EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT, dated as of April 2, 1997, by and between
MONTEREY PASTA COMPANY, a Delaware corporation, with headquarters located at
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PANGAEA FUND LIMITED, a British Virgin Islands corporation (the "Buyer").
W I T N E S S E T H
WHEREAS, the Company and the Buyer wish to exchange, upon the terms
and subject to the conditions of this Agreement, outstanding shares (the
"Series B Preferred Shares") of Series B Convertible Preferred Stock, $.001
par value (the "Series B Preferred Stock"), held by Buyer for newly issued
shares of Series B-1 Convertible Preferred Stock of the Company which will be
convertible into shares of Common Stock, $.001 par value, of the Company,
including the related rights pursuant to the Rights Agreement, dated as of
May 15, 1996, between the Company and Corporate Stock Transfer, as Rights
Agent, as amended from time to time in accordance with its terms (the "Rights
Agreement") (such shares and rights collectively the "Common Stock"); and
WHEREAS, the Company and the Buyer are executing this Agreement and
intend to complete the transactions contemplated hereby in reliance upon one
or more exemptions from securities registration under the Securities Act of
1933, as amended (the "1933 Act"), including, without limitation, the
exemption provided by Section 3(a)(9) of the 1933 Act;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. AGREEMENT TO EXCHANGE.
(a) EXCHANGE. The Buyer agrees to exchange on the Closing Date
(as defined herein) 250 Series B Preferred Shares for 250 shares (the "Series
B-1 Preferred Shares") of Series B-1 Convertible Preferred Stock, $.001 par
value (the "Series B-1 Preferred Stock"), of the Company. In addition, on the
Closing Date the Company shall pay to the Buyer an amount equal to $30,000
(the "Cash Payment") as payment in full for all accrued and unpaid dividends
on the Series B Preferred Stock and any and all amounts payable to the Buyer
pursuant to Section 2(c) of the Registration Rights Agreement. The Series B-1
Preferred Shares shall have the rights, designations and terms as set forth
in the form of Certificate of Designations attached hereto as ANNEX I (the
"Certificate of Designations"). The shares of Common Stock issuable upon
conversion of the Series B-1 Preferred Shares are referred to herein as the
"Common Shares." The Common Shares and the Series B-1 Preferred Shares are
referred to herein collectively as the "Shares."
(b) CLOSING. The exchange of Series B-1 Preferred Shares for
Series B Preferred Shares shall occur at a closing (the "Closing") to be held
on the date which is four New York Stock Exchange trading days after the date
on which the Company and the Buyer shall have executed and delivered this
Agreement one to the other. The Closing shall occur on the Closing Date at
the offices of the Escrow Agent.
(c) ESCROW DELIVERIES. The Buyer shall deliver the Series B
Preferred Shares to be exchanged pursuant to this Agreement to the escrow
agent (the "Escrow Agent") identified in the Joint Escrow Instructions
attached hereto as ANNEX II (the "Joint Escrow Instructions") within two
business days after the execution and delivery of this Agreement by the
parties hereto. Such delivery of certificates shall be made against delivery
by the Company of the certificates
for the Series B-1 Preferred Shares to be issued in accordance with this
Agreement registered in the name of the Buyer. Promptly following delivery by
the Buyer to the Escrow Agent of the Series B Preferred Shares to be
exchanged pursuant to this Agreement, but in no event later than the Closing
Date, the Company shall deliver (x) certificates for the Series B-1 Preferred
Shares to be issued in accordance with this Agreement, registered in the name
of the Buyer, and (y) an amount equal to the sum of the Cash Payment plus the
expenses of the Buyer payable pursuant to Section 4(e) in immediately
available funds to the Escrow Agent. By signing this Agreement, the Buyer and
the Company each agrees to all of the terms and conditions of, and becomes a
party to, the Joint Escrow Instructions, all of the provisions of which are
incorporated herein by this reference as if set forth in full.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.
The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:
(a) The Buyer is purchasing the Series B-1 Preferred Shares for
its own account for investment only and not with a view towards the public
sale or distribution thereof;
(b) The Buyer is an "accredited investor" as that term is defined
in Rule 501 of the General Rules and Regulations under the 1933 Act by reason
of Rule 501(a)(3);
(c) All subsequent offers and sales of the Shares by the Buyer
shall be made pursuant to registration of the Shares being offered and sold
under the 1933 Act or pursuant to an exemption from registration;
(d) The Buyer understands that the Series B-1 Preferred Shares are
being offered and sold, and the Common Shares are being offered, to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying upon
the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgements and understandings
of the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Series B Preferred
Shares and to receive an offer of the Common Shares;
(e) The Buyer and its advisors, if any, have been furnished with
all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Series B-1
Preferred Shares and the offer of the Common Shares which have been requested
by the Buyer. The Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and have received complete and
satisfactory answers to any such inquiries. Without limiting the generality
of the foregoing, the Buyer has had the opportunity to obtain and to review
the following documents of the Company: (1) Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, (2) Quarterly Reports on Form 10-Q
for the fiscal quarters ended March 31, 1996, June 30, 1996 and September 30,
1996, (3) Current Reports on Form 8-K, dated October 17, 1996, October 25,
1996 and Amendment No. 1 on Form 8-K/A dated November 8, 1996 and (4)
definitive Proxy Statement for the Company's 1996 Annual Meeting of
Stockholders, in each case as filed with the SEC. The Buyer understands that
its investment in the Shares involves a high degree of risk;
(f) The Buyer understands that no United States federal or state
agency or any other government or governmental agency has passed on or made
any recommendation or endorsement of the Shares; and
(g) This Agreement has been duly and validly authorized, executed
and
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delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability
to general principles of equity and to bankruptcy, insolvency, moratorium and
other similar laws affecting the enforcement of creditors' rights generally.
3. COMPANY REPRESENTATIONS, WARRANTIES, ETC.
The Company represents and warrants to, and covenants and agrees
with, the Buyer that:
(a) CONCERNING THE SHARES. The Series B-1 Preferred Shares have
been duly authorized and the Series B-1 Preferred Shares, when issued in
exchange for the Series B Preferred Shares in accordance with this Agreement,
and the Common Shares, when issued upon conversion of the Series B-1
Preferred Shares will be duly and validly issued, fully paid and
non-assessable and will not subject the holder thereof to personal liability
by reason of being such holder. There are no preemptive rights of any
stockholder of the Company, as such, to acquire any of the Shares. The Common
Stock is listed for trading on the Nasdaq National Market ("Nasdaq") and (1)
the Company and the Common Stock meet the criteria for continued listing and
trading on Nasdaq; (2) the Company has not been notified since January 1,
1995 by the National Association of Securities Dealers, Inc. ("NASD") of any
failure or potential failure to meet the criteria for continued listing and
trading on Nasdaq and (3) no suspension of trading in the Common Stock is in
effect.
(b) EXCHANGE AGREEMENT. This Agreement has been duly and validly
authorized, executed and delivered by the Company and is the valid and
binding agreement of the Company enforceable in accordance with its terms,
subject as to enforceability to general principles of equity and to
bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally; for purposes of the Rights
Agreement, this Agreement and the transactions contemplated hereby are an
action or transaction or a series of related actions or transactions approved
by the Board of Directors, as a result of which the Buyer shall not, by
reason of this Agreement and the transactions contemplated hereby, become an
Acquiring Person (as defined in the Rights Agreement); and the Rights
Agreement, in the form filed with the SEC as an exhibit to the Company's
Current Report on Form 8-K, dated May 15, 1996, is the Rights Agreement as in
effect on the date hereof.
(c) NON-CONTRAVENTION. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the issuance
of the Series B-1 Preferred Shares and the other transactions contemplated by
this Agreement and the terms of the Series B-1 Preferred Stock do not and
will not conflict with or result in a breach by the Company of any of the
terms or provisions of, or constitute a default under, the certificate of
incorporation or by-laws of the Company, or any indenture, mortgage, deed of
trust or other material agreement or instrument to which the Company is a
party or by which it or any of its properties or assets are bound, or any
applicable law, rule or regulation or any applicable decree, judgment or
order of any court, United States federal or state regulatory body,
administrative agency or other governmental body having jurisdiction over the
Company or any of its properties or assets.
(d) APPROVALS. No authorization, approval or consent of or filing
with any court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market or the stockholders of the Company
is required to be obtained by the Company for the issuance and sale of the
Shares as contemplated by this Agreement and the Series B-1 Preferred Stock,
other than (1) listing of the Common Shares on Nasdaq and (2) the
requirements of any applicable blue sky laws.
(e) SEC REPORTING STATUS AND FILINGS. The Company has timely
filed with
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the SEC all reports and other information required to be filed under
Sections 13(a), 14 and 15(d) of the Securities Act of 1934, as amended (the
"1934 Act"). All of such forms, reports and other documents complied, when
filed, in all material respects, with all applicable requirements of the 1933
Act and the 1934 Act. Since December 31, 1995, the Company has not filed any
reports or other information with the SEC pursuant to Sections 13(a), 14 and
15(d) of the 1934 Act other than the reports and other information identified
in Section 2(e) hereof.
(f) INFORMATION PROVIDED. The information provided by or on
behalf of the Company to the Buyer in connection with the transactions
contemplated by this Agreement, including, without limitation, the
information referred to in Section 2(e) of this Agreement, does not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading.
(g) ABSENCE OF CERTAIN CHANGES. Since December 31, 1995, there
has been no material adverse change and no material adverse development in
the business, properties, operations, condition (financial or other), results
of operations or prospects of the Company, except as disclosed in the
documents referred to in Section 2(e) hereof.
(h) ABSENCE OF CERTAIN PROCEEDINGS. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board or
body pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company or any of its subsidiaries,
wherein an unfavorable decision, ruling or finding would have a material
adverse effect on the properties, business, condition (financial or other),
results of operations or prospects of the Company and its subsidiaries taken
as a whole or the transactions contemplated by this Agreement or any of the
documents contemplated hereby or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of such other documents.
(i) EXCHANGE OF STOCK; NO BROKERS, ETC. The Company has not and
will not pay any commission or other remuneration for soliciting exchanges of
Series B Preferred Shares for Series B-1 Preferred Shares. No broker, finder
or similar person is entitled to any commission, fee or other compensation by
reason of the transactions contemplated by this Agreement and the Company
shall pay, and indemnify and hold harmless the Buyer from, any claim made
against the Buyer by any person for any such conversion, fee or other
compensation.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(a) TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) the
Series B-1 Preferred Shares have not been and are not being registered under
the provisions of the 1933 Act and, except as provided in the Registration
Rights Agreement, dated as of August 9, 1996, by and between the Company and
the Buyer (as amended hereby, the "Registration Rights Agreement"), the
Common Shares have not been and are not being registered under the 1933 Act,
and may not be transferred unless (A) subsequently registered thereunder or
(B) the Buyer shall have delivered to the Company an opinion of counsel,
reasonably satisfactory in form, scope and substance to the Company, to the
effect that the Shares to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration; (2) any sale of the Shares
made in reliance on Rule 144 promulgated under the 1933 Act may be made only
in accordance with the terms of said Rule and further, if said Rule is not
applicable, any such resale of Shares under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance
with some other exemption under the 1933 Act or the rules and regulations of
the SEC thereunder; and (3) neither the Company nor any other person is under
any obligation to register the Shares (other than pursuant to the
Registration Rights Agreement) under the 1933 Act or to comply with
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the terms and conditions of any exemption thereunder (other than pursuant to
the Registration Rights Agreement).
(b) RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that
the certificates for the Series B-1 Preferred Shares may bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for the Series B-1 Preferred
Shares);
The securities representing by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be sold, transferred or assigned in the
absence of an effective registration statement for the securities under the
Securities Act of 1933, as amended, or an opinion of counsel that
registration is not required under said Act.
(c) REPORTING STATUS. So long as the Buyer beneficially owns any
of the Series B-1 Preferred Shares of the Common Shares, the Company shall
file all reports required to be filed with the SEC pursuant to Section 13 or
15(d) of the 1934 Act and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or
the rules and regulations thereunder would permit such termination.
(d) BLUE SKY LAWS. On or before the Closing Date, the Company
shall take such action as shall be necessary to qualify, or to obtain an
exemption for, the Series B-1 Preferred Shares for sale to the Buyer pursuant
to this Agreement and the Common Shares for issuance to the Buyer on
conversion of the Series B-1 Preferred Shares under such of the securities or
"blue sky" laws of jurisdictions in the United States as shall be applicable
to the sale of the Series B-1 Preferred Shares to the Buyer pursuant to this
Agreement and the issuance of the Common Shares to the Buyer on conversion of
the Series B-1 Preferred Shares. The Company shall furnish copies of all
filings, applications, orders and grants or confirmations of exemptions
relating to such securities or "blue sky" laws on or prior to the Closing
Date.
(e) CERTAIN EXPENSES. Whether or not the closing occurs, the
Company shall pay or reimburse the Buyer for all reasonable legal fees and
expenses of counsel to the Buyer for the preparation and negotiation of, and
closing under, this Agreement (not to exceed $15,000 if the Closing Date is
on or before April 4, 1997). The obligations of the Company under the
provisions of this Section 4(e) shall be in addition to the obligation of the
Company for expenses under the Registration Rights Agreement.
(f) CERTAIN ISSUANCES OF SECURITIES. Unless the Company obtains
Stockholder Approval (as defined in the Certificate of Designations) or a
waiver thereof from the NASD, the Company will not issue any shares of Common
Stock or shares of any other series of preferred stock or other securities
convertible into Common Stock of the Company which would be integrated as a
transaction with the offer and sale of the Series B-1 Preferred Shares to the
Buyer and the conversion thereof into Common Shares for purposes of the rule
set forth in Section 4460(i)(1)(D) of the rules of the NASD (or any successor
or replacement provision thereof).
