-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IJnIkBfpby0Y26uCmJEqziU1g7tL2tBD4JAHTkl+x30CLxIG6LfEuqwU8uHdSJF1 eHg13uY5qtR4qIeseACLTA== 0001047469-98-036523.txt : 19981007 0001047469-98-036523.hdr.sgml : 19981007 ACCESSION NUMBER: 0001047469-98-036523 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980923 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981006 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PC QUOTE INC CENTRAL INDEX KEY: 0000745774 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES [6200] IRS NUMBER: 363131704 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-11108 FILM NUMBER: 98721594 BUSINESS ADDRESS: STREET 1: 300 S WACKER DR STREET 2: STE 300 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3129132800 MAIL ADDRESS: STREET 1: 300 S WACKER STREET 2: SUITE 300 CITY: CHICAGO STATE: IL ZIP: 60606 8-K 1 8-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON October 6, 1998 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): September 23, 1998 PC QUOTE, INC. (Exact Name of Registrant as Specified in Charter) DELAWARE 0-13093 36-3131704 (State or Other (Commission File (I.R.S. Employer Jurisdiction of Number) Identification Incorporation) Number) 300 South Wacker Drive, Suite 300, Chicago, Illinois, 60606 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (312) 913-2800 ITEM 5. OTHER EVENTS On September 23, 1998 PC Quote, Inc. (the "Company" or "Registrant") entered into a Securities Purchase Agreement (the "Agreement"), subject to shareholder approval, with PICO Holdings, Inc., a California corporation ("PICO") and Physicians Insurance Company of Ohio, an Ohio corporation ("Physicians," and together with PICO, the "Investors"). Physicians currently is the holder of a Subordinated Convertible Debenture dated November 14, 1996, as amended (the "Debenture"), in the principal amount of $2,500,000, plus accrued interest in the amount of $423,123 as of September 23,1998, plus interest accruing at the rate of $651 per day thereafter (such principal and all accrued interest through the Closing Date, the "Debenture Balance"). The Debenture currently has an interest rate of 9.5% (prime + 1%) and a maturity date of April 30, 1999. The Company is currently indebted to PICO in the principal amount of $3,290,000, plus accrued interest in the amount of $377,742 as of September 23, 1998, plus interest accruing at the rate of $1,262 per day following the date hereof (such principal and all accrued interest through the Closing Date, the "PICO Indebtedness"). All principal and interest (14% annually) on the debt to PICO is currently due and payable on December 31, 1998. PICO is the holder of three Common Stock Purchase Warrants to purchase an aggregate of 949,032 shares of Common Stock of the Company (the "Existing Warrants"), each of which currently expires on April 30, 2000. The Company and the Investors wish to provide for the purchase of Series A 5% Convertible Preferred Stock by Physicians through the conversion of the Debenture and for the purchase of Series B 5% Convertible Preferred Stock by PICO in consideration for the cancellation of the PICO Indebtedness. Purchase and Sale of Preferred Stock Subject to the terms and conditions of the Agreement, Physicians agrees to purchase at the Closing and the Company agrees to issue to Physicians at the Closing the number of shares of Series A 5% Convertible Preferred Stock into which the Debenture Balance shall be convertible as of the Closing determined by dividing the following by one hundred: the number calculated from the division of the Debenture Balance by the lowest of the following numbers (i) 1.5625, (ii) the closing sale price of the Company's Common Stock as reported by the American Stock Exchange ("AMEX") one day prior to the Closing Date (the "AMEX Closing Price") or (iii) the average AMEX Closing Price of the Company's Common Stock over the twenty-day period immediately preceding the Closing Date (the "Average AMEX Price"). The lowest of (i), (ii) or (iii) above is hereinafter referred to as the "Series A Closing Price." Subject to the terms and conditions of the Agreement, PICO agrees to purchase at the Closing and the Company agrees to sell and issue to PICO at the Closing the number of shares of Series B 5% Convertible Preferred Stock determined by dividing the following by one hundred: the number calculated from the division of the PICO Indebtedness as of the Closing Date by the lower of the following numbers: (i) 1.3125, (ii) the AMEX Closing Price or (iii) the Average AMEX Closing Price, at a purchase price per share equal to the lowest of (i), (ii) and (iii) (the "Series B Closing Price"). Subject to the terms and conditions of the Agreement, the Company shall issue to PICO a warrant (the "Warrant") to purchase the number of shares of Common Stock of the Company equal to the following (i) the Debenture Balance, divided by the Series B Closing Price, multiplied by .10, plus (ii) the PICO Indebtedness, divided by the Series B Closing Price, at an exercise price of 120% of the Series B Closing Price per share (the "Exercise Price"), and an expiration date of April 30, 2005. At the Closing, the Company and PICO shall enter into Amendments of the Existing Warrants to extend the term of the Existing Warrants until April 30, 2005. The Closing Date shall be the date that is five (5) days from the date of fulfillment, including obtaining shareholder approval, or waiver of all conditions to Closing, as set forth in the Agreement, or such other date as may be mutually agreed to by the Company and the Investors. Negative Covenants As part of the Agreement, without the prior written consent of the Investors, prior to closing, the Company will not: a) Convey, sell, lease, transfer or otherwise dispose of (collectively, a "Transfer"), or permit any of its subsidiaries to Transfer, all or any part of its business or property, other than: (i) Transfers of non-exclusive licenses and similar arrangements for the use of the property of the Company or its subsidiaries; or (ii) Transfers of worn-out or obsolete equipment. b) Engage in any business, or permit any of its subsidiaries to engage in any business, other than the businesses currently engaged in by the Company and any business substantially similar or related thereto (or incidental thereto). c) Issue any capital stock of the Company or other securities convertible into or exchangeable for capital stock of the Company other than (i) securities issued pursuant to the Company's Incentive Stock Option Plan or the Employee's Stock Purchase Plan, (ii) capital stock or securities issued in connection with the exercise or conversion of securities of the Company issued and outstanding prior to the date hereof or (ii) securities issued, or to be issued, to Jim R. Porter pursuant to the exercise of options granted to Mr. Porter prior to the date hereof by the Company's Board of Directors, to purchase up to 6.88% of the outstanding Common Stock of the Company. d) Merge or consolidate, or permit any of its subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its subsidiaries to acquire, all or substantially all of the capital stock or property of another entity. e) Create, incur, assume or suffer to exist any lien or encumbrance with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any accounts, or permit any of its subsidiaries so to do, except for an existing blanket lien in favor of Lakeside Bank on all personal property of the Company and a blanket lien in favor of PICO, on all personal property of the Company. f) Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock. g) Directly or indirectly acquire or own, or make any investment in or to any entity, or permit any of its subsidiaries so to do, other than Permitted Investments (as defined in the Loan and Security Agreement dated May 4, 1997, as amended, between the Company, as borrower, and PICO as lender). h) Directly or indirectly enter into or permit to exist any material transaction with any affiliate of the Company except for transactions that are in the ordinary course of the Company's business, upon fair and reasonable terms that are no less favorable to the Company than would be obtained in an arm's length transaction with a non-affiliated party. i) Become an "investment company" controlled by an "investment company," within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock. j) Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or violate any law or regulation, which violation could have a Material Adverse Effect, or permit any of its subsidiaries to do any of the foregoing. Listing Requirement Promptly following the Closing Date, but in no event later than 20 days after the Closing Date, the Company shall secure the listing of all of the Registrable Securities (as defined in the Registration Rights Agreement) upon each national securities exchange and automated quotation system (including the AMEX), if any, upon which shares of Common Stock of the Company are then listed (subject to official notice of issuance) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Registrable Securities from time to time issuable under the terms of the Agreement and the accompanying Certificate of Designations, Warrant and Existing Warrants. The Company shall maintain the Common Stock's authorization for listing on the AMEX, The Nasdaq SmallCap Market, the Nasdaq National Market, or The New York Stock Exchange, Inc. ("NYSE"), as applicable. Termination of Agreement The Agreement may be terminated on or prior to the Closing Date: a) At any time by the mutual consent of the Company and the Investors; b) Following fourteen (14) business days after the date of the Agreement, by the Investors if the proxy statement soliciting approval from the shareholders of the Company of the transactions contemplated by the Agreement has not been filed with the SEC; c) Following December 31, 1998, by the Investors if the Company has not yet obtained shareholder approval for the matters contained in the proxy statement; provided however, that if the proxy statement does not receive full review by the SEC, the date for termination shall be November 30, 1998; d) By the Company or the Investors if the other party breaches in any material respect any of its representations, warranties, covenants, obligations or agreements contained in the Agreement and such breach has not been cured within thirty (30) days of the date that notice of breach is received by the breaching party; e) On or after December 31, 1998, by either the Company or the Investors if the Closing has not taken yet place by such date; f) By the Investors, on or after the date when it becomes reasonably likely that the Company will be unable to satisfy any of its obligations for Closing, and by the Company on or after the date when it becomes reasonably likely that the Investors will be unable to satisfy any of its obligations for Closing. Fees and Expenses The Company shall pay the reasonable fees and expenses incurred by the Investors in conjunction with the transactions contemplated by the Agreement, including but not limited to the reasonable fees and expenses of counsel for the Investors, provided such fees and expenses do not exceed $30,000. Dividends (a) A holder of Series A Preferred shall be entitled to receive cash dividends, when and as declared by the Board out of funds legally available for such purpose, in the annual amount of 5% of the per share purchase price, payable quarterly on the 15th day of September, December, March and June, in each year. A holder of Series B Preferred shall be entitled to receive cash dividends, when and as declared by the Board out of funds legally available for such purpose, in the annual amount of 5% of the per share purchase price, payable quarterly on the 15th day of September, December, March and June, in each year. Dividends payable for any period less than a full quarter shall be computed on and paid for the actual number of days elapsed. Dividends shall accrue on each share of Preferred Stock from the date of issue of such share of stock (the "ISSUANCE DATE"). (b) No dividends shall be declared on any other series or class or classes of stock unless there shall be or have been declared on all shares of Preferred Stock then outstanding the dividends for all quarter-yearly periods coinciding with or ending before such quarter-yearly period. Dividends shall be cumulative. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment which is in arrears. If in any quarter-yearly dividend period, dividends in the annual amount have not been declared and paid or set apart for payment for such quarter-yearly dividend period and all preceding such periods from the first day from which dividends are cumulative, then, until the aggregate deficiency is declared and fully paid or set apart for payment, the Corporation shall not (i) declare or pay or set apart for payment any dividends or make any other distribution on any other capital stock or securities having an equity interest in the Corporation ranking junior to or on a parity with the Preferred Stock with respect to the payment of dividends or distribution of assets on liquidation, dissolution or winding up of the Corporation (the "SECONDARY STOCK") (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase Secondary Stock) or (ii) make any payment on account of the purchase, redemption, other retirement or acquisition of any Secondary Stock with respect to the payment of dividends or distribution of assets on liquidation, dissolution or winding up of the Corporation. Conversion of Preferred Stock A holder of Preferred Stock shall have the right, at such holder's option, to convert the Preferred Stock into shares of the Company's common stock, par value $0.001 per share (the "COMMON STOCK"). If any Preferred Stock remains outstanding on the fifth anniversary after the Issuance Date, then such Preferred Stock shall automatically convert to Common Stock on such fifth anniversary. At any time or times on or after the Issuance Date, any holder of Preferred Stock shall be entitled to convert any whole number of shares of Preferred Stock into fully paid and nonassessable shares (rounded to the nearest whole share). The number of shares of Common Stock issuable upon conversion of the Preferred Stock shall be determined by multiplying the product of one hundred (100) and the number of shares of Preferred Stock to be converted into Common Stock by: (i) in the case of Series A Preferred, (A) the Series A Closing Price PLUS (B) the amount of any accrued but unpaid dividends attributable to such Preferred Stock, DIVIDED BY the lower of (X) the Series A Closing Price, (Y) the average Closing Sale Price of the Common Stock over the twenty-day period immediately prior to the day the Series A Preferred is to be converted into Common Stock; or (Z) the Closing Sale Price one day prior to the day the Series A Preferred is to be converted into Common Stock (the "SERIES A CONVERSION RATE"). (ii) in the case of Series B Preferred, (A) the Series B Closing Price PLUS (B) the amount of any accrued but unpaid dividends attributable to such Preferred Stock, DIVIDED BY the lower of (X) the Series B Closing Price, (Y) the average Closing Sale Price of the Common Stock over the twenty-day period immediately prior to the day the Series B Preferred is to be converted into Common Stock; or (Z) the Closing Sale Price one day prior to the day the Series B Preferred is to be converted into Common Stock (the "SERIES B CONVERSION RATE"). In order to prevent dilution of the rights granted, the Series A and Series B Conversion Rates will be subject to adjustment for issuance of additional securities of the Company, including common stock, options or convertible securities, and reclassifications or changes of outstanding securities ( by any stock split, reverse stock split, combination, stock dividend, recapitalization or otherwise). Voting Rights The holders of Preferred Stock shall be entitled to notice of any shareholders' meeting and to vote upon any matter submitted to the shareholders for a vote on the following basis. Each Holder of Preferred Stock shall have the number of votes equal to the number of shares of Common Stock into which the Preferred Stock then held by such holder is convertible, as adjusted from time to time. Holders of Preferred Stock shall have the exclusive right to elect two (2) of the five (5) directors to the Board of the Company. Warrant Exercise and Adjustments The holder of the Warrant shall have the right, at such holder's option, to exercise the Warrant, or any portion thereof, and to purchase the corresponding whole number of shares of the Company's Common Stock, at the Exercise Price, at any time after the Issuance Date until April 30, 2005. In lieu of exercising the Warrant for cash, the holder may elect to receive shares of the Company's Common Stock equal to the "value" of the Warrant determined in accordance with a formula specified in the Warrant (the "Conversion Value"). The number of shares of the Company's Common Stock subject to the Warrant and the Exercise Price will be adjusted to reflect stock dividends; reclassifications or changes of outstanding securities of the Company; any consolidation, merger or reorganization of the Company; stock splits; issuances of rights, options or warrants to all holders of shares of the Company's Common Stock exercisable at less than the current market price per share; and other distributions to all holders of shares of the Company's Common Stock. In the event of any sale, license or other disposition of all or substantially all of the assets of the Company or any reorganization, consolidation or merger involving the Company in which the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity (an "Acquisition"), if the successor entity does not assume the obligations of the Warrant and the holder has not fully exercised the Warrant, the unexercised portion of the Warrant will be deemed automatically converted into shares of the Company's Common Stock at the Conversion Value. Alternatively, the holder may elect to cause the Company to purchase the exercised portion of the Warrant for cash upon the closing of any Acquisition for an amount equal to (a) the fair market value of any consideration that would have been received had the holder exercised the unexercised portion of the Warrant immediately before the record date for determining stockholders entitled to participate in the proceeds of the Acquisition, less (b) the aggregate Exercise Price. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Not applicable. (b) Not applicable. (c) The following exhibits are filed with this report: Exhibit Number Description 4.1 Securities Purchase Agreement between Registrant and PICO Holdings, Inc. and Physicians Insurance Company of Ohio 4.2 Form of Certificate of Designations of Series A and Series B Preferred Stock of PC Quote, Inc. 4.3 Form of Registration Rights Agreement between Registrant and PICO Holdings, Inc. and Physicians Insurance Company of Ohio 4.4 Form of Common Stock Purchase Warrant to be issued to PICO Holdings, Inc. 4.5 Form of First Amendment to Common Stock Purchase Warrant dated May 5, 1997 4.6 Form of First Amendment to Common Stock Purchase Warrant dated August 8, 1997 4.7 Form of First Amendment to Common Stock Purchase Warrant dated September 22, 1997 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. Dated: October 6, 1998 PC QUOTE, INC. By: /s/ John E. Juska Chief Financial Officer EXHIBIT INDEX Exhibit Number Description 4.1 Securities Purchase Agreement between Registrant and PICO Holdings, Inc. and Physicians Insurance Company of Ohio 4.2 Form of Certificate of Designations of Series A and Series B Preferred Stock of PC Quote, Inc. 4.3 Form of Registration Rights Agreement between Registrant and PICO Holdings, Inc. and Physicians Insurance Company of Ohio 4.4 Form of Common Stock Purchase Warrant to be issued to PICO Holdings, Inc. 4.5 Form of First Amendment to Common Stock Purchase Warrant dated May 5, 1997 4.6 Form of First Amendment to Common Stock Purchase Warrant dated August 8, 1997 4.7 Form of First Amendment to Common Stock Purchase Warrant dated September 22, 1997 EX-4.1 2 EXHIBIT 4.1 SECURITIES PURCHASE AGREEMENT This Securities Purchase Agreement (the "Agreement") is made as of the 23rd day of September, 1998, by and among PC Quote, Inc., a Delaware corporation (the "Company"), PICO Holdings, Inc., a California corporation ("PICO") and Physicians Insurance Company of Ohio, an Ohio corporation ("Physicians," and together with PICO, the "Investors"). WHEREAS, Physicians currently is the holder of a Subordinated Convertible Debenture dated November 14, 1996, as amended (the "Debenture"), in the principal amount of $2,500,000, plus accrued interest in the amount of $423,123 as of the date hereof, plus interest accruing at the rate of $651 per day following the date hereof (such principal and all accrued interest through the Closing Date, the "Debenture Balance"). WHEREAS, the Company is currently indebted to PICO in the principal amount of $3,290,000, plus accrued interest in the amount of $377,742 as of the date hereof, plus interest accruing at the rate of $1,262 per day following the date hereof (such principal and all accrued interest through the Closing Date, the "PICO Indebtedness"). WHEREAS, PICO is the holder of three Common Stock Purchase Warrants to purchase an aggregate of 949,032 shares of Common Stock of the Company (the "Existing Warrants"), each of which expires on April 30, 2000. WHEREAS, the Company and the Investors wish to provide for the purchase of Series A Preferred Stock by Physicians through the conversion of the Debenture and for the purchase of Series B Convertible Preferred Stock by PICO in consideration for the cancellation of the PICO Indebtedness, all pursuant to the terms contained herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. PURCHASE AND SALE OF PREFERRED STOCK. 1.1 SALE AND ISSUANCE OF SERIES A AND SERIES B PREFERRED STOCK. (a) The Company shall file with the Secretary of State of the State of Delaware on or before the Closing (as defined below) the Certificate of Designations for Series A and Series B Preferred Stock in the form attached hereto as EXHIBIT A (the "Certificate"). (b) Subject to the terms and conditions of this Agreement, Physicians agrees to purchase at the Closing and the Company agrees to issue to Physicians at the Closing the number of shares of Series A Preferred Stock into which the Debenture Balance shall be convertible as of the Closing. For reference purposes, the Debenture provides that the Debenture Balance as of the Closing Date shall be convertible into the number of shares of Series A Preferred Stock of the Company determined by dividing the following by one hundred: the number calculated from the division of the Debenture Balance by the lowest of the following numbers (i) 1.5625, (ii) the closing sale price of the Company's Common Stock as reported by 1 the American Stock Exchange ("AMEX") one day prior to the Closing Date (the "AMEX Closing Price") or (iii) the average AMEX Closing Price of the Company's Common Stock over the twenty-day period immediately preceding the Closing Date (the "Average AMEX Price"). The lowest of (i), (ii) or (iii) above is hereinafter referred to as the "Series A Closing Price." The shares of Series A Preferred Stock issued to Physicians pursuant to this Agreement are hereinafter referred to as the "Series A Preferred." The Series A Preferred and the Common Stock issuable upon conversion of the Series A Preferred are hereinafter referred to as the "Series A Securities." (c) Subject to the terms and conditions of this Agreement, PICO agrees to purchase at the Closing and the Company agrees to sell and issue to PICO at the Closing the number of shares of Series B Preferred Stock determined by dividing the following by one hundred: the number calculated from the division of the PICO Indebtedness as of the Closing Date by the lower of the following numbers: (i) 1.3125, (ii) the AMEX Closing Price or (iii) the Average AMEX Closing Price, at a purchase price per share equal to the lowest of (i), (ii) and (iii) (the "Series B Closing Price"). The shares of Series B Preferred Stock issued to PICO pursuant to this Agreement are hereinafter referred to as the "Series B Preferred." The Series B Preferred and the Common Stock issuable upon conversion of the Series B Preferred are hereinafter referred to as the "Series B Securities." The Series A Preferred and Series B Preferred are hereinafter referred to collectively as the "Preferred Stock," and the Preferred Stock and the Common Stock issuable upon conversion of the Preferred Stock are hereinafter referred to collectively as the "Securities." 