable Securities and the Company shall file all reports
required to be filed by the Company with the SEC in a timely manner so as
to maintain such eligibility for the use of Form S-3.
f. Rule 416. The Company and the Investors each
acknowledge that an indeterminate number of Registrable Securities shall
be registered pursuant to Rule 416 under the Securities Act so as to
include in such Registration Statement any and all Registrable Securities
which may become issuable (i) to prevent dilution resulting from stock
splits, stock dividends or similar transactions and (ii) by reason of
reductions in the Conversion Price of the Preferred Stock in accordance
with the terms thereof, including, but not limited to, the terms which
cause the Variable Conversion Price to decrease to the extent the Closing
Bid Price of the Common Stock decreases (collectively, the "Rule 416
Securities"). In this regard, the Company agrees to take all steps
necessary to ensure that all Registrable Securities are registered
pursuant to Rule 416 under the Securities Act in such Registration
Statement and, absent guidance from the SEC or other definitive authority
to the contrary, the Company shall affirmatively support and not take any
action adverse to the position that the Registration Statements filed
hereunder cover all of the Rule 416 Securities. If the Company determines
that the Registration Statements filed hereunder do not cover all of the
Rule 416 Securities, the Company shall immediately provide to each
Investor written notice (a "Rule 416 Notice") setting forth the basis for
the Company's position and the authority therefor. The Company
acknowledges that the number of shares of Common Stock initially included
in such
5
<PAGE>
Registration Statement relating to the Registrable Securities represents
a good faith estimate of the maximum number of shares issuable upon
conversion of the Preferred Stock and exercise of the Warrants.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable
Securities, the Company shall have the following obligations:
a. The Company shall prepare and file with the SEC the
Registration Statement required by Section 2(a) as soon as practicable
after the date hereof (but in no event later than the Filing Date) and
shall cause such Registration Statement relating to Registrable
Securities to become effective as soon as practicable after such filing
(but in no event later than the Registration Deadline), and keep the
Registration Statement effective pursuant to Rule 415 at all times until
such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold and (ii) the date on which all of
the Registrable Securities (in the reasonable opinion of counsel to the
Initial Investors) may be immediately sold to the public without
registration or restriction pursuant to Rule 144(k) under the Securities
Act or any successor provision (the "Registration Period"), which
Registration Statement (including any amendments or supplements thereto
and prospectuses contained therein and all documents incorporated by
reference therein) shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Registration
Statement effective at all times during the Registration Period, and,
during such period, comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities of the Company
covered by the Registration Statement until such time as all of such
Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set
forth in the Registration Statement. In the event (i) the Company
delivers a Rule 416 Notice to the Investors or the Investors who hold a
majority in interest of the Registrable Securities shall reasonably
determine, or the SEC shall state formally or informally, that Rule 416
under the Securities Act does not permit a registration statement to
cover securities which may become issuable upon conversion or exercise of
convertible or exercisable securities by reason of reductions in the
conversion or exercise price of such securities and (ii) the number of
shares available under a Registration Statement filed pursuant to this
Agreement is, for any three (3) consecutive trading days (the last of
such three (3) trading days being the "Registration Trigger Date"),
insufficient to cover one hundred thirty-five percent (135%) of the
Registrable Securities issued or issuable upon conversion (without giving
effect to any limitations on conversion contained in Article IV.C of the
Certificate of Designation) of the Preferred Stock and exercise of the
Warrants (without giving effect to any limitations on exercise contained
in Section 7 of the Warrants), the Company shall amend such Registration
Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover two hundred
percent (200%) of
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<PAGE>
the Registrable Securities issued or issuable (without giving effect to
any limitations on conversion or exercise contained in the Certificate of
Designation or the Warrants) as of the Registration Trigger Date, in each
case, as soon as practicable, but in any event within fifteen (15) days
after the Registration Trigger Date (based on the market price then in
effect of the Common Stock and other relevant factors on which the
Company reasonably elects to rely). The Company shall cause such
amendment and/or new Registration Statement to become effective as soon
as practicable following the filing thereof. In the event the Company
fails to obtain the effectiveness of any such Registration Statement
within sixty (60) days after a Registration Trigger Date, each Investor
shall thereafter have the option, exercisable in whole or in part at any
time and from time to time by delivery of a written notice to the Company
(a "Mandatory Redemption Notice"), to require the Company to purchase for
cash, at an amount per share equal to the Mandatory Redemption Amount (as
defined in Article VIII.B of the Certificate of Designation), a portion
of the Investor's Preferred Stock such that the total number of
Registrable Securities included on the Registration Statement for resale
by such Investor exceeds 135% of the Registrable Securities issued or
issuable upon conversion (without giving effect to any limitations on
conversion contained in Article IV.C of the Certificate of Designation)
of such Investor's Preferred Stock and exercise of such Investor's
Warrants. If the Corporation fails to redeem any of such shares within
five (5) business days after its receipt of a Mandatory Redemption
Notice, then such Investor shall be entitled to the remedies provided in
Article VIII.C of the Certificate of Designation.