(g) BEST EFFORTS. Each of the parties shall use its best efforts
timely to satisfy each of the conditions to the other party's obligations to
exchange Series B Preferred Shares for Series B-1 Preferred Shares set forth
in Section 6 or 7, as the case may be, of this Agreement on or before the
Closing Date.
(h) REGISTRATION STATEMENT. In addition to its obligations under
Section 2(a) of the Registration Rights Agreement, the Company shall file a
Registration Statement on Form S-3 (the "Registration Statement") relating to
the Registrable Securities (as defined in the
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Registration Rights Agreement) with the SEC on or before April 30, 1997.
(i) AMENDMENTS OF REGISTRATION RIGHTS AGREEMENT. If the Closing
shall occur, from and after the Closing Date the Registration Rights
Agreement shall be amended as follows:
(1) The two recitals to the Registration Rights Agreement shall be
so amended by deleting the existing text of such recitals in their entirety
and substituting in lieu thereof the following:
WHEREAS, in connection with the Subscription Agreement, dated
as of August 9, 1996, between the Initial Investor and the Company (the
"Subscription Agreement"), the Company has agreed, upon the terms and
subject to the conditions of the Subscription Agreement, to issue and
sell to the Initial Investor 500 shares (the "Series B Preferred
Shares") of Preferred Stock of the Company as provided in the
Subscription Agreement and in connection with the Exchange Agreement,
dated as of April 2, 1997, between the Initial Investor and the Company
(the "Exchange Agreement"), the Company and the Buyer have agreed to
exchange 250 Series B Preferred Shares for 250 shares (the Series B-1
Preferred Shares, and, together with the Series B Preferred Shares,
the "Preferred Shares") of a new series of Preferred Stock of the
Company, which Preferred Shares are convertible into shares (including
the related rights, the "Conversion Shares") of Common Stock, $.001 par
value, of the Company including the related rights issued pursuant to
the Rights Agreement, dated as of May 15, 1996, between the Company and
Corporate Stock Transfer, as Rights Agent, as amended from time to
time in accordance with its terms (the "Rights Agreement") (such shares
and rights collectively the "Common Stock"); and
WHEREAS, to induce the Initial Investor to execute and deliver
the Subscription Agreement and the Exchange Agreement, the Company has
agreed to provide certain registration rights under the Securities Act
of 1933, as amended, and the rules and regulations thereunder, or any
similar successor statute (collectively, the "Securities Act"), and
applicable state securities laws with respect to the Conversion Shares;
(2) The first sentence of Section 2(a) of the Registration Rights
Agreement is so amended by deleting the figure "200,000" and substituting in
lieu thereof the figure "500,000".
(3) Section 2(c) of the Registration Rights Agreement is so
amended by deleting the existing text of Section 2(c) in its entirety and
substituting in lieu thereof the following:
(c) Pursuant to the Exchange Agreement, all amounts
originally payable pursuant to this Section 2(c) are deemed to have been
satisfied and the Initial Investor has waived any further claim with
respect to such amounts. If the Registration Statement covering the
Registrable Securities which is required to be filed by the Company
pursuant to Section 2(a) hereof is not (1) filed with the SEC on or
before April 30, 1997 or (2) declared effective by the SEC on or before
July 31, 1997, then in either such case the Company will make payments
to the Initial Investor in such amounts and at such times as shall be
determined pursuant to this Section 2(c). The amount to be paid by the
Company to the Initial Investor shall be determined as of each
Computation Date, and such amount shall be equal to one percent (1%) of
the aggregate subscription price paid by the Initial Investor for 250
Series B Preferred Shares pursuant to the Subscription Agreement (each,
a "Periodic Amount"); PROVIDED, HOWEVER, that if any Computation Date is
less than seven days subsequent to another Computation Date, then the
Periodic Amount payable
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on the later Computation Date shall be pro rated. The Periodic Amount shall
be paid by the Company within two business days after each Computation Date
and shall be payable in cash by wire transfer of immediately available funds
to the Initial Investor. If the Company fails to make any payment of a
Periodic Amount in full when due hereunder then, in lieu of such payment of a
Periodic Amount the Conversion Percentage (as defined in the Certificate of
Designations for the Series B-1 Preferred Shares (the "Certificate of
Designations")) applicable to the Series B-1 Preferred Shares shall be
reduced as provided in the Certificate of Designations. Notwithstanding any
other provision of this Section 2(c), in no event shall the Company be
obligated to pay any Payment Amount for any period subsequent to on the date
on which Investors may sell all Registrable Securities (as defined in the
Rights Agreement) pursuant to Rule 144 under the Securities Act in a period
of 90 consecutive days (in which case a Payment Amount shall be due with
respect to such date as if such date were a Computation Date).
As used in this Section 2(c), the following term shall have the
following meaning:
"Computation Date" means
(1) if the Registration Statement is not filed by the Company with
the SEC on or before April 30, 1997:
(A) May 7, 1997, if the Company has not filed the
Registration Statement with the SEC on or before such date;
(B) each date which is seven calendar days subsequent to May 7,
1997, in each such case if the Company has not filed the Registration Statement
with the SEC on or before such subsequent date; and
(C) the date on which the Company files the Registration
Statement with the SEC; and
(2) if the Registration Statement has not been declared effective
by the SEC on or before July 31, 1997:
(A) August 7, 1997, unless the Registration Statement has been
declared effective by the SEC on or before August 7, 1997;
(B) each date which is seven calendar days subsequent to
August 7, 1997, in each such case unless the Registration Statement has not been
declared effective by the SEC on or before such subsequent date; and
(C) the date on which the Registration Statement is declared
effective by the SEC;
PROVIDED, HOWEVER, that if more than one event which could give rise to a
Computation Date during any period shall have occurred, only one of such
events shall be deemed to result in a Computation Date so that the Periodic
Payments provided herein by reason of the occurrence of a Computation Date
shall be made only once in respect of any period of time and then in the
maximum amount based on all such Computation Dates.
5. TRANSFER AGENT INSTRUCTIONS; CONVERSION PROCEDURE.
(a) TRANSFER AGENT INSTRUCTIONS. Promptly following the delivery
by the
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Buyer of the certificates for the Series B Preferred Shares in accordance
with Section 1(c) hereof, and in any event prior to the Closing Date, the
Company will (1) irrevocably instruct Corporate Stock Transfer, as Transfer
Agent and Registrar (the "Transfer Agent"), pursuant to an agreement
substantially in the form attached hereto as ANNEX III (the "Transfer Agent
Agreement") to issue certificates for the Common Shares from time to time
upon conversion of the Series B-1 Preferred Shares in such amounts as
specified from time to time to the Transfer Agent in the Notices of
Conversion surrendered in connection with such conversions and referred to in
Section 5(b) of this Agreement and (2) appoint the Transfer Agent the
conversion agent for the Series B-1 Preferred Stock. The Company agrees to
enter into the Transfer Agent Agreement substantially in the form attached
hereto as ANNEX III on or prior to the Closing Date. The certificates for the
Common Shares may bear the restrictive legend specified in Section 4(b) of
this Agreement prior to registration of the resale of the Common Shares under
the 1933 Act. Common Shares shall be issued and registered in the name of the
Buyer or its nominee and in such denominations to be specified by the Buyer
in connection with each conversion of Series B-1 Preferred Shares. The
Company warrants that no instruction other than (x) such instructions
referred to in this Section 5, (y) stop transfer instructions to give effect
to Section 4(a) hereof prior to registration of the resale of the Common
Shares under the 1933 Act and (z) the instructions required by Section 3(n)
of the Registration Rights Agreement will be given by the Company to the
Transfer Agent and that the Common Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement. Nothing in this Section 5(a) shall limit in any
way the Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of the Shares. If the Buyer provides the Company
with an opinion of counsel reasonably satisfactory in form, scope and
substance to the Company that registration of a resale by the Buyer of any of
the Shares in accordance with clause (1)(B) of Section 4(a) of this Agreement
is not required under the 1933 Act, the Company shall permit the transfer of
such Shares and, in the case of the Common Shares, promptly, but in no event
later than three days after receipt of such opinion, instruct the Company's
transfer agent to issue upon transfer one or more share certificates in such
name and in such denominations as specified by the Buyer. Nothing in this
Section 5(a) shall limit the obligations of the Company under Section 3(n) of
the Registration Rights Agreement.
(b) CONVERSION PROCEDURE. In connection with the exercise of
conversion rights relating to the Series B-1 Preferred Shares, the Buyer or
any subsequent holder of the Series B-1 Preferred Shares shall complete, sign
and furnish to the Transfer Agent a Notice of Conversion in the form attached
hereto as ANNEX IV, which shall be deemed to satisfy all requirements of the
Certificate of Designations.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO EXCHANGE AND ISSUE.
The Buyer understands that the Company's obligation to issue the
Series B-1 Preferred Shares to the Buyer pursuant to this Agreement is
conditioned upon:
(a) The receipt and acceptance by the Company of this Agreement as
evidenced by execution of this Agreement by the Company and delivery of an
executed counterpart of this Agreement to the Buyer or its legal counsel;
(b) Delivery by the Buyer to the Escrow Agent of the certificates
for the Series B Preferred Shares to be exchanged in accordance with Section
1(c) hereof; and
(c) The accuracy of the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Closing
Date and the performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on or before
the Closing Date.
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7. CONDITIONS TO THE BUYER'S OBLIGATION TO EXCHANGE.
The Company understands that the Buyer's obligation to exchange the
Series B Preferred Shares on the Closing Date is conditioned upon:
(a) Delivery by the Company to the Escrow Agent of the
certificates for the Series B-1 Preferred Shares in accordance with this
Agreement;
(b) The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the
Closing Date and the performance by the Company on or before the Closing Date
of all covenants and agreements of the Company required to be performed on or
before the Closing Date and receipt by the Buyer of a certificate, dated the
Closing Date, of the Chief Executive Officer or the Chief Financial Officer
of the Company confirming such matters and such other matters as the Buyer
may reasonably request;
(c) The receipt by the Buyer of confirmation of the filing with
the Secretary of State of the State of Delaware of the Certificate of
Designations in the form attached hereto as ANNEX I;
(d) The receipt by the Buyer of a certificate, dated the Closing
Date, of the Secretary of the Company certifying (1) the Certificate of
Incorporation and By-Laws of the Company as in effect on the Closing Date,
(2) all resolutions of the Board of Directors (and committees thereof) of the
Company relating to this Agreement and the transactions contemplated hereby
and (3) such other matters as reasonably requested by the Buyer; and
(e) Receipt by the Buyer on the Closing Date of an opinion of
counsel for the Company, dated the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer, to the effect set forth in ANNEX V
attached hereto.
8. MISCELLANEOUS.
(a) This Agreement shall be governed and interpreted in accordance
with the laws of the State of California.
(b) This Agreement may be executed in counterparts and by the
parties hereto on separate counterparts, all of which together shall
constitute one and the same instrument. A facsimile transmission of this
Agreement bearing a signature on behalf of a party hereto shall be legal and
binding on such party.
(c) The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement
or the validity or enforceability of this Agreement in any other jurisdiction.
(e) No failure or delay by any party in exercising any right or
remedy under this Agreement or otherwise, and no course of dealing between
the parties, shall operate as a waiver thereof or amendment of this
Agreement, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right
or power, preclude any other or further exercise thereof or exercise of any
other right or power.
-9-
(f) Neither this Agreement nor any term thereof (including this
paragraph) may be amended, changed, waived, discharged or terminated unless
such amendment, change, waiver, discharge or termination is in writing signed
by the party to be charged with enforcement.
(g) Any notices required or permitted to be given under the terms
of this Agreement shall be sent by mail or delivered personally (which shall
include telephone line facsimile transmission) or by courier and shall be
effective five days after being placed in the mail, if mailed, or upon
receipt, if delivered personally or by courier, in each case addressed to a
party at such party's address shown in the introductory paragraph or on the
signature page of this Agreement, Attention: Chief Financial Officer
(telephone line facsimile number ▇▇▇-▇▇▇-▇▇▇▇, in the case of the Company,
and as set forth on the signature page hereof, in the case of the Buyer),
with a copy to: Pangaea Asset Management, Inc., ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (telephone line facsimile number 914-533-5124) or such
other address as a party shall have provided by notice to the other party in
accordance with this provision. The Buyer hereby designates as its address
and telephone line facsimile transmission number for any notice required or
permitted to be given to the Buyer pursuant to the Certificate of
Designations or the Registration Rights Agreement the address and telephone
line facsimile transmission number set forth on the signature page hereof,
until the Buyer shall by notice to the Company designate another address or
telephone line facsimile transmission number for such purpose.
(h) The Buyer shall have the right to assign its rights and
obligations under this Agreement with respect to the exchange of all or any
portion of the Series B Preferred Shares to another investment fund, provided
such assignee, by written instrument duly executed by such assignee, assumes
all obligations of the Buyer hereunder with respect to the exchange of the
portion of the Series B Preferred Shares so assigned and makes the same
representations and warranties with respect thereto as the Buyer makes in
this Agreement, whereupon the Buyer shall be relieved of any further
obligations, responsibilities and liabilities with respect to the exchange of
all or the portion of the Series B Preferred Shares the obligation for the
exchange of which has been so assigned. In the case of any such assignment,
the Company shall agree in writing with such assignee to make available to
such assignee the benefits of the Registration Rights Agreement with respect
to the Common Shares issuable on conversion of the Series B-1 Preferred
Shares with respect to which the exchange under this Agreement has been so
assigned.
