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EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as
of November 3, 1999, between ▇▇▇▇ ▇▇▇ MEDIA, INC., a Colorado
corporation (the "Company"), and MACROMEDIA, INC., a Delaware
corporation (the "Investor").
WHEREAS, the Company and the Investor are executing and
delivering this Agreement in reliance upon the exemption from securities
registration afforded by Rule 506 of Regulation D ("Regulation D") as
promulgated by the United States Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, the Company has authorized the following new series of
its preferred stock: the Company's Series A Preferred Stock, no par value (the
"Preferred Stock"), which shall be convertible into shares of the Company's
Common Stock, no par value (the "Common Stock") (as converted, the "Conversion
Shares"), in accordance with the terms of the Company's Articles of Amendment,
substantially in the form attached as Exhibit D hereto (the "Articles of
Amendment");
WHEREAS, the Investor wishes to purchase, upon the terms and
conditions stated in this Agreement, shares of the Preferred Stock; and
WHEREAS, contemporaneously with the execution and delivery of
this Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement substantially in the form attached hereto as Exhibit A (the
"Registration Rights Agreement"), pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, 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
Investor hereby agree as follows:
I. PURCHASE AND SALE OF PREFERRED SHARES
SECTION 1.01. Purchase of Preferred Shares. In connection with
the offering (the "Offering") by the Company of the Preferred Shares to the
Investor, and subject to the satisfaction (or waiver) of the conditions set
forth in Articles VI and VII below, the Company shall issue and sell to the
Investor and the Investor agrees to purchase from the Company seven hundred
fourteen thousand two hundred eighty-six (714,286) shares of the Preferred Stock
(the "Preferred Shares") in consideration for the cash payment at the closing
(the "Closing") of Five Million Two and NO/100 Dollars ($5,000,002.00) (the
"Purchase Price").
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SECTION 1.02. Closing Date. The date and time of the Closing (the
"Closing Date") shall be 10:00 a.m. Pacific Time, within one (1) business day
following the date hereof, subject to notification of satisfaction (or waiver)
of the conditions to the Closing set forth in Articles VI and VII below (or such
later date as is mutually agreed to by the Company and the Investor). The
Closing shall occur on the Closing Date at the offices of the Company, located
at ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇.
SECTION 1.03. Form of Payment. On the Closing Date, (i) subject
to the satisfaction (or waiver) of the conditions set forth in Article VII
below, the Investor shall pay the Purchase Price to the Company for the
Preferred Shares to be issued and sold to the Investor at the Closing, by wire
transfer of immediately available funds in accordance with the Company's written
wire instructions, and (ii) subject to the satisfaction (or waiver) of the
conditions set forth in Article VI below, the Company shall deliver to Investor,
to the attention of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Vice President and General Counsel,
located at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, stock
certificate(s) (the "Preferred Stock Certificates") representing the number of
the Preferred Shares which the Investor is then purchasing, duly executed on
behalf of the Company and registered in the name of the Investor or its
designee.
II. INVESTOR'S REPRESENTATIONS AND WARRANTIES
The Investor represents and warrants to the Company as follows:
SECTION 2.01. Investment Purpose. The Investor is acquiring the
Preferred Shares (the Preferred Shares may also be referred to herein as the
"Securities"), for its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act;
provided, however, that by making the representations herein, the Investor does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
SECTION 2.02. Accredited Investor Status. The Investor is an
"accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D.
SECTION 2.03. Reliance on Exemptions. The Investor understands
that the Securities are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and the Investor's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Investor set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Investor to acquire such Securities.
SECTION 2.04. Information. The Investor and its advisors, if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by the Investor, including without
limitation, the Company's Form 8-K/A filed with the
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Securities and Exchange Commission on September 14, 1999. The Investor and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigations
conducted by the Investor or its advisors, if any, or its representatives shall
modify, amend or affect the Investor's right to rely on the Company's
representations and warranties contained in Article III below. The Investor
understands that its investment in the Securities involves a high degree of
risk. The Investor has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Securities.
SECTION 2.05. No Governmental Review. The Investor understands
that no United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or endorsement of
the Securities or the fairness or suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of the
offering of the Securities.
SECTION 2.06. Transfer or Resale. The Investor understands that
except as provided in the Registration Rights Agreement: (i) the Securities have
not been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) the Investor shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) the
Investor provides the Company with reasonable assurance that such Securities can
be sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act, as amended, (or a successor rule thereto) ("Rule 144"); and (ii) any sale
of the Securities made in reliance on Rule 144 may be made only in accordance
with the terms of Rule 144 and further, and if the Investor intends to utilize
Rule 144 but Rule 144 is not applicable to such resale, any resale of the
Securities under circumstances in which the Investor (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the ▇▇▇▇ ▇▇▇) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder.
SECTION 2.07. Legends. The Investor understands that the
Preferred Stock Certificates and, until such time as the sale of the Conversion
Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the stock certificates representing the
Conversion Shares except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT"), OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT
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AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(1) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE 1933 ACT OR APPLICABLE STATE SECURITIES
LAWS, OR (2) IN THE ABSENCE OF AN OPINION OF COUNSEL, IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER THE 1933 ACT OR (3) UNLESS SOLD, TRANSFERRED OR ASSIGNED
PURSUANT TO RULE 144 UNDER SAID ACT."
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for sale under the 1933 Act, (ii) in connection with a
sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of the Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with reasonable assurances that the
Securities can be sold pursuant to Rule 144 without any restriction as to the
number of securities acquired as of a particular date that can then be
immediately sold.
SECTION 2.08. Validity; Enforcement. This Agreement has been duly
and validly authorized, executed and delivered on behalf of the Investor and is
a valid and binding agreement of the Investor enforceable against the Investor
in accordance with its terms, subject as to enforceability to general principles
of equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
SECTION 2.09. Residency. The Investor is a resident of the State
of California.
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor as follows:
SECTION 3.01. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns a controlling position of capital
stock or holds a controlling position of an equity or similar interest) listed
on Schedule 3.01 hereof, are corporations duly organized and validly existing in
good standing under the laws of the jurisdiction in which they are incorporated,
and have the requisite corporate power and authorization to own their properties
and to carry on their business as now being conducted. Each of the Company and
its Subsidiaries is duly qualified as a foreign corporation to do business and
is in good standing in every jurisdiction in which its ownership of property or
the nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or
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be in good standing would not have a Material Adverse Effect. As used in this
Agreement, "Material Adverse Effect" means any material adverse effect on the
business, properties, assets, operations, results or operations, financial
condition or prospects of the Company and its Subsidiaries, if any, taken as a
whole, or on the transactions contemplated hereby or by the agreements and
instruments to be entered into in connection herewith, or on the authority or
ability of the Company to perform its obligations under the Transaction
Documents (as defined below in Section 3.02).
SECTION 3.02. Authorization; Enforcement; Validity. (i) The
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement, the Transfer Agent
Instructions (as defined in Article V), the Articles of Amendment and each of
the other agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "Transaction
Documents"), and to issue the Securities in accordance with the terms hereof and
thereof, (ii) the execution and delivery of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby and
thereby, including without limitation the issuance of the Preferred Shares and
the reservation for issuance and the issuance of the Conversion Shares issuable
upon conversion thereof, have been duly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders, (iii) the Transaction Documents have
been duly executed and delivered by the Company, (iv) the Transaction Documents
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies, and (v)
the Articles of Amendment has been filed with the Secretary of State of the
State of Colorado and will be in full force and effect, enforceable against the
Company in accordance with its terms.
SECTION 3.03. Issuance of Securities. The Securities are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable and (ii) free from all taxes,
liens and charges with respect to the issue thereof. The Preferred Shares shall
be entitled to the rights and preferences set forth in the Articles of
Amendment. One million five hundred thousand (1,500,000) shares of Company
Common Stock have been duly authorized and reserved for issuance upon conversion
of the Preferred Shares. Upon conversion in accordance with the Articles of
Amendment, the Conversion Shares will be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Company Common Stock. The issuance by the Company of the Securities
is, and the issuance by the Company of the Conversion Shares shall be, exempt
from registration under the 1933 Act.
SECTION 3.04. No Conflicts. The execution, delivery and
performance of the Transaction Documents by the Company and the consummation by
the Company of the
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transactions contemplated hereby and thereby (including, without limitation, the
Company's issuance of the Securities and the reservation for issuance and
issuance of the Conversion Shares) will not (i) result in a violation of the
Company's Articles of Incorporation, as amended and as in effect on the date
hereof (the "Articles of Incorporation") or the Company's Bylaws, as amended and
as in effect on the date hereof (the "Bylaws") or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of the Principal Market (as defined in Section 4.03 below))
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected. Neither
the Company nor its Subsidiaries is in violation of any term of or in default
under its Articles of Incorporation or Bylaws or their organizational charter or
bylaws, respectively. Neither the Company or any of its Subsidiaries is in
violation of any term of or in default under any contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its Subsidiaries, except for
possible conflicts, defaults, terminations, amendments which would not have a
Material Adverse Effect. The business of the Company and its Subsidiaries is not
being conducted, and shall not be conducted, in violation of any law, ordinance,
regulation of any governmental entity, except for possible violations the
sanctions for which either individually or in the aggregate would not have a
Material Adverse Effect. Except as specifically contemplated by the Transaction
Documents and as required under the 1933 Act, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents in accordance
with the terms hereof or thereof. All consents, authorizations, orders, filings
and registrations which the Company is required to obtain prior to Closing
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company is not
in violation of the listing requirements of the Principal Market (as defined in
Section 4.03 below).
SECTION 3.05. SEC Documents; Financial Statements. As of the
Closing, the Company has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"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 incorporated by reference therein being hereinafter referred to as the
"SEC Documents"). As of their respective dates, the SEC Documents complied in
all material respects with the requirements 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
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of the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the 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). No other
information provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are or were made, not
misleading. Neither the Company nor any of its Subsidiaries or any of their
officers, directors, employees or agents have provided the Investor with any
material, nonpublic information.
