REGULATION S SECURITIES SUBSCRIPTION AGREEMENT
By and between
SUCCESSORIES, INC.
and
SEACREST CAPITAL LIMITED
and
FAIRWAY CAPITAL LIMITED,
as Subscribers
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR THE SECURITIES COMMISSION OF ANY STATE
UNDER ANY STATE SECURITIES LAW. THEY ARE BEING OFFERED PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION S ("REGULATION S") PROMULGATED
UNDER THE ACT. THE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS
DEFINED IN REGULATION S) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS
ARE MADE PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
THIS REGULATION S SECURITIES SUBSCRIPTION AGREEMENT (the "Agreement"
or the "Subscription Agreement") is executed by each of the undersigned
(each a "Subscriber" and collectively, the "Subscribers") in connection
with the subscription by the Subscribers for Series A Cumulative
Convertible Preferred Stock (the "Preferred Stock") of SUCCESSORIES, INC.,
an Illinois corporation (the "Company").
WHEREAS, the Company is offering for sale pursuant to Regulation S
("Regulation S") under the United States Securities Act of 1933, as amended
(the "Act") 400 shares of Preferred Stock (the "Preferred Shares"), with a
liquidation preference of $5,000 per share at a purchase price of $3,950
per share, the terms of which are set forth in the form of a Certificate of
Designation of the Preferred Stock attached hereto as EXHIBIT A (the
"Certificate of Designation"); and
WHEREAS, each Subscriber wishes to subscribe for the Preferred Shares
set forth opposite such Subscriber's name on Schedule 1.1 hereto, in
accordance with the terms and conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. SUBSCRIPTION AND CLOSING; ESCROW
1.` SUBSCRIPTION. Subject to the terms and conditions of this
Agreement, each Subscriber hereby subscribes for, and the Company hereby
agrees to issue and sell to each such Subscriber, the number of Preferred
Shares, and at the aggregate price set forth, opposite each Subscriber's
name as indicated on Schedule 1.1 to this Agreement. Certificates for the
Preferred Shares will be issued in the names and denominations requested by
the Subscribers in a notice delivered to the Company no later than one
business day prior to the Closing (as hereinafter defined).
2.` CLOSING. Contemporaneous herewith, each Subscriber, the Company,
and Illinois Stock Transfer Company, serving as the transfer agent for the
Company (the "Transfer Agent") shall enter into that certain Book Entry
Transfer Agent Agreement in the form attached hereto as EXHIBIT B (the
"Transfer Agent Agreement"). As contemplated therein, the Transfer Agent
shall serve as an escrow agent to facilitate the closing of the
subscription referred to above (the "Closing"), and, thereafter, shall
perform the "paying agent" and "book entry" functions contemplated therein.
3.` PAYMENT OF PURCHASE PRICE AND DELIVERY OF PREFERRED SHARES.
Payment of the purchase price for the Preferred Shares by the Subscribers,
and delivery of the Preferred Shares by the Company, shall be effected
pursuant to the procedures established in the Transfer Agent Agreement.
4.` MULTIPLE SUBSCRIBERS. This Agreement may be executed by one or
more Subscribers. In the event that this Agreement pertains to a
subscription by a single Subscriber only, all references to the
"Subscribers" or "each Subscriber" shall be deemed to refer to such single
Subscriber.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF COMPANY
The Company represents and warrants to and covenants with the
Subscribers as follows:
1.` ORGANIZATION, GOOD STANDING, AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Illinois and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in
good standing in each jurisdiction in which the failure to so qualify would
have a material adverse effect on the business or properties of the Company
and its subsidiaries taken as a whole.
2.` AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, and the performance of all
obligations of the Company hereunder and the authorization, issuance (or
reservation for issuance) and delivery of the Preferred Shares and the
shares of the common stock, par value $.01 per share (the "Common Stock")
of the Company issuable upon conversion of the Preferred Shares have been
taken (such shares of Common Stock are hereinafter referred to as the
"Common Shares", and the Preferred Shares and Common Shares are hereinafter
referred to as the "Securities").
3.` AGREEMENT. This Agreement has been duly executed and delivered
by the Company and, assuming due authorization, execution and delivery of
this Agreement by each Subscriber, is a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
4.` CAPITAL STOCK. The Company has an authorized capitalization as
set forth on Schedule 2.4. All outstanding shares of capital stock of the
Company have been duly authorized and are fully paid and non-assessable.
Other than as set forth on Schedule 2.4 or as disclosed in the SEC Reports
(as such term is defined in Section 2.6 below), there are no outstanding
options, warrants, rights, calls, commitments, conversion rights, rights of
exchange, plans or other agreements of any character providing for the
purchase, issuance or sale of any shares of capital stock of the Company.
5.` VALID ISSUANCE OF SECURITIES. When issued and delivered in
accordance with the terms of this Agreement, the Preferred Shares will be
duly and validly issued and outstanding, fully paid and non-assessable,
free and clear of any claims or pre-emptive rights, and (assuming the
representations and warranties of the Subscribers herein are true and
correct in all material respects) will have been issued in compliance with
all applicable U.S. federal and state securities law. Under current law
and administrative rules governing Regulation S, the Common Shares, when
issued upon conversion in accordance with the terms of the Preferred
Shares, shall be duly and validly issued and outstanding, fully paid and
nonassessable, free and clear of any claims or pre-emptive rights, and will
have been issued in compliance with all applicable U.S. federal and state
securities laws (assuming the accuracy of all material representations and
warranties of the Subscribers herein).
6.` SEC REPORTS; FINANCIAL STATEMENTS. The Company has timely filed
all forms, reports and documents with the Securities and Exchange
Commission (the "Commission") since January 1, 1995, required to be filed
by it under the Securities Exchange Act of 1934, as amended (the "1934
Act") through the date hereof (collectively, the "SEC Reports"). Such SEC
Reports, at the time filed, complied as to form in all material respects
with the requirements of the 1934 Act. None of the SEC Reports, including
without limitation any financial statements or schedules included therein,
contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements made, in light of
the circumstances under which they were made, not misleading. There have
been no material adverse changes in the Company's business, properties,
results of operations, condition (financial or otherwise) or prospects
since the date of the Company's most recent Quarterly Report on Form 10-Q
for the quarter ended August 3, 1996, which have not been disclosed to the
Subscribers in writing (either directly by the Company or by delivery by
the Company to the Subscribers). The audited and unaudited consolidated
balance sheets of the Company and its subsidiaries contained in the SEC
Reports, and the related consolidated statements of income, changes in
stockholders' equity and changes in cash flows for the periods then ended
(the consolidated balance sheet of the Company and its subsidiaries as of
February 3, 1996 is hereinafter referred to as the "Balance Sheet"),
including the footnotes thereto, except as indicated therein, have been
prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods indicated, except that the
unaudited financial statements do not contain notes and may be subject to
normal audit adjustments and normal annual adjustments. The Balance Sheet
fairly presents the financial condition of the Company and its subsidiaries
at the date thereof and, except as indicated therein, reflects all claims
against and all debts and liabilities of the Company and its subsidiaries,
fixed or contingent, as at the date thereof and the related statements of
income, stockholders' equity and changes in cash flows fairly present the
results of the operations of the Company and its subsidiaries and the
changes in their financial position for the period indicated. Since
February 3, 1996 (the "Balance Sheet Date"), except as disclosed in the SEC
Reports, there has been (x) no material adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in
the results of operations or prospects, of the Company and its
subsidiaries, whether as a result of any legislative or regulatory change,
revocation of any license or rights to do business, fire, explosion,
accident, casualty, labor trouble, flood, drought, riot, storm,
condemnation, act of God, public force or otherwise and (y) no change in
the assets or liabilities, or in the business or condition, financial or
otherwise, or in the results of operations or prospects, of the Company and
its subsidiaries except in the ordinary course of business; and no fact or
condition exists or is contemplated or threatened which might cause such a
change in the future.
7.` CURRENT PUBLIC INFORMATION. The Company is a "reporting issuer"
as defined in Rule 902(l) of Regulation S and it has a class of securities
registered under Section 12(b) or 12(g) of the 1934 Act. The Company has
delivered to the Subscribers copies of the Company's Form 10-K Annual
Report for the most recent fiscal year ended, Form 10-Q for the most recent
fiscal quarter ended, most recent proxy statement for its Annual Meeting of
Shareholders, and each interim report on Form 8-K filed by the Company
since the date of its most recent Annual Report on Form 10-K. In
addition, the Company has delivered to each Subscriber a draft of the
proposed Form 10-Q for the fiscal quarter ended August 3, 1996 and a
Confidential Private Placement Memorandum dated July 29, 1996 from Duff &
▇▇▇▇▇▇ containing certain information and forecasts with respect to the
Company.
8.` NO DIRECTED SELLING EFFORTS IN REGARD TO THIS TRANSACTION;
COMPLIANCE WITH REGULATION S. The Company has not, and to the best of the
Company's knowledge no Subscriber nor any distributor, if any,
participating in the offering of the Securities nor any person acting for
the Company or any such distributor has conducted any "directed selling
efforts" as that term is defined in Rule 902 of Regulation S. The Company
has not offered the Securities to the Subscribers in the U.S. or to any
person in the United States or any U.S. person. The Company represents and
warrants that the offering by the Company of the Securities to the
Subscribers, as contemplated in this Agreement (the "Offering") is not part
of a plan or scheme to evade the registration provisions of the Act.
9.` NO CONFLICTS. Except as set forth on Schedule 2.9, the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby does not and will not conflict with or result in a
breach by the Company of any of the terms or provisions of, or constitute a
default under, the Certificate of Incorporation or bylaws of the Company,
or any indenture, mortgage, deed of trust or other agreement or instrument
to which the Company is a party or by which it or any of its properties or
assets are bound, or any existing applicable decree, judgment or order of
any court, Federal or State regulatory body, administrative agency or other
governmental body having jurisdiction over the Company or any of its
properties or assets.
10.` NO ACTION. The Company has not taken and will not take any
action that will affect in any way the running of the Restricted Period (as
such term is defined in Section 3.1 below) or the ability of any Subscriber
to resell freely the Securities in accordance with applicable securities
laws and the Agreement.
11.` COMPLIANCE WITH LAWS. As of the date hereof, the conduct of the
business of the Company complies in all material respects with all
statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees applicable thereto, except for non compliance which would not have
a material adverse effect on the business, properties, condition (financial
or otherwise), results of operations or prospects of the Company (a
"Material Adverse Effect"). The Company has not received notice of any
alleged violation of any statute, law, regulation, ordinance, rule,
judgement, order or decree from any governmental authority, which would
have a Material Adverse Effect.
12.` LITIGATION. Except as disclosed in the SEC Reports, there is no
action, suit or proceeding before or by any court or governmental agency or
body, domestic or foreign, now pending or, to the knowledge of the Company,
threatened, against or affecting the Company, or any of its properties,
which could reasonably be expected to result in any material adverse change
in the business, properties, results of operations, condition (financial or
otherwise), or prospects of the Company, or which could reasonably be
expected to materially and adversely affect the properties or assets of the
Company or which could reasonably be expected to interfere with the
Company's ability to consummate the transactions contemplated by this
Agreement.
13.` DISCLOSURES. There is no fact known to the Company (other than
general economic conditions known to the public generally) that has not
been disclosed in writing to the Subscribers that (a) could reasonably be
expected to have a Material Adverse Effect or (b) except as disclosed on
Schedule 2.9, could reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations pursuant to
this Agreement and the issuance of the Securities hereunder.
14.` PRIOR ISSUANCES UNDER REGULATION S; PRIVATE PLACEMENTS. Except
as set forth in the SEC Reports, the Company has not issued any shares of
its Common Stock (or securities convertible into or exercisable for shares
of Common Stock) (i) under Regulation S ("Regulation S Securities"),
except for shares of Common Stock issued as an adjustment to, or in
connection with a conversion or exercise of, Regulation S Securities or
(ii) pursuant to any other exemption from registration under the Act.
15.` COMMISSIONS. Except as disclosed on Schedule 2.15, and except
for a fee which is payable by the Company as contemplated in the Transfer
Agent Agreement to Alpine Capital Partners (▇▇▇▇ ▇▇▇▇▇) for services
rendered to the Company not to exceed three percent (3%) of the aggregate
purchase price of the Preferred Shares, no other person, firm or
corporation will be entitled to receive any brokerage fee, commission or
other similar payment from the Company in connection with the consummation
of the transactions contemplated hereby and the Company shall not make any
such payment to any person, firm or corporation other than (i) Alpine
Capital Partners (▇▇▇▇ ▇▇▇▇▇), and (ii) any payment the Company may make to
compromise or settle the matter disclosed on Schedule 2.15.
3. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER; ACCESS TO INFORMATION;
INDEPENDENT INFORMATION; INDEPENDENT INVESTIGATION
Each Subscriber represents and warrants to the Company, on its own
behalf and on behalf of each person or entity for which the Subscriber is
acting as a fiduciary, as follows:
1.` OFFSHORE TRANSACTION.
(a) no Subscriber is a "U.S. person" as that term is defined in
Rule 902(o) of Regulation S (a copy of which definition is attached as
EXHIBIT C), and no Subscriber is an entity organized or incorporated
under the laws of any foreign jurisdiction by any "U.S. person"
principally for the purpose of investing in securities not registered
under the Act, unless the Subscriber is or was organized or
incorporated by "U.S. persons" who are accredited investors (as
defined in Rule 501(a) under the Act) and who are not natural persons,
estates or trusts ("Institutional Investors");
(b) the Preferred Shares were not offered to any Subscriber or
to any Investor in the United States and at the time of execution of
this Subscription Agreement and of any offer to such Subscriber to
purchase the Preferred Shares hereunder, such Subscriber was outside
the United States;
(c) each Subscriber is purchasing the Securities for its own
account and not on behalf of or for the benefit of any U.S. person and
the resale of the Securities has not been prearranged with any buyer
in the United States;
(d) each Subscriber agrees and to the best knowledge of the
Subscriber each distributor, if any, participating in the offering of
the Securities, has agreed that all offers and sales of the Securities
prior to the expiration of a period commencing on the Closing and
ending forty (40) days thereafter (the "Restricted Period") shall not
be made to U.S. persons or for the account or benefit of U.S. persons
and shall otherwise be made in compliance with the provisions of
Regulation S. No Subscriber has been engaged or acted as or on behalf
of a distributor or dealer (and is not an affiliate of a distributor
or dealer) with respect to this transaction.
2.d INDEPENDENT INVESTIGATION. Each Subscriber, in offering to
subscribe for the Securities hereunder, has, prior to the date hereof, been
given access to and the opportunity to examine all books and records of the
Company, and all material contracts and documents of the Company. In
making its investment decision to purchase the Securities, no Subscriber is
relying on any oral or written representations or assurances from the
Company or any other person or any representation of the Company or any
other person other than as set forth in this Agreement, the SEC Reports or
in a document executed by a duly authorized representative of the Company
making reference to this Agreement. Each Subscriber has such experience in
business and financial matters that it is capable of evaluating the risk of
its investment and determining the suitability of its investment. Each
Subscriber is a sophisticated investor, as defined in Rule 506(b)(2)(ii) of
Regulation D under the Act, and an "accredited investor" as defined in Rule
501 of Regulation D under the Act, a copy of which definition is attached
hereto as EXHIBIT D.
3.d ECONOMIC RISK. Each Subscriber understands and acknowledges that
an investment in the Securities involves a high degree of risk, including a
possible total loss of investment. Each Subscriber represents that it is
able to bear the economic risk of an investment in the Securities.
4.d NO GOVERNMENT RECOMMENDATION OR APPROVAL. Each Subscriber
understands that no United States federal or state agency or similar agency
of any other country has passed upon or made any recommendation or
endorsement of the Company, this transaction or the subscription of the
Securities.
