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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) FEBRUARY 18, 1997
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GRAPHIX ZONE, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 0-28676 33-067932
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
42 CORPORATE PARK, SUITE 200, IRVINE, CALIFORNIA 92606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 833-3838
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Not Applicable
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(Former name or former address, if changed since last report)
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ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S.
On February 18, 1997, Graphix Zone, Inc., a Delaware
corporation (the "Company"), became obligated to issue 3,025 shares of Series
B Convertible Preferred Stock (the "Series B Shares") and accompanying
warrants (the "Series B Warrants") to purchase up to 221,204 shares of the
Company's Common Stock. The Series B Shares and Series B Warrants were
issued on February 24, 1997 in a private equity offering to six accredited
foreign investors (the "Investors") pursuant to Exchange Agreements entered
into between the Company and each of the Investors.
The Series B Shares and Series B Warrants were not
registered under the Securities Act of 1933 (the "Securities Act") in
reliance upon Regulation S under the Securities Act. The Exchange Agreements
contain representations and warranties by each Investor which state, among
other things, that the Investor is an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations of the Securities
Act by reason of Rule 501(a)(3), that the Investor is not a "U.S. person" as
that term is defined in Regulation S, that no offer to purchase the Series B
Shares or Series B Warrants was made by the Investor in the U.S. and that the
Investor has not entered into any prearranged transaction with any person in
the U.S. for the sale or other transfer of the Series B Shares or Series B
Warrants.
In addition, the Exchange Agreements provide for, among
other things, the issuance of the Series B Shares and Series B Warrants in
exchange for the cancellation of 3,025 shares of Series A Convertible
Preferred Stock (the "Series A Shares") and accompanying warrants (the
"Series A Warrants") to purchase up to 221,204 shares of the Company's Common
Stock, which Series A Shares and Series A Warrants previously were issued to
the Investors in a private equity offering made under Regulation D under the
Securities Act. The Series A Shares and Series A Warrants were issued by the
Company on September 25 and November 1, 1996 and on January 31, 1997 in
exchange for cash consideration, net of offering expenses, of $2,355,948.
Tanner Unman Securities acted as placement agent, was paid a commission of
11.5% of the gross proceeds and was reimbursed for certain expenses. The
proceeds from the sale of Series A Shares and Series A Warrants have been and
will be used as working capital to fund the development of future CD-ROM and
DVD-ROM products, and other costs associated with the growth and expansion of
the Company.
Holders of the Series B Shares have the right, at their
option, to convert their shares into shares of Common Stock at any time at
the conversion rate then in effect. If not previously converted, all Series B
Shares are automatically convertible into shares of Common Stock two years
after their issuance.
Each Series B Share is convertible into a number of
shares of Common Stock equal to $1,000 divided by the lesser of (a) 80% of
the average closing bid price of the Company's Common Stock on the five
trading days preceding the conversion or (b) $3.375. Based upon closing bid
prices as of February 28, 1997, each Series B Share is convertible into
approximately 595 shares of Common Stock. No fractional share or scrip will
be issued upon conversion of the Series B Shares. Rather, shares will be
rounded up to the nearest whole share.
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The conversion rate for Series B Shares will be
appropriately adjusted if the Company (a) pays a dividend or makes a
distribution on its shares of Common Stock (but not the Series B Shares)
which is paid or made in shares of Common Stock, (b) subdivides or
reclassifies its outstanding shares of Common Stock, (c) combines its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, (d) issues shares of Common Stock, or issues rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase
shares of Common Stock (or securities convertible into Common Stock), or (e)
distributes to all holders of its Common Stock evidences of its indebtedness
or assets (excluding any dividend paid in cash out of legally available
funds) subject to the limitation that adjustments by reason of any of the
foregoing need not be made until they result in a cumulative change in the
conversion rate of at least five percent (5%). The conversion rate will not
be adjusted upon the conversion of shares of Series B Shares or exercise of
presently outstanding stock options or warrants.
In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in which the Company
is the surviving corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as
an entirety, or in case of any statutory exchange of securities with another
corporation, there will be no adjustment of the conversion rate of the Series
B Shares, but each holder of Series B Shares then outstanding will have the
right thereafter to convert such shares into the kind and amount of
securities, cash or other property which he would have owned or have been
entitled to receive immediately after such consolidation, merger, statutory
exchange, sale or conveyance had such shares been converted immediately prior
to the effective date of such consolidation, merger, statutory exchange, sale
or conveyance. In the case of a cash merger of the Company into another
corporation or any other cash transaction of the type mentioned above, the
effect of these provisions would be that the conversion features of the
Series B Shares would thereafter be limited to converting the Series B Shares
at the conversion rate in effect at such time into the same amount of cash
per share that such holder would have received had such holder converted the
Series B Shares into Common Stock immediately prior to the effective date of
such cash merger or transaction. Depending upon the terms of such cash merger
or transaction, the aggregate amount of cash so received in conversion could
be more or less than the liquidation preference of the Series B Shares.
The Series B Shares may be converted at any time upon
surrender of the stock certificate at the offices of the Company. Shares of
Common Stock issued upon conversion will be fully paid and non-assessable.
The Series B Warrants are exercisable in whole or in part
at any time prior to January 31, 2000 at an exercise price of $2.50 per
share, subject to adjustment for reorganization, consolidation, merger and
certain extraordinary events. Alternatively, a Series B Warrantholder may
elect to exercise the Series B Warrant in whole or in part by receiving
shares of Common Stock equal to the net issuance value of the Series B
Warrant, or any part thereof.
The number of shares of Common Stock to be issued to a
Series B Warrantholder based upon the net issuance value of a Series B
Warrant is equal to the number of shares of Common Stock as to which the
Series B Warrant is to be exercised, multiplied by the difference between (i)
the current fair market value of one share of Common Stock calculated as of
the last trading day
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immediately preceding the exercise of the Series B Warrant and (ii) the
exercise price, and divided by the current fair market value of one share of
Common Stock calculated as of the last trading day immediately preceding the
exercise of the Series B Warrant. The current fair market value of one share
of Common Stock as of a specified date is the average of the closing bid
prices of the Common Stock on the date of exercise of the Series B Warrant
and on the preceding four business days.
Notwithstanding the preceding discussions regarding the
conversion of the Series B Shares and the exercise of the Series B Warrants,
the Certificate of Designations of Series B Convertible Preferred Stock
provides that in no event shall a holder of Series B Shares or Series B
Warrants be entitled to convert the Series B Shares or exercise the Series B
Warrants to acquire a number of shares of Common Stock in excess of that
number which would result in the holder's beneficial ownership at any time of
more than 4.9% of the Company's Common Stock.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
GRAPHIX ZONE, INC.
Date: March 5, 1997 By: /s/NORMAN H. BLOCK
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Norman H. Block, President
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EXHIBIT INDEX
Exhibit No. Description
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3.1 Certificate of Designations of Series B Convertible
Preferred Stock of the Company
10.1 Form of Stock Subscription Agreement among the
Company and each of six private placement investors (1)
10.2 Form of Common Stock Purchase Warrants for shares of
the Company's Common Stock among the Company and
each of six private placement investors (1)
10.3 Form of Registration Rights Agreement among the Company
and each of six private placement investors (1)
10.4 Form of Amendment No. 1 to Registration Rights Agreement
between the Company and each of six private placement
investors
10.5 Form of Amendment Agreement between the Company and
each of six private placement investors
10.6 Form of Exchange Agreement between the Company and each
of six private placement investors
10.7 Form of Escrow Agreement between the Company and each of
six private placement investors
10.8 Form of Common Stock purchase Warrants, Class B for shares
of the Company's Common Stock among the Company and
each of six private placement investors
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(1) Filed as an exhibit to the Company's Form 10-Q for the quarterly period
ended September 30, 1996, and incorporated herein by reference.
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Exhibit 3.1
GRAPHIX ZONE, INC.
CERTIFICATE OF DESIGNATIONS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the General Corporation Law
of the State of Delaware)
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Graphix Zone, Inc., a Delaware corporation (the "Corporation"), in
accordance with the provisions of Section 103 of the General Corporation Law of
the State of Delaware (the "DGCL") DOES HEREBY CERTIFY:
That pursuant to authority vested in the Board of Directors of the
Corporation by the Certificate of Incorporation of the Corporation, the Board of
Directors of the Corporation, by unanimous written consent, dated January 28,
1997, adopted a resolution providing for the creation of a series of the
Corporation's Preferred Stock, $.01 par value, which series is designated
"Series B Convertible Preferred Stock", which resolution is as follows:
RESOLVED, that pursuant to authority vested in the Board of Directors
of the Corporation by the Certificate of Incorporation the Board of Directors
does hereby provide for the creation of a series of the Preferred Stock, $.01
par value (hereafter called the "Preferred Stock"), of the Corporation, and to
the extent that the voting powers and the designations, preferences and
relative, participating, optional or other special rights thereof and the
qualifications, limitations or restrictions of such rights have not been set
forth in the Certificate of Incorporation, as amended, of
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the Corporation, does hereby fix the same as follows:
SERIES B CONVERTIBLE PREFERRED STOCK
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series B Convertible Preferred Stock" (the "Series B
Convertible Preferred Stock"), and the number of shares constituting the Series
B Convertible Preferred Stock shall be 3,500, and shall not be subject to
increase by the Corporation without the consent of holders of a majority of the
outstanding shares of Series B Convertible Preferred Stock.
SECTION 2. STATED CAPITAL. The amount to be represented in stated
capital at all times for each share of Series B Convertible Preferred Stock
shall be the sum of (i) $1,000, (ii) to the extent legally available, the
accrued but unpaid dividends on such share of Series B Convertible Preferred
Stock, and (iii) to be determined on at least a quarterly basis, an amount equal
to the accrued and unpaid interest on dividends in arrears through the date of
determination (as provided in Section 4).
SECTION 3. RANK. All Series B Convertible Preferred Stock shall
rank (i) senior to the Common Stock, $.01 par value (collectively the "Common
Stock"), of the Corporation, now or hereafter issued, as to payment of dividends
and distribution of assets upon liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, and (ii) on a parity with any
additional series of preferred stock of any class which the Board of Directors
or the stockholders may from time to time authorize, both as to payment of
dividends and as to distributions of assets upon liquidation, dissolution, or
winding up of the Corporation, whether voluntary or involuntary.
SECTION 4. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares
of Series B Convertible Preferred Stock shall be entitled to receive, when, as,
and if declared by the Board of Directors of the Corporation (the "Board of
Directors" or the "Board") out of funds legally available for such purpose,
dividends at the rate of $80.00 per annum per share, and no more, which shall be
fully cumulative, shall accrue without interest (except as otherwise provided
herein as to dividends in arrears) from the date of original issuance and shall
be payable in cash quarterly on January
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1, April 1, July 1, and October 1 of each year commencing April 1, 1997 (except
that if any such date is a Saturday, Sunday, or legal holiday, then such
dividend shall be payable on the next succeeding day that is not a Saturday,
Sunday, or legal holiday) to holders of record as they appear on the stock books
of the Corporation on such record dates, not more than 20 nor less than 10 days
preceding the payment dates for such dividends, as shall be fixed by the Board.
Dividends on the Series B Convertible Preferred Stock shall be paid in cash or,
subject to the limitations in Section 4(b) hereof, shares of Common Stock of the
Corporation or any combination of cash and shares of Common Stock, at the option
of the Corporation as hereinafter provided. The amount of the dividends payable
per share of Series B Convertible Preferred Stock for each quarterly dividend
period shall be computed by dividing the annual dividend amount by four. The
amount of dividends payable for the initial dividend period and any period
shorter than a full quarterly dividend period shall be computed on the basis of
a 360-day year of 12 30-day months. Dividends not paid on a payment date,
whether or not such dividends have been declared, will bear interest at the rate
of 14% per annum or at such lesser rate as is legally permitted under applicable
law, until paid. No dividends or other distributions, other than dividends
payable solely in shares of Common Stock or other capital stock of the
Corporation ranking junior as to dividends to the Series B Convertible Preferred
Stock (collectively, the "Junior Dividend Stock"), shall be paid or set apart
for payment on any shares of Junior Dividend Stock, and no purchase, redemption,
or other acquisition shall be made by the Corporation of any shares of Junior
Dividend Stock unless and until all accrued and unpaid dividends on the Series B
Convertible Preferred Stock and interest on dividends in arrears at the rate
specified herein shall have been paid or declared and set apart for payment.
If at any time any dividend on any capital stock of the Corporation
ranking senior as to dividends to the Series B Convertible Preferred Stock (the
"Senior Dividend Stock") shall be in arrears, in whole or in part, no dividend
shall be paid or declared and set apart for payment on the Series B Convertible
Preferred Stock unless and until all accrued and unpaid dividends with respect
to the Senior Dividend Stock, including the full dividends for the then current
dividend period, shall have been paid or declared and set apart for payment,
without interest. No
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full dividends shall be paid or declared and set apart for payment on any class
or series or the Corporation's capital stock ranking, as to dividends, on a
parity with the Series B Convertible Preferred Stock (the "Parity Dividend
Stock") for any period unless all accrued but unpaid dividends (and interest on
dividends in arrears at the rate specified herein) have been, or
contemporaneously are, paid or declared and set apart for such payment on the
Series B Convertible Preferred Stock. No full dividends shall be paid or
declared and set apart for payment on the Series B Convertible Preferred Stock
for any period unless all accrued but unpaid dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of such full dividends. When dividends are not paid in full upon the
Series B Convertible Preferred Stock and the Parity Dividend Stock, all
dividends paid or declared and set apart for payment upon shares of Series B
Convertible Preferred Stock (and interest on dividends in arrears at the rate
specified herein) and the Parity Dividend Stock shall be paid or declared and
set apart for payment pro rata, so that the amount of dividends paid or declared
and set apart for payment per share on the Series B Convertible Preferred Stock
and the Parity Dividend Stock shall in all cases bear to each other the same
ratio that accrued and unpaid dividends per share on the shares of Series B
Convertible Preferred Stock and the Parity Dividend Stock bear to each other.
Any references to "distribution" contained in this Section 4 shall not
be deemed to include any stock dividend or distributions made in connection with
any liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary.
