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EXHIBIT 10.75
SUBSCRIPTION AGREEMENT
RIDE, INC.
THIS SUBSCRIPTION AGREEMENT (the "Agreement") is dated December
19, 1997, by and between RIDE, INC., a Washington corporation, with its
headquarters located at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the
"Company"), and ADVANTAGE FUND II LTD., a British Virgin Islands corporation
(the "Buyer").
W I T N E S S E T H:
WHEREAS, the Buyer wishes to purchase, upon the terms and subject
to the conditions of this Agreement, (i) shares of Series B 5% Cumulative
Convertible Preferred Stock, no par value per share (the "Preferred Stock"), of
the Company which will be convertible into shares of Common Stock, no par value
per share (the "Common Stock"), of the Company and (ii) a Common Stock Purchase
Warrant to purchase shares of Common Stock (the "Warrant"); and
WHEREAS, the Company and the Buyer are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Rule 506 of Regulation D as promulgated by the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(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 agree as
follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(A) SUBSCRIPTION. The Buyer hereby agrees to purchase from the
Company (i) three thousand (3,000) shares of Preferred Stock (the "Preferred
Shares") of the Company having the terms and conditions as set forth in the form
of Certificate of Designation of the Series B 5% Cumulative Convertible
Preferred Stock attached hereto as ANNEX I (the "Certificate of Designation")
and (ii) the Warrant, in the form attached hereto as ANNEX II, for the purchase
of Two Hundred Thousand (200,000) shares of Common Stock, at an exercise price
of $2.6813 per share for the aggregate purchase price of $3,000,000 (the
"Purchase Price"). The Purchase Price for the Preferred Shares and Warrant shall
be payable in United States Dollars. The shares of Common Stock issuable upon
conversion of the Preferred Shares are referred to herein as the "Conversion
Shares." The shares of Common Stock issuable in payment of dividends on the
Preferred Shares are referred to herein as the "Dividend Shares." The shares of
Common Stock issuable upon exercise of the Warrant are referred to herein as the
"Warrant Shares." The Conversion Shares, the Dividend Shares and the Warrant
Shares are referred to herein
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collectively as the "Common Shares." The Common Shares and the Preferred Shares
are referred to herein collectively as the "Shares."
(B) CLOSING. The closing of the transaction contemplated hereby
(the "Closing") shall take place on December 19, 1997 at the offices of Genesee
Investments, ▇▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ at
9:30 a.m. or at such other time and place as shall be agreed to by the Company
and the Buyer (the "Closing Date"). At the Closing, payment shall be made by
wire transfer of immediately available funds to the escrow agent (the "Escrow
Agent") identified in the Joint Escrow Instructions attached hereto as ANNEX III
(the "Joint Escrow Agreement") against delivery to the Buyer of the duly
executed certificates, registered in the name of the Buyer, representing the
Preferred Shares to be purchased by the Buyer and the Warrant. In addition, the
Company shall deliver to the Buyer (1) an opinion of Company counsel
substantially in the form of ANNEX IV and (2) a certified copy of the
Certificate of Designation as filed with the Secretary of State of Washington.
2. REPRESENTATIONS AND WARRANTIES OF BUYER
The Buyer hereby represents and warrants to, and covenants and
agrees with the Company as follows, such representations and warranties to be
true and correct as of the Closing Date.
(A) ORGANIZATION AND AUTHORITY. The Buyer is a corporation duly
organized and validly existing under the laws of the British Virgin Islands. The
Buyer has all requisite power and authority to execute, deliver and perform its
obligations under this Agreement. This Agreement, Registration Rights Agreement
(hereinafter defined)and Joint Escrow Agreement when executed and delivered by
the Buyer, will be, valid and binding obligations of the Buyer enforceable in
accordance with their respective terms, subject as to enforceability to general
principles of equity and to bankruptcy, insolvency, moratorium and other similar
laws affecting the enforcement of creditors' rights generally and limits upon
rights to indemnity.
(B) PURCHASE FOR INVESTMENT. The Buyer is purchasing the
Preferred Shares and the Warrant for its own account for investment only and not
with a view towards the public sale or distribution thereof. The Buyer has no
present intention of selling, granting any participation in or otherwise
distributing the same.
(C) ACCREDITED INVESTOR. 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).
(D) REOFFERS AND RESALES. 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.
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(E) COMPANY RELIANCE. The Buyer understands that neither the
Preferred Shares nor the Common Shares have been registered under the 1933 Act
or qualified under any state securities laws, and that the Preferred Shares and
the Warrant are being offered and sold, and the Conversion Shares and Common
Shares are being offered, to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Preferred Shares and the Warrant and to receive an offer of the Common Shares.
(F) INFORMATION PROVIDED. The Buyer and its advisors, if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Preferred Shares and the Warrant and the offer of the Common Shares which have
been requested by the Buyer; the Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and have received
complete and satisfactory answers to any such inquiries; without limiting the
generality of the foregoing, the Buyer has had the opportunity to obtain and to
review the Company's (1) Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, (2) Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997 and (3) the proxy statement
for the Company's 1997 Annual Meeting of Stockholders, in each case as filed
with the SEC (collectively, the "SEC Reports"); and the Buyer understands that
its investment in the Shares involves a high degree of risk.
(G) ABSENCE OF APPROVALS. 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. The Buyer
understands that there is no public market for the Preferred Shares and that
there will never be a public market.
(H) SUBSCRIPTION AGREEMENT. This Agreement has been duly and
validly authorized, executed and delivered on behalf of the Buyer and is a valid
and binding agreement of the Buyer enforceable in accordance with its terms,
subject as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally.
(I) NO BROKERS OR FINDERS. Except for ▇▇▇▇▇▇ Capital Group Ltd.,
the Buyer represents and warrants that no person or entity has or will have, as
a result of the transactions contemplated by this Agreement, any right,
interest, or valid claim upon or against the Company for any commission, fee or
other compensation as a finder or broker because of any act or omission by the
Buyer, and the Buyer agrees to indemnify and hold the Company harmless against
any such commissions, fees, or other compensation.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to, and covenants and
agrees with the Buyer as follows, such representations and warranties to be true
and correct as of the Closing Date.
(A) ORGANIZATION AND AUTHORITY. The Company is a corporation duly
organized and validly existing under the laws of the State of Washington, and
has all requisite corporate power and authority to (i) own, lease and operate
its properties and to carry on its business as now being conducted, and (ii) to
execute, deliver and perform its obligations under this Agreement, the
Registration Rights Agreement, the form of which is attached hereto as ANNEX V
(the "Registration Rights Agreement"), the Certificate of Designation, the
Transfer Agent Instructions, the form of which is attached hereto as ANNEX VI
(the "Transfer Agent Instructions"), and the other agreements to be executed and
delivered by the Company in connection herewith, and to consummate the
transactions contemplated hereby and thereby. The Company is duly qualified to
do business as a foreign corporation and is in good standing in all
jurisdictions wherein such qualification is necessary and where failure so to
qualify could have a material adverse effect on the business, properties,
operations, condition (financial or other), results of operations or prospects
of the Company.
(B) CAPITALIZATION. The authorized capital stock of the Company
currently consists of (a) 20,000,000 shares of Common Stock, of which 11,700,947
shares were outstanding on December 16, 1997, all of which are fully paid and
nonassessable and (b) 10,000,000 shares of Preferred Stock, of which 100,000
shares, designated as Series A 7% Cumulative Convertible Non-voting Preferred
Stock, are issued and outstanding and on the Closing Date (as defined herein)
there will be (x) no material increase from December 16, 1997 in the number of
shares of Common Stock outstanding (except for shares issued upon the exercise
of options and warrants outstanding on the date hereof or options or similar
rights granted subsequent to the date of this Agreement pursuant to the
Company's (i) 1994 Stock Option Plan, (ii) 1994 Directors Non-qualified Stock
Option Plan and (iii) Employee Stock Purchase Plan (collectively, the "Plans"),
and the 605,263 shares which may be issued in connection with a certain
acquisition which the Company is currently negotiating) and (y) no additional
shares of Preferred Stock outstanding except as issued pursuant to this
Agreement. As of December 16, 1997, the Company had outstanding options and
warrants entitling the holders to purchase 1,510,582 shares of Common Stock.
Other than as set forth in the preceding sentence (and other than options that
may be granted subsequent to the date of this Agreement under the Plans, the
Company does not have outstanding any securities (or obligations to issue any
such securities) convertible into, exchangeable for or otherwise entitling the
holders thereof to acquire shares of Common Stock, except as disclosed in the
SEC Reports. The outstanding shares of Common Stock and outstanding options,
warrants and other securities to purchase Common Stock have been duly authorized
and validly issued. None of such outstanding shares of Common
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Stock, options, warrants and other securities has been issued in violation of
the preemptive rights of any security holder of the Company. The offers and
sales of the outstanding shares of Common Stock and options, warrants and other
rights to acquire Common Stock were at all relevant times either registered
under the 1933 Act and applicable state securities laws or exempt from such
requirements, except for such non-compliance with state securities laws which
have not had and will not have a material adverse effect on the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company or the transactions contemplated by this Agreement.
Except as set forth on SCHEDULE 3(B), no holder of any of the Company's
securities has any rights, "demand," "piggy-back" or otherwise, to have such
securities registered by reason of the intention to file, filing or
effectiveness of the Registration Statement (as defined in the Registration
Rights Agreement).
(C) CONCERNING THE SHARES. The Shares and the Warrant have been
duly authorized by the Company and the Preferred Shares, when issued and paid
for in accordance with this Agreement, and the Common Shares, when issued upon
conversion of the Preferred Shares, in payment of dividends thereon or upon
exercise of the Warrant, as the case may be, 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 or
similar rights of any stockholder of the Company or any other person 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
by Nasdaq 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. The Company knows of no reason that the Common Shares will
not be eligible for listing on Nasdaq.
(D) SUBSCRIPTION AGREEMENT; WARRANT; REGISTRATION RIGHTS
AGREEMENT; TRANSFER AGENT INSTRUCTIONS. This Agreement, the Warrant, the
Registration Rights Agreement and the Transfer Agent Instructions have been duly
and validly authorized by the Company, this Agreement has been duly executed and
delivered on behalf of the Company and this Agreement is, and the Warrant, the
Registration Rights Agreement and the Transfer Agent Instructions, when executed
and delivered by the Company, will be, valid and binding obligations of the
Company enforceable in accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally and limits upon rights to indemnity.
(E) NON-CONTRAVENTION. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the issuance of
the Preferred Shares as contemplated by this Agreement and the other
transactions contemplated by this Agreement, the Warrant, the Registration
Rights Agreement, the terms of the Preferred Stock and the Transfer Agent
Instructions do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or
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constitute a default under, the articles of incorporation or the 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 which would have a material adverse effect on the
Company 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 which would have a material adverse
effect on the Company.
(F) APPROVALS. No authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization, or
stock exchange or market or the stockholders of the Company is required to be
obtained by the Company for (1) the execution, delivery and performance by the
Company of this Agreement, the Registration Rights Agreement (except such
authorization of the SEC as is required with respect to accelerating the
effectiveness of any registration statement filed pursuant thereto) and the
Transfer Agent Instructions, (2) the issuance and sale of the Preferred Shares
and Warrant as contemplated by this Agreement, (3) the issuance of Common Shares
on conversion, or in payment of dividends upon, of the Preferred Shares and (4)
the issuance of Common Shares on exercise of the Warrant.
(G) INFORMATION PROVIDED. The information provided by or on
behalf of the Company to the Buyer in connection with the transactions
contemplated by the Agreement, including, without limitation, the information
referred to in Section 2(f) 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. The Company has not filed any reports with
the SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act"),
since December 31, 1996 other than the SEC Reports.
(H) ABSENCE OF CERTAIN CHANGES. Since December 31, 1996, 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 SEC Reports.
(I) ABSENCE OF CERTAIN PROCEEDINGS. Except as disclosed in the
SEC Reports, there is no action, suit or proceeding, before or by any court,
public board or body or governmental agency pending or, to the knowledge of the
Company or any of its subsidiaries, threatened against the Company and, to the
knowledge of the Company, there is no inquiry or investigation before or by any
court, public board or body or governmental agency pending or threatened against
the Company, in any such case wherein an unfavorable decision, ruling or finding
could have a material adverse effect on the business, properties, operations,
condition (financial or other), results of operations or prospects of the
Company or the transactions contemplated by this Agreement or any of the
documents contemplated hereby or which could adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations
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under, this Agreement or any of such other documents; the Company does not have
pending before the SEC any request for confidential treatment of information and
to the best of the Company's knowledge no such request will be made by the
Company prior to the time the Registration Statement relating to the Common
Shares which is contemplated by the Registration Rights Agreement is first
ordered effective by the SEC; and to the best of the Company's knowledge there
is not pending or contemplated, and there has been no, investigation by the SEC
involving the Company, any director or officer of the Company or any former
director or officer of the Company based upon the former director's or officer's
affiliation with the Company.
(J) PROPERTIES. The Company has good title to all property real
and personal (tangible and intangible) and other assets owned by it, free and
clear of all security interests, charges, mortgages, liens or other
encumbrances, except such as are described in the SEC Reports or such as do not
materially interfere with the use of such property made, or proposed to be made,
by the Company. The leases, licenses or other contracts or instruments under
which the Company leases, holds or is entitled to use any property, real or
personal, are valid, subsisting and enforceable with only such exceptions as do
not materially interfere with the use of such property made, or proposed to be
made, by the Company. The Company has not received notice of any material
violation of any applicable law, ordinance, regulation, order or requirement
relating to its owned or leased properties.
(K) LABOR RELATIONS. No material labor problem exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company.
(L) SEC FILINGS. The Company has timely filed all required forms,
reports and other documents with the SEC. 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. The Company is eligible to file a
resale registration statement on Form S-3.
(M) BROKERS, FINDERS, ETC. The Company hereby indemnifies and
holds the Buyer harmless from any claim made against the Buyer by any person for
any brokers' or finders' fee, commission or compensation with respect to this
Agreement or the transactions contemplated hereby for which the Company is
responsible. It is specifically acknowledged and agreed that the Company is
liable for any fees payable to ▇▇▇▇▇▇ Capital Group, Ltd. in connection with the
transaction contemplated by this Agreement. No other broker, finder or similar
person is entitled to any commission, fee or other compensation by reason of the
transactions contemplated by this Agreement.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(A) TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) the
Preferred Shares and the Warrant have not been and are not being registered
under the
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provisions of the 1933 Act and, except as provided in the Registration Rights
Agreement, the Common Shares have not been and are not being registered under
the 1933 Act, and may not be transferred unless (A) subsequently registered
thereunder or (B) the Buyer shall have delivered to the Company an opinion of
counsel, reasonably satisfactory in form, scope and substance to the Company, to
the effect that the Shares or the Warrant to be sold or transferred may be sold
or transferred pursuant to an exemption from such registration; (2) any resale
of Shares or the Warrant 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 or the Warrant under
circumstances in which the seller, or the person through whom the resale 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 registration
of the resale of the Common Shares pursuant to the Registration Rights
Agreement) or the Warrant under the 1933 Act or to comply with the terms and
conditions of any exemption thereunder (other than pursuant to Section 4(d)
hereof and pursuant to the Registration Rights Agreement).
(B) RESTRICTIVE LEGENDS. The Buyer acknowledges and agrees that
the certificates for the Preferred Shares, Warrant, Conversion Shares and Common
Shares shall bear a restrictive legend in substantially the following form:
"The securities evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities laws, and may not be offered or
sold, transferred or otherwise disposed of except (i) pursuant to
an effective registration statement under the Act, (ii) to the
extent applicable, pursuant to Rule 144 under the Act (or any
similar rule under the Act relating to the disposition of
securities) or (iii) pursuant to another exemption from
registration under the Act."
The legend set forth above shall be removed from the certificates representing
the Common Shares and the Company shall issue certificates representing such
securities without such legend if, unless otherwise required by state securities
laws, (a) the resale of the Common Shares is registered and effected under the
1933 Act, (b) in connection with a resale transaction, the Buyer provides the
Company with an opinion of counsel, in form, substance and scope reasonably
acceptable to the Company, to the effect that a public sale or transfer of the
Common Shares may be made without registration under the 1933 Act or (c) the
Common Shares may be resold under Rule 144(k) under the 1933 Act. Once a
registration statement contemplated by the Registration Rights Agreement shall
have been declared effective by the SEC, (1) the Company shall, upon request of
the Buyer, immediately remove any restrictive legend and terminate any
stop-transfer restriction for Common Shares issued prior to the date such
registration statement is declared effective
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by the SEC and (2) the Company shall not place any restrictive legend or impose
any stop-transfer restriction on the Common Shares issued thereafter.
(C) REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to
execute and deliver the Registration Rights Agreement at the Closing.
(D) FORM D; BLUE SKY LAWS. The Company agrees to file a Form D
with respect to the Shares and the Warrant as required under Regulation D and to
provide a copy thereof to the Buyer promptly after such filing. The Buyer agrees
to cooperate with the Company in connection with such filing and, upon request
of the Company, to provide all information relating to the Buyer reasonably
required for such filing.
(E) AUTHORIZATION FOR TRADING; REPORTING STATUS. Prior to the
Closing Date, the Company shall file a notification for listing of additional
shares with Nasdaq and shall provide evidence of such filing to the Buyer. So
long as the Buyer beneficially owns any of the Preferred Shares, Conversion
Shares, Common Shares or the Warrant, the Company shall file all reports
required to be filed with the SEC pursuant to Section 13 or 15(d) of the 1934
Act on a timely basis and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would permit such termination.
(F) USE OF PROCEEDS. Neither the Company nor any subsidiary of
the Company owns or has any present intention of acquiring any "margin stock" as
defined in Regulation G (12 CFR Part 207) of the Board of Governors of the
Federal Reserve System ("margin stock"), other than the acquisition of shares of
Common Stock surrendered to the Company in payment of the exercise price or tax
obligations incurred in connection with the grant, vesting or exercise of a
stock option or other award granted by the Company to any of its employees,
directors or consultants pursuant to its stock incentive plans or in connection
with a loan made to any such persons pursuant to such plans which acquisition is
made pursuant to the requirements of Regulation G governing margin stock. The
proceeds of sale of the Preferred Shares and Warrant will be used for general
working capital purposes and in the operation of the Company's business, and may
be used to finance certain acquisitions of assets or businesses. None of such
proceeds will be used, directly or indirectly (1) (other than financing its
subsidiaries in the ordinary course of business) to make any loan to or
investment in any other person or (2) for the purpose, whether immediate,
incidental or ultimate, of purchasing or carrying any margin stock or for the
purpose of maintaining, reducing or retiring any indebtedness which was
originally incurred to purchase or carry any stock that is currently a margin
stock or for any other purpose which might constitute the transactions
contemplated by this Agreement a "purpose credit" within the meaning of such
Regulation G. Neither the Company nor any agent acting on its behalf has taken
or will take any action which might cause this Agreement or the transactions
contemplated hereby to violate Regulation G, Regulation T or any other
regulation of the Board of Governors of the Federal Reserve System or to violate
the 1934 Act, in each case as in effect now or as the same may hereafter be in
effect.
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(G) CERTAIN EXPENSES. Whether or not the closing occurs, the
Company shall pay or reimburse the Buyer for all reasonable expenses (including,
without limitation, legal fees and expenses of counsel to the Buyer) incurred by
the Buyer in connection with this Agreement and the transactions contemplated
hereby.
(H) CERTAIN ISSUANCES OF SECURITIES. (1) Unless the Company
obtains Stockholder Approval (as defined in the Certificate of Designation) or a
waiver thereof from Nasdaq, the Company will not issue any shares of Common
Stock or shares of any other series of preferred stock or other securities
convertible into, exchangeable for or otherwise entitling the holder to acquire
shares of Common Stock which would be subject to the requirements of Rule
4460(i) of the Nasdaq (or any successor or replacement provision thereof) and
which would be integrated with the sale of the Preferred Shares to the Buyer or
the issuance of Common Shares upon conversion thereof or upon exercise of the
Warrant for purposes of Rule 4460(i) of the Nasdaq (or any successor or
replacement provision thereof).