1.2 PURCHASE AND SALE OF WARRANTS. (a) Subject to the terms and conditions of this Agreement, the Company shall issue to PICO a warrant (the "Warrant") to purchase the number of shares of Common Stock of the Company equal to the following (i) the Debenture Balance, divided by the Series B Closing Price, multiplied by .10, PLUS (ii) the PICO Indebtedness, divided by the Series B Closing Price, at an exercised price of 120% of the Series B Closing Price per share, which Warrant shall be substantially in the form attached as EXHIBIT B. (b) At the Closing, the Company and PICO shall enter into Amendments of the Existing Warrants to extend the term of the Existing Warrants until April 30, 2005, which amendments shall be substantially in the form attached hereto as EXHIBITS C-1, C-2 AND C-3 (the "Warrant Amendments"). 1.3 CLOSING; DELIVERY. (a) The purchase and sale of the Preferred Stock and the Warrant shall take place at the offices of Gray Cary Ware & Freidenrich, at 10:00 a.m. PST, on the date that is five (5) days from the date of fulfillment or waiver of all conditions to Closing contained in Section 7 and 8 herein, or such other date as may be mutually agreed to by the Company and the Investors, orally or in writing (which time and place are designated as the "Closing" and which date is the "Closing Date"). 2 (b) At the Closing: (i) the Company shall deliver to Physicians and PICO certificates representing the Series A Preferred and Series B Preferred being purchased hereby by them against payment of the purchase price therefor by conversion of the Debenture and cancellation of the PICO Indebtedness, and (ii) Physicians shall deliver the original Debenture to the Company and PICO shall deliver the original promissory note and all amendments thereto representing the PICO Indebtedness to the Company. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As used in this Section 2, the term the "Company" shall include the Company and each of its subsidiaries (entities in which the Company owns securities constituting 50% or more of the voting power). Except as specifically set forth in the Schedule of Exceptions attached hereto as EXHIBIT D, the Company hereby makes the following representations and warranties to each of PICO and Physicians as of the date hereof, which representations and warranties shall be deemed to have been made again as of Closing. 2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of its incorporation and has all requisite corporate power and authority to carry on its business as now conducted. The Disclosure Schedule sets forth a list of all subsidiaries of the Company and the jurisdiction in which they are incorporated. The Company is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which its ownership of assets or conduct of business makes such qualification necessary, except where the failure so to qualify would not have a material adverse effect on its business or properties. 2.2 CAPITALIZATION. Except as to changes between the date hereof and the Closing Date as the result of (i) issuances of Common Stock by the Company as the result of the exercise of conversion of securities of the Company outstanding as of the date hereof convertible into Common Stock of the Company or (ii) purchases of Common Stock by employees of the Company pursuant to the Purchase Plan (as defined below), upon the filing of the Certificate, the authorized capital of the Company consists, or will consist, immediately prior to the Closing of: (a) 5,000,000 shares of Preferred Stock, the number of which shares of Preferred Stock have been designated Series A Preferred as are necessary to complete the sale and issuance of the Series A Preferred as provided in Section 1(b) herein, none of which are issued and outstanding immediately prior to the Closing, and the number of which shares of Preferred Stock have been designated Series B Preferred as are necessary to complete the sale and issuance of the Series B Preferred as provided in Section 1(c) herein, none of which are issued and outstanding immediately prior to the Closing. (b) 50,000,000 shares of Common Stock, 13,297,781 shares of which are issued and outstanding immediately prior to the Closing. All of the outstanding shares of Common Stock have been duly authorized, fully paid and are nonassessable and issued in compliance with all applicable federal and state securities laws. (c) The Company has reserved 2,000,000 shares of Common Stock for issuance to officers, directors, employees and consultants of the Company pursuant to its 3 Incentive Stock Option Plan (the "Option Plan") and 500,000 shares of Common Stock for issuance to employees of the Company pursuant to its Employee Stock Purchase Plan (the "Purchase Plan"). Of such reserved shares of Common Stock, options to purchase 1,397,950 shares have been granted and are currently outstanding, 602,050 shares of Common Stock remain available for issuance to officers, directors, employees and consultants pursuant to the Option Plan, 271,650 shares have been purchased by the employees of the Company under the Purchase Plan and 228,350 shares of Common Stock remain available for purchase pursuant to the Purchase Plan. All of the outstanding securities of the Company were issued in compliance with all applicable federal and state securities laws. (d) Except for (i) the Warrant, (ii) the Existing Warrants, (iii) the conversion privileges of the Preferred Stock, and (iv) the outstanding options issued pursuant to the Option Plan, and except as set forth in the Registration Rights Agreement (as defined below), there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, for the purchase or acquisition from the Company of any shares of its capital stock. 2.3 AUTHORIZATION. All corporate action on the part of the Company, its officers, directors, and shareholders necessary to file and perform its obligations under the Certificate and for the authorization, execution and delivery of this Agreement, the Registration Rights Agreement in the form attached hereto as EXHIBIT E (the "Registration Rights Agreement"), the Warrant and the Warrant Amendments, (this Agreement, the Registration Rights Agreement, the Warrant and the Warrants Amendments are collectively hereinafter referred to as the "Agreements"), the performance of all obligations of the Company hereunder and thereunder and the authorization, issuance and delivery of the Securities has been taken or will be taken prior to the Closing, and the Agreements, when executed and delivered by the Company, will constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general applications affecting enforcement of creditors' rights generally, as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, or (ii) to the extent the indemnification provisions contained in the Registration Rights Agreement may be limited by applicable federal or state securities laws. 2.4 VALID ISSUANCE OF SECURITIES. The Preferred Stock and the Warrant that are being issued to the Investors hereunder, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under this Agreement, the Registration Rights Agreement and applicable state and federal securities laws. Based in part upon the representations of the Investors in this Agreement and subject to the provisions of Section 2.5 below, the Preferred Stock and the Warrant will be issued in compliance with all applicable federal and state securities laws. The Common Stock issuable upon conversion of the Preferred Stock and exercise of the Warrant has been duly and validly reserved for issuance, and upon issuance in accordance with the terms of the Certificate and the Warrant, will be duly and validly issued, fully paid and nonassessable and free of restrictions on 4 transfer other than restrictions on transfer under this Agreement, the Registration Rights Agreement and applicable federal and state securities laws and will be issued in compliance with all applicable federal and state securities laws. 2.5 GOVERNMENT CONSENT. No consent, approval, order or authorization of, or registration, qualification, designation or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by the Agreements, except for filings pursuant to Section 25102(f) of the California Corporate Securities Law of 1968, as amended, and the rules thereunder, other applicable state securities laws, and the Securities Act of 1933, as amended (the "Securities Act"), and the rules thereunder, which filings will be made in a timely manner. 2.6 LITIGATION. There is no action, suit, proceeding or investigation pending or, to the Company's knowledge, currently threatened against the Company that questions the validity of the Agreements or the right of the Company to enter into them, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any material adverse changes in the assets, condition or affairs of the Company, financially or otherwise, nor is the Company aware that there is any basis for the foregoing. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. The foregoing includes, without limitation, actions involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employees, or their obligations under agreements with prior employers. There is no action, suit, proceedings or investigation by the Company currently pending or which the Company intends to initiate. 2.7 INTELLECTUAL PROPERTY. The Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, tradenames, copyrights, trade secrets, licenses, information and proprietary rights necessary for its business as now conducted without any conflict with, or infringement of, the rights of others. The Company has not received any communication alleging that the Company has violated or, by conducting its business, would violate any of the patents, trademarks, service marks, tradenames, copyrights, trade secrets or other proprietary rights of any other person or entity. The Company is not aware that any of its employees are obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interest of the Company or that would conflict with the Company's business. Neither the execution or delivery of this Agreement, nor the carrying on of the Company's business as now conducted by the employees of the Company, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated. The Company does not believe it is or will be necessary to use any inventions of any of its employees (or persons it currently intends to hire) made prior to their employment by the Company. To the Company's knowledge, its officers and employees are not making 5 improper use of any confidential information or trade secrets of others, including those of any former employer. 2.8 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation or default of any provisions of its Articles of Incorporation or Bylaws or in violation or default of any instrument, judgment, order, writ, decree, contract or agreement to which it is a party or by which it is bound or of any provision of any federal or state statue, rule or regulation applicable to the Company, the effect of which would have a material adverse effect on the Company. To the Company's knowledge, all parties to material contracts and commitments with the Company are in compliance therewith in all material respects. The execution, delivery and performance of the Agreements and the consummation of the transactions contemplated hereby or thereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree, contract or agreement or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company. 2.9 SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December 31, 1995, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the U.S. Securities and Exchange Commission (the "SEC") pursuant to the reporting requirements of the Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits) incorporated by reference therein, being hereinafter referred to herein as the "SEC Documents"). The Company has delivered or made available to the Investors true and complete copies of the SEC Documents, except for such exhibits and incorporated documents. As of their respective dates, the SEC Documents complied in all material respects with the requirement of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they have been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior to the date hereof). As of the respective dates, the financial statements of the Company included in the SEC Documents (the "Financial Statements") complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. The Financial Statements have been prepared in accordance with United States generally accepted accounting principles ("GAAP"), consistently applied, during the periods involved (except (i) as may be otherwise indicated in the Financial Statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company as of the dates thereof and the consolidated results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the Financial Statements, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to December 31, 1997 and (ii) obligations under contracts and commitments 6 incurred in the ordinary course of business and not required under generally accepted accounting principles GAAP to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. 2.10 NO CONFLICT OF INTEREST. Other than with respect to the Investors, the Company is not indebted, directly or indirectly, to any of its officers or directors, to their respective spouses or children, in any amount whatsoever other than in connection with expenses or advances of expenses incurred in the ordinary course of business or relocation expenses of employees. Other than with respect to the Investors, none of the Company's officers or directors, or any members of their immediate families, are, directly or indirectly, indebted to the Company (other than in connection with purchases of the Company's stock) or, to the Company's knowledge, have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company except that officers, directors and/or shareholders of the Company may own stock in (but not exceeding two percent of the outstanding capital stock of) any publicly traded company that may compete with the Company. Other than with respect to the Investors, the Company's knowledge, none of the Company's officers or directors or any members of their immediate families are, directly or indirectly, interested in any material contract with the Company. The Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. 2.11 RIGHTS OF REGISTRATION AND VOTING RIGHTS. Except as contemplated in the Registration Rights Agreement, the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity other than the Investors. To the Company's knowledge, no shareholder of the Company has entered into any agreements with respect to the voting capital shares of the Company. 2.12 TITLE TO PROPERTY AND ASSETS. The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially impair the Company's ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to its knowledge, holds a valid leasehold interest free of any liens, claims, or encumbrances. 2.13 CHANGES. Since December 31, 1997 there has not been: (a) any change in the assets, liabilities, financial condition or operating results of the Company from that reflected in the Financial Statements, except (i) changes as reported in the Company's reports on Form 10-Q for the fiscal periods ended March 31, 1998 and June 30, 1998 and (ii) changes in the ordinary course of business that have not been, in the aggregate, materially adverse; (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the business (as such business is presently conducted and as it is proposed to be conducted), properties, prospects, or financial condition of the Company; 7 (c) any waiver or compromise by the Company of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and that is not material to the business (as such business is presently conducted and as it is proposed to be conducted), properties, prospects or financial condition of the Company; (e) any material change to a material contract or agreement by which the Company or any of its assets is bound or subject; (f) any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder; (g) any resignation or termination of employment of any key officer of the Company; and the Company, to its knowledge, does not know of any impending resignation or termination of employment of any such officer; (h) receipt of notice that there has been a loss of, or material order cancellation by, any major customer of the Company; (i) any sale or assignment of any patents, trademarks, copyrights, trade secrets or other intangible assets; (j) any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable; (k) any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business; (l) any declaration, setting aside or payment or other distribution in respect to any of the Company's capital stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Company; (m) to the Company's knowledge, any other event or condition of any character that might materially and adversely affect the business (as such business is presently conducted and as it is proposed to be conducted), properties, prospects or financial condition of the Company; or (n) any arrangement or commitment by the Company to do any of the things described in this Section 2.13. 2.14 TAX RETURNS AND PAYMENTS. The Company has filed all tax returns and reports as required by law. These returns and reports are true and correct in all material respects. The Company has paid all taxes and other assessments due. 8 2.15 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or subject to (none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor dispute involving the Company pending, or to the knowledge of the Company, threatened, which could have a material adverse effect on the assets, properties, financial condition, operating results, or business of the Company, nor is the Company aware of any labor organization activity involving its employees. The employment of each officer and employee of the Company is terminable at the will of the Company. To its knowledge, the Company has complied in all material respects with all applicable state and federal equal employment opportunity laws and with other laws related to employment. The employment of each officer and employee of the Company is terminable at the will of the Company. 2.16 PERMITS. The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business, the lack of which could materially and adversely affect the business, properties, prospects, or financial condition of the Company. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority. 2.17 CORPORATE DOCUMENTS. The Articles of Incorporation and the Bylaws of the Company are in the form made available to counsel for the Investors. The copy of the minute book of the Company provided to counsel for the Investors contains minutes of all meetings of the directors and shareholders of the Company and all actions by written consent without a meeting by the directors and shareholders of the Company since the date of incorporation and reflects all actions by the directors and shareholders with respect to all transactions referred to in such minutes, accurately in all material respects. 2.18 DISCLOSURE. The Company has fully provided the Investors with all the information which the Investors have requested for deciding whether to acquire the Preferred Stock and all information which the Company believes is reasonably necessary to enable the Investors to make such a decision. No representation or warranty of the Company contained in this Agreement and the exhibits attached hereto, or any certificate furnished or to be furnished to Investors at the Closing, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. No event or circumstance has occurred or exists with respect to the Company or its business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed. 2.19 INSURANCE. The Company holds and maintains valid policies covering such casualties and contingencies and of such types and amounts as is customary for companies similarly situated. The Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or obtain similar coverage from 9 similar insurers as may be necessary to continue its business at a cost that would not have a material adverse effect. 2.20 OFFERING OF THE PREFERRED STOCK. Neither the Company nor any person authorized or employed by the Company as agent, broker, dealer or otherwise in connection with the offering or sale of the Preferred Stock or any security of the Company similar to the Preferred Stock has offered the Preferred Stock or any such similar security for sale to, or solicited any offer to buy the Preferred Stock or any such similar security from, or otherwise approached or negotiated with respect thereto with, any person or persons, and neither the Company nor any person acting on its behalf has taken or will take any other action (including, without limitation, any offer, issuance or sale of any security of the Company under circumstances which might require the integration of such security with Preferred Stock under the Securities Act or the rules and regulations of the Commission thereunder), in either case so as to subject the offering, issuance or sale of the Preferred Stock to the registration provisions of the Securities Act. 2.21 NO BROKERS. The Company has taken no action which would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby. 2.22 ENVIRONMENT AND SAFETY LAWS. The Company is not in violation of any applicable statute, law, or regulation relating to the environment or occupational health and safety, and no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. 2.23 EMPLOYEE BENEFIT PLANS. The Company does not have any Employee Benefit Plans as defined in Employment Retirement Income Security Act of 1974 ("ERISA") other than those set forth on the Disclosure Schedule (each an "Employee Plan"). Each Employee Plan has been administered to date or terminated, as the case may be, in compliance with the requirements of the Internal Revenue Code and ERISA, where applicable each Employee Plan is fully funded on a termination basis, and all reports required by any government agency with respect to such Employee Plans have been timely filed, and notwithstanding anything to the contrary contained in such Employee Plans all benefits, liabilities and obligations of the Company to date under such Employee Plans has been fully accrued and reflected on the Financial Statements. 2.24 PRINCIPAL EXCHANGE/MARKET. The principal market on which the Common Stock of the Company is currently traded is the AMEX. The Company has obtained all approvals and consents of the AMEX, if any, required to enter into and deliver the Agreements and to consummate the transactions contemplated thereby. 