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Exhibit 4.2
SHARE EXCHANGE AGREEMENT
MEMORANDUM OF AGREEMENT made as of August 24, 2000.
B E T W E E N:
SONIC FOUNDRY, INC., a corporation existing under the laws of the
State of Maryland,
(hereinafter referred to as "SOFO")
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SONIC FOUNDRY (NOVA SCOTIA), INC., a corporation incorporated under
the laws of the Province of Nova Scotia,
(hereinafter referred to as the "Corporation")
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CHARLES FERKRANUS, MICHAEL FERKRANUS, 1096159 ONTARIO LIMITED, and
1402083 ONTARIO LIMITED,
(such person or any permitted transferee(s) hereinafter sometimes
referred to as the "Non-Voting Exchangeable Shareholders", or
"Holders")
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such other person or persons (who shall also be referred to as Non-
Voting Exchangeable Shareholders or Holders) as may become bound by
this Agreement upon exercise of any options exercisable into Non-
Voting Exchangeable Shares.
WHEREAS pursuant to a share purchase agreement entered into as of June
1, 2000 (the "Share Purchase Agreement") among the Holders, Dan McLellan
("McLellan"), Curtis Staples ("Staples"), Bank of Montreal Capital Corp., RoyNat
Inc., DGC Entertainment Ventures Corp. and SOFO (the "Agreement"), the
Corporation has acquired all of the shares of Magnetiscope Inc. together with
all of the shares of International Image Services, Inc. which are not owned by
Magnetiscope Inc.;
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AND WHEREAS SOFO, B. Andrus Wilson, the Holders, McLellan, Staples,
Bank of Montreal Capital Corp., RoyNat Inc. and DGC Entertainment Ventures Corp.
have entered into a stock registration rights agreement dated as of August 24,
2000 (the "Stock Registration Rights Agreement");
AND WHEREAS the authorized capital of the Corporation consists of
10,000,000 non-voting exchangeable shares (the "Non-Voting Exchangeable Shares")
and 10,000,000 common shares (the "Common Shares");
AND WHEREAS SOFO subscribed for 297,385 Common Shares of the
Corporation in consideration of the payment by SOFO to the Corporation of Four
Million, One Hundred and Seventy-Four Thousand, Eight Hundred and Eighty-Two
(C$4,174,882.00) Dollars in cash, which Common Shares have been duly issued to
SOFO as fully paid and non-assessable;
AND WHEREAS pursuant to the Share Purchase Agreement, the Holders
received an aggregate of four hundred and twelve thousand, three hundred and
thirty-six (412,336) Non-Voting Exchangeable Shares;
AND WHEREAS the parties hereto desire to make appropriate provision
and to establish a procedure whereby SOFO or its Affiliates will take certain
actions and make certain payments and deliveries necessary to ensure that the
Corporation will be able to make certain payments and to deliver common shares
of SOFO (the "SOFO Common Shares"), in satisfaction of the obligations of the
Corporation under the Corporation Articles;
AND WHEREAS SOFO and the Corporation have entered into a support
agreement dated as of August 24, 2000 (the "Support Agreement");
AND WHEREAS McLellan and Staples have each entered into an option
agreement with the Corporation dated as of August 24, 2000 (each, a "Buyer Non-
Voting Exchangeable Share Option Agreement"), whereby the Corporation has
granted McLellan 48,510 options and Staples 24,255 options to purchase Non-
Voting Exchangeable Shares;
AND WHEREAS capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed thereto in the memorandum and articles
of association of the Corporation dated August 16, 2000 (the "Corporation
Articles");
AND WHEREAS the aforementioned transfer of the shares of Magnetiscope
Inc. and International Image Services, Inc. by certain Holders to the
Corporation is being carried out in order to ensure that eligible Holders may
take advantage of the provisions of subsection 85(1) of the Income Tax Act
(Canada);
NOW THEREFORE, in consideration of the premises and mutual covenants
and agreements herein contained, the parties agree as follows:
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ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 In this Agreement, unless the context otherwise requires, the following
words and expressions shall have the meanings set forth below:
(a) "Affiliate" of any person means any person directly or indirectly
controlled by, or under common control of, that person. For the purposes
of this definition, "control" (including, with correlative meanings, the
terms "controlled by" and "under common control of") as applied to any
person, means the possession by another person, directly or indirectly, of
the power to direct or cause the direction of the management and policies
of that first mentioned person, whether through the ownership of voting
securities, by contract or otherwise.