(2) During the period from the Closing Date to the date on which
the Registration Statement (as defined in the Registration Rights Agreement)
shall have been effective with the SEC for 120 consecutive days, neither the
Company nor any affiliate of the Company shall offer, sell, contract to sell or
issue (or engage any person to assist the Company in taking any such action) any
equity securities or securities convertible into, exchangeable for or otherwise
entitling the holder to acquire any Common Stock (except for securities issued
by the Company in connection with an acquisition, joint venture or corporate
partnering arrangement) at a price below the Market Price (as that term is
defined in the Certificate of Designation) of the Common Stock on the date of
such issuance or acquisition ("Discounted Securities").
(3) Subject to the restrictions in Section 4(h)(1) above, during
the period from the Closing Date to the date which is one year after the Closing
Date (as hereinafter defined), neither the Company nor any affiliate of the
Company shall offer, sell, contract to sell or issue (or engage any person to
assist the Company in taking any such action) any Discounted Securities without
giving the Buyer the first right to acquire all or any part of the Discounted
Securities on the same terms at which the Discounted Securities are to be
offered to other investors. The Company shall give notice to the Buyer of the
detailed terms of the Discounted Securities proposed to be issued and such other
information as requested by the Buyer within three trading days after receipt of
such notice. The Buyer may by notice to the Company exercise such right of first
refusal at any time until the later of (x) ten (10) trading days after such
notice from the Company to the Buyer and (y) two (2) trading days after the
Company provides such additional information as shall have timely been requested
by the Buyer. Any proposed sale of securities on terms and conditions different
from those offered to the Buyer, as well as any subsequent proposed sale of any
such additional securities by the Company, shall again be subject to the first
refusal rights of the Buyer and shall require compliance by the Company with the
procedures described in this Agreement. The Company further covenants and agrees
to provide the Buyer with prompt notice (in any event not later than
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two (2) trading days after the fact) of the date of closing and the substantive
terms and provisions of any such offering with any third party which was the
subject of the right of first refusal described in this Section 4(h).
(4) Notwithstanding the provisions of clauses (2) and (3) above
of this Section 4(h), nothing therein shall prohibit the Company from issuing
securities (x) pursuant to compensation plans for employees, directors,
officers, advisers or consultants of the Company and in accordance with the
terms of such plans as in effect as of the date of this Agreement or (y) upon
exercise of conversion, exchange, purchase or similar rights issued, granted or
given by the Company and outstanding as of the date of this Agreement.
(I) 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
sell and purchase the Preferred Shares and Warrant set forth in Section 6 or 7,
as the case may be, of this Agreement on or before the Closing Date.
(K) CONFIDENTIALITY. Each of the Company and the Buyer agrees to
keep confidential and not to disclose to or use for the benefit of any third
party the terms of this Agreement or any other information which at any time is
communicated by the other party as being confidential without the prior written
approval of the other party; provided, however, that this provision shall not
apply to information which, at the time of disclosure, is already part of the
public domain (except by breach of this Agreement) and information which is
required to be disclosed by law. Prior to the issuance of any press release by
the Company relating to this transaction, the Buyer shall be provided with the
proposed press release and afforded a reasonable period of time to review and
approve such proposed press release.
5. TRANSFER AGENT INSTRUCTIONS; CONVERSION PROCEDURE.
(A) TRANSFER AGENT INSTRUCTIONS. Promptly following the Closing
Date and in any event within sixty (60) days after the Closing Date, the Company
will (1) appoint a new transfer agent (the "Transfer Agent") that is reasonably
acceptable to the Buyer (2) execute and deliver the Transfer Agent Instructions
substantially in the form attached hereto as ANNEX VI to and thereby irrevocably
instruct, the Transfer Agent, to issue certificates for the Common Shares from
time to time upon conversion of the Preferred Shares and exercise of the Warrant
in such amounts as specified from time to time (x) 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 (y) upon exercise of the
Warrant in such amounts as specified from time to time to the Transfer Agent in
the Form of Subscription to be attached to the Warrant and surrendered in
connection with such exercises, and (2) appoint the Transfer Agent the
conversion agent for the Preferred Stock and the exercise agent for the Warrant.
In connection therewith the Company shall provide reasonable assurances to the
Buyer as to the Transfer Agent's acceptance of such appointment and ability to
perform such functions. The certificates
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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. The certificates for the Common Shares shall be registered in the
name of the Buyer or its nominee and in such denominations to be specified by
the Buyer in connection with each conversion of Preferred Shares or exercise of
Warrant, as the case may be. 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 the registration
requirements of all applicable securities laws upon any resale of Shares or the
Warrant by the Buyer. 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 or the Warrant 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 the
Warrant 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 Preferred Shares, the Buyer or any subsequent
holder of the Preferred Shares shall complete, sign and furnish to the Transfer
Agent a Notice of Conversion in the form attached hereto as ANNEX VII, which
shall be deemed to satisfy all requirements of the Certificate of Designation
with respect to any exercise of conversion rights by the Buyer or any such
holder.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE.
The Buyer understands that the Company's obligation to sell the
Preferred Shares and the Warrant to the Buyer pursuant to this Agreement is
conditioned upon the satisfaction of the following conditions precedent on or
before the Closing Date (any or all of which may be waived by the Company in its
sole discretion):
(a) Delivery by the Buyer to the Escrow Agent of good funds as
payment in full of an amount equal to the purchase price for the Preferred
Shares and the Warrant in accordance with Section 1(b) hereof; and
(b) The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Closing
Date and
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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.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase
the Preferred Shares and the Warrant on the Closing Date is conditioned upon the
satisfaction of the following conditions precedent on or before the Closing Date
(any or all of which may be waived by the Buyer in its sole discretion):
(a) Delivery by the Company to the Buyer of the certificates for
the Preferred Shares and the Warrant 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 a copy of the filed Certificate
of Designation acknowledged by the Secretary of State of the State of
Washington;
(d) The receipt by the Buyer of a certificate, dated the Closing
Date, of the Secretary of the Company certifying (1) the articles 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;
(e) The 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 IV
attached hereto; and
(f) The receipt by the Buyer of the Registration Rights Agreement
executed by a duly authorized representative of the Company.
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8. MISCELLANEOUS.
(a) Except as otherwise expressly provided herein, the terms,
conditions and enforceability of this Agreement shall be governed by and
interpreted under the laws of the State of Washington. Any claim, dispute or
disagreement relating to the terms and conditions of this Agreement, or arising
from this Agreement or the subject matter of this Agreement, may be brought only
in the courts of the State of Washington or in any United States District Court
located in the State of Washington, which shall have exclusive jurisdiction
thereof. The parties to this Agreement consent to such jurisdiction and venue
and hereby knowingly and voluntarily waive all objections thereto on the basis
of lack of personal jurisdiction, venue or convenience.
(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. Although this Agreement is dated as of the date first set forth above,
the actual date of execution and delivery of this Agreement by each party is the
date set forth below such party's signature on the signature page hereof. Any
reference in this Agreement or in any of the documents executed and delivered by
the parties hereto in connection herewith to the date of execution and delivery
of this Agreement shall be deemed a reference to the later of such dates set
forth below each party's respective signature on the signature page hereof.
(c) The headings, captions and footers 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) Neither this Agreement nor any provisions hereof shall be
modified, changed, discharged or terminated except by an instrument in writing,
signed by the party against whom any waiver, change, discharge or termination is
sought.
(f) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, or any course of dealings between the parties, shall not operate as a
waiver thereof or an amendment hereof, 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.
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(g) Any notice to be given or to be served upon any party in
connection with this Agreement must be in writing and will be deemed to have
been given and received upon confirmed receipt, if sent by facsimile, or two (2)
days after it has been submitted for delivery by Federal Express or an
equivalent carrier and five (5) days after it has been mailed by first class
mail, charges prepaid and addressed to the following addresses with a
confirmation of delivery:
If to the Company, to:
Ride, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: Mr. G. ▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Summit Law Group PLLC
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Buyer, to:
Advantage Fund II Ltd.
▇/▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ Antilles
Attn.: ▇.▇. ▇▇ ▇▇▇▇▇
Telephone:▇▇▇-▇▇▇-▇▇▇▇-▇▇▇▇
Facsimile: 011-599-9732-2008
With a copy to:
Genesee International, Inc.
▇▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
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▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may, at any time by giving notice to the other party, designate any
other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
(h) 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 the Warrant 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.
(i) This Agreement and its Annexes 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.
(j) 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 December 26, 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.
(k) The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
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[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
date set forth above.
NUMBER OF SHARES: 3,000
PRICE PER SHARE: $1,000.00
AGGREGATE PURCHASE PRICE: $3,000,000.00
ADVANTAGE FUND II LTD.
By:
--------------------------
▇.▇. ▇▇ ▇▇▇▇▇
President
RIDE, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Date:
-------------------------------------
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SCHEDULE 3(b)
Holders of the Company's securities having "piggy-back" registration
rights in connection with the Registration Statement are as follows:
1. Device Mfg Corp. The former shareholders of Device Mfg Corp.
("Device"), a Delaware corporation, have been collectively issued 514,382 shares
of unregistered Ride, Inc. Common Stock, which they have the right to have
included in the Registration Statement pursuant to the terms of that certain
Registration Rights Agreement, dated as of May 31, 1997, by and between the
Company and Device.
2. Galena Creek Trading Company, Inc. d/b/a Smiley Hats. The former
shareholders of Galena Creek Trading Company, Inc. d/b/a Smiley Hats ("Smiley"),
a Nevada corporation, have been collectively issued 320,000 shares of
unregistered Ride, Inc. Common Stock, which they have the right to have included
in the Registration Statement pursuant to the terms of that certain Registration
Rights Agreement, dated as of July 15, 1997, by and between the Company and
Smiley.
20
ANNEX I
TO SUBSCRIPTION
AGREEMENT
CERTIFICATE OF DESIGNATION
OF
SERIES B 5% CUMULATIVE CONVERTIBLE
PREFERRED STOCK
of
RIDE, INC.
RIDE, INC., a Washington corporation (the "Corporation"), in
accordance with the provisions of RCW 23B.06.020(5) DOES HEREBY CERTIFY:
That pursuant to authority vested in the Board of Directors of
the Corporation by the Restated Articles of Incorporation of the Corporation,
the Board of Directors of the Corporation, by unanimous written consent dated
December 19, 1997, adopted a resolution providing for the creation of a series
of the Corporation's Preferred Stock, no par value per share, which series is
designated as "Series B 5% Cumulative Convertible Preferred Stock," which
resolution is as follows:
RESOLVED, that pursuant to authority vested in the Board of
Directors by the Restated Articles of Incorporation of the Corporation, the
Board of Directors does hereby provide for the creation of a series of the
Preferred Stock, no par value per share (hereinafter called the "Preferred
Stock"), of the Corporation, and to the extent that the voting powers and the
designations, preferences and relative, participating, optional or other special
rights thereof and the qualifications, limitations or restrictions of such
rights have not been set forth in the Restated Articles of Incorporation of the
Corporation, does hereby fix the same as follows:
SERIES B 5% CUMULATIVE CONVERTIBLE PREFERRED STOCK
Section 1. Definitions. As used herein, the following terms shall
have the following meanings:
"Aggregated Person" shall mean any person whose beneficial
ownership of shares of Common Stock would be aggregated with the beneficial
ownership of shares of Common Stock by a holder of shares of Series B Preferred
Stock for purposes of Section 13(d) of the Exchange Act, and Rule 13d-3
thereunder.
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"AMEX" shall mean the American Stock Exchange, Inc.
"Average Market Price" for any date means the arithmetic mean of
the Market Price on each of the five trading days, whether or not consecutive,
during the applicable Measurement Period having the lowest Market Prices.
"Board of Directors" or "Board" shall mean the Board of Directors
of the Corporation.
"Ceiling Price" shall mean $2.6813 (subject to equitable
adjustments for stock splits, stock dividends, combinations, recapitalizations,
reclassifications and similar events occurring or with respect to which "ex-"
trading commences on or after the date of filing of this Certificate of
Designation with the Secretary of State of the State of Washington) provided,
however, that notwithstanding any other provision hereof (1) if (v) the
Corporation shall fail to file the Registration Statement with the SEC on or
before the date which is 30 days after the Issuance Date, (w) the Registration
Statement is not ordered effective by the SEC within 90 days after the Issuance
Date, (x) the Registration Statement shall cease to be available for use by any
holder of shares of Series B Preferred Stock which is named therein as a selling
stockholder for any reason (including, without limitation, by reason of an SEC
stop order, a material misstatement or omission in the Registration Statement or
the information contained in the Registration Statement having become outdated),
except as a result of information supplied in writing by such holder for use in
the Registration Statement, as contemplated by clauses (10) and (11) of the
definition of Computation Date, or (y) a holder of shares of Series B Preferred
Stock shall have become unable to convert any shares of Series B Preferred Stock
in accordance with Section 8(a) (other than by reason of the 4.9% limitation set
forth in Section 8(a)), as contemplated by clauses (12) and (13) of the
definition of Computation Date, then in each such case referred to in the
preceding clauses (v) through (y) the applicable price stated above in this
paragraph shall be permanently reduced by $.053626 on each Computation Date (pro
rated in the case of any Computation Date which is less than 30 days after a
Computation Date) (each such dollar amount in this proviso subject to equitable
adjustments for stock splits, stock dividends, combinations, recapitalizations,
reclassifications, and similar events occurring or with respect to which "ex-"
trading commences on and after the date of filing of this Certificate of
Designation with the Secretary of State of the State of Washington) unless, in
lieu of such reduction in respect of any particular Computation Date, the
Company shall have made cash payments on a timely basis in the amounts specified
in Section 2(c) of the Registration Rights Agreement and (2) the Ceiling Price
applicable to a particular conversion shall be subject to reduction as provided
in Section 8(b)(6).
"Closing Bid Price" of any security on any date shall mean the
closing bid price of such security on such date on the principal securities
exchange or other market on which such security is listed for trading which
constitutes the principal securities market for such security, as reported by
such exchange or other market.
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"Common Stock" shall mean the Common Stock, no par value per
share, of the Corporation.
"Computation Date" shall mean:
(1) if the Corporation shall not have filed the Registration
Statement with the SEC on or prior to the date which is 30 days after the
Issuance Date, the date which is 31 days after the Issuance Date;
(2) the date which is 30 days after the Computation Date
specified in the preceding clause (1), and each succeeding thirtieth day
thereafter if the Corporation shall not have filed the Registration Statement
with the SEC prior to such 30th day;
(3) if the Corporation shall not have filed the Registration
Statement with the SEC on or prior to the date which is 30 days after the
Issuance Date, the date on which the Corporation shall have so filed the
Registration Statement;
(4) the date which is 91 days after the Issuance Date,
unless the Registration Statement theretofore has been declared effective by the
SEC;
(5) the date which is 30 days after the Computation Date
specified in the preceding clause (4), and each succeeding thirtieth day
thereafter if the Registration Statement has not been declared effective by the
SEC prior to such 30th day;
(6) if the Registration Statement has not been declared
effective by the SEC within 90 days after the Issuance Date, the date on which
the Registration Statement is declared effective by the SEC;
(7) the date on which the Registration Statement has ceased
for 30 days (whether or not consecutive) to be available, for use by any holder
of shares of Series B Preferred Stock which is named therein as a selling
stockholder with the SEC, if, at any time during which the Registration
Statement is required by the Registration Rights Agreement to remain available
for such use, the Registration Statement ceases to be so available for any
reason (including, without limitation, by reason of an SEC stop order, a
material misstatement or omission therein or the information contained in the
Registration Statement having become outdated) and shall remain so unavailable
on such 30th day and each succeeding 30th day (whether or not consecutive) after
such 30th day on which the Registration Statement shall have remained so
unavailable;
(8) the date on which the Registration Statement becomes
available for use by holders of shares of Series B Preferred Stock, if, at any
time during which the Registration Statement is required by the Registration
Rights Agreement to remain available for such use, the Registration Statement
ceases to be so available for any reason (including, without limitation, by
reason of an SEC stop order, a material
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misstatement or omission therein or the information contained in the
Registration Statement having become outdated), except as a result of
information supplied in writing by such holder for use in the Registration
Statement;
(9) the date on which any holder of shares of Series B
Preferred Stock shall have become unable for 30 days (whether or not
consecutive) to convert shares of Series B Preferred Stock in accordance with
Section 8(a) for any reason (other than by reason of the 4.9% limitation set
forth in Section 8(a)), if any holder of shares of Series B Preferred Stock
shall remain unable so to convert shares of Series B Preferred Stock on such
30th day and each succeeding thirtieth day thereafter if holders then remain
unable to so convert; and
(10) the date on which holders of shares of Series B
Preferred Stock become able to convert shares of Series B Preferred Stock in
accordance with Section 8(a), if any holder of shares of Series B Preferred
Stock shall have become unable to convert shares of Series B Preferred Stock in
accordance with Section 8(a) for any reason (other than by reason of the 4.9%
limitation set forth in Section 8(a)); 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 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.
"Computed Price" of one share of Common Stock on any date shall
mean the product obtained by multiplying (a) the Conversion Percentage
applicable on such date by (b) the Average Market Price of the Common Stock for
the Measurement Period with respect to such date; provided, however, that in no
event shall the Computed Price be greater than the Ceiling Price (subject to
equitable adjustments for stock splits, stock dividends, combinations,
recapitalizations, reclassifications and similar events occurring or with
respect to which "ex-" trading commences on or after the date of filing of this
Certificate of Designation with the Secretary of State of the State of
Washington).
"Conversion Agent" shall mean ▇▇▇▇▇ ▇▇▇▇▇▇, or its duly appointed
successor.
"Conversion Amount" initially shall be equal to $1,000.00,
subject to adjustment as set forth in Section 8(a).
"Conversion Date" shall mean the date on which the notice of
conversion is actually received by the Conversion Agent, whether by mail,
courier, personal service, telephone line facsimile transmission or other means,
in case of a conversion at the option of the holder pursuant to Section 8(a).
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24
"Conversion Notice" shall mean a written notice, duly signed by
or on behalf of the holder, stating the number of shares of Series B Preferred
Stock to be converted.
"Conversion Percentage" shall mean with respect to a Conversion
Date or a dividend payment date 90%; provided, however, that notwithstanding any
other provision hereof (1) if (v) the Corporation shall fail to file the
Registration Statement with the SEC on or before the date which is 30 days after
the Issuance Date, (w) the Registration Statement is not ordered effective by
the SEC within 90 days after the Issuance Date, (x) the Registration Statement
shall cease to be available for use by any holder of shares of Series B
Preferred Stock which is named therein as a selling stockholder for any reason
(including, without limitation, by reason of an SEC stop order, a material
misstatement or omission in the Registration Statement or the information
contained in the Registration Statement having become outdated) as contemplated
by clauses (7) and (8) of the definition of Computation Date, or (y) a holder of
shares of Series B Preferred Stock shall have become unable to convert any
shares of Series B Preferred Stock in accordance with Section 8(a) (other than
by reason of the 4.9% limitation set forth in Section 8(a)), as contemplated by
clauses (9) and (10) of the definition of Computation Date, then in each such
case referred to in the preceding clauses (v) through (y) the applicable
percentage stated above in this paragraph shall be permanently reduced by two
percentage points on each Computation Date (pro rated in the case of any
Computation Date which is less than 30 days after a Computation Date), unless,
in lieu of such reduction in respect of any particular Computation Date, the
Company shall have made cash payments on a timely basis in the amounts specified
in Section 2 of the Registration Rights Agreement and (2) the Conversion
Percentage applicable to a particular conversion shall be subject to reduction
as provided in Section 8(b)(6).
"Conversion Rate" shall have the meaning provided in Section
8(a).
"Current Price" shall mean with respect to any date the
arithmetic average of the Closing Bid Price of the Common Stock on the 30
consecutive trading days commencing 45 trading days before such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Holder Optional Redemption Date" shall mean the date of
redemption of shares of Series B Preferred Stock pursuant to Section 9.
"Inconvertibility Notice" shall have the meaning provided in
Section 6(a)(2).
"Issuance Date" shall mean the first date of original issuance of
any shares of Series B Preferred Stock.
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25
"Junior Dividend Stock" shall mean, collectively, the Common
Stock and any other class or series of capital stock of the Corporation ranking
junior as to dividends to the Series B Preferred Stock.
"Junior Liquidation Stock" shall mean the Common Stock or any
other class or series of the Corporation's capital stock ranking junior as to
liquidation rights to the Series B Preferred Stock.