(i) The respective representations, warranties, covenants and
agreements of the Buyer and the Company contained in this Agreement or made
by or on behalf of them, respectively, pursuant to this Agreement shall
survive the delivery of payment for the Preferred Shares and shall remain in
full force and effect regardless of any investigation made by or on behalf of
them or any person controlling or advising any of them.
(j) This Agreement and its Annexes and the Registration Rights
Agreement set forth the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
understandings, whether written or oral, with respect thereto.
(k) The Buyer shall have the right to terminate this Agreement by
giving notice to the Company at any time at or prior to the Closing Date if:
(1) the Company shall have failed, refused, or been unable at or
prior to the date of such termination of this Agreement to perform any of its
obligations hereunder;
(2) any other condition of the Buyer's obligations hereunder is
not fulfilled; or
(3) the closing shall not have occurred on a Closing Date on or
before April 4,
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1997, other than solely by reason of a breach of this Agreement by
the Buyer.
Any such termination shall be effective upon the giving of notice thereof by
the Buyer. Upon such termination, the Buyer shall have no further obligation
to the Company hereunder and the Company shall remain liable for any breach
of this Agreement or the other documents contemplated hereby which occurred
on or prior to the date of such termination.
(l) From and after the Closing Date, all references in the
Registration Rights Agreement to the Registration Rights Agreement shall be
deemed to be references to the Registration Rights Agreement as amended
hereby.
(m) The Subscription Agreement, dated as of August 9, 1996, by and
between the Company and the Buyer (the "Subscription Agreement") and, except
as amended by this Agreement, the Registration Rights Agreement, shall remain
in effect in accordance with their respective terms notwithstanding the
execution and delivery of, and Closing under, this Agreement. Notwithstanding
the foregoing, the Buyer agrees not to commence any action, suit or
proceeding relating to any claim for any breach of the Company's covenants or
obligations under the Subscription Agreement or the Registration Rights
Agreement as may have occurred prior to the execution and delivery of, and
the Closing under, this Agreement (collectively, "Prior Claims") from the
date of execution and delivery of this Agreement by the parties hereto
through July 31, 1997, subject to the following:
(1) if the Registration Statement is declared effective by
the SEC on or before July 31, 1997, then the Buyer waives forever all
rights regarding the Prior Claims;
(2) if the Registration Statement is not declared effective
by the SEC on or before July 31, 1997, then the Buyer thereafter will
not be required to forebear from commencing actions, suits or
proceedings regarding any Prior Claim; and
(3) upon conversion of all of the Series B-1 Preferred Shares
and the sale by the Buyer of all of the Common Shares, the Buyer shall
waive forever all rights regarding the Prior Claims.
-11-
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Buyer or one of its officers thereunto duly authorized as of the date set
forth below.
PANGAEA FUND LIMITED
By: /s/ PANGAEA FUND LIMITED
------------------------
Title:
Address: MeesPierson Fund
Services (Bahamas) Ltd.
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
Nassau
The Bahamas
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
MONTEREY PASTA COMPANY
By: /s/ ▇▇▇▇▇▇▇ ▇. Steel Jr.
-------------------------
Title: Chief Executive Officer
-12-
ANNEX I
TO
EXCHANGE
AGREEMENT
MONTEREY PASTA COMPANY
CERTIFICATE OF DESIGNATIONS
OF
SERIES B-1 CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the
General Corporation Law of the State of Delaware)
----------------------
Monterey Pasta Company, a Delaware corporation (the "Corporation"),
in accordance with the provisions of Section 103 of the General Corporation
Law of the State of Delaware (the "DGCL") DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors of
the Corporation by the Certificate of Incorporation, as amended, of the
Corporation, the Board of Directors of the Corporation, at a meeting duly
called and held on March 12, 1997, adopted a resolution providing for the
creation of a series of the Corporation's Preferred Stock, $.001 par value,
which Series is designated "Series B-1 Convertible Preferred Stock," which
resolution is as follows:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation by the Certificate of Incorporation of the
Corporation, a series of Preferred Stock, par value $.001 per share, of the
Corporation be, and hereby is, created to be designated "Series B-1
Cumulative Preferred Stock" (hereinafter referred to as "Series B-1 Preferred
Stock"), consisting of 250 shares, having the powers, preferences and rights,
and the qualifications, limitations and restrictions thereof, as set forth in
Annex 1, which is attached hereto and incorporated herein by this reference.
IN WITNESS WHEREOF, Monterey Pasta Company has caused its corporate
seal to be hereunto affixed and this certificate to be signed by ,
its President and Chief Executive Officer, as of the day of April 1997.
-------------------------------------------
-2-
ANNEX 1
TO
CERTIFICATE
OF
DESIGNATIONS
SERIES B-1 CONVERTIBLE PREFERRED STOCK
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series B-1 Convertible Preferred Stock" (the "Series
B-1 Convertible Preferred Stock"), and the number of shares constituting the
Series B-1 Convertible Preferred Stock shall be 250, and shall not be subject
to increase.
SECTION 2. STATED CAPITAL. The amount to be represented in stated
capital at all times for each share of Series B-1 Convertible Preferred Stock
shall be the greater of(a) the sum of (1) $1,150, (2) to the extent legally
available, the accrued but unpaid dividends on such share of Series B-1
Convertible Preferred Stock, PLUS (3) an amount equal to the accrued and
unpaid interest on dividends in arrears (as provided in Section 4) through
the date of determination and (b) an amount equal to the product obtained by
multiplying (x) the number of shares of Common Stock which would, at the time
of such determination, be issuable on conversion in accordance with Section
9(a) of one share of Series B-1 Convertible Preferred Stock and any accrued
and unpaid dividends thereon and any accrued and unpaid interest on dividends
thereon in arrears if a Conversion Notice (as defined herein) were given by
the holder of such share of Series B-1 Convertible Preferred Stock on the
date of such determination (determined without regard to any limitation on
conversion contained in Section 9(a)) TIMES (y) the arithmetic average of the
Closing Price (as defined in Section 9(b)) of the Common Stock for the five
consecutive trading days ending one trading day prior to the date of such
determination. The Corporation shall take such action as may be required to
maintain the amount required by this Section 2 to be represented in stated
capital for the Series B-1 Convertible Preferred Stock not less frequently
than monthly.
SECTION 3. RANK. All Series B-1 Convertible Preferred Stock shall
rank (i) senior to the Common Stock, par value $.001 including the related
rights issued pursuant to the Rights Agreement, dated as of May 15, 1996,
between the Company and Corporate Stock Transfer, as Rights Agent, as amended
from time to time in accordance with its terms (the "Rights Agreement") (such
shares and rights, collectively, the "Common Stock"), of the Corporation, now
or hereafter issued, as to payment of dividends and distribution of assets
upon liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary, and (ii) on a parity with the Series A Convertible
Preferred Stock and any additional series of preferred stock of any class
which the Board of Directors or the stockholders may from time to time
authorize, both as to payment of dividends and as to distributions of assets
upon liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary.
SECTION 4. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares
of Series B-1 Convertible Preferred Stock shall be entitled to receive, when,
as, and if declared by the Board of Directors of the Corporation (the "Board
of Directors" or the "Board") out of funds legally available for such
purpose, dividends at the rate of $80.00 per annum per share, and no more,
which shall be fully cumulative, shall accrue without interest (except as
otherwise provided herein as to dividends in arrears) from April 1, 1997 and
shall be payable in cash quarterly on March 1, June 1, September 1, and
December 1 of each year commencing June 1, 1997 (except that if any such date
is a Saturday, Sunday, or legal holiday, then such dividend shall be payable
on the next succeeding day that is not a Saturday, Sunday, or legal holiday)
to holders of record as they appear on the stock books of the Corporation on
such record dates, not more than 20 nor less than 10 days preceding the
payment dates for such dividends, as shall be fixed by the Board. Dividends
on the Series B-1 Convertible Preferred Stock shall be paid in cash or,
subject to the limitations in Section 4(b) hereof, shares of Common Stock of
the Corporation or any combination of cash and shares of Common Stock, at the
option of the
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Corporation as hereinafter provided. The amount of the dividends payable per
share of Series B-1 Convertible Preferred Stock for each quarterly dividend
period shall be computed by dividing the annual dividend amount by four. The
amount of dividends payable for the initial dividend period and any period
shorter than a full quarterly dividend period shall be computed on the basis
of a 360-day year of twelve 30-day months. Dividends not paid on a payment
date, whether or not such dividends have been declared, will bear interest at
the rate of 12% per annum or at such rate as is legally permitted under
applicable law, until paid. No dividends or other distributions, other than
dividends payable solely in shares of Common Stock or other capital stock of
the Corporation ranking junior as to dividends to the Series B-1 Convertible
Preferred Stock (collectively, the "Junior Dividend Stock"), shall be paid or
set apart for payment on any shares of Junior Dividend Stock, and no
purchase, redemption, or other acquisition shall be made by the Corporation
of any shares of Junior Dividend Stock unless and until all accrued and
unpaid dividends on the Series B-1 Convertible Preferred Stock and interest
on dividends in arrears at the rate specified herein shall have been paid or
declared and set apart for payment.
If at any time any dividend on any capital stock of the Corporation
ranking senior as to dividends to the Series B-1 Convertible Preferred Stock
(the "Senior Dividend Stock") shall be in default, in whole or in part, no
dividend shall be paid or declared and set apart for payment on the Series
B-1 Convertible Preferred Stock unless and until all accrued and unpaid
dividends with respect to the Senior Dividend Stock, including the full
dividends for the then current dividend period, shall have been paid or
declared and set apart for payment, without interest. No full dividends shall
be paid or declared and set apart for payment on any class or series or the
Corporation's capital stock ranking, as to dividends, on a parity with the
Series B-1 Convertible Preferred Stock (the "Parity Dividend Stock") for any
period unless all accrued but unpaid dividends (and interest on dividends in
arrears at the rate specified herein) have been, or contemporaneously are,
paid or declared and set apart for such payment on the Series B-1 Convertible
Preferred Stock. No full dividends shall be paid or declared and set apart
for payment on the the Series B-1 Convertible Preferred Stock for any period
unless all accrued but unpaid dividends have been, or contemporaneously are,
paid or declared and set apart for payment on the Parity Dividend Stock for all
dividend periods terminating on or prior to the date of payment of such full
dividends. When dividends are not paid in full upon the Series B-1
Convertible Preferred Stock and Parity Dividend Stock, all dividends paid or
declared and set apart for payment upon shares of Series B-1 Convertible
Preferred Stock (and interest on dividends in arrears at the rate specified
herein) and the Parity Dividend Stock shall be paid or declared and set apart
for payment pro rata, so that the amount of dividends paid or declared and
set apart for payment per share on the Series B-1 Convertible Preferred Stock
and the Parity Dividend Stock shall in all cases bear to each other the same
ratio that accrued and unpaid dividends per share on the shares of Series B-1
Convertible Preferred Stock and the Parity Dividend Stock bear to each other.
Any references to "distribution" contained in this Section 4 shall
not be deemed to include any stock dividend or distributions made in
connection with any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary.
(b) If the Corporation elects to exercise of its sole discretion
to issue shares of Common Stock in payment of dividends on the Series B-1
Convertible Preferred Stock, the Corporation shall issue and dispatch, or
cause to be issued and dispatched, to each holder of such shares a
certificate representing the number of whole shares of Common Stock arrived
at by dividing the per share Computed Price of such shares of Common Stock
into the total amount of cash dividends such holder would be entitled to
receive if the aggregate dividends on the Series B-1 Convertible Preferred
Stock held by such holder which are being paid in shares of Common Stock were
being paid in cash; PROVIDED, HOWEVER, that if certificates representing
shares of Common Stock are issued and dispatched to holders of Series B-1
Convertible Preferred Stock subsequent to the third trading day after a
dividend payment date, the percentage used to
A-2
calculate the Computed Price will be reduced by one percent for each trading
day after the third trading day following such dividend payment date to the
date of dispatch of shares of Stock. No fractional shares of Common Stock
shall be issued in payment of dividends. In lieu thereof, the Corporation may
issue a number of shares of Common Stock to each holder which reflects a
rounding to the nearest whole number of shares of Common Stock or may pay
cash. The Corporation shall not exercise its right to issue shares of Common
Stock in payment of dividends on Series B-1 Convertible Preferred Stock if:
(i) the number of shares of Common Stock at the time authorized,
unissued and unreserved for all purposes, or held in the Corporation's
treasury, is insufficient to pay the portion of such dividends to be
paid in shares of Common Stock;
(ii) the issuance or delivery of shares of Common Stock as a
dividend payment would require registration with or approval of any
governmental authority under any law or regulation, and such
registration or approval has not been effected or obtained;
(iii) the shares of Common Stock to be issued as a dividend payment
have not been authorized for listing, upon official notice of issuance, on
any securities exchange or market on which the Common Stock is then
listed; or have not been approved for quotation if the Common Stock is
traded in the over-the-counter market;
(iv) the Computed Price (determined without regard to the
proviso to the definition thereof) is less than the par value of the
shares of Common Stock;
(v) the shares of Common Stock (A) cannot be sold or transferred
without restriction by unaffiliated holders who receive such shares of
Common Stock as a dividend payment or (B) are no longer listed on a
national securities exchange, on the Nasdaq National Market or the
Nasdaq SmallCap Market; or
(vi) the issuance of shares of Common Stock in payment of
dividends on Series B-1 Convertible Preferred Stock held by any
Restricted Person (as defined in Section 9(a) hereof) would result in
any Restricted Person beneficially owning more than 4.9% of the Common
Stock, determined as provided in the proviso to the second sentence of
Section 9(a) hereof.
