As filed with the Securities and Exchange Commission on March 31, 2000.
Registration No._________
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------
PARADISE MUSIC & ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3906452 (State or other jurisdiction of
incorporation or organization) (I.R.S.
Employer Identification No.)
53 West 23rd Street
New York, NY 10010
(212) 590-2100
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
M. Jay Walkingshaw, President and Chief Operating Officer
Paradise Music & Entertainment, Inc.
53 West 23rd Street - 11th Floor
New York, NY 10010
(212) 590-2100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
Walter M. Epstein, Esq.
Davis & Gilbert LLP
1740 Broadway
New York, New York 10019
(212) 468-4911
-----------------------
Approximate date of commencement of proposed sale to the public: On such date as
the selling stockholders shall elect to commence sales to the public following
the effective date of this registration statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
======================================================================================================
Proposed
maximum Proposed maximum Amount of
Title of each class of Amount to be offering price Aggregate registration
securities to be registered registered per share(1) offering price fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, par value
$.01 per share 3,068,422 (2)(3) 2.4688 $7,575,320 $1,515
======================================================================================================
</TABLE>
(1) Based on the average of the high and low sale prices of the Common stock
reported on the Nasdaq SmallCap Market on March 29, 2000 of $2.4688 per
share, solely for the purpose of calculating the registration fee pursuant
to Rule 457(c).
(2) Consists of common stock issuable upon conversion of certain subordinated
notes and exercise of certain common stock purchase warrants.
(3) Includes shares of common stock underlying the warrants and convertible
notes. Pursuant to Rule 416 of the Securities Act of 1933, as amended, the
registrant is also registering such additional number of shares of the
registrant's common stock that may become issuable as a result of any
stock splits, stock dividends or anti-dilution provisions contained in the
warrants and convertible notes.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Prospectus
Paradise Music & Entertainment, Inc.
Common Stock
3,068,422 Shares
This is an offering of up to 3,068,422 shares by selling stockholders. All
of the shares covered by this offering are shares which would be issued upon the
exercise of options or warrants or by the conversion of convertible notes into
shares. Selling shareholders may determine the prices at which they may sell
such shares, which may be at market prices prevailing at the time of such sale
or some other price. We will not receive any of the sale proceeds from the sale
of any shares by the selling stockholders.
Our shares currently trade on the Nasdaq Small Cap Market and on the
Boston Stock Exchange. (Trading Symbols: Nasdaq Small Cap Market - PDSE; Boston
Stock Exchange - PMU). On March 29, 2000 the last sale price on Nasdaq Small Cap
was 2.4375 per share.
Investing in our company involves a high degree of risk. You should
purchase shares only if you can afford a complete loss. You should carefully
read and review this prospectus including the "Risk Factors" beginning on page 5
before deciding whether to buy shares in this offering.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Prospectus dated March 31, 2000
<PAGE>
Principal Executive Paradise Music & Entertainment, Inc.
Offices: 53 West 23rd Street, 11th Floor
New York, NY 10010
(212) 590-2100
There follows a summary of important information on our business and
recent developments.
Our Business We are a music and entertainment company focused on
supplying traditional and web-centric entertainment
businesses with state-of-the art, film, video,
digital and music-related products, services and
content. Our products, content and services are
offered through three operating groups, namely:
o Paradise Film (including Straw Dogs and
Picture Vision)
o Paradise Music (including Push Records,
Paradise Records, Rave and All Access)
o Paradise Digital Entertainment (including Paradise
Digital Productions)
Our Company is led by industry veterans, Jesse Dylan
and M. Jay Walkingshaw. Each of our operating
companies is managed by well-known entertainment
professionals.
Here are the highlights of our business groups:
Paradise Film Group is engaged in providing film and
-------------------
video production services for commercials, music
videos, music television specials and support services
for our Paradise Digital Entertainment and Paradise
Music groups.
Straw Dogs employs a roster of well-known directors
who produce television commercials. The directors each
have expertise in one or more commercial categories.
Straw Dogs has created and produced television
commercials for numerous national advertisers
including Nike, Coca-Cola, Pepsi, Reebok, Budweiser,
Hallmark, 7-Up, General Motors, AT&T, Sprint,
Chevrolet, McDonald's, Disney, American Express and
Mountain Dew.
Picture Vision produces music videos and music
television specials for numerous well-known musical
artists. These artists include Whitney Houston,
Madonna, Anita Baker, Ray Charles, Van Morrison, Rod
Stewart, Reba McEntire, Billy Joel, Garth Brooks and
Sting. Picture Vision also produces and directs music
television specials and long-form musical video
programs featuring artists including Billy Joel,
Faith Hill, Janet Jackson, Anita Baker, Hall & Oates
and Van Morrison. A recent special, "Garth Brooks
In the Life of Chris Gaines" was aired on NBC.
Picture Vision has received numerous awards for its
productions.
Both Straw Dogs and Picture Vision are paid on a
contract fee basis with profitability based upon
accurate budgeting and efficient operations. Paradise
Film has assisted both our Paradise Music and Paradise
Digital Entertainment groups in providing services
required for those operations.
<PAGE>
Paradise Music Group consists of niche-oriented music
--------------------
companies which produces and delivers
o original musical content for programs
and movies (Rave)
o records (Push and Paradise Records)
o music for advertising (Rave)
o music artist management (All Access)
Paradise and Push Records have produced records for
sale to the public. We have partnered with V2 records
in marketing and distributing a record for Blessid
Union of Souls. We will seek to produce additional
records with V2 in the future. We also have a
distribution agreement with V2/BMG for the
distribution of records. Push and Paradise Records
also have licensing, marketing and distribution and
joint venture agreements with independent record
labels in a selected number of musical genres
including:
o Trippin' N Rhythm/Hardcastle Records - Smooth Jazz,
Urban/Adult Contemporary and Smooth Jazz/NAC
o Jazzica - Smooth Jazz/NAC
o Mesa/Bluemoon Records-Worldbeat, Jazz,
Pop/Rock, and Contemporary Jazz
o Kinetic Records - dance/trance DJ compilations.
Rave produces music for commercials as well as
original musical content for programs and movies.
Rave's composers created the theme music, as well as
the underscore, for Pokemon, the number one rated
kids television series, the 2BA Master television
series soundtrack album on Koch Records which was
certified to be a gold album with sales of over
500,000 units, the score for the Warner Bros. feature
film, Mewtwo Strikes Back and the score for the
direct-to-video animated feature, Pikachu's Winter
Vacation. Rave has also produced original
compositions of advertising themes for clients such
as Bounty Fabric Softener, Pringles and Jif Peanut
Butter.
All Access provides comprehensive career management
services for established, as well as up and coming,
music industry talent. Its current clients include
Daryl Hall & John Oates and Mosh Entertainment, LLC.
Paradise Music Group receives revenues from contract
services, percentage shares and/or royalties from
original musical scores and records and percentage
fees for artist management.
Digital Entertainment Group was established in
---------------------------
January, 2000 to apply our expertise in various
aspects of traditional music and entertainment
production towards the creation, production and
delivery of Internet-related content for the digital
and web-based entertainment markets. Digital
Entertainment Group has production and strategic
relationships with Eruptor Entertainment, Inc., an
entertainment and leisure Internet destination site
targeted at "Generation Y" males and WireBreak.com, a
digital entertainment destination site utilizing a
unique, highly-stylized synchronization of streaming,
"made-for-the-web" video and interactive animation.
We are in the process of producing and filming
episodes two through six of the Jonni Nitro animated
series, starring Olivia D'Abo, for Eruptor.com. Also,
having developed and produced an original pilot of a
"digital show" for WireBreak.com, Paradise Digital
Productions has recently been engaged to produce up
to 26 new
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<PAGE>
episodes of the show. Additionally, Paradise Digital
Productions has entered into an agreement with Yahoo!
to produce and webcast the Yahoo Film Festival. Also,
Paradise Digital Productions has entered into an
alliance with Computer Associates International Inc.,
a leading provider of Internet software solutions, to
combine their expertise in back-end software support
with our content designed for the digital
entertainment market. The first joint effort was the
production and webcast of the Yahoo Film Festival in
March.
Our concept of cross We are able to offer a broader range of services
referrals and than most other small independent companies in our
cross-services: industry by the availability of cross-services
within the Paradise Film, Paradise Music and Digital
Entertainment groups. These services have been
structured to foster more efficient business
operations, lower costs and greater convenience to
customers. We have also been developing new business
opportunities through the interaction of our existing
groups. This development has lead to the launch of
the Digital Entertainment Group which was greatly
assisted through the use of the resources provided by
Paradise Film and Paradise Music groups.
Our Growth Strategy We have adopted a strategic plan to significantly
expand Paradise. Our growth strategy focuses on
three initiatives:
o Fostering internal growth. We intend to
internally grow our groups and their operating units
by expansion of their existing operations through the
addition of key talent including directors, recording
artists, composers and other individuals and the
addition of other products and services.
o Acquisition of complementary businesses. The
industries in which we are active are fragmented and
populated by many smaller organizations which can
benefit from the infrastructure and breadth of our
operations. Consequently we believe that we can
structure attractive acquisition opportunities. We
are currently engaged in identifying such
opportunities and are in discussions with a number of
companies to execute this strategy. Our most recent
acquisition was Mesa/Bluemoon Records.
o Leveraging our core competencies. We plan to
accomplish leveraging of existing groups into related
business areas such as digital media and other
distribution avenues. Our traditional competencies in
the film and music industries provide the foundation
for our introduction into the digital entertainment
industry. We have used our existing talents to build
our Digital Entertainment Group and to enter into
agreements to provide video production services for
content displayed over the Internet and broadband and
to provide packaging of music content and information
for distribution over the Internet and broadband.
Recent Developments: Since the beginning of 1999 we have undergone a
substantive restructuring, including the addition of
key management personnel, securing additional
financial resources, and the acquisition of Straw
Dogs, Inc.
On March 7, 2000, we entered into a $3,000,000
private convertible subordinated note financing with
BayStar Capital, L.P. and BayStar International,
Ltd. The financing was made in the form of Paradise
Senior Subordinated Convertible Notes, convertible
at $2.375 per share, plus five year warrants to
purchase an additional 631,579 shares at an initial
price of $2.61
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<PAGE>
per share. In connection with this financing
transaction, we executed a Securities Purchase
Agreement, a Registration Rights Agreement, and a
Note and a Warrant Agreement with each Buyer.
We changed our fiscal year of June 30 to a calendar
year, ending December 31. The report covering the
transition period was filed on March 30, 2000 on
Form 10-KSB.
On January 11, 2000, Brian Doyle, John Loeffler and
Jon Small resigned as members of the Board to devote
their full time effort to their core operations. The
Board elected Robert A. Buziak as a Director of the
company on the same date. The current Board consists
of Robert A. Buziak, Jesse Dylan, Thomas J. Edelman,
Richard J. Flynn, and Jeffrey Rosen. We entered into
a consulting agreement with Robert Buziak under
which he will provide business advice, in addition
to his services as a director, for the period
January 26, 2000 through January 25, 2001. Mr.
Buziak received 25,000 two year vested warrants to
purchase shares of common stock at $5.00 per share
as compensation for his consulting services.
RISK FACTORS
You should carefully consider the following risk factors, among others,
before deciding to invest in our company.
Our history involves Since our inception in 1996, we have not
substantial losses which are operated profitably and we cannot assure
continuing. you when, if ever, we will become
profitable. We have expended substantial
capital to cover our operating losses.
We will need to raise more We will have to raise additional financing
money in the future. in order to support our business and
acquisition plans. If we cannot get more
capital, we will have to curtail some of our
plans. We cannot assure you that we will be
able to obtain more capital. We also do not
know if the terms requested by future
financing sources will be acceptable to us.
All of our businesses compete In all of our business areas, we compete
with substantially larger and with more established and better financed
better financed companies. companies. We are also at a significant
disadvantage to many of our competitors in
attracting key talent.
Some of our businesses are Our artist management business and our
significantly dependent on record label business have relationships
establishing and maintaining with a limited number of artists. It is
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<PAGE>
relationships with independent difficult to secure these relationships.
artists. Once they have been secured we depend on
the success of these artists, which success
cannot be predicted, in order to realize
revenues.
Our acquisition and joint Our acquisition and joint venture programs
venture program has only are still in an early stage. There can be
recently started. no assurance that the acquisitions and
joint ventures made to date will be
successful. It will be difficult to fund and
finance acquisitions unless we raise more
money or are able to issue stock for such
acquisitions. Even if we complete
acquisitions, we cannot be sure that these
acquisitions will benefit our operations.
Our Digital Entertainment Group We have limited experience in digital
only recently commenced communications and could suffer substantial
operations and is subject to losses. Our success will depend upon many
significant risks. factors, including, implementing our
business strategy, responding to
technological and competitive developments
and the continued growth in the use of the
Internet. The market for music and
entertainment over the Internet may not
become more accepted and widespread for a
number of reasons, including uncertainty
regarding intellectual property ownership.
Each of our businesses are Approximately $2,204,000 and $5,340,000 of
dependent upon large customers television and film production revenues for
the six months ended December 31, 1999 and
fiscal year ended June 30, 1999,
respectively, were derived from one and four
customers, respectively.
Approximately $2,599,000 of recorded music
and artists management revenues for the six
months ended December 31, 1999 was derived
from three customers.
No dividends have been paid. We have never declared or paid a cash
dividend and we do not expect to have
available cash with which to pay cash
dividends in the foreseeable future. If we
have available cash, it is our policy to
invest it in the business.
A large block of previously Owners of large blocks of shares which were
restricted shares can be sold previously restricted can be sold at this
at this time and could lower time. The sale of a large number of these
the price of our shares. shares could lower the price of our shares
or make it harder to attract new investors.
We must continue to deal with Our computer systems or software products
Year 2000 Compliance Issues. of our suppliers or customers may not
accept input of, store, manipulate and output
dates in the year 2000 or thereafter without
error or interruption. While we have not
experienced any Year 2000 problems with our
computer systems, we cannot guarantee that a
Year 2000 problem will not harm our business
in the future.
Special Note Regarding Forward-Looking Statements
Some of the statements contained in this prospectus, including information
incorporated by reference, discuss future expectations, contain projections of
future results of operations or financial condition or provide other
"forward-looking" information. Those statements are subject to known and unknown
risks, uncertainties and other factors that could cause the actual results to
differ materially from those contemplated by the statements. The
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<PAGE>
forward-looking information is based on various factors and was derived using
numerous assumptions. Important factors that may cause actual results to differ
from projections include the risk factors set forth above.
WE HAVE INCORPORATED INFORMATION BY REFERENCE TO OUR OTHER SEC FILINGS; YOU CAN
OBTAIN MORE INFORMATION FROM US OR THE SEC
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
to those documents. The information incorporated by reference is an important
part of this prospectus, and information that we file later with the Commission
will automatically update and supersede this information.
We incorporate by reference the following documents filed by us with the
SEC:
o Our Transition Report on Form 10-KSB for the period of July 1, 1999 to
December 31, 1999.
o Our Annual Report on Form 10-KSB for the year ended June 30, 1999 filed
with the SEC on September 28, 1999.
o Our Quarterly Report on Form 10-QSB for the quarter ended September 30,
1999 filed with the SEC on November 12, 1999.
o Our proxy statement on Form 14A filed with the SEC on November 10, 1999.
o Our current report on Form 8-K filed with the SEC on January 13, 2000.
o Our current report on Form 8-K/A filed with the SEC on February 10, 2000.
o Our current report on Form 8-K filed with the SEC on February 14, 2000.
o All documents and reports filed by us pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this prospectus and prior
to the filing of a post-effective amendment which indicates that all
securities which may be offered hereby have been sold or which deregisters
all securities then remaining unsold.
At your request, we will provide you, without charge, with a copy of any
information incorporated by reference in this prospectus. If you want more
information, write or call us at:
Paradise Music & Entertainment
53 West 23rd Street, 11th Floor
New York, New York 1010
(212) 590-2100
Attn: M. Jay Walkingshaw
We have filed a registration statement on Form S-3, which includes this
prospectus covering this offering, with the Securities and Exchange Commission.
This prospectus does not contain all the information included in the
registration statement. You can request a copy of the registration statement and
the exhibits from us to get a more complete description of our company and this
offering. We have provided our address and telephone number if you wish to
obtain free copies of the registration statement and exhibits.
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information we file at the SEC's public reference room in Washington D.C., New
York, New York and Chicago, Illinois. You can also request copies of these
documents, upon payment of a duplicating fee, by writing to the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings are also available to the public on the SEC
Internet site at http\\www.sec.gov. The registration statement, of which this
prospectus forms a part, including all exhibits, has been filed in electronic
form with the SEC through EDGAR.
7
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth
o The number of shares underlying the convertible notes, warrants or
options held by each selling stockholder,
o The number of shares that may be offered for sale under this
prospectus, and
o The amount of shares that will be owned by each selling stockholder
after the sale of all of the shares offered by this prospectus.