5.d NO DIRECTED SELLING EFFORTS IN REGARD TO THIS TRANSACTION. No
Subscriber has conducted any "directed selling efforts" as that term is
defined in Rule 902 of Regulation S. Such activity includes, without
limitation, the mailing of printed material to investors residing in the
United States, the holding of promotional seminars in the United States,
the placement of advertisements with radio or television stations
broadcasting in the United States or in publications with a general
circulation in the United States, which discuss the offering of the
Securities.
6.d NO REGISTRATION. Each Subscriber understands that the Securities
have not been registered under the Act and are being offered and sold
pursuant to an exemption from registration contained in the Act based in
part upon the representations of such Subscriber contained herein. The
Common Shares do, however, carry certain registration rights as set forth
in the Registration Rights Agreement executed by the parties hereto in the
form attached hereto as EXHIBIT E (the "Registration Rights Agreement").
7.d NO PUBLIC SOLICITATION. Without conducting any independent
investigation, no Subscriber knows of any public solicitation or
advertisement of an offer in connection with the proposed issuance and sale
of the Securities.
8.d INVESTMENT INTENT. Each Subscriber is acquiring the Securities
for such Subscriber's own account, for investment and not with a view to
the distribution thereof. Each Subscriber understands that except as set
forth in the Registration Rights Agreement, the Company has no present
intention of registering any such sale of the Securities. Each Subscriber
represents and warrants to the Company that it has no present plan or
intention of selling the Securities in the United States, has made no
predetermined arrangements to sell the Securities (other than the
registration provisions contained in the Registration Rights Agreement,
which pertain only to a potential method of disposing of the Common Shares)
and that the Offering, together with any subsequent resale by any
Subscriber of the Securities, is not part of a plan or scheme to evade the
registration provisions of the Act. No Subscriber currently has a short
position in the Common Shares, including any short call position or any
long put position or any contract or arrangement that has the effect of
eliminating or substantially diminishing the risk of ownership of the
Securities, nor has any Subscriber engaged in any hedging transaction with
respect to the Securities.
9.d INCORPORATION AND AUTHORITY. Each Subscriber has the full power
and authority to execute, deliver and perform this Agreement and to perform
its obligations hereunder. This Agreement has been duly approved by all
necessary action of each Subscriber, including any necessary shareholder
approval, has been executed by persons duly authorized by each Subscriber,
and constitutes a valid and legally binding obligation of each Subscriber,
enforceable in accordance with its terms.
10.d NO RELIANCE ON TAX ADVICE. Each Subscriber has reviewed with
his, her or its own tax advisors the foreign, federal, state and local tax
consequences of this investment, where applicable, and the transactions
contemplated by this Agreement. Each Subscriber is relying solely on such
advisors and not on any statements or representations of the Company or any
of its agents and understands that such Subscriber (and not the Company)
shall be responsible for the Subscriber's own income tax liability that may
arise as a result of this investment or the transactions contemplated by
this Agreement.
11.d INDEPENDENT LEGAL ADVICE. Each Subscriber acknowledges that it
has had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his, her or its own legal counsel.
Each Subscriber is relying solely on such counsel and not on any statements
or representations of the Company or any of its agents for legal advice
with respect to this investment or the transactions contemplated by this
Agreement, except for the representations, warranties and covenants set
forth herein and on the opinion provided for in Section 5.7 hereof.
4. LEGENDS; SUBSEQUENT TRANSFER OF SECURITIES
1.d LEGENDS. The certificate(s) representing the Preferred Shares
shall bear a legend substantially as set forth below and any other legend,
if such legend or legends are reasonably required to comply with state,
federal or foreign law. Assuming that there are no changes in the material
facts set forth in Section 3 of this Agreement or applicable law from the
date hereof until the date of conversion, all certificates representing the
Common Shares into which the Preferred Shares are converted after the
Restricted Period shall not bear a legend.
"The Securities of Successories, Inc. (the "Issuer") represented
hereby have been issued pursuant to Regulation S, promulgated
under the United States Securities Act of 1933, as amended (the
"Act"), and have not been registered under the Act or any
applicable state securities laws. These Securities may not be
offered or sold within the United States or to or for the account
of a "U.S. Person" (as that term is defined in Regulation S)
during the period commencing on the sale of these securities and
ending on the fortieth (40th) day following completion of the
Regulation S offering of the Issuer pursuant to which these
securities have been issued, which day is October 16, 1996 (the
"Restricted Period"). The Securities represented by this
certificate may first be converted into common stock of the
issuer on October 26, 1996 and are subject to further
restrictions on conversion as set forth in this certificate. The
Issuer will notify the transfer agent of the date of completion
of such offering and of the expiration of such Restricted
Period."
2.d TRANSFERS. The Company agrees, and shall instruct its agents,
that the Securities may be transferred to any person or entity who is not
an affiliate of the Company if such transfer occurs after the Restricted
Period, without (a) any further restriction on transfer (provided the
transfer is made in compliance with the Act) or (b) the entry of a "stop
transfer" order against such Securities, and the Securities delivered to
the transferee shall not bear a legend. The Company may place a stop
transfer order on any Preferred Shares or Common Shares during the
Restricted Period for the duration of the Restricted Period. Upon election
by a Subscriber to convert the Preferred Shares into Common Shares, such
Subscriber shall deliver to the Transfer Agent a duly completed Notice of
Conversion (a "Notice of Conversion").
5. COVENANTS OF THE COMPANY
1.d ACCOUNTANTS. For as long as any Preferred Shares remain
outstanding, the Company shall, until at least the second anniversary of
the date of the Closing (the "Closing Date"), maintain as its independent
auditors an accounting firm that is authorized to practice before the SEC.
2.d CORPORATE EXISTENCE AND TAXES. For as long as any Preferred
Shares remain outstanding, the Company shall maintain its corporate
existence in good standing, and shall pay all its taxes when due except for
taxes which the Company disputes in good faith and for which adequate
reserves are established on the Company's books and records.
3.d RESERVED SHARES AND LISTINGS. For so long as any Preferred
Shares remain outstanding:
(a) the Company will reserve from its authorized but unissued
shares of Common Stock a sufficient number of Common Shares to permit
the conversion in full of the then outstanding Preferred Shares; and
(b) the Company will maintain the listing of its Common Stock on
the NASDAQ stock market; and
(c) until such time as all of the Preferred Shares have been
converted into Common Shares, the Company will not repurchase more
than ten percent (10%) of its Common Stock issued and outstanding on
the date hereof or otherwise enter into any other transaction
(including stock split, recapitalization or other transaction) which
would cause a decrease in the number of its shares of Common Stock
issued and outstanding (other than transactions that similarly
decrease the number of shares of Common Stock into which the Preferred
Shares are convertible); and
(d) the Company will (I) retain the Transfer Agent as the stock
transfer agent of the Company, and (II) if the Transfer Agent
voluntarily or involuntarily fails to so serve, select an independent,
unaffiliated replacement stock transfer agent willing to perform the
duties of the Transfer Agent under the Transfer Agent Agreement.
4.d ISSUANCE OF COMMON SHARES. Upon conversion of the Preferred
Shares in accordance with their terms, the Company will, and will use its
best lawful efforts to cause the Transfer Agent to, issue one or more
certificates representing Common Shares in such name or names and in such
denominations specified by a Subscriber in a Notice of Conversion. The
Common Shares to be issued upon conversion of the Preferred Shares shall
not bear any restrictive legends and shall be freely tradeable, subject to
compliance with Federal and state securities laws and the terms of the
Preferred Shares. Consistent with the Transfer Agent Agreement, the
Company further warrants that no instructions other than these
instructions, and instructions for a "stop transfer" until the end of the
Restricted Period, have been or will be given to the Transfer Agent and
also warrants that the Common Shares shall otherwise be freely transferable
by Subscriber on the books and records of the Company subject to compliance
with Federal and State securities laws and the terms of the Preferred
Shares. The Company will notify the Transfer Agent of the date of
completion of the Offering and of the date of expiration of the Restricted
Period. Nothing in this section shall affect in any way a Subscriber's
obligations and agreement to comply with all applicable securities laws
upon resale of the Securities.
5.d COPIES OF INFORMATION. The Company undertakes to furnish each
Subscriber with copies of such other information as may be reasonably
requested by such Subscriber prior to consummation of this Offering. The
Company will provide the Subscribers with copies of all future filings
under the 1934 Act for so long as any Preferred Shares are outstanding.
6.d COMPLIANCE WITH LAWS. The Company shall comply with all
applicable Federal and state securities laws with respect to the sale of
the Securities, including but not limited to the filing of all reports
required to be filed in connection therewith with the SEC or any stock
exchange or the NASDAQ Stock Market or any other regulatory authority.
7.d OPINION OF COUNSEL. Each Subscriber shall, prior to the Closing,
receive an opinion letter from counsel to the Company, to the effect that
(i) the Company is duly incorporated and validly existing; (ii) this
Agreement, the issuance of the Preferred Shares, and the issuance of the
Common Shares upon conversion of the Preferred Shares have been duly
approved by all required corporate action, and that both the Preferred
Shares and the Common Shares, upon due issuance, shall be validly issued
and outstanding, fully paid and nonassessable; and (iii) this Agreement and
the Registration Rights Agreement are each valid and binding obligations of
the Company, enforceable in accordance with their terms, subject to laws
of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of laws governing specific performance and other
equitable remedies; except that with respect to the foregoing opinions
counsel may add such qualifications as are consistent with firm practice.
The Company further covenants that, contemporaneously with the execution of
the Transfer Agent Agreement, it will arrange for issuance of any legal
opinions required by the Company's Transfer Agent in order to ensure that
the Common Shares are issued without restrictive legends upon receipt of a
Notice of Conversion, as contemplated in the Transfer Agent Agreement.
8.d CONSULTATION WITH LEGAL COUNSEL. The Company shall consult with
its legal counsel regarding its 1934 Act filing requirements including, but
not limited to, the possible obligation of the Company to file Form 8-K in
connection with the Offering, and will timely make any and all such filings
deemed necessary by such counsel.
9.d REGISTRATION RIGHTS. The Company will grant the Subscribers the
registration rights covering the Common Shares issuable on conversion of
the Preferred Shares on the terms of the Registration Rights Agreement.
6. COVENANTS OF THE SUBSCRIBERS.
1.d DEALINGS IN COMMON SHARES. Each Subscriber covenants that
neither it nor any of its affiliates nor any person acting on its or their
behalf has the intention of entering, or will enter during the Restricted
Period, into any put option, short position or any hedging transaction or
other similar instrument or position with respect to the Common Shares or
securities of the same class as the Common Shares and neither it nor any of
its affiliates nor any person acting on its or their behalf will use at any
time Common Shares to settle any put option, short position or other
similar instrument or position that may have been entered into prior to the
execution of this Agreement.
2.d NO SALE IN VIOLATION OF THE ACT. Each Subscriber further
covenants that it will not make any sale, transfer or other disposition of
the Securities in violation of the Act (including Regulation S) or the
rules and regulations of the Commission promulgated thereunder. Each
Subscriber acknowledges and agrees that the Securities may and will only be
resold (a) in compliance with Regulation S; (b) pursuant to a Registration
Statement under the Act; or (c) pursuant to an exemption from registration
under the Act.
7. ISSUANCE OF FURTHER SECURITIES
1.d RIGHT OF FIRST REFUSAL. The Company hereby grants to the
Subscribers the right of first refusal to purchase all (or any part) of New
Securities (as defined in this Section) that the Company may, from time to
time, propose to sell and issue. "New Securities" shall mean any capital
stock of the Company, whether now authorized or not, and rights, options or
warrants to purchase said capital stock, and debt or equity securities of
any type whatsoever that are, or may become, convertible into said capital
stock; provided, however, that the term "New Securities" does not include
securities issued in Excluded Financings. "Excluded Financings" mean (i)
non-convertible debt or non-convertible preferred stock financings of any
type, (ii) public offerings at the market price of the Common Stock, (iii)
private financings at a price, including conversion price, at least equal
to the then-current market price of the Common Stock (determined as set
forth in the Certificate of Designation), (iv) project financings, (v) bank
financings, (vi) the issuance and sale of, or the grant of options to
purchase, shares of Common Stock pursuant to any of the Company's employee
or director stock option, compensation, bonus or incentive plans, (vii) the
issuance or sale of Common Stock and/or warrants for the acquisition by the
Company of operating assets to be owned and operated by the Company or a
subsidiary of the Company, (viii) the issuance of shares of Common Stock
pursuant to or in connection with (A) warrants for the purchase of 112,000
shares of Common Stock issued to certain investors holding subordinated
debt of the Company and options for the purchase of 150,000 shares of
Common Stock to be issued in connection with the extension of the terms of
such subordinated debt; (B) the Company's 1995 Employee Stock Purchase
Plan; (C) the Company's Stock Option Plan; (D) options granted to ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ pursuant to the terms of that certain Common Stock Option
Agreement and that certain Incentive Stock Option Agreement; (E) options
granted to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ pursuant to the terms of that certain Common
Stock Option Agreement and that certain Incentive Stock Option Agreement;
(F) any merger or acquisition entered into by the Company; and (G) any
existing options or warrants disclosed on Schedule 2.4 to this Agreement,
and (ix) any other financings pursuant to which securities of the Company
are issued, provided that such securities are not convertible, exchangeable
or exercisable for shares of Common Stock which are either freely
tradeable, or freely tradeable upon effectiveness of a registration
statement which the Company is required to file with the SEC as part of
such financing, in each case within one (1) year of the date hereof. In
the event that the Company proposes to undertake an issuance of New
Securities, it shall give the Subscribers written notice of its intention,
describing the type of New Securities, the price and the general terms upon
which the Company proposes to issue the same. Each Subscriber shall have
fifteen (15) days from the date of receipt of any such notice to agree to
purchase all or less than all of the New Securities for the price and upon
the general terms specified in the notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased.
If any such Subscriber fails to exercise in full the right of first refusal
within such fifteen (15) day period, then the Company shall have sixty (60)
days thereafter to sell the New Securities respecting which the
Subscribers' rights were not exercised, at a price and upon general terms
no more favorable to the purchasers thereof than specified in the Company's
notice. In the event that the Company has not sold the New Securities
within such sixty (60) day period, the Company shall not thereafter issue
or sell any New Securities without first offering such securities to the
Subscribers in the manner provided above. The right of first refusal
granted under this Section shall terminate upon the earlier of: (i) 180
days following the Closing Date; or (ii) the date upon which the
Subscribers cease to own at least one-third of the Preferred Shares or the
Common Shares issuable upon conversion thereof.
8. LIQUIDATED DAMAGES FOR LATE CONVERSION.
1.d LIQUIDATED DAMAGES. As set forth in the Certificate of
Designation, the Company shall use its best efforts to issue and deliver,
within three (3) New York Stock Exchange trading days after a Subscriber
has fulfilled all conditions and submitted a Notice of Conversion duly
executed and in proper form required for conversion as contemplated by the
Transfer Agent Agreement (the "Deadline"), to such Subscriber or any party
receiving the Preferred Shares by transfer from such Subscriber (together
with such Subscriber, a "Holder"), at the address of the Holder set forth
in the Notice of Conversion and in the absence thereof at such address as
set forth in the Transfer Agent Agreement, a certificate or certificates
for the number of Common Shares to which the Holder shall be entitled. The
Company understands that a delay in the issuance of the Common Shares after
the Deadline could result in economic loss to the Holder. If for any
reason other than (x) a failure of any material representation or warranty
of any Subscriber herein to be true and correct or (y) a change in law or
administrative rules governing Regulation S that would prevent the Company
from issuing Common Shares following the Restricted Period without
restrictive legend, the Company fails to issue the Common Shares, as
compensation to the Holder for such loss, and not as a penalty, the Company
agrees to pay liquidated damages to the Holder for late issuance of Common
Shares upon conversion in accordance with the following schedule (where
"No. Business Days Late" is defined as the number of business days after
the Deadline):
Aggregate
NO. BUSINESS DAYS LATE LIQUIDATED DAMAGES
(per each Preferred
Share outstanding)
1 $ 50
2 $100
3 $150
4 $200
5 $250
6 $300
7 $350
8 $400
9 $450
10 $500
>10 $500 + an additional $100
for each Business Day Late
beyond 10 days
The Company shall pay the Holder any liquidated damages incurred under this
Section by wire transfer of immediately available funds to an account
designated by Holder upon the earlier to occur of (i) issuance of the
Common Shares to the Holder of the required Common Shares that were not
issued, or (ii) each monthly anniversary of the receipt by the Company of
such Holder's Notice of Conversion. Nothing herein shall waive the
Company's obligations to deliver Common Shares upon a conversion of the
Preferred Shares or limit any Subscriber's right to pursue actual damages
for the Company's failure to issue and deliver Common Shares to such
Subscriber in accordance with the terms of the Certificate of Designation,
provided, any actual damages recoverable by any Subscriber shall be reduced
to the extent of any previously paid liquidated damages hereunder.