Shares of Common Stock issued in payment of dividends on Series B-1
Convertible Preferred Stock pursuant to this Section shall be, and for all
purposes shall be deemed to be, validly issued, fully paid and nonassessable
shares of Common Stock of the Corporation; the issuance and delivery thereof
is hereby authorized; and the dispatch thereof will be, and for all purposes
shall be deemed to be, payment in full of the cumulative dividends to which
holders are entitled on the applicable dividend payment date.
"Computed Price" of shares of Common Stock on any date means 100
percent of the arithmetic average of the per share Closing Price (as defined
in Section 9(b)) of the Common Stock on the five consecutive trading days
ending on the fifth trading day preceding the applicable dividend payment
date.
SECTION 5. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution, or winding up of the Corporation, whether voluntary or
involuntary, the holders of Series B-1 Convertible Preferred Stock shall be
entitled to receive out of the assets of the Corporation, whether such assets
constitute stated capital or surplus of any nature, an amount per share of
Series B-1 Convertible Preferred Stock equal to the sum of (i) all dividends
accrued and unpaid thereon to the date of final distribution to such holders,
(ii) accrued and unpaid interest on dividends in arrears to the date of
distribution at the rate specified in Section 4(a), and (iii)
A-3
$1,000.00 (collectively, "the Liquidation Preference"), and no more, before
any payment shall be made or any assets distributed to the holders of Common
Stock or any other class or series of the Corporation's capital stock ranking
junior as to liquidation rights to the Series B-1 Convertible Preferred Stock
(collectively, the "Junior Liquidation Stock"); PROVIDED, HOWEVER, that such
rights shall accrue to the holders of Series B-1 Convertible Preferred Stock
only in the event that the Corporation's payments with respect to the
liquidation preference of the holders of capital stock of the Corporation
ranking senior as to liquidation rights to the Series B-1 Convertible
Preferred Stock (the "Senior Liquidation Stock") are fully met. After the
liquidation preferences of the Senior Liquidation Stock are fully met, the
entire assets of the Corporation available for distribution shall be
distributed ratably among the holders of the Series B-1 Convertible Preferred
Stock and any other class or series of the Corporation's capital stock having
parity as to liquidation rights with the Series B-1 Convertible Preferred
Stock (the "Parity Liquidation Stock") in proportion to the respective
preferential amounts to which each is entitled (but only to the extent of
such preferential amounts). After payment in full of the liquidation price of
the shares of the Series B-1 Convertible Preferred Stock and the Parity
Liquidation Stock, the holders of such shares shall not be entitled to any
further participation in any distribution of assets by the Corporation.
Neither a consolidation or merger of the Corporation with another corporation
nor a sale or transfer of all or part of the Corporation's assets for cash,
securities, or other property in and of itself will be considered a
liquidation, dissolution, or winding up of the Corporation.
SECTION 6. NO MANDATORY REDEMPTION. The shares of Series B-1
Convertible Preferred Stock shall not be subject to mandatory redemption by
the Corporation.
SECTION 7. NO SINKING FUND. The shares of Series B-1 Convertible
Preferred Stock shall not be subject to the operating of a purchase,
retirement, or sinking fund.
SECTION 8. OPTIONAL REDEMPTION. So long as the Corporation is in
compliance in all material respects with its obligations to the holders of
shares of Series B-1 Convertible Preferred Stock (including, without
limitation, its obligations under the Registration Rights Agreement between
the Corporation and the original holder of the Series B-1 Convertible
Preferred Stock (the "Registration Rights Agreement") and the provisions of
this Certificate of Designations), the Corporation shall have the right,
exercisable on not less than 15 days or more than 20 days written notice to
the holders of record of the shares of Series B-1 Convertible Preferred Stock
to be redeemed, at any time on or after the date of initial issuance of
shares of Series X Convertible Preferred Stock (the "Issuance Date") to
redeem at any time all, and from time to time any part of the Series B-1
Convertible Preferred Stock in accordance with this Section 8. Any notice of
redemption (a "Notice of Redemption") under this Section shall be delivered
to the holders of the shares of Series B-1 Convertible Preferred Stock at
their addresses appearing on the records of the Corporation; PROVIDED,
HOWEVER, that any failure or defect in the giving of notice to any such
holder shall not affect the validity of notice to or the redemption of shares
of Series B-1 Convertible Preferred Stock of any other holder. Any Notice of
Redemption shall state (1) that the Corporation is exercising its right to
redeem all or a portion of the outstanding shares of Series B-1 Convertible
Preferred Stock pursuant to this Section 8, (2) the number of shares of
Series B-1 Convertible Preferred Stock held by such holder which are to be
redeemed, (3) the Redemption Price (as hereinafter defined) per share of
Series B-1 Convertible Preferred Stock to be redeemed, determined in
accordance with this Section and (4) the date of redemption of such shares of
Series B-1 Convertible Preferred Stock, determined in accordance with this
Section (the "Redemption Date"). On the Redemption Date, the Corporation
shall make payment of the applicable Redemption Price (as hereinafter
defined) to each holder of shares of Series B-1 Convertible Preferred Stock
to be redeemed to or upon the order of such holder as specified by such
holder in writing to the Corporation at least one business day prior to the
Redemption Date. If the Corporation exercises its right to redeem all or a
portion of the outstanding shares of Series B-1 Convertible Preferred Stock
the Corporation shall make
A-4
payment to the holders of the shares of Series B-1 Convertible Preferred
Stock to be redeemed in respect of each share of Series B-1 Convertible
Preferred Stock to be redeemed of an amount equal to the greater of (a)
$1,150, plus all accrued but unpaid dividends to the Redemption Date on the
share of Series B-1 Convertible Preferred Stock being redeemed and accrued
but unpaid interest on the dividends on the share of Series B-1 Convertible
Preferred Stock being redeemed in arrears to the Redemption Date and (b) an
equal amount to the product obtained by multiplying (x) the number of shares
of Common Stock which would, but for the redemption pursuant to this Section
8, be issuable on conversion in accordance with Section 9(a) of one share of
Series B-1 Convertible Preferred Stock, and any accrued and unpaid dividends
thereon and any accrued and unpaid interest on dividends thereon in arrears
if a Conversion Notice were given by the holder of such Series B-1
Convertible Preferred Stock on the Redemption Date (determined without regard
to any limitation on conversion contained in Section 9(a)) TIMES (y) the
arithmetic average of the Closing Price (as defined in Section 9(b)) of the
Common Stock for the five consecutive trading days ending one trading day
prior to the Redemption Date (such amount being referred to herein as the
"Redemption Price"). Upon redemption of less than all of the shares of Series
B-1 Convertible Preferred Stock evidenced by a particular certificate,
promptly, but in no event later than three business days after surrender of
such certificate to the Corporation, the Corporation shall issue a
replacement certificate for the shares of Series B-1 Convertible Preferred
Stock which have not been redeemed. Only whole shares of Series B-1
Convertible Preferred Stock may be redeemed. If the Corporation exercises its
right to redeem less than all outstanding shares of Series B-1 Convertible
Preferred Stock, then such redemption shall be made, as nearly as practical,
pro rata among the holders of record of the Series B-1 Convertible Preferred
Stock. No share of Series B-1 Convertible Preferred Stock as to which the
holder exercises the right of conversion pursuant to Section 9 hereof may be
redeemed by the Corporation pursuant to this Section 8 on or after the date
of exercise of such conversion right regardless of whether the Notice of
Redemption shall have been given prior to the date of exercise of such
conversion right.
SECTION 9. CONVERSION.
(a) CONVERSION AT OPTION OF HOLDER. The holders of the Series B-1
Convertible Preferred Stock may, at any time after the earlier of (x)
July 31, 1997 and (y) the date on which the Registration Statement is first
declared effective by the SEC and on or before two (2) years after the
Issuance Date, upon surrender of the certificates therefor, convert any or
all of their shares of Series B-1 Convertible Preferred Stock into fully paid
and nonassessable shares of Common Stock and such other securities and
property as hereinafter provided. Commencing on the date which is 90 days
after the Issuance Date, and at any time thereafter, each share of Series B-1
Convertible Preferred Stock may be converted at the principal executive
offices of the Corporation, the office of any transfer agent for the Series
B-1 Convertible Preferred Stock, if any, the office of any transfer agent for
the Common Stock or at such other office or offices, if any, as the Board of
Directors may designate, initially into such number of fully paid and
nonassessable shares of Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) determined by dividing (x) the sum of (i) the
Conversion Amount, (ii) accrued but unpaid dividends to the Conversion Date
on the share of Series B-1 Convertible Preferred Stock being converted, and
(iii) accrued but unpaid interest on the dividends on the share of Series B-1
Convertible Preferred Stock being converted in arrears to the Conversion Date
by (y) the lower of (1) the product of (A) the Conversion Percentage TIMES
(B) the arithmetic average of the Closing Price of the Common Stock on the
five consecutive trading days immediately preceding the Conversion Date or
(2) the product of (A) $5.50 (subject to equitable adjustments for stock
splits, stock dividends, combinations, recapitalizations, reclassifications
and similar events occurring on or after the date of filing of this
Certificate of Designations with the Secretary of State of the State of
Delaware) TIMES (B) the Conversion Percentage, in each case subject to
adjustment as hereinafter provided (the "Conversion Rate"); PROVIDED,
HOWEVER, that in no event shall any holder be entitled to convert any shares
of Series B-
A-5
1 Convertible Preferred Stock in excess of that number of shares of Series
B-1 Convertible Preferred Stock upon conversion of which the sum of (1) the
number of shares of Common Stock beneficially owned by such holder and any
person whose beneficial ownership of shares of Common Stock would be
aggregated with such holder's beneficial ownership of shares of Common Stock
for purposes of Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Regulation 13D-G thereunder (each a
"Restricted Person" and collectively, the "Restricted Persons") (other than
shares of Common Stock deemed beneficially owned through the ownership of
unconverted shares of Series B-1 Convertible Preferred Stock) and (2) the
number of shares of Common Stock issuable upon the conversion of the number
of shares of Series B-1 Convertible Preferred Stock with respect to which the
determination in this proviso is being made, would result in beneficial
ownership by any Restricted Person of more than 4.9% of the outstanding
shares of Common Stock. For purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance
with Section 13(d) of the Exchange Act and Regulation 13D-G thereunder,
except as otherwise provided in clause (1) of the proviso to the immediately
preceding sentence. The "Conversion Price" shall be equal to the Conversion
Amount dividend by the Conversion Rate.
(b) CERTAIN DEFINITIONS.
As used herein, the "Closing Price" of any security on any date
shall mean the closing bid price of such security on such date on the
principal securities exchange on which such security is traded.
As used herein, "Computation Date" means
(1) if the Registration Statement is not filed by the
Corporation with the SEC on or before April 30, 1997:
(A) May 7, 1997, if the Corporation has not filed the
Registration Statement with the SEC on or before such date;
(B) each date which is seven days subsequent to May 7, 1997,
in each such case if the Corporation has not filed the Registration
Statement with the SEC on or before such subsequent date; and
(C) the date on which the Corporation files the Registration
Statement with the SEC; and
(2) if the Registration Statement has not been declared
effective by the SEC on or before July 31, 1997:
(A) August 7, 1997, unless the Registration Statement has been
declared effective by the SEC on or before August 7, 1997;
(B) each date which is seven days subsequent to August 7, 1997, in
each such case unless the Registration Statement has not been declared
effective by the SEC on or before such subsequent date; and
(C) the date on which the Registration Statement is declared
effective by the SEC;
PROVIDED, HOWEVER, that if more than one event which could give rise to a
Computation Date during any period shall have occurred, only one of such
events shall be deemed to result in a Computation Date so that the
adjustments in the Conversion Percentage provided herein by
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reason of the occurrence of a Computation Date shall be made only once in
respect of any period of time and then in the maximum amount based on all
such Computation Dates.
As used herein, "Conversion Amount" initially shall be equal to
$1,000.00, subject to adjustment as hereinafter provided.
As used herein, "Conversion Date" shall mean the date on which the
notice of conversion is actually received by the Corporation, in case of a
conversion at the option of the holder pursuant to Section 9(a).
As used herein, "Conversion Percentage" shall mean with respect to
a Conversion Date or a dividend payment date 80%; PROVIDED, HOWEVER, that
notwithstanding any other provision hereof (1) if (x) the Corporation shall
fail to file the Registration Statement with the SEC on or before April 30,
1997, or (y) the Registration Statement is not ordered effective by the SEC
on or before July 31, 1997, and in any such case the Corporation shall fail
to make cash payment on a timely basis in the amount specified in Section
2(c) of the Registration Rights Agreement, then in each such case the
applicable percentage stated above in this paragraph shall be reduced by one
percentage point on each Computation Date (pro rated in the case of any
Computation Date which is less than seven days after a Computation Date) and
(2) the Conversion Percentage applicable to a particular conversion shall be
subject to reduction as provided in Section 9(c)(6); PROVIDED FURTHER,
HOWEVER, that no adjustment pursuant to clause (1) of the first proviso to
this definition shall be made after the date on which the shares of Common
Stock issued or issuable upon conversion of shares of Series B Convertible
Preferred Stock may be sold by all holders thereof pursuant to Rule 144 under
the Securities Act of 1933, as amended, in a period of 90 consecutive days
(in which case the Conversion Percentage shall be adjusted to such date as if
such date were a Computation Date).
As used herein, "Registration Effective Date" shall mean, with
respect to any shares of Series B-1 Convertible Preferred Stock, the date on
which the Registration Statement if first ordered effective by the SEC.