None of the selling shareholders has had any position, office or other material
relationship with us within the past three years other than as a result of the
ownership of our shares or other securities of ours (other than Burton Goldstein
& Co., LLC and Codikow Carroll Guido & Groffman, LLP as consultants, Marco
Brambilla as a production director at Straw Dogs and Jay Moloney as our former
President before his death). The information included below is based on
information provided by the selling stockholders. The table has been prepared on
the assumption that all shares of common stock offered hereby will be sold.
Shares
Shares Underlying Owned
Name Convertible Notes Shares After
Warrants and Options(1) Offered Offering
- ---- ----------------------- ------- --------
BayStar Capital, L.P.(2) 1,578,948 1,578,948 0
BayStar International Ltd. (2) 789,474 789,474 0
Marco Brambilla (3) 250,000 250,000 0
Burton Goldstein & Co., LLC (4) 125,000 125,000 0
Estate of Jay Moloney (5) 225,000 225,000 0
Codikow Carroll Guido &
Groffman, LLP (6) 100,000 100,000 0
- --------
(1) Jesse Dylan and Craig Rodgers, respectively, who had registration rights
covering 1,441,000 shares in the aggregate, have waived their rights to be
included in this Registration Statement.
(2) The number of shares includes the number of shares of common stock
issuable to BayStar Capital and BayStar International upon exercise of
warrants and conversion of convertible subordinated notes. 421,053 and
842,105 shares are issuable to BayStar Capital upon exercise of warrants
and conversion of convertible subordinated notes, respectively, based on
an exercise price of $2.61 and a converstion price of $2.375. 210,526 and
421,053 shares are issuable to BayStar International upon exercise of
warrants and conversion of convertible subordinated notes, respectively.
The foregoing exercise and conversion prices are subject to certain
adjustments as set forth in the respective instruments.
(3) Represents the number of shares of common stock issuable upon exercise of
currently exercisable warrants which expire December 15, 2005. The
exercise price is $5.81.
(4) Represents the number of shares of stock issuable upon exercise of
currently exercisable warrants which expire January 19, 2002. The exercise
prices are as follows: 50,000 shares at $4.00; 25,000 shares at $5.00;
25,000 shares at $6.00; and 25,000 shares at $8.00.
(5) Represents the number of shares of common stock issuable upon exercise of
currently exercisable options which expire July 31, 2000. The exercise
price is $3.00 per share for 100,000 shares and $4.50 per share for
125,000 shares.
(6) Represents the number of shares of stock issuable upon exercise of
currently exercisable warrants which expire April 7, 2002. The exercise
price is $6.19.
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<PAGE>
PLAN OF DISTRIBUTION
The shares are being registered in order to facilitate their sale from
time to time by the selling stockholders, or by their transferees or other
successors, as market conditions may permit. The selling stockholders have not
entered into any underwriting arrangements. We are unable to predict when, if at
all, any of the selling stockholders will sell the shares, as sales will be made
solely at the discretion of each selling stockholder. The sale of the shares by
the selling stockholders and/or their transferees or other successors may be
effected in one or more transactions that may take place on the Nasdaq Small Cap
Market, the over-the-counter market, privately negotiated transactions, through
sales to one or more dealers for resale of the shares as principals or other
types of transactions, or a combination of such methods of sale, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at negotiated prices or such other price as the selling
stockholders determine from time to time. The shares may be sold by one or more
of the following methods (as well as others):
o a block trade in which a broker or dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by such
broker or dealer for its account;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
o face-to-face transactions between sellers and purchasers without a
broker-dealer.
In effecting sales, brokers or dealers engaged by the selling stockholder
may arrange for other brokers or dealers to participate. They may receive
commissions or discounts from the selling stockholders in amounts to be
negotiated immediately prior to the sale. The selling stockholders and brokers
and dealers engaged by them and any other participating brokers or dealers may
be deemed to be "underwriters" within the meaning of the Securities Act, in
connection with such sales.
We have agreed to pay the filing fees, costs and expenses associated with
the registration statement exclusive of fees of counsel to the selling
stockholders other than BayStar, but inclusive of fees relating to compliance
with any state blue sky requirements.
We have agreed to indemnify the selling stockholders, or their transferees
or successors against certain liabilities, including liabilities under the
Securities Act.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 145 of the General Corporation Law of Delaware grants each
Delaware corporation the power to indemnify its officers, directors, employees
and agents against liabilities arising out of any action or proceeding to which
any of them is a party by reason of being such officer, director, employee or
agent. Our certificate of incorporation provides for the indemnification of our
officers, directors, employees and agents to the fullest extent permitted by the
General Corporation Law of Delaware. Insofar as indemnification for liabilities
arising under the Securities Act, may be permitted to directors, officers or
persons controlling the company pursuant to the provisions of Delaware law and
our certificate of incorporation, we have been informed that in the opinion of
the SEC such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
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<PAGE>
LEGAL MATTERS
The validity of the shares offered in this prospectus is being passed upon
for us by Davis & Gilbert LLP, 1740 Broadway, New York, New York, 10019. Walter
M. Epstein, Esq., a member of the firm, owns 49,658 shares of common stock and
Davis & Gilbert LLP owns 18,471 shares of common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the financial
statements in our Transition Report at December 31, 1999 and for the period July
1, 1999 to December 31, 1999 as set forth in their report, which is incorporated
by reference in the prospectus and elsewhere in this Registration Statement. Our
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
The consolidated statements of operations, stockholders' equity and cash
flows for the years ended June 30, 1999 and 1998 incorporated by reference in
this prospectus have been incorporated herein in reliance on the report of
Rothstein, Kass & Company, P.C., independent accountant, given on the authority
of that firm as experts in auditing and accounting.
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<PAGE>
================================================================================
Until ________, 2000, all dealers that
effect transactions in these securities
may be required to deliver a prospectus.
We have not authorized any person to 3,068,422 Shares
give any information or to make any
representations other than those
contained in this prospectus. You
must not rely upon any information
or representation not contained or PARADISE MUSIC
incorporated by reference in this &
prospectus as if we had authorized ENTERTAINMENT,
it. If any person does make a INC.
statement that differs from what is
in this prospectus, you should not
rely on it. This prospectus does
not constitute an offer to sell or a
solicitation of an offer to buy any Common stock
securities other than the securities
to which they relate nor does this
prospectus constitute an offer to _______________
sell or the solicitation of an offer
to buy securities in any state or PROSPECTUS
other jurisdiction to any person to _______________
whom it is unlawful to make such
offer or solicitation in such
jurisdiction. The information March 31, 2000
contained in this prospectus is
accurate as of the date of its
cover. When we deliver this
prospectus or make a sale pursuant
to this prospectus, we are not
implying that the information is
current as of the date of the
delivery of the sale.
----------------------------
TABLE OF CONTENTS
Page
Prospectus Summary ................2
Risk Factors ......................5
Selling Stockholders ..............8
Plan of Distribution ..............9
Disclosure of Commission Position on
Indemnification For Securities Act
Liabilities.......................9
Legal Matters .....................10
Experts............................10
================================================================================
<PAGE>
INFORMATION NOT REQUIRED IN THE PROSPECTUS
The company will bear no expenses in connection with any sale or other
distribution by the selling stockholders of the shares being registered other
than the expenses of preparation and distribution of this registration statement
and the prospectus included in this registration statement. Such expenses are
set forth in the following table. All of the amounts are estimates except the
Securities and Exchange Commission filing fee.
Item 14. Other Expenses of Issuance and Distribution.
--------------------------------------------
SEC registration fee .....................$1,515
Accounting fees and expenses..............$2,500
Legal fees and expenses..................$20,000
Printing expenses.........................$3,000
Miscellaneous.............................$2,985
Total.................................$30,000
- -----------
Item 15. Indemnification of Directors and Officers.
Under Section 145 of the Delaware General Corporation Law (the "DGCL"),
the company has broad powers to indemnify its directors, officers and other
employees. This section (i) provides that the provisions of the DGCL relating to
the statutory indemnification and advancement of expenses are not exclusive,
provided that no indemnification may be made to or on behalf of any director or
officer if a judgment or other final adjudication adverse to the director or
officer establishes that his acts were committed in bad faith or were the result
of active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled, (ii) establishes procedures for
indemnification and advancement of expenses that may be contained in the
certificate of incorporation or by-laws, or, when authorized by either of the
foregoing, set forth in a resolution of the stockholders or directors or an
agreement providing for indemnification and advancement of expenses, (iii)
applies a single standard for statutory indemnification for third-party and
derivative suits by providing that indemnification is available if the director
or officer acted in good faith, for a purpose which he reasonably believed to be
in the best interests of the company, and, in criminal actions, had no
reasonable cause to believe that his conduct was unlawful, and (iv) permits the
advancement of litigation expenses upon receipt of an undertaking to repay such
advance if the director or officer is ultimately determined not to be entitled
to indemnification or to the extent the expenses advanced exceed the
indemnification to which the director or officer is entitled. Section 145(g) the
DGCL permits the purchase of insurance to indemnify a corporation or its
officers and directors to the extent permitted.
As permitted by Section 145(e) of the DGCL, the company's by-laws
provide that the company shall indemnify its officers and directors, as such, to
the fullest extent permitted by applicable law, and that expenses reasonably
incurred by any such officer or director in connection with a threatened or
actual action or proceeding shall be advanced or promptly reimbursed by the
company in advance of the final disposition of such action or proceeding upon
receipt of an undertaking by or on behalf of such officer or director to repay
such amount if and to the extent that it is ultimately determined that such
officer or director is not entitled to indemnification.
Article Seventh of the company's certificate of incorporation provides
that no director of the company shall be held personally liable to the company
or its stockholders for damage for any breach of duty in his capacity as a
director unless a judgment or other final adjudication adverse to him
establishes that (1) he breached his duty of loyalty to the company or its
stockholders, or (2) his acts or omissions were in bad faith or involved
intentional misconduct or a knowing violation of law, or (3) he personally
gained in fact a financial profit or other advantage to which he was not legally
entitled, or (4) his acts violated Section 174 of the DGCL.
II-1
<PAGE>
The company's by-laws provide that the company will indemnify its
directors, officers and employees against judgments, fines, amounts paid in
settlement and reasonable expenses.
The company has obtained and intends to maintain in effect liability
insurance for the benefit of its directors and officers.
Item 16. Exhibits.
Exhibit Description
- ------- -----------
1 Not Applicable
2 Not Applicable
4 Instruments defining the rights of security holders, including
indentures:
(A) Certificate of Incorporation, as amended (Incorporated by
reference to the company's registration statement on Form SB-2
(File No: 333-13941) effective January 22, 1997).
(B) By-Laws (Incorporated by reference to the company's
registration statement on Form SB-2 (File No: 333-13941)
effective January 22, 1997).
(C) Specimen Common stock certificate (Incorporated by reference
to the company's registration statement on Form SB-2 (File No:
333-13941) effective January 22, 1997).
* (D) Form of Common Stock Purchase Warrant issued to BayStar
Capital, L.P. and BayStar International Ltd., respectively.
* (E) Form of 9% Senior Subordinated Convertible Note issued to
BayStar Capital, L.P. and BayStar International Ltd.,
respectively.
5 * Opinion of Davis & Gilbert LLP
8 Not Applicable
15 Not Applicable
23.1 * Consent of Ernst & Young LLP
23.2 * Consent of Rothstein, Kass & Company, P.C.
23.3 * Consent of Davis & Gilbert LLP (included in the opinion
filed as Exhibit No. 5)
24 Reference is made to the signature page
25 Not Applicable
26 Not Applicable
27 Not Applicable
- --------------
* Filed herewith
II-2
<PAGE>
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any additional or changed material information
with respect to the plan of distribution:
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required in a post-effective amendment is incorporated by reference
from periodic reports filed with the Commission by the registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act").
(2) That, for the purpose of determining any liability under the
Securities Act, the undersigned will treat each such post-effective amendment as
a new registration statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering thereof.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the company's
annual report pursuant to section 13(a) or section 15(d) of the Exchange Act
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the company, pursuant to the provisions described in Item 15 above, or
otherwise, the company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the company of expenses incurred or paid by a director, officer or
controlling person of the company in the successful defense of any action, suit
or proceeding) is asserted by any such director, officer or controlling person
in connection with the securities being registered, the company will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether or not
such indemnification is against public policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
(d) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
II-3
<PAGE>
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be the initial bona fide
offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York in the State of
New York on March 31, 2000.
PARADISE MUSIC & ENTERTAINMENT, INC.
By /s/ M. Jay Walkingshaw
-----------------------------------
M. Jay Walkingshaw
President and Chief Operating Officer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each whose signature appears below
hereby severally constitutes and appoints Jesse Dylan and M. Jay Walkingshaw and
each of them, his true and lawful attorneys-in-fact and agents, each acting
alone, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign this registration
statement and any and all amendments (including post-effective amendments) to
this registration statement and all documents relating thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone full power and authority to do
and perform each and every act and thing necessary or advisable to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement on Form S-3 has been signed by the following persons in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ JESSE DYLAN Chairman of the Board, March 31, 2000
- ------------------------ Chief Executive Officer
Jesse Dylan and Director
/s/ M. JAY WALKINGSHAW. President and Chief March 31, 2000
- ------------------------------ Operating Officer
M. Jay Walkingshaw
/s/ RICHARD FLYNN Chief Financial Officer, March 31, 2000
- ------------------------------ Treasurer, Secretary
Richard Flynn and Director
/s/ ROBERT BUZIAK Director March 31, 2000
- ------------------------
Robert Buziak
/s/ THOMAS J. EDELMAN Director March 31, 2000
- -----------------------------
Thomas J. Edelman
/s/ JEFFREY ROSEN Director March 31, 2000
- ------------------------------
Jeffrey Rosen
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED IN THE PRESENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
PARADISE MUSIC & ENTERTAINMENT, INC.
COMMON STOCK PURCHASE WARRANT
No. W-1 March 7, 2000
Warrant to Purchase __________
Shares of Common Stock
PARADISE MUSIC & ENTERTAINMENT, INC., a Delaware corporation (the
"Company"), for value received, hereby certifies that _________________ or
registered assigns (the "Holder"), is entitled to purchase from the Company
_________ duly authorized, validly issued, fully paid and nonassessable shares
of Common Stock, par value $.01 per share, of the Company (the "Common Stock"),
at a purchase price equal to $2.61 per share (the "Purchase Price"), at any time
or from time to time from and after the Vesting Date and prior to 5:00 P.M., New
York City time, on March 7, 2005 (the "Expiration Date"), all subject to the
terms, conditions and adjustments set forth below in this Warrant.
This Warrant is one of the Common Stock Purchase Warrants
(collectively, the "Warrants", such term to include any such warrants issued in
substitution therefor) originally issued pursuant to the terms of the Securities
Purchase Agreement, dated as of March 7, 2000, by and among the Company and the
Buyers signatory thereto (the "Purchase Agreement"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned such
terms in the Purchase Agreement.
1. DEFINITIONS. As used herein, unless the context otherwise
requires, the following terms shall have the meanings indicated:
<PAGE>
"Additional Shares of Common Stock" shall mean, all shares
(including treasury shares) of Common Stock issued or sold or deemed to be
issued by the Company after the date hereof, whether or not subsequently
reacquired or retired by the Company other than (i) shares of Common Stock
issued upon conversion of the Notes, (ii) shares of Common Stock issued upon
exercise of the Warrants, (iii) shares of Common Stock issued pursuant to
Approved Stock Plans and (iv) shares of Common Stock issued upon exercise of
options or warrants listed on Schedule 3(c) of the Purchase Agreement pursuant
to the terms as they exist on the date hereof and provided further that the
exercise price paid upon exercise of any such option or warrant is not lower
than the greater of (x) Average Market Price at the time of the grant of such
option or warrant and (y) Conversion Price as of the relevant exercise date.
"Approved Stock Plan" shall mean any contract, plan or agreement
which has been or shall be approved by the Board of Directors of the Company,
pursuant to which the Company's securities may be issued to any employee,
officer, director, consultant or other service provider of the Company in an
aggregate amount that does not exceed 110% of the number of securities issuable
as of March 7, 2000 pursuant to any currently existing Approved Stock Plan plus
the number of securities issuable pursuant to stock options, convertible
securities or warrants granted in connection with any Strategic Financing
provided that such number shall not exceed the number of securities issuable
immediately prior to the consummation of such Strategic Financing.
"Average Market Price" shall mean the average of the Closing Bid
Prices of the Common Stock for the five (5) trading days immediately preceding
the applicable date.
"Business Day" shall mean any day other than a Saturday or a Sunday
or a day on which commercial banking institutions in the City of New York are
authorized by law to be closed. Any reference to "days" (unless Business Days
are specified) shall mean calendar days.
"Buy in Actual Damages" shall have the meaning assigned to it in
Section 2.6 of this Agreement.
"Closing Bid Price" shall mean for any security as of any date, the
closing bid price of such security on the principal securities exchange or trade
market where such security is listed or traded as reported by Bloomberg, L.P.