c. The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement and its
legal counsel (i) promptly after the same is prepared and publicly
distributed, filed with the SEC, or received by the Company, one copy of
the Registration Statement and any amendment thereto, each preliminary
prospectus and prospectus and each amendment or supplement thereto, and,
in the case of the Registration Statement referred to in Section 2(a),
each letter written by or on behalf of the Company to the SEC or the
staff of the SEC (including, without limitation, any request to
accelerate the effectiveness of any Registration Statement or amendment
thereto), and each item of correspondence from the SEC or the staff of
the SEC, in each case relating to such Registration Statement (other than
any portion, if any, thereof which contains information for which the
Company has sought confidential treatment), (ii) on the date of
effectiveness of the Registration Statement or any amendment thereto, a
notice stating that the Registration Statement or amendment has been
declared effective, and (iii) such number of copies of a prospectus,
including a preliminary prospectus, and all amendments and supplements
thereto and such other documents as such Investor may reasonably request
in order to facilitate the disposition of the Registrable Securities
owned by such Investor.
d. The Company shall use its best efforts to (i)
register and qualify the Registrable Securities covered by the
Registration Statement under such other securities or "blue sky" laws of
such jurisdictions in the United States as each Investor who holds
Registrable Securities being offered reasonably requests, (ii) prepare
and file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as
may be necessary to maintain the effectiveness thereof during the
Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times
during the Registration Period, and (iv) take all other actions
reasonably necessary or advisable
7
<PAGE>
to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (a) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any
such jurisdiction, (d) provide any undertakings that cause the Company
undue expense or burden, or (e) make any change in its charter or bylaws,
which in each case the Board of Directors of the Company determines to be
contrary to the best interests of the Company and its stockholders.
e. In the event the Investors who hold a majority in
interest of the Registrable Securities being offered in an offering
select underwriters for the offering, the Company shall enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary indemnification
and contribution obligations, with the underwriters of such offering.
f. As promptly as practicable after becoming aware of
such event, the Company shall notify each Investor of the happening of
any event, of which the Company has knowledge, as a result of which the
prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and use its best efforts promptly to
prepare a supplement or amendment to the Registration Statement to
correct such untrue statement or omission, and deliver such number of
copies of such supplement or amendment to each Investor as such Investor
may reasonably request.
g. The Company shall use its best efforts to prevent
the issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest practicable moment (including in
each case by amending or supplementing such Registration Statement) and
to notify each Investor who holds Registrable Securities being sold (or,
in the event of an underwritten offering, the managing underwriters) of
the issuance of such order and the resolution thereof (and if such
Registration Statement is supplemented or amended, deliver such number of
copies of such supplement or amendment to each Investor as such Investor
may reasonably request).
h. The Company shall permit a single firm of counsel
designated by the Initial Investors to review the Registration Statement
and all amendments and supplements thereto a reasonable period of time
prior to their filing with the SEC, and not file any document in a form
to which such counsel reasonably objects and will not request
acceleration of the effectiveness of any Registration Statement without
prior notice to such counsel.
i. The Company shall make generally available to its
security holders as soon as practical, but not later than ninety (90)
days after the close of the period covered thereby, an earnings statement
(in form complying with the provisions of Rule 158 under the Securities
Act) covering a twelve-month period beginning not later than the first
day of the Company's fiscal quarter next following the effective date of
the Registration Statement.