SECTION 3.06. Absence of Certain Changes. Since the most recent
filing by the Company with the SEC, there has been no material adverse change
and no material adverse development in the business, properties, operations,
financial condition, results of operations or prospects of the Company or its
Subsidiaries. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law nor does
the Company or any of its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings.
SECTION 3.07. Absence of Litigation. Except as set forth in the
SEC Documents, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company or any of its
Subsidiaries, threatened against or affecting the Company, the Company's Common
Stock, the Common Shares or any of the Company's Subsidiaries or any of the
Company's or the Company's Subsidiaries' officers or directors in their
capacities as such.
SECTION 3.08. No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has occurred or
exists, or is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, prospects, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.
SECTION 3.09. No General Solicitation. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has engaged
in any form of general
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solicitation or general advertising (within the meaning of Regulation D under
the ▇▇▇▇ ▇▇▇) in connection with the offer or sale of the Securities.
SECTION 3.10. No Integrated Offering. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of any of the Securities under the 1933 Act or cause this Offering
of the Securities to be integrated with prior offerings by the Company for
purposes of the 1933 Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of any exchange
or automated quotation system on which any of the securities of the Company are
listed or designated, nor will the Company or any of its Subsidiaries take any
action or steps that would require registration of any of the Securities under
the 1933 Act or cause the offering of the Securities to be integrated with other
offerings.
SECTION 3.11. Employee Relations. Neither the Company nor any of
its Subsidiaries is involved in any union labor dispute nor, to the knowledge of
the Company or any of its Subsidiaries, is any such dispute threatened.
SECTION 3.12. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service ▇▇▇▇ registrations, service names,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses as now
conducted. The Company and its Subsidiaries do not have any knowledge of any
infringement by the Company or its Subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service
marks, service ▇▇▇▇ registrations, trade secret or other similar rights of
others, or of any such development of similar or identical trade secrets or
technical information by others and the Company and its Subsidiaries are unaware
of any facts or circumstances which might give rise to any of the foregoing
which would have a Material Adverse Effect. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties.
SECTION 3.13. Environmental Laws. The Company and its
Subsidiaries (i) are in compliance with any and all applicable foreign, federal,
state and local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or
approval.
SECTION 3.14. Title. The Company and its Subsidiaries have good
and marketable title to all personal property owned by them which is material to
the business of the Company and its Subsidiaries, in each case free and clear of
all liens, encumbrances and defects
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except such as are described in the SEC Documents or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and any of its Subsidiaries.
Any facilities held under lease by the Company and any of its Subsidiaries are
held by them under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its Subsidiaries.
SECTION 3.15. Insurance. The Company and each of its Subsidiaries
are insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged and the Company does not have any reason to believe it
will not be able to renew its existing insurance coverage under substantially
similar terms.
SECTION 3.16. Regulatory Permits. The Company and its
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses, and neither the Company nor any such
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.
SECTION 3.17. Tax Status. The Company and each of its
Subsidiaries has made or filed all federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
SECTION 3.18. Transactions With Affiliates. Except as set forth
in the SEC Documents or as otherwise provided for in Section 3.18 hereto, none
of the officers, control parties, control entities, directors, or employees of
the Company is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
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IV. COVENANTS
SECTION 4.01. Best Efforts. Each party shall use its best efforts
timely to satisfy each of the conditions to be satisfied by it as provided in
Articles VI and VII of this Agreement.
SECTION 4.02. Form D and Blue Sky. The Company agrees to file a
Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to the Investor promptly after such filing. The Company
shall, on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for or to
qualify the Securities for sale to the Investor at the Closing pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States, and shall provide evidence of any such action so taken to the
Investor on or prior to the Closing Date. The Company shall make all filings and
reports relating to the offer and sale of the Securities required under
applicable securities or "Blue Sky" laws of the states of the United States
following the Closing Date.
SECTION 4.03. Listing. The Company shall promptly secure the
listing of all of the Registrable Securities (as that term is defined in the
Registration Rights Agreement) upon each national securities exchange, automated
quotation system or bulletin board system, if any, upon which shares of the
Company's Common Stock 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 Transaction Documents. The Company shall maintain the
Common Stock's authorization for quotation on the Nasdaq National Market, Nasdaq
SmallCap Market, OTC Electronic Bulletin Board, The New York Stock Exchange,
Inc. or The American Stock Exchange, Inc., as applicable (the "Principal
Market"). Neither the Company nor any of its Subsidiaries shall take any action
which would be reasonably expected to result in the delisting or suspension of
Company Common Stock on the Principal Market. The Company shall promptly, and in
no event later than three (3) business days, provide to the Investor copies of
any notices it receives from the Principal Market regarding the continued
eligibility of Company 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.
SECTION 4.04. Reservation of Shares. The Company shall take all
action necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than the number of shares of Company Common Stock needed to
provide for the issuance of the shares of Company Common Stock upon conversion
of all outstanding Preferred Shares.
SECTION 4.05. Issuance of Conversion Shares. The issuance of the
Conversion Shares shall be duly authorized, and when issued in accordance with
the Articles of Amendment, the Conversion Shares will be validly issued, fully
paid and non-assessable and free of all taxes, liens, charges and preemptive
rights with respect to the issue thereof.
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V. TRANSFER AGENT INSTRUCTIONS
The Company shall issue irrevocable instructions to its transfer
agent, Securities Transfer Corporation (the "Transfer Agent"), and any
subsequent transfer agent, substantially in the form of Exhibit B hereto (the
"Transfer Agent Instructions") to issue certificates, registered in the name of
the Investor or its respective nominee(s), for the Conversion Shares in such
amounts as specified from time to time by the Investor to the Company upon
conversion of the Preferred Shares. Prior to registration of the Conversion
Shares under the 1933 Act, all such certificates shall bear the restrictive
legend specified in Section 2.07 of this Agreement. The Company warrants that no
instruction other than the Transfer Agent Instructions referred to in this
Article, and stop transfer instructions to give effect to Section 2.06 hereof
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.
Nothing in this Article shall affect in any way the Investor's obligations and
agreements set forth in Section 2.07 to comply with all applicable prospectus
delivery requirements, if any, upon resale of the Securities. If the Investor
provides the Company with an opinion of counsel, in a generally acceptable form,
to the effect that a public sale, assignment or transfer of the Securities may
be made without registration under the 1933 Act or the Investor provides the
Company with reasonable assurances that the Securities can be sold pursuant to
Rule 144 without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, 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 the Investor and without any restrictive legend.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Investor 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 Article will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Article, that the Investor shall be entitled,
in addition to all other available remedies, to an order and/or 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.
VI. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
The obligation of the Company hereunder to issue and sell the
Preferred Shares to the Investor at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions, provided
that these conditions are for the Company's sole benefit and may be waived by
the Company at any time in its sole discretion by providing the Investor with
prior written notice thereof:
(a) The Investor shall have executed each of the Transaction
Documents, where appropriate, to which it is a party and delivered the same to
the Company for the transactions contemplated by this Agreement;
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(b) The representations and warranties of the Investor shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the Investor shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Investor at or prior to the Closing Date; and
(c) The Investor shall have delivered to the Company such other
documents relating to the transactions contemplated by this Agreement as the
Company may reasonable request.
VII. CONDITIONS TO INVESTOR'S OBLIGATION TO PURCHASE
The obligation of the Investor to purchase the Preferred Shares
at the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for the
Investor's sole benefit and may be waived by the Investor at any time in its
sole discretion by providing the Company with prior written notice thereof:
(a) The Company shall have executed each of the Transaction
Documents and delivered the same to the Investor;
(b) The Company's Common Stock shall be authorized for quotation
on the Principal Market and trading in Company Common Stock shall not have been
suspended by the SEC or the Principal Market;
(c) The Articles of Amendment shall have been filed with the
Secretary of State of the State of Colorado, and a copy thereof shall have been
delivered to the Investor;
(d) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date) and the Company shall have performed, satisfied and complied with
the covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by the Company at or prior to the
Closing Date;
(e) The Company shall have delivered to the Investor the opinion
of the Company's counsel dated as of the Closing Date, in form, scope and
substance reasonably satisfactory to the Investor and in substantially the form
of Exhibit C attached hereto;
(f) The Company shall have executed and delivered to the Investor
the Preferred Stock Certificates (in such denominations as the Investor shall
request) for the Preferred Shares being purchased by the Investor at the
Closing;
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(g) The Transfer Agent Instructions, in the form of Exhibit B
attached hereto, shall have been delivered to and acknowledged in writing by the
Company's transfer agent and a copy of the executed Transfer Agent Instructions
shall have been delivered to the Investor;
(h) The Company shall have made all filings under all applicable
federal and state securities laws necessary to consummate the issuance of the
Securities pursuant to this Agreement in compliance with such laws;
(i) As of the Closing Date, the Company shall have reserved out
of its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Preferred Shares, no less than the number of shares of
Company Common Stock needed to provide for the issuance of the shares of Company
Common Stock upon conversion of all outstanding Preferred Stock; and
(j) The Company shall have delivered to the Investor Agent such
other documents relating to the transactions contemplated by this Agreement as
the Investor may reasonably request.
VIII. INDEMNIFICATION
In consideration of the Investor's execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to
all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless the Investor and each
other holder of the Securities and all of their stockholders, officers,
directors, employees and direct or indirect investors and any of the foregoing
person's agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (c) any cause of action, suit or claim brought
or made against such Indemnitee and arising out of or resulting from the
execution, delivery, performance or enforcement of the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby, or
(d) the status of the Investor or holder of the Securities as an investor in the
Company. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
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IX. GENERAL PROVISIONS
SECTION 9.01. Governing Law; Jurisdiction; Waiver of Jury Trial.
This Agreement shall be governed by and construed in all respects by the
internal laws of the State of California (except for the proper application of
the United States federal securities laws), without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of California
or any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of California. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting in the County of Los Angeles, State of California. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
SECTION 9.02. Counterparts. This Agreement may be executed in two
or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party; provided, however, that a facsimile
signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an
original, not a facsimile signature.