("Bloomberg"), or if the foregoing does not apply, the closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price is reported
for such security by Bloomberg, the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date, as set forth above, the Closing Bid Price of such
security shall be the fair market value as determined in good faith by an
investment banking firm selected
2
<PAGE>
jointly by the Company and the Holders, with the fees and expenses of such
determination borne solely by the Company.
"Commission" shall mean the Securities and Exchange Commission or
any successor agency having jurisdiction to enforce the Securities Act.
"Common Stock" shall have the meaning assigned to it in the
introduction to this Warrant, such term to include any stock into which such
Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock, and all other stock of any class or
classes (however designated) of the Company the holders of which have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference.
"Company" shall have the meaning assigned to it in the introduction
to this Warrant, such term to include any corporation or other entity which
shall succeed to or assume the obligations of the Company hereunder in
compliance with Section 4.
"Convertible Notes" shall mean the 9% Senior Subordinated
Convertible Notes of the Company referred to in the Purchase Agreement.
"Convertible Securities" shall mean any evidences of indebtedness,
shares of stock (other than Common Stock) or other securities directly or
indirectly convertible into or exchangeable for Additional Shares of Common
Stock.
"Current Market Price" shall mean, on any date specified herein, the
average of the daily Closing Bid Prices for the Common Stock during the 10
consecutive trading days commencing 15 trading days before such date, except
that, if on any such date the shares of Common Stock are not listed or admitted
for trading on any national securities exchange or quoted in the
over-the-counter market, the Current Market Price shall be the Fair Value on
such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations thereunder, or any
successor statute.
"Expiration Date" shall have the meaning assigned to it in the
introduction to this Warrant.
"Fair Value" shall mean, on any date specified herein (i) in the
case of cash, the dollar amount thereof, (ii) in the case of a security admitted
for trading on any national securities exchange or quoted in the
over-the-counter market, the Current Market Price, and (iii) in all other cases
as determined in good faith jointly by the Board of Directors of the Company and
the Holder; provided, however, that if such parties are unable to reach
agreement within a reasonable period of time, the Fair Value shall be determined
in good faith by an independent investment banking firm selected jointly by
3
<PAGE>
the Company and the Holder or, if that selection cannot be made within ten days,
by an independent investment banking firm selected by the American Arbitration
Association in accordance with its rules, and provided further, that the Company
shall pay all of the fees and expenses of any third parties incurred in
connection with determining the Fair Value.
"First Anniversary Date" shall mean March 7, 2001.
"Options" shall mean any rights, options or warrants to subscribe
for, purchase or otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.
"Other Securities" shall mean any stock (other than Common Stock)
and other securities of the Company or any other Person (corporate or otherwise)
which the holders of the Warrants at any time shall be entitled to receive, or
shall have received, upon the exercise of the Warrants, 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 or otherwise.
"Person" shall mean any individual, firm, partnership, corporation,
trust, joint venture, association, joint stock company, limited liability
company, unincorporated organization or any other entity or organization,
including a government or agency or political subdivision thereof, and shall
include any successor (by merger or otherwise) of such entity.
"Purchase Agreement" shall have the meaning assigned to it in the
introduction to this Warrant.
"Purchase Price" shall mean (i) initially the amount per share
indicated in the introductory paragraph to this Warrant and (ii) at the option
of the Holder (provided that the Holder delivers written notice to the Company
of its election of such option on or before 61 days prior to the First
Anniversary Date), on and after the First Anniversary Date, the amount per share
equal to the lesser of (A) the then current Purchase Price and (B) the average
of the daily Closing Bid Prices for the Common Stock for the twenty trading days
immediately preceding the First Anniversary Date, in the case of (i) and (ii)
subject to adjustment and readjustment from time to time as provided in Section
3, and, as so adjusted or readjusted, shall remain in effect until a further
adjustment or readjustment thereof is required by Section 3.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated as of March 7, 2000, substantially in the form of Exhibit C to
the Purchase Agreement.
"Related Business" shall mean a company whose business is directly
related to or complementary to or is a reasonable extension of the Company's
current line of business as reasonably determined by the Company's Board of
Directors.
4
<PAGE>
"Rights" shall have the meaning assigned to it in Section 3.10.
"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time, and the rules and regulations thereunder, or any successor
statute.
"Strategic Financing" shall mean: any investment (whether by the
Company or any of its subsidiaries) in another Related Business, or in real
property or other assets of another Related Business; provided that such
investment has the potential to promote a strategic objective of the Company or
any of its subsidiaries as reasonably determined by the Company's Board of
Directors.
"Vesting Date" shall mean the earlier of (a) the First Anniversary
Date and (b) the date upon which the Closing Bid Price of the Company's Common
Stock is greater than $9.00 per share.
"Warrants" shall have the meaning assigned to it in the introduction
to this Warrant.
2. EXERCISE OF WARRANT.
2.1. Manner of Exercise; Payment of the Purchase Price. (a) This
Warrant may be exercised by the Holder, in whole or in part, at any time or from
time to time after the Vesting Date and prior to the Expiration Date, by
surrendering to the Company at its principal office (or such other office or
agency of the Company as the Company may designate in a written notice to the
Holder) this Warrant, together with the form of Election to Purchase Shares
attached hereto as Exhibit A (or a reasonable facsimile thereof) duly executed
by the Holder and accompanied by payment of the Purchase Price as described
below for the number of shares of Common Stock specified in such form.
(b) Payment of the Purchase Price may be made as follows (or by any
combination of the following): (i) in United States currency by cash or delivery
of a certified check or bank draft payable to the order of the Company or by
wire transfer to the account of the Company, (ii) by cancellation of all or any
part of the unpaid principal amount of the Convertible Notes held by the Holder
in an amount equal to the Purchase Price, (iii) by cancellation of such number
of the shares of Common Stock otherwise issuable to the Holder upon such
exercise as shall be specified in such Election to Purchase Shares, such that
the excess of the Current Market Price of such specified number of shares on the
date of exercise over the portion of the Purchase Price attributable to such
shares shall equal the Purchase Price attributable to the shares of Common Stock
to be issued upon such exercise, in which case upon delivery of such notice such
amount shall be deemed to have been paid to the Company and the number of shares
issuable upon such exercise shall be reduced by such specified number, or (iv)
by surrender to the Company for cancellation, certificates representing shares
of Common Stock of the Company owned by the Holder (properly endorsed for
transfer in blank)
5
<PAGE>
having a Current Market Price on the date of Warrant exercise equal to the
Purchase Price.
2.2. When Exercise Effective. Each exercise of this Warrant shall be
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant shall have been surrendered to, and the
Purchase Price shall have been received by, the Company as provided in Section
2.1, and at such time the Person or Persons in whose name or names any
certificate or certificates for shares of Common Stock (or Other Securities)
shall be issuable upon such exercise as provided in Section 2.3 shall be deemed
to have become the holder or holders of record thereof for all purposes.
2.3. Delivery of Stock Certificates, etc.; Charges, Taxes and
Expenses. Subject to Section 2.5 (a) as soon as practicable after each exercise
of this Warrant, in whole or in part, and in any event within three Business
Days thereafter, the Company shall cause to be issued in such denominations as
may be requested by Holder in the Election to Purchase Shares, in the name of
and delivered to the Holder or, subject the Purchase Agreement, as the Holder
may direct,
(i) a certificate or certificates, or, if then permissible under the
Securities Act, at a Holder's request to electronically issue such shares
(e.g., through DWAC or DTC), for the number of shares of Common Stock (or
Other Securities) to which the Holder shall be entitled upon such exercise
plus, in lieu of issuance of any fractional share to which the Holder
would otherwise be entitled, if any, a certified check for the amount of
cash equal to the same fraction multiplied by the Current Market Price per
share on the date of Warrant exercise, provided, however, that in the
event sufficient funds are not legally available for the payment of such
amount, the number of shares of Common Stock for which such certificate(s)
represents shall be rounded up to the nearest whole number, and
(ii) in case such exercise is for less than all of the shares of
Common Stock purchasable under this Warrant, a new Warrant or Warrants of
like tenor, for the balance of the shares of Common Stock purchasable
hereunder.
(b) Issuance of certificates for shares of Common Stock upon the
exercise of this Warrant shall be made without charge to the Holder hereof for
any issue or transfer tax or other incidental expense, in respect of the
issuance of such certificates, all of which such taxes and expenses shall be
paid by the Company.
2.4. Company to Reaffirm Obligations. The Company shall, at the time
of each exercise of this Warrant, upon the request of the Holder hereof,
acknowledge in writing its continuing obligation to afford to such Holder all
rights to which such Holder shall continue to be entitled after such exercise in
accordance with the terms of this Warrant, provided that if the Holder of this
Warrant shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford such rights to the Holder.
6
<PAGE>
2.5. Exercise Disputes. In the case of any dispute with respect to
the number of shares to be issued upon exercise of this Warrant, the Company
shall promptly issue such number of shares of Common Stock that is not disputed
and shall submit the disputed determinations or arithmetic calculations to the
Holder via facsimile within two (2) Business Days of receipt of the Holder's
Election to Purchase Shares. If the Holder and the Company are unable to agree
as to the determination of the Purchase Price within two (2) Business Days of
such disputed determination or arithmetic calculation being submitted to the
Holder, then the Company shall in accordance with this Section, submit via
facsimile the disputed determination to an independent reputable accounting firm
of national standing, selected jointly by the Company and the Holder. The
Company shall cause such accounting firm to perform the determinations or
calculations and notify the Company and the Holder of the results within
forty-eight (48) hours from the time it receives the disputed determinations of
calculations. Such accounting firm's determination shall be binding upon all
parties absent manifest error. The Company shall then on the next Business Day
issue certificate(s) representing the appropriate number of shares of Common
Stock in accordance with such accounting firm's determination and this Section.
All fees and expenses of such determination and calculation shall be borne by
the Company.
2.6. Failure to Deliver Common Stock If, at any time, the Holder of
this Warrant submits this Warrant, an Election to Purchase Shares and payment to
the Company of the Purchase Price for each of the shares of Common Stock
specified in the Election to Purchase Shares in accordance with Section 2.1
above, and the Company, for any reason, fails to deliver, on or prior to the
last possible date which the Company could have issued such Common Stock to the
Holder without violating this Section 2, the number of shares of Common Stock
for which the Holder is entitled upon such exercise, the Company shall pay
damages to the Holder equal to the greater of (a) actual damages incurred by the
Holder as a result of the Holder's needing to "buy in" shares of Common Stock to
the extent necessary to satisfy its securities delivery requirements ("Buy In
Actual Damages") and (b) if the Company fails to deliver such certificates
within five days after the last possible date on which the Company could have
issued such Common Stock to the Holder without violating this Section 2, on each
date such exercise is not timely effected in an amount equal to 1% of the
product of (i) the number of shares of Common Stock not issued to the Holder on
a timely basis and to which the Holder is entitled and (ii) the Closing Bid
Price of the Common Stock on the last possible date which the Company could have
issued such Common Stock to the Holder without violating this Section 2.
2.7. Purchase Price. At least 90 days prior to the First Anniversary
Date, the Company shall deliver a written notice to the Holder, requesting a
response as to whether the Holder chooses to exercise its option in respect of
the reduction of the Purchase Price.
7
<PAGE>
3. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE.
3.1. Adjustment of Number of Shares.
Upon each adjustment of the Purchase Price as a result of the
calculations made in this Section 3, this Warrant shall thereafter evidence the
right to receive, at the adjusted Purchase Price, that number of shares of
Common Stock (calculated to the nearest one-hundredth) obtained by dividing (i)
the product of the aggregate number of shares covered by this Warrant
immediately prior to such adjustment and the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price by (ii) the Purchase
Price in effect immediately after such adjustment of the Purchase Price.
3.2. Adjustment of Purchase Price.
3.2.1. Issuance of Additional Shares of Common Stock. In case the
Company at any time or from time to time after the date hereof shall issue or
sell Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 3.3 or 3.4 but excluding
Additional Shares of Common Stock purchasable upon exercise of Rights referred
to in Section 3.10), without consideration or for a consideration per share less
than the Average Market Price as in effect immediately prior to such issue or
sale, then, and in each such case, subject to Section 3.8, the Purchase Price
shall be reduced, concurrently with such issue or sale, to a price (calculated
to the nearest .001 of a cent) determined by multiplying such Purchase Price by
a fraction
(a) the numerator of which shall be the sum of (i) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
and (ii) the number of shares of Common Stock which the gross
consideration received by the Company for the total number of such
Additional Shares of Common Stock so issued or sold would purchase at such
Current Market Price, and
(b) the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such issue or sale, provided that, for
the purposes of this Section 3.2.1, (x) immediately after any Additional
Shares of Common Stock are deemed to have been issued pursuant to Section
3.3 or 3.4, such Additional Shares shall be deemed to be outstanding, and
(y) treasury shares shall not be deemed to be outstanding.
3.2.2. Extraordinary Dividends and Distributions. In case the
Company at any time or from time to time after the date hereof shall declare,
order, pay or make a dividend or other distribution (including, without
limitation, any distribution of other or additional stock or other securities or
property or Options by way of dividend or spin-off, reclassification,
recapitalization or similar corporate rearrangement) on the Common Stock, then,
in each such case, subject to Section 3.8, the Purchase Price in effect
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immediately prior to the close of business on the record date fixed for the
determination of holders of any class of securities entitled to receive such
dividend or distribution shall be reduced, effective as of the close of business
on such record date, to a price determined by multiplying such Purchase Price by
a fraction
(x) the numerator of which shall be the Current Market Price in
effect on such record date or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading, less the Fair Value of such dividend or distribution applicable
to one share of Common Stock, and
(y) the denominator of which shall be such Current Market Price.
3.3. Treatment of Options and Convertible Securities. In case the
Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities of the Company entitled to receive, any
Options or Convertible Securities (whether or not the rights thereunder are
immediately exercisable) other than such options or convertible securities under
which shares issued upon exercise or conversion would not constitute Additional
Shares of Common Stock, then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue, sale, grant or assumption or,
in case such a record date shall have been fixed, as of the close of business on
such record date (or, if the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading), provided that such
Additional Shares of Common Stock shall not be deemed to have been issued unless
(i) the consideration per share (determined pursuant to Section 3.5) of such
shares would be less than the Average Market Price as in effect on the date of
and immediately prior to such issue, sale, grant or assumption or immediately
prior to the close of business on such record date (or, if the Common Stock
trades on an ex-dividend basis, on the date prior to the commencement of
ex-dividend trading), as the case may be and (ii) such Additional Shares of
Common Stock are not purchasable pursuant to Rights referred to in Section 3.10,
and provided, further, that
(a) whether or not the Additional Shares of Common Stock underlying
such Options or Convertible Securities are deemed to be issued, no further
adjustment of the Purchase Price shall be made upon the subsequent issue
or sale of Convertible Securities or shares of Common Stock upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of
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Common Stock issuable, upon the exercise, conversion or exchange thereof
(by change of rate or otherwise), the Purchase Price computed upon the
original issue, sale, grant or assumption thereof (or upon the occurrence
of the record date, or date prior to the commencement of ex-dividend
trading, as the case may be, with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options, or the rights of conversion or
exchange under such Convertible Securities, which are outstanding at such
time;
(c) upon the expiration or termination (or purchase by the Company
and cancellation or retirement) of any such Options which shall not have
been exercised or the expiration of any rights of conversion or exchange
under any such Convertible Securities which (or purchase by the Company
and cancellation or retirement of any such Convertible Securities the
rights of conversion or exchange under which) shall not have been
exercised, the Purchase Price computed upon the original issue, sale,
grant or assumption thereof (or upon the occurrence of the record date, or
date prior to the commencement of ex-dividend trading, as the case may be,
with respect thereto), and any subsequent adjustments based thereon,
shall, upon such expiration (or such cancellation or retirement, as the
case may be), be recomputed as if:
(i) in the case of Options for Common Stock or Convertible
Securities, the only Additional Shares of Common Stock issued or
sold were the Additional Shares of Common Stock, if any, actually
issued or sold upon the exercise of such Options or the conversion
or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the
Company for the issue, sale, grant or assumption of all such
Options, whether or not exercised, plus the consideration actually
received by the Company upon such exercise, or for the issue or sale
of all such Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually
received by the Company upon such conversion or exchange, and
(ii) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued or sold upon the
exercise of such Options were issued at the time of the issue or
sale, grant or assumption of such Options, and the consideration
received by the Company for the Additional Shares of Common Stock
deemed to have then been issued was the consideration actually
received by the Company for the issue, sale, grant or assumption of
all such Options, whether or not exercised, plus the consideration
deemed to have been received by the Company (pursuant to Section
3.5) upon the issue or sale of such Convertible Securities with
respect to which such Options were actually exercised;
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(d) no readjustment pursuant to subdivision (b) or (c) above shall
have the effect of increasing the Purchase Price by an amount in excess of
the amount of the adjustment thereof originally made in respect of the
issue, sale, grant or assumption of such Options or Convertible
Securities; and
(e) in the case of any such Options which expire by their terms not
more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Purchase Price shall be made until the
expiration or exercise of all such Options, whereupon such adjustment
shall be made in the manner provided in subdivision (c) above.