2.25 FORM S-3. The Company is eligible to file a Registration Statement (as defined in the Registration Rights Agreement) on Form S-3 under the Securities Act and rules promulgated thereunder, and Form S-3 is permitted to be used for the resale by the investors to the public of the Registrable Securities (as defined in the Registration Rights Agreement) under the Securities Act and rules promulgated thereunder. 10 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. PICO and Physicians, severally, and not jointly, each hereby makes the following representations and warranties to the Company as of the date hereof, which representations and warranties shall be deemed to have been made again as of Closing. 3.1 AUTHORIZATION. Each of the Investors has full power and authority to enter into this Agreement. The Agreements, when executed and delivered by the Investors, will constitute valid and legally binding obligations of the Investors, enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors' rights generally, and as limited by laws relating to the availability of a specific performance, injunctive relief, or other equitable remedies, or (b) to the extent the indemnification provisions contained in the Registration Rights Agreement may be limited by applicable federal or state securities laws. 3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with the Investors in reliance upon the Investors' representation to the Company, which by the Investors' execution of this Agreement the Investors hereby confirm, that the Securities to be acquired by the Investors will be acquired for investment for the Investors' own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Investors have no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Investors further represents that the Investors do not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the Securities. The Investors have not been formed for the specific purpose of acquiring the Securities. 3.3 DISCLOSURE OF INFORMATION. The Investors have had an opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Preferred Stock with the Company's management and have had an opportunity to review the Company's facilities. The Investors understand that such discussions, as well as any written information delivered by the Company to the Investors, were intended to describe the aspects of the Company's business which the Company believes to be material. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Investors to rely thereon. 3.4 RESTRICTED SECURITIES. The Investors understand that except as provided in the Registration Rights Agreement, the Securities have not been registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Investors' representations as expressed herein. The Investors understand that the Securities are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Investors must hold the Securities indefinitely unless they are registered with the SEC and qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Investors acknowledge that the Company has no 11 obligation to register or qualify the Securities for resale except as set forth in the Registration Rights Agreement. 3.5 LEGENDS. The Investors understand that until such time as the securities may be registered, the Securities, and any securities issued in respect thereof or exchange therefor, may bear one or all of the following legends: (a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO , OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933." (b) Any legend set forth in the other Agreements. (c) Any legend required by the laws of any state regarding the sale of securities to the extent such laws are applicable to the shares represented by the certificate so legended. 3.6 ACCREDITED INVESTOR. Each Investor is an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. 4. COVENANTS OF THE COMPANY PENDING CLOSING. The Company covenants and agrees that from the date hereof until the completion of the Closing: 4.1 GOOD STANDING. The Company shall maintain its and each of its subsidiaries' corporate existence and good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which the failure to so qualify could have a Material Adverse Effect. "Material Adverse Effect" means a material adverse effect on (i) the business operations or condition (financial or otherwise) of the Company and its subsidiaries taken as a whole or (ii) the ability of the Company to perform its obligations under this Agreement. The Company shall maintain, and shall cause each of its subsidiaries to maintain, to the extent consistent with prudent management of the Company's business, in force all licenses, approvals and agreements, the loss of which could have a Material Adverse Effect. 4.2 GOVERNMENT COMPLIANCE. The Company shall meet, and shall cause each subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. The Company shall comply, and shall cause each subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could have a Material Adverse Effect. 12 4.3 OPERATION IN THE ORDINARY COURSE. The Company shall continue to carry on its business and keep its books and accounts, records and files in the usual and ordinary manner in which the business has been conducted in the past. 4.4 REPRESENTATIONS AND WARRANTIES. The Company shall give detailed written notice to the Investors promptly upon learning any fact which would render untrue any of the Company's representations or warranties contained in this Agreement or in any of the other Agreements. 4.5 BEST EFFORTS. The Company shall use its best efforts to fulfill and perform all conditions and obligations on its part to be fulfilled and performed under this Agreement and cause the transactions contemplated by this Agreement to be fully carried out. 4.6 PROXY STATEMENT. Within fourteen (14) days of the date hereof, the Company shall cause a proxy statement to be prepared and filed with the SEC soliciting approval from the shareholders of the Company, as of the soonest practicable date, of the transactions contemplated by this Agreement. The proxy statement shall be prepared and filed in compliance with the provisions of the 1934 Act and the rules and regulations promulgated thereunder. Prior to filing, such proxy statement shall have been reviewed by and be reasonably acceptable to the Investors and counsel to the Investors. The Company shall provide such proxy statement to each of its stockholder and the Company shall use its best efforts to solicit its stockholders' approval of the issuance of the Securities as described in this Agreement and cause the Board of Directors of the Company to recommend to the stockholders that they approve such proposal. 4.7 NEGATIVE COVENANTS. Without the prior written consent of the Investors, the Company will not: (a) Convey, sell, lease, transfer or otherwise dispose of (collectively, a "Transfer"), or permit any of its subsidiaries to Transfer, all or any part of its business or property, other than: (i) Transfers of non-exclusive licenses and similar arrangements for the use of the property of the Company or its subsidiaries; or (ii) Transfers of worn-out or obsolete equipment. (b) Engage in any business, or permit any of its subsidiaries to engage in any business, other than the businesses currently engaged in by the Company and any business substantially similar or related thereto (or incidental thereto). (c) Issue any capital stock of the Company or other securities convertible into or exchangeable for capital stock of the Company other than (i) securities issued pursuant to the Option Plan or the Purchase Plan, (ii) capital stock or securities issued in connection with the exercise or conversion of securities of the Company issued and outstanding prior to the date hereof or (iii) securities issued, or to be issued, to Jim R. Porter pursuant to the exercise of options granted to Mr. Porter prior to the date hereof by the Company's Board of Directors, to purchase up to 6.88% of the outstanding Common Stock of the Company. 13 (d) Merge or consolidate, or permit any of its subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its subsidiaries to acquire, all or substantially all of the capital stock or property of another entity. (e) Create, incur, assume or suffer to exist any lien or encumbrance with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any accounts, or permit any of its subsidiaries so to do, except for an existing blanket lien in favor of Lakeside Bank on all personal property of the Company and a blanket lien in favor of PICO, on all personal property of the Company. (f) Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock. (g) Directly or indirectly acquire or own, or make any investment in or to any entity, or permit any of its subsidiaries so to do, other than Permitted Investments (as defined in the Loan and Security Agreement dated May 4, 1997, as amended, between the Company, as borrower, and PICO as lender). (h) Directly or indirectly enter into or permit to exist any material transaction with any affiliate of the Company except for transactions that are in the ordinary course of the Company's business, upon fair and reasonable terms that are no less favorable to the Company than would be obtained in an arm's length transaction with a non-affiliated party. (i) Become an "investment company" controlled by an "investment company," within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock. (j) Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or violate any law or regulation, which violation could have a Material Adverse Effect, or permit any of its subsidiaries to do any of the foregoing. 5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable instructions to its transfer agent, and any subsequent transfer agent, to issue certificates, registered in the name of each Investor or its respective nominee(s), for the Common Stock issuable on conversion of the Preferred Stock and the exercise of the Warrant (collectively, the "Conversion Shares") in such amounts as specified from time to time by each Investor to the Company upon conversion of the Preferred Stock and exercise of the Warrant (the "Irrevocable Transfer Agent Instructions"). Prior to registration of the Conversion Shares under the Securities Act, all such certificates shall bear the restrictive legend specified in Section 3.5 of this Agreement. The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5 will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Registration Rights Agreement. If an Investor 14 provides the Company with an opinion of counsel, in generally acceptable form, that registration of a resale by such Investor of any of such Securities is not required under the Securities Act, the Company shall permit the transfer, and, in the case of the Conversion Shares, promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by such Investor and without any restrictive legends. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Investors by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5, that the Investors shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. 6. LISTING. Promptly following the Closing Date, but in no event later than 20 days after the Closing Date, the Company shall secure the listing of all of the Registrable Securities (as defined in the Registration Rights Agreement) upon each national securities exchange and automated quotation system (including the AMEX), if any, upon which shares of Common Stock of the Company are then listed (subject to official notice of issuance) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Registrable Securities from time to time issuable under the terms of the Documents and the Certificate. The Company shall maintain the Common Stock's authorization for listing on the AMEX, The Nasdaq SmallCap Market, the Nasdaq National Market, or The New York Stock Exchange, Inc. ("NYSE"), as applicable. Neither the Company nor any of its subsidiaries shall take any action which may result in the delisting or suspension of the Common Stock on the AMEX, The Nasdaq SmallCap Market, the Nasdaq National Market or NYSE (other than to switch listings from the AMEX, to The Nasdaq SmallCap Market or to the Nasdaq National Market or to the NYSE). The Company shall promptly provide to each Investor copies of any notices it receives from the AMEX, The Nasdaq SmallCap Market, the Nasdaq National Market or NYSE regarding the continued eligibility of the Common Stock for listing on such automated quotation system or securities exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 6. 7. CONDITIONS TO THE INVESTORS' OBLIGATIONS AT CLOSING. The obligations of each of PICO and Physicians to the Company under this Agreement are subject to the fulfillment by the Company, on or before the Closing, of each of the following conditions, unless otherwise waived by PICO and Physicians: 7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in Section 2 shall be true and correct in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. 15 7.2 PERFORMANCE. The Company shall have performed and complied with all covenants, agreements, obligations and conditions contained in the Agreement that are required to be performed or complied with by it on or before the Closing. 7.3 COMPLIANCE CERTIFICATE. The President of the Company shall deliver to the Investors at the Closing a certificate certifying that the conditions specified in Sections 7.1 and 7.2 have been fulfilled. 7.4 BOARD RESOLUTIONS. The Investors shall have received resolutions of the Board of Directors of the Company duly authorizing the execution and delivery of the Agreements and the performance of the Company's obligations thereunder, certified by the Secretary of the Company as being in full force and effect as of the Closing. 7.5 QUALIFICATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Preferred Stock pursuant to this Agreement shall be obtained and effective as of the Closing. 7.6 SHAREHOLDER APPROVAL. The matters specified in the Proxy Statement for approval of the Shareholders as contemplated by Section 4.6 of this Agreement shall have been approved by the shareholders of the Company. 7.7 DELIVERY OF STOCK CERTIFICATES. The Company shall have duly executed and delivered the certificates representing the shares of Preferred Stock being purchased by the Investors hereunder. 7.8 OPINION OF COMPANY COUNSEL. The Investors shall have received from counsel for the Company, an opinion dated as of the Closing in substantially the form of EXHIBIT F. 7.9 REGISTRATION RIGHTS AGREEMENT. The Company and each Investor shall have executed and delivered the Registration Rights Agreement in substantially the form attached as EXHIBIT E. 7.10 THE CERTIFICATE. The Company shall have filed the Certificate with the Secretary of State of Delaware on or prior to the Closing Date, which shall continue to be in full force and effect as of the Closing Date. 7.11 GOOD STANDING. The Company shall have delivered to the Investors a certificate evidencing the incorporation and good standing of the Company and each of its subsidiaries in such corporation's state of incorporation issued by the Secretary of State of such state of incorporation as of a date within 10 days prior to the Closing Date. 7.12 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connections with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Investor's counsel, and the 16 Investor's counsel shall have received all such counterpart original and certified or other copies of such documents as it may reasonably request. 7.13 FEES OF INVESTORS' COUNSEL. The Company shall have made arrangements for the payment, in accordance with Section 9.8, the fees and disbursements of the Investors' counsel invoiced at the Closing. 7.14 WARRANT AND AMENDMENTS. The Company shall have executed and delivered the Warrant and the Amendments. 8. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of the Company to the Investors under this Agreement are subject to the fulfillment by the Investors, on or before the Closing, of each of the following conditions, unless otherwise waived by the Company: 8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Investors contained in Section 3 shall be true and correct in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 8.2 PERFORMANCE. All covenants, agreements and conditions contained in this Agreement to be performed by the Investors on or prior to the Closing shall have been performed or complied with in all material respects. 8.3 COMPLIANCE CERTIFICATE. The President of each of PICO and Physicians shall deliver to the Company at the Closing a certificate certifying that the conditions specified in Sections 8.1 and 8.2 have been fulfilled. 8.4 BOARD RESOLUTIONS. The Company shall have received resolutions of the Board of Directors of PICO and Physicians duly authorizing the execution and delivery of the Agreements and the performance of the Investors' obligations thereunder, certified by the Secretary of PICO and Physicians as being in full force and effect as of the Closing 8.5 QUALIFICATIONS. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Preferred Stock pursuant to this Agreement shall be obtained and effective as of the Closing. 8.6 THE CERTIFICATE. The Company shall have filed the Certificate with the Secretary of State of Delaware on or prior to the Closing Date, which shall continue to be in full force and effect as of the Closing Date. 9. MISCELLANEOUS. 9.1 TERMINATION OF AGREEMENT. This Agreement may be terminated on or prior to the Closing Date: 17 (a) At any time by the mutual consent of the Company and the Investors; (b) Following fourteen (14) business days after the date hereof, by the Investors if the proxy statement referred to in Section 4.6 herein has not been filed with the SEC; (c) Following December 31, 1998, by the Investors if the Company has not yet obtained shareholder approval for the matters contained in the proxy statement described in Section 4.6 herein; PROVIDED, HOWEVER, that if the proxy statement described in Section 4.6 herein does not receive full review by the SEC, the date for termination under this Section 9.1((c)) shall be November 30, 1998. (d) By the Company or the Investors if the other party breaches in any material respect any of its representations, warranties, covenants, obligations or agreements contained in this Agreement and such breach has not been cured within thirty (30) days of the date that notice of breach is received by the breaching party, PROVIDED, HOWEVER, that no notice of intent to terminate this Agreement pursuant to this Section 9.1((d)) may be served by the party that is itself a material breach of the Agreement at the time of such notice; (e) On or after December 31, 1998, by either the Company or the Investors if the Closing has not taken yet place by such date; (f) By the Investors, on or after the date when it becomes reasonably likely that the Company will be unable to satisfy any of the conditions set forth in Section 7, and By the Company on or after the date when it becomes reasonably likely that the Investors will be unable to satisfy any of the conditions set forth in Section 8. A termination pursuant to this Section 9.1 shall not relieve any party of any liability it otherwise has for breach of this Agreement. 9.2 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this Agreement, the warranties, representations and covenants of the Company and the Investors contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing for a period of two (2) years following the Closing, provided, however, that the representations, warranties and covenants of the Company contained in Section 6 hereof shall survive until the later of (i) the exercise or termination of the Warrant or (ii) the first date on which no Preferred Stock remains outstanding. 9.3 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 18 9.4 GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. 9.5 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 9.6 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 9.7 NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by telecopier, or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party's address as set forth on the signature page hereto, or as subsequently modified by written notice, and (a) if to the Company, with a copy to Wildman, Harrold, Allen & Dixon, 225 West Wacker Drive, 30th Floor, Chicago, IL 60606-1229 Attn: Donald E. Figliulo, Esq., or (b) if to the Investors, with a copy to Gray Cary Ware & Freidenrich, 4365 Executive Drive, Suite 1600, San Diego, CA 92121 Attn: Robert J. Ayling, Esq. 9.8 FEES AND EXPENSES. At the Closing, the Company shall pay the reasonable fees and expenses incurred by the Investors in conjunction with the transactions contemplated hereby, including but not limited to the reasonable fees and expenses of counsel for the Investors, provided such fees and expenses do not exceed $30,000. 9.9 ATTORNEY'S FEES. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of the Agreements, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 9.10 AMENDMENTS AND WAIVERS. Prior to the Closing, any term of this Agreement may be amended or waived only with the written consent of the Company and the Investors. Following the Closing, any term of this Agreement may be amended or waived only with the written consent of the Company and the holders of at least a majority of the Preferred Stock purchased hereunder. Any amendment or waiver effected in accordance with this Section 9.10 shall be binding upon the Investors and each transferee of the Securities, each future holder of all such Securities, and the Company. 9.11 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of 19 the Agreement shall be interpreted as if such provision were so excluded and (c) the balance of the Agreement shall be enforceable in accordance with its terms. 9.12 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative. 9.13 ENTIRE AGREEMENT. This Agreement and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements relating to the subject matter hereof existing between the parties hereto are expressly canceled. 9.14 CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTIONS 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS NOT EXEMPT. 9.15 CONFIDENTIALITY. Each party hereto agrees that, except with the prior written permission of the other party or as required by applicable law, it shall at all times keep confidential and not divulge, furnish or make accessible to anyone any confidential information, knowledge or data concerning or relating to the business or financial affairs of the other parties to which such party has been or shall become privy by reason of this Agreement, discussions or negotiations relating to this Agreement, the performance of its obligations hereunder or the ownership of the Securities purchased hereunder. The provisions of this Section 9.15 shall be in addition to, and not in substitution for, the provisions of any separate nondisclosure agreement executed by the parties hereto with respect to the transactions contemplated hereby. [Signature Pages Follow] 20 The parties have executed this Securities Purchase Agreement as of the date first written above. COMPANY: PC QUOTE, INC. By: -------------------------------------- Jim R. Porter, Chief Executive Officer Address: 300 South Wacker Drive Chicago, IL 60606 INVESTORS: PICO HOLDINGS, INC. By: ------------------------------------- John R. Hart, President Address: 875 Prospect Street Suite 301 La Jolla, CA 92037 PHYSICIANS INSURANCE COMPANY OF OHIO By: ------------------------------------ John R. Hart, President Address: 875 Prospect Street Suite 301 La Jolla, CA 92037 EXHIBITS Exhibit A - Form of Certificate of Designations Exhibit B - Form of Warrant Exhibit C - Forms of Amendments to Warrants Exhibit D - Schedule of Exceptions to Representations and Warranties Exhibit E - Form of Registration Rights Agreement Exhibit F - Form of Legal Opinion of Company Counsel EX-4.2 3 EXHIBIT 4.2 EXHIBIT A CERTIFICATE OF DESIGNATIONS OF SERIES A AND SERIES B PREFERRED STOCK OF PC QUOTE, INC. PC Quote, Inc., a Delaware corporation (the "CORPORATION") hereby certifies that the following resolutions were adopted by the Board of Directors of the Corporation (the "BOARD") on ___________, 1998, pursuant to authority conferred upon the Board by the Certificate of Incorporation, as amended, of the Corporation and Section 151(g) of the Delaware General Corporation Law: RESOLVED, that the Board hereby authorizes two series of the Corporation's previously authorized Preferred Stock, par value $.001 per share, and hereby states a designation of each series and number of shares, and fixes the relative rights, preferences, privileges, powers and restrictions thereof as follows: 1. DESIGNATION AND AMOUNT. The Corporation hereby designates ________ shares of the Preferred Stock as Series A Preferred Stock (the "SERIES A PREFERRED") and __________ shares of the Preferred Stock as Series B Preferred Stock (the "SERIES B PREFERRED," collectively with the Series A Preferred, the "PREFERRED STOCK"). 