(b) If the Corporation elects in the exercise of its sole discretion
to issue shares of Common Stock in payment of dividends on the Series B
Convertible Preferred Stock, the Corporation shall issue and dispatch, or cause
to be issued and dispatched, to each holder of such shares a certificate
representing the number of whole shares of Common Stock arrived at by dividing
the per share Computed Price of such shares of Common Stock into the total
amount of cash dividends such holder would be entitled to receive if the
aggregate dividends on the Series B Convertible Preferred Stock held by such
holder which are being
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paid in shares of Common Stock were being paid in cash; PROVIDED, HOWEVER, that
if certificates representing shares of Common Stock are issued and dispatched to
holders of Series B Convertible Preferred Stock subsequent to the third trading
day after a dividend payment date, the percentage used to calculate the Computed
Price will be reduced by one percentage point for each trading day after the
third trading day following such dividend payment date to the date of dispatch
of shares of Common Stock. No fractional shares of Common Stock shall be issued
in payment of dividends. In lieu thereof, the Corporation may issue a number of
shares of Common Stock to each holder which reflects a rounding up to the next
highest whole number of shares of Common Stock or may pay cash. The Corporation
shall not exercise its right to issue shares of Common Stock in payment of
dividends on Series B Convertible Preferred Stock if:
(i) the number of shares of Common Stock at the time authorized,
unissued and unreserved for all purposes, or held in the Corporation's
treasury, is insufficient to pay the portion of such dividends to be paid
in shares of Common Stock;
(ii) the issuance or delivery of shares of Common Stock as a dividend
payment would require registration with or approval of any governmental
authority under any law or regulation, and such registration or approval
has not been effected or obtained;
(iii) the shares of Common Stock to be issued as a dividend payment
have not been authorized for listing, upon official notice of issuance, on
any securities exchange or market on which the Common Stock is then listed;
or have not been approved for quotation if the Common Stock is traded in
the over-the-counter market;
(iv) the Computed Price (determined without regard to the proviso to
the definition thereof) is less than the par value of the shares of Common
Stock;
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(v) the shares of Common Stock (A) cannot be sold or transferred
without restriction by unaffiliated holders who receive such shares of
Common Stock as a dividend payment or (B) are no longer listed on a
national securities exchange, on the Nasdaq National Market or the Nasdaq
SmallCap Market; or
(vi) the issuance of shares of Common Stock in payment of dividends on
Series B Convertible Preferred Stock held by any Restricted Person (as
defined in Section 9(a) hereof) would result in any Restricted Person
beneficially owning more than 4.9% of the Common Stock, determined as
provided in the proviso to the second sentence of Section 9(a) hereof.
Shares of Common Stock issued in payment of dividends on Series B
Convertible Preferred Stock pursuant to this Section shall be, and for all
purposes shall be deemed to be, validly issued, fully paid and nonassessable
shares of Common Stock of the Corporation; the issuance and delivery thereof is
hereby authorized; and the dispatch thereof will be, and for all purposes shall
be deemed to be, payment in full of the cumulative dividends to which holders
are entitled on the applicable dividend payment date.
"Computed Price" of shares of Common Stock on any date means 100
percent of the arithmetic average of the per share Closing Price (as defined in
Section 9(b)) of the Common Stock on the five consecutive trading days ending on
the trading day immediately preceding the applicable dividend payment date;
PROVIDED HOWEVER, THAT, notwithstanding the foregoing, in no event shall the
Computed Price be less than $.01 per share.
(c) Notwithstanding any other provision of this Section 4, the
Corporation may elect by written notice mailed to the holders of the Series B
Convertible Preferred Stock at their addresses appearing on the records of the
Corporation not later than the payment date for such dividend not to declare or
make payment of the amount of any quarterly dividend to the holders of shares of
Series B Convertible Preferred Stock on the date therefor provided in Section
4(a), in which case, the accrued and unpaid
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dividends shall be taken into account at the time of conversion of shares of
Series B Convertible Preferred Stock as provided in Section 9 and the
Corporation shall have no further right to pay or declare and set aside for
payment such quarterly dividends not so declared or paid on such payment date
unless the Corporation declares and pays dividends in an amount equal to 125
percent of the amount of the dividends not so declared or paid on such payment
date and otherwise in accordance with Sections 4(a) and 4(b). Such dividends
not so declared shall not bear interest.
(d) The Corporation shall not pay or declare and set apart for such
payment any dividend on shares of Common Stock, Junior Dividend Stock or Junior
Liquidation Stock (as defined herein) other than (1) dividends on shares of
Common Stock solely in the form of additional shares of Common Stock, (2)
dividends on Junior Dividend Stock solely in the form of shares of Common Stock
or additional shares of Junior Dividend Stock, or (3) dividends on Junior
Liquidation Stock solely in the form of shares of Common Stock or additional
shares of Junior Liquidation Stock unless, contemporaneously therewith, the
Corporation shall pay or declare and set apart for payment dividends on the
shares of Series B Convertible Preferred Stock in an amount per share of Series
B Convertible Preferred Stock equal to the aggregate amount of dividends the
holder of such share of Series B Convertible Preferred Stock would otherwise
have been entitled to receive had such holder converted such share of Series B
Convertible Preferred Stock in accordance with Section 9(a) (but without regard
to the limitations on conversion contained in the proviso to the second sentence
of Section 9(a) or in Section 9(d)) into shares of Common Stock as if the
Conversion Date (as defined herein) were the earlier of (x) the record date for
the payment of such dividend on shares of Common Stock, Junior Dividend Stock or
Junior Liquidation Stock, as the case may be, and (y) the trading day prior to
the date on which ex-dividend trading in the Common Stock, Junior Dividend Stock
or Junior Liquidation Stock, as the case may be, begins with respect to such
dividend thereon.
(e) Neither the Corporation nor any subsidiary of the Corporation
shall redeem, repurchase or otherwise acquire in any one transaction or series
of related transactions any shares of
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Common Stock, Junior Dividend Stock or Junior Liquidation Stock if the number of
shares so repurchased, redeemed or otherwise acquired in such transaction or
series of related transactions is more than either (x) 5.0% of the number of
shares of Common Stock, Junior Dividend Stock or Junior Liquidation Stock, as
the case may be, outstanding immediately prior to such transaction or series of
related transactions or (y) 1% of the number of shares of Common Stock, Junior
Dividend Stock or Junior Liquidation Stock, as the case may be, outstanding
immediately prior to such transaction or series of related transactions if such
transaction or series of related transactions is with any one person or group of
affiliated persons, unless the Corporation or such subsidiary offers to purchase
from each holder of shares of Series B Convertible Preferred Stock at the time
of such redemption, repurchase or acquisition the same percentage of such
holder's shares of Series B Convertible Preferred Stock as the percentage of the
number of outstanding shares of Common Stock, Junior Dividend Stock or Junior
Liquidation Stock, as the case may be, to be so redeemed, repurchased or
acquired at a purchase price per share of Series B Convertible Preferred Stock
equal to the product obtained by multiplying (1) the number of shares of Common
Stock into which such share of Series B Convertible Preferred Stock could be
converted in accordance with Section 9(a) (but without regard to the limitations
on conversion contained in the proviso to the second sentence of Section 9(a))
on the date of purchase of such share of Series B Convertible Preferred Stock
times (2) the product of (x) Conversion Percentage and (y) Computed Price of one
share of Common Stock on the date of purchase of such share of Series B
Convertible Preferred Stock.
(f) Neither the Corporation nor any subsidiary of the Corporation
shall (1) make any tender offer or exchange offer (a "Tender Offer") for
outstanding shares of Common Stock unless the Corporation contemporaneously
therewith makes an offer or (2) enter into an agreement regarding a Tender Offer
for outstanding shares of Common Stock by any person other than the Corporation
or any subsidiary of the Corporation unless such person agrees with the
Corporation to make an offer, in either such case to each holder of outstanding
shares of Series B Convertible Preferred Stock to purchase the same percentage
of shares of Series B Convertible Preferred Stock held by such holder as the
percentage of
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outstanding shares of Common Stock offered to be purchased in such Tender Offer
at a price per share of Series B Convertible Preferred Stock equal to the
product obtained by multiplying (1) the number of shares of Common Stock into
which such share of Series B Convertible Preferred Stock could be converted in
accordance with Section 9(a) (but without regard to the limitations on
conversion contained in the proviso to the second sentence of Section 9(a)) on
the date of purchase of such share of Series B Convertible Preferred Stock times
(2) 125 percent of the cash price (or other consideration) per share of Common
Stock offered in such Tender Offer.
SECTION 5. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series B Convertible Preferred Stock shall be entitled to receive
out of the assets of the Corporation, whether such assets constitute stated
capital or surplus of any nature, an amount per share of Series B Convertible
Preferred Stock equal to the sum of (i) all dividends accrued and unpaid thereon
to the date of final distribution to such holders, (ii) accrued and unpaid
interest on dividends in arrears to the date of distribution at the rate
specified in Section 4(a), and (iii) $1,000.00 (collectively, "the Liquidation
Preference"), and no more, before any payment shall be made or any assets
distributed to the holders of Common Stock or any other class or series of the
Corporation's capital stock ranking junior as to liquidation rights to the
Series B Convertible Preferred Stock (collectively, the "Junior Liquidation
Stock"); PROVIDED, HOWEVER, that such rights shall accrue to the holders of
Series B Convertible Preferred Stock only in the event that the Corporation's
payments with respect to the liquidation preference of the holders of capital
stock of the Corporation ranking senior as to liquidation rights to the Series B
Convertible Preferred Stock (the "Senior Liquidation Stock") are fully met.
After the liquidation preferences of the Senior Liquidation Stock are fully met,
the entire assets of the Corporation available for distribution shall be
distributed ratably among the holders of the Series B Convertible Preferred
Stock and any other class or series of the Corporation's capital stock having
parity as to liquidation rights with the Series B Convertible Preferred Stock
(the "Parity Liquidation Stock") in proportion to the respective preferential
amounts to which each is entitled (but only to the extent of such preferential
amounts). After payment in
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full of the liquidation price of the shares of the Series B Convertible
Preferred Stock and the Parity Liquidation Stock, the holders of such shares
shall not be entitled to any further participation in any distribution of assets
by the Corporation. Neither a consolidation or merger of the Corporation with
another corporation nor a sale or transfer of all or part of the Corporation's
assets for cash, securities, or other property in and of itself will be
considered a liquidation, dissolution, or winding up of the Corporation.
SECTION 6. NO MANDATORY REDEMPTION. The shares of Series B
Convertible Preferred Stock shall not be subject to mandatory redemption by the
Corporation.
SECTION 7. NO SINKING FUND. The shares of Series B Convertible
Preferred Stock shall not be subject to the operation of a purchase, retirement,
or sinking fund.
SECTION 8. NO OPTIONAL REDEMPTION. The shares of Series B
Convertible Preferred Stock shall not be subject to redemption at the option of
the Corporation.
SECTION 9. CONVERSION.
(a) CONVERSION AT OPTION OF HOLDER. The holders of the Series B
Convertible Preferred Stock may, upon surrender of the certificates therefor,
convert any or all of their shares of Series B Convertible Preferred Stock into
fully paid and nonassessable shares of Common Stock and such other securities
and property as hereinafter provided. At any time to and including the day
prior to the Mandatory Conversion Date, each share of Series B Convertible
Preferred Stock may be converted at the principal executive offices of the
Corporation, the office of any transfer agent for the Series B Convertible
Preferred Stock, if any, the office of any transfer agent for the Common Stock
or at such other office or offices, if any, as the Board of Directors may
designate, initially into such number of fully paid and nonassessable shares of
Common Stock (calculated as to each conversion to the nearest 1/100th of a
share) determined by dividing (x) the sum of (i) the Conversion Amount, (ii)
accrued but unpaid dividends to the Conversion Date on the share of Series B
Convertible Preferred Stock being converted, and (iii) accrued but unpaid
interest on the
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dividends on the share of Series B Convertible Preferred Stock being converted
in arrears to the Conversion Date by (y) the lower of (1) the product of the
Conversion Percentage TIMES the arithmetic average of the Closing Price of the
Common Stock on the five consecutive trading days immediately preceding the
Conversion Date or (2) $3.375 (subject to equitable adjustments for stock
splits, stock dividends, combinations, recapitalizations, reclassifications and
similar events occurring on or after September 26, 1996), in each case subject
to adjustment as hereinafter provided (the "Conversion Rate"); PROVIDED,
HOWEVER, that in no event shall any holder be entitled to convert any shares of
Series B Convertible Preferred Stock in excess of that number of shares of
Series B Convertible Preferred Stock upon conversion of which the sum of (1) the
number of shares of Common Stock beneficially owned by such holder and any
person whose beneficial ownership of shares of Common Stock would be aggregated
with such holder's beneficial ownership of shares of Common Stock for purposes
of Section 13(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Regulation 13D-G thereunder (each a "Restricted Person" and
collectively, the "Restricted Persons") (other than shares of Common Stock
deemed beneficially owned through the ownership of unconverted shares of Series
B Convertible Preferred Stock and unexercised Warrants) and (2) the number of
shares of Common Stock issuable upon the conversion of the number of shares of
Series B Convertible Preferred Stock with respect to which the determination in
this proviso is being made, would result in beneficial ownership by any
Restricted Person of more than 4.9% of the outstanding shares of Common Stock.
For purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and Regulation 13D-G thereunder, except as otherwise provided in clause (1)
of the proviso to the immediately preceding sentence. The "Conversion Price"
shall be equal to the Conversion Amount divided by the Conversion Rate.
(b) CERTAIN DEFINITIONS.
As used herein, the "Closing Price" of any security on any date shall
mean the closing bid price of such security on such date on the principal
securities exchange or market on which such
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security is traded.
As used herein, the "Conversion Amount" initially shall be equal to
$1,000.00, subject to adjustment as hereinafter provided.
As used herein, "Conversion Date" shall mean the date on which the
notice of conversion is actually received by the Corporation, in case of a
conversion at the option of the holder pursuant to Section 9(a).
As used herein, "Conversion Percentage" shall mean 80 percent, except
that, if, in connection with a particular conversion of shares of Series B
Convertible Preferred Stock, the Corporation fails to issue and deliver the
certificates for the Common Stock issuable upon such conversion to the holder
converting such shares pursuant to the first sentence of paragraph 6 of Section
9(c) hereof within five (5) business days after surrender of certificates
representing such shares, then the percentage stated above in this paragraph
shall be reduced with respect to the conversion of such shares by one percentage
point for each day following the third business day after such surrender of
certificates representing such shares of Series B Convertible Preferred Stock
for conversion to (but excluding) the date the Corporation delivers to such
holder the certificates for the shares of Common Stock issued upon such
conversion.
As used herein, "Registration Statement" shall mean the Registration
Statement required to be filed by the Corporation with the SEC pursuant to
Section 2(a) of the Registration Rights Agreement.
As used herein, "Registration Rights Agreement" shall mean the
Registration Rights Agreement between the Corporation and the original holder of
the Series B Convertible Preferred Stock.
As used herein, "SEC" shall mean the United States
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Securities and Exchange Commission.
(c) OTHER PROVISIONS. (1) Notwithstanding anything in this Section
9 to the contrary, no change in the Conversion Amount shall actually be made
until the cumulative effect of the adjustments called for by this Section 9
since the date of the last change in the Conversion Amount would change the
Conversion Amount by more than 1%. However, once the cumulative effect would
result in such a change, then the Conversion Rate shall actually be changed to
reflect all adjustments called for by this Section 9 and not previously made.