SECTION 9.03. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
SECTION 9.04. Severability. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
SECTION 9.05. Entire Agreement; Amendments. This Agreement
supersedes all other prior oral or written agreements between the Investor, the
Company, their affiliates and persons acting on their behalf with respect to the
matters discussed herein, and this Agreement and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the Investor, and no provision hereof may be waived other than
by an instrument in writing signed by the party against whom enforcement is
sought.
SECTION 9.06. Notices. Any notices, consents, waivers or other
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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 confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one business day
after deposit with a nationally recognized overnight 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: ▇▇▇▇ ▇▇▇ Media, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Chief Operating Officer
With a copy to: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, A Professional
Corporation
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Investor: Macromedia, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
With a copy to: Fenwick & West, LLP
▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
If to the Transfer Agent: Securities Transfer Corporation
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
▇▇., President
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SECTION 9.07. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Preferred Shares.
SECTION 9.08. Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
SECTION 9.09. Survival. Unless this Agreement is terminated under
Section 9.11, the agreements and covenants set forth in Article IV and V, and
the indemnification provisions set forth in Article VIII shall survive the
Closing. The Investor shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
SECTION 9.10. Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
SECTION 9.11. Termination. In the event that the Closing shall
not have occurred with respect to the Investor on or before seven (7) business
days from the date hereof due to the Company's or the Investor's failure to
satisfy the conditions set forth in Articles VI and VII above (and the
nonbreaching party's failure to waive such unsatisfied condition(s)), the
nonbreaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party.
SECTION 9.12. No Strict Construction. 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.
SECTION 9.13. Remedies. The Investor shall have all rights and
remedies set forth in the Transaction Documents and all rights and remedies
which such holders have been granted at any time under any other agreement or
contract and all of the rights which such holders have under any law. Any person
having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other security), to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law.
IN WITNESS WHEREOF, the Company and the Investor have caused this
Securities Purchase Agreement to be duly executed by their duly authorized
officer(s) empowered so to act, all as of the date first written above.
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COMPANY: INVESTOR:
▇▇▇▇ ▇▇▇ MEDIA, INC. MACROMEDIA, INC.
By: /s/ Gill Champion By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------- -------------------------------
Name: Gill Champion Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Chief Operating Officer Title: Vice President - General
Counsel
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EXHIBITS
Exhibit A Form of Registration Rights Agreement
Exhibit B Form of Transfer Agent Instructions
Exhibit C Form of Company Counsel Opinion
Exhibit D Form of Articles of Amendment
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REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as
of November 3, 1999, between ▇▇▇▇ ▇▇▇ MEDIA, INC., a Colorado
corporation, and MACROMEDIA, INC.,, a Delaware corporation (the
"Investor").
WHEREAS, in connection with the Securities Purchase Agreement
between the parties of even date herewith (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 Investor seven hundred
fourteen thousand two hundred eighty-six (714,286) shares of the Company's
Series A Preferred Stock, no par value (the "Preferred Shares"), which will be
convertible into shares of the Company's common stock, no par value (the "Common
Stock") (as converted, the "Conversion Shares") in accordance with the terms of
the Company's Articles of Amendment (the "Articles of Amendment"); and
WHEREAS, to induce the Investor 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
Investor hereby agree as follows:
I. DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
(a) "Investor" means Macromedia, Inc., a Delaware corporation,
any transferee or assignee thereof to whom the Investor assigns its rights under
this Agreement and who agrees to become bound by the provisions of this
Agreement in accordance with Article VIII and any transferee or assignee thereof
to whom a transferee or assignee assigns its rights under this Agreement and who
agrees to become bound by the provisions of this Agreement in accordance with
Article VIII.
(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 (as defined below) in compliance
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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 and any shares of capital
stock issued or issuable with respect to the Conversion Shares or Preferred
Shares as a result of any stock split, stock dividend, recapitalization,
exchange, or similar event or otherwise, without regard to any limitation on the
conversion of the Preferred Shares.
(e) "Registration Statement" means a registration statement of
the Company filed under the 1933 Act and pursuant to Rule 415.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.
II. REGISTRATION
SECTION 2.01. Piggy-Back Registrations. If at any time prior to
the expiration of the Registration Period (as defined in Article III(a)) the
Company proposes to file with the SEC a Registration Statement relating to an
offering for its own account or the account of others under the 1933 Act of any
of its securities (other than on Form S-4 or Form S-8 (or their equivalents at
such time) relating to securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans) the Company shall
promptly send to the Investor written notice of the Company's intention to file
a Registration Statement and of such Investor's rights under this Section and,
if within twenty (20) days after receipt of such notice, such Investor shall so
request in writing, the Company shall include in such Registration Statement all
or any part of the Registrable Securities such Investor requests to be
registered, subject to the priorities set forth in this Section below. The
obligations of the Company under this Section may be waived by the Investor. If
an offering in connection with which the Investor is entitled to registration
under this Section is an underwritten offering, then the Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Company common stock included in such underwritten offering. If a
registration pursuant to this Section is to be an underwritten public offering
and the managing underwriter(s) advise the Company in writing, that in their
reasonable good faith opinion, marketing or other factors dictate that a
limitation on the number of shares of Company common stock which may be included
in the Registration Statement is necessary to facilitate and not adversely
affect the proposed offering, then the Company shall include in such
registration: (1) first, all securities the Company proposes to sell for its own
account, and (2) second, the
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securities requested to be registered by the Investor and other holders of
securities entitled to participate in the registration, as of the date hereof,
drawn from them pro rata based on the number each has requested to be included
in such registration.
SECTION 2.02. 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 Investor and other holders of securities entitled
to participate in the registration based on the number of Registrable Securities
held, or which could be held, by the Investor at the time the Registration
Statement covering such initial number of Registrable Securities or increase
thereof is declared effective by the SEC. In the event that the Investor sells
or otherwise transfers any of its 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 which ceases to hold any Registrable Securities shall be
allocated to the remaining holders, pro rata based on the number of Registrable
Securities then held by such holders.
SECTION 2.03. Legal Counsel. Subject to Article V hereof, the
Investor shall have the right to select one legal counsel as designated by the
holders of a majority of Registrable Securities to review and oversee any
offering pursuant to this Article ("Legal Counsel"). The Company shall
reasonably cooperate with Legal Counsel in performing the Company's obligations
under this Agreement.
SECTION 2.04. Rule 416. The Company and the Investor each
acknowledge that each Registration Statement prepared in accordance hereunder
shall include an indeterminate number of Registrable Securities pursuant to Rule
416 under the 1933 Act so as to cover 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 the
anti-dilution provisions contained in the Articles of Amendment in accordance
with the terms thereof (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 each 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 each Registration Statement filed
hereunder covers all of the Rule 416 Securities. If the Company determines that
the Registration Statement filed hereunder does not cover all of the Rule 416
Securities, the Company shall immediately (i) provide to the Investor written
evidence setting forth the basis for the Company's position and the authority
therefor and (ii) prepare and file an amendment to such Registration Statement
or a new Registration Statement in accordance with Section 2.05 below.
SECTION 2.05. Sufficient Number of Shares Registered. In the
event the number of shares available under a Registration Statement filed
pursuant to Section 2.01 is
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insufficient to cover all of the Registrable Securities or the Investor's
allocated portion of the Registrable Securities pursuant to Section 2.02 (a
"Deficit Failure"), the Company shall amend the Registration Statement, or file
a new Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover at least the number of such Registrable
Securities in each case, as soon as practicable, but in any event not later than
fifteen (15) days after the necessity therefor arises. The Company shall use it
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 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. For purposes of the
calculation set forth in the foregoing sentence, any restrictions on the
convertibility of the Preferred Shares shall be disregarded and such calculation
shall assume that the Preferred Shares are then convertible into shares of
Common Stock at the then prevailing Conversion Rate (as defined in the Company's
Articles of Amendment).
SECTION 2.06. S-3 Registrations. Notwithstanding any provisions
to the contrary set forth in this Agreement, the Investor shall have the right
to demand an unlimited number of registrations of the Preferred Shares on Form
S-3 only, provided that (i) the amount of Preferred Shares to be registered
pursuant to each such demand shall not be less than One Million Dollars
($1,000,000); (ii) all expenses are borne by the Investor, excluding fees of
Legal Counsel otherwise provided for in this Agreement; and (iii) the Investor
continues to hold beneficially at least 200,000 issued and outstanding Preferred
Shares and such shares are not freely transferable under Rule 144 without any
discount in price due to the volume or other limitations imposed by such Rule.
As promptly as practicable after the receipt of a written demand from the
Investor, the Company shall prepare and file a Registration Statement with the
Securities and Exchange Commission on Form S-3, and shall use its best efforts
to cause such Registration Statement to be declared effective by the SEC as
promptly as practicable.
III. RELATED OBLIGATIONS
Whenever the Investor has requested that any Registrable
Securities be registered pursuant to Section 2.01 hereof or at such time as the
Company is obligated to file a Registration Statement with the SEC pursuant to
Section 2.05 hereof, 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 have the
following obligations:
(a) The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities after the date
of issuance of any Preferred Shares for the registration of Registrable
Securities pursuant to Section 2.01 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 for the registration of
Registrable Securities
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pursuant to Section 2.01, and keep such Registration Statement effective
pursuant to Rule 415 at all times until the earlier of (i) the date as of which
the Investor 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 Investor shall have sold all the Registrable
Securities and (B) none of the Preferred Shares 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 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.
(c) The Company shall permit Legal Counsel to review and comment
upon a Registration Statement and all amendments and supplements thereto at
least five (5) days prior to their filing with the SEC, and not file any
document in a form to which Legal Counsel reasonably objects. The Company shall
furnish to Legal Counsel, without charge, (i) any correspondence from the SEC or
the staff of the SEC to the Company or its representatives relating to any
Registration Statement, (ii) promptly after the same is prepared and filed with
the SEC, one copy of any Registration Statement and any amendment(s) thereto,
including financial statements and schedules, all documents incorporated therein
by reference and all exhibits and (iii) upon the effectiveness of any
Registration Statement, one copy of the prospectus included in such Registration
Statement and all amendments and supplements thereto.