2. DIVIDENDS. (a) A holder of Series A Preferred shall be entitled to receive cash dividends, when and as declared by the Board out of funds legally available for such purpose, in the annual amount of $.__ per share [5% of per share purchase price], payable quarterly on the 15th day of September, December, March and June, in each year. A holder of Series B Preferred shall be entitled to receive cash dividends, when and as declared by the Board out of funds legally available for such purpose, in the annual amount of $.__ per share [5% of per share purchase price], payable quarterly on the 15th day of September, December, March and June, in each year. If any day described in the preceding two sentences is not a business day, dividends shall be paid on the next business day, commencing on the first such day after issuance. Dividends payable for any period less than a full quarter shall be computed on and paid for the actual number of days elapsed. Dividends shall accrue on each share of Preferred Stock from the date of issue of such share of stock (the "ISSUANCE DATE"). Dividends shall be paid to holders of record on a record date to be determined by the Board in advance of the payment of each dividend. -1- (b) No dividends shall be declared on any other series or class or classes of stock unless there shall be or have been declared on all shares of Preferred Stock then outstanding the dividends for all quarter-yearly periods coinciding with or ending before such quarter-yearly period. Dividends shall be cumulative. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment which is in arrears. If in any quarter-yearly dividend period, dividends in the annual amount have not been declared and paid or set apart for payment for such quarter-yearly dividend period and all preceding such periods from the first day from which dividends are cumulative, then, until the aggregate deficiency is declared and fully paid or set apart for payment, the Corporation shall not (i) declare or pay or set apart for payment any dividends or make any other distribution on any other capital stock or securities having an equity interest in the Corporation ranking junior to or on a parity with the Preferred Stock with respect to the payment of dividends or distribution of assets on liquidation, dissolution or winding up of the Corporation (the "SECONDARY STOCK") (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase Secondary Stock) or (ii) make any payment on account of the purchase, redemption, other retirement or acquisition of any Secondary Stock with respect to the payment of dividends or distribution of assets on liquidation, dissolution or winding up of the Corporation. 3. CONVERSION OF PREFERRED STOCK. A holder of Preferred Stock shall have the right, at such holder's option, to convert the Preferred Stock into shares of the Corporation's common stock, par value $0.001 per share (the "COMMON STOCK"), on the terms and conditions set forth in Sections 3(a) and 3(b). If any Preferred Stock remains outstanding on the fifth anniversary after the Issuance Date, then such Preferred Stock shall automatically convert to Common Stock on such fifth anniversary under the terms of Section 7(f). (a) CONVERSION RIGHT. At any time or times on or after the Issuance Date, any holder of Preferred Stock shall be entitled to convert any whole number of shares of Preferred Stock into fully paid and nonassessable shares (rounded to the nearest whole share in accordance with Section 7(h)) of Common Stock, at the Applicable Conversion Rate, adjusted in accordance with Section 4, if applicable. (b) APPLICABLE CONVERSION RATE. The number of shares of Common Stock issuable upon conversion of the Preferred Stock pursuant to Section 3(a) shall be determined by multiplying the product of one hundred (100) and the number of shares of Preferred Stock to be converted into Common Stock by: (i) in the case of Series A Preferred, (A) the Series A Closing Price (as defined in the Securities Purchase Agreement dated as of September ___, 1998, among the Corporation, Pico Holdings, Inc., a California corporation, and Physicians Insurance Corporation of Ohio, Inc., an Ohio corporation (the "PURCHASE AGREEMENT")) PLUS (B) the amount of any accrued but unpaid dividends attributable to such Preferred Stock, DIVIDED BY the lower of (X) the Series A Closing Price, (Y) the average Closing Sale Price of the Common Stock over the twenty-day period immediately prior to the day the Series A Preferred is to be converted into Common Stock; or (Z) the Closing Sale Price one day prior to the day the Series A Preferred is to be converted into Common Stock (the "SERIES A CONVERSION RATE"). -2- (ii) in the case of Series B Preferred, (A) the Series B Closing Price (as defined in the Purchase Agreement) PLUS (B) the amount of any accrued but unpaid dividends attributable to such Preferred Stock, DIVIDED BY the lower of (X) the Series B Closing Price, (Y) the average Closing Sale Price of the Common Stock over the twenty-day period immediately prior to the day the Series B Preferred is to be converted into Common Stock; or (Z) the Closing Sale Price one day prior to the day the Series B Preferred is to be converted into Common Stock (the "SERIES B CONVERSION RATE"). 4. ADJUSTMENT TO CONVERSION PRICE -- DILUTION AND OTHER EVENTS. In order to prevent dilution of the rights granted under this Certificate of Designations, the Series A and Series B Conversion Rates will be subject to adjustment from time to time as provided in this Section 4. (a) ADJUSTMENT OF CONVERSION PRICE DUE TO ISSUANCE OF ADDITIONAL SECURITIES. If on or after the Closing Date, the Corporation issues or sells, or is deemed under the terms of Section 4(a)(i) to have issued or sold, any shares of Common Stock (other than the Preferred Stock and shares of Common Stock deemed to have been issued by the Corporation in connection with an Approved Stock Plan (as defined below)) for a consideration per share less than the Applicable Price (as defined below), then after such issue or sale, in addition to multiplying such number of shares by the Series A Conversion Rate or the Series B Conversion Rate, as applicable, the number of shares of Preferred Stock to be converted into Common Stock shall be multiplied by: the product of (I) the Applicable Price and (II) the number of shares of Common Stock Deemed Outstanding (as defined in Section 4(a)(iii)) immediately after such issue or sale, divided by the sum of (a) the product of the Applicable Price and the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale, and (b) the consideration, if any, received by the Corporation upon such issue or sale (as determined in Section 4(a)(iv)). The "APPLICABLE PRICE" shall equal (x) the Series A Closing Price if the calculation relates to Series A Preferred, or (y) the Series B Closing Price if the calculation relates to Series B Preferred, or (z) the lesser of the Series A Closing Price or the Series B Closing Price if the calculation does not explicitly relate to either the Series A Preferred or the Series B Preferred. For purposes of determining the number of shares of Common Stock Deemed Outstanding under this Section 4(a), the following shall apply: (i) ISSUANCE OF OPTIONS OR CONVERTIBLE SECURITIES. If the Corporation in any manner grants (A) any rights or options to subscribe for or to purchase Common Stock (other than pursuant to an Approved Stock Plan or upon conversion of the Preferred Stock) or (B) any rights or options to acquire any stock or other securities convertible into or exchangeable for Common Stock (such convertible or exchangeable stock or securities being herein called "CONVERTIBLE SECURITIES") or (C) any rights to subscribe for or to purchase Convertible Securities, and the price per share for which Common Stock is issuable upon the exercise of the rights or options described in Sections 5(a)(i)(A) or (B) (together, the "OPTIONS") or upon conversion or exchange of Convertible Securities is less than the Applicable Price, then the total maximum number of shares of Common Stock issuable upon the (A) exercise of such Options or (B) conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options or (C) conversion or exchange of Convertible Securities, shall increase -3- the number of shares of Common Stock Deemed Outstanding and shall be deemed to have been issued and sold by the Corporation for the price per share specified in Section 4(a)(iv). (ii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the (A) purchase price payable to exercise any Options, (B) additional consideration, if any, payable upon the issue, conversion or exchange of any Convertible Securities, or (C) rate at which any Convertible Securities are convertible into or exchangeable for Common Stock change at any time (including due to a conversion price for Convertible Securities which varies with the market or an index), the fraction to be used thereafter in the calculation described in Section 4(a) shall be the fraction which would have been calculated at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold; provided that no adjustment shall be made if such adjustment would result in an increase to the Series A Conversion Price or the Series B Conversion Price otherwise applicable. (iii) CERTAIN DEFINITIONS. For purposes of determining the additional fraction specified in Section 4(a), the following terms have the meanings set forth below: (A) "APPROVED STOCK PLAN" shall mean any contract, plan or agreement which has been approved by the Board of the Corporation, pursuant to which the Corporation's securities may be issued to any employee, officer, director, consultant or other service provider. (B) "COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus any additional shares of Common Stock deemed to be outstanding at such time pursuant to Section 4(a)(i) regardless of whether the Options or Convertible Securities are actually exercisable at such time, plus the number of shares of Common Stock issuable upon conversion of the Preferred Stock. Upon the expiration of any Options or any rights of conversion, exercise or exchange under Convertible Securities which shall not have been exercised, converted or exchanged, the Common Stock Deemed Outstanding shall include: only the Common Stock, if any, actually issued upon the exercise of such Options or exercise, conversion or exchange of such Convertible Securities. (C) The "CLOSING SALE PRICE" shall be defined as the last closing sale price of the Common Stock of the Corporation on the American Stock Exchange, or if the American Stock Exchange is not the principal securities exchange for the Common Stock, the last closing sale price of the Common Stock on the principal securities exchange or other trading market where the Common Stock is listed, or if the foregoing do not apply, the last closing sale price of the Common Stock in the over-the-counter market on the electronic bulletin board for the Common Stock as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if no closing sale price is reported for the Common Stock by Bloomberg, the last closing bid price of the Common Stock as reported by Bloomberg, or, if no last closing bid price is reported for the Common Stock by Bloomberg, the average of the bid prices of any market makers for the Common Stock as reported in the "pink sheets" by the National Quotation Bureau, Inc., or if the last closing sale price cannot be calculated for the Common Stock on any of the foregoing bases, -4- then the fair market value as mutually determined by the Corporation and the holders of a majority of the outstanding Preferred Stock (including for purposes of this determination any Preferred Stock with respect to which the Closing Sale Price is being determined). (iv) ADJUSTMENT TO CONVERSION PRICE. For purposes of determining the fraction to be used in the calculation described in Section 4(a), the following shall apply: (1) CALCULATION OF CONSIDERATION RECEIVED. For purposes of Section 4(a), the price per share for which Common Stock is deemed issued upon exercise of Options or upon conversion or exchange of Convertible Securities shall be determined by dividing (I) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (II) the total maximum number of shares of Common Stock issuable upon exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. Subject to Section 4(a)(ii), no additional adjustment to the Series A Conversion Price or the Series B Conversion Price, as applicable, shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. (2) CASH PROCEEDS. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Corporation therefor. (3) EXPIRATION OF CONVERSION RIGHTS. Upon the expiration of any Options or any rights of conversion, exercise or exchange under Convertible Securities which shall not have been exercised, converted or exchanged, the consideration received therefor shall be deemed to be (i) the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually exercised, converted or exchanged, plus any additional consideration, if any, actually received by the Corporation upon such exercise, conversion or exchange, and (ii) in the case of Options for Convertible Securities, only the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised. (4) NONCASH CONSIDERATION. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Corporation will be the average of the Closing Sale Prices of such -5- securities for the five consecutive business days immediately preceding the date of receipt (calculated as if the definition of the Closing Sale Price relates to such securities rather than to Common Stock). (5) FAIR VALUE DEFINED. The fair value of any consideration other than cash or securities will be determined jointly by the Corporation and the holders of a majority of the Preferred Stock then outstanding. If such parties are unable to reach agreement within ten (10) business days after the occurrence of an event requiring valuation (the "VALUATION EVENT"), the fair value of such consideration will be determined within five (5) business days after the tenth (10th) business day following the Valuation Event by an independent, reputable appraiser selected by the Corporation. The determination of such appraiser shall be binding upon all parties absent manifest error. (6) INTEGRATED TRANSACTIONS. In case any Option is issued in connection with the issue or sale of other securities of the Corporation, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $.01. (7) TREASURY SHARES. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Corporation, and the disposition of any shares so owned or held will be considered an issue or sale of Common Stock. (8) RECORD DATE. If the Corporation takes a record of the holders of Common Stock for the purpose of entitling them (a) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities, or (b) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be, for purposes of determining the voting rights of the holders of Preferred Stock. (b) ADJUSTMENT OF CONVERSION PRICE UPON SUBDIVISION OR COMBINATION OF COMMON STOCK. (i) SUBDIVISIONS. If the Corporation at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, thereafter, when any calculation is to be made of the number of shares of Common Stock to be received for the Preferred Stock, the number of shares of Preferred Stock shall be multiplied by the following fraction (in addition to the Series A Conversion Rate or the Series B Conversion Rate, and any adjustment in Section 4(a) as applicable): the number of shares which one share of Common Stock prior to the subdivision was converted into upon the subdivision, divided by one share of Common Stock. -6- (ii) COMBINATIONS. If the Corporation at any time combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, thereafter,, when any calculation is to be made of the number of shares of Common Stock to be received for the Preferred Stock, the number of shares of Preferred Stock shall be multiplied by the following fraction (in addition to the Series A Conversion Rate or the Series B Conversion Rate, and any adjustment in Section 4(a) as applicable): one share of Common Stock divided by the number of shares which one share of Common Stock prior to the combination was converted into upon the combination. (c) CERTAIN EVENTS. If any event occurs of the type contemplated to trigger an adjustment to the Series A Conversion Price or Series B Conversion Price, as applicable, by the provisions of this Section 4, but which event is not expressly provided for hereunder (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Corporation's Board shall make an appropriate adjustment in the applicable Conversion Price so as to protect the rights of the holders of the Preferred Stock; provided, however, that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 4. 5. NOTICES. Any notice required to be delivered pursuant to the terms of this Certificate of Designations shall be delivered, unless otherwise provided in this Certificate of Designations, in accordance with the terms, and subject to the notice provisions of, the Securities Purchase Agreement. (a) EVENTS. The Corporation will provide written notice to each holder of the Preferred Stock at least twenty (20) days prior to the date on which the Corporation closes its books or takes a record (I) with respect to any dividend or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to holders of Common Stock, or (III) for determining rights to vote with respect to any Substantive Change, dissolution or liquidation, provided, however that in no event shall such notice be provided to such holder prior to such information being made known to the public. (b) SUBSTANTIVE CHANGES. The Corporation will provide written notice to each holder of the Preferred Stock at least twenty (20) days prior to the date on which any Substantive Change, dissolution or liquidation will take place, provided, however that in no event shall such notice be provided to such holder prior to such information being made known to the public. (c) DOCUMENTS. The Corporation will provide each holder of the Preferred Stock with the following documents: (i) monthly, quarterly and annual reports including variances between planned and actual financial results; and (ii) audited annual financial statements together with an annual report, not later than ninety (90) days after the end of the fiscal year of the Corporation. -7- (d) CONVERSION NOTICE. The holder of Preferred Stock will provide written notice to the Corporation prior to exercising the conversion rights specified in Section 3 hereof, as provided in Section 7 below. 6. PURCHASE RIGHTS. If at any time after the Issuance Date the Corporation grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the holders of the Preferred Stock will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete conversion of the Preferred Stock (without taking into account any limitations or restrictions on the timing or amount of conversions) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of the Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. 7. MECHANICS OF CONVERSION. (a) HOLDER'S DELIVERY REQUIREMENTS. To convert Preferred Stock into full shares of Common Stock on any date (the "CONVERSION DATE"), the holder thereof shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m. Eastern Time, on such date, a copy of a fully executed notice of conversion in the form attached hereto as EXHIBIT A (the "CONVERSION NOTICE") to the Corporation and its designated transfer agent (the "TRANSFER AGENT"), and (B) surrender to a common carrier, for delivery to the Corporation or the Transfer Agent as soon as practicable following such date, the original certificate(s) representing the Preferred Stock being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the "PREFERRED STOCK CERTIFICATE(S)") and the originally executed Conversion Notice. The Preferred Stock shall be deemed to have been converted to Common Stock on the Conversion Date. (b) CORPORATION'S RESPONSE. Within forty-eight (48) hours of receipt by the Corporation of a facsimile copy of a Conversion Notice, the Corporation shall send, via facsimile, a confirmation of receipt of such Conversion Notice to such holder. Upon receipt by the Corporation or the Transfer Agent of the Preferred Stock Certificate(s) to be converted pursuant to a Conversion Notice, together with the originally executed Conversion Notice, the Corporation or the Transfer Agent (as applicable) shall, within the later of one (1) business day after receipt of the Preferred Stock Certificates and two (2) days after receipt of the Conversion Notice, (I) issue and surrender to a common carrier for overnight delivery to the address specified in the Conversion Notice, a certificate, registered in the name of the holder or its designee, for the number of shares of Common Stock to which the holder shall be entitled, or (II) credit such aggregate number of shares of Common Stock to which the holder shall be entitled to the holder's or its designee's balance account with The Depository Trust Corporation. If the number of shares of Preferred Stock represented by the Preferred Stock Certificate(s) submitted for conversion is greater than the number of Preferred Stock being converted, then the Corporation or Transfer Agent, as the case may be, shall, as soon as practicable and in no event later than three business days after receipt of the Preferred Stock -8- Certificate(s) and at its own expense, issue and deliver to the holder a new Preferred Stock Certificate representing the number of Preferred Stock not converted. (c) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the arithmetic calculation of the Series A Conversion Rate or the Series B Conversion Rate, the Corporation shall promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the holder via facsimile within two (2) business days of receipt of such holder's Conversion Notice. If such holder and the Corporation are unable to agree upon the determination of the Closing Sale Price or applicable Conversion Rate within one (1) business day of such disputed determination or arithmetic calculation being submitted to the holder, then the Corporation shall within one (1) business day submit via facsimile the disputed arithmetic calculation of such Closing Sale Price or Conversion Rate to an independent, outside accountant mutually agreed upon by the Corporation and a majority of the holders of the Preferred Stock. If the Corporation cannot agree with the holders of the Preferred Stock upon one accountant, then an accountant chosen by the Corporation and an accountant chosen by the holders of the Preferred Stock shall choose a third, independent, outside accountant who shall make the disputed determinations or calculation and notify the Corporation and the holder of the results no later than forty-eight (48) hours from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent manifest error. (d) RECORD HOLDER. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of Preferred Stock shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date. (e) CORPORATION'S FAILURE TO CONVERT. If within five (5) business days after the Corporation's or the Transfer Agent's receipt of the Preferred Stock Certificates to be converted and the Conversion Notice the Corporation shall fail (1) to issue a certificate for the number of shares of Common Stock to which a holder is entitled or to credit the holder's balance account with The Depository Trust Corporation for such number of shares of Common Stock to which the holder is entitled upon such holder's conversion of the Preferred Stock, or (2) to issue a new Preferred Stock Certificate representing the number of shares of Preferred Stock to which such holder is entitled, pursuant to Section 7(b) in addition to all other available remedies which such holder may pursue hereunder and under the Purchase Agreement, the Corporation shall pay additional damages to such holder on each date after such fifth (5th) business day that such conversion or delivery of such Preferred Stock Certificates, as the case may be, is not timely effected in an amount equal to 0.5% of the product of (x) the sum of the number of shares of Common Stock not issued to the holder on a timely basis pursuant to Section 7(b) and to which such holder is entitled and, in the event the Corporation has failed to deliver a Preferred Stock Certificate to the holder on a timely basis pursuant to Section 7(b) the number of shares of Common Stock issuable upon conversion of the Preferred Stock represented by such Preferred Stock Certificate as of the last possible date which the Corporation could have issued such Preferred Stock Certificate to such holder without violating Section 7(b); and (y) the Closing Sale Price of the Common Stock on the last possible date which -9- the Corporation could have issued such Common Stock and the Preferred Stock Certificate, as the case may be, to such holder without violating Section 7(b). (f) MANDATORY CONVERSION. If any Preferred Stock remain outstanding on the fifth (5th) anniversary after the Issuance Date, then all such Preferred Stock shall be automatically converted as of such date as if the holders of such Preferred Stock had given a Conversion Notice under Section 3 and in accordance with this Section 7 on such fifth (5th) anniversary. All holders of Preferred Stock shall thereupon surrender all Preferred Stock Certificates, duly endorsed for cancellation, to the Corporation or the Transfer Agent, provided that the Corporation has complied with its obligations under this Section 7. (g) PRO-RATA CONVERSION. In the event the Corporation receives a Conversion Notice from more than one holder of Preferred Stock on the same day and the Corporation is able to convert some, but not all, of the Preferred Stock pursuant to this Section 7, the Corporation shall convert from each holder of Preferred Stock electing to have Preferred Stock converted at such time an amount equal to such holder's pro-rata amount (based on the number of Preferred Stock held by such holder relative to the number of Preferred Stock outstanding) of all Preferred Stock being converted at such time. (h) FRACTIONAL SHARES. The Corporation shall not issue any fraction of a share of Common Stock upon any conversion. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one Preferred Share by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of a fraction of a share of Common Stock. If, after the aforementioned aggregation, the issuance would result in the issuance of a fraction of a share of Common Stock, the Corporation shall round such fraction of a share of Common Stock up or down to the nearest whole share. (i) TAXES. The Corporation shall pay any and all taxes which may be imposed upon it with respect to the issuance and delivery of shares of Common Stock upon the conversion of the Preferred Stock. (j) RESERVATION OF SHARES. The Corporation shall, so long as any of the shares of Preferred Stock are outstanding, reserve and keep available out of its authorized and unused Common Stock, solely for the purpose of effecting the conversion of the Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Preferred Stock then outstanding (without regard to any limitations on conversions); provided that the number of shares of Common Stock so reserved shall at no time be less than 150% of the number of shares of Common Stock for which the shares of Preferred Stock are at any time convertible. The initial number of shares of Common Stock reserved for conversions of the Preferred Stock and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Preferred Stock based on the number of Preferred Stock held by each holder at the time of issuance of the Preferred Stock or increase in the number of reserved shares, as the case may be. In the event a holder shall sell or otherwise transfer any of such holder's Preferred Stock, each transferee shall be allocated a pro rata portion of the number of reserved shares of Common Stock reserved for such transferor. Any shares of Common Stock reserved and which -10- remain allocated to any person or entity which does not hold any Preferred Stock shall be allocated to the remaining holders of Preferred Stock, pro rata based on the number of shares of Preferred Stock then held by such holder. (k) LIMITATION ON NUMBER OF CONVERSION SHARES. Notwithstanding any other provision herein, the Corporation shall not be obligated to issue any shares of Common Stock upon conversion of the Preferred Stock if the issuance of such shares of Common Stock would exceed that number of shares of Common Stock which the Corporation may issue upon Conversion of the Preferred Stock (the "EXCHANGE CAP") without breaching the Company's obligations under the rules or regulations of the American Stock Exchange, except that such limitation shall not apply in the event that the Company (a) obtains the approval of its stockholders as required by applicable rules and regulations of the American Stock Exchange (or if the American Stock Exchange is not the principal securities exchange for the Common Stock, then the principal securities exchange) for issuances of Common Stock in excess of such amount or (ii) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the holders of a majority of the Preferred Stock then outstanding. Until such approval or written opinion is obtained, no holder of Preferred Stock pursuant to the Purchase Agreement shall be issued, upon conversion of Preferred Stock, shares of Common Stock in an amount greater than the product of (I) the Exchange Cap amount multiplied by (ii) a fraction, the numerator of which is the number of shares of Preferred Stock issued to such holder pursuant to the Purchase Agreement and the denominator of which is the aggregate amount of all the Preferred Stock issued to the holders pursuant to the Purchase Agreement (the "CAP ALLOCATION AMOUNT"). In the event that any holder shall sell or otherwise transfer any of such holder's Preferred Stock, the transferee shall be allocated a pro rata portion of such holder's Cap Allocation Amount. In the event that any holder of Preferred Stock shall convert all of such holder's Preferred Stock into a number of shares of Common Stock which, in the aggregate, is less than such holder's Cap Allocation Amount, then the difference between such holder's Cap Allocation Amount and the number of shares of Common Stock actually issued to such holder shall be allocated to the respective Cap Allocation Amounts of the remaining holders of Preferred Stock on a pro rata basis in proportion to the number of shares of Preferred Stock then held by each such holder. 8. VOTING RIGHTS. Except as otherwise required by law or as otherwise explicitly provided herein, the holders of Preferred Stock and the holders of Common Stock shall be entitled to notice of any shareholders' meeting and to vote together as a single class upon any matter submitted to the shareholders for a vote on the following basis: (a) COMMON STOCK. Each share of Common Stock issued and outstanding shall have one vote. (b) PREFERRED STOCK. Each holder of Preferred Stock shall have the number of votes equal to the number of shares of Common Stock into which the Preferred Stock then held by such holder is convertible, as adjusted from time to time under Section 4 hereof. (c) DIRECTORS. Holders of Preferred Stock shall have the exclusive right to elect two (2) of the five (5) directors to the Board, and shall have such other voting rights as are -11- expressly provided in this Certificate of Designations. The Corporation shall provide the members of the Board elected hereunder with (a) all written accounts prepared by management; (b) the annual budget of the Corporation prepared for the next succeeding fiscal year; (c) notification of any litigation or claim that may materially adversely affect the financial affairs or business prospects of the Corporation; and (d) written or electronic copies of all filings the Corporation makes with the Securities and Exchange Commission or the American Stock Exchange (or if the American Stock Exchange is not the principal securities exchange for the Common Stock, then such principal securities exchange). 9. LIQUIDATION, DISSOLUTION, WINDING-UP. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of the Preferred Stock shall be entitled to receive in cash out of the assets of the Corporation, whether from capital or from earnings available for distribution to its stockholders (the "PREFERRED FUNDS"), before any amount shall be paid to the holders of any of the capital stock of the Corporation of any class junior in rank to the Preferred Stock in respect of the preferences as to the distributions and payments on the liquidation, dissolution and winding up of the Corporation, an amount per share of Preferred Share equal to the Applicable Price plus all accrued but unpaid dividends (such sum being referred to as the "LIQUIDATION VALUE"); provided that, if the Preferred Funds are insufficient to pay the full amount due to the holders of Preferred Stock and holders of shares of other classes or series of preferred stock of the Corporation that are of equal rank with the Preferred Stock as to payments of Preferred Funds (the "PARI PASSU SHARES"), then each holder of Preferred Stock and Pari Passu Shares shall receive a percentage of the Preferred Funds equal to the full amount of Preferred Funds payable to such holder as a liquidation preference, in accordance with their respective Certificate of Designations, Preferences and Rights, as a percentage of the full amount of Preferred Funds payable to all holders of Preferred Stock and Pari Passu Shares. The following events shall be deemed voluntary liquidation events for purpose of this Section 9: (a) the purchase or redemption by the Corporation of stock of any class, in any manner permitted by law, (b) the consolidation or merger of the Corporation with or into any other Person, or where more than 50% of the securities of the Corporation then outstanding do not remain outstanding after such transaction, (c) the sale or transfer by the Corporation of more than 50% of its assets, or (d) the sale or transfer other than by the holders of Preferred Stock of more than 50% of the voting power of the Corporation. 10. PREFERRED RANK; PARTICIPATION. (a) RANK. All shares of Common Stock shall be of junior rank to all Preferred Stock in respect to the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Corporation. The rights of the shares of Common Stock shall be subject to the preferences and relative rights of the Preferred Stock. (b) CHANGES TO PREFERENCES. Without the prior express written consent of the holders of not less than two-thirds (2/3) of the then outstanding Preferred Stock, the Corporation shall not hereafter authorize or issue additional or other capital stock that is of senior rank to the Preferred Stock in respect of the preferences as to distributions and payments upon the liquidation, -12- dissolution and winding up of the Corporation. Without the prior express written consent of the holders of not less than two-thirds (2/3) of the then outstanding Preferred Stock, the Corporation shall not hereafter authorize or make any amendment to the Corporation's Certificate of Incorporation or bylaws, or file any resolution of the Board with the Secretary of State of the State of Delaware containing any provisions, which would adversely affect or otherwise impair the rights or relative priority of the holders of the Preferred Stock relative to the holders of the Common Stock or the holders of any other class of capital stock (including, but not limited to any increase in the number of authorized shares of the Corporation or in the number of shares issuable under any plan to grant stock to employees, officers or directors of the Corporation). (c) PAYMENTS. Subject to the rights of the holders, if any, of the Pari Passu Shares, the holders of the Preferred Stock shall, as holders of Preferred Stock, be entitled to such dividends paid and distributions made to the holders of Common Stock to the same extent as if such holders of Preferred Stock had converted the Preferred Stock into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock. 11. VOTE TO CHANGE THE TERMS OF OR ISSUE PREFERRED STOCK. So long as any of the Preferred Stock remains outstanding, the Corporation, and any subsidiary of the Corporation, shall not, without first obtaining the affirmative vote at a meeting duly called for such purpose or the written consent without a meeting, of the holders of not less than two-thirds (2/3) of the then outstanding Preferred Stock: (a) change this Certificate of Designations or the Corporation's Certificate of Incorporation to amend, alter, change or repeal any of the powers, designations, preferences and rights of the Preferred Stock; (b) issue Preferred Stock other than pursuant to the Securities Purchase Agreement; (c) approve the merger of the Corporation with and into another legal entity, or any reorganization of the Corporation or the sale of substantially all of the stock or assets of the Corporation, or acquire all or substantially all of the capital stock or property or another entity; (d) pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock; (e) make any change in the size or number of members of the Board (currently five (5)) or the rights to elect members of the Board; or (f) incur any debt of greater than $50,000, aggregating the principal and interest due under the terms of such debt. -13- 12. LOST OR STOLEN CERTIFICATES. Upon receipt by the Corporation of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing the Preferred Stock, and, in the case of loss, theft or destruction, of any indemnification undertaking by the holder to the Corporation and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Corporation shall execute and deliver new preferred stock certificate(s) of like tenor and date; provided, however, the Corporation shall not be obligated to re-issue preferred stock certificates if the holder contemporaneously requests the Corporation to convert such Preferred Stock into Common Stock. 13. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Certificate of Designations shall be cumulative and in addition to all other remedies available under this Certificate of Designations, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a holder's right to pursue actual damages for any failure by the Corporation to comply with the terms of this Certificate of Designations. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Corporation (or the performance thereof). The Corporation acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of the Preferred Stock and that the remedy at law for any such breach may be inadequate. The Corporation therefore agrees that, in the event of any such breach or threatened breach, the holders of the Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. 14. SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No specific provision contained in this Certificate of Designations shall limit or modify any more general provision contained herein. This Certificate of Designations shall be deemed to be jointly drafted by the Corporation and all holders of Preferred Stock notwithstanding its adoption by the Board and shall not be construed against any person as the drafter hereof. -14- 15. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of a holder of Preferred Stock in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation this ___ day of ___________________, 1998. PC QUOTE, INC. By: ------------------------------------ Name: ----------------------------------- Title: --------------------------------- -15- EXHIBIT A P.C. QUOTE, INC. CONVERSION NOTICE Reference is made to the Certificate of Designations, Preferences and Rights of Series A and Series B Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATIONS"). In accordance with and pursuant to the Certificate of Designations, the undersigned hereby elects to convert the number of shares of Series __ Convertible Preferred Stock, par value $0.001 per share (the "PREFERRED STOCK"), of P.C. Quote, Inc., a Delaware corporation (the "CORPORATION"), as indicated below into shares of Common Stock, par value $0.001 per share (the "COMMON STOCK"), of the Corporation, by tendering the stock certificate(s) representing the share(s) of Preferred Stock specified below as of the date specified below. Date of Conversion: ------------------------------------------------ Number of Preferred Stock to be converted: ------------------------ Series of Preferred Stock to be converted: ------------------------ Stock certificate no(s). of Preferred Stock to be converted: ------- Please confirm the following information: Conversion Price: ------------------------------------------------- Number of shares of Common Stock to be issued: ------------------------------------------------- Please issue the Common Stock into which the Preferred Stock are being converted and, if applicable, any check drawn on an account of the Corporation in the following name and to the following address: Issue to: ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- Facsimile Number: ------------------------------------------------- Authorization: ------------------------------------------------- By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- Dated: ------------------------------------------------ Account Number: (if electronic book entry transfer): ------------------------------ Transaction Code Number (if electronic book entry transfer): ------------------------------ THIS NOTICE MUST BE DELIVERED TO CORPORATION AND TRANSFER AGENT EX-4.3 4 EXHIBIT 4.3 EXHIBIT E REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), is dated as of this __ day of _________, 1998, by and among PC Quote, Inc., a Delaware corporation (the "COMPANY"), and the undersigned buyers (each, a "BUYER" and collectively, the "BUYERS"). WHEREAS: A. In connection with the Securities Purchase Agreement dated as of September ___, 1998, by and among the Company and the Buyers (the "SECURITIES PURCHASE AGREEMENT"), the Company has agreed, upon the terms and subject to the conditions of the Securities Purchase Agreement, to issue and sell to the Buyers shares of the Company's Series A Preferred Stock and Series B Preferred Stock (collectively, the "PREFERRED SHARES"), which will be convertible into shares of the Company's Common Stock, par value $0.001 per share (the "COMMON STOCK") (as converted, the "CONVERSION SHARES"), in accordance with the terms of the Company's Certificate of Designations for Series A and Series B Preferred Stock (the "CERTIFICATE OF DESIGNATIONS"); B. In connection with the Securities Purchase Agreement, the Company also issued to PICO Holdings, Inc. ("PICO"), one of the Buyers, a Warrant (the "NEW WARRANT") to purchase additional shares of Common Stock of the Company (the "NEW WARRANT SHARES"); C. In connection with the Securities Purchase Agreement, the Company and PICO amended the provisions of three issued and outstanding Warrants (the "EXISTING WARRANTS" and collectively with the New Warrant the "WARRANTS") held by PICO to purchase an aggregate of 949,032 shares of Common Stock of the Company (the "EXISTING WARRANT SHARES," and collectively with the New Warrant Shares, the "WARRANT SHARES"); D. The Company is currently maintaining an effective Registration Statement on Form S-3, filed on May 20, 1998 (the "EXISTING S-3"), covering the registration of the Existing Warrant Shares and 2,370,000 issued and outstanding shares of Common Stock of the Company owned by PICO (the "PICO SHARES"); and E. To induce the Buyers to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "1933 ACT"), and applicable state securities laws. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Buyers hereby agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: a. "INVESTOR" means a Buyer and any transferee or assignee thereof to whom a Buyer assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9. b. "PERSON" means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency. c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing one or more Registration Statements in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous basis ("RULE 415"), and the declaration or ordering of effectiveness of such Registration Statement(s) by the United States Securities and Exchange Commission (the "SEC"). d. "REGISTRABLE SECURITIES" means the Conversion Shares issued or issuable upon conversion of the Preferred Shares, the Existing Warrant Shares, the New Warrant Shares, the PICO Shares and any shares of capital stock issued or issuable with respect to the Conversion Shares, the Existing Warrant Shares, the New Warrant Shares, the PICO Shares or the Preferred Shares as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, regardless of any limitation on conversions of Preferred Shares. e. "REGISTRATION STATEMENT" means a registration statement of the Company filed under the 1933 Act. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Securities Purchase Agreement. 