As used herein, "Registration Statement" shall mean the
Registration Statement required to be filed by the Corporation with the SEC
pursuant to Section 2(a) of the Registration Rights Agreement.
As used herein, "SEC" shall mean the United States Securities and
Exchange Commission.
(c) OTHER PROVISIONS. (1) Notwithstanding anything in this
Section 9(c) to the contrary, no change in the Conversion Amount pursuant to
Section 9(c) shall actually be made until the cumulative effect of the
adjustments called for by this Section 9(c) since the date of the last change
in the Conversion Amount would change the Conversion Amount by more than 1%.
However, once the cumulative effect would result in such a change, then the
Conversion Rate shall actually be changed to reflect all adjustments called
for by this Section 9(c) and not previously made. Notwithstanding anything in
this Section 9(c), no change in the Conversion Amount shall be made that
would result in a Conversion Price of less than the par value of the Common
Stock into which shares of Series B-1 Convertible Preferred Stock are at the
time convertible.
(2) The holders of shares of Series B-1 Convertible Preferred
Stock at the close of business on the record date for any dividend payment to
holders of Series B-1 Convertible Preferred Stock shall be entitled to
receive the dividend payable on such shares on
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the corresponding dividend payment date notwithstanding the conversion
thereof after such dividend payment record date or the Corporation's default
in payment of the dividend due on such dividend payment date; PROVIDED,
HOWEVER, that the holder of shares of Series B-1 Convertible Preferred Stock
surrendered for conversion during the period between the close of business on
any record date for a dividend payment and the opening of business on the
corresponding dividend payment date must pay to the Corporation, within five
days after receipt by such holder, an amount equal to the dividend payable on
such shares on such dividend payment date if such dividend is paid by the
Corporation to such holder. A holder of shares of Series B-1 Convertible
Preferred Stock on a record date for a dividend payment who (or whose
transferee) tenders any of such shares for conversion into shares of Common
Stock on or after such dividend payment date will receive the dividend
payable by the Corporation on such shares of Series B-1 Convertible Preferred
Stock on such date, and the converting holder need not make any payment of
the amount of such dividend in connection with such conversion of shares of
Series B-1 Convertible Preferred Stock. Except as provided above, no
adjustment shall be made in respect of cash dividends on Common Stock or
Series B-1 Convertible Preferred Stock that may be accrued and unpaid at the
date of surrender of shares of Series B-1 Convertible Preferred Stock.
(3) The right of the holders of Series B-1 Convertible Preferred
Stock to convert their shares shall be exercised by delivering (which may be
done by telephone line facsimile transmission) to the Conversion agent, as
provided above, a written notice, duly signed by or on behalf of the holder,
stating the number of shares of Series B-1 Convertible Preferred Stock to be
converted in the form specified in the Subscription Agreements (the
"Conversion Notice"). If a holder of Series B-1 Convertible Preferred Stock
elects to convert any shares of Series B-1 Convertible Preferred Stock in
accordance with Section 9(a), such holder shall not be required to physically
surrender the certificate(s) representing such shares of Series B-1
Convertible Preferred Stock to the Corporation unless all of the shares of
Series B-1 Convertible Preferred Stock represented thereby are so converted.
Each holder of shares of Series B-1 Convertible Preferred Stock and the
Corporation shall maintain records showing the number of shares so converted
and the dates of such conversions or shall use such other method,
satisfactory to such holder and the Corporation, so as to not require
physical surrender of such certificates upon each such conversion. In the
event of any dispute or discrepancy, such records of the Corporation shall be
controlling and determinative in the absence of manifest error.
Notwithstanding the foregoing, if any shares of Series B-1 Convertible
Preferred Stock evidenced by a particular certificate therefor are converted
as aforesaid, the holder of Series B-1 Convertible Preferred Stock may not
transfer the certificate(s) representing such shares of Series B-1
Convertible Preferred Stock unless such holder first physically surrenders
such certificate(s) to the Corporation, whereupon the Corporation will
forthwith issue and deliver upon the order of such holder of shares of Series
B-1 Convertible Preferred Stock new certificate(s) of like tenor, registered
as such holder of shares of Series B-1 Convertible Preferred Stock (upon
payment by such holder of shares of Series B-1 Convertible Preferred Stock of
any applicable transfer taxes) may request, representing in the aggregate the
remaining number of shares of Series B-1 Convertible Preferred Stock
represented by such certificate(s). Each holder of shares of Series B-1
Convertible Preferred Stock, by acceptance of a certificate for such shares,
acknowledges and agrees that (1) by reason of the provisions of this
paragraph and Section 8, following conversion of any shares of Series B-1
Convertible Preferred Stock represented by such certificate, the number of
shares of Series B-1 Convertible Preferred Stock represented by such
certificate may be less than the number of shares stated on such certificate
and the number of shares of Common Stock from the Maximum Share Amount
allocated to the shares of Series B-1 Convertible Preferred Stock represented
by such certificate for purposes of conversion of such shares may be less
than the number thereof on such certificate and (2) the Corporation may place
a legend on the certificates for shares of Series B-1 Convertible Preferred
Stock which refers to or describes the provisions of this paragraph. The
Corporation shall pay any tax arising in connection with any conversion of
shares of Series B-1 Convertible Preferred Stock except that
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the Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery upon
conversion of shares of Common Stock or other securities or property in a
name other than that of the holder of the shares of the Series B-1
Convertible Preferred Stock being converted, and the Corporation shall not be
required to issue or deliver any such shares or other securities or property
unless and until the person or persons requesting the issuance thereof shall
have paid to the Corporation the amount of any such tax or shall have
established to the satisfaction of the Corporation that such tax has been
paid. The number of shares of Common Stock to be issued upon each conversion
of shares of Series C Convertible Preferred Stock shall be the number set
forth in the applicable Conversion Notice which number shall be conclusive
absent manifest error. The Corporation shall notify a holder who has given a
Conversion Notice of any claim of manifest error within one business day
after such holder gives such Conversion Notice and no such claim of error
shall limit or delay performance of the Corporation's obligation to issue
upon such conversion the number of shares of Common Stock which are not in
dispute. A Conversion Notice shall be deemed for all purposes to be in proper
form unless the Corporation notifies a holder of shares of Series B-1
Convertible Preferred Stock being converted within one business day after a
Conversion Notice has been given (which notice shall specify all defects in
the Conversion Notice) and any Conversion Notice containing any such defect
shall nonetheless be effective on the date given if the converting holder
promptly undertakes in writing to correct all such defects.
(4) The Corporation (and any successor corporation) shall take all
action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series B-1 Convertible
Preferred Stock outstanding upon the basis hereinbefore provided are at all
times reserved by the Corporation (or any successor corporation), free from
preemptive rights, for such conversion, subject to the provisions of the next
succeeding paragraph. If the Corporation shall issue any securities or make
any change in its capital structure which would change the number of shares
of Common Stock into which each share of the Series B-1 Convertible Preferred
Stock shall be convertible as herein provided, the Corporation shall at the
same time also make proper provisions so that thereafter there shall be a
sufficient number of shares of Common Stock authorized and reserved, free
from preemptive rights, for conversion of the outstanding Series B-1
Convertible Preferred Stock on the new basis. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all of the outstanding shares of Series B-1
Convertible Preferred Stock, the Corporation promptly shall seek such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(5) In case of any consolidation or merger of the Corporation with
any other corporation (other than a wholly-owned subsidiary of the
Corporation) in which the Corporation is not the surviving corporation, or in
case of any sale or transfer of all or substantially all of the assets of the
Corporation, or in the case of any share exchange pursuant to which all of
the outstanding shares of Common Stock are converted into other securities or
property, the Corporation shall make appropriate provision or cause
appropriate provision to be made so that each holder of shares of Series B-1
Convertible Preferred Stock then outstanding shall have the right thereafter
to convert such shares of Series B-1 Convertible Preferred Stock into the
kind of shares of stock and other securities and property receivable upon
such consolidation, merger, sale, transfer, or share exchange by a holder of
shares of Common Stock into which such shares of Series B-1 Convertible
Preferred Stock could have been converted immediately prior to the effective
date of such consolidation, merger, sale, transfer, or share exchange and on
a basis which preserves the economic benefits of the conversion rights of the
holders of shares of Series B-1 Convertible Preferred Stock on a basis as
nearly as practical as such rights exist hereunder prior thereto. If, in
connection with any such consolidation, merger, sale, transfer, or share
exchange, each holder of shares of Common Stock is entitled to elect to
receive securities, cash,
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or other assets upon completion of such transaction, the Corporation shall
provide or cause to be provided to each holder of Series B-1 Convertible
Preferred Stock the right to elect the securities, cash, or other assets into
which the Series B-1 Convertible Preferred Stock held by such holder shall be
convertible after completion of any such transaction on the same terms and
subject to the same conditions applicable to holders of the Common Stock
(including, without limitation, notice of the right to elect, limitations on
the period in which such election shall be made, and the effect of failing to
exercise the election). The Corporation shall not effect any such transaction
unless the provisions of this paragraph have been complied with. The above
provisions shall similarly apply to successive consolidations, mergers,
sales, transfers, or share exchanges.
(6) If a holder shall have given a Conversion Notice for shares of
Series B-1 Convertible Preferred Stock, the Corporation shall issue and
deliver to such person certificates for the Common Stock issuable upon such
conversion within three business days after such Conversion Notice is given
and the person converting shall be deemed to be the holder of record of the
Common Stock issuable upon such conversion, and all rights with respect to
the shares surrendered shall forthwith terminate except the right to receive
the Common Stock or other securities, cash, or other assets as herein
provided. If a holder shall have given a Conversion Notice as provided
herein, the Corporation's obligation to issue and deliver the certificates
for Common Stock shall be absolute and unconditional, irrespective of any
action or inaction by the converting holder to enforce the same, any waiver
or consent with respect to any provision thereof, the recovery of any
judgment against any person or any action to enforce the same, any failure or
delay in the enforcement of any other obligation of the Corporation to the
holder of record, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the holder of any obligation
to the Corporation, and irrespective of any other circumstance which might
otherwise limit such obligation of the Corporation to the holder in
connection with such conversion. If the Corporation fails to issue and
deliver the certificates for the Common Stock to the holder converting shares
of Series B-1 Convertible Preferred Stock pursuant to the first sentence of
this paragraph as and when required to do so, in addition to any other
liabilities the Corporation may have hereunder and under applicable law (1)
the Corporation shall pay or reimburse such holder on demand for all
out-of-pocket expenses including, without limitation, fees and expenses of
legal counsel incurred by such holder as a result of such failure, (2) the
Conversion Percentage applicable to such conversion shall be reduced by
two-and-one-half percentage points from the Conversion Percentage applicable
to such conversion and (3) such holder may by written notice (which may be
given by mail, courier, personal service or telephone line facsimile
transmission) or oral notice (promptly confirmed in writing) given at any
time prior to delivery to such holder of the certificates for the shares of
Common Stock issuable upon such conversion of shares of Series B-1
Convertible Preferred Stock, rescind such conversion, whereupon such holder
shall have the right to convert such shares of Series B-1 Convertible
Preferred Stock thereafter in accordance herewith.
(7) No fractional shares of Common Stock shall be issued upon
conversion of Series B-1 Convertible Preferred Stock but, in lieu of any
fraction of a share of Common Stock to purchase fractional shares of Common
Stock which would otherwise be issuable in respect of the aggregate number of
such shares surrendered for conversion at one time by the same holder, the
Corporation at its option (a) may pay in cash an amount equal to the product
of (i) the arithmetic average of the Closing Price of a share of Common Stock
on the three consecutive trading days ending on the trading day immediately
preceding the Conversion Date and (ii) such fraction of a share or (b) may
issue an additional share of Common Stock.
(8) The Conversion Amount shall be adjusted from time to time
under certain circumstances, subject to the provisions of the first three
sentences of Section 9(c)(1), as follows;
(i) In case the Corporation shall issue rights or warrants on a
pro rata basis to all holders of the Common Stock entitling such holders to
subscribe for or purchase Common Stock
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on the record date referred to below at a price per share less than the
average daily Closing Prices of the Common Stock on the 30 consecutive
business days commencing 45 business days before the record date (the
"Current Market Price") excluding, however, any rights issued pursuant to the
Rights Agreement, then in each such case the Conversion Amount in effect on
such record date shall be adjusted in accordance with the formula
C1 = C x O + N
-----
O + N x P
-----
M
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
O = the number of shares of Common Stock outstanding on the record date.
N = the number of additional shares of Common Stock issuable pursuant
to the exercise of such rights or warrants.
P = the offering price per share of the additional shares (which amount
shall include amounts received by the Corporation in respect of the
issuance and the exercise of such rights or warrants).
M = the Current Market Price per share of Common Stock on the record
date.
Such adjustment shall become effective immediately after the record date for
the determination of stockholders entitled to receive such rights or
warrants. If any or all such rights or warrants are not so issued or expire
or terminate before being exercised, the Conversion Amount then in effect
shall be readjusted appropriately.
(ii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Junior Stock (as hereinafter defined)
evidences of its indebtedness or assets (including securities, but excluding
any warrants or subscription rights referred to in subparagraph (i) above and
any dividend or distribution paid in cash out of the retained earnings of the
Corporation), then in each such case the Conversion Amount then in effect
shall be adjusted in accordance with the formula
C1 = C x M
---
M - F
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
M = the Current Market Price per share of Common Stock on the record
date mentioned below.
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F = the aggregate amount of such cash dividend and/or the fair market
value on the record date of the assets or securities to be distributed
divided by the number of shares of Common Stock outstanding on the record
date. The Board of Directors shall determine such fair market value, which
determination shall be conclusive.