(d) The Company shall furnish to the Investor whose Registrable
Securities are included in any Registration Statement, 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, (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.
(e) The Company shall use reasonable efforts to (i) register and
qualify the
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Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as Legal Counsel or 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 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, (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
Legal Counsel and the 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.
(f) As promptly as practicable after becoming aware of such
event, the Company shall notify Legal Counsel and the 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 Legal
Counsel and the Investor (or such other number of copies as Legal Counsel or
such Investor may reasonably request). The Company shall also promptly notify
Legal Counsel and the 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 Legal Counsel and the
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 Legal Counsel and the Investor who
holds Registrable Securities being sold (and, in the event of an underwritten
offering, the managing underwriters) of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation
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or threat of any proceeding for such purpose.
(h) At the request of the Investor, the Company shall furnish to
such Investor, 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) if required by an underwriter, 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
Investor.
(i) The Company shall make available for inspection by (i) the
Investor, (ii) Legal Counsel, (iii) any underwriter participating in any
disposition pursuant to a Registration Statement, (iv) one firm of accountants
or other agents retained by the Investor, and (v) one firm of attorneys retained
by 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. The 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.
(j) The Company shall hold in confidence and not make any
disclosure of information concerning the 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 the Investor is sought in or by a court or
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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.
(k) The Company shall use its best efforts either to (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 Nasdaq National Market System or, if,
despite the Company's best efforts to satisfy the preceding clause (i) or (ii),
the Company is unsuccessful in satisfying the preceding clause (i) or (ii), to
secure the inclusion for quotation on The Nasdaq SmallCap Market for such
Registrable Securities and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register with the National Association
of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section.
(l) The Company shall provide a transfer agent and registrar of
all such Registrable Securities not later than the effective date of such
Registration Statement.
(m) If requested by the managing underwriters or the Investor,
the Company shall (i) immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Investor 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 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
if requested by a shareholder or any underwriter of such Registrable Securities.
(n) 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.
(o) 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 and the Company shall use its best efforts to file with
the SEC in a timely manner all reports and documents required of the Company
under the 1933 Act and the Securities Exchange Act of 1934 (the "1934 Act").
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(p) 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 that the Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
(q) The Company shall take all other reasonable actions necessary
to expedite and facilitate disposition by the Investor of Registrable Securities
pursuant to a Registration Statement.
IV. OBLIGATIONS OF INVESTOR
(a) At least seven (7) days prior to the first anticipated filing
date of the Registration Statement, the Company shall notify the Investor in
writing of the information the Company requires from the Investor if the
Investor elects to have any of the 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 the Investor that such
Investor shall furnish to the Company such information regarding itself and the
Registrable Securities held by it as shall be reasonably required to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request.
(b) The 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.
(c) In the event the Investor elects to participate in an
underwritten public offering pursuant to Article II, the Investor agrees to
enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Securities.
V. EXPENSES OF REGISTRATION
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Articles II and III, including, without limitation,
all registration, listing and qualifications fees, printers and accounting
fees, and fees and disbursements of counsel for the Company and fees and
disbursements of Legal Counsel shall be paid by the Company; provided, however,
that the fees
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and disbursements of Legal Counsel shall not exceed Ten Thousand Dollars
($10,000).
VI. 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 the Investor who holds such
Registrable Securities, the directors, officers, partners, employees, agents,
representatives of, and each Person, if any, who controls the Investor within
the meaning of the 1933 Act or the 1934 Act, and any underwriter (as defined in
the ▇▇▇▇ ▇▇▇) for the Investor, and the directors and officers of, and each
Person, if any, who controls, any such underwriter within the 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, (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 or (iv) any material violation
of this Agreement (the matters in the foregoing clauses (i) through (iv) being,
collectively, "Violations"). The Company shall reimburse the Investor and each
such underwriter or controlling person, promptly as such expenses are incurred
and are due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this subsection (a) of this Article: (i) shall not apply
to a Claim by an Indemnified Person arising out of or based upon a Violation
which occurs in reliance upon and in conformity
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with information furnished in writing to the Company by such 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; (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, and the Indemnified Person
was promptly advised in writing not to use the incorrect prospectus prior to the
use giving rise to a violation and such Indemnified Person, notwithstanding such
advice, used it; (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 the Company, which consent shall not be unreasonably
withheld. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investor pursuant to Article
IX.
(b) In connection with any Registration Statement in which the
Investor is participating, the 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 subsection (a) of this Article, the Company, each of its
directors, each of its officers who signs the Registration Statement, each
Person, if any, who controls the Company within the meaning of the 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
Indemnified Party 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 subsection (d) of
this Article, 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
subsection (b) and the agreement with respect to contribution contained in
Article VII 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. 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 Investor pursuant to Article VIII.
(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.
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(d) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Article of notice of the commencement of any action
or proceeding (including any governmental action or proceeding) involving a
Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Article, deliver
to the indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The Company shall
pay reasonable fees for only one separate legal counsel for the Investor, and
such legal counsel shall be selected by the Investor holding a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person 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 or Indemnified Person which relates to such action or claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
fully apprized 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 or Indemnified Person, 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 or Indemnified Person 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 or Indemnified Person 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 Person or Indemnified
Party under this Article, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
(e) The indemnification required by this Article 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.
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(f) The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
VII. 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 Article VI to the fullest extent permitted by law; provided, however, that
no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the ▇▇▇▇ ▇▇▇) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation.
VIII. ASSIGNMENT OF REGISTRATION RIGHTS
The rights under this Agreement shall be automatically assignable
by the Investor 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; provided,
however, that the transferee or assignee may subsequently transfer or assign all
or any portion of the Registrable Securities if an exemption from registration
under the 1933 Act is applicable to such transfer or assignment; (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.
IX. 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 the Investor who then hold two-thirds of the Registrable Securities. Any
amendment or waiver effected in accordance with this Article shall be binding
upon the 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
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offered to all of the parties to this Agreement.
X. GENERAL PROVISIONS
SECTION 10.01. Governing Law; Jurisdiction; Waiver of Jury Trial.
This Agreement shall be governed by and construed in all respects by the
internal laws of the State of California (except for the proper application of
the United States federal securities laws), without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of California
or any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of California. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting in the County of Los Angeles, State of California. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
SECTION 10.02. Counterparts. This Agreement may be executed in
two or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party; provided, however, that a facsimile
signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an
original, not a facsimile signature.
SECTION 10.03. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
SECTION 10.04. Severability. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
SECTION 10.05. Entire Agreement; Amendments. This Agreement, the
Securities Purchase Agreement and the Articles of Amendment 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 Articles of Amendment
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.
SECTION 10.06. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be
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in writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight 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: ▇▇▇▇ ▇▇▇ Media, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Chief Operating Officer
With a copy to: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, A Professional
Corporation
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Investor: Macromedia, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
With a copy to: Fenwick & West, LLP
▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
SECTION 10.07. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Preferred Shares.
SECTION 10.08. Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
SECTION 10.09. Further Assurances. Each party shall do and
perform, or
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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.
SECTION 10.10. Consents. All consents and other determinations to
be made by the Investor pursuant to this Agreement shall be made, unless
otherwise specified in this Agreement, by the Investor 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 limitation on conversions of Preferred Shares.
SECTION 10.11. Construction. A Person is deemed to be a holder of
Registrable Securities whenever such Person owns or is deemed to own of record
such Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more Persons 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. 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.
SECTION 10.12. Remedies. The Investor shall have all rights and
remedies set forth in the Transaction Documents and all rights and remedies
which such holders have been granted at any time under any other agreement or
contract and all of the rights which such holders have under any law. Any person
having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other security), to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law.
IN WITNESS WHEREOF, the Company and the Investor have caused this
Registration Rights Agreement to be duly executed by their duly authorized
officer(s) empowered so to act, all as of the date first written above.
COMPANY: INVESTOR:
▇▇▇▇ ▇▇▇ MEDIA, INC. MACROMEDIA, INC.
By: /s/ Gill Champion By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------- --------------------------------
Name: Gill Champion Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Chief Operating Officer Title: Vice President - General
Counsel
16
35
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Securities Transfer Corporation
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., President.
Re: ▇▇▇▇ ▇▇▇ Media, Inc.
Ladies and Gentlemen:
We are special counsel to ▇▇▇▇ ▇▇▇ Media, Inc., a Colorado corporation
(the "Company"). We have reviewed that certain Securities Purchase Agreement
(the "Purchase Agreement") entered into by and among the Company and the buyers
named therein (collectively, the "Holders"), pursuant to which the Company
issued to the Holders shares of its Series A Preferred Stock, no par value (the
"Preferred Shares") convertible into shares of the Company's common stock, no
par value (the "Conversion 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 Conversion Shares, under the
Securities Act of 1933, as amended (the "1933 Act"). In connection with the
Company's obligations under the Registration Rights Agreement, on ____________,
the Company filed a Registration Statement on Form ____________ (File No.
____________) (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,
after telephonic inquiry of a member of the SEC's staff, 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,
[ISSUER'S COUNSEL]
By:
17
36
▇▇▇▇ ▇▇▇ MEDIA, INC.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
November 3, 1999
Securities Transfer Corporation
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., President.