"Liquidation Preference" shall mean, for each share of Series B
Preferred Stock, 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 (computed in accordance with Section 4(a)) to the date of
distribution, and (iii) $1,000.00 (subject to equitable adjustments for stock
splits, stock dividends and combinations affecting the Series B Preferred
Stock).
"Mandatory Redemption Notice" shall mean a notice given by the
Corporation to the holders of Series B Preferred Stock pursuant to Section 6(b)
which notice shall state (1) that the Corporation is required to redeem all of
the outstanding shares of Series B Preferred Stock pursuant to Section 6(b), (2)
the number of shares of Series B Preferred Stock held by such holder which are
to be redeemed, (3) the Redemption Price per share of Series B Preferred Stock
to be redeemed or the formula for determining the same, determined in accordance
herewith and (4) the applicable Redemption Date.
"Market Price" of the Common Stock on any date means the lowest
sale price (regular way) for one share of Common Stock on such date on the first
applicable among the following: (a) the national securities exchange on which
the shares of Common Stock are listed which constitutes the principal securities
market for the Common Stock or (b) the Nasdaq, in either such case as reported
by Bloomberg, L.P.; provided, however, that if during any Measurement Period
(which for purposes of this definition includes such other periods in which an
average price of the Common Stock is being determined):
(i) The Corporation shall declare or pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of Common
Stock or fix any record date for any such action, then the Market Price of the
Common Stock for each day in such Measurement Period prior to the earlier of (1)
the date fixed for the determination of stockholders entitled to receive such
dividend or other distribution and (2) the date on which ex-dividend trading in
the Common Stock with respect to such dividend or distribution begins shall be
reduced by multiplying the Market Price (determined without regard to this
proviso) for each such day in such Measurement Period by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the earlier of (1) the record date fixed for such determination
and (2) the date on which ex-dividend trading in the Common Stock with respect
to such
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dividend or distribution begins and the denominator shall be the sum of such
number of shares and the total number of shares constituting such dividend or
other distribution;
(ii) The Corporation shall issue rights or warrants to all holders of
its outstanding shares of Common Stock, or fix a record date for such issuance,
which rights or warrants entitle such holders (for a period expiring within
forty-five (45) days after the date fixed for the determination of stockholders
entitled to receive such rights or warrants) to subscribe for or purchase shares
of Common Stock at a price per share less than the Market Price (determined
without regard to this proviso) for any day in such Measurement Period which is
prior to the end of such 45-day period, then the Market Price for such day shall
be reduced so that the same shall equal the price determined by multiplying the
Market Price (determined without regard to this proviso) by a fraction of which
the numerator shall be the number of shares of Common Stock outstanding at the
close of business on the record date fixed for the determination of stockholders
entitled to receive such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would purchase
at such Market Price, and of which the denominator shall be the number of shares
of Common Stock outstanding on the close of business on such record date plus
the total number of additional shares of Common Stock so offered for
subscription or purchase. In determining whether any rights or warrants entitle
the holders to subscribe for or purchase shares of Common Stock at less than the
Market Price (determined without regard to this proviso), and in determining the
aggregate offering price of such shares of Common Stock, there shall be taken
into account any consideration received for such rights or warrants, the value
of such consideration, if other than cash, to be determined in good faith by a
resolution of the Board of Directors of the Corporation;
(iii) The outstanding shares of Common Stock shall be subdivided into a
greater number of shares of Common Stock or a record date for any such
subdivision shall be fixed, then the Market Price of the Common Stock for each
day in such Measurement Period prior to the earlier of (1) the day upon which
such subdivision becomes effective and (2) the date on which ex-dividend trading
in the Common Stock with respect to such subdivision begins shall be
proportionately reduced, and conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares of Common Stock,
the Market Price for each day in such Measurement Period prior to the earlier of
(1) the date on which such combination becomes effective and (2) the date on
which trading in the Common Stock on a basis which gives effect to such
combination begins, shall be proportionately increased;
(iv) The Corporation shall, by dividend or otherwise, distribute to all
holders of its Common Stock shares of any class of capital stock of the
Corporation (other than any dividends or distributions to which clause (i) of
this proviso applies) or evidences of its indebtedness, cash or other assets
(including securities, but excluding any rights or warrants referred to in
clause (ii) of this proviso and dividends and distributions paid exclusively in
cash and excluding any capital stock, evidences of indebtedness, cash or assets
distributed upon a merger or consolidation) (the foregoing hereinafter in this
clause
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(iv) of this proviso called the "Securities"), or fix a record date for any such
distribution, then, in each such case, the Market Price for any day in such
Measurement Period prior to the earlier of (1) the record date for such
distribution and (2) the date on which ex-dividend trading in the Common Stock
with respect to such distribution begins shall be reduced so that the same shall
be equal to the price determined by multiplying the Market Price (determined
without regard to this proviso) by a fraction of which the numerator shall be
the Market Price (determined without regard to this proviso) on such date less
the fair market value (as determined in good faith by resolution of the Board of
Directors of the Corporation) on such date of the portion of the Securities so
distributed or to be distributed applicable to one share of Common Stock and the
denominator shall be the Market Price (determined without regard to this
proviso); provided, however, that in the event the then fair market value (as so
determined) of the portion of the Securities so distributed applicable to one
share of Common Stock is equal to or greater than the Market Price (determined
without regard to this clause (iv) of this proviso) on any such day, in lieu of
the foregoing adjustment, adequate provision shall be made so that the holders
of shares of Series B Preferred Stock shall have the right to receive in payment
of dividends on the shares of Series B Preferred Stock or upon conversion of the
shares of Series B Preferred Stock, as the case may be, the amount of Securities
the holders of shares of Series B Preferred Stock would have received had the
number of shares of Common Stock to be issued in payment of such dividends on
the shares of Series B Preferred Stock been issued, or had the holders of shares
of Series B Preferred Stock converted the shares of Series B Preferred Stock, in
either such case immediately prior to the record date for such distribution. If
the Board of Directors of the Corporation determines the fair market value of
any distribution for purposes of this clause (iv) by reference to the actual or
when issued trading market for any securities comprising all or part of such
distribution, it must in doing so consider the prices in such market on the same
day for which an adjustment in the Market Price is being determined.
For purposes of this clause (iv) and clauses (i) and (ii) of this
proviso, any dividend or distribution to which this clause (iv) is applicable
that also includes shares of Common Stock, or rights or warrants to subscribe
for or purchase shares of Common Stock to which clause (i) or (ii) of this
proviso applies (or both), shall be deemed instead to be (1) a dividend or
distribution of the evidences of indebtedness, assets, shares of capital stock,
rights or warrants other than such shares of Common Stock or rights or warrants
to which clause (i) or (ii) of this proviso applies (and any Market Price
reduction required by this clause (iv) with respect to such dividend or
distribution shall then be made) immediately followed by (2) a dividend or
distribution of such shares of Common Stock or such rights or warrants (and any
further Market Price reduction required by clauses (i) and (ii) of this proviso
with respect to such dividend or distribution shall then be made), except that
any shares of Common Stock included in such dividend or distribution shall not
be deemed "outstanding at the close of business on the date fixed for such
determination" within the meaning of clause (i) of this proviso;
(v) The Corporation or any subsidiary of the Corporation shall (x) by
dividend or otherwise, distribute to all holders of its Common Stock cash in (or
fix any record date
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for any such distribution), or (y) repurchase or reacquire shares of its Common
Stock (other than an Option Share Surrender) for, in either case, an aggregate
amount that, combined with (1) the aggregate amount of any other such
distributions to all holders of its Common Stock made exclusively in cash after
the Issuance Date and within the twelve (12) months preceding the date of
payment of such distribution, and in respect of which no adjustment pursuant to
this clause (v) has been made, (2) the aggregate amount of any cash plus the
fair market value (as determined in good faith by a resolution of the Board of
Directors of the Corporation) of consideration paid in respect of any repurchase
or other reacquisition by the Corporation or any subsidiary of the Corporation
of any shares of Common Stock (other than an Option Share Surrender) made after
the Issuance Date and within the twelve (12) months preceding the date of
payment of such distribution or making of such repurchase or reacquisition, as
the case may be, and in respect of which no adjustment pursuant to this clause
(v) has been made, and (3) the aggregate of any cash plus the fair market value
(as determined in good faith by a resolution of the Board of Directors of the
Corporation) of consideration payable in respect of any Tender Offer by the
Corporation or any of its subsidiaries for all or any portion of the Common
Stock concluded within the twelve (12) months preceding the date of payment of
such distribution or completion of such repurchase or reacquisition, as the case
may be, and in respect of which no adjustment pursuant to clause (vi) of this
proviso has been made (such aggregate amount combined with the amounts in
clauses (1), (2) and (3) above being the "Combined Amount"), exceeds 10% of the
product of the Market Price (determined without regard to this proviso) on any
day in such Measurement Period prior to the earlier of (A) the record date with
respect to such distribution and (B) the date on which ex-dividend trading in
the Common Stock with respect to such distribution begins or the date of such
repurchase or reacquisition, as the case may be, times the number of shares of
Common Stock outstanding on such date, then, and in each such case, the Market
Price for such day shall be reduced so that the same shall equal the price
determined by multiplying the Market Price (determined without regard to this
proviso) for such day by a fraction (i) the numerator of which shall be equal to
the Market Price (determined without regard to this proviso) for such day less
an amount equal to the quotient of (x) the excess of such Combined Amount over
such 10% and (y) the number of shares of Common Stock outstanding on such day
and (ii) the denominator of which shall be equal to the Market Price (determined
without regard to this proviso) on such day; provided, however, that in the
event the portion of the cash so distributed or paid for the repurchase or
reacquisition of shares (determined per share based on the number of shares of
Common Stock outstanding) applicable to one share of Common Stock is equal to or
greater than the Market Price (determined without regard to this clause (v) of
this proviso) of the Common Stock on any such day, in lieu of the foregoing
adjustment, adequate provision shall be made so that the holders of shares of
Series B Preferred Stock shall have the right to receive in payment of dividends
on shares of Series B Preferred Stock or upon conversion of shares of Series B
Preferred Stock, as the case may be, the amount of cash the holders of shares of
Series B Preferred Stock would have received had the number of shares of Common
Stock to be issued in payment of such dividends on shares of Series B Preferred
Stock been issued, or had the holders of shares of Series B Preferred Stock
converted shares of Series B Preferred Stock, in either such case,
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immediately prior to the record date for such distribution or the payment date
of such repurchase, as applicable; or
(vi) A Tender Offer made by the Corporation or any of its subsidiaries
for all or any portion of the Common Stock shall expire and such Tender Offer
(as amended upon the expiration thereof) shall require the payment to
stockholders (based on the acceptance (up to any maximum specified in the terms
of the Tender Offer) of Purchased Shares (as defined below)) of an aggregate
consideration having a fair market value (as determined in good faith by
resolution of the Board of Directors of the Corporation) that combined together
with (1) the aggregate of the cash plus the fair market value (as determined in
good faith by a resolution of the Board of Directors of the Corporation), as of
the expiration of such Tender Offer, of consideration payable in respect of any
other Tender Offers, by the Corporation or any of its subsidiaries for all or
any portion of the Common Stock expiring within the twelve (12) months preceding
the expiration of such Tender Offer and in respect of which no adjustment
pursuant to this clause (vi) has been made, (2) the aggregate amount of any cash
plus the fair market value (as determined in good faith by a resolution of the
Board of Directors of the Corporation) of consideration paid in respect of any
repurchase or other reacquisition by the Corporation or any subsidiary of the
Corporation of any shares of Common Stock (other than an Option Share Surrender)
made after the Issuance Date and within the twelve (12) months preceding the
expiration of such Tender Offer and in respect of which no adjustment pursuant
to clause (v) of this proviso has been made, and (3) the aggregate amount of any
distributions to all holders of Common Stock made exclusively in cash within
twelve (12) months preceding the expiration of such Tender Offer and in respect
of which no adjustment pursuant to clause (v) of this proviso has been made,
exceeds 10% of the product of the Market Price (determined without regard to
this proviso) on any day in such period times the number of shares of Common
Stock outstanding on such day, then, and in each such case, the Market Price for
such day shall be reduced so that the same shall equal the price determined by
multiplying the Market Price (determined without regard to this proviso) for
such day by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding on such day multiplied by the Market Price (determined
without regard to this proviso) for such day and the denominator shall be the
sum of (x) the fair market value (determined as aforesaid) of the aggregate
consideration payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the Tender Offer) of all shares validly tendered and
not withdrawn as of the last time tenders could have been made pursuant to such
Tender Offer (the "Expiration Time") (the shares deemed so accepted, up to any
such maximum, being referred to as the "Purchased Shares") and (y) the product
of the number of shares of Common Stock outstanding (less any Purchased Shares)
on such day and the Market Price (determined without regard to this proviso) of
the Common Stock on the trading day next succeeding the Expiration Time. If the
application of this clause (vi) to any Tender Offer would result in an increase
in the Market Price (determined without regard to this proviso) for any day, no
adjustment shall be made for such Tender Offer under this clause (vi) for such
day; provided further, however, that if on any date there shall be no reported
lowest sale price (regular way) of such security, the "Market Price" on such
date
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shall be the lowest sale price (regular way) of such security on the date next
preceding such date on which a lowest sale price (regular way) for such security
has been so reported.
"Maximum Share Amount" shall mean 2,340,189 shares, or such
greater number as permitted by the rules of the Nasdaq (such amount to be
subject to equitable adjustment from time to time for stock splits, stock
dividends, combinations, capital reorganizations and similar events relating to
the Common Stock occurring or with respect to which "ex-" trading commences
after the date of filing this Certificate of Designation with the Secretary of
State of the State of Washington), of Common Stock.
"Measurement Period" shall mean, with respect to any date, the
period of twenty five (25) consecutive trading days ending one trading day prior
to such date.
"Nasdaq" shall mean the Nasdaq National Market.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Option Share Surrender" means the surrender of shares of Common
Stock to the Corporation in payment of the exercise price or tax obligations
incurred in connection with the grant, vesting or exercise of a stock option
granted by the Corporation to any of its employees, directors or consultants.
"Optional Redemption Event" shall mean any one of the following
events:
(1) For any period of five consecutive trading days there shall be no
closing bid price of the Common Stock on any national securities exchange or the
Nasdaq;
(2) The Common Stock ceases to be listed for trading on the Nasdaq, the
NYSE, the AMEX or the Nasdaq SmallCap Market;
(3) The inability for 30 or more days (whether or not consecutive) of
any holder of shares of Series B Preferred Stock who is entitled to optional
redemption rights under Section 9 to sell such shares of Common Stock issued or
issuable on conversion of shares of Series B Preferred Stock pursuant to the
Registration Statement for any reason on each of such 30 days;
(4) The Corporation shall fail or default in the timely performance of
any material obligation to a holder of shares of Series B Preferred Stock under
the terms of this Certificate of Designation or under the Registration Rights
Agreement or any other agreements or documents entered into in connection with
the issuance of shares of Series B Preferred Stock, as such instruments may be
amended from time to time;
(5) Any consolidation or merger of the Corporation with or into another
entity (other than a merger or consolidation of a subsidiary of the Corporation
into the
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Corporation or a wholly-owned subsidiary of the Corporation) where the
shareholders of the Corporation immediately prior to such transaction do not
collectively own at least 51% of the outstanding voting securities of the
surviving corporation of such consolidation or merger immediately following such
transaction or the common stock of such surviving corporation is not listed for
trading on the Nasdaq, the NYSE, the AMEX or the Nasdaq SmallCap Market; or
(6) The taking of any action, including any amendment to the
Corporation's Articles of Incorporation, which materially and adversely affects
the rights of any holder of shares of Series B Preferred Stock.
"Optional Redemption Notice" shall have the meaning provided in
Section 9(b).
"Optional Redemption Price" shall mean the Redemption Price as if
the definition of Redemption Price in this Section 1 were modified such that all
references therein to "Redemption Date" were to the Holder Optional Redemption
Date.
"Parity Dividend Stock" shall mean the Series A 7% Cumulative
Convertible Nonvoting Preferred Stock and any class or series or the
Corporation's capital stock ranking, as to dividends, on a parity with the
Series B Preferred Stock.
"Parity Liquidation Stock" shall mean the Series A 7% Cumulative
Convertible Nonvoting Preferred Stock and any class or series of the
Corporation's capital stock having parity as to liquidation rights with the
Series B Preferred Stock.
"Redemption Date" shall mean the date of a redemption of shares
of Series B Preferred Stock pursuant to Section 4(c) or 6(a), determined in
accordance therewith.
"Redemption Price" shall mean the greater of (i) the quotient
(expressed in dollars) obtained by dividing (a) the sum of (1) $1,000 (subject
to equitable adjustments for stock splits, stock dividends and combinations
affecting the Series B Preferred Stock), (2) an amount equal to the accrued but
unpaid dividends on the share of Series B Preferred Stock to be redeemed, and
(3) an amount equal to the accrued and unpaid interest on dividends in arrears
on such share (determined as provided in Section 4) through the applicable
Redemption Date by (b) the Conversion Percentage (expressed as a decimal) in
effect on the Redemption Date, (ii) the Ceiling Price and (iii) one hundred
twenty-five percent (125%) of the sum of (1) $1,000 (subject to equitable
adjustments for stock splits, stock dividends and combinations affecting the
Series B Preferred Stock), (2) an amount equal to accrued but unpaid dividends
on the share of Series B Preferred Stock to be redeemed, and (3) an amount equal
to the accrued and unpaid interest on dividends in arrears on such share
(determined as provided in Section 4) through the applicable Redemption Date.
"Registration Rights Agreement" shall mean the Registration
Rights Agreement entered into between the Corporation and the original holder of
the shares of
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Series B Preferred Stock, as amended or modified from time to time in accordance
with its terms.
"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.
"SEC" shall mean the United States Securities and Exchange
Commission.
"Senior Dividend Stock" shall mean any class or series of capital
stock of the Corporation ranking senior as to dividends to the Series B
Preferred Stock.
"Senior Liquidation Stock" shall mean any class or series of
capital stock of the Corporation ranking senior as to liquidation rights to the
Series B Preferred Stock.
"Series B Preferred Stock" shall mean the Series B 5% Cumulative
Convertible Preferred Stock, no par value per share, of the Corporation.
"Share Limitation Redemption Date" shall mean each date on which
the Corporation is required to redeem shares of Series B Preferred Stock as
provided in Section 6(a).
"Share Limitation Redemption Price" shall mean the Redemption
Price as if the definition of Redemption Price in this Section 1 were modified
such that all references therein to "Redemption Date" were to the Share
Limitation Redemption Date.
"Stockholder Approval" shall mean 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 stockholders 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 Common Stock of the Corporation outstanding on
the Issuance Date for less than the greater of the book or market value of such
Common Stock on conversion of the Series B Preferred Stock, as and to the extent
required under Rule 4460(i) of the Nasdaq as in effect from time to time or any
successor provision.
"Subscription Agreement" shall mean the Subscription Agreement
between the Corporation and the original holder of shares of Series B Preferred
Stock pursuant to which the shares of Series B Preferred Stock were issued.
"Tender Offer" shall mean a tender offer or exchange offer.
Section 2. Designation and Amount. The shares of such series
shall be designated as "Series B 5% Cumulative Convertible Preferred Stock", and
the number
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of shares constituting the Series B Preferred Stock shall be 3,000, and shall
not be subject to increase.
Section 3. Rank. All Series B Preferred Stock shall rank (i)
senior to the Common Stock, 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, (ii) on a parity with any
additional series of the class of Preferred Stock which series the Board of
Directors 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, (iii) on a parity with Series
A 7% Cumulative Convertible Nonvoting Preferred Stock and the shares of any
additional class of preferred stock (or series of preferred stock of such class)
which the Board of Directors or the stockholders may from time to time authorize
in accordance herewith, which class (or series thereof) by its terms ranks on a
parity with the shares of Series B Preferred Stock and (iv) senior to any other
class or series of preferred stock (other than as stated in the immediately
preceding clauses (ii) and (iii)) of the Corporation.