Such adjustment shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution. For purposes of this subparagraph (ii), "Junior Stock" shall
include any class of capital stock ranking junior as to dividends or upon
liquidation to the Series B-1 Convertible Preferred Stock.
(iii) All calculations hereunder shall be made to the nearest
cent or to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant to
Section 9(c)(5), the holder of any Series B-1 Convertible Preferred Stock
thereafter surrendered for conversion shall become entitled to receive
securities, cash, or assets other than Common Stock, the number or amount of
such securities or property so receivable upon conversion shall be subject to
adjustment from time to time in a manner and on terms nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (i) to (iii) above.
(9) Except as otherwise provided above in this Section 9, no
adjustment in the Conversion Amount shall be made in respect of any
conversion for share distributions or dividends theretofore declared and paid
or payable on the Common Stock.
(10) Whenever the Conversion Amount is adjusted as herein provided,
the Corporation shall send to each transfer agent, if any, for the Series B-1
Convertible Preferred Stock and the Common Stock, and to the principal
securities exchange, if any, on which the Series B-1 Convertible Preferred
Stock and the Common Stock is traded, or the Nasdaq National Market if the
Series B-1 Convertible Preferred Stock or Common Stock is admitted for a
quotation thereon, a statement signed by the Chairman of the Board, the
President, or any Vice President of the Corporation and by its Treasurer or
its Secretary or an Assistant Secretary stating the adjusted Conversion
Amount determined as provided in this Section 9, and any adjustment so
evidenced, given in good faith, shall be binding upon all stockholders and
upon the Corporation. Whenever the Conversion Amount is adjusted, the
Corporation shall given notice by mail to the holders of record of Series B-1
Convertible Preferred Stock, which notice shall be made within 15 days after
the effective date of such adjustment and shall state the adjustment and
Conversion Amount. Notwithstanding the foregoing notice provisions, failure
by the Corporation to give such notice or a defect in such notice shall not
affect the binding nature of such corporate action of the Corporation.
(11) Whenever the Corporation shall propose to take any of the
actions specified in Section 9(c)(5) or in subparagraphs (i) or (ii) of
Section 9(c)(8) which would result in any adjustment in the Conversion Amount
under this Section 9(c), the Corporation shall cause a notice to be mailed at
least 20 days prior to the date on which the books of the Corporation will
close or on which a record will be taken for such action, to the holders of
record of the outstanding Series B-1 Convertible Preferred Stock on the date
of such notice. Such notice shall specify the action proposed to be taken by
the Corporation and the date as of which holders of record of the Common
Stock shall participate in any such actions or be entitled to exchange their
Common Stock for securities or other property, as the case may be. Failure by
the Corporation to mail the notice or any defect in such notice shall not
affect the validity of the transaction.
(12) Notwithstanding any other provision of this Section 9, no
adjustment in the Conversion Amount need be made (a) for a transaction
referred to in subparagraphs (i) or (ii) of Section 9(c)(8) if holders of
Series B-1 Convertible Preferred Stock are to participate in the
A-12
transaction or distribution on a basis and with notice that the Board of
Directors determines such transaction to be fair to the holders of the Series
B-1 Convertible Preferred Stock and appropriate in light of the basis on
which holders of the Common Stock or, in the case of a transaction referred
to in said subparagraph (ii), holders of Junior Stock participate in the
transaction; (b) for sales of Common Stock pursuant to a plan for
reinvestment of dividends and interest, PROVIDED that the purchase price in
any such sale is at least equal to the fair market value of the Common Stock
at the time of such purchase, or pursuant to any plan adopted by the
Corporation for the benefit of its employees, directors, or consultants; or
(c) after such time as a holder of shares of Series B-1 Convertible Preferred
Stock becomes entitled to receive only cash upon conversion of such shares
(in which case no interest shall accrue on the amount of such cash for any
period prior to the date which is three business days after surrender of the
certificates for such shares for conversion).
(d) MANDATORY CONVERSION. So long as the Corporation shall be in
compliance in all material respects with its obligations to the holders of
the Series B-1 Convertible Preferred Stock (including its obligations under
the Registration Rights Agreement and the provisions of this Certificate of
Designations) and so long as the Registration Statement shall be effective,
(1) on the date the Registration Statement is first declared effective by the
SEC or on any date within five business days thereafter the Corporation may,
by notice to the holders of the shares of Series B-1, require all of the
outstanding shares of Series B-1 Convertible Preferred Stock to be converted
and (2) on the date which is 730 days after the Registration Effective Date
(the "Mandatory Conversion Date") all of the shares of Series B-1 Convertible
Preferred Stock then outstanding shall be converted, in either such case, in
accordance with the provisions, and subject to the limitations, of Section
9(a), into shares of Common Stock to the extent the same are at such time
convertible into shares of Common Stock. On the Mandatory Conversion Date,
the Corporation shall mail by first class mail or otherwise deliver to each
holder of Series B-1 Convertible Preferred Stock a notice (a "Section 9(d)
Notice"), which shall state (1) the number of shares of Series B-1
Convertible Preferred Stock held by such holder which have been converted
into shares of Common Stock in accordance with this Section 9(d) and (2) the
Mandatory Conversion Date. If the Corporation shall give a Section 9(d)
Notice, then, unless theretofore converted by the holder in accordance
herewith or redeemed by the Corporation, and so long as the Registration
Statement shall remain effective on the Mandatory Conversion Date and the
Corporation shall be in compliance in all material respects with its
obligations to the Holders of the Series B-1 Convertible Preferred Stock
(including its obligations under the Registration Rights Agreements and the
provisions of this Certificate of Designations) on the Mandatory Conversion
Date, then on the Mandatory Conversion Date properly set forth therein, all
shares of Series B-1 Convertible Preferred Stock which, on the Mandatory
Conversion Date are convertible in accordance with Section 9(a) hereof, shall
be converted into such number of shares of Common Stock as shall be
determined pursuant to this Section 9 as if the conversion of such number of
shares of Series B-1 Convertible Preferred Stock were made by the holders
thereof in accordance herewith and as if the Mandatory Conversion Date were
the Conversion Date. Upon the surrender of certificates for shares of Series
B-1 Convertible Preferred Stock by the holder after a Section 9(d) Notice is
given, the Corporation shall issue and, within three trading days after such
surrender, deliver to or upon the order of such holder that number of shares
of Common Stock as shall be issuable in respect to the conversion of the
number of shares of Series B-1 Convertible Preferred Stock converted,
together with accrued and unpaid dividends thereon to the date of conversion
and accrued and unpaid interest on dividends on such shares which are in
arrears, into Common Stock as shall be determined in accordance herewith.
(e) LIMITATION ON NUMBER OF SHARES ISSUED ON CONVERSION; MANDATORY
REDEMPTION. (1) Notwithstanding any other provision herein, unless the
Stockholder Approval (or waiver from the National Association of Securities
Dealers, Inc.) has been obtained, the Corporation shall not be required to
issue upon conversion of shares of Series B-1 Convertible
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Preferred Stock, more than 321,391 shares of Common Stock, such amount to be
subject to adjustment from time to time for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the
Common Stock occurring after the date of filing of this Certificate of
Designations with the Secretary of State of the State of Delaware, upon
conversion of shares of Series B-1 Convertible Preferred Stock (the "Maximum
Share Amount"). The Maximum Share Amount shall be allocated pro rata among
the initial holders of the Series B-1 Convertible Preferred Stock in the
ratio that the respective number of shares of Series B-1 Convertible
Preferred Stock issued to each holder bears to 250 shares and each
certificate for such shares initially issued shall bear a notation to that
effect. Upon each surrender of a certificate for conversion of a portion of
the shares of Series B-1 Convertible Preferred Stock represented thereby
shall bear a notation as to the remaining portion of the Maximum Shares
Amount allocated to the shares of Series B-1 Convertible Preferred Stock
represented by such a certificate. Upon any split up of a certificate for
outstanding shares of Series B-1 Convertible Preferred Stock into two or more
certificates for shares of Series A Convertible Preferred Stock (including,
without limitation, in connection with a transfer thereof), each new
certificate shall bear a notation as to the portion of Maximum Share Amount
allocated to conversions of the shares of Series B-1 Convertible Preferred
Stock represented by such new certificate (which shall be determined as a pro
rata portion of the portion of the Maximum Share Amount represented by the
certificate so split up).
(2) The Corporation shall promptly, but in no event later than
five business days after the occurrence, give notice to each holder (by first
class mail, postage prepaid, at such holder's address as the same appears on
the stock books of the Corporation) if on any date the Corporation would not
have been required to convert shares of Series B-1 Convertible Preferred
Stock as a consequence of the limitation set forth in Section 9(e)(1) had all
outstanding shares of Series B-1 Convertible Preferred Stock been surrendered
for conversion into Common Stock on such date. If the Corporation shall have
given or been required to give any such notice, the Corporation shall
promptly, but in no event later than fifteen business days thereafter,
redeem, out of funds legally available for such redemption, all or such
portion of the outstanding shares of Series B-1 Convertible Preferred Stock
as shall not, on the business day prior to the date of giving notice of such
redemption, be convertible into shares of Common Stock by reason of the
limitations set forth in Section 9(e)(1), at a redemption price per share
equal to the Redemption Price which would be payable on the date such share
is redeemed pursuant to this Section if such share were redeemed on such date
pursuant to Section 8 (the "Special Redemption Price"). The Corporation shall
not have the right to delay or to defer any redemption required by this
Section 9(e)(2) in order to seek the Shareholder Approval unless consented to
by the holders of all outstanding shares of Series B-1 Convertible Preferred
Stock.
(3) The provisions of Section 9(e)(2) shall continue to apply
notwithstanding the giving of any notice or any redemption of shares of
Series B-1 Convertible Preferred Stock pursuant thereto on any particular
occasion.
(4) Any notice of redemption (a "Section 9(e) Notice") under this
Section 9(e) shall be delivered to the holders of the shares of Series B-1
Convertible Preferred Stock at their addresses appearing on the records of
the Corporation; PROVIDED, HOWEVER, that any failure or defect in the giving
of notice to any such holder shall not affect the validity of notice to, or
the redemption of shares of Series B-1 Convertible Preferred Stock of, any
other holder. Any Section 9(e) Notice shall state (1) that the Corporation is
redeeming all or a portion of the outstanding shares of Series B-1 Convertible
Preferred Stock pursuant to this Section 9(e), (2) the number of shares of
Series B-1 Convertible Preferred Stock held by such holder which are to be
redeemed, (3) that the shares are to be redeemed at the Special Redemption
Price per share of Series B-1 Convertible Preferred Stock, determined in
accordance with this Section 9(e), and (4) the date of redemption of such
shares of Series B-1 Convertible Preferred Stock; determined in accordance
with this Section 9(e) (the "Special Redemption Date"). On the Special
Redemption
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Date, the Corporation shall make payment in immediately available funds, out
of funds legally available for such redemption, of the Special Redemption
Price to each holder of shares of Series B-1 Convertible Preferred Stock to
be redeemed to or upon the order of such holder as specified by such holder
in writing to the Corporation at least two business days prior to the Special
Redemption Date. Upon redemption of less than all of the shares of Series B-1
Convertible Preferred Stock evidenced by a particular certificate, promptly,
but in no event later than three business days after surrender of such
certificate to the Corporation, the Corporation shall issue a replacement
certificate for the shares of Series B-1 Convertible Preferred Stock which
have not been redeemed. Only whole shares of Series B-1 Convertible Preferred
Stock may be redeemed. If the Corporation is required to redeem less than all
outstanding shares of Series B-1 Convertible Preferred Stock, then such
redemption shall be made, as nearly as practical, pro rata among the holders
of record of the Series B-1 Convertible Preferred Stock. Notwithstanding any
other provision of this Certificate of Designations or any Section 9(e)
Notice, no share of Series B-1 Convertible Preferred Stock as to which the
holder has exercised at any time prior to the applicable Special Redemption
Date the right of conversion pursuant to Section 9 hereof may be redeemed by
the Corporation on or after the date of exercise of such conversion right
(whether such conversion right is exercised prior to, on or after the giving
of a Section 9(e) Notice).
(5) As used in this Section 9(e), "Stockholder Approval" means the
approval by a majority of the votes cast by the holders of shares of Common
Stock (in person or by proxy) at a meeting of the shareholders of the
Corporation (duly convened at which a quorum was present), or a written
consent of holders of shares of Common Stock entitled to such number of votes
given without a meeting of the issuance by the Corporation of 20% or more of
the outstanding Common Stock of the Corporation for less than the greater of
the book or market value of such Common Stock on conversion of the Series B-1
Convertible Preferred Stock, as and to the extent required under Section
4460(i)(1)(D) of the rules of the National Association of Securities Dealers,
Inc. (or any successor or replacement provisions thereof).
SECTION 10. VOTING RIGHTS. Except as otherwise required by law or
expressly provided herein, shares of Series B-1 Convertible Preferred Stock
shall not be entitled to vote on any matter.
The affirmative vote or consent of the holders of a majority of the
outstanding shares of the Series B-1 Convertible Preferred Stock, voting
separately as a class, will be required for (1) any amendment, alteration, or
repeal, whether by merger or consolidation or otherwise, of the Corporation's
Certificate of Incorporation if the amendment, alteration, or repeal
materially and adversely affects the powers, preferences, or special rights
of the Series B-1 Convertible Preferred Stock, or (2) the creation and
issuance of any Senior Dividend Stock or Senior Liquidation Stock; PROVIDED,
HOWEVER, that any increase in the authorized preferred stock of the
Corporation or the creation and issuance of any stock which is both Junior
Dividend Stock and Junior Liquidation Stock or any other capital stock of the
Corporation ranking on a parity with the Series B-1 Convertible Preferred
Stock shall not be deemed to affect materially and adversely such powers,
preferences, or special rights.