2.d CONVERSION NOTICE. The Company agrees that, in addition to any
other remedies which may be available to the Subscribers, including, but
not limited to the remedies available under Section 8.1, in the event the
Company fails for any reason to effect delivery to a Subscriber of
certificates representing Common Shares on or prior to the Deadline, such
Subscriber will be entitled to revoke the Notice of Conversion by
delivering a notice to such effect to the Company whereupon the Company and
the Subscriber shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion.
9. CONDITIONS TO CLOSING; DELIVERIES AT CLOSING.
1.d CONDITIONS TO SUBSCRIBERS' OBLIGATIONS TO CLOSE. The obligations
of the Subscribers to purchase the Preferred Shares offered hereunder are
conditioned on the fulfillment or waiver of the following:
(a) the execution and delivery of this Agreement, the
Registration Rights Agreement and the Transfer Agent Agreement by the
Company;
(b) the execution and delivery of the Transfer Agent Agreement
by the Transfer Agent;
(c) all the representations and warranties of the Company in
this Agreement as of the date hereof shall be true and correct at the
Closing as if made on such date, and the Company shall have performed
all actions required hereunder;
(d) receipt of the opinion of legal counsel to the Company to
the effect set forth in Section 5.7;
(e) filing of the Certificate of Designation with the Secretary
of State of Illinois; and
(f) a waiver or consent of American National Bank and Trust
Company of Chicago to the Company's consummation of, and performance
under, this Agreement and the documents executed in connection
herewith.
2.f CONDITIONS TO THE COMPANY'S OBLIGATION TO CLOSE. The obligation
of the Company to sell the Preferred Shares offered hereunder are
conditioned on the fulfillment or waiver of the following:
(a) the execution and delivery of this Agreement, the
Registration Rights Agreement and the Transfer Agent Agreement by the
Subscribers;
(b) the execution and delivery of the Transfer Agent Agreement
by the Transfer Agent;
(c) all the representations and warranties of each Subscriber
made in this Agreement as of the date hereof shall be true and correct
at the Closing as if made on such date, and each Subscriber shall have
performed all actions required hereunder; and
(d) a waiver or consent of American National Bank and Trust
Company of Chicago to the Company's consummation of, and performance
under, this Agreement and the documents executed in connection
herewith.
10. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois, U.S.A., applicable to agreements made in
and wholly to be performed in that jurisdiction without regards to the
choice of law rules of such state, except for matters arising under the Act
or the 1934 Act which matters shall be construed and interpreted in
accordance with such laws. Any action brought to enforce, or otherwise
arising out of, this Agreement shall be heard and determined in either a
Federal or state court sitting in the County of Dallas, State of Texas,
U.S.A.
11. ENTIRE AGREEMENT; AMENDMENT
This Agreement, the Registration Rights Agreement, the Transfer Agent
Agreement and the other documents delivered pursuant hereto constitute the
full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof, and no party shall be liable or bound
to any other party in any manner by any warranties, representations or
covenants except as specifically set forth herein or therein. Except as
expressly provided herein, neither this Agreement nor any term hereof may
be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
12. NOTICES, ETC.
Any notice, demand or request required or permitted to be given by
either the Company or any Subscriber pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or by facsimile, with a hard copy to follow by two day courier
addressed to the parties at the addresses of the parties set forth at the
end of this Agreement or such other address as a party may request by
notifying the other in writing.
13. CONFIDENTIALITY.
The Subscribers will keep confidential all non-public information
regarding the Company that they receive from the Company unless disclosure
of such information is compelled by a court or other administrative body or
otherwise necessary, in the opinion of Subscribers' counsel, to comply with
applicable law. Neither party shall disclose any information regarding any
of the transactions contemplated hereby without the prior consent of the
other party, unless such disclosure is required in filings made with the
SEC.
14. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument. A
facsimile transmission of a signature hereto shall be valid as if an
original and binding on all parties.
15. SEVERABILITY
In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without
said provision; provided that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any party.
16. TITLES AND SUBTITLES
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting
this Agreement.
17. PARTIES IN INTEREST CITED
This Agreement may not be transferred, assigned, pledged or
hypothecated by any party hereto, other than by operation of law. This
Agreement shall be binding upon, and shall inure to the benefit of, the
parties hereto and their respective heirs, executors, administrators,
successors and permitted assigns.
18. INDEMNITY OF SUBSCRIBERS
The Company hereby agrees to indemnify, defend and hold harmless each
Subscriber from and against any damage, cost or expense (including, without
limitation, defense costs) incurred by such Subscriber by reason of or
arising out of any claim by Duff & ▇▇▇▇▇▇ associated with the transactions
contemplated by this Agreement.
[SIGNATURE PAGES FOLLOW]
The undersigned Subscribers acknowledge that this subscription shall
not be effective unless accepted by the Company as indicated below.
Dated this 16th day of September, 1996.
SEACREST CAPITAL LIMITED FAIRWAY CAPITAL LIMITED
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇
Signature Signature
Place of Execution: Place of Execution:
Great Britain Great Britain
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE 16TH DAY OF
SEPTEMBER, 1996.
SUCCESSORIES, INC.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
By:
Print Name:
Title:
44351.4H
SCHEDULE 1.1
SUBSCRIBERS
LIQUIDATION VALUE NUMBER OF
OF PREFERRED PREFERRED SHARES AGGREGATE
NAME ADDRESS SHARES SUBSCRIBED SUBSCRIBED FOR PURCHASE PRICE
FOR ($5,000 PER SHARE
LIQUIDATION
PREFERENCE)
Seacrest
Capital 27 Wellington $740,000 148 ▇▇▇▇▇▇,▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇
Fairway
Capital 27 Wellington $1,260,000 252 ▇▇▇▇▇▇,▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇
Totals $2,000,000 400 US$1,580,000
44351.4H
SCHEDULE 2.4
Capitalization (as of September 12, 1996)
Shares of Common Stock:
Authorized: 20,000,000
Issued/Outstanding: 5,255,093
Held in Treasury: -0-
Shares of Preferred Stock:
Authorized: 1,000,000
Issued: -0-
Outstanding: -0-
Convertible Securities:
Options: 1,472,500
Warrants: *
* any future issuances of shares of the Company's Common Stock in
connection with (i) the proposed acquisition of British Links by the
Company and (ii) options for the purchase of 150,000 shares of Common
Stock to be issued to certain investors holding subordinated debt of
the Company in connectionwith an extension of such subordinated debt
44351.4H
EXHIBIT A
TO REGULATION S
SECURITIES SUBSCRIPTION AGREEMENT
FORM OF
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A
CONVERTIBLE PREFERRED STOCK OF
SUCCESSORIES, INC.
PURSUANT TO SECTION 6.10 OF THE
ILLINOIS BUSINESS CORPORATION ACT OF 1983, AS AMENDED
NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority
conferred upon the Board Directors of this Corporation in accordance with
the provisions of the Articles of Incorporation there is hereby established
a series of the authorized preferred stock of the Corporation, $100 par
value per share, which series shall be designated as "Series A Cumulative
Convertible Preferred Stock," and which shall consist of Four Hundred (400)
shares (collectively the "Series A Shares" or singularly, a "Series A
Share") and shall have the following dividend rights, voting rights, terms
of redemption, redemption prices, liquidation preferences and other rights,
qualifications, limitations and restrictions.
(A)DIVIDEND RIGHTS
2.A (A) The holder of record of each
Series A Share (a "Holder") as of the Record Date (as defined below) shall
be entitled to receive, when, as and if declared by the Corporation's Board
Directors or a duly authorized committee thereof, on January 1, April
1, July 1 and October 1 of each year (a "Dividend Payment Date"), at the option
of the Corporation, either:
(a)out of the funds of the Corporation legally available
therefor, cumulative dividends per Series A Share (the "Cash Dividends") in
cash equal to the "Cash Rate" (as hereinafter defined) multiplied by
the Liquidation Preference (as defined in Paragraph 2 and as adjusted
pursuant Paragraph 1.1.D below) for each Quarterly Payment Period (as
hereinafter defined) that such Series A Share is outstanding; or
(b)cumulative dividends per Series A Share (the "PIK
Dividends") in additional Series A Shares equal to the "PIK Rate" (as
hereinafter defined) multiplied by the Liquidation Preference (and as
adjusted pursuant to Paragraph 1.1.D below) for each Quarterly Payment
Period that such Series A Share is outstanding.
To the extent permitted by applicable law and not prohibited pursuant to
the terms of applicable credit instruments, senior securities or the
Articles of Incorporation, the Board of Directors shall declare either Cash
Dividends or PIK Dividends (collectively referred to hereinafter as
"Dividends") on each Dividend Payment Date (or, if such day is not a
business day, on the next business day thereafter).
(B) A "Quarterly Payment Period" shall mean the three-month
period ending on March 31, June 30, September 30 and December 31 of each year.
(C) The "Cash Rate" and "PIK Rate" both shall mean an annual
dividend rate of 5.53% (i.e., a quarterly dividend rate of 1.38%). The Cash
Rate and PIK Rate shall collectively be referred to as the "Dividend Rate."
The number of Series A Shares issued as a PIK Dividend shall be the result
obtained by dividing the dollar amount of the Cash Dividend which
would have been paid in lieu of the PIK Dividend by $3,950 per Series A Share
.
(D) Dividends shall accrue (whether or not paid) during each
Quarterly Payment Period from the Dividend Payment Date immediately
preceding such Quarterly Payment Period to the last day of such Quarterly
Payment Period, provided that, for the first Quarterly Payment Period,
Dividends shall accrue commencing as of the date of initial issuance of the
Series A Shares and shall be payable for the Quarterly Payment Period
ending December 31, 1996. Dividends shall be calculated on the basis
of a 90-day Quarterly Payment Period and the actual number of days elapsed.
For any Quarterly Payment Period with respect to which the Dividend is not
fully paid in cash or in Series A Shares on the Dividend Payment Date
at the end of such Quarterly Payment Period, such accrued but unpaid Dividends
shall be added to the Liquidation Preference of the Series A Shares
effective at the beginning of the Quarterly Payment Period next succeeding
the Quarterly Payment Period as to which such Dividends were not paid, and
shall thereafter accrue additional Dividends at the Dividend Rate. During
any Quarterly Payment Period in which a Notice of Conversion (as defined
in Paragraph 5.2 below) is delivered by a Holder, or a Redemption Transaction
(as defined in Paragraph 5.4A) occurs, the Corporation may, at its option,
pay in cash all Dividends which have accrued from the end of the immediately
preceding Quarterly Payment Period. Any Dividend payment made on Series
A Shares shall be credited against the earliest accrued but unpaid Dividend
which has been added to the Liquidation Preference of the Series A Shares
pursuant to this Paragraph 1.1.D and shall reduce the Liquidation Preference
by the amount of the Dividend paid.
3.D Dividends, if and when declared on each Series A Share,
shall to the extent permitted by applicable law be declared at least twenty
(20) business days prior to the next Dividend Payment Date for payment
on the next Dividend Payment Date to the Holders of record on the date
determined in such declaration, which date shall in no event be more than
fifteen (15) business days after the date of declaration (the "Record Date")
. Dividends shall be payable on each Dividend Payment Date (or if any such
day is not a business day, the next succeeding business day), except that
Dividends for the period during which a Redemption (as defined in Paragraph 5
.1) shall occur shall be payable on Series A Shares redeemed in accordance
with Paragraph 5.2 (unless otherwise paid on a Dividend Payment Date for
a Record Date occurring prior to a Redemption Date (as defined in Paragraph
5.2)). The Holder of any Series A Shares which are the subject of a
conversion pursuant to Paragraph 4 shall, on the Conversion Date (as defined
in Paragraph 4.G), cease to have any rights with respect to any accrued
Dividends on such Series A Shares which have not been declared and paid on
or before such Conversion Date except to the extent that such accrued but
unpaid Dividends have been added to the Liquidation Preference of such
Shares and except that in the event a conversion of Series A Shares is
effected after a Redemption Notice (as defined in Paragraph 5.2) is delivered
by the Corporation but prior to a Redemption Date, then, to the extent
lawful, the Corporation shall pay to such Holder an amount in cash equal to
all accrued and unpaid Dividends from the last Dividend Payment Date until
the date the converting Holder delivered its notice of conversion pursuant to
Paragraph 4.G.
4.D So long as any Series A Shares arc outstanding, the Corporation
shall not declare, pay or set aside for payment any dividend (other than in
shares of Junior Stock (as hereinafter defined)) or other distribution in
respect of its Junior Stock, or call for redemption, redeem, purchase or other
wise acquire for any consideration (other than shares of its Junior Stock
) any shares of its Junior Stock, any warrants, rights, calls or options
exercisable for any shares of Junior Stock unless all dividends accumulated
and unpaid with respect to the Series A Shares are simultaneously
declared and paid. "Junior Stock" means Common Stock (as hereinafter defined
) or any other series of preferred stock of the Corporation which ranks
junior to or on a parity with (as determined pursuant to Paragraph 6) the
Series A Shares. "Common Stock" means the common stock, par value
$.01 per share, of the Corporation and any share of successor or replacement
stock.
5.D Each Holder shall be entitled to participate with the holders
of Common Stock equally and ratably (on the basis of the number of shares
of Common Stock such Holder would then own if it then converted its Series
A Shares pursuant to Paragraph 4) in any subscription rights or other
similar rights to acquire securities or property of the Corporation granted
to any holder of Common Stock.
19. RIGHTS ON LIQUIDATION AND RANKING
1.D In the event of the liquidation, dissolution, winding-up or sale
or other disposition of all or substantially all of the assets of the
Corporation, whether voluntary or involuntary ("Liquidation"), the Holder
of a Series A Share shall be entitled to receive with respect to such Series
A Share, after the satisfaction of all distributions to holders of other
series of preferred stock, if any, which are required (at the direction of
the holder thereof or otherwise) to be redeemed prior to or in connection
with the consummation of such Liquidation or which are expressly senior in
liquidation preference to the Series A Shares including any series of
preferred stock which is mandatorily redeemable (collectively, the "Senior
Payments") but before any distribution is made to or set aside for
the holders of Common Stock or any other series of preferred stock of the
Corporation, if any, which are not then required to be redeemed or which
are junior in liquidation preference to the Series A Shares, cash or
any other assets of the Corporation in an amount (or having a fair market
value) equal to Five Thousand Dollars ($5,000) per share (the "Liquidation
Preference") plus all accrued but unpaid Dividends which have been added
to the Liquidation Preference of such shares pursuant to Paragraph 1.1.D up
to the date of the final distribution in Liquidation. If, after the
satisfaction of all Senior Payments, the assets of the Corporation available
for distribution to Holders shall be insufficient to permit the payment
in full of the amount due the Holders pursuant to this Paragraph 2, then the
entire assets of the Corporation available for distribution to Holders
after the satisfaction of all Senior Payments shall be distributed
PARI PASSU among the Holders and the holders of other series of preferred
stock which are not junior in liquidation preferences to the Series A Shares,
if any, in accordance with their respective liquidation preferences. The
fair market value of any assets of the Corporation and the proportion of
cash and other assets distributed by the Corporation to the Holders of the
Series A Shares shall be reasonably determined in good faith by the
Board of Directors. A merger or consolidation of the Corporation with
another corporation (or other business entity) or a voluntary sale of all
or substantially all of the assets of the Corporation principally in exchange
for stock and/or securities of another corporation (all referred to as a
"Merger") shall not be deemed a Liquidation if such Merger does not
occur as part of a proceeding under Title 11 of the United States Code or
any federal or state law for the protection of creditors or relief of debtors
.