Re: Transfer Agent Instructions
Ladies and Gentlemen:
Reference is made to that certain Securities Purchase Agreement
(the "Purchase Agreement"), dated as of November 3, 1999 (the "Closing Date"),
between ▇▇▇▇ ▇▇▇ Media, Inc., a Colorado corporation (the "Company"), and
Macromedia, Inc., a Delaware corporation (the "Holder") pursuant to which the
Company is issuing to the Holder an aggregate of seven hundred fourteen thousand
two hundred eighty-six (714,286) shares of Series A Preferred Stock, no par
value, of the Company (the "Preferred Shares") convertible into Company common
stock (the "Conversion Shares"). This letter shall serve as our irrevocable
authorization and direction to you as "Transfer Agent" (provided that you are
the transfer agent of the Company at such time) to remove any restrictive legend
placed on the certificates representing the Conversion Shares (the "Conversion
Share Certificates") in the event that (i) the Holder sells, transfers or
disposes any or all of such Holder's Conversion Shares pursuant to the
Registration Statement (as contemplated by the Purchase Agreement) and the
Holder has fulfilled the applicable prospectus delivery requirements, or (ii)
the Holder sells, transfers or disposes of any or all of the Holder's Conversion
Shares pursuant to an opinion of Holder's counsel, such opinion in a generally
acceptable form, to the effect that such sale, transfer or disposition is exempt
from registration under the Securities Act of 1933, as amended (the "1933 Act"),
or (iii) the Holder sells, transfers or disposes of any or all of such Holder's
Conversion Shares pursuant to Rule 144 promulgated under the 1933 Act, as
amended ("Rule 144") provided that the Holder provides the Company with
reasonable assurances that the Conversion Shares have been or are to be sold
pursuant to Rule 144.
The Company may from time to time notify you to place
stop-transfer restrictions on the Conversion Share Certificates in the event a
registration statement covering the Conversion Shares is subject to amendment
for events then current.
37
Securities Transfer Corporation
November 1, 1999
Page 19
Please be advised that the Holder is relying upon this letter as
an inducement to enter into the Purchase Agreement and, accordingly, the Holder
is a third party beneficiary to these instructions.
Should you have any questions concerning this matter, please
contact the undersigned at (▇▇▇) ▇▇▇-▇▇▇▇.
Very truly yours,
▇▇▇▇ ▇▇▇ MEDIA, INC.
By:
-------------------------------
Its:
-----------------------
ACKNOWLEDGED AND AGREED:
SECURITIES TRANSFER CORPORATION
By:
--------------------------------
Its:
-----------------------
Date: November 3, 1999.
Enclosure
cc: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Vice President
Macromedia, Inc.
19
38
[Form of Company Counsel Opinion]
November 3, 1999
Macromedia, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
We have acted as special counsel to ▇▇▇▇ ▇▇▇ Media, Inc., a
Colorado corporation (the "Company"), with respect to certain financing
arrangements entered into between the Company and you, Macromedia, Inc., a
Delaware corporation ("Macromedia"). Pertinent documents (the "Transaction
Documents") executed by the Company and Macromedia include that certain
Securities Purchase Agreement and Registration Rights Agreement, each dated as
of November 3, 1999.
In our capacity as special counsel to the Company, we have
examined and relied upon such documents and instruments as we have deemed
appropriate, including the Transaction Documents. In conducting our examination,
we have assumed, without investigation, the genuineness of all signatures, the
correctness of all certificates, the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents submitted
to us as certified or photostatic copies and the authenticity of the originals
of such copies, and the accuracy and completeness of all records made available
to us. In rendering our opinion below, we have assumed, without investigation,
that any certificate or other document on which we have relied that was given or
dated earlier than the date of this opinion letter continued to remain accurate
insofar as relevant to such opinions from such earlier date through and
including the date of this opinion letter. In addition, we have assumed, without
investigation, the accuracy of the representations, warranties and covenants as
to factual matters made in the Transaction Documents and the accuracy of
representations and statements as to factual matters made by officers of the
Company in certificates and by public officials.
Whenever a statement herein is qualified by "known to us," "to
our knowledge" or similar phrase, it is intended to indicate that, during our
course of representation of the Company, no information that would give us
current actual knowledge of the inaccuracy of such statement has come to the
attention of those attorneys in this firm who have rendered legal services in
connection with the representation described in the introductory paragraph of
this opinion letter. However, we have not undertaken any independent
investigation to determine the accuracy of such statement, and no inference as
to our knowledge of any matters bearing on the accuracy of any such statement
should be drawn from the fact of our representation of the
39
Company.
Our opinions below are limited to the matters expressly set forth
in this opinion letter, and no opinion is to be implied or may be inferred
beyond the matters expressly so stated. We disclaim any obligation to update
this opinion letter for events occurring after the date of this opinion letter.
Our opinions below are limited to the effect of the state laws of the State of
California and of the federal laws of the United States.
Based upon and subject to the foregoing, we are of the opinion
that:
(a) The Company and each of its subsidiaries is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has the requisite corporate power and
authority to conduct its business, and to own, lease and operate its properties,
as described in the Company's Form 8-K/A filed with the Securities and Exchange
Commission on September 14, 1999.
(b) The Company has the requisite corporate power and authority
to execute, deliver and perform its obligations under the Transaction Documents,
including issuance of the Preferred Shares in accordance with the terms thereof.
The execution and delivery of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated therein have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors or its stockholders is
required therefor. The Transaction Documents have been duly executed and
delivered by the Company. The Transaction Documents constitute the valid and
binding agreements of the Company, enforceable against the Company in accordance
with their respective terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
(c) The issuance and sale of the Preferred Shares have been duly
authorized, and when issued in accordance with the terms of the Securities
Purchase Agreement, the Preferred Shares will be validly issued, fully paid and
non-assessable and free of all taxes, liens, charges and preemptive rights with
respect to the issue thereof. Upon conversion of the Preferred Shares, the
issuance and sale of the Conversion Shares shall be duly authorized, and when
issued in accordance with the terms of the Articles of Amendment, the Conversion
Shares will be validly issued, fully paid and non-assessable and free of all
taxes, liens, charges and preemptive rights with respect to the issue thereof.
40
(d) No authorization, approval, consent, filing or other order of
any Federal or state governmental body, regulatory agency, self-regulatory
organization or stock exchange or market, or the stockholders of the Company, or
any court, or, to our knowledge, any third party, is required to be obtained by
the Company to enter into and perform its obligations under the Transaction
Documents for the issuance and sale of the Preferred Shares or the issuance of
the Conversion Shares as contemplated by the Transaction Documents.
(e) To our knowledge, and except as disclosed in the Securities
Purchase Agreement, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body or any governmental
agency or self-regulatory organization pending or threatened against the Company
or any of its subsidiaries or any of the properties of the Company or any of its
subsidiaries which might reasonably be expected to have a material adverse
effect on the Company's financial condition, business, properties or assets.
(f) The execution, delivery and performance by the Company of the
Transaction Documents, the consummation by the Company of the transactions
contemplated thereby and the compliance by the Company with the terms thereof
does not (i) violate, conflict with or constitute a default (or an event which,
with the giving of notice or lapse of time or both, constitutes or would
constitute a default) under (1) the Company's Articles of Incorporation, as
amended, or the Company's Bylaws, or (2) any agreement, note, lease, mortgage,
deed or other instrument to which the Company is a party or by which the Company
is bound and which the Company has filed as an exhibit to its reports filed with
the SEC under the 1934 Act or which, to our knowledge, the Company otherwise is
required or will be required to file as an exhibit to its reports under the 1934
Act; or (ii) result in any violation of any statute, law, rule or regulation
known to us to be applicable to the Company or, to the best of our knowledge,
any order, writ, injunction or decree, if such violation would have a material
adverse effect on the Company's financial condition, business, properties or
assets.
This opinion is rendered solely for your benefit and the benefit
of your wholly-owned subsidiary, ▇▇▇▇▇▇▇▇▇.▇▇▇, Inc., a Delaware corporation, in
connection with the execution and delivery by Company and Macromedia of the
Transaction Documents and may not be relied upon by any other persons or
furnished to any other persons without our prior written consent.
Very truly yours,
41
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following articles of amendment to its
articles of incorporation:
FIRST: The name of the corporation is ▇▇▇▇ ▇▇▇ Media, Inc. (the "corporation"
and sometimes hereinafter referred to as the "Company").
SECOND: ARTICLE THIRD of the articles of incorporation of the corporation shall
be amended by the addition of a new paragraph D, which shall read in its
entirety as follows:
D. Series A Preferred Stock. A class of preferred stock designated as
the Series A Preferred Stock is hereby created out of the Preferred
Stock previously authorized by these Articles of Incorporation. The
aggregate number of the Series A Preferred Stock which this corporation
shall have authority to issue is one million five hundred thousand
shares (1,500,000) shares, each with no par value, which shares shall be
designated as the "Series A Preferred Stock" (the "Preferred Shares").
The powers, designations, preferences and other special rights of
the Preferred Shares is as follows:
Section 1. Dividends. In the event any dividend or other
distribution payable in cash or other property is declared on the Common
Stock (defined below), each holder (a "Holder" and, collectively, the
"Holders") of the Preferred Shares on the record date for such dividend
or distribution shall be entitled to receive per Preferred Share on the
date of payment or distribution of such dividend or other distribution
the amount of cash or property equal to the cash or property which would
be received by the Holders of the number of shares of Common Stock into
which such Preferred Share would be converted pursuant to Section 2
hereof immediately prior to such record date.
Section 2. Distributions Upon Liquidation, Dissolution or
Winding-Up. In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, the Holders of the Preferred
Shares shall be entitled to receive in cash out of the assets of the
Company, whether from capital or from earnings available for
distribution to its stockholders (the "Liquidation Funds"), before any
amount shall be paid to the holders of any of the capital stock of the
Company of any class junior in rank to the Preferred Shares in respect
of the preferences as to the distributions and payments on the
liquidation, dissolution and winding up of the Company, an amount per
Preferred
42
Share equal to Seven Dollars ($7.00) and any accrued but unpaid
Dividends (such sum being referred to as the "Liquidation Preference");
provided, however, that, if the Liquidation Funds are insufficient to
pay the full amount due to the Holders of Preferred Shares and holders
of shares of other classes or series of preferred stock of the Company
that are of equal rank with the Preferred Shares as to payments of
Liquidation Funds (the "Pari Passu Shares"), then each Holder of
Preferred Shares and Pari Passu Shares shall receive a percentage of the
Liquidation Funds equal to the full amount of Liquidation 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 Liquidation Funds payable to all
Holders of Preferred Shares and holders of Pari Passu Shares. In
addition to the receipt of the Liquidation Preference, in the event of
any voluntary or involuntary liquidation, dissolution or winding up of
the Company, the Holders of the Preferred Shares shall be entitled to
receive Liquidation Funds distributed to holders of Common Stock, after
the Liquidation Preference has been paid, to the same extent as if such
Holders of Preferred Shares had converted the Preferred Shares into
Common Stock (without regard to any limitations on conversions herein or
elsewhere) and had held such shares of Common Stock on the record date
for such distribution of the remaining Liquidation Funds. The purchase
or redemption by the Company of stock of any class, in any manner
permitted by law, shall not, for the purposes hereof, be regarded as a
liquidation, dissolution or winding up of the Company. Neither the
consolidation or merger of the Company with or into any other Person,
nor the sale or transfer by the Company of substantially all of its
assets, shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Company. No Holder of Preferred Shares
shall be entitled to receive any amounts with respect thereto upon any
liquidation, dissolution or winding up of the Company other than the
amounts provided for herein; provided that a Holder of Preferred Shares
shall be entitled to all amounts previously accrued with respect to
amounts owed hereunder.