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<PAGE>
j. At the request of any Investor, the Company shall
furnish, on the date of effectiveness of the Registration Statement (i)
an opinion, dated as of such date, from counsel representing the Company
addressed to the Investors and in form, scope and substance as is
customarily given in an underwritten public offering and (ii) in the case
of an underwriting, a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and the Investors.
k. The Company shall make available for inspection by
(i) any Investor, (ii) any underwriter participating in any disposition
pursuant to the Registration Statement, (iii) one firm of attorneys and
one firm of accountants or other agents retained by the Investors, and
(iv) one firm of attorneys retained by all such underwriters
(collectively, the "Inspectors") all pertinent financial and other
records, and pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably deemed necessary by
each Inspector to enable each Inspector to exercise its due diligence
responsibility, and cause the Company's officers, directors and employees
to supply all information which any Inspector may reasonably request for
purposes of such due diligence; provided, however, that each Inspector
shall hold in confidence and shall not make any disclosure (except to an
Investor) of any Record or other information which the Company determines
in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any
Registration Statement, (b) the release of such Records is ordered
pursuant to a subpoena or other order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been
made generally available to the public other than by disclosure in
violation of this or any other agreement. The Company shall not be
required to disclose any confidential information in such Records to any
Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the
Company) with the Company with respect thereto, substantially in the form
of this Section 3(k). Each Investor agrees that it shall, upon learning
that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give
prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential. Nothing herein
shall be deemed to limit the Investors' ability to sell Registrable
Securities in a manner which is otherwise consistent with applicable laws
and regulations.
l. The Company shall hold in confidence and not make
any disclosure of information concerning an Investor provided to the
Company unless (i) disclosure of such information is necessary to comply
with federal or state securities laws, (ii) the disclosure of such
information is necessary to avoid or correct a misstatement or omission
in any Registration Statement, (iii) the release of such information is
ordered pursuant to a subpoena or other order from a court or
governmental body of competent jurisdiction, (iv) such information has
been made generally available to the public other than by disclosure in
violation of this or any other agreement, or (v) such Investor consents
to the form and content of any such disclosure. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in
9
<PAGE>
or by a court or governmental body of competent jurisdiction or through
other means, give prompt notice to such Investor prior to making such
disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective
order for, such information.
m. The Company shall use its best efforts to promptly
either (i) cause all of the Registrable Securities covered by the
Registration Statement to be listed on the NYSE or the AMEX or another
national securities exchange and on each additional national securities
exchange on which securities of the same class or series issued by the
Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii)
secure the designation and quotation of all of the Registrable Securities
covered by the Registration Statement on the NNM or SmallCap and, without
limiting the generality of the foregoing, to arrange for or maintain at
least two market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such
Registrable Securities.
n. The Company shall provide a transfer agent and
registrar, which may be a single entity, for the Registrable Securities
not later than the effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who
hold Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legends) representing
Registrable Securities to be offered pursuant to the Registration
Statement and enable such certificates to be in such denominations or
amounts, as the case may be, as the managing underwriter or underwriters,
if any, or the Investors may reasonably request and registered in such
names as the managing underwriter or underwriters, if any, or the
Investors may request, and, within three (3) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an opinion of
such counsel in the form attached hereto as Exhibit 1.
p. At the request of any Investor, the Company shall
prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary in order to change the plan of distribution set forth in such
Registration Statement.
q. The Company shall comply with all applicable laws
related to a Registration Statement and offering and sale of securities
and all applicable rules and regulations of governmental authorities in
connection therewith (including, without limitation, the Securities Act
and the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated by the SEC.)
10
<PAGE>
r. The Company shall take all such other actions as any
Investor or the underwriters, if any, reasonably request in order to
expedite or facilitate the disposition of the Registrable Securities.
s. From and after the date of this Agreement, the
Company shall not, and shall not agree to, allow the holders of any
securities of the Company to include any of their securities in any
Registration Statement under Section 2(a) hereof or any amendment or
supplement thereto under Section 3(b) hereof without the consent of the
holders of a majority in interest of the Registrable Securities.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable
Securities, the Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations
of the Company to complete the registration pursuant to this Agreement
with respect to the Registrable Securities of a particular Investor that
such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be
reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least five (5)
business days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as
reasonably requested by the Company in connection with the preparation
and filing of the Registration Statement hereunder, unless such Investor
has notified the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from the
Registration Statement.
c. In the event Investors holding a majority in
interest of the Registrable Securities being offered determine to engage
the services of an underwriter, each Investor agrees to enter into and
perform such Investor's obligations under an underwriting agreement, in
usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing
underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of
the Registrable Securities, unless such Investor has notified the Company
in writing of such Investor's election not to participate in such
underwritten distribution.