(2) The holders of shares of Series B Convertible Preferred Stock at
the close of business on the record date for any dividend payment to holders of
Series B Convertible Preferred Stock shall be entitled to receive the dividend
payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof after such dividend payment record date
or the Corporation's default in payment of the dividend due on such dividend
payment date; PROVIDED, HOWEVER, that the holder of shares of Series B
Convertible Preferred Stock surrendered for conversion during the period between
the close of business on any record date for a dividend payment and the opening
of business on the corresponding dividend payment date shall, promptly after
receipt, return to the Corporation the dividend payable on such shares on such
dividend payment date if such dividend shall have been paid by the Corporation
on such dividend payment date. A holder of shares of Series B Convertible
Preferred Stock on a record date for a dividend payment who (or whose
transferee) tenders any of such shares for conversion into shares of Common
Stock on or after such dividend payment date will receive the dividend payable
by the Corporation on such shares of Series B Convertible Preferred Stock on
such date, and the converting holder need not include payment of the amount of
such dividend upon surrender of shares of Series B Convertible Preferred Stock
for conversion. Except as provided above, no adjustment shall be made in
respect of cash dividends on Common Stock or Series B Convertible Preferred
Stock that may be accrued and unpaid at the date of conversion or surrender of
share certificates for conversion.
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<PAGE>
(3) The right of the holders of Series B Convertible Preferred Stock
to convert their shares shall be exercised by delivering (which may be done by
telephone line facsimile transmission) to the Corporation or its agent, as
provided above, a written notice, duly signed by or on behalf of the holder,
stating the number of shares of Series B Convertible Preferred Stock to be
converted. If a holder of Series B Convertible Preferred Stock elects to
convert any shares of Series B Convertible Preferred Stock in accordance with
Section 8(a), such holder shall not be required to physically surrender the
certificate(s) representing such shares of Series B Convertible Preferred Stock
to the Corporation unless all of the shares of Series B Convertible Preferred
Stock represented thereby are so converted. Each holder of shares of Series B
Convertible Preferred Stock and the Corporation shall maintain records showing
the number of shares so converted and the dates of such conversions or shall use
such other method, satisfactory to such holder and the Corporation, so as to not
require physical surrender of such certificates upon each such conversion. In
the event of any dispute or discrepancy, such records of the Corporation shall
be controlling and determinative in the absence of manifest error.
Notwithstanding the foregoing, if any shares of Series B Convertible Preferred
Stock evidenced by a particular certificate therefor are converted as aforesaid,
the holder of Series B Convertible Preferred Stock may not transfer the
certificate(s) representing such shares of Series B Convertible Preferred Stock
unless such holder first physically surrenders such certificate(s) to the
Corporation, whereupon the Corporation will forthwith issue and deliver upon the
order of such holder of shares of Series B Convertible Preferred Stock new
certificate(s) of like tenor, registered as such holder of shares of Series B
Convertible Preferred Stock (upon payment by such holder of shares of Series B
Convertible Preferred Stock of any applicable transfer taxes) may request,
representing in the aggregate the remaining number of shares of Series B
Convertible Preferred Stock represented by such certificate(s). Each holder of
shares of Series B Convertible Preferred Stock, by acceptance of a certificate
for such shares, acknowledges and agrees that (1) by reason of the provisions of
this paragraph and Section 8(d)(1), following conversion of any shares of Series
B Convertible Preferred Stock represented by such certificate, the number of
shares of Series B Convertible Preferred
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<PAGE>
Stock represented by such certificate may be less than the number of shares
stated on such certificate and the number of shares of Common Stock from the
Maximum Share Amount (as defined herein) allocated to the shares of Series B
Convertible Preferred Stock represented by such certificate for purposes of
conversion of such shares may be less than the number thereof on such
certificate and (2) the Corporation may place a legend on the certificates for
shares of Series B Convertible Preferred Stock which refers to or describes the
provisions of this paragraph. The Corporation shall pay any tax arising in
connection with any conversion of shares of Series B Convertible Preferred Stock
except that the Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery
upon conversion of shares of Common Stock or other securities or property in a
name other than that of the holder of the shares of the Series B Convertible
Preferred Stock being converted, and the Corporation shall not be required to
issue or deliver any such shares or other securities or property unless and
until the person or persons requesting the issuance thereof shall have paid to
the Corporation the amount of any such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.
(4) The Corporation (and any successor corporation) shall take all
action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series B Convertible Preferred
Stock outstanding upon the basis hereinbefore provided are at all times reserved
by the Corporation (or any successor corporation), free from preemptive rights,
for such conversion, subject to the provisions of the next succeeding paragraph.
If the Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series B Convertible Preferred Stock shall be convertible as
herein provided, the Corporation shall at the same time also make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series B Convertible Preferred Stock on the new
basis. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of
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<PAGE>
all of the outstanding shares of Series B Convertible Preferred Stock, the
Corporation promptly shall seek such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
(5) In case of any consolidation or merger of the Corporation with
any other corporation (other than a wholly-owned subsidiary of the Corporation)
in which the Corporation is not the surviving corporation, or in case of any
sale or transfer of all or substantially all of the assets of the Corporation,
or in the case of any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property, the
Corporation shall make appropriate provision or cause appropriate provision to
be made so that each holder of shares of Series B Convertible Preferred Stock
then outstanding shall have the right thereafter to convert such shares of
Series B Convertible Preferred Stock into the kind and amount of shares of stock
and other securities and property receivable upon such consolidation, merger,
sale, transfer, or share exchange by a holder of the number of shares of Common
Stock into which such shares of Series B Convertible Preferred Stock could have
been converted immediately prior to the effective date of such consolidation,
merger, sale, transfer, or share exchange. If, in connection with any such
consolidation, merger, sale, transfer, or share exchange, each holder of shares
of Common Stock is entitled to elect to receive either securities, cash, or
other assets upon completion of such transaction, the Corporation shall provide
or cause to be provided to each holder of Series B Convertible Preferred Stock
the right to elect the securities, cash, or other assets into which the Series B
Convertible Preferred Stock held by such holder shall be convertible after
completion of any such transaction on the same terms and subject to the same
conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made, and the effect of failing to exercise the
election). The Corporation shall not effect any such transaction unless the
provisions of this paragraph have been complied with. The above provisions
shall similarly apply to successive consolidations, mergers, sales, transfers,
or share exchanges.
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<PAGE>
(6) If a holder shall have given a notice of conversion of shares of
Series B Convertible Preferred Stock, upon surrender of certificates
representing shares of Series B Convertible Preferred Stock for conversion, the
Corporation shall issue and deliver to such person at an address within the
United States to be specified by such person certificates for the Common Stock
issuable upon such conversion within three business days after such surrender of
certificates and the person converting shall be deemed to be the holder of
record of the Common Stock issuable upon such conversion, and all rights with
respect to the shares surrendered shall forthwith terminate except the right to
receive the Common Stock or other securities, cash, or other assets as herein
provided. If a holder shall have given a notice of conversion as provided
herein, the Corporation's obligation to issue and deliver the certificates for
Common Stock shall be absolute and unconditional, irrespective of the absence of
any action by the converting holder to enforce the same, any waiver or consent
with respect to any provision thereof, the recovery of any judgment against any
person or any action to enforce the same, any failure or delay in the
enforcement of any other obligation of the Corporation to the holder of record,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the holder of any obligation to the Corporation, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Corporation to the holder in connection with such conversion.
If the Corporation fails to issue and deliver the certificates for the Common
Stock to the holder converting shares of Series B Convertible Preferred Stock
pursuant to the first sentence of this paragraph as and when required to do so,
in addition to any other liabilities the Corporation may have hereunder and
under applicable law, the Corporation shall pay or reimburse such holder on
demand for all out-of-pocket expenses including, without limitation, fees and
expenses of legal counsel incurred by such holders as a result of such failure.
(7) No fractional shares of Common Stock shall be issued upon
conversion of Series B Convertible Preferred Stock but, in lieu of any fraction
of a share of Common Stock which would otherwise be issuable in respect of the
aggregate number of such
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<PAGE>
shares surrendered for conversion at one time by the same holder, the
Corporation at its option (a) may pay in cash an amount equal to the product of
(i) the arithmetic average of the Closing Price of a share of Common Stock on
the three consecutive trading days ending on the trading day immediately
preceding the Conversion Date and (ii) such fraction of a share or (b) may issue
an additional share of Common Stock.
(8) The Conversion Amount shall be adjusted from time to time under
certain circumstances, subject to the provisions of the first three sentences of
the first paragraph of this Section 9(c), as follows:
(i) In case the Corporation shall issue rights or warrants on a pro
rata basis to all holders of the Common Stock entitling such holders to
subscribe for or purchase Common Stock on the record date referred to below at a
price per share less than the average daily Closing Prices of the Common Stock
on the 30 consecutive business days commencing 45 business days before the
record date (the "Current Market Price") excluding, however, any rights issued
pursuant to the Rights Agreement, then in each such case the Conversion Amount
in effect on such record date shall be adjusted in accordance with the formula
C(1) = C x O + N
-----
O + N x P
-----
M
where
C(1) = the adjusted Conversion Amount
C = the current Conversion Amount
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock issuable pursuant
to the exercise of such rights or warrants.
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<PAGE>
P = the offering price per share of the additional shares (which
amount shall include amounts received by the Corporation in
respect of the issuance and the exercise of such rights or
warrants).
M = the Current Market Price per share of Common Stock on the record
date.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not so issued or expire or terminate
before being exercised, the Conversion Amount then in effect shall be readjusted
appropriately.
(ii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Junior Stock (as hereinafter defined) evidences
of its indebtedness or assets (including securities, but excluding any warrants
or subscription rights referred to in subparagraph (i) above and any dividend or
distribution paid in cash out of the retained earnings of the Corporation), then
in each such case the Conversion Amount then in effect shall be adjusted in
accordance with the formula
C(1) = C x M
-----
M - F
where
C(1) = the adjusted Conversion Amount
C = the current Conversion Amount
M = the Current Market Price per share of Common Stock on the record
date mentioned below.
F = the aggregate amount of such cash dividend and/or the fair market
value on the record date of the assets or securities to be
distributed divided by the number of shares of Common Stock
outstanding on the record date. The Board of Directors shall
determine such fair market
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<PAGE>
value, which determination shall be conclusive.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this subparagraph (ii), "Junior Stock" shall include any class
of capital stock ranking junior as to dividends or upon liquidation to the
Series B Convertible Preferred Stock.
(iii) All calculations hereunder shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant to the
fifth paragraph of this Section 9(c), the holder of any Series B Convertible
Preferred Stock thereafter surrendered for conversion shall become entitled to
receive securities, cash, or assets other than Common Stock, the number or
amount of such securities or property so receivable upon conversion shall be
subject to adjustment from time to time in a manner and on terms nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in subparagraphs (i) to (iii) above.
(9) Except as otherwise provided above in this Section 9, no
adjustment in the Conversion Amount shall be made in respect of any conversion
for share distributions or dividends theretofore declared and paid or payable on
the Common Stock.
(10) Whenever the Conversion Amount is adjusted as herein provided,
the Corporation shall send to each transfer agent, if any, for the Series B
Convertible Preferred Stock and the Common Stock, and to the principal
securities exchange, if any, on which the Series B Convertible Preferred Stock
and the Common Stock is traded, or the Nasdaq National Market if the Series B
Convertible Preferred Stock or Common Stock is admitted for a quotation thereon,
a statement signed by the Chairman of the Board, the President, or any Vice
President of the Corporation and by its Treasurer or its Secretary or an
Assistant Secretary stating the
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<PAGE>
adjusted Conversion Amount determined as provided in this Section 9, and any
adjustment so evidenced, given in good faith, shall be binding upon all
stockholders and upon the Corporation. Whenever the Conversion Amount is
adjusted, the Corporation will give notice by mail to the holders of record of
Series B Convertible Preferred Stock, which notice shall be made within 15 days
after the effective date of such adjustment and shall state the adjustment and
the Conversion Amount. Notwithstanding the foregoing notice provisions, failure
by the Corporation to give such notice or a defect in such notice shall not
affect the binding nature of such corporate action of the Corporation.
(11) Whenever the Corporation shall propose to take any of the actions
specified in the fifth paragraph of this Section 9(c) or in subparagraphs (i) or
(ii) of the eighth paragraph of this Section 9(c) which would result in any
adjustment in the Conversion Amount under this Section 9(c), the Corporation
shall cause a notice to be mailed at least 20 days prior to the date on which
the books of the Corporation will close or on which a record will be taken for
such action, to the holders of record of the outstanding Series B Convertible
Preferred Stock on the date of such notice. Such notice shall specify the
action proposed to be taken by the Corporation and the date as of which holders
of record of the Common Stock shall participate in any such actions or be
entitled to exchange their Common Stock for securities or other property, as the
case may be. Failure by the Corporation to mail the notice or any defect in
such notice shall not affect the validity of the transaction.
(12) Notwithstanding any other provision of this Section 9, no
adjustment in the Conversion Amount need be made (a) for a transaction referred
to in subparagraphs (i) or (ii) of the eighth paragraph of this Section 9(c) if
holders of Series B Convertible Preferred Stock are to participate in the
transaction or distribution on a basis and with notice that the Board of
Directors determines such transaction to be fair to the holders of the Series B
Convertible Preferred Stock and appropriate in light of the basis on which
holders of the Common Stock or, in the case of a transaction referred to in said
subparagraph (ii), holders of Junior Stock participate in the transaction; (b)
for sales of
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Common Stock pursuant to a plan for reinvestment of dividends and interest,
PROVIDED that the purchase price in any such sale is at least equal to the fair
market value of the Common Stock at the time of such purchase, or pursuant to
any plan adopted by the Corporation for the benefit of its employees, directors,
or consultants; or (c) after such time as a holder of shares of Series B
Convertible Preferred Stock becomes entitled to receive only cash upon
conversion of such shares (in which case no interest shall accrue on the amount
of such cash for any period prior to the date which is three business days after
surrender of the certificates for such shares for conversion).
(d) MANDATORY CONVERSION. So long as the Corporation shall be in
compliance in all material respects with its obligations to the holders of the
Series B Convertible Preferred Stock (including its obligations under the
Registration Rights Agreement and the provisions of this Certificate of
Designations) and so long as the Registration Statement shall be effective (or
all the shares of Common Stock into which shares of Series B Convertible
Preferred Stock then outstanding are convertible may be sold by each holder of
record of such shares of Series B Convertible Preferred Stock within a period of
three months under Rule 144), on the date (the "Mandatory Conversion Date")
which is 730 days after the date of initial issuance of any shares of Series B
Convertible Preferred Stock all of the shares of Series B Convertible Preferred
Stock then outstanding shall be converted, in accordance with the provisions,
and subject to the limitations, of Section 9(a), into shares of Common Stock to
the extent the same are at such time convertible into shares of Common Stock.