2. REGISTRATION. a. MANDATORY REGISTRATION. The Company shall prepare, and, as soon as practicable but in no event later than 30 days after the date of issuance of the Preferred Shares, file with the SEC a Registration Statement or Registration Statements (as is necessary) on Form S-3 (or, if such form is unavailable for such a registration, on such other form as is available for such a registration, subject to the consent of the Investors holding a majority of the Registrable Securities (which consent will not be unreasonably withheld) and the provisions of Section 2(d)), covering the resale of all of the Registrable Securities, which Registration Statement(s) shall state that, in accordance with Rule 416 promulgated under the 1933 Act, such Registration Statement(s) also covers such indeterminate number of additional shares of Common Stock as may become issuable upon conversion of the Preferred Shares and the exercise and purchase of the New Warrant Shares (i) to prevent dilution resulting from stock splits, stock dividends or 2 similar transactions, and (ii) by reason of changes in the Conversion Rate of the Preferred Shares in accordance with the terms of the Securities Purchase Agreement and the Company's Articles of Incorporation as modified by the Certificate of Designations. Such Registration Statement shall initially register for resale at least ________ shares of Common Stock [the number equal to 150% of the shares (a) issuable on conversion of the Preferred Shares assuming the Conversion Rate applicable as of the Closing Date, and (b) issuable on exercise of the Warrants assuming at the Exercise Prices as of the Closing Date], subject to adjustment as provided in Section 3(b). Such registered shares of Common Stock shall be allocated among the Investors pro rata based on the total number of Registrable Securities issued or issuable as of each date that a Registration Statement, as amended, relating to the resale of the Registrable Securities is declared effective by the SEC. The Company shall use its best efforts to have the Registration Statement(s) declared effective by the SEC as soon as practicable, but in no event later than 120 days after the issuance of the Preferred Shares. b. ALLOCATION OF REGISTRABLE SECURITIES. The initial number of Registrable Securities included in any Registration Statement and each increase in the number of Registrable Securities included therein shall be allocated pro rata among the Investors based on the number of Registrable Securities held by each Investor at the time of such establishment or increase, as the case may be. In the event an Investor shall sell or otherwise transfer any of such holder's Registrable Securities, each transferee shall be allocated a pro rata portion of the then remaining number of Registrable Securities included in such Registration Statement for such transferor. Any shares of Common Stock included in a Registration Statement and which remain allocated to any person or entity which does not hold any Registrable Securities shall be allocated to the remaining Investors, pro rata based on the number of Registrable Securities then held by such Investors. In addition, the number of Registrable Securities held by any Investor shall be determined as if all Warrants held by Investors and Preferred Shares then outstanding were converted into or exercised for Registrable Securities. c. COUNSEL AND INVESTMENT BANKERS. Subject to Section 5 hereof, in connection with any offering pursuant to this Section 2, at their own expense the Investors shall have the right to select one legal counsel and an investment banker or bankers and manager or managers to administer their interest in the offering, which investment banker or bankers or manager or managers shall be reasonably satisfactory to the Company. The Company shall reasonably cooperate with any such counsel and investment bankers. d. ELIGIBILITY FOR FORM S-3. The Company represents and warrants that on the date hereof it meets the requirements for the use of Form S-3 for registration of the sale by the Investors of the Registrable Securities and the Company has filed and shall file all reports required to be filed by the Company with the SEC in a timely manner so as to obtain and maintain such eligibility for the use of Form S-3. In the event that Form S-3 is not available for sale by the Investors of the Registrable Securities, then the Company (i) with the consent of the Investors holding a majority of the Registrable Securities pursuant to Section 2(a), shall register the sale of the Registrable Securities on another appropriate form and (ii) the Company shall undertake to register the Registrable Securities on Form S-3 as soon as such form is available, but shall maintain the effectiveness of the Registration Statement then in effect until such time as 3 a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the SEC. e. RULE 416. The Company and the Investors each acknowledge that an indeterminate number of Registrable Securities shall be registered pursuant to Rule 416 under the 1933 Act so as to include in such Registration Statement any and all Registrable Securities which may become issuable (i) to prevent dilution resulting from stock splits, stock dividends or similar transactions and (ii) if permitted by law, by reason of reductions in the Series A and Series B Conversion Rates (as defined in the Certificate of Designations) of the Preferred Shares in accordance with the terms thereof, including, without limitation, the terms which cause the Series A and Series B Conversion Rates to decrease as the price of the Common Stock decreases (collectively, the "RULE 416 SECURITIES"). In this regard, the Company agrees to use all reasonable efforts to ensure that the maximum number of Registrable Securities which may be registered pursuant to Rule 416 under the 1933 Act are covered by the Registration Statement and, absent guidance from the SEC or other definitive authority to the contrary, the Company shall use all reasonable efforts to affirmatively support and to not take any position adverse to the position that the Registration Statement filed hereunder covers all of the Rule 416 Securities. If the Company takes a position adverse to the position that the Registration Statement filed hereunder covers all of the Rule 416 Securities, then the Company shall immediately provide to each Investor written notice setting forth the basis for the Company's position and the authority therefor. f. EFFECT OF FAILURE TO OBTAIN AND MAINTAIN EFFECTIVENESS OF REGISTRATION STATEMENT. If the Registration Statement is not (i) filed within 30 days of the Issuance Date (as defined in the Certificate of Designations) of the Preferred Shares (the "SCHEDULED FILING DATE"), (ii) declared effective by the SEC on or before 120 days after the Issuance Date for the Preferred Shares (the "SCHEDULED EFFECTIVE DATE"), or (iii) if after the Registration Statement has been declared effective by the SEC, sales cannot be made pursuant to the Registration Statement (whether because of a failure to keep the Registration Statement effective, to disclose such information as is necessary for sales to be made pursuant to the Registration Statement, to register sufficient shares of Common Stock or otherwise), then, as partial relief for the damages to any Investor by reason of any such delay in or reduction of its ability to sell any of the Registrable Securities (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall pay to each Investor an amount, per each Conversion Share to be issued to such Investor as of the relevant date, in cash equal to the product of (i) $10,000 multiplied by (ii) the sum of (A) .02, if the Registration Statement is not filed by the Scheduled Filing Date, plus (B) .02, if the Registration Statement is not declared effective by the SEC by the Scheduled Effective Date, plus (C) the product of (I) .00067 multiplied by (II) the sum of (x) the number of days after the Scheduled Filing Date that the relevant Registration Statement has not been filed with the SEC, (y) the number of days after the Scheduled Effective Date and prior to the date that the relevant Registration Statement has not been declared effective by the SEC, and (z) the number of days after the Registration Statement has been declared effective by the SEC that the Registration Statement is not available for sales of at least all of the Registrable Securities. The payments to which a holder shall be entitled pursuant to this Section 2(h) are referred to herein as "REGISTRATION DELAY PAYMENTS." The aggregate amount then owing upon 4 any Registration Delay Payments shall be paid within five business days of the earlier of (A) the first day of each month following the occurrence of the event resulting in the requirement to make such Registration Delay Payments, or (B) the date on which the event resulting in the requirement to make Registration Delay Payments is cured. In the event the Company fails to make Registration Delay Payments in a timely manner, such Registration Delay Payments shall bear interest at the rate of 2.0% per month (or the maximum rate permitted by law), prorated for partial months, until paid in full. If the Company fails to pay the Registration Delay Payments, including any interest thereon, within 15 business days of the applicable payment date, then the holder entitled to such payments shall have the right at any time, so long as the Company continues to fail to make such payments, to require the Company, upon written notice, to immediately issue, in lieu of the Registration Delay Payments, including any interest thereon, the number of shares of Common Stock equal to the quotient of (X) the sum of the Registration Delay Payments and all interest accrued thereon divided by (Y) the lowest closing bid price on the American Stock Exchange (or such other stock exchange as the Common Stock may then be quoted) on any day during the period beginning on and including the date the Registration Delay Payments were due and payable and ending on and including the date the holder delivers written notice to the Company of its election to receive shares of Common Stock in lieu of the Registration Delay Payments. 3. RELATED OBLIGATIONS. At such time as the Company is obligated to file a Registration Statement with the SEC pursuant to Section 2(a), the Company will use its best efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof, and, pursuant thereto, the Company shall perform the following: a. The Company shall promptly prepare and file with the SEC a Registration Statement with respect to the Registrable Securities (on or prior to the thirtieth (30th) day after the date of issuance of the Preferred Shares for the registration of Registrable Securities pursuant to Section 2(a)) and use its best efforts to cause such Registration Statement relating to the Registrable Securities to become effective as soon as possible after such filing (but in no event later than 120 days after the issuance of the Preferred Shares for the registration of Registrable Securities), and keep such Registration Statement effective pursuant to Rule 415 at all times until the earlier of (i) the date as of which the Investors may sell all of the Registrable Securities without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto) or (ii) the date on which (A) the Investors shall have sold all the Registrable Securities and (B) none of the Preferred Shares or the Warrants is outstanding (the "REGISTRATION PERIOD"), which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. b. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed 5 pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. Upon written notice from any Investor or actual knowledge that the number of shares available under a Registration Statement filed pursuant to this Agreement is insufficient to cover all of the Registrable Securities, the Company shall amend such Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover all of the Registrable Securities for all Investors, in each case, as soon as practicable, but in any event within twenty (20) days after the Company's receipt of such notice or actual knowledge. The Company shall use its best efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. For purposes of the foregoing provision, the number of shares available under a Registration Statement shall be deemed "insufficient to cover all of the Registrable Securities" if at any time the number of Registrable Securities issued or issuable upon conversion of the Preferred Shares and the Warrants, when taken with the PICO Shares, is greater than the quotient determined by dividing (i) the number of shares of Common Stock available for resale under such Registration Statement by (ii) 1.5. For purposes of the calculation set forth in the foregoing sentence, any restrictions on the convertibility of the Preferred Shares and the Warrants shall be disregarded and such calculation shall assume that the Preferred Shares and the Warrants are then convertible into shares of Common Stock at the then prevailing Series A and Series B Conversion Rates (as defined in the Company's Certificate of Designations). c. The Company shall furnish to each Investor whose Registrable Securities are included in any Registration Statement and its legal counsel without charge (i) promptly after the same is prepared and filed with the SEC at least one copy of such Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits, the prospectus included in such Registration Statement (including each preliminary prospectus) and, with regards to such Registration Statement(s), any correspondence by or on behalf of the Company to the SEC or the staff of the SEC and any correspondence from the SEC or the staff of the SEC to the Company or its representatives, (ii) upon the effectiveness of any Registration Statement, ten (10) copies of the prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request) and (iii) such other documents, including copies of any preliminary or final prospectus, as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor. d. The Company shall use reasonable efforts to (i) register and qualify the Registrable Securities covered by a Registration Statement under such other securities or "blue sky" laws of such jurisdictions in the United States as any Investor reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the 6 effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify each Investor who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or "blue sky" laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose. e. In the event Investors who hold a majority of the Registrable Securities being offered in the offering select underwriters for the offering, the Company shall enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations (only with respect to violations which occur in reliance upon and in conformity with information furnished in writing to the Company by such Investor expressly for use in the Registration Statement for such underwritten public offering), with the underwriters of such offering. f. As promptly as practicable after becoming aware of such event, the Company shall notify each Investor in writing of the happening of any event as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver ten (10) copies of such supplement or amendment to each Investor (or such other number of copies as such Investor may reasonably request). The Company shall also promptly notify each Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to each Investor by facsimile on the same day of such effectiveness and by overnight mail), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate. g. The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify each Investor who holds Registrable Securities being sold (and, in the event of an underwritten offering, the managing underwriters) of the issuance of such order 7 and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose. h. The Company shall permit each Investor and a single firm of counsel, initially Gray Cary Ware & Freidenrich or such other counsel as thereafter designated as selling stockholders' counsel by the Investors who hold a majority of the Registrable Securities being sold, to review and comment upon a Registration Statement and all amendments and supplements thereto at least seven (7) business days prior to their filing with the SEC, and shall not file any document in a form to which such counsel reasonably objects. The Company shall not submit a request for acceleration of the effectiveness of a Registration Statement or any amendment or supplement thereto without the prior approval of such counsel, which consent shall not be unreasonably withheld. i. At the request of any Investor, the Company shall use its reasonable best efforts to furnish to such Investor, if required by an underwriter, on the date of the effectiveness of the Registration Statement and thereafter from time to time on such dates as an Investor may reasonably request (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 as of such date, of counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the underwriters and the Investors. j. The Company shall make available for inspection by (i) any Investor, (ii) any underwriter participating in any disposition pursuant to a Registration Statement, (iii) one firm of attorneys and one firm of accountants or other agents retained by the Investors, and (iv) one firm of attorneys retained by all such underwriters (collectively, the "INSPECTORS") all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the "RECORDS"), as shall be reasonably deemed necessary by each Inspector, and cause the Company's officers, directors and employees to supply all information which any Inspector may reasonably request; provided, however, that each Inspector shall hold in strict confidence and shall not make any disclosure (except to an Investor) or use of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the 1933 Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement of which the Inspector has knowledge. Each Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. 8 k. The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable 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 Agreement 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 written notice to such Investor and allow such Investor, at the Investor's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. l. The Company shall, within twenty (20) days of the Issue Date and thereafter throughout the Registration Period, either (i) cause all the Registrable Securities covered by a Registration Statement to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) secure designation and quotation of all the Registrable Securities covered by the Registration Statement on the American Stock Exchange. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(l). m. The Company shall cooperate with the Investors who hold Registrable Securities being offered and, to the extent applicable, any managing underwriter or underwriters, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a 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, if there is no managing underwriter or underwriters, the Investors may reasonably request and registered in such names as the managing underwriter or underwriters, if any, or the Investors may request. n. The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investors of Registrable Securities pursuant to a Registration Statement. o. The Company shall provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such Registration Statement. p. If reasonably requested by the managing underwriters or an Investor, the Company shall (i) immediately incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriters and the Investors agree should be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters and any other terms of the underwritten (or best efforts underwritten) offering of the Registrable Securities to be sold in 9 such offering; (ii) make all required filings of such prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or make amendments to any Registration Statement or the related prospectus if requested by a shareholder or any underwriter of such Registrable Securities. q. The Company shall use its best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities. r. The Company shall make generally available to the Investors as soon as practical, but not later than 90 days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the 1933 Act) covering a twelve-month period beginning not later than the first day of the Company's fiscal quarter next following the effective date of the Registration Statement. s. The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder. t. Within two (2) business days after the Registration Statement which includes the Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) confirmation in the form attached hereto as EXHIBIT A that the Registration Statement has been declared effective by the SEC. 4. OBLIGATIONS OF THE INVESTORS. a. At least seven (7) days prior to the first anticipated filing date of a Registration Statement, the Company shall notify each Investor in writing of the information the Company requires from each such Investor if such Investor elects to have any of such Investor's Registrable Securities included in such Registration Statement. 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 (i) 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 (ii) execute such documents in connection with such registration as the Company may reasonably request. 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 any 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 such Registration Statement. 10 c. In the event any Investor elects to participate in an underwritten public offering pursuant to Section 2, each such 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 (only with respect to violations which occur in reliance upon and in conformity with information furnished in writing to the Company by such Investor expressly for use in the Registration Statement for such underwritten public offering), with the managing underwriter of such offering and to take such other actions as are reasonably required in order to expedite or facilitate the disposition of the Registrable Securities, unless such Investor notifies the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from such 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(g) or the first sentence of 3(f), such Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(g) or the first sentence of 3(f). 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. 5. EXPENSES OF REGISTRATION. All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company and one (1) counsel for the Investors, shall be paid by the Company. 6. INDEMNIFICATION. In the event any Registrable Securities are included in a Registration Statement under this Agreement: a. To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Investor who holds such Registrable Securities, the directors, officers, partners, employees, agents of, and each Person, if any, who controls, any Investor within the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934 ACT"), and any underwriter (as defined in the 1933 Act) for the Investors, and the directors and officers of, and each Person, if any, who controls, any such underwriter within the 11 meaning of the 1933 Act or the 1934 Act (each, an "INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in settlement or expenses, joint or several, (collectively, "CLAIMS") incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other "blue sky" laws of any jurisdiction in which Registrable Securities are offered ("BLUE SKY FILING"), or the omission or alleged omission to state 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 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, "VIOLATIONS"). Subject to the restrictions set forth in Section 6(d) 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 reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by any Indemnified Person or underwriter for such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(c); (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), and if the Indemnified Person was promptly advised in writing not to use the incorrect preliminary prospectus prior to the use giving rise to a violation and if such Indemnified Person, notwithstanding such advice, used the incorrect preliminary prospectus; (iii) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company; and (iv) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of 12 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 or disposition of the Registrable Securities by the Investors. b. In connection with any Registration Statement in which an Investor is participating, each such Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement and, each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act (collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and, subject to Section 6(d), such Investor will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 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 or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. 