d. Each Investor agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind
described in Sections 3(f) or 3(g), such Investor will immediately
discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until such
Investor's receipt of the copies of the supplemented
11
<PAGE>
or amended prospectus contemplated by Sections 3(f) or 3(g) and, if so
directed by the Company, such Investor shall deliver to the Company (at
the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in such Investor's possession, of
the prospectus covering such Registrable Securities current at the time
of receipt of such notice.
e. No Investor may participate in any underwritten
distribution hereunder unless such Investor (i) agrees to sell such
Investor's Registrable Securities on the basis provided in any
underwriting arrangements in usual and customary form entered into by the
Company, (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements,
and (iii) agrees to pay its pro rata share of all underwriting discounts
and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 4, including, without
limitation, all registration, listing and qualifications fees, printers
and accounting fees, the fees and disbursements of counsel for the
Company and the fees and disbursements contemplated by Section 3(k)
hereof shall be borne by the Company. In addition, the Company shall pay
all of the Investors' costs and expenses (including legal fees) incurred
in connection with the enforcement of the rights of the Investors
hereunder.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
12
<PAGE>
a. To the extent permitted by law, the Company will
indemnify, hold harmless and defend (i) each Investor who holds such
Registrable Securities, and (ii) the directors, officers, partners,
members, employees, agents and each person who controls any Investor
within the meaning of Section 15 of the Securities Act or Section 20 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), if
any, (each, an "Indemnified Person"), against any joint or several
losses, claims, damages, liabilities or expenses (collectively, together
with actions, proceedings or inquiries by any regulatory or
self-regulatory organization, whether commenced or threatened, in respect
thereof, "Claims") to which any of them may become subject insofar as
such Claims arise out of or are based upon: (i) any untrue statement or
alleged untrue statement of a material fact in a Registration Statement
or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to
the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission or
alleged omission to state therein any material fact necessary to make the
statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act,
any other applicable securities law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to
the offer or sale of the Registrable Securities (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations").
Subject to the restrictions set forth in Section 6(c) with respect to the
number of legal counsel, the Company shall reimburse the Investors and
each other Indemnified Person, promptly as such expenses are incurred and
are due and payable, for any reasonable legal fees or other reasonable
expenses incurred by them in connection with investigating or defending
any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i)
shall not apply to a Claim arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information furnished in
writing to the Company by such Indemnified Person expressly for use in
the Registration Statement or any such amendment thereof or supplement
thereto; (ii) shall not apply to amounts paid in settlement of any Claim
if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld; and (iii) with
respect to any preliminary prospectus, shall not inure to the benefit of
any Indemnified Person if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely
basis in the prospectus, as then amended or supplemented, if such
corrected prospectus was timely made available by the Company pursuant to
Section 3(c) hereof, and the Indemnified Person was promptly advised in
writing not to use the incorrect prospectus prior to the use giving rise
to a Violation and such Indemnified Person, notwithstanding such advice,
used it. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Indemnified Person and
shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9 hereof.
13
<PAGE>
b. In connection with any Registration Statement in
which an Investor is participating, each such Investor agrees severally
and not jointly to indemnify, hold harmless and defend, to the same
extent and in the same manner set forth in Section 6(a), the Company,
each of its directors, each of its officers who signs the Registration
Statement, its employees, agents and each person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, and any other stockholder selling
securities pursuant to the Registration Statement or any of its directors
or officers or any person who controls such stockholder within the
meaning of the Securities Act or the Exchange Act (collectively and
together with an Indemnified Person, an "Indemnified Party"), against any
Claim to which any of them may become subject, under the Securities Act,
the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity
with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and
subject to Section 6(c) such Investor will reimburse any legal or other
expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by them in connection with investigating or defending
any such Claim; provided, however, that the indemnity agreement contained
in this Section 6(b) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of
such Investor, which consent shall not be unreasonably withheld;
provided, further, however, that the Investor shall be liable under this
Agreement (including this Section 6(b) and Section 7) for only that
amount as does not exceed the net proceeds actually received by such
Investor as a result of the sale of Registrable Securities pursuant to
such Registration Statement. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9 hereof. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(b) with respect to any preliminary prospectus
shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary
prospectus was corrected on a timely basis in the prospectus, as then
amended or supplemented, and the Indemnified Party failed to utilize such
corrected prospectus.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of
any action (including any governmental action), such Indemnified Person
or Indemnified Party shall, if a Claim in respect thereof is to made
against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense
thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that such indemnifying party shall not be entitled to
assume such defense and an Indemnified Person or Indemnified Party shall
have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of
the Indemnified Person or Indemnified Party and the indemnifying party
would be inappropriate due to actual or potential conflicts of interest
between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in
14
<PAGE>
such proceeding or the actual or potential defendants in, or targets of,
any such action include both the Indemnified Person or the Indemnified
Party and the indemnifying party and any such Indemnified Person or
Indemnified Party reasonably determines that there may be legal defenses
available to such Indemnified Person or Indemnified Party which are
different from or in addition to those available to such indemnifying
party. The indemnifying party shall pay for only one separate legal
counsel for the Indemnified Persons or the Indemnified Parties, as
applicable, and such legal counsel shall be selected by Investors holding
a majority-in-interest of the Registrable Securities included in the
Registration Statement to which the Claim relates (with the approval of
the Initial Investors if they hold Registrable Securities included in
such Registration Statement), if the Investors are entitled to
indemnification hereunder, or by the Company, if the Company is entitled
to indemnification hereunder, as applicable. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party
of any liability to the Indemnified Person or Indemnified Party under
this Section 6, except to the extent that the indemnifying party is
actually prejudiced in its ability to defend such action. The
indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is
due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that (i) no contribution shall be made under
circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 6, (ii) no
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
from any seller of Registrable Securities who was not guilty of such
fraudulent misrepresentation, and (iii) contribution (together with any
indemnification or other obligations under this Agreement) by any seller
of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable
Securities.
8. REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investors the benefits of
Rule 144 promulgated under the Securities Act or any other similar rule
or regulation of the SEC that may at any time permit the Investors to
sell securities of the Company to the public without registration ("Rule
144"), the Company agrees to:
a. file with the SEC in a timely manner and make and
keep available all reports and other documents required of the Company
under the Securities Act and the Exchange Act so long as the Company
remains subject to such requirements (it being understood that nothing
herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing and availability of such
reports and other documents is required for the applicable provisions of
Rule 144; and
15
<PAGE>
b. furnish to each Investor so long as such Investor
owns shares of Preferred Stock, Warrants or Registrable Securities,
promptly upon request, (i) a written statement by the Company that it has
complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably
requested to permit the Investors to sell such securities under Rule 144
without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights of the Investors hereunder, including the right to
have the Company register Registrable Securities pursuant to this
Agreement, shall be automatically assignable by each Investor to any
transferee of all or any portion of the shares of Preferred Stock, the
Warrants or the Registrable Securities if: (i) the Investor agrees in
writing with the transferee or assignee to assign such rights, and a copy
of such agreement is furnished to the Company after such assignment, (ii)
the Company is furnished with written notice of (a) the name and address
of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned, (iii)
following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the
Securities Act and applicable state securities laws, (iv) the transferee
or assignee agrees in writing for the benefit of the Company to be bound
by all of the provisions contained herein, and (v) such transfer shall
have been made in accordance with the applicable requirements of the
Securities Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and
either retroactively or prospectively), only with written consent of the
Company and Investors who hold a majority in interest of the Registrable
Securities; provided, however, that no amendment hereto which restricts
the ability of an Investor to elect not to participate in an underwritten
offering shall be effective against any Investor which does not consent
in writing to such amendment; provided, further, however, that no
consideration shall be paid to an Investor by the Company in connection
with an amendment hereto unless each Investor similarly affected by such
amendment receives a pro-rata amount of consideration from the Company.
Unless an Investor otherwise agrees, each amendment hereto must similarly
affect each Investor. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company.
16
<PAGE>
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to
the same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of
such Registrable Securities.
b. Any notices required or permitted to be given under
the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier or by
confirmed telecopy, and shall be effective five (5) days after being
placed in the mail, if mailed, or upon receipt or refusal of receipt, if
delivered personally or by courier or confirmed telecopy, in each case
addressed to a party. The addresses for such communications shall be:
If to the Company:
CAM Designs Inc.