On the Mandatory Conversion Date, the Corporation shall mail by first class mail
or otherwise deliver to each holder of Series B Convertible Preferred Stock a
notice (a "Section 9(d) Notice"), which shall state (1) the number of shares of
Series B Convertible Preferred Stock held by such holder which have been
converted into shares of Common Stock in accordance with this Section 9(d) and
(2) the Mandatory Conversion Date. If the Corporation shall give a Section 9(d)
Notice, then, unless theretofore converted by the holder in accordance herewith,
and so long as the Registration Statement shall remain effective on the
Mandatory Conversion Date (or all the shares of Common Stock into which shares
of Series B Convertible Preferred Stock then outstanding are convertible may be
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<PAGE>
sold by each holder of record of such shares of Series B Convertible Preferred
Stock within a period of three months under Rule 144) and the Corporation shall
be in compliance in all material respects with its obligations to the holders of
the Series B Convertible Preferred Stock (including its obligations under the
Registration Rights Agreements and the provisions of this Certificate of
Designations) on the Mandatory Conversion Date, then on the Mandatory Conversion
Date properly set forth therein, all shares of Series B Convertible Preferred
Stock which, on the Mandatory Conversion Date are convertible in accordance with
Section 9(a) hereof, shall be converted into such number of shares of Common
Stock as shall be determined pursuant to this Section 9 as if the conversion of
such number of shares of Series B Convertible Preferred Stock were made by the
holders thereof in accordance herewith and as if the Mandatory Conversion Date
were the Conversion Date. Upon the surrender of certificates for shares of
Series B Convertible Preferred Stock by the holder after a Section 9(d) Notice
is given, the Corporation shall issue and, within three trading days after such
surrender, deliver to or upon the order of such holder that number of shares of
Common Stock as shall be issuable in respect to the conversion of the number of
shares of Series B Convertible Preferred Stock converted, together with accrued
and unpaid dividends thereon to the date of conversion and accrued and unpaid
interest on dividends on such shares which are in arrears, into Common Stock as
shall be determined in accordance herewith.
SECTION 10. VOTING RIGHTS. Except as otherwise required by law or
expressly provided herein, shares of Series B Convertible Preferred Stock shall
not be entitled to vote on any matter.
The affirmative vote or consent of the holders of a majority of the
outstanding shares of the Series B Convertible Preferred Stock, voting
separately as a class, will be required for (1) any amendment, alteration, or
repeal, whether by merger or consolidation or otherwise, of the Corporation's
Certificate of Incorporation if the amendment, alteration, or repeal materially
and adversely affects the powers, preferences, or special rights of the Series B
Convertible Preferred Stock, or (2) the creation and issuance of any Senior
Dividend Stock or Senior Liquidation Stock;
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<PAGE>
PROVIDED, HOWEVER, that any increase in the authorized preferred stock of the
Corporation or the creation and issuance of any stock which is both Junior
Dividend Stock and Junior Liquidation Stock or any other capital stock of the
Corporation ranking on a parity with the Series B Convertible Preferred Stock
shall not be deemed to affect materially and adversely such powers, preferences,
or special rights.
SECTION 11. OUTSTANDING SHARES. For purposes of this Certificate
of Designations, all shares of Series B Convertible Preferred Stock shall be
deemed outstanding except (i) from the date of surrender of certificates
representing shares of Series B Convertible Preferred Stock for conversion into
Common Stock, all shares of Series B Convertible Preferred Stock converted into
Common Stock and (ii) from the date of registration of transfer, all shares of
Series B Convertible Preferred Stock held of record by the Corporation or any
subsidiary or Affiliate (as defined herein) of the Corporation. For the
purposes of this Certificate of Designations, "Affiliate" means any person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Corporation. "Control" is the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise.
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<PAGE>
IN WITNESS WHEREOF, Graphix Zone, Inc. has caused its corporate seal
to be hereunto affixed and this certificate to be signed by Norman H. Block, its
President, as of the 31st day of January, 1997.
By /s/ Norman H. Block
----------------------------
Norman H. Block
President
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<PAGE>
Exhibit 10.4
AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT
AMENDMENT NO. 1, dated as of January 31, 1997 (this "Amendment"), to
Registration Rights Agreement, dated as of September 24, 1996, between GRAPHIX
ZONE, INC., a Delaware corporation (the "Company"), and PANGAEA FUND LIMITED, a
British Virgin Islands corporation (the "Initial Investor").
W I T N E S S E T H :
WHEREAS, the Company and the Initial Investor are parties to a
Registration Rights Agreement, dated as of September 24, 1996, (the
"Registration Rights Agreement");
WHEREAS, the Company and the Initial Investor have executed and
delivered a Subscription Agreement, dated as of January 31, 1997 (the
"Additional Subscription Agreement"); and
WHEREAS, the Company and the Initial Investor wish to amend the
Registration Rights Agreement upon the terms and subject to the conditions set
forth herein.
NOW THEREFORE, in consideration of the premises and the covenants
contained in this Amendment and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. AMENDMENTS. (a) The first Recital of the Registration Rights
Agreement is hereby amended to read as follows:
WHEREAS, in connection with the Subscription Agreement, dated as of
September 24, 1996, between the Initial Investor and the Company (the "1996
Subscription Agreement"), the Company has agreed, upon the terms and
subject to the conditions of the 1996 Subscription Agreement, to issue and
sell to the Initial Investor 1,000 shares (the "1996 Preferred Shares") of
Series A Convertible Preferred Stock of the Company as provided in the
Subscription Agreement, and pursuant to the Subscription Agreement, dated
as of January 31, 1997, by and between the Initial Investor and the Company
(the "1997 Subscription Agreement" and, together with the 1996 Subscription
Agreement, collectively the "Subscription Agreement"), the Company has
agreed upon the
<PAGE>
terms and subject to the conditions of the 1997 Subscription Agreement, to
issue and sell to the Initial Investor 500 shares (the "1997 Preferred
Shares" and, together with the 1996 Preferred Shares, the "Preferred
Shares") which Preferred Shares are convertible into shares (the
"Conversion Shares") of Common Stock, $.01 par value (the "Common Stock"),
of the Company, and pursuant to the Subscription Agreement the Company has
agreed to issue to the Initial Investor warrants (the "Warrants") to
purchase shares (the "Warrant Shares") of Common Stock; and
(b) Section 1(a) of the Registration Rights Agreement is hereby
amended by deleting clause (iii) thereof in its entirety and by inserting the
following in lieu thereof:
(iii) "Registrable Securities" shall mean the Conversion Shares, the
Warrant Shares and any shares of Common Stock issuable to any Investor as a
dividend on Preferred Shares.
(c) Section 2(a) of the Registration Rights Agreement is hereby
amended by deleting the text thereof in its entirety and inserting in lieu
thereof the following text:
(a) MANDATORY REGISTRATION. The Company shall prepare, and on or
prior to the date which is 15 days after the date of the closing under the
1996 Subscription Agreement (the "1996 Closing Date"), file with the SEC a
Registration Statement on Form S-1 covering at least 592,593 shares of
Common Stock as Registrable Securities, and which Registration Statement
shall state that, in accordance with Rule 416 under the Securities Act,
such Registration Statement also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon conversion of
the Preferred Shares and exercise of the Warrants to prevent dilution
resulting from stock splits, stock dividends or similar transactions or by
reason of changes in the conversion price of the 1996 Preferred Shares and
the exercise price of the Warrants issued pursuant to the 1996 Subscription
Agreement in accordance with the respective terms thereof. The Company
shall prepare, and on or prior to the date which is six (6) days after the
date of the closing under the 1997 Subscription Agreement (the "1997
Closing Date"), file with the SEC a Registration Statement on Form S-3
covering at least 1,142,010 shares of Common
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<PAGE>
Stock as Registrable Securities, and which Registration Statement shall
state that, in accordance with Rule 416 under the Securities Act, such
Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the
Preferred Shares and exercise of the Warrants to prevent dilution resulting
from stock splits, stock dividends or similar transactions or by reason of
changes in the conversion price of the 1997 Preferred Shares and the
exercise price of the Warrants issued pursuant to the 1997 Subscription
Agreement in accordance with the respective terms thereof. If at any time
the number of shares of Common Stock included in the Registration Statement
required to be filed as provided in the first two sentences of this Section
2(a) shall be insufficient to cover the number of shares of Common Stock
issuable on conversion in full of the unconverted Preferred Shares and the
unexercised Warrants, then promptly, but in no event later than 15 days
after such insufficiency shall occur, the Company shall file with the SEC
an additional Registration Statement on Form S-3 (which shall not
constitute a post-effective amendment to the Registration Statement
required to be filed pursuant to the first sentence of this Section 2(a))
or other applicable form covering such number of shares of Common Stock as
shall be sufficient to permit such conversion and exercise. For all
purposes of this Agreement (other than Section 2(c) hereof) such additional
Registration Statement shall be deemed to be the Registration Statement
required to be filed by the Company pursuant to Section 2(a) of this
Agreement, and the Company and the Investors shall have the same rights and
obligations (other than Section 2(c) hereof) with respect to such
additional Registration Statement as they shall have with respect to the
initial Registration Statement required to be filed by the Company pursuant
to this Section 2(a).
(d) Section 2(c) of the Registration Rights Agreement is hereby
amended by deleting the first paragraph thereof in its entirety and inserting in
lieu thereof the following text:
(c) PAYMENTS BY THE COMPANY. If the Registration Statement covering
the Registrable Securities which is required to be filed by the Company
pursuant to the first sentence of Section 2(a) hereof is not effective
within 60 days after the Closing Date, then the Company will make
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<PAGE>
payments to the Initial Investor in such amounts and at such times as shall
be determined pursuant to this Section 2(c). The amount to be paid by the
Company to the Initial Investor shall be determined as of each Computation
Date, and such amount shall be equal to (1) in the case of the first
Computation Date, two percent (2%), and (2) in the case of the second
Computation Date and each Computation Date thereafter, three percent (3%),
in each case of the aggregate subscription price paid by the Initial
Investor for the 1996 Preferred Shares and the Warrants issued in
connection therewith pursuant to the 1996 Subscription Agreement (together
with interest, if any, thereon as herein provided, each, a "Periodic
Amount"); PROVIDED, HOWEVER, that if any Computation Date is less than 30
days subsequent to another Computation Date, then the Periodic Amount
payable on the later Computation Date shall be pro rated. The Periodic
Amount shall be paid by the Company within five business days after each
Computation Date and shall be payable in cash; PROVIDED, HOWEVER, that the
Company may elect in lieu of payment of any Periodic Amount in cash to
deliver to the Initial Investor shares of Common Stock having an Aggregate
Market Value equal to the amount of the Periodic Amount if, but only if,
such shares are freely tradable by the Initial Investor without any
restriction under the Securities Act or any state securities or "blue sky"
law. Any Periodic Amount not paid when due shall bear interest at the rate
of 12 percent per annum until paid.
As used in this Section 2(c), the following terms shall have the
following meanings:
"Aggregate Market Value" of any shares of Common Stock issued with
respect to any Computation Date means the product obtained by multiplying
(a) such number of shares of Common Stock times (b) the Average Market
Price of the Common Stock for the Measurement Period for such Computation
Date.
"Average Market Price" of any security for any period shall be
computed as the arithmetic average of the closing bid of such security for
each trading day in such period on the principal trading market for such
security, as reported by such market.
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<PAGE>
"Computation Date" means (1) the date which is 60 days after the 1996
Closing Date, unless the Registration Statement theretofore has been
declared effective by the SEC, (2) if the Registration Statement has not
theretofore been declared effective by the SEC, each date which is 30 days
after a Computation Date and (3) if the Registration Statement has not been
declared effective by the SEC within 60 days after the 1996 Closing Date,
the date on which the Registration Statement is declared effective by the
SEC.
"Measurement Period" means with respect to any Computation Date, the
period of five consecutive trading days for the Common Stock ending on the
date of issuance and delivery to the Initial Investor of shares of Common
Stock with respect to such Computation Date.
2. EFFECTIVENESS. This Amendment shall become effective on the date
(the "Effective Date") when counterparts hereof shall have been executed and
delivered by the Company and the Initial Investor. From and after the Effective
Date, all references in the Registration Rights Agreement to the Registration
Rights Agreement shall be deemed to be references to such Registration Rights
Agreement as amended hereby.
3. REGISTRATION RIGHTS AGREEMENT. Except as amended by this
Amendment, the Registration Rights Agreement shall remain in effect in
accordance with its terms.
4. MISCELLANEOUS. (a) Capitalized terms used in this Amendment and
defined in the introductory paragraph or recitals of this Amendment shall have
the respective meanings provided therein. Capitalized terms used in this
Amendment and not otherwise defined in this Amendment shall have the respective
meanings provided in the Registration Rights Agreement.
(b) This Amendment shall be construed and interpreted in accordance
with the laws of the State of California.
(c) This Amendment may be executed in any number of counterparts and
by different parties hereto on separate counterparts, each of which counterparts
when so executed and delivered, shall be deemed to be an original and all of
which counterparts, taken together, shall constitute but one and the same
instrument. This Amendment may be executed and delivered by a party by a
telephone line facsimile transmission bearing a
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<PAGE>
signature on behalf of such party transmitted by such party to the other party.
(d) Section and paragraph headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
(e) Any provision of this Amendment that is prohibited, unenforceable
or not authorized in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition, unenforceability or
non-authorization without invalidating the remaining provisions hereof or
affecting the validity, enforceability or legality of such provision in any
other jurisdiction.
(f) No amendment or waiver of any provision of this Amendment shall
in any event be effective unless the same shall be in writing and signed by the
party to be charged with enforcement thereof and any such waiver shall be
effective only in the specific instance and for the specific purpose for which
given. No failure on the part of any party to exercise, and no delay in
exercising, any right under this Amendment shall operate as a waiver thereof by
such party. No single or partial exercise of any right under this Amendment
shall preclude any other or further exercise thereof or the exercise of any
other right.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
GRAPHIX ZONE, INC.
By
------------------------
Name:
Title:
PANGAEA FUND LIMITED
By
------------------------
Name:
Title:
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<PAGE>
EXHIBIT 10.5
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT, dated as of January 31, 1997, by and between
GRAPHIX ZONE, INC., a Delaware corporation (the "Company"), and the undersigned
(the "Investor").