2.D With regard to rights to receive distributions upon
Liquidation of the Corporation and dividends, the Series A Shares shall rank
senior to the Common Stock and any other equity securities of the
Corporation that by their terms are not made senior to or on a parity with
the Series A Shares as to such rights.
20. VOTING RIGHTS
1.D Except as otherwise provided in Paragraphs 3.2 and 3.3 below,
each Holder shall have the same voting rights as a holder of the number of
shares of Common Stock which such Holder would then own if it then converted
its Series A Shares pursuant to Paragraph 4; PROVIDED that the voting rights
of such Holder shall be limited to the extent necessary such that in no
event will the Holder be entitled to vote more than 4.99% of the then
issued and outstanding shares of voting stock of the Corporation.
2.D So long as any of the Series A Shares are outstanding the
Corporation will not, without the affirmative vote or consent of the Holders
of at least eighty percent (80%) of the Series A Shares at the time
outstanding, given in person or by proxy, either in writing or by a
resolution adopted at a meeting called for such purpose, with the
Holders of the Series A Shares voting or consenting separately as a class:
(A)amend, alter or repeal any of the provisions of the Corporation's
Articles of Incorporation or Bylaws or
the resolution providing for the issue
of the Series A Shares or pass any
stockholder resolution, including such
action effected by merger or similar
transaction in which the Corporation is
the surviving corporation, if such
amendment or resolution would affect
adversely the preferences, special
rights or powers of the Series A Shares
except if such action is otherwise
permitted under the other provisions of
this Paragraph 3.2;
(B)increase or decrease (other than by redemption or conversion) the
total number of authorized Series A
Shares;
(C)issue any capital stock (other than PIK Dividends) which ranks
senior to or on a parity with the Series A Shares with respect to
rights to receive distributions upon liquidation, dissolution, or
winding up of the Corporation or with respect to dividends; or
(D)enter into a Merger in which the Corporation is not the surviving
corporation; provided, however, that the provisions of this
subparagraph D shall not be applicable to any such Merger if the
authorized capital stock of the surviving corporation immediately
after such Merger shall include only classes or series of stock for
which no such consent or vote would have been required pursuant to
Paragraph 3.2 if such class or series had been authorized by the
Corporation immediately prior to such Merger or which have the same
rights, preferences and limitations and authorized amount as a class
or series of stock of the Corporation authorized prior to such Merger
and continuing as an authorized class or series at the time thereof.
A Merger of the Corporation, or similar Merger in which the holders of its
capital stock receive all cash shall not be deemed to adversely affect the
preferences, special rights or powers of the Series A Shares. The
authorization or issuance of any other series of preferred stock if such
other series ranks junior to the Series A Shares with respect to rights to
receive distributions upon liquidation, dissolution or winding up of the
Corporation or with respect to dividends, shall not be deemed to adversely
affect the preferences, special rights or powers of the Series A Shares.
3.D In the event of an issuance by means of a stock split, reverse
split or stock dividend or other similar event or reclassification of shares
of Common Stock outstanding, the voting rights of the Series A Shares
shall be fairly and equitably (in the judgment of the Board of Directors of
the Corporation) adjusted at the same time and in the same manner as the
adjustment is made in the rights of the Common Stock in order to maintain
the same voting rights as the Series A Shares had on the date of issuance.
4.D Copies of all notices sent to the holders of Common Stock shall
be simultaneously sent to each Holder.
21. CONVERSION RIGHTS - COMMON STOCK
(A) NUMBER OF SERIES A SHARES. Each Series A Share shall be
convertible, at the option of the Holder thereof, at any time and from time
to time into that number of shares of Common Stock, obtained by dividing
the Liquidation Preference (including any Dividends added to Liquidation
Preference pursuant to Paragraph 1.1.D) of such Series A Share by the
"Conversion Price" determined in accordance with Paragraph 4.B as follows:
(i) one-third (133) of the Series A Shares shall be convertible
commencing October 29, 1996; (ii) one-third (133) of the Series A Shares
shall be convertible commencing November 28, 1996; and (iii) one-third (134)
of the Series A Shares shall be convertible commencing December 28,
1996: PROVIDED, however, notwithstanding the foregoing, the conversion
right of each Holder shall be limited, except upon a Redemption
Transaction (as defined in Paragraph 5 below), solely to the extent
required, from time to time, such that in no instance shall the maximum
number of shares of Common Stock into which the Holder may convert
the Series A Shares exceed, at any time, an amount equal to the
remainder of (i) 4.99% of the then issued and outstanding shares of Common
Stock of the Corporation following such conversion, MINUS (ii) the number of
shares of Common Stock of the Corporation held by such Holder.
Notwithstanding the foregoing, the maximum number of shares of Common Stock
into which the Series A Shares may convert in the aggregate is 1,272,972
shares of Common Stock, subject to adjustment as set forth in subparagraph 4
.D(a) below (the "Conversion Limit").
(B) CONVERSION PRICE. The Conversion Price shall be equal to the
lesser of (x) $7.75 (the "Fixed Price") and (y) the "Market Price" of
the Common Stock (as defined in Paragraph 4.J below). The Conversion Price
is subject to adjustment from time to time pursuant to Paragraph 4.D.
(C) CONVERSION AND REDEMPTION. In case any Series A Share is called
for redemption, the right to convert such Series A Share shall terminate
with respect to all Series A Shares for which a Notice of Conversion (as
defined in Paragraph 4.F below) shall not have previously been delivered
to the Transfer Agent (as hereafter defined) pursuant to the procedures
described in Paragraph 5.2 below at the close of business on the date
which is three (3) business days preceding the Redemption Date (as defined
in Paragraph 5.1 below); provided that no default by the Corporation in
the payment of the applicable Redemption Price (as defined in Paragraph 5.1)
shall have occurred and be continuing.
(D) ADJUSTMENT OF CONVERSION PRICE AND RATIO FOR CONVERSION.
Except as otherwise provided herein (i) the Fixed Price and (ii) the
Market Price (if any of the events specified in clauses (a) or (b) below
occurs following the delivery of a Conversion Notice which specifies that
the Conversion Price is equal to the Market Price) shall each be subject
to adjustment from time to time only as follows:
(a)In case the Corporation shall (1)
take a record of the holders of
Common Stock for the purpose of
entitling them to receive a dividend
payable in shares of Common Stock,
(2) subdivide (by stock split,
merger, consolidation or otherwise)
the outstanding shares of Common
Stock into a greater number of
shares, (3) combine (by reverse
stock split, merger, consolidation
or otherwise) the outstanding shares
of Common Stock into a smaller
number of shares or (4) increase or
decrease the number of shares of
outstanding Common Stock by
reclassification of its Common
Stock, then the Conversion Price
(then in effect) shall be adjusted
so that each Holder shall thereafter
be entitled upon the conversion of
each Series A Share held by him to
receive for such Series A Share the
number of shares of Common Stock
which he would have owned and/or
have been entitled to receive upon
the occurrence of an event or record
date described above had the Series
A Share been converted immediately
prior to the happening of the event,
the adjustment to the Conversion
Price to become effective
immediately after (x) the record
date (in the case of a dividend) or
(y) the day upon which such
subdivision or combination shall
become effective and the Conversion
Limit shall be correspondingly
adjusted.
(b)In case the Corporation shall, by
dividend or otherwise, distribute to
all holders of its Common Stock
property, including securities, but
excluding: (x) any dividend or
distribution paid in Common Stock; or
(y) any dividend or distribution paid
in cash out of the surplus of the
Corporation (provided that such
distribution shall not reduce
stockholders' equity below the sum of
the aggregate Liquidation Preference of
the Series A Shares then outstanding
and the aggregate Liquidation
Preference of all other shares ranking
senior or PARI PASSU to the Series A
Shares), then the Conversion Price
shall be adjusted by multiplying (a)
the Conversion Price in effect
immediately prior to the close of
business on the date fixed for the
determination of stockholders entitled
to receive the distribution by (b) a
fraction, the numerator of which is the
excess of the Market Price (as defined
in Paragraph 4.J) for that date over
the fair market value on that date (as
reasonably determined in good faith by
the Board of Directors, whose
determination shall be conclusive) of
the property so distributed per share
of Common Stock, and the denominator of
which is the Market Price for that
date. The adjustment shall become
effective immediately prior to the
opening of business on the day
following the date fixed for the
determination of stockholders entitled
to receive the distribution.
(c)In case the Corporation shall sell
or issue shares of Common Stock or
rights, options, warrants or
convertible or exchangeable securities
containing the right to subscribe for
or purchase shares of Common Stock,
excluding shares of Common Stock issued
or reserved for issuance by the
Corporation in the following
situations:
(i)in any transaction described in
clause (a) or (b) above;
(ii)pursuant to any plan providing
for the reinvestment of dividends or
interest payable on securities of
the Corporation, and the investment
of additional optional amounts with
respect to such plan, in shares of
Common Stock in any such case at a
price per share of not less than 95%
of the Market Price per share of
Common Stock, or pursuant to any
employee benefit plan or program of
the Corporation as to which a
binding commitment existed as of the
date of initial issuance of the
Series A Shares;
(iii)shares of Common Stock issued
upon conversion of the Series A
Shares or upon conversion, exercise
or exchange of rights, options,
warrants or convertible or
exchangeable securities outstanding
or as to which a binding commitment
existed as of the date of initial
issuance of the Series A Shares; or
(iv)shares of Common Stock issued
pursuant to or in connection with
(A) warrants for the purchase of
112,000 shares of the Corporation's
Common Stock issued to certain
investors holding subordinated debt
of the Corporation and options for
the purchase of 150,000 shares of
the Corporation's Common Stock to be
issued in connection with the
extension of the terms of such
subordinated debt; (B) the
Corporation's 1995 Employee Stock
Purchase Plan (together with any
increases thereto or replacements
thereof); (C) the Corporation's
Stock Option Plan (together with any
increases thereto or replacements
thereof); (D) options granted to
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ pursuant to the
terms of that certain Common Stock
Option Agreement and that certain
Incentive Stock Option Agreement;
(E) options granted to ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ pursuant to the terms of
that certain Common Stock Option
Agreement and that certain Incentive
Stock Option Agreement; (F) any
merger or acquisition entered into
by the Corporation; and (G) any
options or warrants existing as of
the date hereof;
and the price per share (determined in
the case of rights, options, warrants
or convertible or exchangeable
securities as the quotient of (x) the
aggregate consideration received or
receivable by the Corporation upon the
sale and issuance of such rights,
options, warrants or convertible or
exchangeable securities plus the total
consideration payable to the
Corporation upon such exercise or
conversion divided by (y) the total
number of shares of Common Stock
covered by such rights, options,
warrants or convertible or exchangeable
securities) is lower than the Market
Price on the date of such initial sale
and issuance, then the Conversion Price
in effect immediately prior to such
issuance shall upon such issuance be
reduced to the price determined by
multiplying such Conversion Price by a
fraction, the numerator of which shall
be an amount equal to the sum of (A)
the number of shares of Common Stock
outstanding on a fully-diluted basis
immediately prior to such issuance
multiplied by the Market Price in
effect immediately prior to such
issuance plus (B) the consideration, if
any, received by the Corporation upon
such issuance, and the denominator of
which shall be the product of (A) the
Market Price in effect immediately
prior to such issuance and (B) the
total number of shares of Common Stock
outstanding on a fully diluted basis,
immediately after such issuance.
(d)In case the Corporation shall
distribute to the holders of its Common
Stock evidences of its indebtedness or
assets (excluding Dividends or
distributions made out of current or
retained earnings or rights or warrants
to subscribe other than as referred to
in subparagraph (c) above), then in
each such case the number of shares of
Common Stock into which each Series A
Share shall thereafter be convertible
shall be determined by multiplying the
number of shares of Common Stock into
which such Series A Shares was
theretofore convertible by a fraction,
of which the numerator shall be the
current Market Price per share of
Common Stock on the date of such
distribution, and the denominator of
which shall be the current Market Price
per share of Common Stock, less the
excess of the then fair market value
(as reasonably determined by the Board
of Directors of the Corporation) of the
assets, evidence of indebtedness,
subscription rights or warrants so
distributed (the "Distributed
Property") over the aggregate
consideration receivable by the
Corporation, if any, for the
Distributed Property, as applicable to
one share of Common Stock. Such
adjustment shall be made whenever any
such distribution is made (unless an
adjustment is made pursuant to
subparagraph (a), (b) or (c) above, in
which case such subparagraphs shall
apply), but shall also be effective
retroactively as to Series A Shares
converted after the record date for the
determination of stockholders entitled
to receive such distribution and before
the date such distribution is made.
(e)No adjustment in the Conversion
Price shall be required unless such
adjustment would require an increase or
decrease of at least 1 % of such price;
PROVIDED that any adjustments which by
reason of this clause (e) are not
required to be made shall be carried
forward and taken into account in a
subsequent adjustment. All
calculations shall be made to the
nearest cent or the nearest one-
hundredth of a share, as the case may
be.
(f)If the adjustment provided for in
subparagraphs (b), (c) or (d) above
would cause the Series A Shares to be
convertible in the aggregate into a
number of shares of Common Stock which
exceeds the Conversion Limit, then the
Corporation shall not engage in any
such transaction without the
affirmative vote or consent of the
Holders of at least eighty percent
(80%) of the Series A Shares at the
time outstanding.
(E) CONVERSION UPON REORGANIZATION. In
case the Corporation shall effect a reorganization, reclassification of its
Common Stock (other than a subdivision or combination described in clause
(a) of Paragraph 4.D) or Merger, and pursuant to any such reorganization,
reclassification or Merger, any assets or securities of the Corporation,
any successor or transferee corporation or any affiliate thereof or cash is
received by or distributed to the holders of Common Stock, then each Holder
shall have the right thereafter to convert each Series A Share held by such
Holder into the kind and amount of shares or assets, securities or cash
receivable as a result of consummation of such transaction by a holder of
the number of shares of Common Stock into which such Series A Share might
have been converted immediately prior to such transaction and shall have no
other conversion rights nor shall there be any adjustment to the Conversion
Price; in any such event effective provision shall be made in the
certificate of incorporation of the successor or transferee corporation or
otherwise, so that the provisions set forth herein for the protection of
the conversion rights of the Series A Shares shall thereafter be
applicable, as nearly as reasonably may be, to any such other securities,
cash and assets deliverable upon conversion of the Series A Shares or other
convertible stock or securities received by the Holders in place thereof,
and any such successor or transferee corporation shall expressly assume the
obligation to deliver, upon the exercise of the conversion privilege, such
other securities, cash or assets as the Holders of the Series A Shares, or
other convertible stock or securities received by the Holders in place
thereof, shall be entitled to receive pursuant to the provisions hereof,
and to make provision for the protection of the conversion right as above
provided. In case securities other than Common Stock, cash or assets shall
be issuable, payable or deliverable by the Corporation upon conversion as
aforesaid, then all references in this Paragraph 4.E shall be deemed to
apply, so far as appropriate and as nearly as may be, to such other
securities, cash or assets.