(b) "Automatic Exchange Right" means the benefit of the obligation of SOFO to
effect the automatic exchange of SOFO Common Shares for Non-Voting
Exchangeable Shares pursuant to Section 2.2.
(c) "Date of Expiry" means the fifth anniversary of the date of this Agreement
first indicated above;
(d) "Exchange Right" has the meaning ascribed thereto in Section 2.1 hereof;
(e) "Insolvency Event" means (i) the institution by the Corporation of any
proceeding to be adjudicated a bankrupt or insolvent or to be wound up;
(ii) the consent of the Corporation to the institution of bankruptcy,
insolvency or winding-up proceedings against it; (iii) the filing of a
petition, answer or consent seeking dissolution or winding-up under any
bankruptcy, insolvency or analogous laws, including without limitation the
Companies' Creditors' Arrangement Act (Canada) and the Bankruptcy and
Insolvency Act (Canada), and the failure by the Corporation to contest in
good faith any such proceedings commenced in respect of the Corporation
within 30 days of becoming aware thereof; (iv) the consent by the
Corporation to the filing of any such petition or to the appointment of a
receiver; or (v) the Corporation not being permitted, pursuant to solvency
requirements of applicable law, to redeem any Retracted Shares pursuant to
Section 5.6 of the rights, privileges, restrictions and conditions
attaching to the Non-Voting Exchangeable Shares as set out in the
Corporation Articles; and
(f) "Share Exchange" has the meaning ascribed thereto in Section 4.2.
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ARTICLE 2
EXCHANGE RIGHT AND AUTOMATIC EXCHANGE ON
LIQUIDATION OF SOFO
2.1 Exchange Right.
(a) SOFO agrees with the Holders from time to time of the Non-Voting
Exchangeable Shares that upon the occurrence and during the
continuance of an Insolvency Event, any Holder may require, with
respect to all but not less than all of the Non-Voting Exchangeable
Shares held by such Holder, SOFO to acquire each such Non-Voting
Exchangeable Share then held by such Holder and tendered to SOFO in
exchange, on a per share basis, for the following consideration (the
"Exchange Right"):
(i) one SOFO Common Share for each such Non-Voting Exchangeable
Share, which SOFO shall cause to be delivered to such Holder
(less any taxes required to be deducted or withheld therefrom);
plus
(ii) the amount by which the declared dividends on each such SOFO
Common Share exceeds, if at all, the declared and paid dividends
on each Non-Voting Exchangeable Share, which amount shall be paid
in cash (less any tax required to be deducted or withheld
therefrom by SOFO), provided that if the record date for any
declared but unpaid dividend occurs after Exchange Effective
Date, the amount payable to the Holder shall not include such
additional amount equal to the declared but unpaid dividends.
SOFO acknowledges receipt from the Holders of good and valuable
consideration (and the adequacy thereof) for the grant of the Exchange
Right to the Holders.
(b) If any Holder wishes to exercise the Exchange Right in respect of all
the Non-Voting Exchangeable Shares registered in such Holder's name,
the Holder shall deliver to SOFO, in person or by certified or
registered mail, at the principal corporate office of SOFO, the
certificates representing such Non-Voting Exchangeable Shares
accompanied by one or more share transfer powers endorsed in blank
executed by such Holder, together with a notice:
(i) specifying the number of Non-Voting Exchangeable Shares in
respect of which the Exchange Right is being exercised; and
(ii) representing and warranting that such Holder is not a non-
resident of Canada within the meaning of the Income Tax Act
(Canada) and, if the Holder does not so represent and warrant,
the provisions of Section 5.6 shall apply.
(c) The exchange with SOFO of the Non-Voting Exchangeable Shares in
respect of which a Holder shall have exercised such Holder's Exchange
Right shall be deemed for all purposes to be completed on the date
that the certificates
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representing such Non-Voting Exchangeable Shares, the share powers and
notice referred to in Section 2.1(b) are received by SOFO (the
"Exchange Effective Date") and, in particular, as of and with effect
from the Exchange Effective Date:
(i) such Holder shall be deemed to have transferred to SOFO all of
such Holder's right, title and interest in and to, and SOFO shall
be deemed to have acquired, such Non-Voting Exchangeable Shares;
and
(ii) such Holder shall be deemed to have become the holder of the SOFO
Common Shares issued upon such exchange,
notwithstanding any failure by SOFO to comply with the delivery
requirements of Section 2.1(d).
(d) Subject to compliance with the provisions of Section 5.6, within five
Business Days after an Exchange Effective Date with respect to a
Holder's exercise of the Exchange Right, SOFO shall deliver or cause
to be delivered to each Holder the certificates for the number of SOFO
Common Shares issued upon exercise of such Exchange Right.