Birmingham Road
Allesley, Coventry
CV 59 QE
England, UK
Telecopy: 011 44 1203 407 335
Attention: John R. Davidson
with a copy to:
Hartman & Craven LLP
460 Park Avenue
New York, NY 10022
Telecopy: (212) 688-2870
Attention: Edward I. Tishelman, Esq.
and if to any Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such
party furnishes by notice given in accordance with this Section 11(b).
c. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such
right or remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal
courts
17
<PAGE>
and the state courts located in the State of Delaware in any suit or
proceeding based on or arising under this Agreement and irrevocably
agrees that all claims in respect of such suit or proceeding may be
determined in such courts. The Company irrevocably waives the defense of
an inconvenient forum to the maintenance of such suit or proceeding. The
Company further agrees that service of process upon the Company, mailed
by first class mail shall be deemed in every respect effective service of
process upon the Company in any such suit or proceeding. Nothing herein
shall affect the Investors' right to serve process in any other manner
permitted by law. The Company agrees that a final non-appealable judgment
in any such suit or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on such judgment or in any other lawful
manner.
e. This Agreement, the Securities Purchase Agreement
(including all schedules and exhibits thereto) and the Warrants
constitute the entire agreement among the parties hereto with respect to
the subject matter hereof and thereof. This Agreement, the Securities
Purchase Agreement and the Warrants supersede all prior agreements and
understandings among the parties hereto with respect to the subject
matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof,
this Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning
hereof.
h. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same agreement. This Agreement, once
executed by a party, may be delivered to the other party hereto by
facsimile transmission of a copy of this Agreement bearing the signature
of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
j. All consents, approvals and other determinations to
be made by the Investors or the Initial Investors pursuant to this
Agreement shall be made by the Investors or the Initial Investors holding
a majority in interest of the Registrable Securities (determined as if
all shares of Preferred Stock and Warrants then outstanding had been
converted into or exercised for Registrable Securities) held by all
Investors or Initial Investors, as the case may be.
k. The initial number of Registrable Securities
included on any Registration Statement and each increase (if any) to the
number of Registrable Securities included thereon shall be allocated pro
rata among the Investors based on the number of Registrable Securities
held by each Investor at the time of such establishment or increase, as
the case may be. In the event an Investor
18
<PAGE>
shall sell or otherwise transfer any of such holder's Registrable
Securities, each transferee shall be allocated a pro rata portion of the
number of Registrable Securities included on a Registration Statement for
such transferor. Any shares of Common Stock included on a Registration
Statement and which remain allocated to any person or entity which does
not hold any Registrable Securities shall be allocated to the remaining
Investors, pro rata based on the number of shares of Registrable
Securities then held by such Investors. For the avoidance of doubt, the
number of Registrable Securities held by any Investor shall be determined
as if all shares of Preferred Stock and Warrants then outstanding were
converted into or exercised for Registrable Securities.
l. For purposes of this Agreement, the term "business
day" means any day other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are authorized or obligated
by law, regulation or executive order to close.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
19
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the date first above written.
CAM DESIGNS INC.
By:____________________________________
Name:__________________________________
Its:___________________________________
INITIAL INVESTORS:
JNC STRATEGIC FUND LTD.
By:____________________________________
Name:__________________________________
Its:___________________________________
<PAGE>
EXHIBIT 1
to
Registration
Rights
Agreement
[Date]
[Name and address
of transfer agent]
RE: CAM DESIGNS INC.
Ladies and Gentlemen:
We are counsel to CAM DESIGNS INC., a corporation organized
under the laws of the State of Delaware (the "Company"), and we
understand that [Name of Investor] (the "Holder") has purchased from the
Company (i) shares of the Company's Series A Convertible Preferred Stock
(the "Preferred Stock") that are convertible into shares of the Company's
Class A Common Stock, par value $.001 per share (the "Common Stock"), and
(ii) warrants (the "Warrants") to acquire shares of Common Stock.
Pursuant to a Registration Rights Agreement, dated as of March 27, 1998,
by and among the Company and the signatories thereto (the "Registration
Rights Agreement"), the Company agreed with the Holder, among other
things, to register the Registrable Securities (as that term is defined
in the Registration Rights Agreement) under the Securities Act of 1933,
as amended (the "Securities Act"), upon the terms provided in the
Registration Rights Agreement. In connection with the Company's
obligations under the Registration Rights Agreement, on ________ __,
1998, the Company filed a Registration Statement on Form S-___ (File No.
333- _____________) (the "Registration Statement") with the Securities
and Exchange Commission (the "SEC") relating to the Registrable
Securities, which names the Holder as a selling stockholder thereunder.