(F) CONVERSION METHOD. Any Holder of
Series A Shares may, at any time prior to the close of business on the date
which is three (3) business days prior to the Redemption Date for such
Series A Shares, exercise the conversion rights as to such Series A Shares
by delivering to the Corporation during regular business hours, care of the
then transfer agent (the "Transfer Agent") for the Corporation, a notice
requesting conversion on a specified date and the number of Series A Shares
that the Holder elects to convert (a "Notice of Conversion"). The Notice
of Conversion shall also state the names and addresses of the persons to
whom certificates for shares of Common Stock shall be issued, the
denominations of such certificates and reasonable delivery instructions
with respect thereto. Each conversion shall be deemed to have been
effected immediately on the close of business on the date such Notice of
Conversion (the "Conversion Date") is received by the Transfer Agent
(including receipt via facsimile). The person in whose name any
certificate for shares of Common Stock is issuable upon the conversion
shall be deemed to have become the holder of record of the Common Stock at
such time. If the stock transfer books of the Corporation are closed on
the Conversion Date, the Conversion Date for purposes of determining record
ownership shall be the next succeeding day on which the stock transfer
books are open (and the conversion shall be deemed to have been effected
immediately prior to the close of business on that day), but in all cases
the conversion shall be at the Conversion Price in effect on the Conversion
Date specified in the notice of conversion. As promptly as practicable
after the Conversion Date but in any event within three (3) Trading Days
(as defined below) of the receipt of the Notice of Conversion, the
Corporation shall cause the Transfer Agent to issue and deliver to such
Holder, at the expense of the Corporation and in accordance with such
Holder's delivery instructions, a certificate or certificates for the
number of full shares of Common Stock to which such Holder is entitled and
cash with respect to any fractional interest in a share of Common Stock as
provided in Paragraph 4.G below (which shall be promptly deposited by the
Corporation with the Transfer Agent for delivery to the Holder).
(G) FRACTIONAL SHARES OF COMMON STOCK. No fractional shares of Common
Stock or scrip shall be issued upon conversion of Series A Shares. If more
than one Series A Share shall be surrendered for conversion at any one time
by the same Holder, the number of full shares of Common Stock issuable upon
conversion of such Series A Shares shall be computed on the basis of the
aggregate number of Series A Shares so surrendered. Instead of any
fractional shares of Common Stock which otherwise would be issuable upon
conversion of any Series A Shares, the Corporation shall pay a cash
adjustment in respect of such fractional interest based upon the Conversion
Price in effect at the close of business on the last business day prior to
the Conversion Date.
(H) TAXES. All shares of Common Stock issued upon conversion of Series
A Shares will be validly issued, fully paid and nonassessable. The
Corporation shall pay any and all documentary stamp or similar issue or
transfer taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of Series A Shares pursuant hereto.
The Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the Series A Shares
so converted were registered, and no such issue or delivery shall be made
unless and until the person requesting such transfer has paid to the
Corporation the amount of any such tax or has established to the
satisfaction of the Corporation that such tax has been paid or that no such
tax is payable.
(I) SURRENDERED SERIES A SHARES. All certificates representing
Series A Shares converted or redeemed shall be appropriately canceled on the
books of the Corporation and the Series A Shares so converted or
redeemed represented by such certificates shall be restored to the status of
authorized but unissued Series A Shares.
(J) MARKET PRICE. The term "Market Price" on any day shall mean the
average of the closing bid prices per share of Common Stock on the National
Association of Securities Dealers Inc. Automated Quotation System (the
"NASDAQ System"), or on such exchange as the Common Stock is then
traded, in each case, for the five (5) consecutive Trading Days
immediately preceding the date of determination. A "Trading Day" is a
business day in which the principal market on which the Common Stock is
traded is open for trading for at least four hours. If at the time of any
computation pursuant to this paragraph the Common Stock is not then traded
on any trading market, the "Market Price" for the purposes hereof shall
be the fair value as reasonably determined in good faith by the Board of
Directors of the Corporation.
(K) AVAILABLE COMMON STOCK. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of Series
A Shares, such number of shares of Common Stock as shall from time to time
be sufficient to effect a conversion of all outstanding Series A Shares
under Paragraph 4.A, as such number may from time to time be adjusted
pursuant to Paragraph 4.D, and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding Series A Shares, the Corporation shall
promptly take such corporate action as may, in the opinion of its counsel and
subject to any necessary approval of its stockholders, be necessary to
increase its authorized but unissued shares of Common Stock to such number
of shares as shall be sufficient for such purpose.
(L) NOTICE TO HOLDERS. In the event (i) the Corporation shall
declare a dividend or other distribution on the Common Stock other than
regular cash dividends declared in the ordinary course or dividends
or other distributions payable in Common Stock, (ii) the Common Stock is
subdivided, combined or reclassified, (iii) of a Merger, (iv) of a
Liquidation, or (v) the Corporation offers for subscription pro rata to
holders of Common Stock any additional shares of stock of any class or series
or other rights, then the Corporation shall mail to each Holder at the
Holder's address as it appears in the stock records of the Corporation,
promptly and in any event at least 15 days prior to the date described
in clause (a) below, a notice stating (a) the date for the determination
of holders of Common Stock entitled to receive the distribution, subscript
ion rights or the consideration in the Merger or Liquidation, or (b) the
date of determination as to which shares of Common Stock will be affected by
a subdivision, combination, reclassification, (c) a brief statement of the
facts requiring such notice, and (d) if applicable, that the Conversion Price
shall be adjusted in accordance with this Paragraph 4. Upon any adjustment
in the Conversion Price, the Corporation shall mail to each Holder at the
Holder's address as it appears in the stock records of the Corporation a
notice setting forth the adjusted Conversion Price and the method of
calculation thereof, provided that, if such address is outside of the
United States, then such notice shall be sent by facsimile transmission (if
such Holder shall have provided a facsimile number).
(M) CONCLUSIVE DETERMINATION. Whenever the Conversion Price is
adjusted as herein provided, the Corporation shall promptly file with the
Transfer Agent a certificate of a firm of independent public accountants
regularly employed by the Corporation setting forth the adjusted Conversion
Price, along with a brief statement of the facts requiring the adjustment
and the manner of computing the adjustment, which certificate shall be
conclusive evidence of the correctness of the adjustment, absent manifest
error.
(N) CONVERSION LIMIT EXCEPTION MECHANISM. If, at any time, the
aggregate number of shares of Common Stock into which the outstanding Series
A Shares may be converted exceeds the Conversion Limit then in effect:
(i)the Corporation shall deliver a notice
to that effect to the Holders and the Transfer Agent;
and
(ii)the Corporation shall seek to
obtain shareholder approval within 90 days of the Notice specified in
clause (i) above to eliminate the Conversion Limit and any other matters
required NASDAQ Stock Market, Inc. (the "NASDAQ") for the Corporation
to maintain its designation as a NASDAQ National Market issuer
and upon such approval the Conversion Limit shall be eliminated; provided
, that, at any time, notwithstanding such request for shareholder approval,
each Holder may elect to convert the Series A Shares for up to its
prorata portion of the unconverted portion of the Conversion Limit and
cause the Corporation to redeem the unconverted portion of all (but not
less than all) of the remaining outstanding Series A Shares for the
aggregate Redemption Price thereof.
22. REDEMPTION RIGHTS
1.N VOLUNTARY REDEMPTION. The Corporation may, at any time commencing
January 14, 1996 (but not prior thereto), at its option redeem (a "Redemption
") for cash at the Redemption Price, from funds legally available therefor,
all or any portion of the outstanding Series A Shares (for which a Notice of
Conversion has not been delivered three business days prior to the Redemption
Date. The Redemption Price shall be the Liquidation Preference of each Series
A Share PLUS all accrued but unpaid Dividends thereon through the Redemption
Date.
2.N NOTICE OF REDEMPTION. If the Corporation elects to redeem any
or all Series A Shares pursuant to a Redemption, the Corporation shall
(a) give written notice of such Redemption to the Transfer Agent and each
Holder of Series A Shares to be redeemed at its address as it appears on the
stock records of the Corporation by deposit thereof in class U.S. mail,
postage prepaid, and, in the case of a Holder with an address outside of
the United State Redemption Notice shall be sent by facsimile transmission
(if such Holder shall have provided a facsimile number), and (b) either
set aside, apart from its other funds, or provide written evidence reasonably
satisfactory to each Holder of the Corporation's ability to fund the
Redemption Price, an amount equal to the Redemption Price of all Series A
Shares subject to Redemption at that time for the benefit of all Holders of
Series A Shares subject to Redemption, and the Series A Shares then subject
to Redemption and not otherwise converted prior to the Redemption Date in
accordance with Paragraph 4 shall, on the date which is twenty (20) business
days after the deposit of Redemption Notice in accordance with clause (a)
of this sentence (the "Redemption Date"), cease to outstanding and the rights
of the Holders and owners thereof shall be limited to payment of the
Redemption Price thereof. The Corporation shall deposit with the Transfer
Agent for delivery to each Holder of a Series A Share the Redemption
Price thereof within one (1) business day prior to the Redemption Date.
Should any Holder not receive payment of any amounts due on Redemption of
its Series A Shares at the times prescribed by reason of the Corporation's
failure to give a Redemption Notice at the times or in the manner
prescribed above or to make payment at the times prescribed above for any
reason, the Corporation shall pay to the applicable Holder on demand (x)
interest on the sums not paid when due at an annual rate equal to two
percent in excess of the "Prime Rate" that is then in effect or
announced by Citibank, N.A. or its successor, compounding at the end of each
thirty (30) days, until the applicable Holder is paid in full and (y) all
costs of collection, including but not limited to attorneys' fees and costs,
whether or not suit or other formal proceedings are instituted. The
Redemption Price shall (in the discretion of the Board of Directors of the
Corporation) be adjusted to take into account any stock split or other
similar change in the Series A Shares.
3.N SELECTION OF SHARES. The Corporation shall select the Series A
Shares to be redeemed in a Redemption in which not all Series A Shares
are to be redeemed so that the Series A Shares of each Holder selected for
Redemption shall bear the same proportion to the total Series A Shares owned
by that Holder the proportion of all Series A Shares selected for Redemption
bears to the total of all then outstanding Series A Shares, but adjusted as
determined by the Board of Directors to avoid the redemption of fractional
Series A Shares. Should any Series A Shares required to be redeemed
under the terms hereof not be redeemed solely by reason of limitations
imposed by law, the applicable Series A Shares shall be redeemed on the
earliest possible date thereafter that the applicable Series A Shares may
be redeemed to the maximum extent permitted by law. Except as set forth
above, the Board of Directors shall prescribe the manner in which any
Redemption shall be effected. Any monies deposited with the Transfer Agent
by the Corporation for the holders of Series A Shares subject to Redemption
which shall not be claimed at the end of one (1) year after the first
service of the applicable Redemption Notice shall be released and repaid to
the Corporation but shall be paid to the Holder of the applicable Series A
Shares so long as submission of its shares occurs within five (5) years
after the first service of the applicable Redemption Notice.
4.N MANDATORY REDEMPTION.
(A) REDEMPTION ON HOLDER'S OPTION. In the event the Corporation
enters into (I) a transaction or series of transactions to sell all or
substantially all of its assets, or (II) any consolidation of the
Corporation with, or merger of the Corporation into, any other Person, or any
merger of another Person into the Corporation (other than a merger (x)
which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of common stock or (y) which is effect
ed solely to change the jurisdiction of incorporation of the
Corporation and results in a reclassification, conversion or exchange of
outstanding shares of Common Stock solely into shares of Common Stock),
(each, together with any Change of Control as hereafter defined, the
occurrence of a conversion limitation event described in Paragraph 4.N and
any redemption effected by the Corporation pursuant to Paragraph 5.1, being
a "Redemption Transaction"), the Corporation shall provide at least thirty
(30) days advance written notice of the proposed consummation thereof (the
latter of the date pursuant to which a Material Corporate Transaction
is effected or thirty (30) days after providing such notice is
referred to herein as the "Effective Date of Redemption"). The right to
convert each Series A Share shall terminate with respect to all Series A
Shares for which a Notice of Conversion shall not have previously been
delivered to the Transfer Agent pursuant to the procedures described in
Paragraph 5.2 above at the close of business on the date which is three
business days prior to the Effective Date of Redemption. On the Effective
Date of Redemption, the Corporation shall redeem all remaining Series A
Shares for the Redemption Price and the Corporation shall deposit the
Redemption Price for all outstanding Series A Shares with the Transfer Agent
for the benefit of the respective holders of the Series A Shares not previous
ly redeemed. Simultaneously, the Corporation shall deposit irrevocable
instruction and authority to the Transfer Agent to pay in cash the Redemption
Price to the Holders of the Series A Shares.
(B) REDEMPTION ON CHANGE OF CONTROL. In the event of a Change
of Control (as hereinafter defined), the Series A Shares shall be redeemed
in full at the option of each Holder upon written notice provided to the
Corporation by such Holder at any time following such Change of Control for
cash at the Redemption Price. For purposes of this Section 5.4.B,
Change of Control shall be deemed to have occurred at such time as:
(i)any person (other than the
Corporation, any subsidiary of the Corporation or any employee benefit plan
of the Corporation) ("Person") is or becomes the beneficial owner,
directly or indirectly, through a purchase, merger or other acquisition
or transaction or series of transactions, of shares of capital stock of
the Corporation entitling such Person to exercise 50% or more of the total
voting power of all shares of capital stock of the Corporation entitled
to vote generally in the election of directors; or
(ii)a change in the Board of
Directors of the Corporation in which the individuals who constituted
the Board of Directors of the Corporation at the beginning of the two-year
period immediately preceding such change (together with any other director
whose election by the Board of Directors of the Corporation or whose
nomination for election by the shareholders of the Corporation was
approved by a vote of at least a majority of the directors then in office
either who were directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any reason
to constitute a majority of the directors then in office.
Upon receipt by the Corporation of any such notice from a Holder, such
notice shall be treated as a Redemption Notice for all of such Series A
Shares held by such Holder, and the procedures set forth in Section 5.2
shall be applicable thereto.
23. RANKING OF STOCK OF THE CORPORATION
For purposes of this resolution, any stock of any class or classes of the
Corporation shall be deemed to rank:
(A) Prior to the Series A Shares, either as to dividends or upon
liquidation, if the holders of such class or classes shall be entitled to
the receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, as the case may be, in
preference or priority to the Holders;
(B) On a parity with the Series A Shares, either as to dividends
or upon liquidation, whether or not the dividend rates, dividend payment
dates or redemption or liquidation prices per share or sinking fund
provisions, if any, are different from those of the Series A Shares, if the
holders of such stock shall be entitled to the receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding up of the
Corporation, as the case may be, in proportion to their respective dividend
rates or liquidation prices, without preference or priority, one over the
other, as between the holders of such stock and the Holders; and
(C) Junior to the Series A Shares, either as to dividends or
upon liquidation, if such class shall be Common Stock or if the Holders
shall be entitled to receipt of dividends or of amounts distributable upon
dissolution, liquidation, winding up of the Corporation, or upon redemption
as the case may be, in preference or priority to the holders of shares of
such class or classes.
RESOLVED FURTHER, that the Chief Executive Officer or any Vice
President and the Secretary or any Assistant Secretary of the Corporation
are each authorized to do or cause to be done all such acts or things and
to make, execute and deliver or cause to be made, executed and delivered
all such agreements, documents, instruments and certificates in the name
and on behalf of the Corporation or otherwise as they deem necessary,
desirable or appropriate to execute or carry out the purpose and intent of
the foregoing resolutions.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury as of
this ___ day of September, 1996.
SUCCESSORIES, INC.
By:
Title:
Secretary
EXHIBIT B
BOOK ENTRY TRANSFER AGENT AGREEMENT
This Book Entry Transfer Agent Agreement (this "Agreement"), dated
September 16, 1996, between SUCCESSORIES, INC., an Illinois corporation
(the "Company"), SEACREST CAPITAL LIMITED, a Nevis West Indies corporation
("Seacrest"), FAIRWAY CAPITAL LIMITED, a Nevis West Indies corporation
("Fairway") (Seacrest and Fairway collectively being referred to as the
"Holders") and ILLINOIS STOCK TRANSFER COMPANY (the "Transfer Agent").