(e) All Holders who duly exercise the Exchange Right as provided hereunder
on the same Exchange Effective Date shall be treated equally, without
preference or distinction, regardless of any differences in the
respective times on such Exchange Effective Date at which they
exercise such Exchange Right.
2.2 Automatic Exchange on Liquidation of SOFO.
(a) SOFO will give each Holder written notice of each of the following
events at the time set forth below:
(i) in the event of any determination by the board of directors of
SOFO to institute voluntary liquidation, dissolution or winding-
up proceedings with respect to SOFO or to effect any other
distribution of the assets of SOFO among its shareholders for the
purpose of winding-up its affairs, at least 45 days prior to the
proposed effective date of such liquidation, dissolution or
winding-up or other distribution; and
(ii) as soon as practicable, upon the earlier of (x) receipt by SOFO
of notice of, or (y) SOFO otherwise becoming aware of any
threatened or instituted claim, suit, petition or other
proceedings with respect to the involuntary liquidation,
dissolution or winding-up of SOFO or to effect any other
distribution of the assets of SOFO among its shareholders for the
purpose of winding-up its affairs.
(b) In order that the Holders (other than SOFO or any Affiliate) will be
able to participate on a pro rata basis with the holders of SOFO
Common Shares in the distribution of assets of SOFO in connection with
an event contemplated by Section 2.2(a)(i) or Section 2.2(a)(ii) above
(the "SOFO Liquidation Event"),
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on the fifth Business Day prior to the effective date of a SOFO
Liquidation Event or such other date as may be desirable or necessary
to ensure that the Holders shall participate on a pro-rata basis with
the holders of SOFO Common Shares in the distribution of assets of
SOFO (the "SOFO Liquidation Event Effective Date") all of the then
outstanding Non-Voting Exchangeable Shares shall be automatically
exchanged for SOFO Common Shares (the "Automatic Exchange"). To effect
the Automatic Exchange, SOFO shall acquire each Non-Voting
Exchangeable Share outstanding on the SOFO Liquidation Event Effective
Date held by Holders (other than SOFO or an Affiliate of SOFO), and
each Holder shall transfer the Non-Voting Exchangeable Shares held by
him at such time, in exchange, on a per share basis, for the following
consideration (the "SOFO Liquidation Amount"):
(i) one SOFO Common Share for each such Non-Voting Exchangeable
Share, which SOFO shall cause to be delivered to such Holder
(less any taxes required to be deducted or withheld therefrom);
plus
(ii) the amount by which the declared dividends on each such SOFO
Common Share exceeds, if at all, the declared and paid dividends
on each such Non-Voting Exchangeable Share, which amount shall be
paid in cash (less any tax required to be deducted or withheld
therefrom).
(c) On or promptly after the SOFO Liquidation Event Effective Date, SOFO
shall deliver or cause to be delivered to each Holder at the address
of the Holder recorded in the securities register of the Corporation
for the Non-Voting Exchangeable Shares, or by holding for pick-up by
the Holder, at the principal corporate office of SOFO, payment of the
total SOFO Liquidation Amount for each such Non-Voting Exchangeable
Share upon:
(i) presentation and surrender of the certificates representing such
Non-Voting Exchangeable Shares, together with one or more share
transfer powers endorsed in blank executed by such Holder; and
(ii) representation and warranty by such Holder that the Holder is not
a non-resident of Canada within the meaning of the Income Tax Act
(Canada) and, if the Holder does not so represent and warrant,
the provisions of Section 5.6 shall apply.
(d) SOFO shall have the right at any time after the sending of the notice
pursuant to Section 2.2(a) to deposit or cause to be deposited the
total SOFO Liquidation Amount in respect of the Non-Voting
Exchangeable Shares represented by certificates that have not at the
date of such deposit been surrendered by the Holders thereof in
connection with such Automatic Exchange, in a custodial account with
any chartered bank or trust company in Canada in trust for the Holder.
Upon the later of such deposit being made and the SOFO Liquidation
Event Effective Date:
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(i) the Non-Voting Exchangeable Shares in respect whereof such
deposit shall have been made shall be exchanged and the rights of
the Holders thereof after such deposit or the SOFO Liquidation
Event Effective Date, as the case may be, shall be limited to
receiving the proportionate part of the total SOFO Liquidation
Amount for such Non-Voting Exchangeable Shares so deposited,
against presentation and surrender of the said certificates held
by them, respectively, in accordance with the foregoing
provisions; and
(ii) upon such payment or deposit of the total SOFO Liquidation
Amount, the Holders shall thereafter be considered and deemed for
all purposes to be holders of the SOFO Common Shares delivered to
them.