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. c. The Company shall be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities industry professionals participating in any distribution, to the same extent as provided above, with respect to information such persons so furnished in writing expressly for inclusion in the Registration Statement. d. Promptly after receipt by an Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such 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 mutually satisfactory to the indemnifying party and the Indemnified Party, provided, however, that an Indemnified Party shall have the right to retain its own counsel with the reasonable fees 13 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 Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Party and any other party represented by such counsel in such proceeding. The indemnifying party shall pay for only one separate legal counsel for the Indemnified Parties, and such counsel shall be selected by Investors holding a majority-in-interest of the Registrable Securities included in the Registration Statement to which the Claim relates (and subject to the Company's approval which shall not be unreasonably withheld), if the Investors are entitled to indemnification hereunder, or the Company, if the Company is entitled to indemnification hereunder, as applicable. The Indemnified Party shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party which relates to such action or claim. The indemnifying party shall keep the Indemnified Party fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the consent of the Indemnified Party, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. 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 Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. e. 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 and when bills are received or Indemnified Damages are incurred. f. The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law. 7. CONTRIBUTION. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6; (ii) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to 14 contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (iii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities. 8. REPORTS UNDER THE 1934 ACT. With a view to making available to the Investors the benefits of Rule 144 promulgated under the 1933 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 1933 Act and the 1934 Act so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144; 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 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the investors to sell such securities pursuant to Rule 144 without registration. 9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights under this Agreement shall be automatically assignable by the Investors to any transferee of all or any portion of Registrable Securities if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned; (iii) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act and applicable state securities laws; (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein; and (v) such transfer shall have been made in accordance with the applicable requirements of the Securities Purchase Agreement. 15 10. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Investors who hold two-thirds (2/3) of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Registrable Securities. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered to all of the parties to this Agreement. 11. MISCELLANEOUS. a. A person or entity is deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. b. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided a confirmation of transmission is mechanically generated and kept on file by the sending party); (iii) upon receipt, when delivered by a delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: PC Quote, Inc. 300 S. Wacker Dr., Suite 300 Chicago, IL 60606 Telephone: _________ Facsimile: _________ Attention: President With a copy to: Wildman, Harrold, Allen & Dixon 225 West Wacker Drive Chicago, IL 60606-1229 Telephone: 312-201-2000 Facsimile: 312-201-2555 Attention: Donald E. Figliulo, Esq. 16 If to a Buyer, to its address and facsimile number on the Schedule of Buyers attached hereto, with a copy to: Gray Cary Ware & Freidenrich LLP 4365 Executive Drive, Suite 1600 San Diego, CA 92121 Telephone: 619-677-1400 Facsimile: 619-677-1477 Attention: Robert W. Ayling, Esq. Each party shall use reasonable efforts to provide five (5) days prior notice to the other party of any change in address, phone number or facsimile number. c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. d. This Agreement, and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California without regard to the principles of conflict of laws. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the County of San Diego, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. 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 in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. e. This Agreement, the Securities Purchase Agreement and the documents listed therein constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Securities Purchase Agreement and the documents listed therein supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. f. Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto. 17 g. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. h. This Agreement may be executed in two or more identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. i. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. j. All consents and other determinations to be made by the Investors pursuant to this Agreement shall be made, unless otherwise specified in this Agreement, by Investors holding a majority of the Registrable Securities, determined as if all of the Preferred Shares then outstanding have been converted into Registrable Securities (without regard to any limitations on conversion). 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. IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of day and year first above written. COMPANY: BUYERS: PC QUOTE, INC. PICO HOLDINGS, INC. By: By: ----------------------------- --------------------------------- Name: Name: --------------------------- ------------------------------- Title: Title: -------------------------- ------------------------------ PHYSICIANS INSURANCE COMPANY OF OHIO By: --------------------------------- Name: ------------------------------- Title: ------------------------------ 18 SCHEDULE OF BUYERS 1. PICO Holdings, Inc. 875 Prospect Street, Suite 301 La Jolla, CA 92037 Attn: President 2. Physicians Insurance Company of Ohio, Inc. 875 Prospect Street, Suite 301 La Jolla, CA 92037 Attn: President 19 FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT [TRANSFER AGENT] ATTN: -------------------- RE: PC QUOTE, INC. -------------- Ladies and Gentlemen: We are counsel to PC QUOTE, INC., a Delaware corporation (the "COMPANY"), and have represented the Company in connection with that certain Securities Purchase Agreement (the "PURCHASE AGREEMENT") entered into by and among the Company and the Investors named therein (collectively, the "HOLDERS") pursuant to which the Company issued to the Holders shares of its Series A and Series B Preferred Stock, par value $0.001 per share, (the "PREFERRED SHARES"). Pursuant to the Purchase Agreement, the Company also has entered into a Registration Rights Agreement with the Holders (the "REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), including the shares of the Common Stock of the Company, par value $0.001 per share (the "COMMON STOCK") issuable upon conversion of the Preferred Shares, and the shares of Common Stock issuable on exercise of the Warrant and the Existing Warrants (as defined in the Securities Purchase Agreement) under the Securities Act of 1933, as amended (the "1933 ACT"). In connection with the Company's obligations under the Registration Rights Agreement, on ____________ ___, 1998, the Company filed a Registration Statement on Form _____ (File No. 333-_____________) (the "REGISTRATION STATEMENT") with the Securities and Exchange Commission (the "SEC") relating to the Registrable Securities which names each of the Holders as a selling stockholder thereunder. In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement. Very truly yours, [COMPANY COUNSEL] By: ------------------------------------------ cc: [LIST NAMES OF HOLDERS] EX-4.4 5 EXHIBIT 4.4 EXHBIT B Common Stock Warrant ____________ Shares THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. Void after April 30, 2005 COMMON STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, PICO HOLDINGS, INC., a California corporation, is entitled to purchase a minimum of ________________ (_______) shares of Common Stock of PC QUOTE, INC., a Delaware corporation, at a price per share (the "Warrant Price") equal to $___________ [120% of the Series B Closing Price under the Securities Purchase Agreement], subject to adjustments and all other terms and conditions set forth in this Warrant. 1. DEFINITIONS. As used herein, the following terms, unless the context otherwise requires, shall have the following meanings: (a) "Act" shall mean the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. (b) "Acquisition" shall mean any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction. (c) "Commission" shall mean the Securities and Exchange Commission, or any other Federal agency at the time administering the Act. (d) "Common Stock" shall mean shares of the Company's presently or subsequently authorized Common Stock, and any stock into which such Common Stock may hereafter be exchanged. 1 (e) "Company" shall mean PC QUOTE, INC., a Delaware corporation, and any corporation which shall succeed to or assume the obligations of PC QUOTE, INC., under this Warrant. (f) "Date of Grant" shall mean ______________, 1998 [Closing Date of Securities Purchase Agreement]. (g) "Exercise Date" shall mean the effective date of the delivery of the Notice of Exercise pursuant to Section 4 below. (h) "Holder" shall mean any person who shall at the time be the registered holder of this Warrant. (i) "Shares" shall mean shares of the Company's Common Stock, as described in the Company's Certificate of Incorporation. 2. ISSUANCE OF WARRANT AND CONSIDERATION THEREFOR. This Warrant is issued in consideration for the renegotiation of the terms of a promissory note issued by the Company and held by PICO HOLDINGS, INC. ("PICO") and the purchase of preferred stock in the Company by PICO pursuant to that certain Securities Purchase Agreement (the "Purchase Agreement") dated ___________, 1998 by and among the Company, PICO and PHYSICIANS INSURANCE COMPANY OF OHIO ("PHYSICIANS"). 3. TERM. The purchase right represented by this Warrant is exercisable only during the period commencing upon the Date of Grant and ending on April 30, 2005. 4. METHOD OF EXERCISE AND PAYMENT. (a) METHOD OF EXERCISE. Subject to Section 3 hereof and compliance with all applicable Federal and state securities laws, the purchase right represented by this Warrant may be exercised, in whole or in part and from time to time, by the Holder by (i) surrender of this Warrant and delivery of the Notice of Exercise (the form of which is attached hereto as EXHIBIT A), duly executed, to the principal office of the Company and (ii) payment to the Company of an amount equal to the product of the Warrant Price, as adjusted under Section 5, multiplied by the number of Shares then being purchased pursuant to one of the payment methods permitted under Section 4(b) below. (b) METHOD OF PAYMENT. Payment shall be made either (1) by check drawn on a United States bank and for United States funds made payable to the Company, or (2) by wire transfer of United States funds for the account of the Company. (c) NET ISSUE EXERCISE. Notwithstanding any provisions herein to the contrary, in lieu of payment of the exercise price in cash, the Holder may elect to receive Shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with a properly endorsed notice of 2 exercise and notice of such election in which event the Company shall issue to the Holder a number of Shares 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 canceled (at the date of such calculation), A = the fair market value of one share of the Company's Common Stock (at the date of such calculation), and B = the Warrant Price, as adjusted. For purposes of the above calculation, fair market value of one Share shall be determined by the Company's Board of Directors in good faith; provided, however, that where there exists a public market for the Company's Common Stock at the time of such exercise, fair market value shall mean the average over the preceding twenty trading days (or such fewer number of days as such public market has existed) of the mean of the closing bid and asked prices on the over-the-counter market as reported by American Stock Exchange, or if the Common Stock is then traded on a national securities exchange other than the American Stock Exchange, the average over the preceding twenty trading days (or such fewer number of days as the Common Stock has been so traded) of the closing sale prices on the principal national securities exchange or the National Market on which it is so traded. (d) DELIVERY OF CERTIFICATE. In the event of any exercise of the purchase right represented by this Warrant, certificates for the Shares so purchased shall be delivered to the Holder within ten days of delivery of the Notice of Exercise and, unless this Warrant has been fully exercised or has expired, a new warrant representing the portion of the Shares with respect to which this Warrant shall not then have been exercised shall also be issued to the Holder within such ten day period. (e) NO FRACTIONAL SHARES. No fractional Shares shall be issued in connection with any exercise hereunder, but in lieu of such fractional Shares the Company shall make a cash payment therefor upon the basis of the fair market value per Share as of the date of exercise. (f) COMPANY'S REPRESENTATIONS. (i) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer under applicable federal and state securities laws. During the period within which the purchase right 3 represented by this Warrant may be exercised, the Company shall at all times have authorized, and reserved for the purpose of issuance upon exercise of the purchase right represented by this Warrant, a sufficient number of Shares to provide for the exercise of the purchase right represented by this Warrant; (ii) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting the enforcement of creditors' rights; (iii) The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be inconsistent with the Company's Certificate of Incorporation or Bylaws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a default under, any material indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound, or require the registration or filing with or the taking of any action in respect of or by, any federal, state or local government authority or agency (other than such consents, approvals, notices, actions, or filings as have already been obtained or made, as the case may be). 5. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number of securities issuable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) ADJUSTMENT FOR DIVIDENDS IN STOCK. In case at any time or from time to time on or after the date hereof the holders of the Common Stock of the Company (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock of the Company by way of dividend then, and in each case, the Holder of this Warrant shall, upon the exercise hereof, be entitled to receive, in addition to the number of Shares receivable thereupon, and without payment of any additional consideration therefor, the amount of such other or additional stock of the Company which such Holder would hold on the date of such exercise had it been the holder of record of such Common Stock on the date hereof and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such Shares and/or all other additional stock receivable by it as aforesaid during such period, giving effect to all adjustments called for during such period by paragraphs (b) and (c) of this Section 5. (b) ADJUSTMENT FOR RECLASSIFICATION OR REORGANIZATION. In case of any reclassification or change of the outstanding securities of the Company or of any consolidation, merger or reorganization of the Company on or after the date hereof, then and in each such case the Holder of this Warrant, upon the exercise hereof at any time after the consummation of such reclassification, change, consolidation, merger or reorganization, shall be entitled to receive, in lieu of or in addition to the stock or other securities and property receivable upon the exercise hereof prior to such consummation, the stock or other securities to which such Holder would have been 4 entitled upon such consummation if such Holder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in paragraphs (a) and (c); in each such case, the terms of this Section 5 shall be applicable to the shares of stock or other securities property receivable upon the exercise of this Warrant after such consummation. (c) STOCK SPLITS AND REVERSE STOCK SPLITS. If, at any time on or after the date hereof, the Company shall subdivide its outstanding Shares into a greater number of Shares, the Warrant Price in effect immediately prior to such subdivision shall thereby be proportionately reduced and the number of Shares receivable upon exercise of this Warrant shall thereby be proportionately increased; and, conversely, if at any time on or after the date hereof the outstanding number of Shares shall be combined into a smaller number of Shares, the Warrant Price in effect immediately prior to such combination shall thereby be proportionately increased and the number of Shares receivable upon exercise of the Warrant shall be proportionately decreased. (d) RIGHTS, OPTIONS OR WARRANTS. If the Company issues rights, options or warrants to all holders of its Shares, without any charge to such holders, entitling them (for a period expiring within 45 days after the record date mentioned below in this paragraph (d)) to subscribe for or to purchase Shares at a price per share lower than the then current market price per Share at the record date mentioned below (as defined in paragraph (f) below), the number of Shares thereafter purchasable upon exercise of each Warrant shall be determined by multiplying the number of Shares theretofore purchasable upon exercise of each Warrant by a fraction, of which the numerator shall be the number of Shares outstanding on such record date plus the number of additional Shares offered for subscription or purchase, and of which the denominator shall be the number of Shares outstanding on such record date plus the number of Shares which the aggregate offering price of the total number of Shares so offered would purchase at the then current market price per Share. Such adjustment shall be made whenever such rights, options or warrants are issued, and shall become effective retroactively to immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants. (e) OTHER DISTRIBUTIONS. If the Company distributes to all holders of its Shares shares of stock other than Common Stock or evidences of its indebtedness or assets (excluding cash dividends payable out of consolidated earnings or retained earnings and dividends or distributions referred to in paragraph (a) above) or rights, options or warrants or convertible or exchangeable securities containing the right to subscribe for or purchase Shares (excluding those referenced in Section (2) above), then in each case the number of Shares thereafter issuable upon the exercise of each warrant shall be determined by multiplying the number of Shares theretofore issuable upon the exercise of each Warrant, by a fraction, of which the numerator shall be the current market price per Share (as defined in paragraph (f) below) on the record date mentioned below in this paragraph (e), and of which the denominator shall be the current market price per Share on such record date, less the then fair value (as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive) of the portion of the shares of stock other than the Common Stock or assets or evidences of indebtedness so distributed or of such subscription rights, options or warrants, or of such convertible or exchangeable securities applicable to one Share. Such adjustment shall be made whenever any such distribution is made, and shall become effective on 5 the date of distribution retroactive to immediately after the record date for the determination of stockholders entitled to receive such distribution. (f) CURRENT MARKET PRICE. For the purposes of any computation under paragraphs (d) and (c) of this Section 5, the current market price per Share at any date shall be the average of the daily closing prices for fifteen consecutive trading days commencing twenty trading days before the date of such computation. The closing price for each day shall be the closing sale price or in case no such reported sale takes place on such day, the average of the closing bid and asked prices for such day, in either case on the American Stock Exchange or such other principal national securities exchange or National Market on which the Shares are listed or admitted to trading, or if they are not listed or admitted to trading on any national securities exchange or the National Association of Securities Dealers Automated Quotation ("NASDAQ") National Market, but are traded in the over-the-counter market, the average of the representative closing bid and asked quotations for the Common Stock, on the NASDAQ system or any comparable system, or, in case no sale is publicly reported, the average of the closing bid and asked prices as furnished by two members of the National Association of Securities Dealers selected by the Company for that purpose. (g) ADJUSTMENTS TO WARRANT PRICE. Whenever the number of Shares purchasable upon exercise of this Warrant is adjusted, as herein provided, the Warrant Price shall be adjusted by multiplying the Warrant Price in effect immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Shares purchasable upon the exercise of this Warrant immediately prior to such adjustment, and of which the denominator shall be the number of Shares so purchasable immediately thereafter. (h) CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant Price, the Company at its expense shall promptly compute such adjustment, and furnish the Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish the Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price. 6. ACQUISITIONS (a) ASSUMPTION OF WARRANT. If upon the closing of any Acquisition the successor entity assumes the obligations of this Warrant, then this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. (b) NONASSUMPTION. If upon the closing of any Acquisition the successor entity does not assume the obligations of this Warrant and the Holder has not otherwise exercised this Warrant in full, then the unexercised portion of this Warrant shall be deemed to have been automatically converted pursuant to Section 4(c) and thereafter the Holder shall participate in the acquisition on the same terms as other holders of the same class of securities of the Company. 