Section 4. Dividends and Distributions. (a) The holders of shares
of Series B Preferred Stock shall be entitled to receive, when, as, and if
declared by the Board of Directors out of funds legally available for such
purpose, dividends at the rate of $50.00 per annum per share, and no more, which
shall be fully cumulative, shall accrue without interest (except as otherwise
provided herein as to dividends in arrears) from the date of original issuance
and shall be payable quarterly on March 31, June 30, September 30, and December
31 of each year commencing March 31, 1998 (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
Preferred Stock shall be paid in cash or, subject to the limitations in Section
4(b) hereof, shares of Common Stock of the Corporation or any combination of
cash and shares of Common Stock, at the option of the Corporation as hereinafter
provided. The amount of the dividends payable per share of Series B 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 within five (5) days of a payment date, whether or not such
dividends have been declared, will bear interest at the rate of 12% per annum
until paid. No dividends or other distributions, other than the dividends
payable solely in shares of any 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 (except for Option Share Surrenders) unless and until
all accrued and unpaid dividends on the Series B Preferred Stock and interest on
dividends in
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arrears at the rate specified herein shall have been paid or declared and set
apart for payment.
No full dividends shall be paid or declared and set apart for
payment on any 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 Preferred Stock. No full dividends shall be paid or
declared and set apart for payment on the Series B 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 Preferred Stock
and the Parity Dividend Stock, all dividends paid or declared and set apart for
payment upon shares of Series B 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
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 Preferred Stock and the Parity Dividend Stock bear to each other.
Any references to "distribution" contained in this Section 4
shall not be deemed to include any stock dividend or distributions made in
connection with any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary.
(b) If the Corporation elects, in the exercise of its sole
discretion, to issue shares of Common Stock in payment of dividends on the
Series B Preferred Stock, the Corporation shall issue and deliver, or cause to
be issued and delivered, by the third trading day after such dividend payment
date to each holder of such shares a certificate representing the number of
whole shares of Common Stock arrived at by dividing the average Closing Bid
Price of the Common Stock for the five trading days preceding the applicable
dividend payment date into the total amount of cash dividends such holder would
be entitled to receive if the aggregate dividends on the Series B 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 delivered to holders of Series B Preferred Stock
subsequent to the fifth trading day after a dividend payment date, the average
Closing Bid Price used to calculate the number of share of Common Stock will be
reduced by one percent for each trading day after the third trading day
following such dividend payment date to the date of delivery of shares of Common
Stock. No fractional shares of Common Stock shall be issued in payment of
dividends. In lieu thereof, the Corporation shall pay cash in an amount equal to
the product of (x) the arithmetic average of the Closing Bid Price of the Common
Stock for the five consecutive trading days prior to such dividend payment date
times (y) the fraction of a share of Common Stock which would otherwise be
issuable by the
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Corporation. The Corporation shall not exercise its right to issue shares of
Common Stock in payment of dividends on Series B Preferred Stock if:
(i) the number of shares of Common Stock at the time authorized,
unissued and unreserved for all purposes, or held in the Corporation's treasury,
is insufficient to pay the portion of such dividends to be paid in shares of
Common Stock;
(ii) the issuance or delivery of shares of Common Stock as a dividend
payment would require registration with or approval of any governmental
authority under any law or regulation, and such registration or approval has not
been effected or obtained;
(iii) the shares of Common Stock to be issued as a dividend payment have
not been authorized for listing, upon official notice of issuance, on any
securities exchange or market on which the Common Stock is then listed; or have
not been approved for quotation if the Common Stock is traded in the
over-the-counter market;
(iv) the shares of Common Stock (A) cannot be sold or transferred
without restriction by unaffiliated holders who receive such shares of Common
Stock as a dividend payment or (B) are no longer listed on the Nasdaq, the NYSE,
the AMEX or the Nasdaq SmallCap Market;
(v) the issuance of shares of Common Stock in payment of dividends on
Series B Preferred Stock held by any Aggregated Person would result in any
Aggregated 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; or
(vi) an Optional Redemption Event shall have occurred and any holder
shall be entitled to exercise optional redemption rights under Section 9 hereof
by reason of such Optional Redemption Event.
Shares of Common Stock issued in payment of dividends on Series B
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.
(c) Neither the Corporation nor any subsidiary of the Corporation
shall redeem, repurchase or otherwise acquire in any one transaction or series
of related transactions any shares of Common Stock, Junior Dividend Stock or
Junior Liquidation Stock if the number of shares so repurchased, redeemed or
otherwise acquired in such transaction or series of related transactions
(excluding any Option Share Surrender) is more than either (x) 5.0% of the
number of shares of Common Stock, Junior Dividend Stock or Junior Liquidation
Stock, as the case may be, outstanding immediately prior to such transaction or
series of related transactions or (y) 1% of the number of shares of Common
Stock, Junior Dividend Stock or Junior Liquidation Stock, as the case may be,
outstanding immediately prior to
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such transaction or series of related transactions if such transaction or series
of related transactions is with any one person or group of affiliated persons,
unless the Corporation or such subsidiary offers to purchase for cash from each
holder of shares of Series B Preferred Stock at the time of such redemption,
repurchase or acquisition the same percentage of such holder's shares of Series
B Preferred Stock as the percentage of the number of outstanding shares of
Common Stock, Junior Dividend Stock or Junior Liquidation Stock, as the case may
be, to be so redeemed, repurchased or acquired at a purchase price per share of
Series B Preferred Stock equal to the Redemption Price.
(d) Neither the Corporation nor any subsidiary of the Corporation
shall (1) make any Tender Offer for outstanding shares of Common Stock, unless
the Corporation contemporaneously therewith makes an offer, or (2) enter into an
agreement regarding a Tender Offer for outstanding shares of Common Stock by any
person other than the Corporation or any subsidiary of the Corporation, unless
such person agrees with the Corporation to make an offer, in either such case to
each holder of outstanding shares of Series B Preferred Stock to purchase for
cash at the time of purchase in such Tender Offer the same percentage of shares
of Series B Preferred Stock held by such holder as the percentage of outstanding
shares of Common Stock offered to be purchased in such Tender Offer at a price
per share of Series B Preferred Stock equal to the greater of (i) the quotient
(expressed in dollars) obtained by dividing (a) the sum of (1) $1,000 (subject
to equitable adjustments for stock splits, stock dividends and combinations
affecting the Series B Preferred Stock), (2) an amount equal to the accrued but
unpaid dividends on such share of Series B Preferred Stock, and (3) an amount
equal to the accrued and unpaid interest on dividends in arrears (determined as
provided in Section 4) through the date of purchase pursuant to this Section
4(d) by (b) the Conversion Percentage (expressed as a decimal) in effect on the
date of purchase pursuant to this Section 4(d) and (ii) an amount equal to the
product obtained by multiplying (x) the number of shares of Common Stock which
would, but for the purchase pursuant to this Section 4(d), be issuable on
conversion in accordance with Section 8(a) of one share of Series B 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 share of Series B Preferred Stock on the date of purchase
pursuant to this Section 4(d) (determined without regard to any limitation on
conversion based on beneficial ownership which is contained in Section 8(a))
times (y) the highest price per share of Common Stock offered in such Tender
Offer.
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 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 Preferred Stock equal to
the Liquidation Preference, and no more, before any payment shall be made or any
assets distributed to the holders of Junior
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37
Liquidation Stock. 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
Preferred Stock and any 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 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. Mandatory Redemption.
(a) Mandatory Redemption Based on Maximum Share Amount. (1)
Notwithstanding any other provision herein, unless the Stockholder Approval
shall have been obtained from the stockholders of the Corporation or waived by
the Nasdaq, the Corporation shall not be required to issue upon conversion of
shares of Series B Preferred Stock pursuant to Section 8 more than the Maximum
Share Amount, less the aggregate number of shares of Common Stock issued by the
Corporation pursuant to Section 4 as dividends on the Series B Preferred Stock.
The Maximum Share Amount shall be allocated among the shares of Series B
Preferred Stock at the time of initial issuance thereof pro rata based on the
total number of authorized shares of Series B Preferred Stock provided in
Section 2. Each certificate for shares of Series B Preferred Stock initially
issued shall bear a notation as to the number of shares constituting the portion
of the Maximum Share Amount allocated to the shares of Series B Preferred Stock
represented by such certificate for purposes of conversion thereof. The
Corporation shall maintain records which show the number of shares of Common
Stock issued by the Corporation pursuant to Section 4 as dividends on the shares
of Series B Preferred Stock represented by each certificate, which records shall
be controlling in the absence of manifest error. Upon surrender of any
certificate for shares of Series B Preferred Stock for transfer or
re-registration thereof (or, at the option of the holder, for conversion
pursuant to Section 8(a) of less than all of the shares of Series B Preferred
Stock represented thereby), the Corporation shall make a notation on the new
certificate issued upon such transfer or re-registration or evidencing such
unconverted shares, as the case may be, as to the remaining number of shares of
Common Stock from the Maximum Share Amount remaining available for conversion of
the shares of Series B Preferred Stock evidenced by such new certificate
(including, without limitation, by taking into account the number of shares of
Common Stock issued by the Corporation pursuant to Section 4 as a dividend on
the shares of Series B Preferred Stock represented by the certificate so
surrendered and not previously reflected on the certificate so surrendered, as
shown on the records maintained by the Corporation). If any certificate for
shares of Series B Preferred Stock is surrendered for split-up into two or more
certificates representing an aggregate number of shares of Series B Preferred
Stock equal to the number of shares of Series B Preferred Stock represented by
the certificate so surrendered
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38
(as reduced by any contemporaneous conversion of shares of Series B Preferred
Stock represented by the certificate so surrendered), each certificate issued on
such split-up shall bear a notation of the portion of the Maximum Share Amount
allocated thereto determined by pro rata allocation from among the remaining
portion of the Maximum Share Amount allocated to the certificate so surrendered.
If any shares of Series B Preferred Stock represented by a single certificate
are converted in full pursuant to Section 8, all of the portion of the Maximum
Share Amount allocated to such shares of Series B Preferred Stock which remains
unissued after such conversion shall be re-allocated pro rata to the outstanding
shares of Series B Preferred Stock held of record by the holder of record at the
close of business on the date of such conversion of the shares of Series B
Preferred Stock so converted, and if there shall be no other shares of Series B
Preferred Stock held of record by such holder at the close of business on such
date, then such portion of the Maximum Share Amount shall be allocated pro rata
among the shares of Series B Preferred Stock outstanding on such date.
(2) The Corporation shall promptly, but in no event later than
five business days after the occurrence, give notice to each holder (by
telephone line facsimile transmission at such number as such holder has
specified in writing to the Corporation for such purposes or, if such holder
shall not have specified any such number, by overnight courier or first class
mail, postage prepaid, at such holder's address as the same appears on the stock
books of the Corporation) and any holder may at any time after the occurrence
give notice to the Corporation, in either case, if on any ten trading days
within any period of 20 consecutive trading days the Corporation would not have
been required to convert shares of Series B Preferred Stock of such holder in
accordance with Section 8(a) as a consequence of the limitations set forth in
Section 6(a)(1) had all outstanding shares of Series B Preferred Stock held by
such holder been converted into Common Stock on each such day, determined
without regard to the limitation, if any, on such holder contained in the
proviso to the second sentence of Section 8(a) (any such notice, whether given
by the Corporation or a holder, an "Inconvertibility Notice"). If the
Corporation shall have given or been required to give any Inconvertibility
Notice, or if a holder shall have given any Inconvertibility Notice, then within
ten business days after such Inconvertibility Notice is given or was required to
be given, the holder receiving or giving, as the case may be, the
Inconvertibility Notice shall have the right by written notice to the
Corporation (which written notice may be contained in the Inconvertibility
Notice given by the holder) to direct the Corporation to redeem the portion of
such holder's outstanding shares of Series B Preferred Stock (which, if
applicable, shall be all of such holder's outstanding shares of Series B
Preferred Stock) as shall not, on the business day prior to the date of such
redemption, be convertible into shares of Common Stock by reason of the
limitations set forth in Section 6(a)(1) (determined without regard to the
limitation, if any, on such holder contained in the proviso to the second
sentence of Section 8(a)), within ten business days after such holder so directs
the Corporation, at a price per share equal to the Share Limitation Redemption
Price. If a holder directs the Corporation to redeem outstanding shares of
Series B Preferred Stock and, prior to the date the Corporation is required to
redeem such shares of Series B Preferred Stock, the Corporation would have been
able, within the limitations set forth in Section 6(a)(1), to
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39
convert all of such holder's outstanding shares of Series B Preferred Stock
(determined without regard to the limitation, if any, on such holder contained
in the proviso to the second sentence of Section 8(a)) on any ten trading days
within any period of 20 consecutive trading days commencing after the period of
20 consecutive trading days which gave rise to the applicable Inconvertibility
Notice from the Corporation or such holder of shares of Series B Preferred
Stock, as the case may be, had all of such holder's outstanding shares of Series
B Preferred Stock been surrendered for conversion into Common Stock on each of
such ten trading days within such 20 trading day period, then the Corporation
shall not be required to redeem any shares of Series B Preferred Stock by reason
of such Inconvertibility Notice.
(3) Notwithstanding the giving of any notice by the Corporation
to the holders of Series B Preferred Stock pursuant to Section 6(a)(2) or the
giving or the absence of any notice by the holders of the Series B Preferred
Stock in response thereto or any redemption of shares of Series B Preferred
Stock pursuant to Section 6(a)(2), thereafter the provisions of Section 6(a)(2)
shall continue to be applicable on any occasion unless the Stockholder Approval
shall have been obtained from the stockholders of the Corporation or waived by
the Nasdaq.
(4) On each Share Limitation Redemption Date, the Corporation
shall make payment in immediately available funds of the applicable Share
Limitation Redemption Price to such holder of shares of Series B 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 such Share
Limitation Redemption Date. If the Corporation is required to redeem all or any
portion of a holder's outstanding shares of Series B Preferred Stock pursuant to
this Section 6(a), the Corporation shall make payment to such holder of the
shares of Series B Preferred Stock to be redeemed in respect of each share of
Series B Preferred Stock to be redeemed of an amount equal to the Share
Limitation Redemption Price. Upon redemption of less than all of the shares of
Series B 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 Preferred Stock evidenced by such certificate which have not
been redeemed. Only whole shares of Series B Preferred Stock may be redeemed.
(b) No Other Mandatory Redemption. The shares of Series B
Preferred Stock shall not be subject to mandatory redemption by the Corporation
except as provided herein.
Section 7. No Sinking Fund. The shares of Series B Preferred
Stock shall not be subject to the operation of a purchase, retirement or sinking
fund.
Section 8. Conversion.
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40
(a) Conversion at Option of Holder. The holders of the Series B
Preferred Stock shall have the option to convert up to (i) twenty-five percent
(25%) of the aggregate number of shares of Series B Preferred Stock at any time
and from time to time from and after the 90th day following the Issuance Date,
(ii) fifty percent (50%) of the aggregate number of shares of Series B Preferred
Stock at any time and from time to time from and after the 120th day following
the Issuance Date, (iii) seventy-five percent (75%) of the aggregate number of
shares of Series B Preferred Stock at any time and from time to time from and
after the 150th day following the Issuance Date and (iv) one hundred percent
(100%) of the aggregate number of shares of Series B Preferred Stock at any time
and from time to time from and after the 180th day following the Issuance Date
into fully paid and nonassessable shares of Common Stock. Each share of Series B
Preferred Stock may be converted at the office of the Conversion Agent or at
such other additional office or offices, if any, as the Board of Directors may
designate, by delivery of a Conversion Notice (which may be done by telephone
line facsimile transmission), 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) $1,000 (subject to
equitable adjustments for stock splits, stock dividends and combinations
affecting the Series B Preferred Stock), (ii) accrued but unpaid dividends to
the applicable Conversion Date on the share of Series B Preferred Stock being
converted, and (iii) accrued but unpaid interest on the dividends on the share
of Series B Preferred Stock being converted in arrears to the applicable
Conversion Date at the rate provided in Section 4 (such sum, the "Conversion
Amount") by (y) the lesser of (i) the Computed Price and (ii) the Ceiling Price
and having the terms and conditions provided in Section 8(c) hereof, in each
case subject to adjustment as hereinafter provided (the "Conversion Rate");
provided, however, that in no event shall any holder of shares of Series B
Preferred Stock be entitled to convert any shares of Series B Preferred Stock in
excess of that number of shares of Series B Preferred Stock upon conversion of
which the sum of (1) the number of shares of Common Stock beneficially owned by
such holder or any Aggregated Person of such holder (other than shares of Common
Stock deemed beneficially owned through the ownership of unconverted shares of
Series B Preferred Stock) and (2) the number of shares of Common Stock issuable
upon the conversion of the number of shares of Series B Preferred Stock with
respect to which the determination in this proviso is being made, would result
in beneficial ownership by such holder and all Aggregated Persons of such holder
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 Rule 13d-3
thereunder, except as otherwise provided in clause (1) of the proviso to the
immediately preceding sentence.
(b) Mandatory Conversion. On the third anniversary of the
Issuance Date, all of the outstanding Series B Preferred Stock shall
automatically be converted into Common Stock at the then effective Conversion
Rate.
(c) Other Provisions. (1) Notwithstanding anything in this
Section 8(b) to the contrary, no change in the Conversion Amount pursuant to
Section 8(b) shall
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actually be made until the cumulative effect of the adjustments called for by
this Section 8(b) 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 8(b) and not
previously made. Notwithstanding anything in this Section 8(b), no change in the
Conversion Amount shall be made that would result in the price at which a share
of Series B Preferred Stock is converted being less than the par value of the
Common Stock into which shares of Series B Preferred Stock are at the time
convertible.
(2) The holders of shares of Series B Preferred Stock at the
close of business on the record date for any dividend payment to holders of
Series B Preferred Stock shall be entitled to receive the dividend payable on
such shares on the corresponding dividend payment date notwithstanding the
conversion thereof after such dividend payment record date or the Corporation's
default in payment of the dividend due on such dividend payment date; provided,
however, that the holder of shares of Series B 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 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 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
Preferred Stock. Except as provided above, no adjustment shall be made in
respect of cash dividends on Common Stock or Series B Preferred Stock that may
be accrued and unpaid at the date of surrender of shares of Series B Preferred
Stock.
(3) The Corporation shall pay any transfer tax arising in
connection with any conversion of shares of Series B Preferred Stock except that
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 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 B 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
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42
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 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
corrects 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 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 Preferred Stock shall be convertible as herein
provided, the Corporation shall at the same time also make proper provision so
that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Series B 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 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 Preferred Stock
then outstanding shall have the right thereafter to convert such shares of
Series B 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 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 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, or
other assets
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upon completion of such transaction, the Corporation shall provide or cause to
be provided to each holder of Series B Preferred Stock the right to elect to
receive after the completion of any such transaction, the securities, cash, or
other assets which would be received by a holder of that number of shares of
Common Stock into which the Series B Preferred Stock held by such holder shall
be convertible immediately prior to the completion of 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 Preferred Stock, the Corporation shall issue and deliver to such
person certificates for the Common Stock issuable upon such conversion within
three (3) 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 or any other person of any obligation to the Corporation or
any violation or alleged violation of law by the holder or any other person, 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 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, reasonable 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
three percentage points from the Conversion Percentage otherwise applicable to
such conversion, (3) the Ceiling Price applicable to such conversion shall be
reduced by $.053626 (subject to equitable adjustments for stock splits, stock
dividends, combinations, recapitalizations, reclassifications and similar events
occurring or with respect to which "ex-" trading commences on or after the date
of filing of this Certificate of Designation with the Secretary of State of the
State of Washington) from the Ceiling Price otherwise applicable to such
conversion and (4) such holder may by written notice
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(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 Preferred
Stock, rescind such conversion, whereupon such holder shall have the right to
convert such shares of Series B Preferred Stock thereafter in accordance
herewith.
(7) No fractional shares of Common Stock shall be issued upon
conversion of Series B Preferred Stock. The Corporation at its option (a) may
pay in cash an amount equal to the product of (i) the arithmetic average of the
Closing Bid 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 Section 8(b)(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 on the record date referred to below at a
price per share less than the Current Price for such record date, 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 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.
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(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 Price per share of Common Stock on the record date mentioned
below.