3.4. Treatment of Stock Dividends, Stock Splits, etc. In case the
Company at any time or from time to time after the date hereof shall declare or
pay any dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the day immediately prior to the day upon which such corporate action becomes
effective.
3.5. Computation of Consideration. For the purposes of this Section
3,
(a) the consideration for the issue or sale of any Additional Shares
of Common Stock shall, irrespective of the accounting treatment of such
consideration,
(i) insofar as it consists of cash, be computed at the amount
of cash received by the Company, without deducting any expenses paid
or incurred by the Company or any commissions or compensations paid
or concessions or discounts allowed to underwriters, dealers or
others performing similar services in connection with such issue or
sale,
(ii) insofar as it consists of property (including securities)
other than cash, be computed at the Fair Value thereof at the time
of such issue or sale, and
(iii) in case Additional Shares of Common Stock are issued or
sold together with other stock or securities or other assets of the
Company for a consideration which covers both, be the portion of
such consideration so received, computed as provided in clauses (i)
and (ii) above, allocable to such Additional Shares of Common Stock,
such allocation to be determined in the same manner that the Fair
Value of property not
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consisting of cash or securities is to be determined as provided in
the definition of 'Fair Value' herein;
(b) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 3.3, relating to Options and Convertible Securities,
shall be deemed to have been issued for a consideration per share
determined by dividing
(i) the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant or assumption of
the Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration
to protect against dilution) payable to the Company upon the
exercise in full of such Options or the conversion or exchange of
such Convertible Securities or, in the case of Options for
Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible
Securities, in each case computing such consideration as provided in
the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
number to protect against dilution) issuable upon the exercise of
such Options or the conversion or exchange of such Convertible
Securities; and
(c) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 3.4, relating to stock dividends, stock splits, etc.,
shall be deemed to have been issued for no consideration.
3.6. Adjustments for Combinations, etc. In case the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Purchase Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
3.7. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in Section 4) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis consistent with the standards established in the
other provisions of this Section 3, the purchase rights granted by this Warrant,
then, and in each such case, the computations, adjustments and
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<PAGE>
readjustments provided for in this Section 3 with respect to the Purchase Price
and the number of shares purchasable upon Warrant exercise shall be made as
nearly as possible in the manner so provided and applied to determine the amount
of Other Securities from time to time receivable upon the exercise of the
Warrants, so as to protect the holders of the Warrants against the effect of
such dilution.
3.8. De Minimis Adjustments. If the amount of any adjustment of the
Purchase Price per share required pursuant to this Section 3 would be less than
$.01, such amount shall be carried forward and adjustment with respect thereto
made at the time of and together with any subsequent adjustment which, together
with such amount and any other amount or amounts so carried forward, shall
aggregate a change in the Purchase Price of at least $.01 per share. All
calculations under this Warrant shall be made to the nearest .001 of a cent or
to the nearest one-hundredth of a share, as the case may be.
3.9. Abandoned Dividend or Distribution. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution (which results in an adjustment to the
Purchase Price under the terms of this Warrant) and shall, thereafter, and
before such dividend or distribution is paid or delivered to stockholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
distribution, then any adjustment made to the Purchase Price and number of
shares of Common Stock purchasable upon Warrant exercise by reason of the taking
of such record shall be reversed, and any subsequent adjustments, based thereon,
shall be recomputed.
3.10. Shareholder Rights Plan. Notwithstanding the foregoing, in the
event that the Company shall distribute "poison pill" rights pursuant to a
"poison pill" shareholder rights plan (the "Rights"), the Company shall, in lieu
of making any adjustment pursuant to Section 3.2.1 or Section 3.2.2 hereof, make
proper provision so that each Holder who exercises a Warrant after the record
date for such distribution and prior to the expiration or redemption of the
Rights shall be entitled to receive upon such exercise, in addition to the
shares of Common Stock issuable upon such exercise, a number of Rights to be
determined as follows: (i) if such exercise occurs on or prior to the date for
the distribution to the holders of Rights of separate certificates evidencing
such Rights (the "Distribution Date"), the same number of Rights to which a
holder of a number of shares of Common Stock equal to the number of shares of
Common Stock issuable upon such exercise at the time of such exercise would be
entitled in accordance with the terms and provisions of and applicable to the
Rights; and (ii) if such exercise occurs after the Distribution Date, the same
number of Rights to which a holder of the number of shares into which the
Warrant so exercised was exercisable immediately prior to the Distribution Date
would have been entitled on the Distribution Date in accordance with the terms
and provisions of and applicable to the Rights, and in each case subject to the
terms and conditions of the Rights.
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4. CONSOLIDATION, MERGER, ETC.
4.1. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Company after the date hereof (a) shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Stock or Other Securities
(other than a capital reorganization or reclassification resulting in the issue
of Additional Shares of Common Stock for which adjustment in the Purchase Price
is provided in Section 3.2.1 or 3.2.2), then, and in the case of each such
transaction, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Warrant, the Holder of this Warrant,
upon the exercise hereof at any time after the consummation of such transaction
shall be entitled to receive (at the aggregate Purchase Price in effect at the
time of such consummation for all Common Stock or Other Securities issuable upon
such exercise immediately prior to such consummation), in lieu of the Common
Stock or Other Securities issuable upon such exercise prior to such
consummation, the amount of securities, cash or other property to which such
Holder would actually have been entitled as a stockholder upon such consummation
if such Holder had exercised this Warrant immediately prior thereto, subject to
adjustments (subsequent to such consummation) as nearly equivalent as possible
to the adjustments provided for in Sections 3 through 5.
4.2. Assumption of Obligations. Notwithstanding anything contained
in the Warrants or in the Purchase Agreement to the contrary, the Company shall
not effect any of the transactions described in clauses (a) through (d) of
Section 4.1 unless, prior to the consummation thereof, each Person (other than
the Company) which may be required to deliver any stock, securities, cash or
property upon the exercise of this Warrant as provided herein shall assume, by
written instrument delivered to, and reasonably satisfactory to, the Holder of
this Warrant, (a) the obligations of the Company under this Warrant (and if the
Company shall survive the consummation of such transaction, such assumption
shall be in addition to, and shall not release the Company from, any continuing
obligations of the Company under this Warrant), (b) the obligations of the
Company under the Purchase Agreement, the Convertible Notes and the Registration
Rights Agreement and (c) the obligation to deliver to the Holder such shares of
stock, securities, cash or property as, in accordance with the foregoing
provisions of this Section 4, the Holder may be entitled to receive. Nothing in
this Section 4 shall be deemed to authorize the Company to enter into any
transaction not otherwise permitted by the Purchase Agreement.
5. OTHER DILUTIVE EVENTS. In case any event shall occur as to which
the provisions of Section 3 or Section 4 hereof are not strictly applicable or
if
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strictly applicable would not fairly protect the purchase rights of the Holder
in accordance with the essential intent and principles of such Sections, then,
in each such case, the Board of Directors of the Company shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to preserve, without dilution, the
purchase rights represented by this Warrant.
6. NO DILUTION OR IMPAIRMENT. The Company shall not, by amendment of
its certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be reasonably necessary or appropriate in order to protect the rights of the
Holder of this Warrant against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) shall not permit the par value
of any shares of stock receivable upon the exercise of this Warrant to exceed
the amount payable therefor upon such exercise, (b) shall take all such action
as 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, security interests, encumbrances, preemptive rights and charges on the
exercise of the Warrants from time to time outstanding, (c) shall not take any
action which results in any adjustment of the Purchase Price if the total number
of shares of Common Stock (or Other Securities) issuable after the action upon
the exercise of all of the Warrants would exceed the total number of shares of
Common Stock (or Other Securities) then authorized by the Company's certificate
of incorporation and available for the purpose of issue upon such exercise, and
(d) shall not issue any capital stock of any class which is preferred as to
dividends or as to the distribution of assets upon voluntary or involuntary
dissolution, liquidation or winding-up, unless the rights of the holders thereof
shall be limited to a fixed sum or percentage of par value or a sum determined
by reference to a formula based on a published index of interest rates, an
interest rate publicly announced by a financial institution or a similar
indicator of interest rates in respect of participation in dividends and to a
fixed sum or percentage of par value in any such distribution of assets.
7. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable upon
the exercise of this Warrant, the Company at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms of this Warrant and
prepare a certificate, signed by the Chairman of the Board, President or one of
the Vice Presidents of the Company, and by the Chief Financial Officer, the
Treasurer or one of the Assistant Treasurers of the Company, setting forth such
adjustment or readjustment and showing in reasonable detail the method of
calculation thereof and the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or to be received
by the Company for any Additional Shares of Common Stock issued or sold or
deemed to have been issued, (b) the number of shares of Common Stock outstanding
or deemed to be outstanding, and (c) the Purchase Price in effect immediately
prior to such issue or sale and as adjusted and readjusted (if required by
Section 3) on
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account thereof. The Company shall forthwith mail a copy of each such
certificate to each holder of a Warrant and shall, upon the written request at
any time of any holder of a Warrant, furnish to such holder a like certificate.
The Company shall also keep copies of all such certificates at its principal
office and shall cause the same to be available for inspection at such office
during normal business hours by any holder of a Warrant or any prospective
purchaser of a Warrant designated by the holder thereof. The Company shall, upon
the request in writing of the Holder (at the Company's expense), retain
independent public accountants of recognized national standing selected by the
Board of Directors of the Company to make any computation required in connection
with adjustments under this Warrant, and a certificate signed by such firm shall
be conclusive evidence of the correctness of such adjustment, which shall be
binding on the Holder and the Company.
8. NOTICES OF CORPORATE ACTION. 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 or other distribution, 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
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company, any consolidation
or merger involving the Company and any other Person, any transaction or
series of transactions in which more than 50% of the voting securities of
the Company are transferred to another Person, or any transfer, sale or
other disposition of all or substantially all the assets of the Company to
any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company shall mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, sale, disposition, dissolution, liquidation or winding-up is to take
place and the time, if any such time 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 the securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 20 days prior to the date
therein specified but in no event earlier than the public announcement of such
proposed transaction or event.
9. REGISTRATION OF COMMON STOCK. If any shares of Common Stock
required to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any federal or
state law
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(other than the Securities Act) before such shares may be issued upon exercise,
the Company shall, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered or approved, as the case may
be. At any such time as Common Stock is listed on any national securities
exchange or trade market, the Company shall, at its expense, obtain promptly and
maintain the approval for listing on each such exchange or trade market, upon
official notice of issuance, the shares of Common Stock issuable upon exercise
of the then outstanding Warrants and maintain the listing of such shares after
their issuance; and the Company shall also list on such national securities
exchange or trade market, shall register under the Exchange Act and shall
maintain such listing of, any Other Securities that at any time are issuable
upon exercise of the Warrants, if and at the time that any securities of the
same class shall be listed on such national securities exchange or trade market
by the Company.
10. RESERVATION OF STOCK, ETC. The Company shall at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, 125% of the number of shares of Common Stock (or Other Securities)
from time to time issuable upon exercise of all Warrants at the time outstanding
and otherwise in accordance with the terms of the Purchase Agreement. All shares
of Common Stock (or Other Securities) issuable upon exercise of any Warrants
shall be duly authorized and, when issued upon such exercise, shall be validly
issued and, in the case of shares, fully paid and nonassessable with no
liability on the part of the holders thereof, and, in the case of all
securities, shall be free from all taxes, liens, security interests,
encumbrances, preemptive rights and charges. The transfer agent for the Common
Stock, which may be the Company (the "Transfer Agent"), and every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of any of the purchase rights represented by this Warrant, are hereby
irrevocably authorized and directed at all times until the Expiration Date to
reserve such number of authorized and unissued shares as shall be requisite for
such purpose. The Company shall keep copies of this Warrant on file with the
Transfer Agent for the Common Stock and with every subsequent Transfer Agent for
any shares of the Company's capital stock issuable upon the exercise of the
rights of purchase represented by this Warrant. The Company shall supply such
Transfer Agent with duly executed stock certificates for such purpose. All
Warrant Certificates surrendered upon the exercise of the rights thereby
evidenced shall be canceled, and such canceled Warrants shall constitute
sufficient evidence of the number of shares of stock which have been issued upon
the exercise of such Warrants. Subsequent to the Expiration Date, no shares of
stock need be reserved in respect of any unexercised Warrant.
11. REGISTRATION AND TRANSFER OF WARRANTS, ETC.
11.1. Warrant Register; Ownership of Warrants. Each Warrant issued
by the Company shall be numbered and shall be registered in a warrant register
(the "Warrant Register") as it is issued and transferred, which Warrant Register
shall be maintained by the Company at its principal office or, at the Company's
election and expense, by a Warrant Agent or the Company's transfer agent. The
Company shall be
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entitled to treat the registered Holder of any Warrant on the Warrant Register
as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
part of any other Person, and shall not be affected by any notice to the
contrary, except that, if and when any Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes. A Warrant, if properly assigned, may be
exercised by a new holder without a new Warrant first having been issued.
11.2. Transfer of Warrants. This Warrant and all rights hereunder
are transferable in whole or in part, without charge to the Holder hereof, upon
surrender of this Warrant with a properly executed Form of Assignment attached
hereto as Exhibit B at the principal office of the Company (or such other office
or agency of the Company as it may in writing designate to the Holder). Upon any
partial transfer, the Company shall at its expense issue and deliver to the
Holder a new Warrant of like tenor, in the name of the Holder, which shall be
exercisable for such number of shares of Common Stock with respect to which
rights under this Warrant were not so transferred and to the transferee a new
Warrant of like tenor, in the name of the transferee, which shall be exercisable
for such number of shares of Common Stock with respect to which rights under
this Warrant were so transferred.
11.3. Replacement of Warrants. On receipt by the Company 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 reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
11.4. Adjustments To Purchase Price and Number of Shares.
Notwithstanding any adjustment in the Purchase Price or in the number or kind of
shares of Common Stock purchasable upon exercise of this Warrant, any Warrant
theretofore or thereafter issued may continue to express the same number and
kind of shares of Common Stock as are stated in this Warrant, as initially
issued.
11.5. Fractional Shares. Notwithstanding any adjustment pursuant to
Section 3 in the number of shares of Common Stock covered by this Warrant or any
other provision of this Warrant, the Company shall not be required to issue
fractions of shares upon exercise of this Warrant or to distribute certificates
which evidence fractional shares. In lieu of fractional shares, the Company
shall make payment to the Holder, at the time of exercise of this Warrant as
herein provided, in an amount in cash equal to such fraction multiplied by the
Current Market Price of a share of Common Stock on the date of Warrant exercise.
12. REMEDIES; SPECIFIC PERFORMANCE. The Company stipulates that
there would be no adequate remedy at law to the Holder of this Warrant in
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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 and accordingly, the
Company agrees that, in addition to any other remedy to which the Holder may be
entitled at law or in equity, the Holder shall be entitled to seek to compel
specific performance of the obligations of the Company under this Warrant,
without the posting of any bond, in accordance with the terms and conditions of
this Warrant in any court of the United States or any State thereof having
jurisdiction, and if any action should be brought in equity to enforce any of
the provisions of this Warrant, the Company shall not raise the defense that
there is an adequate remedy at law. Except as otherwise provided by law, a delay
or omission by the Holder hereto in exercising any right or remedy accruing upon
any such breach shall not impair the right or remedy or constitute a waiver of
or acquiescence in any such breach. No remedy shall be exclusive of any other
remedy. All available remedies shall be cumulative.
13. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. Nothing contained in
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a stockholder of the Company or as imposing any obligation on the Holder to
purchase any securities or as imposing any liabilities on the Holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
14. NOTICES. Any notices, consents, waivers or other communications
required or permitted to be given hereunder must be in writing and will be
deemed to have been delivered (i) upon receipt, when delivered personally; (ii)
upon receipt, when sent by facsimile, (iii) three days after being sent by U.S.
certified mail, return receipt requested, or (iv) one Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
PARADISE MUSIC & ENTERTAINMENT, INC.
53 West 23rd Street
New York, NY 10010
Telephone: (212) 590-2100
Facsimile: (212) 845-6480
Attention: President
If to a Holder, to its address and facsimile number on the register
maintained by the Company. Each party shall provide five days' prior written
notice to the other party of any change in address or facsimile number.
Notwithstanding the foregoing, the exercise of any Warrant shall be effective in
the manner provided in Section 2.
19
<PAGE>
15. AMENDMENTS. This Warrant and any term hereof may not be amended,
modified, supplemented or terminated, and waivers or consents to departures from
the provisions hereof may not be given, except by written instrument duly
executed by the party against which enforcement of such amendment, modification,
supplement, termination or consent to departure is sought.
16. DESCRIPTIVE HEADINGS, ETC. The headings in this Warrant are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Warrant otherwise
requires: (1) words of any gender shall be deemed to include each other gender;
(2) words using the singular or plural number shall also include the plural or
singular number, respectively; (3) the words "hereof", "herein" and "hereunder"
and words of similar import when used in this Warrant shall refer to this
Warrant as a whole and not to any particular provision of this Warrant, and
Section and paragraph references are to the Sections and paragraphs of this
Warrant unless otherwise specified; (4) the word "including" and words of
similar import when used in this Warrant shall mean "including, without
limitation," unless otherwise specified; (5) "or" is not exclusive; and (6)
provisions apply to successive events and transactions.