R E C I T A L S:
WHEREAS, pursuant to that certain Regulation S Securities Subscription
Agreement dated the date hereof (the "Subscription Agreement") by and among
the Company and the Holders, the Company agreed to issue to the Holders an
aggregate of $2,000,000 principal amount of Series A Cumulative Convertible
Preferred Stock (the "Preferred Stock"), with the preferences, rights and
designations set forth in the Certificate of Designation of the Company (as
such term is defined in the Subscription Agreement); and
WHEREAS, the Company and the Holders have agreed to enter into this
Agreement with the Transfer Agent to provide for (i) the closing of the
issuance of the Preferred Shares and (ii) a "book entry" system of
accounting for the Preferred Shares; and
WHEREAS, the Transfer Agent is willing to (i) serve as an escrow agent
to facilitate the closing under the Subscription Agreement, (ii) hold the
Preferred Shares on behalf of the Holders, and (iii) establish a book entry
system of accounting for the Preferred Shares, on the terms hereafter
described.
NOW, THEREFORE, in consideration of the foregoing, the parties hereby
agree as follows:
24. CLOSINGS. The Transfer Agent hereby agrees to act as an escrow
agent to facilitate the Closings as follows:
(a) On the date hereof, the Holders shall wire transfer to an
account designated by the Transfer Agent $1,580,000 in the aggregate (the
"Purchase Price"), and the Company shall deliver to the Transfer Agent the
Preferred Shares in the names of the Holders and in the amounts as set
forth on SCHEDULE 1 hereto;
(b) Immediately following such deliveries, together with a
delivery from the Company to the Transfer Agent of a fully executed copy of
the Subscription Agreement, the Transfer Agent shall wire transfer the
Purchase Price, less the Consulting Fee (as hereafter defined), to the
Company pursuant to wire transaction instructions as provided by the
Company. The Company hereby directs the Transfer Agent to wire transfer
$47,400 of the Purchase Price (the "Consulting Fee") to Alpine Capital
Partners (▇▇▇▇ ▇▇▇▇▇) (the "Consultant") in consideration of certain
services provided by the Consultant to the Company; and
(c) The Transfer Agent shall deliver the Preferred Shares to the
Holders at the following address:
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇.▇.▇.
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Following the termination of the Restricted Period (as defined in the
Subscription Agreement), the Holders shall direct ▇▇. ▇▇▇▇▇▇▇▇ to deliver
the Preferred Shares to the Transfer Agent at the address specified in
Section 9 below, and the Transfer Agent shall thereafter hold the Preferred
Shares for the benefit of the Holders, as hereafter described.
25. OWNERSHIP OF PREFERRED SHARES. Record and beneficial ownership
of the Preferred Shares shall remain in the name of the Holders (unless and
until transferred pursuant to the terms thereof, with written notice
thereof to the Transfer Agent). Any transfer or purported transfer of the
Preferred Shares (1) not made pursuant to the terms of the Preferred Shares
or (2) properly noticed to the Transfer Agent shall be null and void AB
INITIO and shall not be given effect thereto by the Transfer Agent.
26. PAYING AGENT. The Transfer Agent shall act as paying agent for
the Preferred Shares. Accordingly, all payments of dividends or redemption
amounts required of the Company related to the Preferred Shares as
described in the Certificate of Designation shall be made to the Transfer
Agent for the account and benefit of the holders of such Preferred Shares
as registered on the books of the Transfer Agent (each, a "Registered
Holder"). Upon the receipt of any such payment of dividends or redemption
amounts, in cash, the Transfer Agent shall promptly wire transfer such sum
to the account of the Registered Holders as follows:
SEACREST FAIRWAY
Bank One Texas, N.A. Bank One Texas, N.A.
ABA # ▇▇▇▇▇▇▇▇▇ ABA # ▇▇▇▇▇▇▇▇▇
Credit Seacrest Capital Limited Credit Fairway Capital Limited
# 188-290-2776 # 182-215-0551
ALL OTHER REGISTERED HOLDERS
Such account as is reflected on the books of the Transfer Agent
27. ACCOUNTING AGENT. The Transfer Agent shall act as the accounting
agent of the Company and the Registered Holders and shall establish and
maintain a book entry system of accounting for the Preferred Shares (the
"Accounting Ledger") crediting (reducing) the outstanding Liquidation
Preference (as such term is defined in the Certificate of Designation) by
all (i) payments in cash made by the Company to the Transfer Agent as
paying agent as required pursuant to Section 3 above, and (ii) by the
appropriate amount upon delivery of Converted Stock to the applicable
Registered Holder following receipt of a Notice of Conversion (as each such
term is defined in Section 5 below). At such time as the balance of the
Liquidation Preference for the Preferred Shares as reflected on the
Accounting Ledger is zero following the procedures described in this
Agreement, the Transfer Agent shall return such Preferred Shares to the
Company marked "Cancelled".
28. ISSUANCE OF CONVERTED SHARES. The Company and the Holders hereby
agree that any "Notice of Conversion" deliverable by any Registered Holder
under Paragraph 4.F "CONVERSION METHOD" of the Certificate of Designation
shall be delivered to the Transfer Agent in lieu of delivery to the
Company. Upon receipt by the Transfer Agent of any such Notice of
Conversion (including a Notice of Conversion delivered by facsimile) (each
a "Notice of Conversion") from any Registered Holder the Company hereby
irrevocably directs the Transfer Agent to:
(a) immediately deliver a copy of the Notice of Conversion to
the Company, by facsimile, which shall set forth the number of shares of
common stock of the Company (the "Converted Stock") to be issued to such
Registered Holder in connection therewith; and
(b) issue the "appropriate number" (as described in Section 6
below) of shares of Converted Stock, without restrictive legend, directly
to the applicable Registered Holder, within two (2) business days of the
date of receipt of the Notice of Conversion.
Contemporaneously herewith, the Company's legal counsel shall deliver to
the Transfer Agent an opinion certifying that the certificates representing
the Converted Stock may be issued in the name of the Registered Holder,
without restrictive legend, commencing after the Restricted Period;
PROVIDED (i) the representations and warranties made by the Holders under
the Subscription Agreement are true and correct in all material respects
and (ii) no change in law or administrative rules governing Regulation S
(as defined in the Subscription Agreement) have occurred which would
prevent such issuance without restrictive legend.
29. DISPUTE AS TO NUMBER OF CONVERTED SHARES TO BE ISSUED. In the
event the Company disputes the number of shares of Converted Stock to be
issued by the Company to a Registered Holder pursuant to a Notice of
Conversion claimed by the Registered Holder, by virtue of the conversion
price or other information set forth in such Notice of Conversion, the
Company nevertheless directs the Transfer Agent to issue to the applicable
Registered Holder a number of shares of Converted Stock equal to the LESSER
OF the number of shares set forth in the Notice of Conversion or the number
of shares the Company, using good faith efforts, notifies the Transfer
Agent should be delivered (provided such notice is presented by the Company
to the Transfer Agent, with a copy to the Registered Holder delivering the
Notice of Conversion, within two (2) business days of the receipt of the
Notice of Conversion by the Transfer Agent). As to the remaining disputed
number of shares, the Transfer Agent shall submit the dispute within one
(1) business day to the Transfer Agent's customary outside legal counsel
("Counsel") for determination. The Company and the Holders hereby
authorize the Counsel to resolve any such dispute and notify the Company,
the applicable Registered Holder and the Transfer Agent of the result as
soon as possible. The Company irrevocably directs the Transfer Agent to
issue to the Registered Holder any additional shares of Converted Stock
which the Registered Holder is entitled, based upon the Counsel's
determination. The Transfer Agent is authorized to rely on the Counsel's
results upon receipt of the same. Any such issuance shall relieve the
Transfer Agent and the Counsel of any liability to the Company or the
Registered Holder, as applicable, but such calculation shall not be binding
upon either the Registered Holder or the Company, each of which preserves
all rights to dispute against the other the number of Converted Shares
issuable with respect to any Notice of Conversion.
30. TERMINATION. This Agreement shall terminate promptly upon the
earlier to occur of (1) written demand by all of the Registered Holders of
their respective Preferred Shares or (2) no Liquidation Preference remains
with respect to any of the Preferred Shares.
31. FEES. The Company hereby agrees to pay the Transfer Agent for
all services rendered hereunder.
32. NOTICES. Any notice or demand to be given or that may be given
under this Agreement shall be in writing and shall be (a) delivered by
hand, or (b) delivered through or by expedited mail or package service, or
(c) transmitted by telecopy, in each case with personal delivery
acknowledged, addressed to the parties as follows:
As to the Company: ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attn: President
As to either Holder: ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇-▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇-▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
With a copy to: HW Finance, L.L.C.
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
As to any other As set forth on the books of
Registered Holder: the Transfer Agent.
As to the Transfer
Agent ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
33. NONCONTRAVENTION. The Company agrees that it will not at any
time take any action or undertake any activity that would in any way
impede, restrict or limit the right and ability of the Registered Holders
to convert the Preferred Shares into shares of Converted Stock pursuant to
the terms and provisions of this Agreement. Accordingly, the Company
agrees that the instructions and procedures set forth above in this
Agreement constitute irrevocable instructions, directions and
authorizations to the Transfer Agent and that the Transfer Agent is
authorized to disregard any written or oral communication received by it
from the Company or otherwise that could in any way be construed to
constitute an authorization or direction for the Transfer Agent to act
contrary to, or to not faithfully comply with, the irrevocable instruction,
direction and authorization set forth herein. Each of the Registered
Holders is an intended third party beneficiary of these irrevocable
instructions.
34. INDEMNIFICATION. The Company agrees to indemnify and hold
harmless the Transfer Agent, each officer, director, employee and agent of
the Transfer Agent, and each person, if any, who controls the Transfer
Agent within the meaning of the Securities Act of 1933, as amended (the
"Act") or the Securities Exchange Act of 1934, as amended (the "Exchange
Act") against any losses, claims, damages, or liabilities, joint or
several, to which it, they or any of them, or such controlling person, may
become subject, under the Act, the Exchange Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the performance by the Transfer Agent of its
duties pursuant to the Agreement; and will reimburse the Transfer Agent,
and each officer, director, employee and agent of the Transfer Agent, and
each such controlling person for any legal or other expenses reasonably
incurred by it or any of them in connection with investigating or defending
any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that
the Company will not be liable in any case if such loss, claim, damage or
liability arises out of or is based upon any action not taken in good
faith, or any action or omission that constitutes gross negligence or
willful misconduct.
Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the Company under this
Section, notify in writing the Company of the commencement thereof, and
failure so to notify the Company will relieve the Company from any
liability under this Section as to the particular item for which
indemnification is then being sought but not from any other liability which
it may have to any indemnified party. In case any such action is brought
against any indemnified party, and it notifies the Company of the
commencement thereof, the Company will be entitled to assume the defense
thereof, with counsel who shall be to the reasonable satisfaction of such
indemnified party. The Company shall not be liable to any such indemnified
party on account of any settlement of any claim of action effected without
the consent of the Company.
35. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois, without giving effect
to conflicts of law rules of such jurisdiction.
36. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, constitutes the
full and entire understanding of the parties with respect to the subject
matter hereof. Neither this Agreement nor any term hereof may be amended,
waived, discharged, or terminated other than by a written instrument signed
by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
37. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and by facsimile signature.
[SIGNATURE PAGE FOLLOWS]
BOOK ENTRY TRANSFER AGENT AGREEMENT - PAGE 38
(SUCCESSORIES, INC.)
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as
of the date first above written.
SUCCESSORIES, INC.
By:
Title:
SEACREST CAPITAL LIMITED
By:
Title:
FAIRWAY CAPITAL LIMITED
By:
Title:
ILLINOIS STOCK TRANSFER COMPANY
By:
Title:
BOOK ENTRY TRANSFER AGENT AGREEMENT - PAGE 38
(SUCCESSORIES, INC.)
SCHEDULE 1
SHARES Liquidation Value Number of Preferred
OF PREFERRED SHARES Shares ($5,000 Purchase Price OF
LIQUIDATION PREFERENCES) PREFERRED
Seacrest Capital $740,000 148 $584,600
Limited
Fairway Capital
Limited $1,260,000 252 $995,400
Total $2,000,000 2,000 $1,580,000
44863.3H
BOOK ENTRY TRANSFER AGENT AGREEMENT - PAGE 38
(SUCCESSORIES, INC.)
EXHIBIT E
TO REGULATION S
SECURITIES SUBSCRIPTION AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into
as of September 16, 1996, by and among SUCCESSORIES, INC, an Illinois
corporation (the "Company"), and SEACREST CAPITAL LIMITED, a Nevis West
Indies corporation ("Seacrest") and FAIRWAY CAPITAL LIMITED, a Nevis West
Indies corporation ("Fairway") (Seacrest and Fairway being singularly
referred to as an "Investor" and collectively as the "Investors").
R E C I T A L S:
WHEREAS, pursuant to a Subscription Agreement (the "Subscription
Agreement"), by and between the Company and the Investors, the Company have
agreed to sell and the Investors has agreed to purchase an aggregate of 400
shares of the Company's Series A Cumulative Convertible Preferred Stock
(the "Preferred Stock") convertible into shares of the Company's common
stock, par value $.01 per share (the "Common Stock"); and
WHEREAS, pursuant to the terms of, and in partial consideration for,
the Investors' agreement to enter into the Subscription Agreement, the
Company has agreed to provide the Investors with certain registration
rights with respect to the shares of Common Stock into which the Preferred
Stock may be converted from time to time (the "Shares");
NOW THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the
Agreement and this Registration Rights Agreement, the Company and the
Investors agree as follows:
AGREEMENT:
38. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Company's Common Stock, par value $.01
per share.
"Initiating Holders" shall mean holders of more than 50% of the
outstanding shares of Preferred Stock.
"Other Registrable Shares" shall mean those shares of Common Stock
heretofore or hereafter issued pursuant to one or more agreements granting
the purchasers of such securities the right to have the Company register
such securities or include such securities in any other registration of the
Company's equity securities.
"Registrable Shares" shall mean (i) the Shares, and (ii) any Common
Stock of the Company issued or issuable in respect of the Shares or upon
any stock split, stock dividend, recapitalization or similar event;
PROVIDED, HOWEVER, that Registrable Shares or other securities shall no
longer be treated as Registrable Shares if (A) they have been sold to or
through a broker or dealer or underwriter in a public distribution or a
public securities transaction, (B) they have been sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act so that all transfer restrictions and restrictive legends
with respect thereto are removed upon consummation of such sale, or (C) the
Shares are available for sale under the Securities Act (including Rule
144), in the opinion of counsel to the Company, without compliance with the
registration and prospectus delivery requirements of the Securities Act so
that all transfer restrictions and restrictive legends with respect thereto
may be removed upon the consummation of such sale.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by the
Company in compliance with Section 2 hereof, including, without limitation
all registration and filing fees, printing expenses, fees and disbursements
of counsel for the Company, blue sky fees and expenses, reasonable fees and
disbursements (not to exceed $10,000) of one counsel for all the selling
holders of Registrable Shares for a limited "due diligence" examination of
the Company incident to such registration (but excluding the compensation
of regular employees of the Company, which shall be paid in any event by
the Company, and excluding all underwriting discounts and selling
commissions applicable to the sale of the Registrable Shares).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Shares and all fees and
disbursements of one counsel for the selling holders of Registrable Shares
(other than the fees and disbursements of such counsel included in
Registration Expenses).