F = the aggregate amount of such cash dividend and/or the fair market value
on the record date of the assets or securities to be distributed divided by the
number of shares of Common Stock outstanding on the record date. The Board of
Directors shall determine such fair market value, which determination shall be
conclusive.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this subparagraph (ii), "Junior Stock" shall include any class
of capital stock ranking junior as to dividends or upon liquidation to the
Series B 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 8(b)(5), the holder of any Series B 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 8, 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 holder and each transfer agent, if
any, for the Series B Preferred Stock and the Common Stock, a statement signed
by the Chairman of the
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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 8, and any adjustment
so evidenced, given in good faith, shall be binding upon all stockholders and
upon the Corporation. Whenever the Conversion Amount is adjusted, the
Corporation will give notice by mail to the holders of record of Series B
Preferred Stock, which notice shall be made within 15 days after the effective
date of such adjustment and shall state the adjustment and the Conversion
Amount. Notwithstanding the foregoing notice provisions, failure by the
Corporation to give such notice or a defect in such notice shall not affect the
binding nature of such corporate action of the Corporation.
(11) Whenever the Corporation shall propose to take any of the
actions specified in Section 8(b)(5) or in subparagraphs (i) or (ii) of Section
8(b)(8) which would result in any adjustment in the Conversion Amount under this
Section 8(b), 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 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.
Section 9. Redemption at Option of Holders. (a) Each holder of
shares of Series B Preferred Stock shall be entitled, at such holder's option,
by notice to the Corporation given within 20 days after the occurrence of an
Optional Redemption Event, to require the Corporation to redeem all or a portion
of such shares following the occurrence of an Optional Redemption Event.
(b) To exercise the optional redemption right, a holder of shares
of Series B Preferred Stock shall deliver to the Corporation a notice of
redemption (an "Optional Redemption Notice"), accompanied by the certificate for
the shares of Series B Preferred Stock to be redeemed. Any Optional Redemption
Notice shall state (1) that the holder delivering such notice is thereby
requiring the Corporation to redeem shares of Series B Preferred Stock pursuant
to this Section 9, (2) the Optional Redemption Event giving rise to such
redemption, and (3) the number of shares of Series B Preferred Stock held by
such holder which are to be redeemed. In no event later than five business days
following receipt of such notice by the Corporation, the Corporation shall make
payment in immediately available funds of the Optional Redemption Price
applicable on the date of such redemption with respect to the shares of Series B
Preferred Stock to be redeemed to or upon the order of such holder as specified
by such holder in the Optional Redemption Notice. Upon redemption of less than
all of the shares of Series B 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
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47
issue a replacement certificate for the shares of Series B Preferred Stock which
have not been redeemed. Only whole shares of Series B Preferred Stock may be
redeemed.
Section 10. Voting Rights. Except as otherwise required by law or
expressly provided herein, shares of Series B 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 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 Restated Articles of
Incorporation or this Certificate of Designation if the amendment, alteration,
or repeal materially and adversely affects the powers, preferences, or special
rights of the Series B 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 shall not be deemed to affect materially and adversely such
powers, preferences, or special rights and any such increase or creation and
issuance may be made without any such vote by the holders of Series B Preferred
Stock except as otherwise required by law.
Section 11. Outstanding Shares. For purposes of this Certificate
of Designation, all shares of Series B Preferred Stock shall be deemed
outstanding except (i) from the date of surrender of certificates representing
shares of Series B Preferred Stock for conversion into Common Stock, all shares
of Series B Preferred Stock converted into Common Stock; (ii) from the date of
registration of transfer, all shares of Series B Preferred Stock held of record
by the Corporation or any subsidiary or Affiliate (as defined herein) of the
Corporation and (iii) from the Share Limitation Redemption Date, Redemption Date
or Optional Redemption Date all shares of Series B Preferred Stock which are
redeemed, so long as in each case the Share Limitation Redemption Price, the
Redemption Price or the Optional Redemption Price, as the case may be, of such
shares of Series B Preferred Stock shall have been paid by the Corporation as
and when required hereby. For the purposes of this Certificate of Designation,
"Affiliate" means any person, other than the original holders of the shares of
Series B Preferred Stock, 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.
28
48
IN WITNESS WHEREOF, RIDE, INC. has caused this certificate to be
signed by _______________________, its ______________, as of the 19th day of
December, 1997.
RIDE, INC.
By:
--------------------------------
Title:
-----------------------------------
29
49
ANNEX II
TO SUBSCRIPTION
AGREEMENT
THIS WARRANT AND THE SHARES OF COMMON STOCK OF RIDE, INC. TO BE ISSUED UPON ANY
EXERCISE OF THE WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THEY MAY NOT BE OFFERED OR TRANSFERRED
BY SALE, ASSIGNMENT, PLEDGE OR OTHERWISE UNLESS (I) A REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT IS IN EFFECT OR (II) THE CORPORATION HAS
RECEIVED AN OPINION OF COUNSEL, WHICH OPINION IS SATISFACTORY TO THE
CORPORATION, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT.
WARRANT
TO PURCHASE SHARES
OF
COMMON STOCK
OF
RIDE, INC.
DECEMBER 19, 1997
This certifies that, for value received, Advantage Fund II Ltd.
("Advantage") and any subsequent transferee pursuant to the terms of the
Agreement (as defined below) of even date and this Warrant (each, a "Holder") is
entitled to purchase, subject to the provisions of this Warrant, from Ride,
Inc., a Washington corporation (the "Issuer"), at any time or from time to time
on or after the date hereof and on or before 5:00 p.m., P.S.T. on December 19,
2002 (the "Expiration Date"), Two Hundred Thousand (200,000) fully paid and
nonassessable shares of common stock (the "Common Stock"), of the Issuer at an
exercise price equal to $2.6813 (the "Exercise Price") (such shares of Common
Stock and other securities issued and issuable upon exercise of this Warrant,
the "Warrant Shares").
Section 1. Definitions. Except as otherwise specified herein, terms
defined herein shall have the meanings assigned to them in the Subscription
Agreement of even date herewith by and between Advantage and the Issuer (the
"Agreement").
Section 2. Exercise of Warrant.
(a) Subject to the provisions hereof, this Warrant may be
exercised, in whole or in part, but not as to a fractional share, at any
time or from time to time on
50
or after the date hereof and on or before the Expiration Date, by
presentation and surrender hereof to the Issuer or the Issuer's Transfer
Agent for this Warrant which, in accordance with the provisions of
Section 9 hereof, is then effective for notices to the Issuer or its
Transfer Agent, with the Subscription Form annexed hereto as SCHEDULE
ONE, duly executed and accompanied by payment to the Issuer as further
set forth below in this Section 2, for the account of the Issuer, of the
Exercise Price for the number of Warrant Shares specified in such form.
If this Warrant should be exercised in part only, the Issuer shall, upon
surrender of this Warrant, execute and deliver a new Warrant evidencing
the rights of the Holder hereof to purchase the balance of the Warrant
Shares purchasable hereunder. The Issuer shall maintain at its principal
place of business a register for the registration of this Warrant and
registration of transfer of this Warrant. The Exercise Price for the
number of Warrant Shares specified in the Subscription Form shall be
payable in United States Dollars by certified or official bank check
payable to the order of the Issuer or by wire transfer of immediately
available funds to an account specified by the Issuer for that purpose.
(b) Certificates representing Warrant Shares shall bear the
following restrictive legend:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Securities Act").
They may not be offered or transferred by sale, assignment, pledge or
otherwise unless (i) a registration statement for the securities under
the Securities Act is in effect or (ii) the corporation has received an
opinion of counsel to the effect that such registration is not required
under the Securities Act."
51
(c) Notwithstanding any provisions herein to the contrary, if the
Fair Market Value (hereinafter defined) of one share of Common Stock is
greater than the Exercise Price (at the date of calculation as set forth
below), in lieu of exercising this Warrant for cash, the Holder may
elect to receive shares equal to the value (as determined below) of this
Warrant (or the portion thereof being) by surrender of this Warrant at
the principal office of the Issuer or its Transfer Agent, together with
the properly endorsed Subscription Form in which event the Issuer shall
issue to the Holder a number of shares of Common Stock computed using
the following formula:
Y (A-B)
X = -------
A
Where X = the number of shares of Common Stock
to be issued to the Holder
Y = the number of shares of Common Stock
purchasable under the Warrant or, if only a portion of
the Warrant is being exercised, the portion of the
Warrant being exercised (at the date of such calculation)
A = the Fair Market Value of one share of
the Issuer's Common Stock (at the date of such
calculation)
B = Exercise Price (as adjusted to the
date of such calculation)
For purposes of the above calculation, Fair Market Value of one share of
Common Stock shall be the average closing bid price (as reported by The
Nasdaq Stock Market) of the Issuer's Common Stock for the five (5)
consecutive trading days ending on the trading day immediately preceding
the date of the Election to Purchase.
(d) Notwithstanding any other provision of this Warrant, in no
event shall the holder of this Warrant be entitled at any time to
purchase a number of shares of Common Stock on exercise of this Warrant
in excess of that number of shares upon purchase 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 Rule 13d-3 thereunder
(each an "Aggregated Person" and collectively, the "Aggregated Persons")
(other than shares of Common Stock deemed beneficially owned
52
through the ownership of the unexercised portion of this Warrant, any
warrant containing a restriction similar to this Section 2(d) and shares
of Series B Cumulative Convertible Preferred Stock, no par value per
share, of the Company (the "Series B Convertible Preferred Stock")
beneficially owned by all such Aggregated Persons) and (2) the number of
shares of Common Stock issuable upon exercise of the portion of this
Warrant with respect to which the determination in this sentence is
being made, would result in beneficial ownership by any Aggregated
Person of more than 4.9% of the outstanding shares of Common Stock. For
purposes of the immediately preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the Exchange Act
and Rule 13d-3 thereunder, except as otherwise provided in clause (1) of
the immediately preceding sentence.
Section 3. Reservation of Shares; Preservation of Rights of Holder. The
Issuer hereby agrees that there shall be reserved for issuance and/or delivery
upon exercise of this Warrant, such number of Warrant Shares as shall be
required for issuance or delivery upon exercise of this Warrant. The Warrant
surrendered upon exercise shall be canceled by the Issuer. After the Expiration
Date, no shares of Common Stock shall be subject to reservation in respect of
this Warrant. The Issuer further agrees (i) that it will not, by amendment of
its Articles of Incorporation or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act, avoid or seek to
avoid the observation or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by the Issuer, (ii) promptly to
take such action as may be required of the Issuer to permit the Holder to
exercise this Warrant and the Issuer duly and effectively to issue shares of its
Common Stock or other securities as provided herein upon the exercise hereof,
and (iii) promptly to take all action required or provided herein to protect the
rights of the Holder granted hereunder against dilution. Without limiting the
generality of the foregoing, should the Warrant Shares at any time consist in
whole or in part of shares of capital stock having a par value, the Issuer
agrees that before taking any action which would cause an adjustment of the
Exercise Price so that the same would be less than the then par value of such
Warrant Shares, the Issuer shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Issuer may validly and
legally issue fully paid and nonassessable shares of such Common Stock at the
Exercise Price as so adjusted. The Issuer further agrees that it will not
establish a par value for its Common Stock while this Warrant is outstanding in
an amount greater than the Exercise Price.
Section 4. Exchange, Transfer, Assignment or Loss of Warrant. Any
attempted transfer of this Warrant, the Warrant Shares or any new Warrant not in
accordance with this Section shall be null and void, and the Issuer shall not in
any way be required to give effect to such transfer. No transfer of this Warrant
shall be effective for any purpose hereunder until (i) written notice of such
transfer and of the name and address of the transferee has been received by the
Issuer, and (ii) the transferee shall first agree in a writing deposited with
the Secretary of the Issuer to be bound by all the provisions of this Warrant
and the Agreement. Upon surrender of this Warrant to the Issuer by any
transferee authorized under the provisions of this Section 4, the Issuer shall,
without charge, execute and deliver a new Warrant registered in the name of such
transferee at the address specified by such transferee, and this Warrant shall
promptly be canceled. The Issuer may deem and treat the registered
53
holder of any Warrant as the absolute owner thereof for all purposes, and the
Issuer shall not be affected by any notice to the contrary. Any Warrant, if
presented by an authorized transferee, may be exercised by such transferee
without prior delivery of a new Warrant issued in the name of the transferee.
Upon receipt by the Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Issuer will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute a separate contractual obligation on the
part of the Issuer, whether or not the Warrant so lost, stolen, destroyed or
mutilated shall be at any time enforceable by anyone.
Section 5. Rights of Holder. Neither a Holder nor his transferee by
devise or the laws of descent and distribution or otherwise shall be, or have
any rights or privileges of, a shareholder of the Issuer with respect to any
Warrant Shares, unless and until certificates representing such Warrant Shares
shall have been issued and delivered thereto.
Section 6. Adjustments in Exercise Price and Warrant Shares. The
Exercise Price and Warrant Shares shall be subject to adjustment from time to
time as provided in this Section 6.
(a) If the Issuer is recapitalized through the subdivision or
combination of its outstanding shares of Common Stock into a larger or
smaller number of shares, the number of shares of Common Stock for which
this Warrant may be exercised shall be increased or reduced, as of the
record date for such recapitalization, in the same proportion as the
increase or decrease in the outstanding shares of Common Stock, and the
Exercise Price shall be adjusted so that the aggregate amount payable
for the purchase of all Warrant Shares issuable hereunder immediately
after the record date for such recapitalization shall equal the
aggregate amount so payable immediately before such record date.
(b) If the Issuer declares a dividend on Common Stock, or makes a
distribution to holders of Common Stock, and such dividend or
distribution is payable or made in Common Stock or securities
convertible into or exchangeable for Common Stock, or rights to purchase
Common Stock or securities convertible into or exchangeable for Common
Stock, the number of shares of Common Stock for which this Warrant may
be exercised shall be increased, as of the record date for determining
which holders of Common Stock shall be entitled to receive such dividend
or distribution, in proportion to the increase in the number of
outstanding shares (and shares of Common Stock issuable upon conversion
of all such securities convertible into Common Stock) of Common Stock as
a result of such dividend or distribution, and the Exercise Price shall
be adjusted so that the aggregate amount payable for the purchase of all
the Warrant Shares issuable hereunder immediately after the record date
for such dividend or distribution shall equal the aggregate amount so
payable immediately before such record date.
54
(c) If the Issuer declares a dividend on Common Stock (other than
a dividend covered by subsection (b) above) or distributes to holders of
its Common Stock, other than as part of its dissolution or liquidation
or the winding up of its affairs, any shares of its capital stock, any
evidence of indebtedness or any cash or other of its assets (other than
Common Stock or securities convertible into or exchangeable for Common
Stock), the Holder shall receive notice of such event as set forth in
Section 8 below.
(d) In case of any consolidation of the Issuer with, or merger of
the Issuer into, any other corporation (other than a consolidation or
merger in which the Issuer is the continuing corporation and in which no
change, other than the issuance of Common Stock in connection with (i)
the merger of a third corporation into the Issuer or (ii) the
acquisition of all or substantially all of the assets or equity
securities of a third corporation, occurs in its outstanding Common
Stock), or in case of any sale or transfer of all or substantially all
of the assets of the Issuer, or in the case of any statutory exchange of
securities with another corporation (including any exchange effected in
connection with a merger of a third corporation into the Issuer, except
where the Issuer is the surviving entity and no change occurs in its
outstanding Common Stock), the corporation formed by such consolidation
or the corporation resulting from such merger or the corporation which
shall have acquired such assets or securities of the Issuer, as the case
may be, shall execute and deliver to the Holder simultaneously therewith
a new Warrant, satisfactory in form and substance to the Holder,
together with such other documents as the Holder may reasonably request,
entitling the Holder thereof to receive upon exercise of such Warrant
the kind and amount of shares of stock and other securities and property
receivable upon such consolidation, merger, sale, transfer, or exchange
of securities, or upon the dissolution following such sale or other
transfer, by a holder of the number of shares of Common Stock
purchasable upon exercise of this Warrant immediately prior to such
consolidation, merger, sale, transfer, or exchange. Such new Warrant
shall contain the same basic other terms and conditions as this Warrant
and shall provide for adjustments which, for events subsequent to the
effective date of such written instrument, shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Section 6.
The above provisions of this paragraph (d) shall similarly apply to
successive consolidations, mergers, exchanges, sales or other transfers
covered hereby.
(e) If the Issuer shall, at any time before the expiration of
this Warrant, sell all or substantially all of its assets and distribute
the proceeds thereof to the Issuer's shareholders, the Holder shall,
upon exercise of this Warrant have the right to receive, in lieu of the
shares of Common Stock of the Issuer that the Holder otherwise would
have been entitled to receive, the same kind and amount of assets as
would have been issued, less the Exercise Price, distributed or paid to
the Holder upon any such distribution with respect to such shares of
Common Stock of the Issuer had the Holder been the holder of record of
such shares of Common Stock receivable upon exercise of this Warrant on
the date for determining those entitled to receive any such
distribution. If any such distribution results in any cash distribution
in excess of the Exercise Price provided by this Warrant for the shares
of Common
55
Stock receivable upon exercise of this Warrant, the Holder may, at the
Holder's option, exercise this Warrant without making payment of the
Exercise Price and, in such case, the Issuer shall, upon distribution to
the Holder, consider the Exercise Price to have been paid in full and,
in making settlement to the Holder, shall obtain receipt of the Exercise
Price by deducting an amount equal to the Exercise Price for the shares
of Common Stock receivable upon exercise of this Warrant from the amount
payable to the Holder.
(f) If an event occurs which is similar in nature to the events
described in this Section 6, but is not expressly covered hereby, the
Board of Directors of the Issuer shall make or arrange for an equitable
adjustment to the number of Warrant Shares and the Exercise Price.
(g) The term "Common Stock" shall mean the Common Stock of the
Issuer as the same exists at the Closing Date or as such stock may be
constituted from time to time, except that for the purpose of this
Section 6, the term "Common Stock" shall only include any stock of any
class of the Issuer which has no preference in respect of dividends or
of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Issuer and which is not
subject to redemption by the Issuer.
(h) If required by the Holder, the Issuer shall retain a firm of
independent public accountants of recognized standing (who may be any
such firm regularly employed by the Issuer) to make any computation
required under this Section 6, and a certificate signed by such firm
shall be conclusive evidence of the correctness of any computation made
under this Section 6.
(i) Whenever the number of Warrant Shares or the Exercise Price
shall be adjusted as required by the provisions of this Section 6, the
Issuer forthwith shall file in the custody of its secretary or an
assistant secretary, at its principal office, and furnish to each Holder
hereof, a certificate prepared in accordance with paragraph (h) above,
showing the adjusted number of Warrant Shares and the Exercise Price and
setting forth in reasonable detail the circumstances requiring the
adjustments.
(j) Notwithstanding any other provision, this Warrant shall be
binding upon and inure to the benefit of any successors and assigns of
the Issuer.
(k) No adjustment in the Exercise Price in accordance with the
provisions of this Section 6 need be made if such adjustment would
amount to a change in such Exercise Price of less than $.01; provided
however, that the amount by which any adjustment is not made by reason
of the provisions of this paragraph (k) shall be carried forward and
taken into account at the time of any subsequent adjustment in the
Exercise Price.
(l) If an adjustment is made under this Section 6 and the event
to which the adjustment relates does not occur, then any adjustments in
accordance with this
56
Section 6 shall be readjusted to the Exercise Price and the number of
Warrant Shares which would be in effect had the earlier adjustment not
been made.
Section 7. Taxes on Issue or Transfer of Common Stock and Warrant. The
Issuer shall pay any and all documentary stamp or similar issue or transfer
taxes payable in respect of the issue or delivery of shares of Common Stock or
other securities on the exercise of this Warrant. The Issuer shall not be
required to pay any tax which may be payable in respect of any transfer of this
Warrant or in respect of any transfers involved in the issue or delivery of
shares or the exercise of this Warrant in a name other than that of the Holder
and the person requesting such transfer, issue or delivery shall be responsible
for the payment of any such tax (and the Issuer shall not be required to issue
or deliver said shares until such tax has been paid or provided for).