Section 3. Conversion of Preferred Shares. Preferred Shares shall
be convertible into shares of the Company's common stock, no par value
(the "Common Stock"), on the terms and conditions set forth in this
Section.
(a) Certain Defined Terms. For purposes of this
Certificate of Designations, the following terms shall have the
following meanings:
(i) "Business Day" means any day in which the
Principal Market is open for business.
(ii) "Closing Bid Price" means, for any security as
of any date, the last closing bid price for such security on the
Principal Market (as defined below) as
2
43
reported by Bloomberg Financial Markets ("Bloomberg"), or, if the
Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price of such security on
the principal securities exchange or trading market where such security
is listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing bid price of such security in the
over-the-counter market on the Electronic Bulletin Board for such
security as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price of
such security as reported by Bloomberg, or, if no last closing trade
price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price
cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date
shall be the fair market value as mutually determined by the Company and
the Holders of Preferred Shares. If the Company and the Holders of
Preferred Shares are unable to agree upon the fair market value of the
Common Stock, then such dispute shall be resolved pursuant to Section
3(e) below. (All such determinations to be appropriately adjusted for
any stock dividend, stock split or other similar transaction during such
period).
(iii) "Closing Date" has the same meaning as the
term is defined in the Securities Purchase Agreement, entered into by
and between the Company and certain investor(s), dated as of November 3,
1999.
(iv) "Conversion Price" means the Fixed Conversion
Price in effect as of such date and subject to adjustment as provided
herein.
(v) "Fixed Conversion Price" means, Seven Dollars
($7.00), subject to adjustment as provided herein.
(vi) "Issuance Date" means, with respect to each
Preferred Share, the date of issuance of the applicable Preferred Share.
(vii) "Person" means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any department
or agency thereof.
(viii) "Principal Market" means the Nasdaq National
Market, the Nasdaq SmallCap Market or OTC Electronic Bulletin Board.
(ix) "Registration Rights Agreement" means that
certain Registration Rights Agreement entered into by and between the
Company and certain
3
44
investor(s), dated as of November 3, 1999.
(x) "Stated Value" means Seven Dollars ($7.00).
(b) Holder's Conversion Right. At any time or times on or
after the Issuance Date, any Holder of Preferred Shares shall be
entitled to convert any whole number of Preferred Shares into fully paid
and nonassessable shares of Common Stock in accordance with Section
3(e), at the Conversion Rate (as defined below). The Company 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 Company shall
round such fraction of a share of Common Stock up to the nearest whole
share.
(c) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of each Preferred Share pursuant to Section
3(b) shall be determined according to the following formula (the
"Conversion Rate"):
Stated Value
-----------------
Conversion Price
(d) Automatic Conversion. The Preferred Shares shall
automatically be converted into shares of Common Stock, at the then
effective Conversion Price, upon the earlier of (i) the closing of a
firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock for the account of the
corporation to the public at a price per share (prior to underwriter
commissions and offering expenses) of not less than Fifteen Dollars
($15.00) per share (appropriately adjusted for any recapitalizations,
stock splits, stock combinations, stock dividends and the like) and an
aggregate offering price to the public of not less than Twenty-Five
Million Dollars ($25,000,000), or (ii) the receipt by the corporation of
the affirmative vote at a duly noticed stockholders' meeting or pursuant
to a duly solicited written consent of the holders of more than
two-thirds of the then outstanding Preferred Shares in favor of the
conversion of all of the Preferred Shares. In the event of the automatic
conversion of the Preferred Shares upon a public offering as set forth
in clause (i) above, the person(s) entitled to receive the Common Stock
issuable upon such conversion of Preferred Shares shall not be deemed to
have converted such Preferred Shares until immediately prior to the
closing of such sale of securities.
4
45
(e) Mechanics of Conversion. The conversion of
Preferred Shares shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To
convert Preferred Shares into shares of Common Stock on any date (the
"Conversion Date"), the Holder shall (A) transmit by facsimile (or
otherwise deliver), for receipt on or prior to 11:59 P.M., Pacific Time
on such date, a copy of a fully executed notice of conversion in the
form attached hereto as Exhibit I (the "Conversion Notice") to the
Company's designated transfer agent (the "Transfer Agent") with a copy
thereof to the Company and (B) surrender to a common carrier for
delivery to the Transfer Agent as soon as practicable following such
date the original certificates representing the Preferred Shares being
5
46
converted (or an indemnification undertaking with respect to such shares
in the case of their loss, theft or destruction) (the "Preferred Stock
Certificates").
(ii) Company's Response. Upon receipt by the
Company of a copy of a Conversion Notice, the Company shall immediately
send, via facsimile, a confirmation of receipt of such Conversion Notice
to such Holder and the Transfer Agent, which confirmation shall
constitute an instruction to the Transfer Agent to process such
Conversion Notice in accordance with the terms herein. Upon receipt by
the Transfer Agent of the Preferred Stock Certificates to be converted
pursuant to a Conversion Notice, the Transfer Agent shall, on the next
business day following the date of receipt (or the second business day
following the date of receipt if received after 11:00 a.m. local time of
the Transfer Agent), (A) issue and surrender to a common carrier for
overnight delivery to the address as 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 (B) provided the Transfer Agent is participating in The
Depository Trust Company ("DTC") Fast Automated Securities Transfer
Program, upon the request of the Holder, 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 DTC through its Deposit
Withdrawal Agent Commission system. If the number of Preferred Shares
represented by the Preferred Stock Certificate(s) submitted for
conversion is greater than the number of Preferred Shares being
converted, then the Transfer Agent shall, as soon as practicable and in
no event later than three (3) Business Days after receipt of the
Preferred Stock Certificate(s) and at its own expense, issue and deliver
to the Holder a new Preferred Stock Certificate representing the number
of Preferred Shares not converted.
(iii) Dispute Resolution. In the case of a dispute
as to the arithmetic calculation of the Conversion Rate, the Company
shall instruct the Transfer Agent to 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 one (1) Business Day of receipt of such Holder's
Conversion Notice. If such Holder and the Company are unable to agree
upon the arithmetic calculation of the Conversion Rate within one (1)
Business Day of such disputed arithmetic calculation being submitted to
the Holder, then the Company shall within one (1) Business Day submit
via facsimile the disputed arithmetic calculation of the Conversion Rate
to the Company's independent, outside accountant. The Company shall
cause the accountant to perform the calculations and notify the Company
and the Holder of the results no later than forty-eight (48) hours from
the time it receives the disputed calculations. Such accountant's
calculation shall be binding upon all parties absent manifest error.
6
47
(iv) Record Holder. The person or persons entitled
to receive the shares of Common Stock issuable upon a conversion of
Preferred Shares shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date.
(v) Pro Rata Conversion and Redemption. In the
event the Company receives a Conversion Notice from more than one Holder
of Preferred Shares for the same Conversion Date and the Company can
convert some, but not all, of such Preferred Shares, the Company shall
convert from each Holder of Preferred Shares electing to have Preferred
Shares converted at such time a pro rata amount of such Holder's
Preferred Shares submitted for conversion based on the number of
Preferred Shares submitted for conversion on such date by such Holder
relative to the number of Preferred Shares submitted for conversion on
such date.
(f) Fractional Shares. No fractional shares of Common
Stock or scrip shall be issued upon conversion of shares of Preferred
Stock. If more than one share of Preferred Stock shall be surrendered
for conversion at any one time by the same holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Preferred
Stock so surrendered. Instead of any fractional shares of Common Stock
which would otherwise be issuable upon conversion of any shares of
Preferred Stock, the Company shall pay a cash adjustment in respect of
such fractional interest in an amount equal to that fractional interest
of the then Current Market Price.
(g) Conversion Price Adjustments. The Conversion Price
shall be subject to adjustment from time to time as follows:
(i) Common Stock Issued at Less Than the Conversion
Price. If the Company shall issue any Common Stock other than Excluded
Stock (as hereinafter defined) without consideration or for a
consideration per share less than the Conversion Price in effect
immediately prior to such issuance, the Conversion Price in effect
immediately prior to each such issuance shall immediately (except as
provided below) be reduced to the price determined by dividing (1) an
amount equal to the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such issuance multiplied by the
Conversion Price in effect immediately prior to such issuance and (B)
the consideration, if any, received by the Company upon such issuance,
by (2) the total number of shares of Common Stock outstanding
immediately after such issuance.
For the purposes of any adjustment of the
Conversion Price pursuant to clause (i), the following provisions shall
be applicable:
7
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(A) Cash. In the case of the issuance of Common
Stock for cash, the amount of the consideration received by the Company
shall be deemed to be the amount of the cash proceeds received by the
Company for such Common Stock before deducting therefrom any discounts,
commissions, taxes or other expenses allowed, paid or incurred by the
Company for any underwriting or otherwise in connection with the
issuance and sale thereof.