2.3 Exercise of Exchange Right Subsequent to Retraction. In the event
that a Holder has exercised such Holder's right under Article 5 of the
Corporation Articles to require the Corporation to redeem any or all of the Non-
Voting Exchangeable Shares held by such Holder (the "Retracted Shares") and is
notified by the Corporation pursuant to Section 5.6 of the Corporation Articles
that the Corporation will not be permitted by virtue of the provisions of the
Act to redeem all such Retracted Shares, and provided that SOFO shall not have
exercised the Retraction/Redemption Call Right with respect to the Retracted
Shares, the Retraction Request will constitute and will be deemed to constitute
notice from the Holder to SOFO that the Holder is exercising the Exchange Right
with respect to those Retracted Shares which the Corporation is unable to
redeem. In any such event, the Corporation hereby agrees to notify SOFO as soon
as practicable of such prohibition against the Corporation redeeming all of the
Retracted Shares and to forward or cause to be forwarded to SOFO all relevant
materials delivered by the Holder to the Corporation (including without
limitation a copy of the Retraction Request) in connection with such proposed
redemption of the Retracted Shares, and SOFO agrees to purchase the Retracted
Shares (by issuing SOFO Common Shares in exchange therefor) that the Corporation
is not permitted to redeem in accordance with the provisions of the Corporation
Articles.
ARTICLE 3
CERTAIN RIGHTS OF SOFO TO ACQUIRE
NON-VOTING EXCHANGEABLE SHARES
3.1 SOFO Liquidation Call Right.
(a) In the event (1) of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, or any other
distribution of assets of the Corporation among its shareholders for
the purpose of winding-up its affairs, or (2) the Corporation passes a
resolution (the "Resolution") to sell, lease or exchange all or
substantially all the property of the Corporation other than in the
ordinary course of business, SOFO shall have the overriding right (the
"Liquidation Call Right") to purchase immediately prior to the
effective date of such liquidation, dissolution or winding-up or the
implementation of the
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Resolution, as the case may be (the "Corporation Liquidation Date"),
all but not less than all of the Non-Voting Exchangeable Shares from
all but not less than all of the Holders (other than SOFO or any
Affiliate of SOFO) in exchange, on a per share basis, for the
following consideration (the "Liquidation Call Price"):
(i) one SOFO Common Share for each such Non-Voting Exchangeable
Share, which SOFO shall cause to be delivered to such Holder
(less any taxes required to be deducted or withheld therefrom);
plus
(ii) the amount by which the declared dividends on each such SOFO
Common Share exceeds, if at all, the declared and paid dividends
on each Non-Voting Exchangeable Share, which amount shall be paid
in the same manner as the dividend on the Non-Voting Exchangeable
Shares (less any tax required to be deducted or withheld
therefrom by SOFO), provided that if the record date for any
declared but unpaid dividends occurs after the Corporation
Liquidation Date, the Liquidation Amount shall not include such
additional amount equal to the declared but unpaid dividends.
(b) To exercise the Liquidation Call Right, SOFO must notify (or cause the
Corporation to notify) the Holders and the Corporation of SOFO's
intention to exercise such right at least 30 days before the
Corporation Liquidation Date in the case of a voluntary liquidation,
dissolution or winding-up of the Corporation and at least five
Business Days before the Corporation Liquidation Date in the case of
an involuntary liquidation, dissolution or winding-up of the
Corporation. If SOFO exercises the Liquidation Call Right, immediately
prior to the Corporation Liquidation Date, SOFO will purchase and the
Holders will sell all of the Non-Voting Exchangeable Shares then
outstanding for a price per share equal to the Liquidation Call Price.
3.2 Retraction/Redemption Call Right.
(a) In the event that (A) a Holder has exercised such Holder's right (the
"Retraction Right") under Article 5 of the Corporation's Articles to
require the Corporation to redeem any or all Retracted Shares, or (B)
the Corporation proposes to redeem the Non-Voting Exchangeable Shares
on or after the Date of Expiry under Article 6 of the Corporation's
Articles, then in either case, SOFO shall have the overriding right
(the "Retraction/Redemption Call Right") to acquire such Non-Voting
Exchangeable Shares from such Holder in exchange, on a per share
basis, for the following consideration (the "Retraction/Redemption
Call Price"):
(i) one SOFO Common Share for each such Non-Voting Exchangeable
Share, which SOFO shall cause to be delivered to such Holder
(less any taxes required to be deducted or withheld therefrom);
plus
(ii) the amount by which the declared dividends on each such SOFO
Common Share exceed, if at all, the declared and unpaid dividends
on each Non-Voting Exchangeable Share, which amount shall be paid
in the same
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manner as the dividend on the Non-Voting Exchangeable Shares
(less any tax required to be deducted or withheld therefrom by
SOFO), provided that if the record date for any declared but
unpaid dividends occurs after the Redemption Date or Retraction
Date, as the case may be, the Retraction/Redemption Call Price
shall not include such additional amount equal to the declared
but unpaid dividends.