Section 8. Notice of Adjustment. So long as this Warrant shall be
outstanding, (a) if the Issuer shall propose to pay any dividends or make any
distribution upon the Common Stock, or (b) if the Issuer shall offer generally
to the holders of Common Stock the right to subscribe to or purchase any shares
of any class of Common Stock or securities convertible into Common Stock or any
other similar rights, or (c) if there shall be any proposed capital
reorganization of the Issuer in which the Issuer is not the surviving entity,
recapitalization of the capital stock of the Issuer, consolidation or merger of
the Issuer with or into another corporation, sale, lease or other transfer of
all or substantially all of the property and assets of the Issuer, or voluntary
or involuntary dissolution, liquidation or winding up of the Issuer, or (d) if
the Issuer shall give to its stockholders any notice, report or other
communication respecting any significant or special action or event, then in
such event, the Issuer shall give to the Holder, at least thirty (30) days prior
to the relevant date described below (or such shorter period as is reasonably
possible if thirty days is not reasonably possible), a notice containing a
description of the proposed action or event and stating the date or expected
date on which a record of the Issuer's stockholders is to be taken for any of
the foregoing purposes, and the date or expected date on which any such
dividend, distribution, subscription, reclassification, reorganization,
consolidation, combination, merger, conveyance, sale, lease or transfer,
dissolution, liquidation or winding up is to take place and the date or expected
date, if any is to be fixed, as of which the holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such event.
Section 9. Notice. Any notice to be given or to be served upon any party
in connection with this Warrant must be in writing and will be deemed to have
been given and received upon confirmed receipt, if sent by facsimile, or two (2)
days after it has been submitted for delivery by Federal Express or an
equivalent carrier and five (5) days after it has been mailed by first class
mail, charges prepaid and addressed to the following addresses with a
confirmation of delivery:
If to the Issuer, to:
Ride, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: Mr. G. ▇▇▇▇▇ ▇▇▇▇▇▇▇
57
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Summit Law Group PLLC
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Holder, to:
Advantage Fund II Ltd.
▇/▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ Antilles
Attn.: ▇.▇. ▇▇ ▇▇▇▇▇
Telephone:▇▇▇-▇▇▇-▇▇▇▇-▇▇▇▇
Facsimile: 011-599-9732-2008
With a copy to:
Genesee International, Inc.
▇▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Transfer Agent, to:
▇▇▇▇▇ ▇▇▇▇▇▇ Shareholder Services
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇ ▇▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
58
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may, at any time by giving notice to the other party, designate any
other address in substitution of an address established pursuant to the
foregoing to which such notice will be given
Section 10. Choice of Law; Conflict of Law; Jurisdiction and Venue.
Except as otherwise expressly provided herein, the terms, conditions and
enforceability of this Warrant shall be governed by and interpreted under the
laws of the State of Washington. Any claim, dispute or disagreement relating to
the terms and conditions of this Warrant, or arising from this Warrant or the
subject matter of this Warrant, may be brought only in the courts of the State
of Washington or in any United States District Court located in the State of
Washington, which shall have exclusive jurisdiction thereof. The parties to this
Agreement consent to such jurisdiction and venue and hereby knowingly and
voluntarily waive all objections thereto on the basis of lack of personal
jurisdiction, venue or convenience.
[SIGNATURE PAGE FOLLOWS]
59
Dated: December 19, 1997
RIDE, INC.
By:
Name:
Title:
ATTEST:
, Secretary
60
SCHEDULE ONE
SUBSCRIPTION FORM
TO RIDE, INC.:
1. The undersigned Holder of the attached original, executed Warrant
hereby elects to exercise its purchase right under such Warrant with respect to
______________ shares of Common Stock, as defined in the Warrant, of Ride, Inc.,
a Washington corporation (the "Company").
2. The undersigned Holder (check one):
(a) elects to pay the aggregate purchase price for such shares of
Common Stock (the "Exercise Shares") (i) by lawful money of the United States or
the enclosed certified or official bank check payable in United States dollars
to the order of the Company in the amount of $___________, or (ii) by wire
transfer of United States funds to the account of the Company in the amount of
$____________, which transfer has been made before or simultaneously with the
delivery of this Subscription Form pursuant to the instructions of the Company;
or
(b) elects to receive shares of Common Stock having a value equal
to the value of the Warrant calculated in accordance with Section 2(c) of the
Warrant.
3. Please issue a stock certificate or certificates representing the
appropriate number of shares of Common Stock in the name of the undersigned or
in such other names as is specified below:
Name: _____________________________________
Address: _____________________________________
_____________________________________
Dated:________________, _____ ____________________________
(Signature must conform to name of Holder as specified on the face of
the Warrant)
----------------------------
----------------------------
(Address)
61
ANNEX III
TO SUBSCRIPTION
AGREEMENT
ESCROW AGREEMENT
This Escrow Agreement (the "Agreement"), dated as of December 18, 1997,
is entered into by and among Ride, Inc., a Washington corporation (the
"Company"), ▇▇▇▇▇▇ Capital Group, Ltd., a California corporation (the "Placement
Agent"), LaSalle National Bank, a national banking association (the "Escrow
Agent"), and Advantage Fund II Ltd., a British Virgin Islands corporation (the
"Purchaser").
A. Whereas, the Company proposes to sell $3,000,000 of its 5% cumulative
convertible preferred stock (the "Preferred Shares") and a common stock purchase
warrant (the "Warrant") (collectively, the "Securities"), at an aggregate price
(the "Proceeds") and on terms to be set forth in the Subscription Agreement to
be executed by the Company and the Purchaser;
B. Whereas, the Securities are being offered to Purchasers by the Company
pursuant to Regulation D promulgated under the Securities Act of 1933, as
amended;
C. Whereas, the parties have agreed to establish an escrow account with
the Escrow Agent at its offices located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, for the purpose of effecting the closing of the sale of the
Securities on a delivery versus payment basis (the "Closing") on December 19,
1997 or on such other date as may be mutually agreed to by the parties (the
"Closing Date"); and
D. Whereas, the parties have agreed that the certificates representing
the Securities will be physically delivered by the Company to the Purchaser at
the Closing, with no requirement that such Securities be placed in escrow,
NOW, THEREFORE, it is hereby agreed as follows:
1. ESTABLISHMENT OF ESCROW. The Escrow Agent shall establish an escrow
for the purpose of receiving and disbursing the Proceeds from the sale of the
Securities in accordance with the terms hereof.
2. RESPONSIBILITIES OF THE PURCHASER. On or prior to the Closing Date,
the Purchaser shall cause the Proceeds to be wired to the Escrow Agent in
payment for the Securities.
3. RESPONSIBILITIES OF THE ESCROW AGENT. The Escrow Agent's
responsibilities shall be limited to receiving the Proceeds, via wire transfer
of immediately available funds, from the Purchaser and releasing such funds in
accordance with Section 4 hereof.
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62
4. DISTRIBUTION OF PROCEEDS. The parties agree that the Proceeds held by
the Escrow Agent shall be released only at such time when the Escrow Agent has
received an Instruction Letter, substantially in the form attached hereto as
Attachment A, executed by a representative of the Purchaser, or by ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇, Purchaser's counsel. Upon receipt, by facsimile or otherwise, of the
executed Instruction Letter, the Escrow Agent shall:
4.1 Release funds via wire transfer to the Company in the amount of
ninety four and three-quarters percent (94-3/4%) of the gross Proceeds received
from the sale of the Securities, less $9,000.00, pursuant to wire instructions
provided by the Company;
4.2 Release funds via wire transfer to the Placement Agent in the
amount of five and one-quarter percent (5-1/4%) of the gross Proceeds received
from the sale of the Securities plus $6,500.00 (representing the Placement
Agent's expense allowance net of the Escrow Agent's fee), pursuant to wire
instructions provided by the Placement Agent;
4.3 Release funds to the Escrow Agent in the amount of $2,500.00
(representing the Escrow Agent's fee).
5. INVESTMENT OF PROCEEDS. The Escrow Agent shall, if so requested by the
Purchaser, invest the Proceeds in an interest-bearing money market account, as
is customary for transactions of this general nature, said funds to remain so
invested until Closing. The Escrow Agent shall not be liable for any loss
resulting from any change in interest rates applicable to proceeds invested
pursuant to this paragraph. Interest on proceeds invested pursuant to this
paragraph shall accrue from the date of investment of such proceeds until the
termination of such investment. If the Closing Date shall not have occurred by
December 26, 1997 (or such other date as the Company and the Purchaser shall
agree upon), the Escrow Agent shall return the Proceeds to the Purchaser and the
Purchaser shall be paid the interest earned on the Proceeds.
6. ESCROW AGENT'S FEE. The Escrow Agent's fee for administration of this
escrow shall be $2,500.00, said fee to cover the Escrow Agent's compensation for
services rendered as well as for all costs and disbursements of the Escrow
Agent.
7. NOTICES. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be sent by telecopier, with an
original by mail or overnight courier, and addressed as follows:
if to the Company, to:
Ride, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: G. ▇▇▇▇▇ ▇▇▇▇▇▇▇, Senior V.P. and CFO
-2-
63
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
if to the Placement Agent, to:
▇▇▇▇▇▇ Capital Group, Ltd.
▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
if to the Escrow Agent, to:
LaSalle National Bank
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇, First Vice President
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
if to the Purchaser, to:
Advantage Fund II Ltd.
▇/▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ Antilles
Attention: ▇.▇. ▇▇ ▇▇▇▇▇, President
Telecopier: 011-599-9732-2008
or to such other address as the person to whom notice is to be given may have
previously furnished to the others in the above-referenced manner. Notice by
telecopier shall be deemed received upon confirmation of transmission.
8. CONCERNING THE ESCROW AGENT. To induce the Escrow Agent to act
hereunder, it is further agreed by the Company and the Placement Agent that:
8.1 The Escrow Agent shall not be under any duty to give the funds
it receives hereunder any greater degree of care than it gives its own similar
property.
8.2 The Escrow Agent shall not be liable, except for its own gross
negligence or willful misconduct, and, except with respect to claims based upon
such gross negligence or willful misconduct that are successfully asserted
against the Escrow Agent, the Company and the Placement Agent shall indemnify
and hold harmless the Escrow Agent from and against any and all losses,
liabilities, claims, actions, damages and expenses arising out of and in
connection with this Agreement.
-3-
64
8.3 The Escrow Agent shall be entitled to rely upon any order,
judgment, certification, demand, notice, instrument, or other writing delivered
to it hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity of the
service thereof. The Escrow Agent may act in reliance upon any instrument or
signature believed by it in good faith to be genuine and may assume, if in good
faith, that any person purporting to give notice or receipt or advice or make
any statement or execute any document in connection with the provisions hereof
has been duly authorized to do so.
8.4 The Escrow Agent may act in good faith and in the exercise of
its own best judgment in carrying out its duties hereunder.
8.5 The Escrow Agent at any time may be discharged from its duties
and obligations hereunder by the delivery to it of notice of termination signed
by the Placement Agent, the Purchaser (or an affiliate of the Purchaser), and
the Company. The Escrow Agent at any time may resign by giving written notice to
such effect to the Placement Agent and the Company. Upon any such termination or
resignation, the Escrow Agent shall deliver any and all property in escrow at
that time to a successor escrow agent designated by the Placement Agent, the
Purchaser (or an affiliate of the Purchaser), and the Company in writing,
whereupon the Escrow Agent shall be discharged of any and all further
obligations arising in connection with this Agreement.
9. MISCELLANEOUS.
9.1 This Agreement shall be binding upon and inure solely to the
benefit of the parties hereto and their respective successors and assigns,
administrators and representatives, and shall not be enforceable by or inure to
the benefit of any other third party.
9.2 This Agreement shall be construed in accordance with and
governed by the laws of the State of California (without reference to its rules
as to conflicts of law).
9.3 This Agreement may only be modified by a writing signed by all
of the parties hereto. No waiver hereunder shall be effective unless in a
writing signed by the party to be charged.
9.4 The paragraph headings herein are for convenience only and shall
not affect the construction, or be deemed to embellish, add to, modify, or
qualify the meaning of the contents hereof.
9.5 This Agreement may be executed in one or more counterparts but
all such separate counterparts shall constitute one and the same instrument.
Executed signature pages of each such counterpart may be affixed to a single
copy of this Agreement and together shall constitute an original.
9.6 Facsimile signatures shall be binding on the parties hereto.
-4-
65
[ signature page follows ]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first written above.
RIDE, INC.
By:
--------------------------------- G. ▇▇▇▇▇ ▇▇▇▇▇▇▇
Senior Vice President and CFO
▇▇▇▇▇▇ CAPITAL GROUP, LTD.
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66
By:
--------------------------------- ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President
LASALLE NATIONAL BANK
By:
--------------------------------- ▇▇▇▇▇ ▇. ▇▇▇▇
First Vice President
ADVANTAGE FUND II LTD.
By:
--------------------------------- ▇.▇. ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇
-▇-
▇▇
ESCROW AGREEMENT - ATTACHMENT A
Form of Escrow Instruction Letter
LaSalle National Bank
as Escrow Agent
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇, First Vice President
Re: Ride, Inc. - Trust Account #62-7862-10-5
Dear ▇▇. ▇▇▇▇:
Pursuant to the escrow agreement (the "Agreement") dated as of December
18, 1997 by and among Ride, Inc., ▇▇▇▇▇▇ Capital Group, Ltd., LaSalle National
Bank, and Advantage Fund II Ltd., you are hereby instructed to break escrow and
release funds pursuant to Section 5 of the Agreement. Thank you for your
assistance.
Sincerely,
-7-
68
ANNEX IV
TO SUBSCRIPTION
AGREEEMENT
December 19, 1997
Advantage Fund II Ltd.
▇/▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ Antilles
RE: ISSUANCE OF SERIES B 5% CUMULATIVE CONVERTIBLE PREFERRED
BY RIDE, INC.
Ladies and Gentlemen:
I am general counsel to Ride, Inc., a Washington corporation (the
"Company"). In such capacity I have represented the Company in connection with
the offer and sale of the Company's Series B 5% Cumulative Convertible Preferred
Stock (the "Preferred Stock") and a warrant (the "Warrant") to purchase up to
200,000 shares of the Company's Common Stock, no par value per share (the
"Common Stock"). Terms used and not otherwise defined herein shall have the
respective meanings set forth in the Subscription Agreement of even date
herewith by and between you and the Company. This opinion is delivered to you
pursuant to Section 7(e) of the Subscription Agreement.
I have assumed the genuineness of all signatures, the authenticity of
all documents, certificates and records, submitted to me as originals and the
conformity to originals of such documents, certificates and records submitted to
me as certified, conformed or photostatic copies. I have also assumed, without
verification, the legal capacity of each individual who has executed such
documents.
The law covered by opinions expressed herein is limited to the Federal
law of the United States and the law of the State of Washington. I do not
express any opinion with respect to the laws, regulations or ordinances of any
county, municipality or other local government agency.
Based upon and subject to the foregoing, I am of the opinion that:
69
Advantage Fund II Ltd.
December 19, 1997
Page 2
1. To my knowledge, except as set forth on Schedule 3(b) to the
Subscription Agreement, no holder of any of the Company's securities has any
rights, "demand," "piggy-back" or otherwise, to have such securities registered
by reason of the intention to file, filing or effectiveness of the Registration
Statement (as defined in the Registration Rights Agreement).
2. To my knowledge, there are no preemptive or similar rights of any
stockholder of the Company or any other person to acquire any shares of
Preferred Stock or Common Stock.
3. To my knowledge, the execution and delivery of the Subscription
Agreement by the Company and the consummation by the Company of the issuance of
the Preferred Shares and the Warrant as contemplated by the Subscription
Agreement and the other transactions contemplated by the Subscription Agreement,
the Warrant, the Registration Rights Agreement and the Certificate of
Designation 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, (i)
the articles of incorporation or the by-laws of the Company, or (ii) 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 which would have a material adverse effect on the Company or (iii) 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 which would have a material adverse effect on the
Company.
This opinion letter is delivered as of its date, and I do not undertake
to advise you or anyone else of any changes in the opinions expressed herein
resulting from changes in law, changes in facts or any other matters that
hereafter might occur or be brought to my attention that did not exist on the
date hereof or of which I had no knowledge.
This opinion letter may be relied upon by you only in connection with
the transaction described in the initial paragraph of this opinion letter and
may not be used or relied upon by you for any other purpose or by any other
person for any purpose whatsoever without, in each instance, my prior written
consent, except that this opinion letter may be relied upon by ▇▇▇▇▇▇ Capital
Group, Ltd. as the placement agent in connection with the transaction described
in the initial paragraph of this opinion letter.
Yours very truly,
▇▇▇▇▇ ▇. ▇▇▇▇▇, General Counsel
70
December 19, 1997
Advantage Fund II Ltd.
▇/▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ Antilles
Re: Issuance of Series B 5% Cumulative Convertible
Preferred Stock (the "Preferred Shares") by Ride, Inc.
Ladies and Gentlemen:
We have acted as counsel to Ride, Inc., a Washington corporation (the
"Company"), in connection with the offer and sale of the Company's Series B 5%
Cumulative Convertible Preferred Stock and a warrant (the "Warrant") to purchase
up to 200,000 shares of the Company's common stock, no par value per share (the
"Common Stock"). Terms used and not otherwise defined herein shall have the
respective meanings set forth in the Subscription Agreement of even date
herewith (the "Subscription Agreement") by and between the Company and Advantage
Fund II Ltd. (the "Purchaser"). This opinion is delivered to you pursuant to
Section 7(e) of the Subscription Agreement.
In connection with this opinion, we have examined:
(a) The Subscription Agreement;
(b) The Certificate of Designation of Series B 5% Cumulative
Convertible Preferred Stock of the Company to be filed
with the Secretary of the State of Washington (the
"Certificate of Designation");
(c) The Registration Rights Agreement, dated December 19, 1997
(the "Registration Rights Agreement"), by and between the
Company and the Purchaser;
71
Advantage Fund II Ltd.
December 19, 1997
Page 2
(d) The Warrant; and
(e) Records of proceedings and actions of the Board of
Directors of the Company relating to the transactions
contemplated by the Documents (hereinafter defined).
The Subscription Agreement, Registration Rights Agreement and Warrant
are sometimes hereinafter referred to collectively as the "Documents". We have
also investigated and examined the originals or copies of such documents,
certificates, and records as we have deemed relevant or necessary to render the
opinions contained herein.
We have assumed the genuineness of all signatures, the authenticity of
all documents, certificates and records, submitted to us as originals and the
conformity to originals of such documents, certificates and records submitted to
us as certified, conformed or photostatic copies. We have also assumed, without
verification, the legal capacity of each individual who has executed such
documents.
This opinion letter is subject to all assumptions, qualifications and
limitations not inconsistent herewith that are described in the Legal Opinion
Accord of the ABA Section of Business Law (1991) at Section 4 ("Reliance by
Opinion Giver on Assumptions"), Section 14 ("Other Common Qualifications"),
Section 16 ("No Violation of Law"), and Section 19 ("Specific Legal Issues").
The law covered by opinions expressed herein is limited to the Federal
law of the United States and the law of the State of Washington. We express no
opinion with respect to the laws, regulations or ordinances of any county,
municipality or other local government agency.
As used in this opinion letter, the expression "to our knowledge" means
the conscious awareness of facts or other information by the lawyers in our
office representing the Company in connection with the negotiation and
preparation of the Documents. It does not include information that might by
revealed if there were to be undertaken a canvass of all lawyers in all of our
offices or a review of all of our files.
72
Advantage Fund II Ltd.
December 19, 1997
Page 3
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly incorporated and validly existing
under the laws of the State of Washington, and has all requisite corporate power
and authority to (i) own, lease and operate its properties and to carry on its
business as currently conducted, and (ii) to execute, deliver and perform its
obligations under the Subscription Agreement and the Warrant and to consummate
the transactions contemplated by the Subscription Agreement.
2. Upon the filing of the Certificate of Designation, the authorized
capital stock of the Company will consist of (a) 20,000,000 shares of Common
Stock and (b) 10,000,000 shares of Preferred Stock, of which 100,000 has been
designated Series A 7% Cumulative Convertible Non-voting Preferred Stock and
3,000 has been designated Series B 5% Cumulative Convertible Preferred Stock.