(B) Consideration Other Than Cash. In the case of
the issuance of Common Stock (otherwise than upon the conversion of
shares of capital stock or other securities of the Company) for a
consideration in whole or in part other than cash, including securities
acquired in exchange therefor (other than securities by their terms so
exchangeable), the consideration other than cash shall be deemed to be
the fair value thereof as determined by the Board of Directors,
irrespective of any accounting treatment; provided that such fair value
as determined by the Board of Directors shall not exceed the aggregate
Current Market Price of the shares of Common Stock being issued as of
the date the Board of Directors authorizes the issuance of such shares.
(C) Options and Convertible Securities. In the case
of the issuance of (i) options, warrants or other rights to purchase or
acquire Common Stock (whether or not at the time exercisable) other than
the Excluded Stock, and (ii) securities by their terms convertible into
or exchangeable for Common Stock (whether or not at the time so
convertible or exchangeable) or options, warrants or rights to purchase
such convertible or exchangeable securities (whether or not at the time
exercisable) other than the Excluded Stock:
(1) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options, warrants or
other rights to purchase or acquire Common Stock shall be deemed to have
been issued at the time such options, warrants or rights were issued and
for a consideration equal to the consideration (determined in the manner
provided in subclauses (A) and (B) above), if any, received by the
Company upon the issuance of such options, warrants or rights plus the
minimum purchase price provided in such options, warrants or rights for
the Common Stock covered thereby;
(2) the aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities, or upon the exercise of options,
warrants or other rights to purchase or acquire such convertible or
exchangeable securities and the subsequent conversion or exchange
thereof, shall be deemed to have been issued at the time such
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securities were issued or such options, warrants or rights were issued
and for a consideration equal to the consideration, if any, received by
the Company for any such securities and related options, warrants or
rights (excluding any cash received on account of accrued interest or
accrued dividends), plus the additional consideration (determined in the
manner provided in subclauses (A) and (B) above), if any, to be received
by the Company upon the conversion or exchange of such securities, or
upon the exercise of any related options, warrants or rights to purchase
or acquire such convertible or exchangeable securities and the
subsequent conversion or exchange thereof;
(3) on any change in the number of shares of
Common Stock deliverable upon exercise of any such options, warrants or
rights or conversion or exchange of such convertible or exchangeable
securities or any change in the consideration to be received by the
Company upon such exercise, conversion or exchange, including, but not
limited to, a change resulting from the anti-dilution provisions
thereof, the Conversion Price as then in effect shall forthwith be
readjusted to such Conversion Price as would have been obtained had an
adjustment been made upon the issuance of such options, warrants or
rights not exercised prior to such change, or of such convertible or
exchangeable securities not converted or exchanged prior to such change,
upon the basis of such change;
(4) on the expiration or cancellation of any
such options, warrants or rights, or the termination of the right to
convert or exchange such convertible or exchangeable securities, if the
Conversion Price shall have been adjusted upon the issuance thereof, the
Conversion Price shall forthwith be readjusted to such Conversion Price
as would have been obtained had an adjustment been made upon the
issuance of such options, warrants, rights or such convertible or
exchangeable securities on the basis of the issuance of only the number
of shares of Common Stock actually issued upon the exercise of such
options, warrants or rights, or upon the conversion or exchange of such
convertible or exchangeable securities; and
(5) if the Conversion Price shall have been
adjusted upon the issuance of any such options, warrants, rights or
convertible or exchangeable securities, no further adjustment of the
Conversion Price shall be made for the actual issuance of Common Stock
upon the exercise, conversion or exchange thereof; provided, however,
that no increase in the Conversion Price shall be made pursuant to
subclauses (1) or (2) of this subclause (C).
(ii) Excluded Stock. "Excluded Stock" shall
mean (A) shares of Common Stock issued or reserved for issuance by the
Company as a stock dividend payable in shares of Common Stock, or upon
any subdivision or split-up of the
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outstanding shares of Common Stock or Preferred Stock, or upon
conversion of shares of Preferred Stock, (B) options and warrants
heretofore granted to key employees, consultants and advisors of the
Company, and (C) 1,500,000 shares of Common Stock to be issued to key
employees, consultants and advisors of the Company pursuant to the
Company's 1999 Stock Incentive Plan, and 150,000 shares of Common Stock
to be issued to non-employee directors pursuant to the Company's 1999
Stock Compensation Plan, together with any such shares that are
repurchased by the Company and reissued to any such employee, consultant
or advisor. All shares of Excluded Stock which the Company has reserved
for issuance shall be deemed to be outstanding for all purposes of
computations under subparagraph 3(g)(i).
(iii) Stock Dividends, Subdivisions,
Reclassifications or Combinations. If the Company shall (i) declare a
dividend or make a distribution on its Common Stock in shares of its
Common Stock, (ii) subdivide or reclassify the outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or
reclassify the outstanding Common Stock into a smaller number of shares,
the Conversion Price in effect at the time of the record date for such
dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so
that the holder of any shares of Preferred Stock surrendered for
conversion after such date shall be entitled to receive the number of
shares of Common Stock which he would have owned or been entitled to
receive had such Preferred Stock been converted immediately prior to
such date. Successive adjustments in the Conversion Price shall be made
whenever any event specified above shall occur.
(iv) Other Distributions. In case the Company shall
fix a record date for the making of a distribution to all holders of
shares of its Common Stock (i) of shares of any class other than its
Common Stock or (ii) of evidence of indebtedness of the Company or any
Subsidiary or (iii) of assets (excluding cash dividends or
distributions, and dividends or distributions referred to in
subparagraph 3(g)(iii) above), or (iv) of rights or warrants (excluding
those referred to in subparagraph 3(g)(i) above), in each such case the
Conversion Price in effect immediately prior thereto shall be reduced
immediately thereafter to the price determined by dividing (1) an amount
equal to the difference resulting from (A) the number of shares of
Common Stock outstanding on such record date multiplied by the
Conversion Price per share on such record date, less (B) the fair market
value (as determined by the Board of Directors, whose determination
shall be conclusive) of said shares or evidences of indebtedness or
assets or rights or warrants to be so distributed, by (2) the number of
shares of Common Stock outstanding on such record date. Such adjustment
shall be made successively whenever such a record date is fixed. In the
event that such distribution is not so made, the Conversion Price then
in effect shall be readjusted, effective as of the date when the
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Board of Directors determines not to distribute such shares, evidences
of indebtedness, assets, rights or warrants, as the case may be, to the
Conversion Price which would then be in effect if such record date had
not been fixed.
(v) Consolidation, Merger, Sale, Lease or
Conveyance. In case of any consolidation with or merger of the Company
with or into another corporation, or in case of any sale, lease or
conveyance to another corporation of the assets of the Company as an
entirety or substantially as an entirety, each share of Preferred Stock
shall after the date of such consolidation, merger, sale, lease or
conveyance be convertible into the number of shares of stock or other
securities or property (including cash) to which the Common Stock
issuable (at the time of such consolidation, merger, sale, lease or
conveyance) upon conversion of such share of Preferred Stock would have
been entitled upon such consolidation, merger, sale, lease or
conveyance; and in any such case, if necessary, the provisions set forth
herein with respect to the rights and interests thereafter of the
holders of the shares of Preferred Stock shall be appropriately adjusted
so as to be applicable, as nearly as may reasonably be, to any shares of
stock or other securities or property thereafter deliverable on the
conversion of the shares of Preferred Stock.
(vi) Rounding of Calculations; Minimum Adjustment.
All calculations under this subparagraph (g) shall be made to the
nearest cent or to the nearest one hundredth (1/100th) of a share, as
the case may be. Any provision of this Section 3 to the contrary
notwithstanding, no adjustment in the Conversion Price shall be made if
the amount of such adjustment would be less than $0.05, but any such
amount shall be carried forward and an adjustment with respect thereto
shall be made at the time of and together with any subsequent adjustment
which, together with such amount and any other amount or amounts so
carried forward, shall aggregate $0.05 or more.
(vii) Timing of Issuance of Additional Common Stock
Upon Certain Adjustments. In any case in which the provisions of this
subparagraph (g) shall require that an adjustment shall become effective
immediately after a record date for an event, the Company may defer
until the occurrence of such event (A) issuing to the holder of any
share of Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Common Stock issuable
upon such conversion by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such conversion
before giving effect to such adjustment and (B) paying to such holder
any amount of cash in lieu of a fractional share of Common Stock
pursuant to subparagraph (e) of this Section 3; provided that the
Company upon request shall deliver to such holder a due ▇▇▇▇ or other
appropriate
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instrument evidencing such holder's right to receive such additional
shares, and such cash, upon the occurrence of the event requiring such
adjustment.
(h) Current Market Price. The Current Market Price
at any date shall mean, in the event the Common Stock is publicly
traded, the average of the daily closing prices per share of Common
Stock for 30 consecutive trading days ending no more than 15 business
days before such date (as adjusted for any stock dividend, split,
combination or reclassification that took effect during such 30 business
day period). The closing price for each day shall be the last reported
sale price regular way or, in case no such reported sale takes place on
such day, the average of the last closing bid and asked prices regular
way, in either case on the Principal Market on which the Common Stock is
listed or admitted to trading, or if not listed or admitted to trading
on any national securities exchange, the closing sale price for such day
reported by NASDAQ, if the Common Stock is traded over-the-counter and
quoted in the National Market System, or if the Common Stock is so
traded, but not so quoted, the average of the closing reported bid and
asked prices of the Common Stock as reported by NASDAQ or any comparable
system or, if the Common Stock is not listed on NASDAQ or any comparable
system, the average of the closing bid and asked prices as furnished by
two members of the National Association of Securities Dealers, Inc.
selected from time to time by the Company for that purpose. If the
Common Stock is not traded in such manner that the quotations referred
to above are available for the period required hereunder, Current Market
Price per share of Common Stock shall be deemed to be the fair value as
determined by the Board of Directors, irrespective of any accounting
treatment.