W I T N E S S E T H:
WHEREAS, the Company and the Investor are parties to a Subscription
Agreement, dated as of September 24, 1996 (the "Subscription Agreement"),
pursuant to which the Investor acquired shares of Series A Convertible Preferred
Stock, $.01 par value (the "Series A Preferred Stock"), of the Company and
Common Stock Purchase Warrants (the "Outstanding Warrants") to purchase shares
of Common Stock, $.01 par value, of the Company; and
WHEREAS, the Company and the Investor are parties to a Registration
Rights Agreement, dated as of September 24, 1996, (the "Registration Rights
Agreement"); and
WHEREAS, the Company and the Investor wish to amend the Subscription
Agreement, the Registration Rights Agreement and the terms of the Series A
Preferred Stock;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. SUBSCRIPTION AGREEMENT. (a) Section 4(i) of the Subscription
Agreement is hereby amended by deleting the existing Section 4(i) in its
entirety and substituting in lieu thereof the following:
(i) CERTAIN FUTURE FINANCINGS. The Company shall not issue any
equity securities or securities convertible into, exchangeable for or
otherwise entitling the holder to acquire, any equity securities of the
Company (the "New Equity Securities") (i) prior to the date which is 120
days after February 1, 1997 without the prior written consent of the Buyer
and (ii) for a period of one year on or after the date which is 120 days
after February 1, 1997, without giving the Buyer the first right to acquire
the New Equity Securities at substantially the same terms at which the New
Equity Securities are to be offered to other investors;
<PAGE>
PROVIDED, HOWEVER, that nothing in this paragraph shall prohibit the
Company from issuing securities (x) as part of a transaction involving a
strategic alliance, collaboration, joint venture or partnership arrangement
of the Company, (y) pursuant to compensation plans for employees,
directors, officers, advisers or consultants of the Company or (z) upon
exercise of conversion, exchange, purchase or similar rights issued,
granted or given by the Company and outstanding as of the date of this
Agreement.
(b) The Company and the Investor agree that, by reason of the lapse of
time, the restrictions in Section 4(k) of the Subscription Agreement are no
longer applicable.
(c) On or before the date of closing (the "Closing Date") under the
Subscription Agreement, dated as of the date hereof, between the Company and
Pangaea Fund Limited (the "New Money Subscription Agreement"), the Company shall
enter into an agreement among the Company, U.S. Stock Transfer Corporation, as
transfer agent and registrar for the Common Stock (the "Transfer Agent"), and
the Investor in the form attached hereto as ANNEX I. The Company shall provide
to the Transfer Agent all records and information required by the Transfer Agent
in order to perform its duties with regard to the Series A Preferred Stock and
the Outstanding Warrants. The Company agrees that the surrender to the Transfer
Agent of a completed Form of Subscription in the form attached to the
Outstanding Warrants to the Transfer Agent together with the applicable exercise
price shall be sufficient for exercise of the Outstanding Warrants.
(d) The form of Notice of Conversion referred to in Section 5(b) of
the Subscription Agreement is hereby amended to be the form attached hereto as
ANNEX II.
2. REGISTRATION RIGHTS AGREEMENT. The proviso to the third sentence
of Section 2(c) of Registration Rights Agreement is hereby amended by deleting
the existing proviso to the third sentence of Section 2(c) and substituting in
lieu thereof the following:
; PROVIDED, HOWEVER, that the Company may elect in lieu of payment of any
Periodic Amount in cash to deliver to the Initial Investor shares of Common
Stock having an Aggregate Market Value on the date such shares are
delivered to the Initial Investor equal to the amount of the Periodic
Amount
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<PAGE>
if, but only if, such shares are freely tradable by the Initial Investor
without any restriction under the Securities Act or any state securities or
"blue sky" law.
3. CERTIFICATE OF DESIGNATIONS. The Investor hereby consents to the
amendments of the Certificate of Designations for the Series A Preferred Stock
contained in the Certificate of Amendment in the form attached hereto as ANNEX
III (the "Certificate of Amendment"). Prior to the Closing Date, the Company
shall file the Certificate of Amendment with the Secretary of State of the State
of Delaware and provide evidence of such filing to the Investor.
4. EFFECTIVENESS. This Amendment shall become effective on the date
(the "Effective Date") when counterparts hereof shall have been executed and
delivered by the Company and the Investor. From and after the Effective Date,
all references in the Subscription Agreement to the Subscription Agreement shall
be deemed to be references to the Subscription Agreement as amended hereby and
all references in the Registration Rights Agreement to the Registration Rights
Agreement shall be deemed to be references to such Registration Rights Agreement
as amended hereby.
5. CONFIRMATION OF AGREEMENTS. Except as amended by this Agreement,
the Subscription Agreement and the Registration Rights Agreement shall remain in
effect in accordance with their respective terms, and except as amended by the
Certificate of Amendment, the Certificate of Designations shall remain in effect
in accordance with its terms.
6. MISCELLANEOUS. (a) Capitalized terms used in this Agreement and
defined in the introductory paragraph or recitals of this Agreement shall have
the respective meanings provided therein. Capitalized terms used in this
Agreement and not otherwise defined in this Agreement shall have the respective
meanings provided in the Subscription Agreement.
(b) This Agreement shall be construed and interpreted in accordance
with the laws of the State of California.
(c) This Agreement may be executed in any number of counterparts and
by different parties hereto on separate counterparts, each of which counterparts
when so executed and delivered, shall be deemed to be an original and all of
which
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<PAGE>
counterparts, taken together, shall constitute but one and the same instrument.
This Agreement may be executed and delivered by a party by a telephone line
facsimile transmission bearing a signature on behalf of such party transmitted
by such party to the other party.
(d) Section and paragraph headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
(e) Any provision of this Agreement that is prohibited, unenforceable
or not authorized in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition, unenforceability or
non-authorization without invalidating the remaining provisions hereof or
affecting the validity, enforceability or legality of such provision in any
other jurisdiction.
(f) No amendment or waiver of any provision of this Agreement shall
in any event be effective unless the same shall be in writing and signed by the
party to be charged with enforcement thereof and any such waiver shall be
effective only in the specific instance and for the specific purpose for which
given. No failure on the part of any party to exercise, and no delay in
exercising, any right under this Agreement shall operate as a waiver thereof by
such party. No single or partial exercise of any right under this Agreement
shall preclude any other or further exercise thereof or the exercise of any
other right.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
GRAPHIX ZONE, INC.
By
-------------------------
Name:
Title:
NAME OF INVESTOR:
---------------------------
By
-------------------------
Name:
Title:
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<PAGE>
Exhibit 10.6
ANNEX I
TO
ESCROW AGREEMENT
THE SECURITIES OF GRAPHIX ZONE, INC. IN CONNECTION WITH THE OFFER AND SALE OF
WHICH THIS DOCUMENT IS BEING DELIVERED HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND MAY NOT BE
OFFERED OR SOLD IN THE UNITED STATES OR TO "U.S. PERSONS," AS DEFINED IN
REGULATION S UNDER THE 1933 ACT (OTHER THAN DISTRIBUTORS, AS DEFINED IN SAID
REGULATION S), UNLESS THE SHARES ARE REGISTERED UNDER THE 1933 ACT, OR AN
EXEMPTION FROM SAID REGISTRATION REQUIREMENT OF THE 1933 ACT IS AVAILABLE.
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT, dated as of the date of acceptance set forth
below, by and between GRAPHIX ZONE, INC., a Delaware corporation, with
headquarters located at 42 Corporate Park, Suite 200, Irvine, California 92606
(the "Company"), and the undersigned (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing this Agreement in
reliance upon one or more exemptions from securities registration under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, contemporaneously with the execution of this Agreement, the
Company and the Buyer have executed and delivered an Escrow Agreement, dated the
date hereof (the "Escrow Agreement"), by and among the Company, the Buyer and
the Law Offices of Brian W Pusch (the "Escrow Agent"); and
WHEREAS, once this Agreement is released from escrow to the Buyer as
provided herein, the Company and the Buyer wish to exchange, upon the terms and
subject to the conditions of this Agreement, (1) outstanding shares (the "Series
A Preferred Shares") of Series A Convertible Preferred Stock, $.01 par value
(the "Series A Preferred Stock"), held by Buyer for newly issued shares of non-
voting, convertible preferred stock of the Company which will be convertible
into shares of Common Stock, $.01 par value (the "Common Stock"), of the Company
and (2) outstanding
<PAGE>
Common Stock Purchase Warrants of the Company held by the Buyer for newly issued
warrants to purchase shares of Common Stock, subject to acceptance of this
Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. AGREEMENT TO EXCHANGE.
(a) EXCHANGE. The Company and the Buyer hereby agree to exchange on
the Closing Date (as defined herein) (1) a number of shares (the "Series B
Preferred Shares") of Series B Convertible Preferred Stock, $.01 par value (the
"Series B Preferred Stock"), of the Company equal to the number of Series A
Preferred Shares held by the Buyer on the Closing Date for the number of Series
A Preferred Shares held by the Buyer on the Closing Date and (2) to exchange the
number of warrants to purchase shares of Common Stock (the "New Warrants") equal
to the number of outstanding Common Stock Purchase Warrants (the "Outstanding
Warrants") held by the Buyer on the Closing Date for the number of Outstanding
Warrants held by the Buyer on the Closing Date. The Series B Preferred Shares
shall have the rights, designations and terms as set forth in the form of
Certificate of Designations attached as ANNEX II to the Escrow Agreement (the
"Certificate of Designations"), and the Buyer hereby agrees that certificates
for a number of Series B Preferred Shares equal to one third of the total number
of Preferred Shares shall bear each of the three legends set forth in Section
9(a)(ii) of the terms of the Preferred Stock in the Certificate of Designations.
The New Warrants shall be in the form attached as ANNEX III to the Escrow
Agreement. The shares of Common Stock issuable upon conversion of the Series B
Preferred Shares are referred to herein as the "Conversion Shares." The shares
of Common Stock issuable upon exercise of the New Warrants are referred to
herein as the "Warrant Shares." The Conversion Shares and the Warrant Shares
are referred to herein collectively as the "Common Shares." The Common Shares
and the Series B Preferred Shares are referred to herein collectively as the
"Shares." The Shares and the New Warrants are referred to herein collectively
as the "Securities."
(b) CLOSING. The exchange of Series B Preferred Shares for Series A
Preferred Shares and New Warrants for
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<PAGE>
Outstanding Warrants shall occur at a closing (the "Closing") to be held on the
date which is four New York Stock Exchange trading days after the date on which
the Company shall have accepted this Agreement and returned a signed counterpart
of this Agreement to the Buyer. The closing shall occur on the Closing Date at
the offices of the Escrow Agent. After the Closing, all funds shall continue to
be held under the Joint Escrow Instructions, dated as of October 31, 1996, by
and among the Company, the Buyer and Law Offices of Brian W Pusch, as Escrow
Agent.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
(a) The Buyer is purchasing the Series B Preferred Shares and the New
Warrants for its own account for investment only and not with a view towards the
public sale or distribution thereof;
(b) The Buyer is an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3);
(c) All subsequent offers and sales of the Securities by the Buyer
shall be made pursuant to registration of the Securities being offered and sold
under the 1933 Act or pursuant to an exemption from registration;
(d) The Buyer understands that the Series B Preferred Shares and New
Warrants are being offered and sold, and the Common Shares are being offered, to
it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein and in the Prospective Purchaser Questionnaire, a
true and accurate copy of which has been delivered by the Buyer to the Company
(the "Questionnaire"), in order to determine the availability of such exemptions
and the eligibility of the Buyer to acquire the Series B Preferred Shares and
the New Warrants and to receive an offer of the Common Shares;
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<PAGE>
(e) The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Series B Preferred Shares and
the New Warrants and the offer of the Common Shares which have been requested by
the Buyer. The Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and have received complete and
satisfactory answers to any such inquiries. Without limiting the generality of
the foregoing, the Buyer has had the opportunity to obtain and to review the
following documents of the Company: (1) Registration Statement on Form S-4
(Registration No. 333-02642) filed with the Securities and Exchange Commission
(the "SEC") on March 25, 1996, (2) Annual Report on Form 10-K for the fiscal
year ended June 30, 1996 (the "1996 Form 10-K"), (3) Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1996 (the "September Form 10-
Q"), (4) the Company's Current Report on Form 8-K, dated July 15, 1996, (5) the
Company's definitive Proxy Statement for its 1996 Annual Meeting of
Stockholders, and (6) all other reports filed by the Company with the SEC
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), subsequent to the date of this Agreement and prior to
the Closing Date, in each case as filed with the SEC. The Buyer understands
that its investment in the Securities involves a high degree of risk;
(f) The Buyer understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Shares;
(g) (1) The Buyer is not organized under the laws of any
jurisdiction within the United States, its territories or possessions, and was
not formed for the purpose of investing in Regulation S securities and is not a
"U.S. person" as that term is defined in Regulation S;
(2) At the time the buy order for the Series B Preferred Shares and
the New Warrants was originated, the Buyer was outside the United States, its
territories and possessions;
(3) No offer to purchase the Securities was made by the Buyer in the
United States, its territories or possessions;
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<PAGE>
(4) The Buyer is purchasing the Series B Preferred Shares and the New
Warrants and will acquire the Common Shares for its own account and not as part
of any plan or scheme to evade the registration requirements of the 1933 Act;
(5) All subsequent offers and sales of the Securities by the Buyer
shall be made in compliance with Regulation S pursuant to registration of the
Securities under the 1933 Act or pursuant to an exemption from registration; in
any case, the Securities will not be resold to a U.S. person (as defined in Rule
902 of Regulation S) or within the United States, its territories or
possessions, until after the end of the applicable restricted period determined
in accordance with Regulation S which ends on the date which is 40 days after
the Closing Date;
(6) If the Buyer is a "distributor" (as defined in Regulation S) or a
"dealer" (as defined in the 1933 Act), the Buyer will comply with the
requirements of Rule 903(c)(2) of Regulation S, including, without limitation,
the requirements for the content of confirmation of any sale of the Securities;
and
(7) The Buyer has not entered into any prearranged transaction with
any person in the United States for the sale or other transfer of the
Securities; and
(h) This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
3. COMPANY REPRESENTATIONS, WARRANTIES, ETC.
The Company represents and warrants to, and covenants and agrees with,
the Buyer that:
(a) CONCERNING THE SECURITIES. The Securities have been duly
authorized and the Series B Preferred Shares, when issued in exchange for the
Series A Preferred Shares in accordance with this Agreement, and the Common
Shares, when issued upon conversion of the Series B Preferred Shares or exercise
of the New Warrants, as the case may be, will be duly and validly issued, fully
paid and non-assessable and will not
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<PAGE>
subject the holder thereof to personal liability by reason of being such holder.