17. GOVERNING LAW. This Warrant shall be governed by, and construed
in accordance with, the laws of the State of New York (without giving effect to
the conflict of laws principles thereof).
18. JUDICIAL PROCEEDINGS. Any legal action, suit or proceeding
brought against the Company with respect to this Warrant may be brought in any
federal court of the Southern District of New York or any state court located in
New York County, State of New York, and by execution and delivery of this
Warrant, the Company hereby irrevocably and unconditionally waives any claim (by
way of motion, as a defense or otherwise) of improper venue, that it is not
subject personally to the jurisdiction of such court, that such courts are an
inconvenient forum or that this Warrant or the subject matter may not be
enforced in or by such court. The Company hereby irrevocably and unconditionally
consents to the service of process of any of the aforementioned courts in any
such action, suit or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, at its address set forth or provided for in
Section 14, such service to become effective 10 days after such mailing. Nothing
herein contained shall be deemed to affect the right of any party to serve
process in any manner permitted by law or commence legal proceedings or
otherwise proceed against any other party in any other jurisdiction to enforce
judgments obtained in any action, suit or proceeding brought pursuant to this
Section. The Company irrevocably submits to the exclusive jurisdiction of the
aforementioned courts in such action, suit or proceeding.
19. REGISTRATION RIGHTS AGREEMENT. The shares of Common Stock (and
Other Securities) issuable upon exercise of this Warrant (or upon conversion of
any shares of Common Stock issued upon such exercise) shall constitute
Registrable Securities (as such term is defined in the Registration Rights
Agreement).
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<PAGE>
Each holder of this Warrant shall be entitled to all of the benefits afforded to
a holder of any such Registrable Securities under the Registration Rights
Agreement and such holder, by its acceptance of this Warrant, agrees to be bound
by and to comply with the terms and conditions of the Registration Rights
Agreement applicable to such holder as a holder of such Registrable Securities.
20. Limitation on Exercise. Notwithstanding any provision to the
contrary contained herein, in no event shall the Holder be entitled to exercise
this Warrant such that upon giving effect to such exercise, the aggregate number
of shares of Common Stock then beneficially owned by the Holder and its
"affiliates" as defined in Rule 144 of the Act would exceed 9.99% of the total
issued and outstanding shares of the Common Stock following such exercise;
provided, however, that Holder may elect to waive this restriction upon not less
than sixty-one (61) days prior written notice to the Company. For purposes of
this Section, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended.
PARADISE MUSIC & ENTERTAINMENT, INC.
By:_____________________________________
Name:
Title:
21
<PAGE>
EXHIBIT A to
Common Stock Purchase Warrant
[FORM OF]
ELECTION TO PURCHASE SHARES
AND TRANSFER AGENT INSTRUCTIONS
The undersigned hereby irrevocably elects to exercise the Warrant to
purchase ____ shares of Common Stock, par value $.01 per share ("Common Stock"),
of PARADISE MUSIC & ENTERTAINMENT, INC. (the "Company") and hereby [makes
payment of $________ in consideration therefor] [or] [makes payment therefor by
application pursuant to Section 2.1(b)(ii) of the Warrant of $____ aggregate
principal amount of Notes (as defined in the Warrant) [or] [makes payment in
consideration therefor by reduction pursuant to Section 2.1(b)(iii) of the
Warrant of the number of shares of Common Stock otherwise issuable to the Holder
upon Warrant exercise by ______ shares] [or] [makes payment in consideration
therefor by delivery of the following Common Stock Certificates of the Company
pursuant to Section 2.1(b)(iv) of the Warrant, certificates of which are
attached hereto for cancellation _______ [list certificates by number and
amount]]. The undersigned hereby requests that certificates for such shares be
issued and delivered as follows:
ISSUE TO:_______________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
________________________________________________________________________________
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:_____________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
If the number of shares of Common Stock purchased hereby is less
than the number of shares of Common Stock covered by the Warrant, the
undersigned requests that a new Warrant representing the number of shares of
Common Stock not so purchased be issued and delivered as follows:
ISSUE TO:_______________________________________________________________________
(NAME OF HOLDER)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
DELIVER TO:_____________________________________________________________________
(NAME OF HOLDER)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
Dated: _____________________ [NAME OF HOLDER]
By______________________________________
Name:
22
<PAGE>
EXHIBIT A to
Common Stock Purchase Warrant
Title:
__________________, as transfer agent and registrar of the Common Stock,
is hereby authorized and directed to issue the above number of shares of Common
Stock in the name of the above referenced entity or person and to deliver the
certificates representing such shares using an overnight delivery service.
PARADISE MUSIC & ENTERTAINMENT, INC.
By:_____________________________________
Name:
Title:
<PAGE>
EXHIBIT B to
Common Stock Purchase Warrant
[FORM OF] ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto the Assignee named below all of the rights of the undersigned to
purchase Common Stock, par value $.01 per share ("Common Stock") of PARADISE
MUSIC & ENTERTAINMENT, INC. represented by the Warrant, with respect to the
number of shares of Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint ________ as Attorney to make
such transfer on the books of PARADISE MUSIC & ENTERTAINMENT, INC. maintained
for that purpose, with full power of substitution in the premises.
Dated: ____________________ [NAME OF HOLDER]
By______________________________________
Name:
Title:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS OF THE
UNITED STATES, AND MAY NOT BE OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE SECURITIES ACT OR
APPLICABLE STATE SECURITIES LAW, OR AN EXEMPTION FROM SUCH REGISTRATION.
$__________________
PARADISE MUSIC & ENTERTAINMENT, INC.
9% Senior Subordinated Convertible Note Due 2003
FOR VALUE RECEIVED, PARADISE MUSIC & ENTERTAINMENT, INC., a Delaware
corporation (the "Company"), HEREBY PROMISES TO PAY to the order of
________________- (the "Holder") the principal sum of _________________
($_____________) on March 7, 2003 (the "Maturity Date") and to pay interest on
the principal amount outstanding from time to time under this note (the
"Outstanding Principal Amount"), at the rate of 9% per annum, payable quarterly
in arrears on the last day of each calendar quarter during the term hereof and
on the final day when such principal amount becomes due (each such date, an
"Interest Payment Date").
This note is one of two convertible promissory notes (the "Note" and
collectively, the "Notes") of the Company referred to in the Securities Purchase
Agreement, dated as of March 7, 2000 by and among the Company, the Holder and
BayStar International, Ltd. (the "Purchase Agreement").
1. Definitions. For purposes hereof the following definitions shall
apply:
"Acceleration Price" shall have the meaning set forth in Section
5(b).
"Additional Shares of Common Stock" shall mean, all shares
(including treasury shares) of Common Stock issued or sold or deemed to be
issued by the Company after the date hereof, whether or not subsequently
reacquired or retired by the Company other than (i) shares of Common Stock
issued upon conversion of the Notes, (ii) shares of Common Stock issued upon
exercise of the Warrants, (iii) shares of Common Stock issued pursuant to
Approved Stock Plans and (iv) shares of Common Stock issued upon exercise of
options or warrants listed on Schedule 3(c) of the Purchase Agreement pursuant
to the terms as they exist on the date hereof and provided further that the
exercise price paid upon exercise of any such option or warrant is not lower
than the greater of (x) Average Market Price at the time of the grant of such
option or warrant and (y) Conversion Price as of the relevant exercise date.
<PAGE>
"Adjusting Closing Bid Prices" shall have the meaning set forth in
Section 3(c).
"Approved Stock Plan" shall mean any contract, plan or agreement
which has been or shall be approved by the Board of Directors of the Company,
pursuant to which the Company's securities may be issued to any employee,
officer, director, consultant or other service provider of the Company in an
aggregate amount that does not exceed 110% of the number of securities issuable
as of March 7, 2000 pursuant to any currently existing Approved Stock Plan plus
the number of securities issuable pursuant to stock options, convertible
securities or warrants granted in connection with any Strategic Financing
provided that such number shall not exceed the number of securities issuable
immediately prior to the consummation of such Strategic Financing.
"Average Market Price" shall mean the average of the Closing Bid
Prices of the Common Stock for the five (5) trading days immediately preceding
the applicable date.
"Blockage Notice" shall have the meaning set forth in Section 18(b).
"Business Day" shall have the meaning set forth in Section 2(c).
"Buy in Actual Damages" shall have the meaning set forth in Section
3(d)(v).
"Closing Bid Price" shall mean, for any security as of any date, the
last closing bid price on the Nasdaq SmallCap Market Systems ("NASDAQ") as
reported by Bloomberg, L.P. ("Bloomberg"), or, if the NASDAQ is not the
principal securities exchange trading or market for such security, the last
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last closing bid price of such security in
the over-the-counter market on the electronic bulletin board for such security
as reported by Bloomberg, or, if no closing bid price is reported for such
security by Bloomberg, the last closing trade price of such security as reported
by Bloomberg, or, if no last closing trade price is reported for such security
by Bloomberg, the average of the bid prices of any market makers for such
security as reported in the "pink sheets" by the National Quotation Bureau, Inc.
If the Closing Bid Price cannot be calculated for such security on such date, as
set forth above, the Closing Bid Price of such security shall be the fair market
value as determined in good faith by an investment banking firm selected jointly
by the Company and the Holders, with the fees and expenses of such determination
borne solely by the Company.
"Common Stock" shall mean, the common stock of the Company, $.01 par
value per share.
"Company" shall have the meaning set forth in the Preamble.
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<PAGE>
"Conversion Date" shall have the meaning set forth in Section
3(d)(i).
"Conversion Notice" shall have the meaning set forth in Section
3(d)(i).
"Conversion Price" shall mean $2.375
"Conversion Shares" shall have the meaning set forth in Section
5(d)(i)
"Convertible Securities" shall have the meaning set forth in Section
3(c)(iv).
"Default" shall have the meaning set forth in Section 19.
"Default Rate" shall have the meaning set forth in Section 2(a)(i).
"Delisting Period" shall have the meaning set forth in Section
5(d)(ii).
"Document" or "Documents" shall have the meaning set forth in
Section 7(a).
"Holder" shall have the meaning set forth in the Preamble.
"Holders" shall mean the BayStar Capital L.P. and BayStar
International, Ltd.
"Inability to Fully Convert Notice" shall have the meaning set forth
in Section 6(b).
"Indebtedness" shall have the meaning set forth in Section 19(a).
"Interest Payment Date" shall have the meaning set forth in the
Preamble.
"Issuance Date" shall mean March 7, 2000.
"Lien" shall have the meaning set forth in Section 8(g).
"Major Transaction Acceleration Price" shall have the meaning set
forth in Section 5(a).
"Major Transaction" shall have the meaning set forth in Section
5(c).
"Mandatory Payment" shall have the meaning set forth in Section
6(a)(i).
"Mandatory Payment Price" shall have the meaning set forth in
Section 6(a)(i).
3
<PAGE>
"Market Price" shall mean, on any date specified herein, the amount
per share of the Common Stock equal to (i) the last reported sale price of such
Common Stock, regular way, on such date or, in case no such sale takes place on
such date, the average of the closing bid and asked prices thereof, regular way,
on such date, in either case as officially reported on the principal national
securities exchange on which such Common Stock is then listed or admitted for
trading, (ii) if such Common Stock is not then listed or admitted for trading on
any national securities exchange but is designated as a national market system
security by the NASD, the last reported trading price of the Common Stock on
such date, or in case no such sale takes place on such date, or if the Common
Stock is not so designated, the average of the closing bid and asked prices of
the Common Stock on such date as shown by the NASD automated quotations system,
or (iii) if such Common Stock is not then listed or admitted for trading on any
national exchange or quoted in the over-the-counter market, the fair value
thereof (as of a date which is within 20 days of the date as of which the
determination is to be made) determined in good faith jointly by the Board of
Directors of the Company and the Holder, provided, however, that if such parties
are unable to reach agreement within a reasonable period of time, the Market
Price shall be determined in good faith by an independent investment banking
firm selected jointly by the Company and the Holder or, if that selection cannot
be made within ten days, by an independent investment banking firm selected by
the American Arbitration Association in accordance with its rules, and provided
further, that the Company shall pay all of the fees and expenses of any third
parties incurred in connection with determining the Market Price.
"Maturity Date" shall have the meaning set forth in the Preamble.
"New Option Issuance Price" shall have the meaning set forth in
Section 3(c)(iv).
"Note" or "Notes" shall have the meaning set forth in the Preamble.
"Note Register" shall have the meaning set forth in Section 17(b).
"Notice of Acceleration at Option of Holder Upon Triggering Event"
shall have the meaning set forth in Section 5(e).
"Notice of Major Transaction" shall have the meaning set forth in
Section 5(e).
"Notice in Response to Inability to Convert" shall have the meaning
set forth in Section 6(b).
"Notice of Triggering Event" shall have the meaning set forth in
Section 5(f.)
"Options" shall have the meaning set forth in Section 3(c)(iv).
4
<PAGE>
"Organic Change" shall mean, any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets to another Person or other transaction which is effected in
such a way that holders of Common Stock are entitled to receive (either directly
or upon subsequent liquidation) stock, securities or assets with respect to or
in exchange for Common Stock.
"Other Taxes" shall have the meaning set forth in Section 20.
"Outstanding Common Amount" shall have the meaning set forth in
Section 3(a).
"Outstanding Principal Amount" shall have the meaning set forth in
the Preamble.
"Permitted Debt" shall mean (a) indebtedness existing on the
Issuance Date and set forth on Schedule 3(c) to the Purchase Agreement, and
extensions, renewals and refinancing of such indebtedness; provided that such
extension, renewal or refinancing (i) is pursuant to terms that are not less
favorable to the Holders than the terms of the indebtedness being extended,
renewed or refinanced, (ii) after giving effect to the extension, renewal or
refinancing, such indebtedness is not greater than the amount of indebtedness
outstanding immediately prior to such extension, renewal or refinancing and
(iii) the extension, renewal or refinancing and does not change the persons
liable for such indebtedness; (b) indebtedness of wholly owned Subsidiaries of
the Company to the Company or to other wholly owned Subsidiaries of the Company;
(c) accounts payable to trade creditors for goods and services and current
operating liabilities (not the result of the borrowing of money) incurred now or
in the future in the ordinary course of the Company's or its Subsidiaries'
business, in accordance with customary terms and paid within a specified time,
unless contested in good faith by appropriate proceedings and reserved in
accordance with generally accepted accounting principles, consistently applied,
(d) indebtedness of the Company or its Subsidiaries under any capital leases now
outstanding and set forth on Schedule 3(c) to the Purchase Agreement or
thereafter entered into provided that the only security interest for such
indebtedness is the property leased under such capital lease, (e) other
indebtedness of the Company for borrowed money now or hereafter existing in
favor of a bank, insurance company or other financial institution, for principal
and interest (including interest accruing subsequent to the commencement of any
Proceeding), provided that such indebtedness is not convertible into any equity
securities of the Company and, provided further, that the terms of such
indebtedness do not provide for the holder thereof to receive any equity
securities of the Company for a purchase price per share less than the Market
Price as of the date of issuance of such equity security, it being understood
and agreed that the Company may grant to such bank, insurance company or other
financial institution a security interest in and to any and all assets of the
Company which security interest shall be specifically senior to the rights of
the Holders under this Note and with the further understanding that the Holders
will agree to negotiate in good faith to enter into subordination agreements
with the holders of such other indebtedness on commercially reasonable terms to
all
5
<PAGE>
parties, (f) any other indebtedness of the Company or any of its Subsidiaries
incurred or guaranteed by the Company or any of its Subsidiaries in connection
with a Strategic Financing, including, for this purpose, all indebtedness of any
entity acquired by the Company, provided that such indebtedness incurred in
connection with a Strategic Financing is not convertible into any equity
securities of the Company and, provided further, that the terms of such
indebtedness do not provide for the holder thereof to receive any equity
securities of the Company for a purchase price per share less than the Market
Price as of the date of issuance of such equity security, and (g) the issuance
of any underwritten publicly registered or 144A debt securities provided that
such issuance has been effected with the assistance of a reputable underwriter
or financial advisor and is in an amount of not less than $10,000,000.
"Person" shall mean, an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
"Proceeding" shall mean, with respect to the Company or any of its
Subsidiaries, (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to such Person or its properties as such, (ii) any proceeding for any
liquidation, dissolution or other winding up of such Person, voluntary or
involuntary, or (iii) any assignment for the benefit of creditors or marshaling
of the assets of such Person.
"Purchase Agreement" shall have the meaning set forth in the
Preamble.
"Registration Rights Agreement" shall mean, the Registration Rights
Agreement, dated as of March 7, 2000, by and among the Company and the Holders.
"Related Business" shall mean a company whose business is directly
related to or complementary to or is a reasonable extension of the Company's
current line of business as reasonably determined by the Company's Board of
Directors.
"Securities Act" means the Securities Act of 1933, as amended from
time to, and the rules and regulations thereunder, or any successor statute.