6 (c) PURCHASE RIGHT. Notwithstanding the foregoing, at the election of the Holder, the Company shall purchase the unexercised portion of this Warrant for cash upon the closing of any Acquisition for an amount equal to (a) the fair market value of any consideration that would have been received by the Holder in consideration of the Shares had the Holder exercised the unexercised portion of this Warrant immediately before the record date for determining the stockholders entitled to participate in the proceeds of the Acquisition, less (b) the aggregate Warrant Price of the Shares, but in no event less than zero. 7. NOTICES; INFORMATION; REGISTRATION. (a) NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of Common Stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company's securities for cash, then, in connection with each such event, the Company shall give the Holder (1) at least 20 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of Common Stock will be entitled thereto) or in respect of the matters referred to in (c) and (d) above for determining rights to vote, if any; (2) in the case of the matters referred to in (c) and (d) above at least 20 days prior written notice of the date when the same will take place (and specifying the date on which the holders of Common Stock will be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights. (b) INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or any of the Shares acquired on exercise of this Warrant, the Company shall deliver to the Holder (a) promptly after mailing, copies of all notices or other written communications to the stockholders of the Company, (b) within ninety days after the end of each fiscal year of the Company, the annual audited financial statements of the Company audited by independent public accountants of recognized standing and (c) within forty-five days after the end of each of the first three quarters of each fiscal year, the Company's quarterly, unaudited financial statements. (c) REGISTRATION UNDER SECURITIES ACT OF 1933. The Company agrees that the Shares underlying this Warrant shall be "Registrable Securities" under that certain Registration Rights Agreement, dated _________, 1998, among the Company, PICO and PHYSICIANS. 7 8. COMPLIANCE WITH ACT; TRANSFERABILITY AND NEGOTIABILITY OF WARRANT; DISPOSITION OF SHARES. (a) COMPLIANCE WITH ACT. The Holder, by acceptance hereof, agrees that this Warrant and the Shares to be issued upon the exercise hereof are being acquired solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof and that it will not offer, sell or otherwise dispose of this Warrant or any Shares to be issued upon the exercise hereof except under circumstances which will not result in a violation of the Act. This Warrant and the Shares to be issued upon the exercise hereof (unless registered under the Act) shall be imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. In addition, this Warrant and the Shares to be issued upon the exercise hereof shall bear any legends required by the securities laws of any applicable states. (b) TRANSFERABILITY AND NEGOTIABILITY OF WARRANT. This Warrant may not be transferred or assigned in whole or in part without compliance with all applicable federal and state securities laws by the transferor and the transferee (including the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, if reasonably requested by the Company and the transfer is to a person other than a general partner or affiliate of the initial Holder). Subject to the provisions of this Warrant with respect to compliance with the Act, title to this Warrant may be transferred by endorsement and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery. The Company shall act promptly to record transfers of this Warrant on its books, but the Company may treat the registered holder of this Warrant as the absolute owner of this Warrant for all purposes, notwithstanding any notice to the contrary. (c) DISPOSITION OF SHARES. With respect to any offer, sale, transfer or other disposition of any Shares acquired pursuant to the exercise of this Warrant prior to registration of such Shares, except for any such offer, sale, transfer or other disposition of Shares to an affiliate of the initial Holder, the Holder and each subsequent holder of this Warrant agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, and if such transfer is not pursuant to Rule 144, a written opinion of legal counsel for such holder, if requested by the Company, to the effect that such offer, sale or other disposition may be effected without registration 8 or qualification of such Shares. Notwithstanding the foregoing, such Shares may be offered, sold or otherwise disposed of in accordance with Rule 144, provided that the Company shall have been furnished with such information as the Company may reasonably request to provide a reasonable assurance that the provisions of Rule 144 have been satisfied. Each certificate representing the Shares thus transferred (except a transfer pursuant to Rule 144) shall bear a restrictive legend as to the applicable restrictions on transferability in order to insure compliance with the Act, unless in the aforesaid opinion of legal counsel for the holder, such legend is not required in order to insure compliance with the Act. 9. RIGHTS OF STOCKHOLDERS. No Holder shall be entitled to vote or receive dividends or be deemed the holder of Shares or any other securities of the Company which may at any time be issuable on the exercise of this Warrant for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, consolidation, merger, transfer of assets or otherwise) or, except as expressly required herein, to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares issuable upon exercise hereof shall have become deliverable, as provided herein. 10. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor. 11. EXCHANGE OF WARRANT. Subject to the other provisions of this Warrant, on surrender of this Warrant for exchange, and subject to the provisions of this Warrant with respect to compliance with the Act, the Company at its expense shall issue to or on the order of the Holder a new warrant or warrants of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of Shares issuable upon exercise thereof. 12. NOTICES. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such Holder from time to time. 13. WAIVER. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 9 14. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of California. 15. TITLES AND SUBTITLES; FORMS OF PRONOUNS. The titles of the Sections and Subsections of this Warrant are for convenience only and are not to be considered in construing this Warrant. All pronouns used in this Warrant shall be deemed to include masculine, feminine and neuter forms. 16. ATTORNEYS' FEES. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees. Dated: ______________, 1998. PC QUOTE, INC., a Delaware corporation By: ------------------------------------ , President By: ------------------------------------ , Secretary 10 EXHIBIT A NOTICE OF EXERCISE TO: PC QUOTE, INC. 1. The undersigned Holder of the attached Common Stock Purchase Warrant hereby elects to exercise its purchase right under such Warrant with respect to ________________ Shares, as defined in the Warrant. 2. The undersigned Holder elects to pay the aggregate Warrant Price for such Shares (the "Exercise Shares") in the following manner: [ ] by the enclosed check drawn on a United States bank and for United States funds made payable to the Company in the amount of $_____________; [ ] 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 Notice pursuant to the instructions of the Company; or [ ] pursuant to the Net Exercise provisions set forth in Section 4(c) of the Warrant. 3. Please issue a stock certificate or certificates representing the appropriate number of Shares in the name of the undersigned or in such other names as is specified below: Name: ----------------------------- Address: --------------------------- ----------------------------------- ----------------------------------- TIN: ------------------------------ HOLDER: By: -------------------------------- Name: Title: Date: -------------------- 11 EX-4.5 6 EXHIBIT 4.5 EXHIBIT C-1 FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT THIS FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT is entered into as of this ___ day of ______________, 1998, by and between PICO HOLDINGS, INC., a California corporation ("PICO"), and PC QUOTE, INC., a Delaware corporation (the "Company"). RECITALS A. PICO is the holder of that certain Common Stock Purchase Warrant to purchase a minimum of 640,000 shares of Common Stock of the Company granted on May 5, 1997 (the "Warrant"), 320,000 of which shares have already been purchased by PICO through a partial exercise of the Warrant. B. Concurrently herewith, the Company, PICO and Physicians Insurance Company of Ohio, an Ohio corporation, are entering into a Securities Purchase Agreement (the "Recapitalization Agreement"). Pursuant to the Recapitalization Agreement certain debt obligations PICO holds in the Company will be converted into equity. C. As additional consideration for PICO entering into the Recapitalization Agreement and in order to induce PICO to convert its debt into equity, the Company has agreed to extend the exercise period of the Warrant for an additional five (5) years. It is a condition of the Recapitalization Agreement that PICO and the Company enter into this Amendment. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants set forth herein and in the Agreement, and for other good and valuable consideration, the receipt and sufficiency which is hereby acknowledged, the parties hereto agree as follows: 1. The statement "Void after April 30, 2000" in the heading to the cover page of the Warrant is hereby amended to state in its entirety as follows: "Void after April 30, 2005" 2. Section 3 of the Agreement is hereby amended and restated to state in its entirety as follows: "3. TERM. The purchase right represented by this Warrant is exercisable only during the period commencing upon the Date of Grant and ending on April 30, 2005." 3. Section 2 of Exhibit B of the Agreement is hereby amended and restated to state in its entirety as follows: "2. COMPANY REGISTRATION. If (but without any obligation to do so) the Company proposes at any time before April 30, 2005 to register (including for this purpose a registration effected by the Company for stockholders other than Holder) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, or a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give Holder written notice of such registration. Upon the written request of Holder given within twenty days after mailing of such notice by the Company, the Company shall, subject to the provisions of Section 8 hereof and Section 5 of the Warrant, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered." 4. Section 3 of Exhibit B of the Agreement is hereby amended and restated to state in its entirety as follows: "3. DEMAND REGISTRATION. In case the Company shall, at any time before April 30, 2005, receive from Holders holding 40% or more of the outstanding Registrable Securities a written request (to be exercised only once) that the Company effect a registration and any related qualification or compliance with respect to all or a part of the Registrable Securities (which registration shall at the election of Holder either be for a registration for a primary issuance of the Shares upon the exercise of the Warrant or the resale of the Shares previously issued upon exercise of the Warrant at the election of Holder) owned by such Holder, the Company will promptly notify each other Holder (if any) of such request and will: (a) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of a Holder's Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other holder of registration rights joining in such request as are specified in a written request given within 20 days after receipt of such written notice from the Company; PROVIDED, HOWEVER, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 3: (1) if the Company has effected a registration of Registrable Securities pursuant to this Section 3 within the preceding 12 months; (2) if the Company shall furnish to Holder a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration to be effected at such time, in which event the Company shall have the right to defer the filing of the registration statement for a period of not more than 60 days after receipt of the request of Holder under this Section 3; PROVIDED, HOWEVER, that the Company shall not utilize this right more than once in any twelve-month period; or (3) in any jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance; and, (b) subject to the foregoing, file a registration statement covering the Registrable Securities and other securities so requested to be registered promptly after receipt of the request or requests of Holder, and in any event within 30 days of receipt of such request." 5. Except as expressly provided herein, all of the terms and provisions of the Agreement shall remain in full force and effect. 6. The provisions of this Amendment shall be performed and interpreted in accordance with the laws of the State of Delaware without reference to conflicts of laws principles. 7. This Amendment may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this First Amendment to Common Stock Purchase Warrant as of the date first above written. PC QUOTE, INC. By: ---------------------------- Name: Title: PICO HOLDINGS, INC. By: ---------------------------- Name: Title: EX-4.6 7 EXHIBIT 4.6 EXHIBIT C-3 FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT THIS FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT is entered into as of this ___ day of ___________, 1998, by and between PICO HOLDINGS, INC., a California corporation ("PICO"), and PC QUOTE, INC., a Delaware corporation (the "Company"). RECITALS A. PICO is the holder of that certain Common Stock Purchase Warrant to purchase a minimum of 500,000 shares of Common Stock of the Company granted on August 8, 1997 (the "Warrant"). B. Concurrently herewith, the Company, PICO and Physicians Insurance Company of Ohio, an Ohio corporation, are entering into a Securities Purchase Agreement (the "Recapitalization Agreement"). Pursuant to the Recapitalization Agreement certain debt obligations PICO holds in the Company will be converted into equity. C. As additional consideration for PICO entering into the Recapitalization Agreement and in order to induce PICO to convert its debt into equity, the Company has agreed to extend the exercise period of the Warrant for an additional five (5) years. It is a condition of the Recapitalization Agreement that PICO and the Company enter into this Amendment. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants set forth herein and in the Agreement, and for other good and valuable consideration, the receipt and sufficiency which is hereby acknowledged, the parties hereto agree as follows: 1. The statement "Void after April 30, 2000" in the heading to the cover page of the Warrant is hereby amended to state in its entirety as follows: "Void after April 30, 2005" 2. Section 3 of the Agreement is hereby amended and restated to state in its entirety as follows: "3. TERM. The purchase right represented by this Warrant is exercisable only during the period commencing upon the Date of Grant and ending on April 30, 2005." 3. Section 2 of Exhibit B of the Agreement is hereby amended and restated to state in its entirety as follows: "2. COMPANY REGISTRATION. If (but without any obligation to do so) the Company proposes at any time before April 30, 2005 to register (including for this purpose a registration effected by the Company for stockholders other than Holder) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, or a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give Holder written notice of such registration. Upon the written request of Holder given within twenty days after mailing of such notice by the Company, the Company shall, subject to the provisions of Section 8 hereof and Section 5 of the Warrant, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered." 4. Section 3 of Exhibit B of the Agreement is hereby amended and restated to state in its entirety as follows: "3. DEMAND REGISTRATION. In case the Company shall, at any time before April 30, 2005, receive from Holders holding 40% or more of the outstanding Registrable Securities a written request (to be exercised only once) that the Company effect a registration and any related qualification or compliance with respect to all or a part of the Registrable Securities (which registration shall at the election of Holder either be for a registration for a primary issuance of the Shares upon the exercise of the Warrant or the resale of the Shares previously issued upon exercise of the Warrant at the election of Holder) owned by such Holder, the Company will promptly notify each other Holder (if any) of such request and will: (a) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of a Holder's Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other holder of registration rights joining in such request as are specified in a written request given within 20 days after receipt of such written notice from the Company; PROVIDED, HOWEVER, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 3: (1) if the Company has effected a registration of Registrable Securities pursuant to this Section 3 within the preceding 12 months; (2) if the Company shall furnish to Holder a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration to be effected at such time, in which event the Company shall have the right to defer the filing of the registration statement for a period of not more than 60 days after receipt of the request of Holder under this Section 3; PROVIDED, HOWEVER, that the Company shall not utilize this right more than once in any twelve-month period; or (3) in any jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance; and, (b) subject to the foregoing, file a registration statement covering the Registrable Securities and other securities so requested to be registered promptly after receipt of the request or requests of Holder, and in any event within 30 days of receipt of such request." 5. Except as expressly provided herein, all of the terms and provisions of the Agreement shall remain in full force and effect. 6. The provisions of this Amendment shall be performed and interpreted in accordance with the laws of the State of Delaware without reference to conflicts of laws principles. 7. This Amendment may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this First Amendment to Common Stock Purchase Warrant as of the date first above written. PC QUOTE, INC. By: --------------------------- Name: Title: PICO HOLDINGS, INC. By: --------------------------- Name: Title: EX-4.7 8 EXHIBIT 4.7 EXHIBIT C-2 FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT THIS FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT is entered into as of this ___ day of _____________, 1998, by and between PICO HOLDINGS, INC., a California corporation ("PICO"), and PC QUOTE, INC., a Delaware corporation (the "Company"). RECITALS A. PICO is the holder of that certain Common Stock Purchase Warrant to purchase a minimum of 129,032 shares of Common Stock of the Company granted on September 22, 1997 (the "Warrant"). B. Concurrently herewith, the Company, PICO and Physicians Insurance Company of Ohio, an Ohio corporation, are entering into a Securities Purchase Agreement (the "Recapitalization Agreement"). Pursuant to the Recapitalization Agreement certain debt obligations PICO holds in the Company will be converted into equity. C. As additional consideration for PICO entering into the Recapitalization Agreement and in order to induce PICO to convert its debt into equity, the Company has agreed to extend the exercise period of the Warrant for an additional five (5) years. It is a condition of the Recapitalization Agreement that PICO and the Company enter into this Amendment. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants set forth herein and in the Agreement, and for other good and valuable consideration, the receipt and sufficiency which is hereby acknowledged, the parties hereto agree as follows: 1. The statement "Void after April 30, 2000" in the heading to the cover page of the Warrant is hereby amended to state in its entirety as follows: "Void after April 30, 2005" 2. Section 3 of the Agreement is hereby amended and restated to state in its entirety as follows: "3. TERM. The purchase right represented by this Warrant is exercisable only during the period commencing upon the Date of Grant and ending on April 30, 2005." 3. Section 2 of Exhibit B of the Agreement is hereby amended and restated to state in its entirety as follows: "2. COMPANY REGISTRATION. If (but without any obligation to do so) the Company proposes at any time before April 30, 2005 to register (including for this purpose a registration effected by the Company for stockholders other than Holder) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, or a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give Holder written notice of such registration. Upon the written request of Holder given within twenty days after mailing of such notice by the Company, the Company shall, subject to the provisions of Section 8 hereof and Section 5 of the Warrant, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered." 4. Section 3 of Exhibit B of the Agreement is hereby amended and restated to state in its entirety as follows: "3. DEMAND REGISTRATION. In case the Company shall, at any time before April 30, 2005, receive from Holders holding 40% or more of the outstanding Registrable Securities a written request (to be exercised only once) that the Company effect a registration and any related qualification or compliance with respect to all or a part of the Registrable Securities (which registration shall at the election of Holder either be for a registration for a primary issuance of the Shares upon the exercise of the Warrant or the resale of the Shares previously issued upon exercise of the Warrant at the election of Holder) owned by such Holder, the Company will promptly notify each other Holder (if any) of such request and will: (a) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of a Holder's Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other holder of registration rights joining in such request as are specified in a written request given within 20 days after receipt of such written notice from the Company; PROVIDED, HOWEVER, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 3: (1) if the Company has effected a registration of Registrable Securities pursuant to this Section 3 within the preceding 12 months; (2) if the Company shall furnish to Holder a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration to be effected at such time, in which event the Company shall have the right to defer the filing of the registration statement for a period of not more than 60 days after receipt of the request of Holder under this Section 3; PROVIDED, HOWEVER, that the Company shall not utilize this right more than once in any twelve-month period; or (3) in any jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance; and, (b) subject to the foregoing, file a registration statement covering the Registrable Securities and other securities so requested to be registered promptly after receipt of the request or requests of Holder, and in any event within 30 days of receipt of such request." 5. Except as expressly provided herein, all of the terms and provisions of the Agreement shall remain in full force and effect. 6. The provisions of this Amendment shall be performed and interpreted in accordance with the laws of the State of Delaware without reference to conflicts of laws principles. 7. This Amendment may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this First Amendment to Common Stock Purchase Warrant as of the date first above written. PC QUOTE, INC. By: --------------------------------- Name: Title: PICO HOLDINGS, INC. By: --------------------------------- Name: Title: -----END PRIVACY-ENHANCED MESSAGE-----