3. The execution and delivery of the Subscription Agreement and
Registration Rights Agreement by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company. Each of the Subscription Agreement and
Registration Rights Agreement will, upon due execution and delivery by the
Company, constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except:
(a) the enforceability thereof may by affected by bankruptcy,
insolvency, reorganization, receivership, moratorium and other similar laws
affecting the rights;
(b) the courts of the State of Washington will consider extrinsic
evidence of circumstances surrounding the making of each of the Subscription
Agreement and Registration Rights Agreement to ascertain the intent of the
parties in using the language employed in such Subscription Agreement and
Registration Rights, regardless of whether or not the language used in such
Subscription Agreement and Registration Rights Agreement is plain and
unambiguous on its face, and may incorporate additional or supplementary terms
into such Subscription Agreement and Registration Rights Agreement; and
(c) We express no opinion as to the enforceability of Section 6
of the Registration Rights Agreement.
73
Advantage Fund II Ltd.
December 19, 1997
Page 4
4. The Preferred Shares and the Warrant have been duly authorized by the
Company and the Preferred Shares, when paid for in accordance with the terms of
the Subscription Agreement, shall be validly issued, fully paid and
nonassessable. The shares of Common Stock into which the Preferred Shares are
convertible and the shares of Common Stock issuable upon exercise of the Warrant
have been duly authorized and reserved for issuance by the Company and, when
issued by the Company upon conversion of the Preferred Shares or exercise of the
Warrant, as the case may be, will be validly issued, fully paid and
nonassessable.
5. The execution, delivery and performance of the Subscription Agreement
by the Company and the consummation by the Company of the transactions
contemplated by the Subscription Agreement, the Registration Rights Agreement,
Warrant and Certificate of Designation, do not and will not (i) conflict with or
violate any provision of the Company's articles of incorporation or bylaws, or
(ii) to our knowledge, result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company is subject (including Federal and
state securities laws and regulations), or by which any property or asset of the
Company is bound or affected which would have a material adverse effect on the
Company.
6. Other than any required filings or approvals of federal and state
regulatory agencies, including the Securities Exchange Commission and state
securities administrators with jurisdiction over the transaction, and any
required filings or approvals of the Nasdaq Stock Market, to our knowledge the
Company is not required to obtain any consent, waiver, authorization or order
of, or make any filing or registration with, any court or other federal, state,
local or other governmental authority or other person in connection with (i) the
execution, delivery and performance by the Company of the Subscription Agreement
and the Registration Rights Agreement (except such authorization of the SEC as
is required with respect to accelerating the effectiveness of any registration
statement filed pursuant thereto), (ii) the issuance and sale of the Preferred
Shares and Warrant as contemplated by the Subscription Agreement, (iii) the
issuance of Common Shares on conversion of, or in payment of dividends upon, the
Preferred Shares and (iv) the issuance of Common Shares on exercise of the
Warrant.
7. To our knowledge, the Company has filed all reports required to be
filed by it under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (collectively, the "SEC Documents"). As of their
respective dates, to our knowledge the SEC Documents complied as to form in all
material respects with the requirements of the Securities Act of 1933, as
amended, (the "1933 Act") and the Exchange Act and the rules and regulations of
the Securities and Exchange Commission promulgated thereunder. To our knowledge,
the Company is eligible to file a resale registration statement on Form S-3.
74
Advantage Fund II Ltd.
December 19, 1997
Page 5
8. Assuming the accuracy of the representations and warranties of the
Company set forth in Section 3 of the Subscription Agreement and of the
Purchaser set forth in Section 2 of the Subscription Agreement, it is not
necessary, in connection with the offer and sale of the Shares to the Purchasers
pursuant to the Subscription Agreement, to register the Shares under the 1933
Act or the Securities Act of the State of Washington.
This opinion letter is delivered as of its date and we do not undertake
to advise you or anyone else of any changes in the opinions expressed herein
resulting from changes in law, changes in facts or any other matters that
hereafter might occur or be brought to our attention that did not exist on the
date hereof or of which we had no knowledge.
This opinion letter may be relied upon by you only in connection with
the transaction described in the initial paragraph of this opinion letter and
may not be used or relied upon by you for any other purpose or by any other
person for any purpose whatsoever without, in each instance, our prior written
consent, except that this opinion letter may be relied upon by ▇▇▇▇▇▇ Capital
Group, Ltd. as the placement agent in connection with the transaction described
in the initial paragraph of this opinion letter.
Yours very truly,
Summit Law Group PLLC
75
ANNEX V
TO SUBSCRIPTION
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 19, 1997
(this "Agreement"), is made by and between RIDE, INC., a Washington corporation
(the "Company"), and the person named on the signature page hereto (the "Initial
Investor").
W I T N E S S E T H:
WHEREAS, in connection with the Subscription Agreement of even
date herewith, 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 an aggregate of 3,000 shares of Series B 5% Cumulative Convertible
Preferred Stock (the "Preferred Shares") of the Company and a warrant (the
"Warrant"), which are convertible or exercisable, as the case may be, into
shares of Common Stock, no par value per share (the "Common Stock"), of the
Company (the shares of Common Stock issuable upon conversion of the Preferred
Shares, payment of dividends on the Preferred Shares and exercise of the Warrant
are hereinafter sometimes referred to as the "Registrable Securities").
WHEREAS, to induce the Initial Investor to execute and deliver
the Subscription Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws with respect to the
Registrable Securities are issuable in;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
"Certificate of Designation" means the Certificate of Designation
of the Series B 5% Cumulative Convertible Preferred Stock as filed by the
Company with the Secretary of State of the State of Washington.
76
"Computation Date" has the meaning provided in the Certificate of
Designation.
"Conversion Percentage" has the meaning provided in the
Certificate of Designation.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Investor" or "Investors" means the Initial Investor and any
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
"register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Actor any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
"Registration Period" means the period from the Closing Date to
the earlier of (i) the date which is three years after the Closing Date, (ii)
the date on which the Investors can sell the Registrable Securities pursuant to
Rule 144(k) and (iii) the date on which the Investors no longer beneficially own
any Registrable Securities.
"Registration Statement" means a registration statement of the
Company, in the Form declared effective, under the 1933 Act, including any
amendment thereto.
(b) As used in this Agreement, the term Investor includes (i)
each Investor (as defined above) and (ii) each person who is a permitted
transferee or assignee of the Registrable Securities pursuant to Section 9 of
this Agreement.
(c) Capitalized terms defined in the introductory paragraph or
the recitals to this Agreement shall have the respective meanings therein
provided. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Subscription Agreement.
2. REGISTRATION. The Registration Statement shall include for
registration the resale of (i) such indeterminate number of shares of Common
Stock as may be issuable from time to time upon conversion of the Preferred
Shares, (ii) shares of Common Stock issuable in payment of accrued dividends on
the Preferred Shares and in payment of accrued interest on unpaid dividends and
(iii) shares of Common Stock issuable upon exercise of the Warrant.
(a) MANDATORY REGISTRATION. The Company shall prepare, and on or
prior to the date which is 30 days after the Closing Date, file with the SEC a
Registration
77
Statement on Form S-3 which, on the date of filing with the SEC pursuant to Rule
457(o), covers the resale by the Initial Investor of an indeterminate number of
shares of Common Stock as may be issuable from time to time upon conversion of
the Preferred Shares and exercise of the Warrant, determined as if the Preferred
Shares, together with accrued and unpaid dividends thereon, were converted in
full and the Warrants were exercised in full (and determined without regard to
the restriction in the proviso to the second sentence of Section 8(a) of the
Certificate of Designation) on the date of filing of the Registration Statement
with the SEC and as if the Preferred Shares were convertible and the Warrants
were exercisable on such date, and which Registration Statement shall state
that, in accordance with Rule 416 under the 1933 Act, such Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of the Preferred Shares and
exercise of the Warrants to prevent dilution resulting from stock splits, stock
dividends or similar transactions or by reason of changes in the conversion
price of the Preferred Shares in accordance with the terms thereof. The
Registration Statement required to be filed pursuant to this Section 2(a) shall
not include the 605,263 shares of Common Stock which may be issued by the
Company in connection with that certain acquisition presently contemplated by
the Company.
(b) CERTAIN OFFERINGS. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering,
persons who hold a majority in interest of the securities covered by such
Registration Statement subject to such underwritten offering shall have the
right to select one legal counsel and an investment banker or bankers and
manager or managers to administer the offering, which investment banker or
bankers or manager or managers shall be reasonably satisfactory to the Company.
The Investors who hold the Registrable Securities to be included in such
underwriting shall pay all underwriting discounts and commissions of such
investment banker or bankers and manager or managers so selected in accordance
with this Section 2(b) (other than fees and expenses relating to registration of
Registrable Securities under federal or state securities laws, which are payable
by the Company pursuant to Section 5 hereof) with respect to their Registrable
Securities and a ratable share of the fees and expenses of such legal counsel so
selected by the Investors.
(c) PAYMENTS BY THE COMPANY; ADJUSTMENTS OF CONVERSION TERMS. If
(1) the Company fails to file the Registration Statement with the SEC on or
prior to the date which is 30 days after the Issuance Date, (2) the Registration
Statement covering the Registrable Securities which is required to be filed by
the Company pursuant to the first sentence of Section 2(a) hereof is not ordered
effective by the SEC within 90 days after the Issuance Date, (3) the
Registration Statement required to be filed by the Company pursuant to Section
2(a) shall cease to be available for use by any holder of Preferred Shares which
is named therein as a selling stockholder for any reason (including, without
limitation, by reason of an SEC stop order, a material misstatement or omission
in such Registration Statement or the information contained in such Registration
Statement having become outdated), except as a result of information supplied in
writing by such holder for use in the Registration Statement, as contemplated by
clauses (7) and (8) of the definition of Computation Date or (4) a holder of
Preferred Shares having become unable
78
to convert any Preferred Shares in accordance with Section 8(a) of the
Certificate of Designation (other than by reason of the 4.9% limitation set
forth therein) as contemplated by clauses (9) and (10) of the definition of
Computation Date, then, in lieu of the adjustment of the Conversion Percentage
on any particular Computation Date, the Company shall have the right to make
payment to the Initial Investor in such amount and at such time 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 two percent (2.0%) of the aggregate subscription
price paid by the Initial Investor for the Preferred Shares pursuant to the
Subscription Agreement (each, a "Periodic Amount"). If the Company elects to
make payment hereunder of any Periodic Amount, such payment shall be made by the
Company by wire transfer in immediately available funds within two Business Days
after the applicable Computation Date to such account as shall be specified for
such purpose by the Initial Investor and if the Company fails to make timely
payment in full of any Periodic Amount, then, in respect of a particular
Computation Date, the Conversion Percentage and the Ceiling Price shall be
adjusted in respect of such Computation Date as provided in the Certificate of
Designation.
(d) PIGGY-BACK REGISTRATIONS. If at any time the Company shall
determine to prepare and file with the SEC a Registration Statement relating to
an offering for its own account or the account of others under the Securities
Act of any of its equity securities, other than on Form S-4 or Form S-8 or their
then equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each Investor who is entitled to registration rights under this Section
2(d) written notice of such determination and, if within ten (10) days after
receipt of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that if, in
connection with any underwritten public offering for the account of the Company
the managing underwriter(s) thereof shall impose a limitation on the number of
shares of Common Stock which may be included in the Registration Statement
because, in such underwriter(s)' judgment, such limitation is necessary to
effect an orderly public distribution, then the Company shall be obligated to
include in such Registration Statement only such limited portion of the
Registrable Securities with respect to which such Investor has requested
inclusion hereunder. Any exclusion of Registrable Securities shall be made pro
rata among the Investors seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such
Investors; provided, however, that the Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding securities the
holders of which are not entitled by right to inclusion of securities in such
Registration Statement; and provided further, however, that, after giving effect
to the immediately preceding proviso, any exclusion of Registrable Securities
shall be made pro rata with holders of other securities having the right to
include such securities in the Registration Statement, based on the number of
securities for which registration is requested except to the extent such pro
rata exclusion of such other securities is
79
prohibited under any written agreement entered into by the Company with the
holder of such other securities prior to the date of this Agreement, in which
case such other securities shall be excluded, if at all, in accordance with the
terms of such agreement. No right to registration of Registrable Securities
under this Section 2(d) shall be construed to limit any registration required
under Section 2(a) hereof. The obligations of the Company under this Section
2(d) may be waived by Investors holding a majority in interest of the
Registrable Securities and shall expire after the Company has afforded the
opportunity for the Investors to exercise registration rights under this Section
2(d) for two registrations; provided, however, that any Investor who shall have
had any Registrable Securities excluded from any Registration Statement in
accordance with this Section 2(d) shall be entitled to include in an additional
Registration Statement filed by the Company the Registrable Securities so
excluded. Notwithstanding any other provision of this Agreement, if the
Registration Statement required to be filed pursuant to Section 2(a) of this
Agreement shall have been ordered effective by the SEC and the Company shall
have maintained the effectiveness of such Registration Statement as required by
this Agreement and if the Company shall otherwise have complied in all material
respects with its obligations under this Agreement, then the Company shall not
be obligated to register any Registrable Securities on such Registration
Statement referred to in this Section 2(d).
(e) ELIGIBILITY FOR FORM S-3. The Company meets the requirements
for the use of Form S-3 for registration of the Registrable Securities for
resale by the Investor. The Company shall file all reports required to be filed
by the Company with the SEC in a timely manner so as to maintain such
eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall:
(a) prepare promptly, and file with the SEC not later than 30
days after the Closing Date, a Registration Statement with respect to the number
of Registrable Securities provided in Section 2(a), and thereafter to use its
best efforts to cause each Registration Statement relating to Registrable
Securities to become effective as soon as possible after such filing, and keep
the Registration Statement effective pursuant to Rule 415 at all times during
the Registration Period; and the Company represents and warrants to, and
covenants and agrees with, the Investors that the Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein), at the time it is first filed with the SEC, at the time it is ordered
effective by the SEC and at all time during which it is required to be effective
hereunder (and each such amendment and supplement at the time it is filed with
the SEC and at all time during which it is available for use in connection with
the offer and sale of the Registrable Securities) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
80
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel, (1) promptly after
the same is prepared and publicly distributed, filed with the SEC or received by
the Company, one copy of the Registration Statement and any amendment thereto,
each preliminary prospectus and prospectus and each amendment or supplement
thereto, each letter written by or on behalf of the Company to the SEC or the
staff of the SEC and each item of correspondence from the SEC or the staff of
the SEC relating to such Registration Statement (other than any portion of any
thereof which contains information for which the Company has sought confidential
treatment) and (2) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) use best efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such securities or blue
sky laws of such jurisdictions as the persons who hold a majority in interest of
the securities covered by such Registration Statement being offered reasonably
request, (ii) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times until the end of the Registration Period, (iii) take such other actions as
may be necessary to maintain such registrations and qualifications in effect at
all times during the Registration Period and (iv) take all other actions
reasonably necessary or advisable to qualify the Registrable Securities for sale
in such jurisdictions; provided, however, that the Company shall not be required
in connection therewith or as a condition thereto (I) to qualify to do business
in any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (II) to subject itself to general taxation in any such
jurisdiction, (III) to file a general consent to service of process in any such
jurisdiction, (IV) to provide any undertakings that cause more than nominal
expense or burden to the Company or (V) to make any change in its charter or
by-laws, which in each case the Board of Directors of the Company determines to
be contrary to the best interests of the Company and its stockholders;
(e) in the event that the Registrable Securities are being
offered in an underwritten offering, enter into and perform its obligations
under an underwriting
81
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters of such
offering;
(f) as promptly as practicable after becoming aware of such event
or circumstance, notify each Investor of any event or circumstance of which the
Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and use its best efforts promptly to
prepare a supplement or amendment to the Registration Statement to correct such
untrue statement or omission, and deliver a number of copies of such supplement
or amendment to each Investor as such Investor may reasonably request;
(g) as promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the SEC of any stop order or other suspension of effectiveness of
the Registration Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling
stockholders' counsel by the Investors who hold a majority in interest of the
Registrable Securities being sold to review and comment on the Registration
Statement and all amendments and supplements thereto a reasonable period of time
prior to their filing with the SEC;
(i) make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 under the ▇▇▇▇ ▇▇▇) covering a twelve-month period beginning not later
than the first day of the Company's fiscal quarter next following the effective
date of the Registration Statement;
(j) at the request of the persons who hold a majority in interest
of the securities covered by the Registration Statement, furnish on the date
that Registrable Securities are delivered to an underwriter, if any, for sale in
connection with the Registration Statement (i) a letter, dated such date, from
the Company's independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters; and (ii) an
opinion, dated such date, from counsel representing the Company for purposes of
such Registration Statement, in form and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors;
(k) make available, to the extent permitted under applicable
securities laws, for inspection by any Investor, any underwriter participating
in any disposition pursuant to the Registration Statement, and any attorney,
accountant or other agent retained by any such Investor or underwriter
(collectively, the "Inspectors"), all pertinent
82
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably necessary to
enable each Inspector to exercise its due diligence responsibility, and cause
the Company's officers, directors and employees to supply all information which
any Inspector may reasonably request for purposes of such due diligence;
provided, however, that each Inspector shall hold in confidence and shall not
make any disclosure (except to an Investor) of any Record or other information
which the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (ii) the release of such Records is ordered pursuant to
a subpoena or other order from a court or government body of competent
jurisdiction or (iii) the information in such Records has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Company shall not be required to disclose any confidential
information in such Records to any Inspector until and unless such Inspector
shall have entered into confidentiality agreements (in form and substance
satisfactory to the Company) with the Company with respect thereto,
substantially in the form of this Section 3(k). Each Investor agrees that it
shall, upon learning that disclosure of such Records is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to the Company and allow the Company, at the Company's own
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, the Records deemed confidential. The Company shall hold
in confidence and shall not make any disclosure of information concerning an
Investor provided to the Company pursuant to Section 4(e) hereof unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor, at
such Investor's own expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information;
(l) use its best efforts (i) to cause all the Registrable
Securities covered by the Registration Statement to be listed on the Nasdaq
National Market ("Nasdaq") or such other principal securities market on which
securities of the same class or series issued by the Company are then listed or
traded or (ii) if securities of the same class or series as the Registrable
Securities are not then listed on Nasdaq or any such other securities market, to
cause all of the Registrable Securities covered by the Registration Statement to
be listed on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq SmallCap Market;
(m) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
83
(n) cooperate with the Investors who hold Registrable Securities
being offered and the managing underwriter or underwriters, if any, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legends) representing Registrable Securities to be offered pursuant
to the Registration Statement and enable such certificates to be in such
denominations or amounts as the case may be, as the managing underwriter or
underwriters, if any, or the Investors may reasonably request and registered in
such names as the managing underwriter or underwriters, if any, or the Investors
may request; and, within three business days after a Registration Statement
which includes Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel selected by the Company to
deliver, to the transfer agent for the Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) an instruction substantially in the form attached hereto as EXHIBIT 1
and an opinion of such counsel, if required by the Company's transfer agent, in
the form attached hereto as EXHIBIT 2;
(o) during the period the Company is required to maintain
effectiveness of the Registration Statement pursuant to Section 3(a), the
Company shall not bid for or purchase any Common Stock or any right to purchase
Common Stock or attempt to induce any person to purchase any such security or
right if such bid, purchase or attempt would in any way limit the right of the
Investors to sell Registrable Securities by reason of the limitations set forth
in Regulation M under the Exchange Act; and
(p) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant to
the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least four (4)
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor (the "Requested Information") if any of such Investor's
Registrable Securities are eligible for inclusion in the Registration Statement.
If at least one (1) business day prior to the filing date the Company has not
received the Requested Information from an Investor (a "Non-Responsive
Investor"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor (and if the
only Investor participating in the registration is a Non-
84
Responsive Investor, the Company shall not be required to file the Registration
Statement prior to the date which is two business days after the Requested
Information is furnished by such Investor);
(b) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement;
(c) In the event persons holding a majority in interest of the
securities covered by the Registration Statement determine to engage the
services of an underwriter, each Investor agrees to enter into and perform such
Investor's obligations under an underwriting agreement, in usual and customary
form, including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement;
(d) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice; and
(e) No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and other fees and expenses of investment
bankers and any manager or managers of such underwriting and legal expenses of
the underwriters applicable with respect to its Registrable Securities, in each
case to the extent not payable by the Company pursuant to the terms of this
Agreement.