"Solvent" shall mean, with respect to any Person on a particular
date, that on such date (i) the fair value of the property of such Person is not
less than the total amount of the liabilities of such Person, (ii) the present
fair salable value of the assets of such Person is not less than the amount
required to pay the probable liability on such Person's existing debts as they
become absolute and matured, (iii) such Person is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (iv) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature and (v) such Person's property does not constitute unreasonably small
capital for such Person to carry out its business as currently conducted and as
proposed to be conducted including the capital needs of such
6
<PAGE>
Person taking into account the capital requirements of the business conducted by
such Person and projected capital requirements and capital availability thereof.
"Strategic Financing" shall mean: any investment (whether by the
Company or any of its Subsidiaries) in another Related Business, or in real
property or other assets of another Related Business; provided that such
investment has the potential to promote a strategic objective of the Company or
any of its Subsidiaries as reasonably determined by the Company's Board of
Directors.
"Subsidiary" shall mean, any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other Persons performing similar functions are at the time
directly or indirectly owned by the Company.
"Suspension Days" shall have the meaning set forth in Section
5(d)(i).
"Suspension Period" shall have the meaning set forth in Section
5(d)(i).
"Taxes" shall have the meaning set forth in Section 20.
"Transfer Agent" shall have the meaning set forth in Section
3(d)(i).
"Triggering Event" shall have the meaning set forth in Section 5(d).
"Triggering Event Acceleration Price" shall have the meaning set
forth in Section 5(b).
"Warrants" shall mean, the Common Stock Purchase Warrants to
purchase up to an aggregate of 421,053 shares of the Company's Common Stock,
issued to the Holders by the Company pursuant to the terms of the Purchase
Agreement.
"Warrant Shares" shall have the meaning set forth in Section
5(d)(i).
2. General Provisions. (a) (i) Any amount of principal hereof that
is not paid when due (whether upon demand, by acceleration or otherwise) shall
bear interest from the day when due until such principal amount is paid in full,
payable on demand, at an interest rate per annum equal at all times to 15% per
annum (the "Default Rate"). All interest shall be computed on the basis of a
year of 360 days for the actual number of days (including the first day but
excluding the last day) elapsed. Notwithstanding any other provision of this
Note, interest paid or becoming due hereunder shall in no event exceed the
maximum rate permitted by applicable law.
(ii) All regularly scheduled interests payments made hereunder
may be made either (A) in cash or (B) at the option of the Company, by
capitalizing such interest and adding such capitalized amount to the Outstanding
Principal Amount of the Note; provided further that the Company may elect to
make such interest payments pursuant to clause (B) above, if and only if the
Company has delivered an
7
<PAGE>
irrevocable written notice (the "Interest Payment Notice") to the Holder no less
than 45 days prior to the applicable Interest Payment Date stating that the next
interest payment shall be made by capitalizing such interest amount and adding
such amount to the Outstanding Principal Amount of the Note. If the Company
fails to deliver an Interest Payment Notice at least 45 days prior to any
Interest Payment Date, then interest payments on such interest Payment Date
shall be made solely in cash.
(b) All payments made to the Holder in accordance with the
terms hereof on account of principal hereof and all interest payments
capitalized and added to the Outstanding Principal Amount shall be noted by the
Holder on Schedule I attached hereto and hereby made a part hereof and shall be
binding absent manifest error; provided, however, that any error or omission by
the Holder in this regard shall not affect the obligation of the Company to pay
the full amount of the principal and interest due hereunder.
(c) If any amount payable hereunder shall be due on a Saturday
or a Sunday or a day on which commercial banking institutions in the City of New
York are authorized by law to be closed (any other day being a "Business Day"),
such payment may be made on the next succeeding Business Day, and such extension
of time shall in such case be included in the computation of interest payable
hereon.
(d) Both principal and interest are payable in lawful money of
the United States and in immediately available funds at the offices of Holder,
c/o BayStar Capital Management, LLC, 1500 W. Market Street, Suite 200, Mequon,
Wisconsin 53092, or at such other place as the Holder shall designate in writing
to the Company.
(e) This Note may be transferred in whole or in part only by
registration of such transfer on the Note Register maintained for such purpose
by the Company as provided in Section 17(b) hereof.
3. Holder's Conversion of Note.
(a) Conversion Right. The Holder shall have the right, at its
option, to convert the Note, in whole or in part, into fully paid, validly
issued and nonassessable shares of the Company's Common Stock at any time and
from time to time that this Note is outstanding. If this Note is converted in
part, the remaining portion of this Note not so converted shall remain entitled
to the conversion and other rights provided herein.
(b) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of the Note pursuant to Section 3(a) shall be
determined in accordance with the following formula:
8
<PAGE>
P
---------------------
Conversion Price
P = Outstanding Principal Amount submitted for conversion plus
accrued but unpaid interest thereon (which shall include any capitalized
interest).
(c) Anti-Dilution. In order to prevent dilution of the rights
granted under this Note, the Conversion Price and the Closing Bid Prices for any
days during any measuring period prior to any of the events set forth below (the
"Adjusting Closing Bid Prices") will be subject to adjustment from time to time
as provided in this Section 3(c):
(i) Dividends and Distributions. If the Company shall
declare or pay to the holders of the Common Stock a dividend or other
distribution payable in shares of Common Stock or any other security convertible
into or exchangeable for shares of Common Stock, the Holder of the Note
thereafter surrendered for conversion shall be entitled to receive the number of
shares of Common Stock or other securities convertible into or exchangeable for
shares of Common Stock, as applicable, which such Holder would have owned or
been entitled to receive after the declaration and payment of such dividend or
other distribution as if the Note had been converted immediately prior to the
record date for the determination of stockholders entitled to receive such
dividend or other distribution.
(ii) Stock Splits and Combinations. If the Company shall
subdivide (by means of any stock split, stock dividend, recapitalization or
otherwise) the outstanding shares of Common Stock into a greater number of
shares of Common Stock, or combine (by means of any combination, reverse stock
split or otherwise) the outstanding shares of Common Stock into a lesser number
of shares, or issue by reclassification of shares of Common Stock any shares of
the Company, the Conversion Price and the Adjusting Closing Bid Prices in effect
immediately prior thereto shall be adjusted so that the Holder shall receive the
number of shares of Common Stock which the Holder would have owned or been
entitled to receive after the happening of any and each of the events described
above if the Note had been converted immediately prior to the happening of each
such event on the day upon which such subdivision or combination, as the case
may be, becomes effective.
(iii) Organic Changes. In case the Company shall effect
an Organic Change, then the Holder shall be given a written notice from the
Company informing such Holder of the terms of such Organic Change and of the
record date thereof for any distribution pursuant thereto, at least twenty (20)
days in advance of such record date, and, if such record date shall precede the
Maturity Date, the Holder shall have the right thereafter to receive, upon
conversion of the Note, the number of shares of stock or other securities,
property or assets of the Company, or of its successor or transferee or any
affiliate thereof, or cash receivable upon or as a result of such Organic
9
<PAGE>
Change that would have been received by a holder of the number of shares of
Common Stock equal to the number of shares the Holder would have received had
such Holder converted the Note prior to such event at the Conversion Price
immediately prior to such event. In any such case, the Company will make
appropriate provision (in form and substance reasonably satisfactory to the
Holder) with respect to such Holders' rights and interests to insure that the
provisions of this Section 3(c)(iii) will thereafter be applicable to the Note
(including, in the case of any such Organic Change in which the successor entity
or purchasing entity is other than the Company, an immediate adjustment of the
Conversion Price to the value for the Common Stock reflected by the terms of
such Organic Change, if the value so reflected is less than the Conversion Price
in effect immediately prior to such Organic Change). The Company will not effect
any such Organic Change unless prior to the consummation thereof the successor
entity (if other than the Company) resulting from such Organic Change assumes,
by written instrument (in form and substance satisfactory to the Holder), the
obligation to deliver to Holder such shares of stock, securities or assets as,
in accordance with the foregoing provisions, such Holder may be entitled to
acquire. The provisions of this subparagraph (iii) shall similarly apply to
successive Organic Changes.
(iv) Adjustment upon Issuance of Options and Convertible
Securities. If the Company in any manner grants any rights or options to
subscribe for or to purchase one or more classes of its Common Stock (other than
pursuant to an Approved Stock Plan or upon conversion of the Notes) or any stock
or other securities convertible into or exchangeable for Common Stock (such
rights or options being herein called "Options" and such convertible or
exchangeable stock or securities being herein called "Convertible Securities")
and the price per share for which Common Stock is issuable upon the exercise of
such Options or upon conversion or exchange of such Convertible Securities (the
"New Option Issuance Price") is less than the Average Market Price immediately
prior to such time, then, from and after the time of such issue or sale, the
Conversion Price shall be reduced, if necessary, so that it shall not exceed the
New Option Issuance Price. For purposes of this Section 3(c)(iv), the New Option
Issuance Price shall mean the amount determined by dividing (A) the total
amount, if any, received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all such Options, plus
in the case of such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the issuance or sale of such Convertible Securities and the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon exercise of such Options or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such Options. No
further adjustment of the Conversion Price shall be made upon the actual
issuance of such Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
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(v) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for any class of Common Stock change at any time, the Conversion
Price at the time of such change shall be readjusted, effective on and after the
date of such change, to the Conversion Price which would have been in effect on
the date of such change had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold; provided that no adjustment shall be made if such adjustment
would result in an increase of the Conversion Price then in effect.
(vi) Issuance of Additional Shares of Common Stock. In
case the Company at any time or from time to time after the date hereof shall
issue or sell Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Section 3(c)(ii), (iv) or (v)),
without consideration or for a consideration per share less than the Average
Market Price in effect immediately prior to such issue or sale, then, and in
each such case, the Conversion Price shall be reduced, to a price determined by
multiplying such Conversion Price by a fraction
(A) the numerator of which shall be the sum of (i)
the number of shares of Common Stock outstanding immediately prior to such issue
or sale and (ii) the number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of such Additional
Shares of Common Stock so issued or sold would purchase at the Market Price, and
(B) the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such issue or sale,
provided that, for the purposes of this Section 3(c)(vi), immediately after any
Additional Shares of Common Stock are deemed to have been issued pursuant to
Section 3(c)(ii), (iv) or (v), such Additional Shares of Common Stock shall be
deemed to be outstanding, and (y) treasury shares of Common Stock shall not be
deemed to be outstanding.
(vii) Other Dilutive Events. In case any event shall
occur as to which the provisions of this Section 3(c) are not strictly
applicable or if strictly applicable would not fairly protect the conversion
rights of the Holder in accordance with the essential intent and principles of
this Section 3(c), then, in each such case, the Board of Directors of the
Company shall make an adjustment in the application of such provisions, in
accordance with such essential intent and principles, so as to preserve, without
dilution, the conversion rights represented by this Note.
(viii) No Dilution or Impairment. The Company shall not,
by amendment of its certificate of incorporation or through any Organic Change
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Note, but will at all times in good
faith assist in the carrying out of all
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<PAGE>
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against dilution or
other impairment. Without limiting the generality of the foregoing, the Company
(i) shall take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock, free from all taxes, liens, security interests, encumbrances,
preemptive rights and charges on the conversion of this Note from time to time
outstanding, (ii) shall not take any action which results in any adjustment of
the Conversion Price or the Adjusting Closing Bid Prices if the total number of
shares of Common Stock issuable after the action upon the conversion of this
Note would exceed the total number of shares of Common Stock then authorized by
the Company's certificate of incorporation and available for the purpose of
issue upon such exercise, (iii) shall not permit the par value of any shares of
stock receivable upon the conversion of this Note to exceed the amount payable
therefor upon such exercise, and (iv) shall not issue any capital stock of any
class which, as to the Holders, is preferred as to dividends or as to the
distribution of assets upon voluntary or involuntary dissolution, liquidation or
winding-up, unless the rights of the holders thereof shall be limited to a fixed
sum or percentage of par value or a sum determined by reference to a formula
based on a published index of interest rates, an interest rate publicly
announced by a financial institution or a similar indicator of interest rates in
respect of participation in dividends and to a fixed sum or percentage of par
value in any such distribution of assets.
(ix) Notices.
(A) Immediately upon any adjustment pursuant
hereto of the Conversion Price or the Adjusting Closing Bid Prices, the Company
will give written notice thereof to the Holder, setting forth in reasonable
detail and certifying the calculation of such adjustment.
(B) The Company will give written notice to the
Holder at least twenty (20) days prior to the date on which the Company closes
its books or takes a record (I) with respect to any dividend or distribution
upon the Common Stock, or (II) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation; provided that in no event shall
such notice be provided to the Holder prior to such information being made known
to the public.
(C) The Company will also give written notice to
the Holder at least fifteen (15) days prior to the date on which any Organic
Change, dissolution or liquidation will take place.
(x) Further Adjustments. Successive adjustments in the
Conversion Price and Adjusting Closing Bid Prices shall be made whenever any
event specified above shall occur. All calculations under this Section 3(c)
shall be made to the nearest cent. No adjustment in the Conversion Price or the
Adjusting Closing Bid Prices shall be made if the amount of such adjustment
would be less than $0.01, but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at
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<PAGE>
the time of and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward, shall aggregate
$0.01 or more.
(d) Mechanics of Conversion. Subject to the Company's
inability to fully satisfy its obligations under a Conversion Notice as provided
for in Section 6 below:
(i) Holder's Delivery Requirements. To convert the Note
into full shares of Common Stock on any date (the "Conversion Date"), the Holder
shall (A) deliver or transmit by facsimile, for receipt on or prior to 11:59
p.m., Eastern Time on such date, a copy of a fully executed notice of conversion
in the form attached hereto as Exhibit A (the "Conversion Notice"), to the
Company or its designated transfer agent (the "Transfer Agent") to the effect
that the Holder elects to convert a specified amount of the Outstanding
Principal Amount of this Note (plus accrued interest) and (B) surrender to a
common carrier for delivery to the Company or the Transfer Agent as soon as
practicable following such date, the originally executed Conversion Notice.
(ii) Company's Response. Upon receipt by the Company of
a facsimile copy of a Conversion Notice, the Company shall immediately send, via
facsimile, a confirmation of receipt of such Conversion Notice to the Holder.
Upon receipt by the Company or the Transfer Agent of the originally executed
Conversion Notice, the Company or the Transfer Agent (as applicable) shall, on
the next Business Day following the date of receipt (or the second Business Day
following the date of receipt if received after 11:00 a.m. local time of the
Company or Transfer Agent, as applicable), (A) issue and surrender to a common
carrier for overnight delivery to the address as specified in the Conversion
Notice, a certificate(s), registered in the name of the Holder or its designee,
for the number of shares of Common Stock to which the Holder shall be entitled,
(B) credit such aggregate number of shares of Common Stock to which the Holder
shall be entitled to the Holder's or its designee's balance account with The
Depository Trust Company or (C) if the Holder requests, issue shares in
electronic format (e.g. via DWAC).
(iii) Dispute Resolution. In the case of a dispute as to
the determination of the Conversion Price, the Company shall promptly issue to
the Holder the number of shares of Common Stock that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the Holder via
facsimile within one (1) Business Day of receipt of such Holder's Conversion
Notice. If such Holder and the Company are unable to agree upon the
determination of the Conversion Price within one (1) Business Day of such
disputed determination or arithmetic calculation being submitted to the Holder,
then the Company shall within one (1) Business Day submit via facsimile the
disputed determination of the Conversion Price to an independent, reputable
accounting firm of national standing acceptable to the Company and the Holder.
The Company shall cause such accounting firm to perform the determinations or
calculations and notify the Company and the Holder of the results no later than
forty-eight (48) hours
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<PAGE>
from the time it receives the disputed determinations or calculations. Such
accounting firm's determination shall be binding upon all parties absent
manifest error. If as a result of such determination by the accounting firm the
Company is required to issue additional shares of Common Stock to the Holder,
the Company shall on the next Business Day following the date such determination
is made, issue such shares of Common Stock in accordance with the options set
forth in the last sentence of Section 3(d)(ii) above.
(iv) Record Holder. The Person or Persons entitled to
receive the shares of Common Stock issuable upon a conversion of the Note shall
be treated for all purposes as the record holder or holders of such shares of
Common Stock on the applicable Conversion Date.
(v) Company's Failure to Timely Convert. If the Company
shall fail (other than as a result of the situations described in Section 6(a)
with respect to which the Holder has elected, and the Company has satisfied its
obligations under, one of the options set forth in subparagraphs (i) through
(iv) of Section 6(a)) to issue to the Holder on a timely basis as described in
this Section 3(d), a certificate(s) for the aggregate number of shares of Common
Stock to which the Holder is entitled upon the Holder's conversion of the Note
as reflected in the applicable Conversion Notice, the Company shall pay damages
to the Holder equal to the greater of (A) actual damages incurred by the Holder
as a result of the Holder's needing to "buy in" shares of Common Stock to the
extent necessary to satisfy its securities delivery requirements ("Buy In Actual
Damages") and (B) if the Company fails to deliver such certificates within five
days after the last possible date which the Company could have issued such
Common Stock to the Holder without violating this Section 3(d), on each date
such conversion is not timely effected in an amount equal to 1% of the product
of (I) the number of shares of Common Stock not issued to the Holder on a timely
basis and to which the Holder is entitled and (II) the Closing Bid Price of the
Common Stock on the last possible date which the Company could have issued such
Common Stock to the Holder without violating this Section 3(d).