39. REQUESTED REGISTRATION.
The following registration rights will apply if, and only if, at any
time prior to the termination of this Agreement, Regulation S promulgated
under the Securities Act is rescinded or modified so as to preclude
Initiating Holders from reselling in United States public securities
markets Shares received from the Company pursuant to the Agreement and the
Preferred Stock following expiration of the Restricted Period (as defined
in the Agreement), or if, for any other reason, the Company refuses or is
unable to issue Shares at the times required by the Agreements bearing no
restrictive legend to Initiating Holders after expiration of the Restricted
Period; provided, however, that no Investor shall not be entitled to
request registration pursuant to this Agreement (and such Investor shall
not be considered an Initiating Holder pursuant to this Agreement, and the
securities held by such Investor shall not be considered Registrable Shares
pursuant to this Agreement) if a representation or warranty of such
Investor in the Subscription Agreement is inaccurate or was inaccurate when
made, or such Investor has failed to comply with the covenants and
agreements of such Investor set forth in the Subscription Agreement:
a.iii REQUEST FOR REGISTRATION. If the Company shall receive
from Initiating Holders, at any time after 180 days and prior to
thirty-six (36) months following the final closing of the sale of the
Preferred Stock pursuant to the Agreement, a written request that the
Company effect a registration with respect to all, but not less than
all, of the Registrable Shares held by such Initiating Holders (which
notice shall specify the intended method of disposition), the Company
shall:
(i) promptly give written notice of the proposed
registration to all other holders of Registrable Shares; and
(ii) as soon as practicable (A) cause to be filed a
Registration Statement on Form S-3 under the Securities Act (or
such other form as is then appropriate for use by the Company
under the Securities Act) and (B) use its best efforts to cause
such registration statement to be declared effective by the
Commission (including, without limitation, undertaking the
actions described in Section 4), all as may be so requested by
the Initiating Holders so as to permit or facilitate the sale and
distribution of all or such portion of such Registrable Shares as
are specified in such request, together with all or such portion
of the Registrable Shares of any holder or holders of Registrable
Shares joining in such request as are specified in a written
request given within fifteen (15) days after receipt of such
written notice from the Company; provided that the Company shall
not be obligated to effect, or to take any action to effect, any
such registration pursuant to this Section 2:
(A) after the Company has effected two (2) such
registrations pursuant to this Section 2(a) and each
registration has been declared or ordered effective by the
Commission and remained effective for a continuous period of
180 days; or
(B) within the period starting with the date sixty
(60) days prior to the Company's good faith estimated date
of filing of, and ending ninety (90) days following the
effective date of, any registered public offering of the
Company's securities.
Subject to the foregoing limitations in clauses (A) and (B)
above, the Company shall file a registration statement covering the
Registrable Shares so requested to be registered as soon as
practicable after receipt of the request or requests of the Initiating
Holders, but no later than forty-five (45) days following receipt of
such request or requests, except in the event audited financial
statements not previously prepared are required to be prepared prior
to the filing of such registration statement, in which case such
registration statement must be filed as soon as practicable, but in
any event within ninety (90) days following receipt of such request or
requests.
The registration statement filed pursuant to the request of the
Initiating Holders (the "Registration Statement") may, subject to the
provisions of Section 2(b) below, include Other Registrable Shares,
other securities of the Company which are held by officers or
directors of the Company or which are held by other holders of
registration rights, and may include securities of the Company being
sold for the account of the Company.
b.ii UNDERWRITING. If the Initiating Holders intend to
distribute the Registrable Shares covered by their request by means of
an underwriting, they shall so advise the Company as a part of their
request made pursuant to Section 2 and the Company shall include such
information in the written notice referred to in Section 2(a)(i)
above. The right of any holder of Registrable Shares to registration
pursuant to Section 2 shall be conditioned upon such holder's
participation in such underwriting and the inclusion of such holder's
Registrable Shares in such underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such
holder with respect to such participation and inclusion) to the extent
provided herein. A holder of Registrable Shares may elect to include
in such underwriting all or a part of the Registrable Shares it holds.
(i) If the Company shall request inclusion in any
registration pursuant to Section 2 of securities being sold for
its own account, or if officers or directors of the Company
holding other securities of the Company or other holders of
registration rights, shall request inclusion in any registration
pursuant to Section 2, the Initiating Holders shall, on behalf of
all holders of Registrable Shares, offer to include Other
Registrable Shares and the securities of the Company, such
officers and directors and such other holders of registration
rights in the underwriting and may condition such offer on their
acceptance of the further applicable provisions of this
Agreement. The Company shall (together with all holders of
Registrable Shares, officers and directors, other holders of
registration rights and holders of Other Registrable Shares
proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary
form with the underwriter or representative of the underwriters
selected for such underwriting by the Company, which
underwriter(s) shall be reasonably acceptable to a majority in
interest of the Initiating Holders.
(ii) Notwithstanding any other provision of this Section 2,
if the representative of the underwriters advises the Company in
writing that marketing factors require a limitation on the number
of shares to be underwritten, the Company shall so advise all
holders of Registrable Shares and other shareholders whose
securities would otherwise be underwritten pursuant to such
registration, and the number of Registrable Shares and other
securities that may be included in the registration and
underwriting shall be allocated in the following manner: the
securities to be offered by the Company and the securities of the
Company held by officers and directors of the Company (other than
Registrable Shares) shall be excluded from such registration and
underwriting to the extent required by such limitation, and, if a
limitation on the number of shares is still required, the Other
Registrable Shares shall be excluded pro rata with Registrable
Shares, unless another method of determining such exclusion is
specified in the agreements governing the Other Registrable
Shares, according to the relative number of Other Registrable
Shares requested to be included in such registration and
underwriting, from such registration and underwriting to the
extent required by such limitation, and, if a limitation on the
number of shares is still required, the number of Registrable
Shares that may be included in the registration and underwriting
shall be allocated among all holders of Registrable Shares in
proportion, as nearly as practicable, to the respective amounts
of Registrable Shares which they had requested to be included in
such registration at the time of filing the registration
statement. No Registrable Shares or any other securities
excluded from the underwriting by reason of the underwriter's
marketing limitation shall also be included in such registration.
(iii) If the Company or any officer, director or holder of
Registrable Shares or Other Registrable Shares who has requested
inclusion in such registration and underwriting as provided above
disapproves of the terms of the underwriting, such person may
elect to withdraw therefrom by written notice to the Company, the
underwriter and the Initiating Holders. The securities so
withdrawn shall also be withdrawn from registration.
40. EXPENSES OF REGISTRATION. The Company shall bear all
Registration Expenses incurred in connection with any registration,
qualification or compliance of the Registrable Shares pursuant to this
Agreement. All Selling Expenses shall be borne by the holders of the
securities so registered pro rata on the basis of the number of their
shares so registered (except for the fees and disbursements of counsel to
the Investors).
41. REGISTRATION PROCEDURES. Pursuant to this Agreement, the Company
will keep each holder of Registrable Shares advised in writing as to the
initiation of a registration under this Agreement and as to the completion
thereof. At its expense, the Company will:
a.iii Use reasonable efforts to keep such registration effective
for a period of one hundred eighty (180) days or until the holder or
holders of Registrable Shares have completed the distribution
described in the registration statement relating thereto or until the
securities registered cease to be Registrable Shares, whichever first
occurs;
b.iii Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of securities covered by such registration statement;
c.iii Furnish such number of prospectuses and other documents
incidental thereto, including any amendment of or supplement to the
prospectus, as a holder of Registrable Shares from time to time may
reasonably request;
d.iii use reasonable efforts to (i) register and qualify the
Registrable Shares covered by the Registration Statement under such
other securities or blue sky laws of such jurisdictions as the
Investors who hold a majority in interest of the Registrable Shares
being offered reasonably request, (ii) prepare and file in those
jurisdictions such amendments (including post-effective amendments)
and supplements, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect until such
date set forth in clause (a) above and (iv) take all other actions
reasonably necessary or advisable to qualify the Registrable Shares
for sale in such jurisdictions; PROVIDED, HOWEVER, that the Company
shall not be required in connection therewith or as a condition
thereto to (I) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(d),
(II) subject itself to general, taxation in any such jurisdiction,
(III) file a general consent to service of process in any such
jurisdiction, (IV) provide any undertakings that cause more than
nominal expense or burden to the Company or (V) make any change in its
charter or by-laws, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the Company
and its stockholders;
e.iii in the event Investors who hold a majority in interest of
the Registrable Shares being offered in the offering select
underwriters for the offering, enter into and perform its obligations
under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and
contribution obligations, with the managing underwriter of such
offering;
f.iii as promptly as practicable after becoming aware of such
event, notify each Investor of the happening of any event of which the
Company has knowledge, as a result of which the prospectus included in
the Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement to correct such untrue
statement or omission, and deliver a number of copies of such
supplement or amendment to each Investor as such Investor may
reasonably request;
g.iii as promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Shares being sold
(or, in the event of an underwritten offering, the managing
underwriters) of the issuance by the Commission of any stop order or
other suspension of effectiveness of the Registration Statement at the
earliest possible time;
h.iii permit a single firm of counsel designated as selling
stockholders' counsel by the Investors who hold a majority in interest
of the Registrable Shares being sold to review the Registration
Statement and all amendments and supplements thereto a reasonable
period of time prior to their filing with the Commission, and shall
not file any document in a form to which such counsel reasonably
objects;
i.iii make generally available to its security holders as soon
as practical, but not later than ninety (90) days after the close of
the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a
twelve-month period beginning not later than the first day of the
Company's fiscal quarter next following the effective date of the
Registration Statement;
j.iii at the request of the Investors who hold a majority in
interest of the Registrable Shares being sold, furnish on the date
that Registrable Shares are delivered to an underwriter for sale in
connection with the Registration Statement (i) a letter, dated such
date, from the Company's independent certified public accountants in
form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering,
addressed to the underwriters; and (ii) an opinion, dated such date,
from counsel representing the Company for purposes of such
Registration Statement, in form and substance as is customarily given
in an underwritten public offering, addressed to the underwriters and
the Investors;
k.iii make available for inspection by any Investor, any
underwriter participating in any disposition pursuant to the
Registration Statement, and any attorney, accountant or other agent
retained by any such Investor or underwriter (collectively, the
"Inspectors"), all pertinent financial and other records, pertinent
corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable each Inspector
to exercise its due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information which any
Inspector may reasonably request for purposes of such due diligence;
PROVIDED, HOWEVER, that each Inspector shall hold in confidence and
shall not make any disclosure (except to an Investor) of any Record or
other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so
notified, unless (i) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in any Registration
Statement, (ii) the release of such Records is ordered pursuant to a
subpoena or other order from a court or government body of competent
jurisdiction or (iii) the information in such Records has been made
generally available to the public other than by disclosure in
violation of this or any other agreement. The Company shall not be
required to disclose any confidential information in such Records to
any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the
Company) with the Company with respect thereto, substantially in the
form of this Section 3(k). Each Investor agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its
expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, the Records deemed confidential.
The Company shall hold in confidence and shall not make any disclosure
of information concerning an Investor provided to the Company pursuant
to Section 4(e) hereof unless (i) disclosure of such information is
necessary to comply with federal or state securities laws, (ii) the
disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other
order from a court or governmental body of competent jurisdiction or
(iv) such information has been made generally available to the public
other than by disclosure in violation of this or any other agreement.
The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means,
give prompt notice to such Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective
order for, such information;
l.iii use its best efforts either to (i) cause all the
Registrable Shares covered by the Registration Statement to be listed
on a national securities exchange and on each additional national
securities exchange on which similar securities issued by the, Company
are then listed, if any, if the listing of such Registrable Shares is
then permitted under the rules of such exchange or (ii) secure
designation of all the Registrable Shares covered by the Registration
Statement as a National Association of Securities Dealers Automated
Quotations System ("NASDAQ") "national market system security" within
the meaning of Rule 11Aa2-1 of the Commission under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") , and the
quotation of the Registrable Shares on the NASDAQ National Market or,
if, despite the Company's best efforts to satisfy the preceding clause
(i) or (ii) , the Company is unsuccessful in satisfying the preceding
clause (i) or (ii) , to secure listing on a national securities
exchange or NASDAQ authorization and quotation for such Registrable
Shares and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register with the National
Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Shares;
m.iii provide a transfer agent and registrar, which may be a
single entity, for the Registrable Shares not later than the effective
date of the Registration Statement;
n.iii cooperate with the Investors who hold Registrable Shares
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 Shares 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
o.iii take all other reasonable actions necessary to expedite
and facilitate disposition by the Investor of the Registrable Shares
pursuant to the Registration Statement.
42. INDEMNIFICATION.
a.iii The Company will indemnify each holder of Registrable Shares,
each of its officers, directors and partners, and each person controlling
such holder of Registrable Shares, with respect to which registration has
been effected pursuant to this Agreement, and each underwriter, if any and
each person who controls any underwriter, and their respective counsel
against all claims, losses, damages and liabilities (or actions,
proceedings or settlements in respect thereof) arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, or other document incident to any such
registration, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of
the Securities Act or any rule or regulation thereunder applicable to the
Company in connection with any such registration and will reimburse each
such holder of Registrable Shares, each of its officers, directors and
partners, and each person controlling such holder of Registrable Shares,
each such underwriter and each person who controls any such underwriter,
for any legal and any other expenses as they are reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, provided, however, that the indemnity contained in
this Section 5(a) shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability or action if such settlement is effected
without the consent of the Company; and provided further that the Company
shall not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission based upon written information furnished to the
Company by such holder of Registrable Shares or underwriter and stated to
be specifically for use therein. The foregoing indemnity agreement is
further subject to the condition that insofar as it relates to any untrue
statement, alleged untrue statement, omission or alleged omission made in a
preliminary prospectus, such indemnity agreement shall not inure to the
benefit of the foregoing indemnified parties if copies of a final
prospectus correcting the misstatement, or alleged misstatement, omission
or alleged omission upon which such loss, liability, claim or damage is
based is timely delivered to such indemnified party and a copy thereof was
not furnished to the person asserting the loss, liability, claim or damage.
b.iii Each holder of Registrable Shares will, if Registrable Shares
held by it are included in the securities as to which such registration is
being effected, indemnify the Company, each of its directors and officers
and each underwriter, if any, of the Company's securities covered by such a
Registration Statement, each person who controls the Company or such
underwriter within the meaning of the Securities Act and the rules and
regulations thereunder, each other such holder of Registrable Shares and
each of its officers, directors and partners, and each person controlling
such holder of Registrable Shares, and their respective counsel
(collectively, the "Company, Underwriters and Counsel") against all claims,
losses, damages and liabilities (or actions, proceedings or settlements in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact relating to such Holder
contained in any such registration statement, prospectus, offering circular
or other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein relating to such holder or
necessary to make the statements therein relating to such holder not
misleading or any violation by such holder of any rule or regulation
promulgated under the Securities Act applicable to such holder and relating
to action or inaction required of such holder in connection with any such
registration; and will reimburse the Company, such holders of Registrable
Shares, directors, officers, partners, persons, underwriters or control
persons for any legal or any other expense reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) relating to such holder is made in such registration
statement, prospectus, offering circular or other document in reliance upon
and in conformity with written information furnished to the Company by such
holder of Registrable Shares and stated to be specifically for use therein;
provided, however, that such indemnification obligations shall not apply if
the Company modifies or changes to a material extent written information
furnished by such Holder. Each holder of Registrable Shares will, if
Registrable Shares held by it are included in the securities as to which
such registration is being effected, indemnify the Company, Underwriters
and Counsel against all claims, losses, damages and liabilities (or
actions, proceedings or settlements in respect thereof), arising out of or
based on any sale of Registrable Shares made by such holder following
receipt by such holder of written notice from the Company, Underwriters or
Counsel that the registration statement filed with respect to such
Registrable Shares contains an untrue statement of material fact or omits
to state a material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
c.iii 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 5 to the fullest extent permitted by law;
PROVIDED, HOWEVER, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 5, (b) no
seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any seller of Registrable Shares who was not
guilty of such fraudulent misrepresentation and (c) contribution by any
seller of Registrable Shares shall be limited in amount to the net amount
of proceeds received by such seller from the sale of such Registrable
Shares.
d.iii Each party entitled to indemnification under this Section 5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld or delayed), and
the Indemnified Party may participate in such defense at such Indemnified
Party's expense. No Indemnifying Party, in the defense of any such claim
or litigation, shall except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with defense of such claim and litigation
resulting therefrom.
43. AGREEMENTS OF HOLDERS OF REGISTRABLE SHARES. Each holder of
Registrable Shares shall furnish to the Company such information regarding
such holder of Registrable Shares and the distribution proposed by such
holder of Registrable Shares as the Company may reasonably request in
writing and as shall be reasonably required in connection with any
registration referred to in this Agreement.