There are no preemptive rights of any stockholder of the Company, as such, to
acquire any of the Securities. The Common Stock is listed for trading on the
Nasdaq SmallCap Market ("Nasdaq") and (1) the Company and the Common Stock meet
the criteria for continued listing and trading on Nasdaq; (2) the Company has
not been notified since January 1, 1995 by the National Association of
Securities Dealers, Inc. ("NASD") of any failure or potential failure to meet
the criteria for continued listing and trading on Nasdaq (except for the notices
dated February 22, 1995, March 16, 1995 and April 13, 1995 regarding a potential
failure that has been rectified by the Company, and the notice dated October 24,
1996 and December 3, 1996, regarding the tardiness of the 1996 Form 10-K and the
September Form 10-Q, copies of which have been furnished to the Buyer by the
Company prior to the execution and delivery of this Agreement by the Buyer) and
(3) no suspension of trading in the Common Stock is in effect.
(b) EXCHANGE AGREEMENT; REGISTRATION RIGHTS AGREEMENT; WARRANTS.
This Agreement, the Registration Rights Agreement, the form of which is attached
as ANNEX IV to the Escrow Agreement (the "Registration Rights Agreement") and
the New Warrants, have been duly and validly authorized by the Company, this
Agreement has been duly executed and delivered on behalf of the Company and this
Agreement is and the Registration Rights Agreement and the Warrants, when
executed and delivered by the Company, will be, valid and binding agreements of
the Company enforceable in accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.
(c) NON-CONTRAVENTION. The execution and delivery of this Agreement,
the Registration Rights Agreement and the Warrants by the Company and the
consummation by the Company of the issuance of the Series B Preferred Shares and
the New Warrants and the other transactions contemplated by this Agreement, the
Registration Rights Agreement and the terms of the Series B Preferred Stock and
the New Warrants do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under, the
certificate of incorporation or by-laws of the Company, or any indenture,
mortgage, deed of trust or other material agreement or instrument to which the
Company is a party or by which it or any
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<PAGE>
of its properties or assets are bound, or any applicable law, rule or regulation
or any applicable decree, judgment or order of any court, United States federal
or state regulatory body, administrative agency or other governmental body
having jurisdiction over the Company or any of its properties or assets.
(d) APPROVALS. No authorization, approval or consent of or filing
with any court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market or the stockholders of the Company is
required to be obtained by the Company for the issuance and sale of the
Securities as contemplated by this Agreement, the Series B Preferred Stock and
the Warrants, other than (1) listing of the Common Shares on Nasdaq, (2) the
filing of a Form D relating to the Series B Preferred Shares and the Warrants
and (3) the requirements of any applicable blue sky laws.
(e) SEC REPORTING STATUS AND FILINGS. The Company has filed with the
SEC all reports and other information required to be filed under Sections 13(a),
14 and 15(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), except that the Company did not timely file with the SEC the 1996 Form
10-K or the September Form 10-Q. Since June 30, 1996, the Company has not filed
any reports or other information with the SEC pursuant to Sections 13(a), 14 and
15(d) of the 1934 Act other than the reports and other information identified in
Section 2(e) hereof.
(f) INFORMATION PROVIDED. The information provided by or on behalf
of the Company to the Buyer in connection with the transactions contemplated by
this Agreement, including, without limitation, the information referred to in
Section 2(e) of this Agreement, does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading.
(g) ABSENCE OF CERTAIN CHANGES. Since June 30, 1996, there has been
no material adverse change and no material adverse development in the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company, except as disclosed in the documents referred to in
Section 2(e) hereof and except that the Company may report a loss for the
quarter ended December 31, 1996, after reporting operating profits in the
quarters ended June 30, 1996 and September 30, 1996.
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<PAGE>
(h) ABSENCE OF LITIGATION. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board or body pending
or, to the knowledge of the Company or any of its subsidiaries, threatened
against or affecting the Company or any of its subsidiaries, wherein an
unfavorable decision, ruling or finding would have a material adverse effect on
the properties, business, condition (financial or other), results of operations
or prospects of the Company and its subsidiaries taken as a whole or the
transactions contemplated by this Agreement or any of the documents contemplated
hereby or which would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, this
Agreement or any of such other documents.
(i) EXCHANGES OF STOCK AND WARRANTS. The Company has not and will
not pay any commission or other remuneration for soliciting exchanges of Series
A Preferred Shares for Series B Preferred Shares or Outstanding Warrants for New
Warrants.
(j) CERTAIN SECURITIES LAW MATTERS. The Company is a "reporting
issuer" as defined in Rule 902 of Regulation S; and the offering by the Company
of the Securities has been and will be made in a manner to comply with
Regulation S.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(a) TRANSFER RESTRICTIONS. (1) The Buyer and the Company acknowledge
and agree that (A) the Series B Preferred Shares and the New Warrants have not
been and are not being registered under the provisions of the 1933 Act and may
not be transferred unless (i) subsequently registered thereunder or (ii) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Series B Preferred Shares or the New Warrants to be sold or transferred may be
sold or transferred pursuant to an exemption from such registration; (B) any
sale of the Series B Preferred Shares or the New Warrants made in reliance on
Rule 144 promulgated under the 1933 Act may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any such resale
of Series B Preferred Shares or New Warrants under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under
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the 1933 Act or the rules and regulations of the SEC thereunder; and (C) neither
the Company nor any other person is under any obligation to register the Series
B Preferred Shares or the New Warrants under the 1933 Act or to comply with the
terms and conditions of any exemption thereunder (other than pursuant to Section
4(d) hereof and Regulation S under the 1933 Act) with respect to the sale or
other transfer of the Series B Preferred Shares and the New Warrants.
(2) The Buyer and the Company acknowledge and agree that (A) the
Common Shares have not been registered under the provisions of the 1933 Act and
may not be transferred unless (i) subsequently registered thereunder or (ii)
sold pursuant to an exemption from registration thereunder. The Company agrees
that on or after the date which is 41 days after an Escrow Exchange Release
Event, by reason of Regulation S under the 1933 Act the transfer of the Common
Shares will be exempt from registration under the 1933 Act. The Company
represents and warrants to the Buyer that, on or before the Closing Date, the
Company shall furnish to its transfer agent for the Common Stock (the "Transfer
Agent") such instructions and opinions of counsel as may be required by the
Transfer Agent in order to permit the transfer of the Common Shares without
registration under the 1933 Act as permitted by Regulation S thereunder.
Notwithstanding the eligibility of the Common Shares for transfer without
registration under the 1933 Act from and after the date which is 41 days after
the Closing Date, the Buyer agrees that, so long as the Company shall have
complied in all material respects with its obligations under this Agreement and
the Registration Rights Agreement, the Buyer shall not convert any Series B
Preferred Shares until the earlier of (A) the date the Registration Statement
required to be filed by the Company pursuant to Section 2(a) of the Registration
Rights Agreement is first declared effective by the SEC and (B) the date which
is 41 days after the Closing Date.
(b) RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that the
certificates for the Series B Preferred Shares and the New Warrants may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for the Series B
Preferred Shares and the New Warrants):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended.
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The securities have been acquired for investment and may not be sold,
transferred or assigned in the absence of an effective registration
statement for the securities under the Securities Act of 1933, as amended,
or an opinion of counsel that registration is not required under said Act.
(c) FORM D. 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
Buyer promptly after such filing. The Buyer agrees to cooperate with the
Company in connection with such filing and, upon request of the Company, to
provide all information relating to the Buyer reasonably required for such
filing.
(d) REPORTING STATUS. So long as the Buyer beneficially owns any of
the Series B Preferred Shares, the New Warrants or the Common Shares, the
Company shall file all reports required to be filed with the SEC pursuant to
Section 13 or 15(d) of the 1934 Act and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would permit such termination.
(e) USE OF PROCEEDS. The Company will use the proceeds from the
exercise of the New Warrants for the Company's internal working capital purposes
and not for the purpose of any investment in or loan to any other corporation,
partnership, enterprise or other person.
5. TRANSFER AGENT INSTRUCTIONS; CONVERSION PROCEDURE.
(a) TRANSFER AGENT INSTRUCTIONS. Promptly following the delivery by
the Buyer of the certificates for the Series A Preferred Shares to the Escrow
Agent in accordance with Section 1(c) hereof, and prior to the Closing Date, the
Company will irrevocably instruct its Transfer Agent to issue certificates for
Common Shares from time to time upon conversion of Series B Preferred Shares and
exercise of New Warrants in such amounts as specified from time to time to the
Transfer Agent in the conversion certificates surrendered in connection with
such conversions and referred to in Section 5(b) of this Agreement or required
by the Certificate of Designations or in the subscription forms attached to the
New Warrants, as the case may be. The certificates for such Common Shares shall
not bear any restrictive legend. The Company warrants that no instruction
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other than such instructions referred to in this Section 5 and stop transfer
instructions to give effect to Section 4(a)(1) hereof with respect to the Series
B Preferred Shares and the New Warrants will be given by the Company to the
Transfer Agent and that the Common Shares shall otherwise be freely transferable
on the books and records of the Company as and to the extent provided in this
Agreement. Nothing in this Section 5(a) shall affect in any way the Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of the Common Shares and to comply with the terms and conditions of the
Certificate of Designations. If the Buyer provides the Company with an opinion
of counsel reasonably satisfactory in form, scope and substance to the Company
that registration of a resale by the Buyer of any of the Series B Preferred
Shares or New Warrants in accordance with clause (A)(ii) of Section 4(a)(1) of
this Agreement is not required under the 1933 Act, the Company shall permit the
transfer of such Series B Preferred Shares or New Warrants, as the case may be.
The provisions of Section 3(n) of the Registration Rights Agreement shall be in
addition to this Section 5(a).
(b) CONVERSION PROCEDURE. In connection with the exercise of
conversion rights relating to the Series B Preferred Shares, if the Common
Shares issuable upon conversion of the Series B Preferred Shares have not been
registered for resale under the 1933 Act prior to such conversion, the Buyer or
any subsequent holder of the Series B Preferred Shares shall, in addition to any
other requirement imposed by the terms of the Series B Preferred Shares as set
forth in the Certificate of Designations, complete, sign and furnish to the
Escrow Agent, with a copy to the Company, a conversion certificate in the form
attached hereto as SCHEDULE 1.
6. GOVERNING LAW; MISCELLANEOUS.
(a) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of California.
(b) This Agreement may be executed in counterparts and by the parties
hereto on separate counterparts, all of which together shall constitute one and
the same instrument. A facsimile transmission of this Agreement bearing a
signature on behalf of a party hereto shall be legal and binding on such party.
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(c) The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
(d) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(e) No failure or delay by any party in exercising any right or
remedy under this Agreement or otherwise, and no course of dealing between the
parties, shall operate as a waiver thereof or amendment of this Agreement, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or exercise of any other right or
power.
(f) Neither this Agreement nor any term thereof (including this
paragraph) may be amended, changed, waived, discharged or terminated unless such
amendment, change, waiver, discharge or termination is in writing signed by the
party to be charged with enforcement. The execution, delivery and performance
of, and closing under, this Agreement, shall not constitute a waiver by the
Buyer of any breach by the Company of, or of any rights of the Buyer under, the
Existing Subscription Agreement or the Registration Rights Agreement, dated as
of October 31, 1996, by and between the Company and the Buyer.
(g) Any notices required or permitted to be given under the terms of
this Agreement shall be sent by mail or delivered personally (which shall
include telephone line facsimile transmission) or by courier and shall be
effective five days after being placed in the mail, if mailed, or upon receipt,
if delivered personally or by courier, in each case addressed to a party at such
party's address shown in the introductory paragraph or on the signature page of
this Agreement (facsimile number 714-833-3990, in the case of the Company, and
as set forth on the signature page hereof, in the case of the Buyer) or such
other address as a party shall have provided by notice to the other party in
accordance with this provision. The Buyer hereby designates as its address and
telephone line facsimile transmission number for any notice required or
permitted to be
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given to the Buyer pursuant to the Certificate of Designations or the
Registration Rights Agreement the address and telephone line facsimile
transmission number set forth on the signature page hereof, until the Buyer
shall by notice to the Company designate another address or telephone line
facsimile transmission number for such purpose.
(h) The Buyer shall have the right to assign its rights and
obligations under this Agreement with respect to the exchange of all or any
portion of the Series A Preferred Shares and the Outstanding Warrants to another
investment fund, provided such assignee, by written instrument duly executed by
such assignee, assumes all obligations of the Buyer hereunder with respect to
the exchange of the portion of the Series A Preferred Shares and the Outstanding
Warrants so assigned and makes the same representations and warranties with
respect thereto as the Buyer makes in this Agreement, whereupon the Buyer shall
be relieved of any further obligations, responsibilities and liabilities with
respect to the exchange of all or the portion of the Series A Preferred Shares
and the Outstanding Warrants the obligation for the purchase of which has been
so assigned. In the case of any such assignment, the Company shall agree in
writing with such assignee to make available to such assignee the benefits of
the Registration Rights Agreement with respect to the Common Shares issuable on
conversion of the Series B Preferred Shares and exercise of the New Warrants
with respect to which the exchange under this Agreement has been so assigned.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer
or one of its officers thereunto duly authorized as of the date set forth below.
NUMBER OF SERIES A PREFERRED SHARES: _________
NUMBER OF SERIES B PREFERRED SHARES: _________
NUMBER OF OUTSTANDING WARRANTS: _________
NUMBER OF NEW WARRANTS: _________
NAME OF BUYER:
SIGNATURE ____________________________
Title: _______________________________
Date: _______________________________
Address: ____________________________
______________________________________
______________________________________
______________________________________
Facsimile Number: _________________________
This Agreement has been accepted as of the date set forth below.
GRAPHIX ZONE, INC.
By: ________________________
Title: _____________________
Date: _____________________
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Exhibit 10.7
ESCROW AGREEMENT
January 31, 1997
Law Offices of Brian W Pusch,
as Escrow Agent
Penthouse Suite
29 West 57th Street
New York, New York 10019
Attention: Brian W. Pusch, Esq.
Dear Sir or Madam:
As Escrow Agent for both Graphix Zone, Inc., a Delaware corporation
(the "Company"), and the holder of shares (the "Series A Preferred Shares") of
Series A Convertible Preferred Stock, $.01 par value, (the "Buyer") who has
executed this Agreement, the Escrow Agent is hereby authorized and directed to
hold the documents delivered to the Escrow Agent pursuant to the terms of this
Agreement, in accordance with the instructions set forth herein. This Agreement
also sets forth certain agreements between the Company and the Buyer.
1. ESCROW DEPOSIT. (a) Contemporaneously with the execution and
delivery of this Agreement, the Company and the Buyer have executed, but not
delivered to one another, an Exchange Agreement in the form attached hereto as
ANNEX I (the "Exchange Agreement"). The Company and the Buyer have delivered
one or more counterparts of the Exchange Agreement to the Escrow Agent.