The Registration Statement was declared effective by the SEC on
_____________, 1998.
[Other customary introductory and scope of examination language
to be inserted]
Based on the foregoing, we are of the opinion that the
Registrable Securities have been registered under the Securities Act.
[Other customary language to be included.]
Very truly yours,
cc: [Name of Investor]
<PAGE>
CAM DESIGNS INC
CONDENSED CONSOLIDATED BALANCE SHEET
March 31 1998
Estimated
$
ASSETS
Current assets
Cash and cash equivalents 40,395
Contract billings receivable 4,181,909
Inventories 1,503,593
Other current assets 1,368,119
--------------
Total current assets 7,094,016
Fixed assets
Investments 1,721
Property and machinery
Net property, plant and machinery 4,352,909
Goodwill, less accumulated depreciation 74,410
Deferred tax asset 205,588
==============
11,728,644
==============
LIABILITIES
Current liabilities
Bank overdraft 1,403,644
Current instalments under bank loan 19,480
Current instalments under capital leases 648,848
Current instalments under loan 99,604
Trade accounts payable 2,409,417
Accruals and other expenses 3,691,687
--------------
Total current liabilities 8,272,680
Obligations under capital leases
excluding current instalments 198,185
Obligations under bank loan
excluding current liabilities 213,683
--------------
Total liabilities 8,684,548
--------------
STOCKHOLDERS' EQUITY
Common stock 2,797
Additional paid in capital 6,422,968
Currency translation adjustment (47,599)
Treasury stock (475,000)
Retained earnings (2,859,070)
--------------
Total stockholders' equity 3,044,096
==============
11,728,644
==============
<PAGE>
[LETTERHEAD OF KPMG]
2 Cornwall Street Tel: 44(0)121 232-3000
Birmingham Fax: 44(0)121 232-3600
83 2DL DX709860 Birmingham 2B
United Kingdom
The Board of Directors
CAM Designs Inc Your ref
Birmingham Road
Allesley Our ref mjs/hg/
Coventry
CV5 9QE Contact Mike Skuse
0121 232 3339
31 March 1998
Dear Sirs
You have asked us to evaluate the appropriate application of United States
generally accepted accounting principles to the proposed transaction described
below. This letter is being issued to you for assistance in evaluating
accounting principles for the described proposed transaction.
You have provided us with certain draft documents pursuant to which the Company
would issue Series A convertible preferred stock (the 'preferred shares') for
cash. The preferred shares contain certain redemption features as described in
the attached pages under the headings, 'Reservation of Shares of the Common
Stock', 'Events of Default' and 'Certificate of Correction of Certificate of
Designations, Preferences and Rights of Series A Convertible Preferred Stock of
CAM Designs, Inc.'. You have asked us to assist you in evaluating whether the
redemption features in these sections cause the balance sheet classification of
the preferred shares to be outside shareholders' equity. You have advised us
that there are no other sections of any related documents which contain
redemption features other than the redemption rights of the Company.
The relevant US accounting literature on this subject for an SEC registrant such
as the Company is Rule S-02 of Regulation S-X of the Securities and Exchange
Commission. That rule provides that classification outside the shareholders'
equity section of the balance sheet is required if, among other conditions,
shares are redeemable at the option of the holder or the conditions for
redemption are not solely within the control of the issuer.
The redemption provisions, as amended, contained in the attached pages provide
for redemption or other payments under certain circumstances. In all instances
the circumstances are either within the control of the Company or the Company
retains the right to satisfy its obligations with shares. Therefore the
provisions do not meet the conditions which would cause the preferred shares to
be classified outside shareholders' equity.
<PAGE>
Page 2
It should be noted that rules of the Securities and Exchange Commission are
subject to interpretation by the Commission staff which reserves the prerogative
to provide the only binding interpretations of its own rules. Therefore, there
can be no assurance that the classification of the preferred shares will not be
questioned by the Commission staff or that the Company may not be required by
the Commission staff to reclassify the shares.
The ultimate responsibility for the decision on the appropriate application of
generally accepted accounting principles for an actual transaction rests with
the Company. Our judgement on the appropriate application of generally accepted
accounting principles for the described specific proposed transaction is based
solely on the facts provided to us as described above; should these facts and
circumstances differ, our conclusion may change.
This letter is for the Company's use only in connection with the described
proposed transaction and is not to be relied upon by any other party.
Yours faithfully
/s/ KPMG
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KPMG