SECTION 11. OUTSTANDING SHARES. For purposes of this Certificate
of Designations, all shares of Series B-1 Convertible Preferred Stock shall
be deemed outstanding except (i) from the date of surrender of certificates
representing shares of Series B-1 Convertible Preferred Stock for conversion
into Common Stock, all shares of Series B-1 Convertible Preferred Stock
converted into Common Stock; (ii) from the date of registration of transfer,
all shares of Series B-1 Convertible Preferred Stock held of record by the
Corporation or any subsidiary or Affiliate (as defined herein) of the
Corporation and (iii) from the Redemption Date, all shares of Series B-1
Convertible Preferred Stock which are redeemed, so long as in each case the
Redemption Price of such shares of Series B-1 Convertible Preferred Stock
shall have been paid by the Corporation as and when required hereby. For the
purposes of this Certificate of
A-15
Designations, "Affiliate" means any person directly or indirectly controlling
or controlled by or under direct or indirect common control with the
Corporation. "Control" is the power to direct the management and policies of
a person, directly or through one or more intermediaries, whether through the
ownership of voting securities, by contract, or otherwise.
A-16
Annex II
to
Exchange
Agreement
JOINT ESCROW INSTRUCTIONS
Dated as of the date of the
Subscription Agreement to Which These
Joint Escrow Instructions Are Attached
Law Offices of ▇▇▇▇▇ ▇. ▇▇▇▇▇, as Escrow Agent Penthouse Suite ▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Dear Sir or Madam:
As Escrow Agent for both Monterey Pasta Company, a Delaware
corporation (the "Company"), and the holder of shares (the "Series B
Preferred Shares") of Series B Convertible Preferred Stock of the Company
(the "Buyer"), who is named in the Subscription Agreement between the Company
and the Buyer to which a copy of these Joint Escrow Instructions is attached
as ANNEX II (the "Agreement"), the Escrow Agent is hereby authorized and
directed to hold the documents and the funds (together with any interest
thereon, the "Escrow Funds") delivered to the Escrow Agent pursuant to the
terms of the Agreement, in accordance with the following instructions:
1. After receipt of written or oral notice from the Company and
the Buyer to the Escrow Agent that their respective conditions precedent to
the exchange of the Preferred Shares for shares (the "Series B Preferred
Shares") of Series B-1 Convertible Preferred Stock of the Company have been
satisfied or waived by the Company and the Buyer, the Escrow Agent shall,
after deduction of the amount referred to in the next succeeding sentence,
release the certificates for the Series B Preferred Shares to or upon the
order of the Company and shall release the certificate for the Series B-1
Preferred Shares and the Escrow Funds to the Buyer. After receipt of such
notices, a portion of the Escrow Funds shall be released to or upon the order
of the Buyer in payment of the expenses of the Buyer payable by the Company
in accordance with Section 4(e) of the Agreement in such amount as shall be
specified in writing by the Buyer to the Escrow Agent prior to release of the
Escrow Funds (the "Expense Amount"). If Escrow Funds are released to or upon
the order of the Company, the amount thereof shall be reduced by all wire
transfer fees in respect of release of the Escrow Funds. If the Company or
the Buyer notifies the Escrow Agent that on the Closing Date (as defined in
the Agreement), the conditions precedent to the obligations of the Company or
the Buyer, as the case may be, under the Agreement were not satisfied or
waived, then the Escrow Agent shall, after deducting an amount equal to the
Expense Amount, release the Escrow Funds and the certificates for the Series
B-1 Preferred Shares to the Company and shall release the certificates for
the Series B Preferred Shares and an amount equal to the Expense Amount to or
upon the order of the Buyer. The Escrow Agent shall deposit all funds
received hereunder in the Escrow Agent's attorney escrow account at Citibank,
N.A. and as promptly as practicable after receipt of such funds deposit the
same in an interest-bearing account. The Escrow Agent shall not be liable for
interest on the Escrow Funds (other than such interest as shall be paid to
the Escrow Agent by its depository
II-1
bank for the Escrow Funds) for any reason, including by reason of any delay
or mistake in delivery of the Escrow Funds or any other funds held by the
Escrow Agent hereunder.
2. The Escrow Agent's duties hereunder may be altered, amended,
modified or revoked only by a writing signed by the Company, the Buyer and
the Escrow Agent.
3. The Escrow Agent shall be obligated only for the performance
of such duties as are specifically set forth herein and may rely and shall be
protected in relying or refraining from acting on any instrument reasonably
believed by the Escrow Agent to be genuine and to have been signed or
presented by the proper party or parties. The Escrow Agent shall not be
personally liable for any act the Escrow Agent may do or omit to do hereunder
as Escrow Agent while acting in good faith, and any act done or omitted by
the Escrow Agent pursuant to the advice of the Escrow Agent's
attorneys-at-law shall be conclusive evidence of such good faith. In no event
shall the Escrow Agent incur any liability or be held responsible, if any
certificate for Series B Preferred Shares of Series B-1 Preferred Shares,
once released from escrow hereunder, shall become lost, stolen, destroyed,
mutilated or misplaced while in transit to any person, provided the Escrow
Agent shall have dispatched the same by a means customarily used by the
Escrow Agent.
4. The Escrow Agent is hereby expressly authorized to disregard
any and all warnings given by any of the parties hereto or by any other
person, firm or corporation, excepting only orders or process of courts of
law and is hereby expressly authorized to comply with and obey orders,
judgments or decrees of any court. In case the Escrow Agent obeys or complies
with any such order, judgment or decree, the Escrow Agent shall not be liable
to any of the parties hereto or to any other person, firm or corporation by
reason of such decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
5. The Escrow Agent shall not be liable in any respect on account
of the identity, authorities or rights of the parties executing or delivering
or purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
6. The Escrow Agent shall not be liable for the outlawing of any
rights under the Statute of Limitations with respect to these Joint Escrow
Instructions or any documents or Escrow Funds deposited with or held by the
Escrow Agent.
7. The Escrow Agent shall be entitled to employ such legal
counsel and other experts as the Escrow Agent may deem necessary properly to
advise the Escrow Agent in connection with the Escrow Agent's obligations
hereunder, may rely upon the advice of such counsel, and may pay such counsel
reasonable compensation therefor. The Escrow Agent has acted as legal counsel
for the Buyer in connection with the transactions contemplated by the
Agreement and may continue to act as legal counsel for the Buyer
notwithstanding its duties as Escrow Agent hereunder.
8. The Escrow Agent's responsibilities as Escrow Agent hereunder
shall terminate if the Escrow Agent shall resign by written notice to the
Company and the Buyer. In the event of any such resignation, the Buyer shall
appoint a successor Escrow Agent.
9. If the Escrow Agent reasonably requires other or further
instruments in connection with these Joint Escrow Instructions or obligations
in respect thereto, the necessary parties hereto shall join in furnishing
such instruments.
10. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
documents or Escrow Funds held by
II-2
the Escrow Agent hereunder, the Escrow Agent is authorized and directed, in
its sole discretion (a) to retain in the Escrow Agent's possession without
liability to anyone all or any part of said documents or Escrow Funds until
such disputes shall have been settled either by mutual written agreement of
the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal
has been perfected, but the Escrow Agent shall be under no duty whatsoever to
institute or defend any such proceedings or (b) at any time, to deposit the
documents or Escrow Funds with any court of competent jurisdiction in the
state of New York, in which event the Escrow Agent shall give notice thereof
to the Buyer and the Company and shall thereupon be relieved and discharged
from all further obligations hereunder.
11. The Company and the Buyer jointly and severally agree to
indemnify and hold harmless the Escrow Agent from any and all claims,
liabilities, costs or expenses in any way arising from or relating to the
duties or performance of the Escrow Agent hereunder other than any such
claim, liability, cost or expense to the extent the same shall have been
determined by final, unappealable judgment of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct
of the Escrow Agent.
12. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given upon personal delivery or transmission by telephone line facsimile
transmission or three business days after deposit in the United States Postal
Service, by registered or certified mail with postage and fees prepaid,
addressed to each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by ten days
advance written notice to each of the other parties hereto.
CORPORATION: At the address set forth in the
introductory paragraph of the
Agreement
Attention: Chief Financial Officer
Facsimile No. (▇▇▇) ▇▇▇-▇▇▇▇
BUYER: At the address set forth in the Agreement
Facsimile No. (▇▇▇) ▇▇▇-▇▇▇▇
ESCROW AGENT: Law Offices of ▇▇▇▇▇ ▇. ▇▇▇▇▇
Penthouse Suite ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No. (▇▇▇) ▇▇▇-▇▇▇▇
13. By signing these Joint Escrow Instructions, the Escrow Agent
becomes a party hereto only for the purpose of these Joint Escrow
Instructions; the Escrow Agent does not become a party to the Agreement. The
Company and the Buyer have become parties hereto by their execution and
delivery of the Agreement, as provided therein.
14. This instrument shall be binding upon and inure to the benefit
of the parties hereto, and their respective successors and permitted assigns
and shall be governed by the laws of the State of New York.
II-3
15. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided in the Agreement.
ACCEPTED BY ESCROW AGENT:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, as Escrow Agent
II-4
Annex III
to
Exchange
Agreement
TRANSFER AGENT AGREEMENT
THIS TRANSFER AGENT AGREEMENT, dated as of April ____, 1997, by and
among MONTEREY COMPANY, a Delaware corporation (the "Company"), CORPORATE
STOCK TRANSFER, as Transfer Agent and Registrar (the "Transfer Agent"), and
PANGAEA FUND LIMITED, a British Virgin Islands corporation (the "Holder").
W I T N E S S E T H: - - - - - -
- - - --
WHEREAS, pursuant to an Exchange Agreement, dated as of March __,
1997, by and between the Company and the Holder (the "Exchange Agreement"),
the Holder ha s acquired or will acquire shares (the "Preferred Shares") of
Series B-1 Convertible Preferred Stock, $.001 par value (the "Series B-1
Preferred Stock"), of the Company, and
WHEREAS, as a condition precedent to the obligation of the Holder
to acquire the Preferred Shares, the Holder requires the execution and
delivery of this Agreement by the Company and the Transfer Agent to assure
that the Holder and each other holder of shares of Series B-1 Preferred Stock
will be assured of the timely issuance and receipt of shares of Common Stock,
$.001 par value (the "Common Stock"), of the Company upon conversion of
shares of Series B-1 Preferred Stock;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. DELIVERIES BY THE COMPANY. Contemporaneously with the
execution and delivery of this Agreement, the Company is delivering to the
Transfer Agent the following:
(a) a list showing the name and address of each holder of
record of shares of Series B-1 Preferred Stock and the certificate
number, date of issuance and number of shares of Series B-1 Preferred
Stock for each such holder;
(b) an opinion of ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich, counsel to
the Company, as to the due authorization, validity of issuance and
fully-paid and non-assessable nature of the shares (the "Common Shares")
of Common Stock issuable upon conversion of shares of Series B-1
Preferred Stock and to the effect that the shares of Series B-1
Preferred Stock have been or will be, and the Common Shares may be,
issued to the Investors without registration under the Securities Act of
1933, as amended (the "Securities Act"); and
(c) the form of Notice of Conversion of Convertible Preferred
Stock (the "Conversion Notice") relating to the Series B-1 Preferred
Stock.
2. ISSUANCE OF COMMON SHARES. (a) The Transfer Agent hereby
agrees to act as conversion agent for the Series B-1 Preferred Stock. The
Company hereby irrevocably instructs the Transfer Agent to issue the Common
Shares upon conversion of shares of Series B-1 Preferred Stock from time to
time upon receipt of a Conversion Notice. A Conversion Notice may be given by
telephone line facsimile transmission to the Transfer Agent or otherwise
given to the Transfer Agent, in each such case at the address and in the
manner provided in Section 6(g). The
certificates for shares of Series B-1 Preferred Stock need not be surrendered
in connection with the conversion thereof by the holder thereof.
(b) The certificates for Common Shares issued prior to receipt by
the Transfer Agent of an opinion of ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich, Law Offices
of ▇▇▇▇▇ ▇. ▇▇▇▇▇ or other counsel (who may be counsel to the Holder)
reasonably acceptable to the Company, that a registration statement under the
Securities Act relating to the resale of Common Shares has been declared
effective by the Securities and Exchange Commission (the "SEC") shall bear
the following legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The securities
have been acquired for investment and may not be sold, transferred or
assigned in the absence of an effective registration statement for the
securities under the Securities Act of 1933, as amended, or an opinion
of counsel that registration is not required under said Act."
Once the Transfer Agent receives such opinion of counsel, thereafter (1) upon
surrender of the certificate for Common Shares issued prior to the date the
Transfer Agent receives such opinion of counsel and upon request of the
Holder, the Transfer Agent will prepare and issue within three business days
after such surrender and request substitute certificates without any
restrictive legend for any certificates for Common Shares issued prior to the
date the Transfer Agent receives such opinion of counsel and shall
immediately remove any stop-transfer restriction against such Common Shares
and (2) neither the Company nor the Transfer Agent shall place any
restrictive legend or stop-transfer restriction against Common Shares issued
after the Transfer Agent receives such opinion of counsel.
(c) If the Transfer Agent receives an opinion of counsel (who may
be counsel to the Holder), which counsel shall be reasonably acceptable to
the Transfer Agent, to the effect that the Common Shares may be resold or
otherwise transferred by the holder thereof without registration under the
Securities Act and that no restrictive legend is required by the Securities
ct to appear on the certificates for the Common Shares so sold or
transferred, then upon the sale or other transfer such of Common Shares, upon
surrender of the certificates for Common Shares to be sold or otherwise
transferred and upon request of the Holder, the Transfer Agent will prepare
and issue, within three business days after such surrender and request,
certificates without any restrictive legend and not subject to any
stop-transfer restriction.