5. EXPENSES OF REGISTRATION. All reasonable expenses, other than
underwriting discounts and commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 3, including,
without limitation, all
85
registration, listing and qualifications fees, printers and accounting fees and
the fees and disbursements of counsel for the Company, shall be borne by the
Company, provided, however, that the Investors shall bear the fees and
out-of-pocket expenses of any legal counsel retained by the Investors.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor and any affiliate of such Investor who holds
such Registrable Securities, the directors, if any, of such Investor, the
officers, if any, of such Investor, each person, if any, who controls any
Investor within the meaning of the Securities Actor the Exchange Act, any
underwriter (as defined in the ▇▇▇▇ ▇▇▇) for the Investors, the directors, if
any, of such underwriter and the officers, if any, of such underwriter, and each
person, if any, who controls any such underwriter within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person"), against any
losses, claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the 1933
Act, the Exchange Act or otherwise, insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any of the following statements, omissions or violations in
the Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the 1933 Act, the Exchange Act, any state securities law or any rule or
regulation under the 1933 Act, the Exchange Act or any state securities law (the
matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to the restrictions set forth in Section 6(c) with
respect to the number of legal counsel, the Company shall reimburse the
Investors and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement, the prospectus or any such amendment thereof
86
or supplement thereto, if such prospectus was timely made available by the
Company pursuant to Section 3(c) hereof; (II) with respect to any preliminary
prospectus shall not inure to the benefit of any such person from whom the
person asserting any such Claim purchased the Registrable Securities that are
the subject thereof (or to the benefit of any person controlling such person) if
the untrue statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or supplemented, if
such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; and (III) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to indemnify and hold
harmless, to the same extent and in the same manner set forth in Section 6(a),
the Company, each of its directors, each of its officers who signs the
Registration Statement, each person, if any, who controls the Company within the
meaning of the Securities Actor the Exchange Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Actor the Exchange Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and such Investor will reimburse
any legal or other expenses reasonably incurred by any Indemnified Party in
connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Section 6(b) for only that amount of a Claim as does not
exceed the amount by which the net proceeds to such Investor from the sale of
Registrable Securities pursuant to such Registration Statement exceeds the cost
of such Registrable Securities to such Investor. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
such Indemnified Party and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9. Notwithstanding anything to
the contrary contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.
87
(c) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel selected by the indemnifying party
but reasonably acceptable to the Indemnified Person or the Indemnified Party, as
the case may be; provided, however, that an Indemnified Person or Indemnified
Party shall have the right to retain its own counsel with the fees and expenses
to be paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. In such event, the Company shall pay for only one
separate legal counsel for the Investors; such legal counsel shall be selected
by the persons holding a majority in interest of the securities included in the
Registration Statement to which the Claim relates. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
(d) To the extent that the Company and the Investors agree
pursuant to a subsequent agreement to provide indemnification to the Investors
with respect to any such Registration Statement, the provisions of the later
agreement shall control.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6, (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the amount by which the net amount of proceeds
received by such seller from the sale of such Registrable Securities exceeds the
purchase price paid by such seller for such Registrable Securities.
88
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144.
(d) take all reasonable actions necessary and cooperate with the
Investors to effect sales of Registrable Securities pursuant to Rule 144.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of all or any portion
of such securities (or all or any portion of the Preferred Shares or Warrant)
only if: (a) the Investor agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the Company
within a reasonable time after such assignment, (b) the Company is, within a
reasonable time prior to such transfer or assignment, furnished with written
notice of (i) the name and address of such transferee or assignee and (ii) the
securities with respect to which such registration rights are being transferred
or assigned, (c) immediately following such transfer or assignment the further
disposition of such securities by the transferee or assignee is restricted under
the Securities Act and applicable state securities laws, and (d) at or before
the time the Company received the written notice contemplated by clause (b) of
this sentence the transferee or assignee agrees in writing with the Company to
be bound by all of the provisions contained herein. In connection with any such
transfer the Company shall, at its sole cost and expense, promptly after such
assignment take such actions as shall be reasonably acceptable to the Initial
Investor and such transferee to assure that the Registration Statement and
related prospectus are available for use by such transferee for sales of the
Registrable Securities in respect of which the rights to registration have been
so assigned.
89
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold a majority in interest of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Any notice to be given or to be served upon any party in
connection with this Agreement must be in writing and will be deemed to have
been given and received upon confirmed receipt, if sent by facsimile, or two (2)
days after it has been submitted for delivery by Federal Express or an
equivalent carrier and five (5) days after it has been mailed by first class
mail, charges prepaid and addressed to the following addresses with a
confirmation of delivery:
If to the Company, to:
Ride, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: Mr. G. ▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Summit Law Group PLLC
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Buyer, to:
Advantage Fund II Ltd.
▇/▇ ▇▇▇▇▇
▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ Antilles
Attn.: ▇.▇. ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇-▇▇▇▇
Facsimile: 011-599-9732-2008
With a copy to:
Genesee International, Inc.
▇▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may, at any time by giving notice to the other party, designate any
other address in substitution of an address established pursuant to the
foregoing to which such notice will be given.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) The terms, conditions and enforceability of this Agreement
shall be governed by and interpreted under the laws of the State of Washington.
Any claim, dispute or disagreement relating to the terms and conditions of this
Agreement, or arising from this Agreement or the subject matter of this
Agreement, may be brought only in the courts of the State of Washington or in
any United States District Court located in the State of Washington, which shall
have exclusive jurisdiction thereof. The parties to this Agreement consent to
such jurisdiction and venue and hereby knowingly and voluntarily waive all
objections thereto on the basis of lack of personal jurisdiction, venue or
convenience.
(e) In the event that any provision of this Agreement is invalid
or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed
91
modified to conform with such statute or rule of law. Any provision hereof which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof.
(f) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
(g) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(h) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(i) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(j) The Company acknowledges that any failure by the Company to
perform its obligations under this Agreement, including, without limitation, the
Company's obligations under Section 3(n), or any delay in such performance could
result in damages to the Investors and the Company agrees that, in addition to
any other liability the Company may have by reason of any such failure or delay,
the Company shall be liable for all direct and consequential damages caused by
any such failure or delay.
(k) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by telephone line facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement.
92
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of day
and year first above written.
RIDE, INC.
By:
------------------------------
Name:
-----------------------------
Title:
---------------------------
ADVANTAGE FUND II LTD.
By:
------------------------------
▇.▇. ▇▇ ▇▇▇▇▇
President
93
EXHIBIT 1
TO
REGISTRATION
RIGHTS AGREEMENT
[Company Letterhead]
[Date]
▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------
-----------------------
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and
direction to you [(1) to transfer or re-register the certificates for the shares
of Common Stock, no par value per share (the "Common Stock"), of RIDE, INC., a
Washington corporation (the "Company"), represented by certificate numbers
_______ and _______ for an aggregate of _________________ shares (the
"Outstanding Shares") of Common Stock presently registered in the name of
Advantage Fund II Ltd. upon surrender of such certificate(s) to you,
notwithstanding the legend appearing on such certificates, and (2) ] to issue
shares (the "Conversion Shares") of Common Stock to or upon the order of the
holder from time to time on conversion of the shares (the "Preferred Shares") of
Series B 5% Cumulative Convertible Preferred Stock, no par value per share, of
the Company, issued by the Company upon receipt by you of a Notice of Conversion
from such holder in the form enclosed herewith and (3) to issue shares (the
"Warrant Shares") of Common Stock on exercise of the Common Stock Purchase
Warrant (the "Warrant") issued to the holder upon the order of the registered
holder from time to time of the Warrant upon surrender to you by such registered
holder for exercise of the Warrant and a properly completed and duly executed
form of subscription in the form enclosed herewith. [The transfer or
re-registration of the certificates for the Outstanding Shares by you should be
made at such time as you are requested to do so by the record holder of the
Outstanding Shares. The certificate issued upon such transfer or re-registration
should be registered in such name as requested by the holder of record of the
certificate surrendered to you and should not bear any legend which would
restrict the transfer of the shares represented thereby. In addition, you are
hereby directed to remove any stop-transfer instruction relating to the
Outstanding Shares.] Certificates for the Conversion Shares and the Warrant
Shares should not bear any restrictive legend and should not be subject to any
stop-transfer restriction.
Contemporaneously with the delivery of this letter, the Company
is delivering to you an opinion of Summit Law Group, PLLC as to registration of
[the
94
Outstanding Shares and] the Conversion Shares and the Warrant Shares under
the Securities Act of 1933, as amended.
Should you have any questions concerning this matter, please
contact me.
Very truly yours,
RIDE, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Enclosures
cc: Advantage Fund II Ltd.
95
EXHIBIT 2
TO
REGISTRATION
RIGHTS AGREEMENT
, 1998
▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------
-----------------------
Re: Ride, Inc.
Ladies and Gentlemen:
We are counsel to Ride, Inc., a Washington corporation (the
"Company"), and we understand that Advantage Fund II Ltd. (the "Holder") has
purchased from the Company (i) an aggregate of 3,000 shares (the "Preferred
Shares") of the Company's Series B 5% Cumulative Convertible Preferred Stock, no
par value per share (the "Preferred Stock") and (ii) a Common Stock Purchase
Warrant (the "Warrant"). The Preferred Shares and Warrant were purchased by the
Holder pursuant to a Subscription Agreement, dated December 19, 1997, between
the Holder and the Company (the "Subscription Agreement"). Pursuant to a
Registration Rights Agreement, dated as of December 19, 1997, between the
Company and the Holder (the "Registration Rights Agreement") entered into in
connection with the purchase by the Holder of the Preferred Shares and the
Warrant, the Company agreed with the Holder, among other things, to register for
resale the shares of Common Stock issuable upon conversion of the Preferred
Shares (the "Conversion Shares") and the shares of Common Stock (the "Warrant
Shares") issuable upon exercise of the Warrant under the Securities Act of 1933,
as amended (the "Securities Act"), upon the terms provided in the Registration
Rights Agreement. Pursuant to the Registration Rights Agreement, on __________,
1998 the Company filed a Registration Statement on Form S-3 (File No.
333-__________) (the "Registration Statement") with the Securities and Exchange
Commission (the "SEC") relating to the Conversion Shares and the Warrant Shares,
which names the Holder as a selling stockholder thereunder.
[Other introductory and scope of examination language to be
inserted]
Based on the foregoing, we are of the opinion that the Conversion
Shares and the Warrant Shares have been registered for resale under the
Securities Act.
96
This opinion may be relied upon by the Holder as if addressed to
the Holder. [Other appropriate language to be included.]
Very truly yours,
cc: Advantage Fund II Ltd.
97
ANNEX VI
TO SUBSCRIPTION
AGREEMENT
RIDE, INC.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
December , 1997
▇▇▇▇▇ ▇▇▇▇▇▇
-----------------
-----------------
Dear Sir or Madam:
Pursuant to a Subscription Agreement, dated December 19, 1997
(the "Subscription Agreement"), by and between RIDE, INC., a Washington
corporation (the "Company"), and Advantage Fund II Ltd. (the "Holder"), the
Holder is acquiring (i) shares (the "Preferred Shares") of Series B 5%
Cumulative Convertible Preferred Stock, no par value per share (the "Series B
Preferred Stock"), of the Company and (ii) a Common Stock Purchase Warrant (the
"Warrant"). The Preferred Shares and the Warrant are convertible into shares of
Common Stock, no par value per share (the "Common Stock"), of the Company. As a
condition precedent to the obligation of the Holder to purchase the Preferred
Shares and the Warrant, the Holder requires the Company to send this letter as
the Company's irrevocable instruction to ▇▇▇▇▇ ▇▇▇▇▇▇, as Transfer Agent and
Registrar (the "Transfer Agent"), that the Holder and each other holder of
shares of Series B Preferred Stock and the Warrant will be assured of the timely
issuance and receipt of shares of Common Stock upon conversion of shares of
Series B Preferred Stock and shares of Common Stock upon exercise of the
Warrant.
1. DELIVERIES BY THE COMPANY. The Company has enclosed with this
letter the following:
(a) a list showing the name and address of the (i) holder of the
Warrant and exercise price and number of shares of Common Stock for
which the Warrant may be exercised and (ii) holder of record of shares
of Series B Preferred Stock and the certificate number, date of issuance
and number of shares of Series B Preferred Stock for each such holder;
98
▇▇▇▇▇ ▇▇▇▇▇▇
December ___, 1997
Page 2
(b) an opinion of Summit Law Group, counsel to the Company, as to
the due authorization, validity of issuance and fully-paid and
non-assessable nature of the shares of Common Stock issuable upon
conversion of shares of Series B Preferred Stock and the shares of
Common Stock issuable upon exercise of the Warrant (collectively, the
"Common Shares"), and to the effect that the Preferred Shares and the
Warrant 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");
(c) the form of Notice of Conversion of Convertible Preferred
Stock (the "Conversion Notice") relating to the Series B Preferred
Stock; and
(d) the Form of Subscription (the "Subscription Form") relating
to the Warrant.
2. ISSUANCE OF COMMON SHARES. (a) The Company hereby appoints the
Transfer Agent as conversion agent for the Series B Preferred Stock and exercise
agent for the Warrant. The Company hereby irrevocably instructs the Transfer
Agent to issue the Common Shares upon conversion of shares of Series B Preferred
Stock from time to time upon receipt of a Conversion Notice and to issue the
Common Shares from time to time upon receipt of a Subscription Form. A
Conversion Notice or Subscription Form 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 4(a). [The
certificates for shares of Series B 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 counsel (who may be counsel to the Holder),
which counsel shall be reasonably acceptable to the Transfer Agent, 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 "Act"). The securities
have been acquired for investment and may not be resold, transferred or
assigned in the absence of an effective registration statement for the
securities under the Act, 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
request of the Holder, the Transfer Agent will prepare and issue within three
business days after such request substitute certificates without any restrictive
legend for any certificates for Common Shares
99
▇▇▇▇▇ ▇▇▇▇▇▇
December ___, 1997
Page 3
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.
3. CONVERSION AND EXERCISE OBLIGATIONS ABSOLUTE; NO CONTRARY
INSTRUCTIONS. (a) If a holder shall have given a Conversion Notice for
conversion of shares of Series B Preferred Stock, or if a holder shall have
given a Subscription Form for exercise of the Warrant and tendered the
applicable exercise price in accordance with the Warrant, the Company shall
issue and deliver as stated in such Conversion Notice or Subscription Form, as
the case may be, the Common Shares issuable upon such conversion or exercise, as
the case may be, within three (3) business days after such Conversion Notice or
Subscription Form, as the case may be, is given and the person converting or
exercising shall be deemed to be the holder of record of the Common Shares
issuable upon such conversion or exercise, and all rights with respect to the
shares of Preferred Stock so converted or the Warrants so exercised, as the case
may be, shall forthwith terminate except the right to receive the Common Shares,
or other securities, cash, or other assets as provided in the Certificate of
Designation of the Series B Preferred Stock (the "Certificate of Designation")
or the Warrant, as the case may be. The Transfer Agent acknowledges and agrees
that, if a holder shall have given a Conversion Notice or given a Subscription
Form (and shall have tendered payment of the applicable Warrant exercise price),
as provided herein, the Company's obligation to issue and deliver the
certificates for Common Shares upon such conversion or exercise shall be
absolute and unconditional, irrespective of any action or inaction by the
converting or exercising 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 such holder, or any
setoff, counterclaim, recoupment, limitation or termination, or any breach or
alleged breach by such holder or any other person of any obligation to the
Company or any violation or alleged violation of law by such holder or any other
person, and irrespective of any other circumstance which might otherwise limit
such obligation of the Company to such holder in connection with such conversion
or exercise. In lieu of delivering physical certificates representing the Common
Shares issuable upon conversion of shares of Preferred Stock and exercise of the
Warrant, provided the Transfer Agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer ("FAST") program, upon
request of any holder, the Transfer Agent shall electronically transmit the
Common Stock issuable upon such conversion or exercise to such holder by
crediting the account of such holder or such holder's broker with DTC through
its Deposit Withdrawal Agent Commission ("DWAC") system. The Company shall,
within the time period it is required to issue Common Shares upon conversion of
Preferred Stock or exercise of the Warrant pursuant to this Section 3(a), issue
and deliver upon the order of such converting or exercising holder of shares of
Preferred Stock new certificate(s) of like tenor, registered as such holder of
shares of Preferred
100
▇▇▇▇▇ ▇▇▇▇▇▇
December ___, 1997
Page 4
Stock may request, representing in the aggregate the
remaining number of unconverted shares of Preferred Stock, if any, represented
by the Preferred Stock certificate(s) delivered in connection with such
conversion.
(b) The Company shall not give any instruction to the Transfer
Agent which is contrary to this letter. The Company hereby expressly directs the
Transfer Agent to disregard any request, instruction or other communication from
or on behalf of the Company which is contrary to or inconsistent with this
letter.
(c) As set forth in Section 8(b)(3) of the Certificate of
Designation, the number of Common Shares to be issued in connection with a
particular conversion of shares of Series B 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 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 a 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
Preferred Stock within one business day after such dispute is submitted to the
Auditors. Immediately after receipt of timely notice of the Auditors'
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 Auditors' 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 Designation.
4. MISCELLANEOUS.
101
▇▇▇▇▇ ▇▇▇▇▇▇
December ___, 1997
Page 5
(a) Any notice to be given or to be served upon any party in
connection with this Agreement must be in writing and will be deemed to have
been given and received upon confirmed receipt, if sent by facsimile, or two (2)
days after it has been submitted for delivery by Federal Express or an
equivalent carrier and five (5) days after it has been mailed by first class
mail, charges prepaid and addressed to the following addresses with a
confirmation of delivery:
If to the Company, to:
Ride, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: Mr. G. ▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Summit Law Group
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Holder, to:
Advantage Fund II Ltd.
▇/▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ Antilles
Attn.: ▇.▇. ▇▇▇▇▇▇▇
Telephone:▇▇▇-▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇-▇▇▇▇
With a copy to:
Genesee International, Inc.
▇▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇▇▇▇▇▇▇
102
▇▇▇▇▇ ▇▇▇▇▇▇
December ___, 1997
Page 6
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may, at any time by giving notice to the other party, designate any
other address in substitution of an address established pursuant to the
foregoing to which such notice will be given
(b) This instruction is expressly made for the benefit of the
holders of record from time to time of the Preferred Shares, the Warrant 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.
(c) The Company hereby agrees to pay the Transfer Agent for all
services rendered hereunder.
Very truly yours,
RIDE, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
103
ANNEX VII
TO SUBSCRIPTION
AGREEMENT
NOTICE OF CONVERSION
OF CONVERTIBLE PREFERRED STOCK
SERIES B 5% CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF RIDE, INC.
TO: [Transfer Agent]
Attention:
Facsimile No.:
(1) Pursuant to the terms of the Series B 5% Cumulative
Convertible Preferred Stock (the "Preferred Stock") of Ride, Inc., a Washington
corporation (the "Company"), 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, no par value per share (the "Common
Stock"), of the Company or such other securities into which the Preferred Stock
is currently convertible. Capitalized terms used in this Notice and not
otherwise defined herein have the respective meanings provided in the
Certificate of Designation for the Preferred Stock (the "Certificate of
Designations").
(2) Please issue a certificate or certificates for shares of
Common Stock or other securities into which such number of shares of Preferred
Stock is convertible in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:
--------------------- ---------------------
Name Name
--------------------- ---------------------
Address Address
--------------------- ---------------------
SS or Tax ID Number SS or Tax ID Number
VII-1
104
(3) The Conversion Date is ______________ Check and complete one
of the following:
[ ] The undersigned elects to convert based on the Average
Market Price of the Common Stock. The Market Price of the Common
Stock on each of the five trading days (whether or not
consecutive) during the 25 consecutive trading days preceding the
Conversion Date having the lowest Market Prices, and the
arithmetic average thereof are as follows:
Date Market Price
------------------------ ------------
------------------------ ------------
------------------------ ------------
------------------------ ------------
------------------------ ------------
------------------------ ------------
Arithmetic Average: $____________
OR
[ ] The undersigned elects to convert based on the Ceiling
Price of the Common Stock of $__________ applicable to
conversions of Preferred Stock.
(4) 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
VII-2
105
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 Subscription Agreement, dated as of DECEMBER 19, 1997 and the Certificate of
Designation.
Date _________________________ ____________________________________
Signature of Holder (Must be signed
exactly as name appears on the Preferred
Stock Certificate.)
VII-3