(e) Fractional Shares. The Company shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of Common
Stock (including fractions thereof) issuable upon any conversion shall be
rounded up or down, whichever is closest, to the nearest whole share.
(f) Taxes. The Company shall pay any and all taxes which may
be imposed upon it with respect to the issuance and delivery of Common Stock
upon any conversion.
4. [Intentionally Left Blank.]
5. Acceleration Provisions.
(a) Acceleration Upon Major Transaction. In addition to all
other rights of the Holder contained herein (including, without limitation, the
provisions
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<PAGE>
of Section 3), after a Major Transaction, the Holder shall have the right, at
the Holder's option, to require that the Company prepay the then Outstanding
Principal Amount of the Note in an amount equal to the greater of (i) 125% of
the Outstanding Principal Amount of the Note on the date the Major Transaction
was consummated and (ii) the product of (A) the number of shares of Common Stock
that would be issued upon conversion of this Note in accordance with Section
3(b) hereof provided that the applicable Conversion Price shall be the lower of
(I) the Conversion Price on the date the Major Transaction was announced and
(II) the Conversion Price that would otherwise be in effect and (B) the Market
Price ("Major Transaction Acceleration Price"). The provisions of this Section
5(a) shall not be deemed to restrict the ability of the Holder to convert the
Note pursuant to the provisions of Section 3 at any time and from time to time
before the consummation of a Major Transaction.
(b) Acceleration Option Upon Triggering Event. In addition to
all other rights of the Holder contained herein (including, without limitation,
the provisions of Section 3), after a Triggering Event, the Holder shall have
the right, at the Holder's option, to declare all or a portion of the
Outstanding Principal Amount of the Note to be due and payable at a price equal
to the greater of (i) 125% of the Outstanding Principal Amount on the date the
Triggering Event occurred and (ii) the product of (A) the aggregate number of
shares of Common Stock for which the amount of the Note being converted would be
converted into as of the date immediately preceding such Triggering Event on
which the exchange or market on which the Common Stock is traded is open
multiplied by (B) the greater of (x) the Conversion Price calculated as if the
Conversion Date were the date immediately preceding such Triggering Event and
(y) the Market Price of the Common Stock on such date ("Triggering Event
Acceleration Price" and, collectively with "Major Transaction Acceleration
Price," the "Acceleration Price"). The provisions of this Section 5(b) shall not
be deemed to restrict the ability of the Holder to convert the Note pursuant to
the provisions of Section 3 at any time and from time before the Holder receives
the Triggering Event Acceleration Price.
(c) "Major Transaction". A "Major Transaction" shall be deemed
to have occurred at such time as any of the following events:
(i) the consolidation or merger of the Company with or
into another Person (other than pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Company or
pursuant to a merger after which the holders of the Company's outstanding
capital stock immediately prior to the merger own a number of shares of the
resulting company's outstanding capital stock sufficient to elect a majority of
the resulting company's board of directors);
(ii) the sale, transfer, lease, disposal or abandonment
of (whether in one transaction or in a series of transactions) substantially all
of the Company's assets (other than a sale or transfer to an entity controlling,
controlled by or under common control with the Company); or
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<PAGE>
(iii) a purchase, tender or exchange offer for more than
50% of the outstanding shares of Common Stock is made and accepted by the
holders thereof.
(d) "Triggering Event". A "Triggering Event" shall be deemed
to have occurred at such time as any of the following events:
(i) notice from the Company that Common Stock issued or
issuable upon conversion of the Note (the "Conversion Shares") or the Warrants
(the "Warrant Shares") cannot be sold under the Registration Statement covering
such Common Stock (the "Suspension Period"), for any period of ten (10)
consecutive trading days or any twenty (20) non-consecutive trading days during
any period of 180 consecutive days that is (A) after the date the Registration
Statement has been declared effective by the SEC and (B) prior to the time that
the Conversion Shares may be sold without limitation in accordance with Rule
144(k) under the Securities Act; provided that any demand for acceleration under
this Section 5(d)(i) must be made by the Holder within 15 days after receipt of
notice from the Company of the termination of the Suspension Period; and,
provided further that if the aggregate number of days in all Suspension Periods
(the "Suspension Days") is equal to or greater than forty-five (45) days, then
the Maturity Date may, at the option of the Holder, be extended by the aggregate
number of Suspension Days;
(ii) the failure of the Common Stock, Conversion Shares,
or Warrant Shares to be listed on the American Stock Exchange, the New York
Stock Exchange or the Nasdaq SmallCap Market System for a period of fifteen (15)
days during any period of twelve (12) months (the "Delisting Period") (i)
provided, however, that any demand for acceleration under this Section 5(d)(ii)
must be made by the Holder within 30 days after receipt of the Notice of
Triggering Event (as defined in Section 5(f)); or
(iii) the Company's notice to the Holder, including by
way of public announcement, at any time, of its intention not to comply with
proper requests for conversion of the Notes or exercise of the Warrants into
shares of Common Stock, including due to any of the reasons set forth in Section
6(a) below, except in any case in which the basis for such intention by the
Company is a bona fide dispute as to the right of the Holder to such conversion.
(e) Mechanics of Acceleration at Option of Holder Upon Major
Transaction. No sooner than fifteen (15) days nor later than ten (10) days prior
to the consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver written notice
thereof via facsimile and overnight courier ("Notice of Major Transaction") to
the Holder. After receipt of a Notice of Major Transaction, the Holder may
require the Company to prepay the Note in accordance with Sections 5(a) and 5(c)
hereof by delivering written notice thereof via facsimile and overnight courier
("Notice of Acceleration at Option of Holder Upon Major
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<PAGE>
Transaction") to the Company, which Notice of Acceleration at Option of Holder
Upon Major Transaction shall indicate the applicable Acceleration Price, as
calculated pursuant to Section 5(a) above.
(f) Mechanics of Acceleration at Option of Holder Upon
Triggering Event. Within one (1) day after the occurrence of a Triggering Event,
the Company shall deliver written notice thereof via facsimile and overnight
courier ("Notice of Triggering Event") to the Holder. After receipt of a Notice
of Triggering Event, the Holder may require the Company to prepay the Note in
accordance with Sections 5(b) and 5(d) hereof by delivering written notice
thereof via facsimile and overnight courier ("Notice of Acceleration at Option
of Holder Upon Triggering Event") to the Company, which Notice of Acceleration
at Option of Holder Upon Triggering Event shall indicate the applicable
Acceleration Price, as calculated pursuant to Section 5(b) above.
(g) Payment of Acceleration Price. Upon the Company's receipt
of a Notice of Acceleration at Option of Holder Upon Triggering Event or a
Notice of Acceleration at Option of Holder Upon Major Transaction from the
Holder, the Company shall immediately notify the Holder by facsimile of the
mechanics of the delivery of the Holder's Note. The Company shall deliver the
applicable Acceleration Price to the Holder within the earlier of (i) twenty
(20) days after the Company's delivery of a Notice of Major Transaction or the
Company's receipt of the applicable notice to affect an acceleration, and (ii)
the closing of the Major Transaction upon which such Notice of Major Transaction
was predicated. In the event of a dispute as to the determination of the
arithmetic calculation of the Acceleration Price, such dispute shall be resolved
pursuant to Section 3(d)(iii) above. Promptly after receipt of the applicable
Acceleration Price in cash by wire transfer of immediately available funds, the
Holder shall deliver the Note to the Company or its Transfer Agent. Payments
provided for in this Section 5 shall have priority to payments to other
stockholders in connection with a Major Transaction.
6. Inability to Fully Convert Note.
(a) Holder's Option if Company Cannot Fully Convert. If, upon
the Company's receipt of a Conversion Notice, the Company cannot issue shares of
Common Stock registered for resale under the Registration Statement for any
reason, including, without limitation, because the Company (x) does not have a
sufficient number of shares of Common Stock authorized and available, (y) is
otherwise prohibited by applicable law or by the rules or regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its securities, including
without limitation the NASDAQ, from issuing all of the Common Stock which is to
be issued to the Holder pursuant to a Conversion Notice or (z) fails to have a
sufficient number of shares of Common Stock registered for resale under the
Registration Statement, then the Company shall issue as many shares of Common
Stock as it is able to issue in accordance with the Holder's Conversion Notice
and pursuant to Section 3(d) above and, with respect to the unconverted portion
of the Note, the Holder,
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<PAGE>
solely at its option, can elect to (unless the Company issues and delivers the
Conversion Shares underlying the unconverted portion of the Note prior to the
Holder's election hereunder, in which case the Holder shall only be entitled to
receive Buy In Actual Damages under Section 3(d)(v)):
(i) require the Company to pay the Holder for the
portion of Outstanding Principal Amount of the Note plus accrued interest
thereon for which the Company is unable to issue Common Stock in accordance with
the Holder's Conversion Notice ("Mandatory Payment") in an amount (the
"Mandatory Payment Price") equal to the Triggering Event Acceleration Price as
of such Conversion Date;
(ii) if the Company's inability to fully convert the
Note is pursuant to Section 6(a)(z) above, require the Company to issue
restricted shares of Common Stock in accordance with the Holder's Conversion
Notice and pursuant to Section 3(d) above;
(iii) void its Conversion Notice and retain or have
returned, as the case may be, the nonconverted portion of the Note that was to
be converted pursuant to the Holder's Conversion Notice; or
(iv) if the Company's inability to fully convert the
Note is pursuant to the NASDAQ rules and regulations described in Section
6(a)(y) above, require the Company to issue shares of Common Stock in accordance
with the Holder's Conversion Notice and pursuant to Section 3(d) above at a
Conversion Price in cash equal to the Average Market Price of the Common Stock
on the date preceding the Holder's Notice in Response to Inability to Convert.
(b) Mechanics of Fulfilling Holder's Election. The Company
shall immediately send via facsimile to the Holder, upon receipt of a facsimile
copy of a Conversion Notice from the Holder which cannot be fully satisfied as
described in Section 6(a) above, a notice of the Company's inability to fully
satisfy the Holder's Conversion Notice (the "Inability to Fully Convert
Notice"). Such Inability to Fully Convert Notice shall indicate (i) the reason
why the Company is unable to fully satisfy the Holder's Conversion Notice, (ii)
the portion of the Outstanding Principal Amount of the Note plus accrued
interest thereon which cannot be converted and (iii) the applicable Mandatory
Payment Price. The Holder must within five (5) Business Days after receipt of
such Inability to Fully Convert Notice deliver written notice via facsimile to
the Company ("Notice in Response to Inability to Convert") of its election
pursuant to Section 6(a) above.
(c) Payment. If the Holder shall elect to have its Note
prepaid pursuant to Section 6(a)(i) above, the Company shall pay the Mandatory
Payment Price in immediately available funds to the Holder within ten (10) days
of the Company's receipt of the Holder's Notice in Response to Inability to
Convert. If the Company shall fail to pay the applicable Mandatory Payment Price
to the Holder on a timely basis as described in this Section 6(c) (other than
pursuant to a dispute as to the determination of
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<PAGE>
the arithmetic calculation of the Acceleration Price), in addition to any remedy
the Holder may have under this Note, such unpaid amount shall bear interest at
the Default Rate until paid in full. Until the full Mandatory Payment Price is
paid in full to the Holder, the Holder may void the request for the Mandatory
Payment with respect to the portion of the Note for which the full Mandatory
Payment Price has not been paid and in no event shall such voidance be deemed
forgiveness of any amounts due under this Note. Notwithstanding the foregoing,
if the Company fails to pay the applicable Mandatory Payment Price within such
ten (10) day time period due to a dispute as to the determination of the
arithmetic calculation of the Acceleration Price, such dispute shall be resolved
pursuant to Section 3(d)(iii) above.
(d) Pro-rata Conversion and Acceleration. In the event the
Company receives a Conversion Notice from more than one Holder on the same day
and the Company can convert and redeem some, but not all, of the Notes pursuant
to this Section 6, the Company shall convert and purchase from each Holder
electing to have such Note converted and purchased at such time an amount equal
to such Holder's pro-rata amount (based on the Outstanding Principal Amount of
the Note held by such Holder relative to aggregate Outstanding Principal Amount
of Notes outstanding) of all Notes being converted and redeemed at such time.
7. Representations and Warranties.
(a) The Company represents and warrants as follows: (i) the
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware; (ii) the execution, delivery and
performance by the Company of this Note and each other instrument, agreement and
document executed and delivered by the Company to the Holder whether now
existing or hereinafter executed and delivered in connection with this Note
(together with the Purchase Agreement, the other Note, the Warrants, the
Registration Rights Agreement and the other agreements, instruments and
documents heretofore or hereafter furnished in connection therewith are
hereinafter referred to individually as a "Document" and collectively as the
"Documents") are within the Company's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene (A) the
Company's charter or by-laws or (B) any law or any contractual restriction
binding on or affecting the Company; (iii) no authorization or approval or other
action by, and no notice to or filing with, any governmental authority,
regulatory body or third Person is required for the due execution, delivery and
performance by the Company of any Document; (iv) each Document constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms; (v) the Company has all requisite
corporate power and authority to conduct its business as now conducted and to
consummate the transactions contemplated by the Documents; (vi) the Company is
duly qualified to conduct its business and is in good standing in each
jurisdiction in which the character of the properties owned or leased by it, or
in which the transaction of its business makes such qualification necessary
except where such failure to qualify would not have a Material Adverse Effect
(as defined in the Purchase Agreement); (vii) the Company's
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<PAGE>
most recent 10-K or 10-Q filed with the Securities and Exchange Commission,
whichever contains the Company's most recent financial statements, fairly
represents the financial condition of the Company and the results of operations
of the Company for the period ended on the date thereof, all in accordance with
generally accepted accounting principles consistently applied, and since the
date thereof there has been no material adverse change in the operations,
business, property, assets or condition of the Company; (viii) there is no
pending or to the Company's knowledge threatened action or proceeding affecting
the Company before any governmental agency or arbitrator which challenges or
relates to the Documents or any transactions contemplated in connection
therewith or which may materially adversely affect the financial condition or
operations of the Company; (ix) no fact is known to the Company which is
reasonably likely to have a material adverse effect on the business, operations,
condition, financial or otherwise, performance or prospects of the Company and
has not been disclosed in the Company's most recent 10-K or 10-Q filed with the
Securities and Exchange Commission; and (x) after giving effect to the
transactions contemplated by this Note and the other Documents, the Company is,
individually and with its Subsidiaries on a consolidated basis, Solvent.
(b) Each of the representations and warranties made by the
Company in the Purchase Agreement as in effect on the date hereof, without
regard to any amendment, modification or waiver of such provisions, is true and
correct on the date hereof as if made on the date hereof (except for those
representations and warranties that speak as of a specific date), which
representations and warranties (together with all related definitions and
ancillary provisions) are hereby incorporated by reference as if set forth
herein in their entirety, provided, that: (i) references to "this Agreement",
"herein", "hereunder", and words of similar import shall mean and be a reference
to this Note; (ii) references to an "Exhibit" and "Schedule" shall mean and be a
reference to the applicable Exhibit and Schedule to the Purchase Agreement (as
in effect on the date hereof, without regard to any amendment, modification or
waiver of such provisions and without regard to whether or not the Purchase
Agreement remains in effect); and (iii) references to Sections in such
representations and warranties shall be references to Sections of the Purchase
Agreement, provided that to the extent such referenced Sections are themselves
incorporated in this Note by reference, references herein to such Sections shall
be to such Sections as they are incorporated.
8. Covenants. So long as any principal or interest is due hereunder
and shall remain unpaid, the Company will, unless the Holder shall otherwise
consent in writing:
(a) Furnish to the Holder: (i) as soon as possible and in any
event within five days after the occurrence of a Default or any event that, with
the giving of notice or the lapse of time or both, would constitute a Default,
the written statement of the chief financial officer of the Company, setting
forth the details of such Default or event and the action that the Company
proposes to take with respect thereto and (ii) promptly upon request, such other
information concerning the condition or
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<PAGE>
operations, financial or otherwise, of the Company or any of its Subsidiaries as
the Holder from time to time may reasonably request;
(b) Comply, and cause each of its Subsidiaries to comply, in
all material respects with all applicable laws, rules, regulations and orders,
such compliance to include, without limitation, payment before the same become
delinquent all taxes, assessments and governmental charges imposed upon it or
upon its property except to the extent contested in good faith and for which
adequate reserves (as determined in accordance with generally accepted
accounting principles consistently applied) have been set aside;
(c) Maintain and preserve its existence, rights and
privileges, and obtain, maintain and preserve all permits, licenses,
authorizations and approvals that are necessary in the proper conduct of its
business;
(d) Keep adequate and proper records and books of account, in
which complete and correct entries will be made in accordance with generally
accepted accounting principals consistently applied, reflecting all financial
transactions of the Company;
(e) Comply with each of the affirmative and negative covenants
contained in the Purchase Agreement (as in effect on the date hereof, without
regard to any amendment, modification or waiver of such provisions and without
regard to whether or not the Purchase Agreement remains in effect) which
covenants are hereby incorporated by reference as if set forth herein in their
entirety provided that any reference changes provided for in Section 7(b) hereof
shall also be applicable to this Section 8(e);
(f) Not incur nor permit any of its Subsidiaries to incur any
indebtedness except Permitted Debt; and
(g) Not create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any lien, mortgage, security
interest, charge or other encumbrance (each, a "Lien") upon or with respect to
any of their properties, rights or other assets, whether now owned or hereafter
acquired, or assign or otherwise transfer or permitted any of its Subsidiaries
to assign or otherwise transfer, any right to receive income, other than Liens
under any Permitted Debt.