3. CONVERSION AND EXERCISE OBLIGATIONS ABSOLUTE; NO CONTRARY
INSTRUCTIONS. (a) If a holder shall have given a conversion of shares of
Series B-1 Convertible Preferred Stock in accordance with Section 2, the
Company shall be obligated to issue and deliver as stated in such Conversion
Notice, and the Transfer Agent hereby agrees to issue and deliver as stated
in such Conversion Notice, the Common Shares issuable upon such conversion
within three business days after such Conversion Notice is given and the
person converting shall be deemed to be the holder of record of the Common
Shares issuable upon such conversion, and all rights with respect to the
shares of Series B-1 Preferred Stock so converted shall forthwith terminate
except the right to receive the Common Shares or other securities, cash, or
other assets as provided in the Certificate of Designations of the Series B-1
Preferred Stock (the "Certificate of Designations"). The Transfer Agent
acknowledges and agrees that, if a holder shall have given a Conversion
Notice as provided herein, the Company's obligation to issue and deliver the
certificates for Common Shares upon such conversion shall be absolute and
unconditional, irrespective of any action or inaction by the converting
holder to enforce the same, any waiver or consent with respect to any
provision thereof, the recovery of any judgment against any person or any
action to enforce the same, any failure or delay in the enforcement of any
other obligation of the Company to the holder of record, or any set off,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the holder of any obligation to the Company, and
-2-
irrespective of any other circumstance with might otherwise limit such
obligation of the Company to the holder in connection with such conversion or
exercise.
(b) The Company agrees not to give any instruction to the Transfer
Agent which is contrary to this Agreement. The Transfer Agent hereby agrees
that it will disregard any request, instruction or other communication from
or on behalf of the Company which is contrary to or inconsistent with this
Agreement. The Company shall not appoint any transfer agent (other than the
Transfer Agent) or registrar for its Common Stock unless at the time of such
appointment any such successor enters into an agreement of like tenor with
this Agreement.
(c) As set forth in Section 9(c)(3) of the Certificate of
Designations, the number of Common Shares to be issued in connection with a
particular conversion of shares of Series B-1 Preferred Stock is, absent
manifest error, conclusively the number of Common Shares stated in the
applicable Conversion Notice. If in connection with a particular conversion
of shares of Series B-1 Preferred Stock the Company determines that manifest
error has been made by virtue of the conversion price or other information
set forth in the applicable Conversion Notice, the Company shall have the
right immediately to notify the Transfer Agent of such error, which notice
shall state the number of Common Shares in dispute, and, notwithstanding such
notice from the Company, the Transfer Agent shall issue and deliver the
number of Common Shares not in dispute as and when required by this
Agreement. If the Company shall have notified the Transfer Agent of any such
manifest error, the Company shall on the date such notice is given submit the
dispute to BDO ▇▇▇▇▇▇▇, LLP or another firm of independent public accountants
of recognized national standing (the "Auditors") for determination and shall
instruct the Auditors to resolve such dispute and to notify the Company, the
Transfer Agent and the converting holder of shares of Series B-1 Convertible
Preferred Stock within one business day after such dispute is submitted to
the Auditors. Immediately after receipt of timely notice of the Auditor's
determination (but in any event within three business days after the
applicable Notice of Conversion is given to the Transfer Agent), the Transfer
Agent shall issue to the converting holder any additional Common Shares to
which such holder is entitled based on the determination of the Auditor. The
Transfer Agent is authorized and directed to rely on the Auditor's
determination. If the Auditors shall fail to notify the Transfer Agent of
their determination within three business days after the applicable
Conversion Notice is given to the Transfer Agent, then the Transfer Agent
shall, within three business days after receipt of the applicable Notice of
Conversion, issue to the converting holder any additional shares of Common
Stock to which the holder is entitled based on the applicable Conversion
Notice. Such immediate and prompt action shall be taken by all the parties
hereto in order to assure that there shall be full compliance with the
Company's unqualified obligation that all Common Shares issuable upon such
conversion be issued by the due date therefor as provided herein and in the
Certificate of Designations.
4. TRANSFER AGENT DUTIES. The obligations and duties of the
Transfer Agent under this Agreement are at all times and in all respects
subject to the requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations of the SEC
thereunder applicable to transfer agents registered with the SEC.
5. INDEMNIFICATION. The Company agrees to indemnify and hold
harmless the Transfer Agent, each officer, director, employee and agent of
the Transfer Agent, and each person, if any, who controls the Transfer Agent
within the meaning of the Securities Act or the Exchange Act against any
losses, claims, damages or liabilities, joint or several, to which it, they
or any of them, or such controlling person, may become subject, under the
Securities Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon the performance by the Transfer Agent of its duties
pursuant to this Agreement; and will reimburse the Transfer Agent, and each
officer, director, employee and agent of the Transfer Agent, and each such
controlling person for any legal or other expenses reasonably incurred by it
or any of them in connection with investigating or defending
-3-
any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that
the Company will not be liable in any case if such loss, claim, damage or
liability arises out of or is based upon any action not taken in good faith,
or any action omission that constitutes gross negligence or willful
misconduct. Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the Company under this
Section, notify in writing the Company of the commencement thereof, and
failure so to notify the Company will relieve the Company from any liability
under this Section as to the particular item for which indemnification is
then being sought if such failure shall have materially prejudiced the
Company's right to defend or contest such action, but not from any other
liability which it may have to any indemnified party. In case any such action
is brought against any indemnified party, and it notifies the Company of the
commencement thereof, the Company will be entitled to participate with any
other indemnifying party, similarly notified, to assume the defense thereof,
with counsel who shall be to the reasonable satisfaction of such indemnified
party, and after notice from indemnifying party to such indemnified party
under this Section for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonably costs of investigation. The Company shall not be liable to any
such indemnified party on account of any settlement of any claim of action
effected without the consent of the Company.
6. MISCELLANEOUS.
(a) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California.
(b) This Agreement may be executed in counterparts and by the
parties hereto on separate counterparts, all of which together shall
constitute one and the same instrument. A facsimile transmission of this
Agreement bearing a signature on behalf of a party hereto shall be legal and
binding on such party.
(c) The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement
or the validity or enforceability of this Agreement in any other jurisdiction.
(e) No failure or delay by any party in exercising any right or
remedy under this Agreement or otherwise, and no course of dealing between
the parties, shall operate as a waiver thereof or amendment of this
Agreement, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right
or power, preclude any other or further exercise thereof or exercise of any
other right or power.
(f) Neither this Agreement nor any term thereof (including this
paragraph) may be amended, changed, waived, discharged or terminated unless
such amendment, change, waiver, discharge or termination is in writing signed
by the party to be charged with enforcement.
(g) Any notices required or permitted to be given under the terms
of this Agreement shall be sent by mail or delivered personally (which shall
include telephone line facsimile transmission) or by courier and shall be
effective five days after being placed in the mail, if mailed, or upon
receipt, if delivered personally or by courier, in each case addressed to a
party as follows:
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if to the Company:
Monterey Pasta Company ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇
Attention: Chief Financial Officer
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
if to the Transfer Agent:
Corporate Stock Transfer, as Transfer Agent and Registrar
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
if to the Holder:
Pangaea Fund Limited c/o MeesPierson Fund Services (Bahamas)
Limited ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Pangaea Asset Management, Inc. ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
or such other address as a party shall have provided by notice to the other
party in accordance with this provision.
(h) This Agreement is expressly made for the benefit of the
holders of record from time to time of the Preferred Shares and the Common
Shares and may not be changed, amended or modified to diminish or adversely
affect the rights of such holders hereunder without the prior written consent
of all such holders so affected.
-5-
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto by their respective officers or other representatives
thereunto duly authorized as of the date first set forth above.
MONTEREY PASTA COMPANY
By_____________________
Name:
Title:
CORPORATE STOCK TRANSFER,
as Transfer Agent and Registrar
By______________________
Name:
Title:
PANGAEA FUND LIMITED
By_______________________
Name:
Title:
-6-
Annex IV
to
Exchange
Agreement
NOTICE OF CONVERSION OF CONVERTIBLE
PREFERRED STOCK
SERIES B-1 CONVERTIBLE PREFERRED STOCK OF
MONTEREY PASTA COMPANY
TO: Corporate Stock Transfer, as Conversion Agent ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention:___________
Facsimile No.: (303) _____________
(1) Pursuant to the terms of the Series B-1 Convertible Preferred
Stock (the "Preferred Stock"), the undersigned hereby elects to convert
________ shares of the Preferred Stock together with accrued and unpaid
dividends thereon in the amount of $_________ and interest on dividends in
arrears in the amount of $________ into shares of Common Stock, $.001 par
value (the "Common Stock"), of Monterey Pasta Company, a Delaware corporation
(the "Company"), or such other securities into which the Preferred Stock is
currently convertible. Capitalized terms used in this Notice and not defined
herein have the respective meanings provided in the Certificate of
Designations for the Preferred Stock.
(2) Please issue certificates for the number of shares of Common
Stock or other securities into which such number of shares of Preferred Stock
is convertible in the name(s) specified immediately below of, if additional
space is necessary, on an attachment hereto:
_________________ _________________
Name Name
_________________ _________________
Address Address
_________________ _________________
SS or Tax ID Number SS or Tax ID Number
(3) The Conversion Date is __________. Check and complete one of
the following:
_____ The undersigned elects to convert based on
the five-day arithmetic average of the Closing Price
of the Common Stock. The Closing Price of the Common
Stock on the five consecutive trading days preceding the
Conversion Date and the arithmetic average
thereof are as follows:
IV-1
Date Closing Price
---- -------------
__________________ ________________________
__________________ ________________________
__________________ ________________________
__________________ ________________________
__________________ ________________________
Arithmetic Average: $______
OR
_____ The undersigned elects to convert based on
the fixed price of the Common Stock of $__________
applicable to conversions of Preferred Stock.
(4) The number of shares of Common Stock issuable upon the
conversion to which this Notice relates is _________.
(5) If the shares of Common Stock issuable upon conversion of the
Preferred Stock have not been registered under the Securities Act of 1933, as
amended (the "Act"), the undersigned represents and warrants that (i) the
shares of Common Stock not so registered are being acquired for the account
of the undersigned for investment, and not with a view to, or for resale in
connection with, the public distribution thereof other than pursuant to
registration under the Act, and that the undersigned has no present intention
of distributing or reselling the shares of Common Stock not so registered
other than pursuant to registration under the Act and (ii) the undersigned is
an "accredited investor" as defined in Regulation D under the Act. The
undersigned further agrees that (A) the shares of Common Stock not so
registered shall not be sold or transferred unless either (i) they first
shall have been registered under the Act and applicable state securities laws
or (ii) the Company first shall have been furnished with an opinion of legal
counsel reasonably satisfactory to the Company to the effect that such sale
or transfer is exempt from the registration requirements of the Act and (B)
the Company may place a legend on the certificate(s) for the shares of Common
Stock not so registered to that effect and place a stop-transfer restriction
in its records relating to the shares of Common Stock not so registered, all
in accordance with the Exchange Act, dated as of April ____, 1997.
Date______________________ ______________________________________
Signature of Holder (Must be
signed exactly as name appears on
the Preferred Stock Certificate.)
IV-2
Annex V
to
Exchange
Agreement
[LETTERHEAD OF COMPANY COUNSEL.]
[Date of Closing]
Pangaea Fund Limited c/o MeesPierson Fund Services (Bahamas) Limited
Windemere House ▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇.▇. ▇▇▇ ▇▇-▇▇▇▇ ▇▇▇▇▇▇, The Bahamas
MONTEREY PASTA COMPANY
Ladies and Gentlemen:
We have acted as counsel to Monterey Pasta Company, a Delaware
corporation (the "Company"), in connection with the preparation, execution
and delivery of the Exchange Agreement, dated as of March ____, 1997 (the
"Agreement"), between the Company and Pangaea Fund Limited, a British Virgin
Islands corporation. All capitalized terms used herein shall, unless
otherwise defined herein or the context otherwise requires, have the
respective meanings assigned to such terms in the Agreement.
[Other introductory statements acceptable to the Buyer may be included]
Based upon and subject to the foregoing, we are of the opinion that:
(1) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to conduct its business as currently
conducted;
(2) The Company has all requisite corporate power and authority to
enter into the Agreement and the Transfer Agent Agreement and to consummate
the transactions contemplated thereby. The execution, delivery and
performance by the Company of the Agreement and the Transfer Agent Agreement
and the consummation of the transactions contemplated thereby have been duly
authorized by all necessary corporate action on the part of the Company. The
Agreement and the Transfer Agent Agreement have been duly executed and
delivered by the Company and constitute legal, valid and binding obligations
of the Company, enforceable against the Company in accordance with their
respective terms;
(3) The Preferred Shares have been duly authorized and, when
issued and paid for in accordance with the Agreement, will be validly issued,
fully paid and non-assessable;
(4) The Common Shares have been duly authorized and, when issued
upon conversion of the Preferred Shares in accordance with the terms thereof
will be validly issued, fully-paid and non-assessable;
V-1
report or document other than a closing memorandum relating to the subject
transaction or (iii) furnished (the original or copies thereof) to any party
except in connection with the enforcement of the Agreement or in connection
with the closing of the transactions contemplated by the Agreement.
Very truly yours,
cc: Corporate Stock Transfer
V-3