(i) Statement Regarding Adjustments. Whenever the
Conversion Price shall be adjusted as provided in subparagraph 3(g), the
Company shall forthwith file, at the office of any transfer agent for
the Preferred Stock and at the principal office of the Company, a
statement showing in detail the facts requiring such adjustment and the
Conversion Price that shall be in effect after such adjustment, and the
Company shall also cause a copy of such statement to be sent by mail,
first class postage prepaid, to each holder of shares of Preferred Stock
at its address appearing on the Company's records. Each such statement
shall be signed by the Company's independent public accountants, if
applicable. Where appropriate, such copy may be given in advance and may
be included as part of a notice required to be mailed under the
provisions of subparagraph 3(j).
(j) Notice to Holders. Subject to the voting
provisions set forth in Section 5 hereof, in the event the Company shall
propose to take any action of the type described in clause (i) (but only
if the action of the type described in clause (i) would result in an
adjustment in the Conversion Price), (iii), (iv) or (v) of subparagraph
3(g),
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the Company shall give notice to each holder of shares of Preferred
Stock, in the manner set forth in subparagraph 3(i), which notice shall
specify the record date, if any, with respect to any such action and the
approximate date on which such action is to take place. Such notice
shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the
Conversion Price and the number, kind or class of shares or other
securities or property which shall be deliverable upon conversion of
shares of Preferred Stock. In the case of any action which would require
the fixing of a record date, such notice shall be given at least 10 days
prior to the date so fixed, and in case of all other action, such notice
shall be given at least 15 days prior to the taking of such proposed
action.
(k) Treasury Stock. For the purposes of this Section 3,
the sale or other disposition of any Common Stock theretofore held in
the Company?s treasury shall be deemed to be an issuance thereof.
(l) Costs. The Company shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or
delivery of shares of Common Stock upon conversion of any shares of
Preferred Stock; provided that the Company shall not be required to pay
any taxes which may be payable in respect of any transfer involved in
the issuance or delivery of any certificate for such shares in a name
other than that of the holder of the shares of Preferred Stock in
respect of which such shares are being issued.
(m) Valid Issuance. All shares of Common Stock which may
be issued upon conversion of the shares of Preferred Stock will upon
issuance by the Company be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to
the issuance thereof, and the Company shall take no action which will
cause a contrary result (including without limitation, any action which
would cause the Conversion Price to be less than the par value, if any,
of the Common Stock).
Section 4. Redemption Rights. The holders of Preferred Shares
shall have no redemption rights.
Section 5. Voting Rights.
(a) General Voting Rights. Except as otherwise
provided in this Section and except as otherwise required by law, each
Holder of the Preferred Shares shall be entitled to notice of any
stockholders' meeting and to vote upon any matter submitted to
stockholders for vote, and shall vote together with the holders of the
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Common Shares as a single class and not as separate classes. Each Holder
of Preferred Shares shall be entitled to the number of votes equal to
the largest number of full shares of Common Stock into which such
Holder's Preferred Shares could be converted pursuant to the provisions
of Section 4 hereof at the record date for the determination of the
stockholders entitled to vote on such matters. Fractional votes shall
not be permitted, however, and any fractional voting rights resulting
from the above formula (after aggregating all shares into which Series A
Preferred Shares held by each holder could be converted) shall be
rounded upward to the nearest whole number. In all cases where the
shares of Preferred Stock have the right to vote separately as a class,
such holders shall be entitled to one vote for each such share held by
them respectively. Each Common Share issued and outstanding shall have
one vote on all matters.
(b) Election of Directors. Notwithstanding the foregoing
voting rights, so long as more than 1,000,000 shares of the Preferred
Shares are outstanding, the holders of the Preferred Shares, voting as a
separate class, shall be entitled to elect one member to the Board of
Directors. All directors not elected by holders of the Preferred Shares
shall be elected by the vote of the holders of the Common Stock and the
Preferred Shares voting together and not as separate classes, with each
share voting as provided in Section 5(a).
(c) Protective Provisions. Until October 31, 2001 (in
which case these protective provisions shall be void and of no effect),
without first obtaining the approval (by vote or written consent, as
provided by law) of a majority of the Holders of the Series A Preferred
Shares then outstanding (voting separately as a class), this corporation
shall not do any of the following:
(i) Alter or change the rights, preferences,
privileges, or powers of the Series A Preferred Shares so as to
materially affect the holders of the Series A Preferred Shares;
(ii) Increase the authorized number of Series A
Preferred Shares;
(iii) Create any new class or series of shares
having preferences over or on a parity with the Series A Preferred
Shares, unless the purpose of creation of such class or series is, and
the proceeds to be derived from the sale and issuance thereof are to be
used for, the retirement of the Series A Preferred Shares;
(iv) Effect any sale, lease, assignment, transfer
or other conveyance of all or substantially all of the assets of this
corporation, or any
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consolidation or merger of this corporation with or into any other
corporation, except for a consolidation or merger for which no
stockholder approval is required;
(v) Approve the appointment of a chief executive
officer for the corporation;
(vi) Approve the corporation's annual operating
plan; or
(vii) Repurchase or redeem any issued and
outstanding shares of Common Stock or shares of Series A Preferred
Stock.
Section 6. Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's
assets to another Person or other transaction which is effected in such
a way that holders of Common Stock are entitled to receive (either
directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock is referred to herein as
"Organic Change". Until October 31, 2001 (in which case this provision
shall be void and of no effect), prior to the consummation of any (i)
sale of all or substantially all of the Company's assets to an acquiring
Person or (ii) other Organic Change following which the Company is not a
surviving entity, the Company will secure from the Person purchasing
such assets or the successor resulting from such Organic Change (in each
case, the "Acquiring Entity") a written agreement (in form and substance
satisfactory to the Holders of a majority of the Preferred Shares then
outstanding) to deliver to each Holder of Preferred Shares in exchange
for such shares, a security of the Acquiring Entity evidenced by a
written instrument substantially similar in form and substance to the
Preferred Shares, including, without limitation, having a stated value
and liquidation preference equal to the Stated Value and the Liquidation
Preference of the Preferred Shares held by such Holder, and satisfactory
to the Holders of a majority of the Preferred Shares then outstanding.
Prior to the consummation of any other Organic Change, the Company shall
make appropriate provision (in form and substance satisfactory to the
Holders of a majority of the Preferred Shares then outstanding) to
insure that each of the Holders of the Preferred Shares will thereafter
have the right to acquire and receive in lieu of or in addition to (as
the case may be) the shares of Common Stock immediately theretofore
acquirable and receivable upon the conversion of such Holder's Preferred
Shares such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange
for the number of shares of Common Stock which would have been
acquirable and receivable upon the conversion of such Holder's Preferred
Shares as of the date of such Organic Change (without taking into
account any limitations or restrictions on the convertibility of the
Preferred Shares).
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Section 7. Reservation of Shares. The Company shall, at
all times so long as any of the Preferred Shares are outstanding,
reserve and keep available out of its authorized and unissued Common
Stock, solely for the purpose of effecting the conversion of the
Preferred Shares, such number of shares (the "Reserved Amount") of
Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Preferred Shares then outstanding (the "Minimum
Amount"). The initial number of shares of Common Stock reserved for
conversions of the Preferred Shares and each increase in the number of
shares so reserved shall be allocated pro rata among the Holders of the
Preferred Shares based on the number of Preferred Shares held by each
Holder at the time of issuance of the Preferred Shares 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 Shares,
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 allocated to any Person which ceases to
hold any Preferred Shares shall be allocated to the remaining Holders of
Preferred Shares, pro rata based on the number of Preferred Shares then
held by such Holders.
Section 8. Preferred Rank. All shares of Common Stock shall be of
junior rank to all Preferred Shares in respect to the preferences as to
distributions and payments upon the liquidation, dissolution and winding
up of the Company. The rights of the shares of Common Stock shall be
subject to the preferences and relative rights of the Preferred Shares.
Section 9. Participation. Subject to the rights of the Holders,
if any, of the Pari Passu Shares, the Holders of the Preferred Shares
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 Shares had converted the Preferred
Shares 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.
Section 10. Vote to Change the Terms of Preferred Shares. 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 Shares, shall be
required for any change to this Articles of Amendment to the Company's
Articles of Incorporation which would amend, alter, change or repeal any
of the powers, designations, preferences and rights of the Preferred
Shares.
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Section 11. Lost or Stolen Certificates. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of any Preferred Stock Certificates
representing the Preferred Shares, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the
Company in customary form and, in the case of mutilation, upon surrender
and cancellation of the Preferred Stock Certificate(s), the Company
shall execute and deliver new preferred stock certificate(s) of like
tenor and date; provided, however, the Company shall not be obligated to
re-issue preferred stock certificates if the Holder contemporaneously
requests the Company to convert such Preferred Shares into Common Stock.
Section 12. Remedies, Characterizations, Other Obligations,
Breaches and Injunctive Relief. The remedies provided in this Articles
of Amendment shall be cumulative and in addition to all other remedies
available under this Articles of Amendment, 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 Company to comply with the terms of this Articles of
Amendment. The Company covenants to each Holder of Preferred Shares that
there shall be no characterization concerning this instrument other than
as expressly provided herein. 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 Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holders of the Preferred Shares and that the
remedy at law for any such breach may be inadequate. The Company
therefore agrees that, in the event of any such breach or threatened
breach, the Holders of the Preferred Shares 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.
Section 13. Failure or Indulgence Not Waiver. No failure or delay
on the part of a Holder of Preferred Shares 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.
Section 14. Residual Rights. All rights accruing to the
outstanding shares of this corporation not expressly provided for to the
contrary herein shall be vested in the
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Common Stock.
THIRD: The foregoing amendment was duly adopted on October 11, 1999, by the
Board of Directors of the corporation in accordance with the authority contained
in paragraph B of Article THIRD of the Articles of Incorporation. Pursuant to
Section ▇-▇▇▇-▇▇▇ of the Colorado Business Corporation Act, the foregoing
amendment is effective without shareholder action.
Dated: November 3, 1999.
▇▇▇▇ ▇▇▇ MEDIA, INC.,
By: /s/ Gill Champion
--------------------------------------
Gill Champion, Vice President and
Chief Operating Officer
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