44. REPORTS UNDER EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities Act
or any other similar rule or regulation of the Commission that may at any
time permit the Investors to sell securities of the Company to the public
without registration and without imposing restrictions arising under the
federal securities laws on the purchases thereof ("Rule 144") the Company
agrees to:
a.iii make and keep public information available, as those terms
are understood and defined in Rule 144;
b.iii file with the Commission in a timely manner, all reports
and other documents required of the Company under the Securities Act
and the Exchange Act; and
c.iii furnish to each Investor so long as such Investor owns
Registrable Shares, 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 pursuant to Rule 144 without registration.
45. MISCELLANEOUS.
(A) GOVERNING LAW. This agreement shall be governed by and
construed in accordance with the laws of the State of Illinois without
giving effect to conflict of laws of such jurisdiction.
(B) SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
(C) ENTIRE AGREEMENT. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject matter hereof.
(D) NOTICES, ETC. All notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by first-
class mail, postage prepaid, or delivered by hand or by messenger or
courier delivery service, addressed (a) if to an Investor at ▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇'▇▇▇▇▇, with a copy to HW Finance,
L.L.C, 4000 Thanksgiving Tower, ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, or at such other address as such Investor
shall have furnished to the Company in writing, or (b) if to the Company at
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attn: President, or at such
other address as the Company shall have furnished to each Investor and each
such other holder in writing.
(E) DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Registrable Shares,
upon any breach or default of the Company under this Agreement, shall
impair any such right, power or remedy of such holder nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereunder occurring,
nor shall any waiver of any single breach or default be deemed a waiver of
any other breach or default thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of
any breach or default under this Agreement, or any waiver on the part of
any party of any provisions of conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement, or by law or
otherwise afforded to any holder, shall be cumulative and not alternative.
(F) COUNTERPARTS. This agreement may be executed in any number
of counterparts, each of which shall be enforceable against the parties
actually executing such counterparts, and all of which together shall
constitute one instrument.
(G) SEVERABILITY. In the case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
(H) AMENDMENTS. The provisions of this Agreement may be amended
at any time and from time to time, and particular provisions of this
Agreement may be waived, with and only with an agreement or consent in
writing signed by the Company and by the Investors currently holding fifty
percent (50%) of the Registrable Shares as of the date of such amendment or
waiver.
(I) TERMINATION OF REGISTRATION RIGHTS. This Agreement shall
terminate at such time as there ceases to be at least 50 shares of
Preferred Stock.
[SIGNATURE PAGE FOLLOWS]
REGISTRATION RIGHTS AGREEMENT - PAGE 48
(SUCCESSORIES, INC.)
The foregoing Registration Rights Agreement is hereby executed as of
the date first above written.
COMPANY: INVESTORS:
SUCCESSORIES, INC. SEACREST CAPITAL LIMITED
By: By:
Name: Name:
Title: Title:
FAIRWAY CAPITAL LIMITED
By:
Name:
Title:
REGISTRATION RIGHTS AGREEMENT - PAGE 48
(SUCCESSORIES, INC.)
EXHIBIT B
BOOK ENTRY TRANSFER AGENT AGREEMENT
This Book Entry Transfer Agent Agreement (this "Agreement"), dated
September 16, 1996, between SUCCESSORIES, INC., an Illinois corporation
(the "Company"), SEACREST CAPITAL LIMITED, a Nevis West Indies corporation
("Seacrest"), FAIRWAY CAPITAL LIMITED, a Nevis West Indies corporation
("Fairway") (Seacrest and Fairway collectively being referred to as the
"Holders") and ILLINOIS STOCK TRANSFER COMPANY (the "Transfer Agent").
R E C I T A L S:
WHEREAS, pursuant to that certain Regulation S Securities Subscription
Agreement dated the date hereof (the "Subscription Agreement") by and among
the Company and the Holders, the Company agreed to issue to the Holders an
aggregate of $2,000,000 principal amount of Series A Cumulative Convertible
Preferred Stock (the "Preferred Stock"), with the preferences, rights and
designations set forth in the Certificate of Designation of the Company (as
such term is defined in the Subscription Agreement); and
WHEREAS, the Company and the Holders have agreed to enter into this
Agreement with the Transfer Agent to provide for (i) the closing of the
issuance of the Preferred Shares and (ii) a "book entry" system of
accounting for the Preferred Shares; and
WHEREAS, the Transfer Agent is willing to (i) serve as an escrow agent
to facilitate the closing under the Subscription Agreement, (ii) hold the
Preferred Shares on behalf of the Holders, and (iii) establish a book entry
system of accounting for the Preferred Shares, on the terms hereafter
described.
NOW, THEREFORE, in consideration of the foregoing, the parties hereby
agree as follows:
46. CLOSINGS. The Transfer Agent hereby agrees to act
as an escrow agent to facilitate the Closings as follows:
(a) On the date hereof, the Holders shall
wire transfer to an account designated by the Transfer Agent $1,580,000 in
the aggregate (the "Purchase Price"), and the Company shall deliver to the
Transfer Agent the Preferred Shares in the names of the Holders and in the
amounts as set forth on SCHEDULE 1 hereto;
(b) Immediately following such deliveries,
together with a delivery from the Company to the Transfer Agent of a fully
executed copy of the Subscription Agreement, the Transfer Agent shall wire
transfer the Purchase Price, less the Consulting Fee (as hereafter
defined), to the Company pursuant to wire transaction instructions as
provided by the Company. The Company hereby directs the Transfer Agent to
wire transfer $47,400 of the Purchase Price (the "Consulting Fee") to
Alpine Capital Partners (▇▇▇▇ ▇▇▇▇▇) (the "Consultant") in consideration of
certain services provided by the Consultant to the Company; and
(c) The Transfer Agent shall deliver the
Preferred Shares to the Holders at the following address:
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇.▇.▇.
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Following the termination of the Restricted Period (as defined in the
Subscription Agreement), the Holders shall direct ▇▇. ▇▇▇▇▇▇▇▇ to deliver
the Preferred Shares to the Transfer Agent at the address specified in
Section 9 below, and the Transfer Agent shall thereafter hold the Preferred
Shares for the benefit of the Holders, as hereafter described.
47. OWNERSHIP OF PREFERRED SHARES. Record and
beneficial ownership of the Preferred Shares shall remain in the name of
the Holders (unless and until transferred pursuant to the terms thereof,
with written notice thereof to the Transfer Agent). Any transfer or
purported transfer of the Preferred Shares (1) not made pursuant to the
terms of the Preferred Shares or (2) properly noticed to the Transfer Agent
shall be null and void AB INITIO and shall not be given effect thereto by
the Transfer Agent.
48. PAYING AGENT. The Transfer Agent shall act as
paying agent for the Preferred Shares. Accordingly, all payments of
dividends or redemption amounts required of the Company related to the
Preferred Shares as described in the Certificate of Designation shall be
made to the Transfer Agent for the account and benefit of the holders of
such Preferred Shares as registered on the books of the Transfer Agent
(each, a "Registered Holder"). Upon the receipt of any such payment of
dividends or redemption amounts, in cash, the Transfer Agent shall promptly
wire transfer such sum to the account of the Registered Holders as follows:
SEACREST FAIRWAY
Bank One Texas, N.A. Bank One Texas, N.A.
ABA # ▇▇▇▇▇▇▇▇▇ ABA # ▇▇▇▇▇▇▇▇▇
Credit Seacrest Capital Limited Credit Fairway Capital Limited
# 188-290-2776 # 182-215-0551
ALL OTHER REGISTERED HOLDERS
Such account as is reflected on the books of the Transfer Agent
49. ACCOUNTING AGENT. The Transfer Agent shall act as
the accounting agent of the Company and the Registered Holders and shall
establish and maintain a book entry system of accounting for the Preferred
Shares (the "Accounting Ledger") crediting (reducing) the outstanding
Liquidation Preference (as such term is defined in the Certificate of
Designation) by all (i) payments in cash made by the Company to the
Transfer Agent as paying agent as required pursuant to Section 3 above, and
(ii) by the appropriate amount upon delivery of Converted Stock to the
applicable Registered Holder following receipt of a Notice of Conversion
(as each such term is defined in Section 5 below). At such time as the
balance of the Liquidation Preference for the Preferred Shares as reflected
on the Accounting Ledger is zero following the procedures described in this
Agreement, the Transfer Agent shall return such Preferred Shares to the
Company marked "Cancelled".
50. ISSUANCE OF CONVERTED SHARES. The Company and the
Holders hereby agree that any "Notice of Conversion" deliverable by any
Registered Holder under Paragraph 4.F "CONVERSION METHOD" of the
Certificate of Designation shall be delivered to the Transfer Agent in lieu
of delivery to the Company. Upon receipt by the Transfer Agent of any such
Notice of Conversion (including a Notice of Conversion delivered by
facsimile) (each a "Notice of Conversion") from any Registered Holder the
Company hereby irrevocably directs the Transfer Agent to:
(a) immediately deliver a copy of the Notice
of Conversion to the Company, by facsimile, which shall set forth the
number of shares of common stock of the Company (the "Converted Stock") to
be issued to such Registered Holder in connection therewith; and
(b) issue the "appropriate number" (as
described in Section 6 below) of shares of Converted Stock, without
restrictive legend, directly to the applicable Registered Holder, within
two (2) business days of the date of receipt of the Notice of Conversion.
Contemporaneously herewith, the Company's legal counsel shall deliver to
the Transfer Agent an opinion certifying that the certificates representing
the Converted Stock may be issued in the name of the Registered Holder,
without restrictive legend, commencing after the Restricted Period;
PROVIDED (i) the representations and warranties made by the Holders under
the Subscription Agreement are true and correct in all material respects
and (ii) no change in law or administrative rules governing Regulation S
(as defined in the Subscription Agreement) have occurred which would
prevent such issuance without restrictive legend.
51. DISPUTE AS TO NUMBER OF CONVERTED SHARES TO BE
ISSUED. In the event the Company disputes the number of shares of
Converted Stock to be issued by the Company to a Registered Holder pursuant
to a Notice of Conversion claimed by the Registered Holder, by virtue of
the conversion price or other information set forth in such Notice of
Conversion, the Company nevertheless directs the Transfer Agent to issue to
the applicable Registered Holder a number of shares of Converted Stock
equal to the LESSER OF the number of shares set forth in the Notice of
Conversion or the number of shares the Company, using good faith efforts,
notifies the Transfer Agent should be delivered (provided such notice is
presented by the Company to the Transfer Agent, with a copy to the
Registered Holder delivering the Notice of Conversion, within two (2)
business days of the receipt of the Notice of Conversion by the Transfer
Agent). As to the remaining disputed number of shares, the Transfer Agent
shall submit the dispute within one (1) business day to the Transfer
Agent's customary outside legal counsel ("Counsel") for determination. The
Company and the Holders hereby authorize the Counsel to resolve any such
dispute and notify the Company, the applicable Registered Holder and the
Transfer Agent of the result as soon as possible. The Company irrevocably
directs the Transfer Agent to issue to the Registered Holder any additional
shares of Converted Stock which the Registered Holder is entitled, based
upon the Counsel's determination. The Transfer Agent is authorized to rely
on the Counsel's results upon receipt of the same. Any such issuance shall
relieve the Transfer Agent and the Counsel of any liability to the Company
or the Registered Holder, as applicable, but such calculation shall not be
binding upon either the Registered Holder or the Company, each of which
preserves all rights to dispute against the other the number of Converted
Shares issuable with respect to any Notice of Conversion.
52. TERMINATION. This Agreement shall terminate
promptly upon the earlier to occur of (1) written demand by all of the
Registered Holders of their respective Preferred Shares or (2) no
Liquidation Preference remains with respect to any of the Preferred Shares.
53. FEES. The Company hereby agrees to pay the
Transfer Agent for all services rendered hereunder.
54. NOTICES. Any notice or demand to be given or that
may be given under this Agreement shall be in writing and shall be (a)
delivered by hand, or (b) delivered through or by expedited mail or package
service, or (c) transmitted by telecopy, in each case with personal
delivery acknowledged, addressed to the parties as follows:
As to the Company: ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attn: President
As to either Holder: ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇-▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇-▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
With a copy to: HW Finance, L.L.C.
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
As to any other As set forth on the books of
Registered Holder: the Transfer Agent.
As to the Transfer
Agent ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
55. NONCONTRAVENTION. The Company agrees that it will
not at any time take any action or undertake any activity that would in any
way impede, restrict or limit the right and ability of the Registered
Holders to convert the Preferred Shares into shares of Converted Stock
pursuant to the terms and provisions of this Agreement. Accordingly, the
Company agrees that the instructions and procedures set forth above in this
Agreement constitute irrevocable instructions, directions and
authorizations to the Transfer Agent and that the Transfer Agent is
authorized to disregard any written or oral communication received by it
from the Company or otherwise that could in any way be construed to
constitute an authorization or direction for the Transfer Agent to act
contrary to, or to not faithfully comply with, the irrevocable instruction,
direction and authorization set forth herein. Each of the Registered
Holders is an intended third party beneficiary of these irrevocable
instructions.
56. INDEMNIFICATION. The Company agrees to indemnify
and hold harmless the Transfer Agent, each officer, director, employee and
agent of the Transfer Agent, and each person, if any, who controls the
Transfer Agent within the meaning of the Securities Act of 1933, as amended
(the "Act") or the Securities Exchange Act of 1934, as amended (the
"Exchange Act") against any losses, claims, damages, or liabilities, joint
or several, to which it, they or any of them, or such controlling person,
may become subject, under the Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the performance by the Transfer
Agent of its duties pursuant to the Agreement; and will reimburse the
Transfer Agent, and each officer, director, employee and agent of the
Transfer Agent, and each such controlling person for any legal or other
expenses reasonably incurred by it or any of them in connection with
investigating or defending any such loss, claim, damage, liability or
action; PROVIDED, HOWEVER, that the Company will not be liable in any case
if such loss, claim, damage or liability arises out of or is based upon any
action not taken in good faith, or any action or omission that constitutes
gross negligence or willful misconduct.
Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the Company under this
Section, notify in writing the Company of the commencement thereof, and
failure so to notify the Company will relieve the Company from any
liability under this Section as to the particular item for which
indemnification is then being sought but not from any other liability which
it may have to any indemnified party. In case any such action is brought
against any indemnified party, and it notifies the Company of the
commencement thereof, the Company will be entitled to assume the defense
thereof, with counsel who shall be to the reasonable satisfaction of such
indemnified party. The Company shall not be liable to any such indemnified
party on account of any settlement of any claim of action effected without
the consent of the Company.
57. GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State of Illinois,
without giving effect to conflicts of law rules of such jurisdiction.
58. ENTIRE AGREEMENT; AMENDMENTS. This Agreement,
constitutes the full and entire understanding of the parties with respect
to the subject matter hereof. Neither this Agreement nor any term hereof
may be amended, waived, discharged, or terminated other than by a written
instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
59. COUNTERPARTS. This Agreement may be executed in
one or more counterparts and by facsimile signature.
[SIGNATURE PAGE FOLLOWS]
BOOK ENTRY TRANSFER AGENT AGREEMENT - PAGE 62
(SUCCESSORIES, INC.)
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the date first above written.
SUCCESSORIES,
INC.
By:
Title:
SEACREST
CAPITAL LIMITED
By:
Title:
FAIRWAY CAPITAL
LIMITED
By:
Title:
ILLINOIS STOCK TRANSFER COMPANY
By:
Title:
BOOK ENTRY TRANSFER AGENT AGREEMENT - PAGE 62
(SUCCESSORIES, INC.)
SCHEDULE 1
SHARES Liquidation Value Number of Preferred
OF PREFERRED SHARES Shares ($5,000 Purchase Price OF
LIQUIDATION PREFERENCES) PREFERRED
Seacrest Capital $740,000 148 $584,600
Limited
Fairway Capital Limited $1,260,000 252 $995,400
Total $2,000,000 2,000 $1,580,000
44863.3H
BOOK ENTRY TRANSFER AGENT AGREEMENT - PAGE 62
(SUCCESSORIES, INC.)