(b) In order to permit the exchange contemplated by the Exchange
Agreement to occur without further act on the part of the Company, the Company
has delivered to the Escrow Agent the following:
(1) One or more undated certificates for shares of Series B
Convertible Preferred Stock, $.01 par value (the "Series B Preferred
Stock"), of the Company, registered in the name of the Buyer and duly
signed on behalf of the Company in the aggregate for the number of shares
of Series B Preferred Stock shown on EXHIBIT A hereto;
<PAGE>
(2) A duly authorized and executed Certificate of Designations of
Series B Convertible Preferred Stock of the Company in the form attached
hereto as ANNEX II (the "Certificate of Designations");
(3) A duly authorized and executed Common Stock Purchase Warrant,
Class B of the Company in the form attached hereto as ANNEX III (the "New
Warrants");
(4) The Registration Rights Agreement in the form attached hereto as
ANNEX IV (the "Registration Rights Agreement"), duly executed on behalf of
the Company; and
(5) An opinion of Snell & Wilmer, L.L.P., addressed to the Buyer and
dated the date hereof, in the form attached hereto as ANNEX V (the
"Opinion").
(c) In order to permit the exchange contemplated by the Exchange
Agreement, the Buyer shall deliver to the Escrow Agent prior to a release to the
Buyer under Section 2(b)(3), the following:
(1) the certificates for the Series A Preferred Shares; and
(2) the certificate for the number of Common Stock Purchase Warrants
shown on EXHIBIT A hereto (the "Warrants").
2. ESCROW EXCHANGE. (a) If an Escrow Exchange Release Event (as
defined in Section 2(c) below) occurs, the Buyer shall have the right at any
time thereafter to give an Escrow Exchange Instruction in the form attached
hereto as ANNEX VI (an "Escrow Exchange Instruction") to the Escrow Agent.
(b) Upon receipt of an Escrow Exchange Instruction,
(1) the Exchange Agreement shall be automatically released from the
escrow created by this Agreement;
(2) as promptly as possible after receipt of such Escrow Exchange
Instruction, the Escrow Agent shall submit, or cause to be submitted, the
Certificate of Designations to the Secretary of State of the State of
Delaware;
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(3) as promptly as possible after the Escrow Agent receives
confirmation of filing of the Certificate of Designations with the
Secretary of State of the State of Delaware, the Escrow Agent shall
(A) insert the date of such filing of the Certificate of Designations
in the certificates for the Series B Preferred Stock held by the Escrow
Agent;
(B) release to the Buyer the following:
(i) the certificates for the Series B Preferred Stock;
(ii) the certificate for the New Warrants; and
(iii) the Opinion;
(C) release to the Company the certificates for the Series A
Preferred Shares and the Warrants; and
(D) notify U.S. Stock Transfer Corporation, as Transfer Agent (the
"Transfer Agent") at 1745 Gardena Avenue, Glendale, California 91204-2991,
in writing of the release of the certificates for the shares of Series B
Preferred Stock and the New Warrants and furnish photostatic copies thereof
to the Transfer Agent
(c) As used in this Agreement, the term Escrow Exchange Release Event
means any one or more of the following:
(1) the Company shall have failed to file with the Securities and
Exchange Commission on or before the close of business on the date which is
six Business Days after the date of this Agreement a Registration Statement
which meets the requirements of the Registration Rights Agreement, dated as
of January 31, 1996, by and between the Company and the Buyer (the
"Registration Rights Agreement");
(2) the Company shall fail to comply in any material respect with its
obligations under the Registration Rights Agreement;
(3) the Registration Statement contemplated by Section 2(a) of the
Registration Rights Agreement and meeting the
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requirements of the Registration Rights Agreement shall not have been
ordered effective by the SEC on or before the date which is 79 days after
the date of this Agreement; or
(4) the Company shall have failed to submit to the SEC an
acceleration request relating to the Registration Statement within five
days after it learned (or should have learned, in the exercise of its best
efforts obligation under Section 3(a) of the Registration Rights Agreement)
that the staff of the SEC would not review the Registration Statement or
had completed its review and had no further comments on the Registration
Statement.
As used in this Agreement, the term Business Day means a day on which
the New York Stock Exchange, Inc. is open for trading securities.
2. CERTAIN AGREEMENTS OF THE COMPANY AND THE BUYER.
(a) AUTHORIZATION FOR TRADING. On or before the date which is six
Business Days after the date of this Agreement, the Company shall file a Nasdaq
SmallCap Market Notification Form for Listing of Additional Shares for the
shares (the "Common Shares") of Common Stock, $.01 par value, of the Company
issuable upon conversion of the Series B Preferred Shares and the New Warrants
with Nasdaq and shall provide evidence of such filing to the Buyer unless the
Company shall, prior to the Closing Date, have obtained written confirmation by
the Nasdaq SmallCap Market that no such filing is required by reason of the
filing of such a form for the shares of Common Stock issuable upon conversion of
the Series A Preferred Shares and the Warrants and shall have furnished a copy
thereof to the Buyer prior to such sixth Business Day.
(b) BLUE SKY LAWS. On or before the date which is six Business Days
after the date of this Agreement, the Company shall take such action as shall be
necessary to qualify, or to obtain an exemption for, the Series B Preferred
Shares and the New Warrants for sale to the Buyer pursuant to the Exchange
Agreement and the Common Shares for issuance to the Buyer on conversion of the
Series B Preferred Shares and on exercise of the New Warrants under such of the
securities or "blue sky" laws of jurisdictions in the United States as shall be
applicable to the sale of the Series B Preferred Shares and New Warrants to the
Buyer pursuant to this Agreement and the issuance of the Common Shares to the
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Buyer on conversion of the Series B Preferred Shares and exercise of the New
Warrants. The Company shall furnish copies of all filings, applications, orders
and grants or confirmations of exemptions relating to such securities or "blue
sky" laws to the Buyer on or prior to such sixth Business Day.
(c) CERTAIN EXPENSES. Whether or not any release to the Buyer from
escrow occurs, the Company shall pay or reimburse the Buyer for all reasonable
legal fees and expenses of counsel for the preparation and negotiation of, and
closing under, this Agreement (but not to exceed $30,000 in the aggregate for
this Agreement and all other similar agreements with holders of shares of Series
A Preferred Stock and the agreements for issuance of additional shares of Series
A Preferred Stock). The obligations of the Company under the provisions of this
Section 2(c) shall be in addition to the obligation of the Company for expenses
under the Registration Rights Agreement.
(d) CERTAIN FUTURE FINANCINGS. The Company has not and shall not
issue any equity securities or securities convertible into, exchangeable for or
otherwise entitling the holder to acquire, any equity securities of the Company
(the "New Equity Securities") (i) from the date of this Agreement to the date
which is 120 days after the date of this Agreement without the prior written
consent of the Buyer and (ii) for a period of one year on or after the date
which is 120 days after the date of this Agreement, without giving the Buyer the
first right to acquire the New Equity Securities on substantially the same terms
on which the New Equity Securities are to be offered to other investors;
PROVIDED, HOWEVER, that nothing in this paragraph shall prohibit the Company
from issuing securities (x) as part of a transaction involving a strategic
alliance, collaboration, joint venture or partnership arrangement of the
Company, (y) pursuant to compensation plans for employees, directors, officers,
advisers or consultants of the Company or (z) upon exercise of conversion,
exchange, purchase or similar rights issued, granted or given by the Company and
outstanding as of the date of this Agreement. The Buyer hereby consents, for
purposes of this Agreement and the Subscription Agreement pursuant to which the
Buyer purchased the Series A Preferred Shares (the "Existing Subscription
Agreement"), to the issuance by the Company of (i) up to 600 shares of Series A
Convertible Preferred Stock, $.01 par value, and related warrants, to Pangaea
Fund Limited for a cash purchase price of $1,000 per share (and related
warrants) and (ii) to the issuance to persons who are
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assisting the Company in arranging debt financing of warrants to purchase up to
500,000 shares of Common Stock at a premium to market price.
(e) TRANSFER AGENT. The Company shall enter into an agreement among
the Company, the Buyer and the Transfer Agent in the form attached hereto as
ANNEX VII contemporaneously with the execution and delivery of this Agreement.
3. AMENDMENT. The Escrow Agent's duties hereunder may be altered,
amended, modified or revoked only by a writing signed by the Company, the Buyer
and the Escrow Agent.
4. ESCROW AGENT RESPONSIBILITIES. The Escrow Agent shall be
obligated only for the performance of such duties as are specifically set forth
herein and may rely and shall be protected in relying or refraining from acting
on any instrument reasonably believed by the Escrow Agent to be genuine and to
have been signed or presented by the proper party or parties. The Escrow Agent
shall have no liability as to the truth or accuracy of the statements made in
any notice or other instrument received by it and shall be under no duty to
determine the truth or accuracy of any such statement. The Escrow Agent shall
not be personally liable for any act the Escrow Agent may do or omit to do
hereunder as Escrow Agent while acting in good faith, and any act done or
omitted by the Escrow Agent pursuant to the advice of the Escrow Agent's
attorneys-at-law shall be conclusive evidence of such good faith. In no event
shall the Escrow Agent incur any liability or be held responsible, if any
certificate for securities or other documents, once released from escrow
hereunder, shall become lost, stolen, destroyed, mutilated or misplaced while in
transit to any person, provided the Escrow Agent shall have dispatched the same
by a means customarily used by the Escrow Agent.
5. JUDICIAL ORDERS. The Escrow Agent is hereby expressly authorized
to disregard any and all warnings given by any of the parties hereto or by any
other person, firm or corporation, excepting only orders or process of courts of
law and is hereby expressly authorized to comply with and obey orders, judgments
or decrees of any court. In case the Escrow Agent obeys or complies with any
such order, judgment or decree, the Escrow Agent shall not be liable to any of
the parties hereto or to any other person, firm or corporation by reason of such
decree being subsequently reversed, modified, annulled, set
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aside, vacated or found to have been entered without jurisdiction.
6. PERSONS ACTING. The Escrow Agent shall not be liable in any
respect on account of the identity, authorities or rights of the parties
executing or delivering or purporting to execute or deliver the Agreement or any
documents or papers deposited or called for hereunder.
7. STATUTES OF LIMITATIONS. The Escrow Agent shall not be liable
for the outlawing of any rights under the Statute of Limitations with respect to
this Agreement or any documents or Escrow Funds deposited with or held by the
Escrow Agent.
8. LEGAL COUNSEL. The Escrow Agent shall be entitled to employ such
legal counsel and other experts as the Escrow Agent may deem necessary properly
to advise the Escrow Agent in connection with the Escrow Agent's obligations
hereunder, may rely upon the advice of such counsel, and may pay such counsel
reasonable compensation therefor. The Escrow Agent has acted as legal counsel
for Tanner, Unman Securities Incorporated and Pangaea Fund Limited in connection
with the transactions contemplated by this Agreement and may continue to act as
legal counsel for such persons notwithstanding its duties as Escrow Agent
hereunder.
9. RESIGNATION. The Escrow Agent's responsibilities as Escrow Agent
hereunder shall terminate if the Escrow Agent shall resign by written notice to
the Company and the Buyer. In the event of any such resignation, the Buyer
shall appoint a successor Escrow Agent.
10. FURTHER ASSURANCES. If the Escrow Agent reasonably requires
other or further instruments in connection with these Joint Escrow Instructions
or obligations in respect hereto, the necessary parties hereto shall join in
furnishing such instruments.
11. DISPUTES. It is understood and agreed that should any dispute
arise with respect to the delivery and/or ownership or right of possession of
the documents held by the Escrow Agent hereunder, the Escrow Agent is authorized
and directed, in its sole discretion (a) to retain in the Escrow Agent's
possession without liability to anyone all or any part of said documents until
such disputes shall have been settled either by mutual
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written agreement of the parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but the Escrow Agent shall be under no
duty whatsoever to institute or defend any such proceedings or (b) at any time,
to deposit the documents with any court of competent jurisdiction in the state
of New York, in which event the Escrow Agent shall give notice thereof to the
Buyer and the Company and shall thereupon be relieved and discharged from all
further obligations hereunder.
12. INDEMNITY, ETC. The Company agrees to pay, indemnify and hold
harmless the Escrow Agent from any and all claims, liabilities, costs or
expenses in any way arising from or relating to the duties or performance of the
Escrow Agent hereunder other than any such claim, liability, cost or expense to
the extent the same shall have been determined by final, unappealable judgment
of a court of competent jurisdiction to have resulted from the gross negligence
or willful misconduct of the Escrow Agent.
13. NOTICES. Any notice required or permitted hereunder shall be
given in writing (unless otherwise specified herein) and shall be deemed
effectively given upon personal delivery or transmission by telephone line
facsimile transmission or three business days after deposit in the United States
Postal Service, by registered or certified mail with postage and fees prepaid,
addressed to each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by ten days
advance written notice to each of the other parties hereto.
COMPANY: At the address set forth in the introductory paragraph of the
Agreement
Attention: President
Facsimile No. (714) 833-3990
BUYER: At the address set forth in the Agreement
Facsimile No. (914) 533-2222
ESCROW AGENT: At the address shown on the first page hereof
Facsimile No. (212) 980-7055
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14. ESCROW AGENT PARTY. By signing this Agreement, the Escrow Agent
does not become a party to the Exchange Agreement. The Escrow Agent is not
responsible or liable to any person for the representations, warranties,
covenants, agreements or performance of the Company or the Buyer under this
Agreement or otherwise.
15. SUCCESSORS, ASSIGNS; GOVERNING LAW. This instrument shall be
binding upon and inure to the benefit of the parties hereto, and their
respective successors and permitted assigns and shall be governed by the laws of
the State of New York.
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Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings provided in the Agreement.
Very truly yours,
GRAPHIX ZONE, INC.
By__________________________________________
Name:
Title:
NAME OF BUYER:
____________________________________________
(print company name)
By__________________________________________
(signature)
Title:
ACCEPTED BY ESCROW AGENT:
_____________________________
Brian W. Pusch, as Escrow
Agent
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Exhibit 10.8
Page 1
THE SECURITIES OF GRAPHIX ZONE, INC. IN CONNECTION WITH THE OFFER AND SALE OF
WHICH THIS DOCUMENT IS BEING DELIVERED HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND MAY NOT BE
OFFERED OR SOLD IN THE UNITED STATES OR TO "U.S. PERSONS," AS DEFINED IN
REGULATION S UNDER THE 1933 ACT (OTHER THAN DISTRIBUTORS, AS DEFINED IN SAID
REGULATION S), UNLESS THE SHARES ARE REGISTERED UNDER THE 1933 ACT, OR AN
EXEMPTION FROM SAID REGISTRATION REQUIREMENT OF THE 1933 ACT IS AVAILABLE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT.
Right to Purchase _____ Shares of
Common Stock of Graphix Zone, Inc.
GRAPHIX ZONE, INC.