9. Reservation of Shares. The Company shall, so long as any
principal or interest is due hereunder, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Note, such number of shares of Common Stock as shall from time
to time be sufficient to effect the conversion of the Note; provided that the
number of shares of Common Stock so reserved shall at no time be less than 125%
of the number of shares of Common Stock for which the Note is at any time
convertible.
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10. No Impairment. The Company shall not intentionally take any
action which would impair the rights and privileges of the Note set forth herein
or the Holder.
11. Limitation on Number of Conversion Shares. Notwithstanding any
provision to the contrary contained herein, in no event shall the Holder be
entitled to convert this Note such that upon giving effect to such conversion,
the aggregate number of shares of Common Stock then beneficially owned by the
Holder and its "affiliates" as defined in Rule 144 of the Act would exceed 9.99%
of the total issued and outstanding shares of the Common Stock following such
conversion; provided, however, that Holder may elect to waive this restriction
upon not less than sixty-one (61) days prior written notice to the Company. For
purposes of this Section, beneficial ownership shall be calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended.
12. Obligations Absolute. No provision of this Note shall alter or
impair the obligation of the Company, which is absolute and unconditional, to
convert this Note pursuant to the provisions of Section 3, and to pay the
principal of, and interest on, this Note at the time, place and rate, and in the
manner, herein prescribed.
13. Waivers of Demand, Etc. The Company hereby expressly waives
demand and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of acceleration or intent to accelerate
(other than a Notice of Acceleration at Option of Holder Upon Triggering Event
or Notice of Acceleration at Option of Holder Upon Major Transaction as required
by Section 5(f)), bringing of suit and diligence in taking any action to collect
amounts called for hereunder and will be directly and primarily liable for the
payment of all sums owing and to be owing hereon, regardless of and without any
notice, diligence, act or omission as or with respect to the collection of any
amount called for hereunder.
14. Replacement Note. In the event that the Holder notifies the
Company that its Note has been lost, stolen or destroyed, a replacement Note
identical in all respects to the original Note (except for registration number
and Outstanding Principal Amount, if different than that shown on the original
Note) shall be issued by the Company to the Holder, provided that the Holder
executes and delivers to the Company an agreement reasonably satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection with
such Note, but in no event shall the aggregate amount of such indemnification
exceed the Outstanding Principal Amount of the Note.
15. Payment of Expenses; Indemnification. The Company agrees to pay
on demand (a) all accountable costs and expenses (including, without limitation,
fees and expenses of one counsel to the Holders) incurred by the Holders in
connection with the preparation, execution and delivery of this Note and the
other Documents, up to $50,000 (b) all reasonable costs and expenses, including,
without limitation, fees and expenses of counsel to the Holder incurred by the
Holder in connection with the
22
<PAGE>
administration and amendment of this Note and the other Documents and (c) all
reasonable costs and expenses (including, without limitation, reasonable fees
and expenses of counsel to the Holder) incurred by the Holder in connection with
the enforcement of the Holder's rights and/or the collection of all amounts due
under this Note. The Company hereby agrees to indemnify and hold harmless the
Holder and its members, partners, agents, employees, affiliates and advisors
from and against any and all claims, damages, losses, liabilities and expenses
(including without limitation, all fees and other client charges of counsel to
the Holder) which may be incurred by or asserted against the Holder or any such
member, partner, agent, employee, affiliate or advisor in connection with or
arising out of any investigation, litigation or proceeding related to or arising
out of this Note or any other Document or any transaction contemplated hereby or
thereby, except for damages, losses, liabilities or expenses arising from
Holder's acts of gross negligence or willful misconduct. The obligations of the
Company under this paragraph shall survive the payment in full of this Note.
16. Restriction on Cash Dividends With Respect to Common Stock.
Until the Note has been converted or redeemed in its entirety as provided
herein, the Company shall not, directly or indirectly, declare or pay any cash
dividend on its Common Stock without the prior express written consent of the
Holder.
17. Assignment and Transfer of Note.
(a) Subject to the restrictions on transfer contained herein,
if applicable, this Note and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Note with a
properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company (or at such office or agency as the Company may
designate in writing to the Holder).
(b) This Note shall be registered in a register (the "Note
Register") as it is issued and transferred, which Note Register shall be
maintained by the Company at its principal office or, at the Company's election
and expense, by the Company's Transfer Agent. The Company shall be entitled to
treat the registered holder of the Note on the Note Register as the owner in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Note on the part of any other Person, and
shall not be affected by any notice to the contrary, except that, if and when
any Note is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer thereof as the owner of such Note for all
purposes. All of the rights provided to the Holder under this Note, if properly
assigned, may be exercised by a new holder without a new note first having been
issued.
18. [intentionally omitted]
19. Events of Default. If any of the following shall occur (each a
"Default"):
23
<PAGE>
(a) the Company shall fail to pay (i) any principal of or
non-cash interest on this Note when due, or (ii) any cash interest on this Note
when due and such default remains unremedied for three days (whether in either
case such due date is by scheduled maturity, acceleration, demand or otherwise);
or (b) any representation or warranty made by the Company in this Note, in any
other Document heretofore or hereafter furnished by or on behalf of the Company
(including, without limitation, the Purchase Agreement) or in any document or
certificate in connection with the execution and delivery of this Note shall
have been incorrect in any material respect when made; or (c) the Company shall
fail to perform or observe any term, covenant or agreement contained in any
Document (including, without limitation, the failure to honor any Conversion
Notice or an Election to Purchase Shares (as defined in the Warrants)) to be
performed or observed by the Company, or (d) the Company shall fail to pay any
debt for borrowed money or other similar obligation or liability
("Indebtedness") (excluding Indebtedness evidenced by this Note) in excess of
$100,000 in the aggregate, or any interest or premium thereon, when due (whether
by scheduled maturity, required prepayment, acceleration, demand or otherwise)
and such failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such Indebtedness, or any
other default under any agreement or instrument relating to any such
Indebtedness, or any other event, shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or instrument, if
the effect of such default or event is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness; or any such Indebtedness
shall be declared to be due and payable, or required to be prepaid (other than
by a regularly scheduled required prepayment), prior to the stated maturity
thereof; or (e) one or more judgments or orders for the payment of money
exceeding any applicable insurance coverage shall be rendered against the
Company, and either (i) enforcement proceedings shall have been commenced by any
creditor upon any such judgment or order and the same shall not have been
dismissed within twenty (20) days, or (ii) there shall be any period of twenty
(20) consecutive days during which a stay of enforcement of any such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; or
(f) the Company shall be generally not paying its debts as such debts become
due, or shall admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against the Company seeking to adjudicate it a
bankrupt or insolvent, or seeking dissolution, liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of it
or its debts under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official for the
Company or for any substantial part of its property and such proceeding shall
remain undismissed or unstayed for a period of thirty (30) days; or the Company
shall take any action to authorize or effect any of the actions set forth above
in this clause (f); or (g) any provision of this Note or any other Document
(including, without limitation, the Purchase Agreement) shall at any time for
any reason be declared to be null and void by a court of competent jurisdiction,
or the validity or enforceability thereof shall be contested by the Company, or
a proceeding shall be commenced by the Company seeking to establish the
invalidity or unenforceability thereof, or the Company
24
<PAGE>
shall deny that it has any liability or obligation hereunder or thereunder; or
(h) a material adverse change in the condition or operations, financial or
otherwise, of the Company, as determined by the Holder in its sole discretion,
shall occur and 5 days prior written notice thereof shall have been given to the
Company by the Holder; or (i) the Registration Statement (as defined in the
Registration Rights Agreement) covering the Conversion Shares and Warrant Shares
shall not have been declared effective by the Securities and Exchange Commission
within 180 days after the Issuance Date; or (j) the Company shall not be
eligible to register securities, including the resale of the Conversion Shares
and Warrant Shares on a registration statement on Form S-3 under the Act on the
twentieth (20th) day following the Issuance Date;
then the Holder may (i) declare the Outstanding Principal Amount of this Note
and all other amounts due hereunder to be immediately due and payable, whereupon
the Outstanding Principal Amount of this Note and all such other amounts shall
become and shall be forthwith due and payable, without diligence, presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived and all such amounts, if unpaid, shall bear interest at the Default Rate,
(ii) notwithstanding any provision to the contrary contained herein, convert
this Note at the lower of (I) the Conversion Price and (II) the Market Price, in
each case, on the date of such conversion, and (iii) exercise any and all of its
other rights under applicable law, hereunder and under the other Documents. In
such event, this Note shall be prepaid at a prepayment price equal to 125% of
the Outstanding Principal Amount of the Note plus accrued but unpaid interest
thereon.
20. Taxes, etc. All payments made by the Company hereunder will be
made without setoff, counterclaim or other defense. All such payments shall be
made free and clear of and without deduction for any present or future income,
stamp or other taxes, levies, imposts, deductions, charges, fees, withholding,
restrictions or conditions of any nature now or hereafter imposed, levied,
collected, withheld or assessed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein, and all interest, penalties
or similar liabilities, excluding taxes on the overall net income of the Holder
(such non-excluded taxes are hereinafter collectively referred to as the
"Taxes"). If the Company shall be required by law to deduct or to withhold any
Taxes from or in respect of any amount payable hereunder, (i) the amount so
payable shall be increased to the extent necessary so that after making all
required deductions and withholdings (including Taxes on amounts payable to the
Holder pursuant to this sentence) the Holder receives an amount equal to the sum
it would have received had no such deductions or withholdings been made, (ii)
the Company shall make such deductions or withholdings and (iii) the Company
shall pay the full amount deducted or withheld to the relevant taxation
authority in accordance with applicable law. Whenever any Taxes are payable by
the Company, as promptly as possible thereafter the Company shall send the
Holder an official receipt showing payment. In addition, the Company agrees to
pay any present or future taxes, charges or similar levies which arise from any
payment made hereunder or from the execution, delivery, performance, recordation
or filing of, or otherwise with respect to, this Note or any other Document
(hereinafter referred to as "Other Taxes"). The Company will indemnify the
Holder for the full amount of Taxes or Other Taxes
25
<PAGE>
(including, any Taxes or Other Taxes on amounts payable to the Holder under this
paragraph) paid by the Holder and any liability (including penalties, interest
and expenses) arising therefrom or with respect thereto, upon written demand by
the Holder therefor.
21. Miscellaneous.
(a) The Company agrees that all notices or other
communications provided for hereunder shall be in writing (including
telecommunications) and shall be mailed, telecopied or delivered to the Company
at the address of the Company set forth next to its signature, or at such other
address as may hereafter be specified by the Company to the Holder in writing.
All notices and communications shall be effective (i) upon receipt, if delivered
personally, (ii) upon receipt, when sent by facsimile, (iii) three (3) days
after being sent by U.S. certified mail, return receipt requested, or (iv) one
(1) Business Day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive same.
(b) No failure on the part of the Holder to exercise, and no
delay in exercising, any right, power, privilege or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof by
the Holder preclude any other or further exercise thereof or the exercise of any
other right, power, privilege or remedy of the Holder. No amendment or waiver of
any provision of this Note, nor consent to any departure by the Company
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Holder, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
(c) Any provision hereof which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
(d) The Company hereby (i) irrevocably submits to the
jurisdiction of the courts of the State of New York or the United States for the
Southern District of New York, in each case, sitting in New York County in any
action or proceeding arising out of or relating to this Note, (ii) waives any
defense based on doctrines of venue or forum non convenient, or similar rules or
doctrines, and (iii) irrevocably agrees that all claims in respect of such an
action or proceeding may be heard and determined in such courts. The Company (by
its acceptance hereof) waives any right to trial by jury in any action,
proceeding or counterclaim arising out of or relating to this Note.
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<PAGE>
(e) This Note shall be governed by, and construed in
accordance with, the laws of the State of New York without regard to conflicts
of law principles.
PARADISE MUSIC & ENTERTAINMENT, INC.
By:_____________________________________
Name:
Title:
Address:
53 West 23rd Street
New York, NY 10010
Attention: President
Telephone: (212) 590-2100
Telecopier: (212) 845-6480
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<PAGE>
SCHEDULE I
PAYMENTS OF PRINCIPAL; INTEREST CAPITALIZED
Principal Capitalized Principal Notation
Paid or Prepaid Interest Balance Made By
--------------- -------- ------- -------
<PAGE>
EXHIBIT A
PARADISE MUSIC & ENTERTAINMENT, INC.
CONVERSION NOTICE
Reference is made to the 9% Senior Subordinated Convertible Note due March __,
2003 (the "Note"), made by Paradise Music & Entertainment, Inc., a Delaware
corporation (the "Company"), to the order of BayStar Capital, L.P.. In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the amount under this Note indicated below into shares of Common Stock,
$.01 par value per share of the Company (the "Common Stock"), as of the date
specified below.
Date of Conversion:
---------------------------------------
Outstanding Principal Amount of Note
to be converted:
---------------------------------------
Please confirm the following information:
Conversion Price:
---------------------------------------
Number of shares of Common Stock
to be issued:
---------------------------------------
Please issue the Common Stock and, if applicable, any check drawn on an account
of the Company into which Note is being converted in the following name and to
the following address:
Issue to:
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
Facsimile Number:
---------------------------------------
Authorization:
---------------------------------------
By:
Title:
Dated:
---------------------------------------
<PAGE>
Exhibit B
FORM OF ASSIGNMENT
[To be executed only upon assignment of the Note]
For value received, the undersigned registered Holder of the within Note hereby
sells, assigns and transfers unto the right represented by such Note, and
appoints _____________ Attorney to make such transfer on the Note Register of
Paradise Music & Entertainment, Inc., maintained for such purpose, with full
power of substitution in the premises.
Dated:____________
(Signature must conform in all
respects to the name of holder as
specified on the face of the Note)
________________________________________
(Street Address)
________________________________________
(City) (State) Zip Code)
Signed in the presence of:
Exhibit 5.1
[Letterhead of Davis & Gilbert LLP]
4800
March 31, 2000
VIA FEDERAL EXPRESS
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Re: Paradise Music and Entertainment, Inc.
Ladies and Gentlemen:
We have acted as counsel to Paradise Music & Entertainment, Inc., a
Delaware corporation (the "Company") in connection with the registration
pursuant to a Registration Statement on Form S-3 (the "Registration Statement")
under the Securities Act of 1933, as amended, of an aggregate of 2,494,737
shares of Common Stock of the Company, par value $.01 per share ("Common
Stock").
In connection with this opinion, we have examined originals, or
copies certified to our satisfaction, of the certificate of incorporation of the
Company, as amended, the By-Laws of the Company, as amended, the minutes and
other records of the proceedings of the Board of Directors and of the
stockholders of the Company, and such other documents, corporate and public
records, agreements, and certificates of officers of the Company and of public
and other officials, and we have considered such questions of law, as we have
deemed necessary as a basis for the opinions hereinafter expressed. In such
examination we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all documents submitted to us as certified or photostatic
copies.
Based on and subject to the foregoing, we hereby advise you that, in
our opinion, the shares of Common Stock to be sold pursuant to the Registration
Statement have been duly authorized and validly issued, and following receipt of
the purchase price, will be fully-paid and nonassessable.
Please be advised that this law firm owns 18,471 shares, and Walter
Epstein, a partner of this firm, owns 49,658 shares, of the Common Stock.
We hereby consent to the use and filing of this opinion in
connection with the Registration Statement and to the reference to our firm
under the caption "Legal Matters" in the Registration Statement and in the
related prospectus.
Very truly yours,
Davis & Gilbert LLP
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" and to
incorporation by reference of our report dated March 30, 2000, in the
Registation Statement (Form S-3) and related prospectus of Paradise Music &
Entertainment, Inc. for the registration of 3,068,422 shares of its common
stock.
Ernst & Young LLP
New York, New York
March 31, 2000
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Paradise Music & Entertainment, Inc. on Form S-3 of our audits of the
consolidated statements of operations, stockholder equity, and cash flows of
Paradise Music & Entertainment, Inc. for the years ended June 30, 1999 and 1998.
We also consent to the reference to our firm under the caption "Experts."
Rothstein, Kass & Company, P.C.
Roseland, New Jersey
March 31, 2000