COMMON STOCK PURCHASE WARRANT, CLASS B
GRAPHIX ZONE, INC., a Delaware corporation (the "Company"), hereby
certifies that, for value received, ________________ or registered assigns (the
"Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company at any time or from time to time after the date hereof, and before
5:00 p.m., New York City time, on the Expiration Date (as hereinafter defined),
_______ fully paid and nonassessable shares of Common Stock, $.01 par value per
share, of the Company at a purchase price per share equal to the Purchase Price
(as hereinafter defined). The number of such shares of Common Stock and the
Purchase Price are subject to adjustment as provided in this Warrant.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Business Day" as used herein shall mean a day on which
the New York Stock Exchange is open for business.
(b) The term "Common Stock" includes the Company's Common Stock, $.01
par value per share, as authorized on the date hereof, and any other
securities into which or for which the Common Stock may be converted or
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exchanged pursuant to a plan of recapitalization, reorganization, merger,
sale of assets or otherwise.
(c) The term "Company" shall include Graphix Zone, Inc., a Delaware
corporation, and any corporation that shall succeed to or assume the
obligation of Graphix Zone, Inc. hereunder.
(d) The term "Expiration Date" refers to January 31, 2000.
(e) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other person
(corporate or otherwise) which the Holder of this Warrant at any time shall
be entitled to receive, or shall have received, on the exercise of this
Warrant, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 4.
(f) The term "Purchase Price" shall mean $2.50, subject to adjustment
as provided in this Warrant.
1. EXERCISE OF WARRANT.
1.1 EXERCISE AT OPTION OF HOLDER. (a) This Warrant may be exercised
by the Holder hereof in full or in part at any time or from time to time during
the exercise period specified in the first paragraph hereof until the Expiration
Date by surrender of this Warrant and the subscription form annexed hereto (duly
executed) by such Holder, to the Company at its principal office, accompanied by
payment, in cash or by certified or official bank check payable to the order of
the Company in the amount obtained by multiplying (a) the number of shares of
Common Stock designated by the Holder in the subscription form by (b) the
Purchase Price then in effect. On any partial exercise the Company will
forthwith issue and deliver to or upon the order of the Holder hereof a new
Warrant or Warrants of like tenor, in the name of the Holder hereof or as such
Holder (upon payment by such Holder of any applicable transfer taxes) may
request, providing in the aggregate on the face or faces thereof for the
purchase of the number of shares of Common Stock for which such Warrant or
Warrants may still be exercised.
(b) Notwithstanding any other provision of this Warrant, in no event
shall the Holder be entitled at any time to purchase a number of shares of
Common Stock on exercise of this Warrant in excess of that number of shares upon
purchase of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and any person whose beneficial ownership of
shares of Common Stock would be aggregated with such holder's beneficial
ownership of shares of Common Stock for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Regulation
13D-G thereunder (each a "Restricted Person" and collectively, the "Restricted
Persons") (other than shares of Common Stock deemed beneficially owned through
the ownership of the unexercised portion of this Warrant and shares of Preferred
Stock beneficially owned by all Restricted Persons) and (2) the
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number of shares of Common Stock issuable upon exercise of the portion of this
Warrant with respect to which the determination in this sentence is being made,
would result in beneficial ownership by any Restricted Person of more than 4.9%
of the outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and Regulation 13D-G thereunder, except as
otherwise provided in clause (1) of the immediately preceding sentence.
1.2 NET ISSUANCE. Notwithstanding anything to the contrary contained
in Section 1.1, the Holder may elect to exercise this Warrant in whole or in
part by receiving shares of Common Stock equal to the net issuance value (as
determined below) of this Warrant, or any part hereof, upon surrender of this
Warrant at the principal office of the Company together with notice of such
election, in which event the Company shall issue to the Holder a number of
shares of Common Stock computed using the following formula:
X = Y (A-B)
-------
A
Where: X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock as to which this
Warrant is to be exercised
A = the current fair market value of one share of Common Stock
calculated as of the last trading day immediately preceding
the exercise of this Warrant
B = the Purchase Price
As used herein, current fair market value of one share of Common Stock
as of a specified date shall mean the average of the closing bid prices of the
Common Stock on the principal securities market on which the Common Stock may at
the time be traded over a period of five Business Days consisting of the day as
of which the current fair market value of a share of Common Stock is being
determined (or if such day is not a Business Day, the Business Day next
preceding such day) and the four consecutive Business Days prior to such day.
If on the date for which current fair market value is to be determined the
Common Stock is not eligible for trading on any securities market, the current
fair market value of one share of Common Stock shall be the highest price per
share which the Company could then obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by the Board of
Directors of the Company, unless prior to such date the Company has become
subject to a merger, acquisition or other consolidation pursuant to which the
Company is not the surviving party, in which case the current fair market value
of the Common Stock shall be deemed to be the value received by the holders of
the Company's Common Stock for
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each share thereof pursuant to the Company's acquisition.
2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as
practicable after the exercise of this Warrant, and in any event within three
days thereafter, the Company at its expense (including the payment by it of any
applicable issue or stamp taxes) will cause to be issued in the name of and
delivered to the Holder hereof, or as such Holder (upon payment by such Holder
of any applicable transfer taxes) may direct, a certificate or certificates for
the number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which such Holder shall be entitled on such exercise, in such
denominations as may be requested by such Holder, plus, in lieu of any
fractional share to which such Holder would otherwise be entitled, cash equal to
such fraction multiplied by the then current fair market value (as determined in
accordance with subsection 1.2) of one full share, together with any other stock
or other securities any property (including cash, where applicable) to which
such Holder is entitled upon such exercise pursuant to Section 1 or otherwise.
3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.;
RECLASSIFICATION, ETC. In case at any time or from time to time, all the
holders of Common Stock (or Other Securities) shall have received, or (on or
after the record date fixed for the determination of stockholders eligible to
receive) shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property (other
than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of earnings
or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in Section 5), then and in each such case the Holder of this Warrant, on the
exercise hereof as provided in Section 1, shall be entitled to receive the
amount of stock and other securities and property (including cash in the cases
referred to in subdivisions (b) and (c) of this Section 3) which such Holder
would hold on the date of such exercise if on the date hereof the Holder had
been the holder of record of the number of shares of Common Stock called for on
the face of this Warrant and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such shares and all
such other or additional stock and other securities and property (including cash
in the case referred to in subdivisions (b) and (c) of this Section 3)
receivable by the Holder as aforesaid during such period, giving effect to all
adjustments called for during such period by Section 4.
4. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. In
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case at any time or from time to time, the Company shall (a) effect a
reorganization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, as a condition of such reorganization,
consolidation, merger, sale or conveyance, the Company shall give at least 30
days notice to the Holder of such pending transaction whereby the Holder shall
have the right to exercise this Warrant prior to any such reorganization,
consolidation, merger, sale or conveyance. Any exercise of this Warrant
pursuant to notice under this paragraph shall be conditioned upon the closing of
such reorganization, consolidation, merger, sale or conveyance which is the
subject of the notice and the exercise of this Warrant shall not be deemed to
have occurred until immediately prior to the closing of such transaction.
5. ADJUSTMENT FOR EXTRAORDINARY EVENTS. In the event that the
Company shall (i) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (ii) subdivide or reclassify its
outstanding shares of Common Stock, or (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 5.
The Holder of this Warrant shall thereafter, on the exercise hereof as provided
in Section 1, be entitled to receive that number of shares of Common Stock
determined by multiplying the number of shares of Common Stock which would be
issuable on such exercise as of immediately prior to such issuance by a fraction
of which (i) the numerator is the Purchase Price in effect immediately prior to
such issuance and (ii) the denominator is the Purchase Price in effect on the
date of such exercise.
6. FURTHER ASSURANCES. The Company will take all action that may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of stock, free from all taxes, liens and
charges with respect to the issue thereof, on the exercise of all or any portion
of this Warrant from time to time outstanding.
7. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend on, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
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(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of
all or substantially all of the assets of the Company to or consolidation
or merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder, at least ten days prior to such record date, a notice specifying (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or Other
Securities) shall be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up, and (iii) the amount and character of
any stock or other securities, or rights or options with respect thereto,
proposed to be issued or granted, the date of such proposed issue or grant and
the persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall also state that the action in question or
the record date is subject to the effectiveness of a registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), or a
favorable vote of stockholders if either is required. Such notice shall be
mailed at least ten days prior to the date specified in such notice on which any
such action is to be taken or the record date, whichever is earlier.
8. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS.
The Company will at all times reserve and keep available, solely for issuance
and delivery on the exercise of this Warrant, all shares of Common Stock (or
Other Securities) from time to time issuable on the exercise of this Warrant.
9. TRANSFER OF WARRANT. This Warrant shall inure to the benefit of
the successors to and assigns of the Holder. This Warrant and all rights
hereunder, in whole or in part, is registrable at the office or agency of the
Company referred to below by the Holder hereof in person or by his duly
authorized attorney, upon surrender of this Warrant properly endorsed.
10. REGISTER OF WARRANTS. The Company shall maintain, at the
principal office of the Company (or such other office as it may designate by
notice to the Holder hereof), a register in which the Company shall record the
name and address of the person in whose name this Warrant has been issued, as
well as the name and address of each successor and prior owner of such Warrant.
The Company shall be entitled to treat the person in whose name this Warrant is
so registered as the sole and absolute owner of this Warrant for all purposes.
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11. EXCHANGE OF WARRANT. This Warrant is exchangeable, upon the
surrender hereof by the Holder hereof at the office or agency of the Company
referred to in Section 10, for one or more new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares of Common Stock which may be subscribed for purchase hereunder, each
of such new Warrants to represent the right to subscribe for and purchase such
number of shares as shall be designated by said Holder hereof at the time of
such surrender.
12. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
13. WARRANT AGENT. The Company may, by written notice to the Holder,
appoint an agent having an office in the United States of America, for the
purpose of issuing Common Stock (or Other Securities) on the exercise of this
Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 11,
and replacing this Warrant pursuant to Section 12, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
14. REMEDIES. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
15. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant shall
not entitle the Holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the Holder hereof to purchase Common Stock, and no mere
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of such Holder for the Purchase Price or as a stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
16. NOTICES, ETC. All notices and other communications from the
Company to the registered Holder of this Warrant shall be mailed by first class
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such Holder or at the address shown for such Holder on
the register of Warrants referred to in Section 10.
17. INVESTMENT REPRESENTATIONS. By acceptance of this Warrant, the
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Holder represents to the Company that this Warrant is being acquired for the
Holder's own account and for the purpose of investment and not with a view to,
or for sale in connection with, the distribution thereof, nor with any present
intention of distributing or selling this Warrant or the Common Stock issuable
upon exercise of this Warrant. The Holder acknowledges that the Holder has been
afforded the opportunity to ask questions of, and receive answers from
management of the Company and the Company's counsel about the business and
affairs of the Company and concerning the terms and conditions of the offering
of this Warrant, and to obtain any additional information, to the extent that
the Company possessed such information or could acquire it without unreasonable
effort or expense, necessary to verify the accuracy of the information otherwise
obtained by or furnished to the Holder hereof in connection with the offering of
this Warrant. The Holder asserts that it may be considered to be a
sophisticated investor, is familiar with the risks inherent in speculative
investments such as in the Company, has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the investment in this Warrant and the Common Stock issuable upon
exercise of this Warrant, and is able to bear the economic risk of the
investment. By acceptance of this Warrant, the Holder represents to the Company
that it is an "accredited investor" as that term is defined in Rule 501 of the
General Rules and Regulations under the 1933 Act by reason of Rule 501(a)(3).
The Holder acknowledges and agrees that this Warrant and, except as otherwise
provided in the Registration Rights Agreement, dated as of January 31, 1997,
between the Company and the original Holder of this Warrant (the "Registration
Rights Agreement"), the Common Stock issuable upon exercise of this Warrant (if
any) have not been (and at the time of acquisition by the Holder, will not have
been or will not be), registered under the Securities Act or under the
securities laws of any state, in reliance upon certain exemptive provisions of
such statutes. The Holder recognizes and acknowledges that such claims of
exemption are based, in part, upon the representations of the Holder contained
herein. The Holder further recognizes and acknowledges that because this
Warrant and, except as provided in the Registration Rights Agreement, the Common
Stock issuable upon exercise of this Warrant (if any) are unregistered, they may
not be eligible for resale, and may only be resold in the future pursuant to an
effective registration statement under the Securities Act and any applicable
state securities laws, or pursuant to a valid exemption from such registration
requirements. Unless the shares of Common Stock have theretofore been
registered for resale under the Securities Act, the Company may require, as a
condition to the issuance of Common Stock upon the exercise of this Warrant a
confirmation as of the date of exercise of the Holder's representations pursuant
to this Section 17. The Company agrees that on or after the date which is 41
days after the Closing Date, by reason of Regulation S under the 1933 Act the
transfer of the Common Stock issuable upon exercise of this Warrant will be
exempt from registration under the 1933 Act.
18. LEGEND. Unless theretofore registered for resale under the
Securities Act, each certificate for shares issued upon exercise of this Warrant
shall bear the following legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for
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investment and may not be sold, transferred or assigned in the absence of
an effective registration statement for the securities under the Securities
Act of 1933, as amended, or an opinion of counsel that registration is not
required under said Act.
19. MISCELLANEOUS. This Warrant and any terms hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement or such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the internal laws of the State of California. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
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IN WITNESS WHEREOF, Graphix Zone, Inc. has caused this Warrant to be executed on
its behalf by one of its officers thereunto duly authorized.
Dated: , 1997 GRAPHIX ZONE, INC.
By ___________________________
Name:
Title:
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FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO GRAPHIX ZONE, INC.
1. The undersigned Holder of the attached original, executed Warrant
hereby elects to exercise its purchase right under such Warrant with respect to
______________ shares of Common Stock, as defined in the Warrant, of Graphix
Zone, Inc., a Delaware corporation (the "Company").
2. The undersigned Holder (check one):
__ (a) elects to pay the aggregate purchase price for such shares of
Common Stock (the "Exercise Shares") (i) by lawful money of the
United States or the enclosed certified or official bank check
payable in United States dollars to the order of the Company in the
amount of $___________, or (ii) by wire transfer of United States
funds to the account of the Company in the amount of $____________,
which transfer has been made before or simultaneously with the
delivery of this Form of Subscription pursuant to the instructions
of the Company;
or
__ (b) elects to receive shares of Common Stock having a value equal to
the value of the Warrant calculated in accordance with Section 1.2
of the Warrant.
3. Please issue a stock certificate or certificates representing the
appropriate number of shares of Common Stock in the name of the undersigned or
in such other names as is specified below:
Name: _____________________________________
Address: _____________________________________
_____________________________________
Dated:____________ ___, _____ ____________________________
(Signature must conform to name of
Holder as specified on the face of the
Warrant)
____________________________
____________________________
(Address)