(b) To exercise the Retraction/Redemption Call Right, SOFO must notify (or
cause the Corporation to notify) such Holders as are exercising their
Retraction Right or whose Non-Voting Exchangeable Shares are proposed
to be redeemed, and notify the Corporation, of SOFO's intention to
exercise such right within no more than 5 Business Days after SOFO has
been notified by the Corporation or the Holder, as the case may be,
that he or it is exercising such Holder's Retraction Right or that the
Corporation proposes to redeem such Non-Voting Exchangeable Shares. If
SOFO exercises the Retraction/Redemption Call Right, on the Retraction
Date or the Redemption Date, as the case may be, SOFO will purchase
and the Holders (other than SOFO or an Affiliate) will sell such Non-
Voting Exchangeable Shares for a price per share equal to the
Retraction/Redemption Call Price.
3.3 Procedure for Payment of Liquidation Call Price and
Retraction/Redemption Call Price.
(a) In the event SOFO has exercised the Liquidation Call Right or the
Retraction/Redemption Call Right, as the case may be, as provided
herein, then immediately prior to the Corporation Liquidation Date or
on or after the Retraction Date or the Redemption Date, as the case
may be, SOFO shall deliver or cause to be delivered to each Holder
(other than SOFO or an Affiliate) at the address of the Holder
recorded in the securities register of the Corporation for the Non-
Voting Exchangeable Shares, or as the Holder may otherwise direct,
payment of the Liquidation Call Price or the Retraction/Redemption
Call Price, as the case may be, for each such Non-Voting Exchangeable
Share upon:
(i) presentation and surrender of the certificates representing such
Non-Voting Exchangeable Shares to SOFO at its principal corporate
office, in person or by certified or registered mail, together
with one or more share transfer powers endorsed in blank executed
by such Holder; and
(ii) a representation and warranty by such Holder that the Holder is
not a non-resident of Canada within the meaning of the Income Tax
Act (Canada) and, if such Holder does not so represent and
warrant, the provisions of Section 5.6 shall apply.
(b) SOFO shall have the right at any time after the sending of the notice
of its intention to exercise the Liquidation Call Right or
Retraction/Redemption Call Right, as the case may be, to deposit or
cause to be deposited the Liquidation Call Price or the
Retraction/Redemption Call Price, as the case may be, in respect of
the Non-Voting Exchangeable Shares represented by certificates that
have not at
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the date of such deposit been surrendered by the Holders thereof in
connection with such Liquidation Call Right or Retraction/Redemption
Call Right, as the case may be, in a custodial account with any
chartered bank or trust company in Canada in trust for the Holder.
Upon the later of such deposit being made and the Corporation
Liquidation Date or Retraction Date or Redemption Date, as the case
may be:
(i) the Non-Voting Exchangeable Shares in respect whereof such
deposit shall have been made shall be exchanged and the rights of
the Holders thereof after such deposit or the Corporation
Liquidation Date or the Retraction Date or Redemption Date, as
the case may be, shall be limited to receiving the proportionate
part of the total Liquidation Call Price or Retraction/Redemption
Call Price, as the case may be (less any taxes required to be
deducted or withheld therefrom), for such Non-Voting Exchangeable
Shares so deposited, against presentation and surrender of the
said certificates held by them, respectively, in accordance with
the foregoing provisions; and
(ii) upon such payment or deposit of the Liquidation Call Price or
Retraction/Redemption Call Price, as the case may be, the Holders
shall thereafter be considered and deemed for all purposes to be
holders of the SOFO Common Shares delivered to them. Payment of
the Liquidation Call Price or the Retraction/Redemption Call
Price, as the case may be, which remains unclaimed within six (6)
years from the date of deposit of such payment by or on behalf of
SOFO with any chartered bank or trust company in Canadian trust
for the Holder shall be forfeited to SOFO or any Affiliate as
SOFO may direct.
3.4 The Liquidation Call Right and the Retraction/Redemption Call Right
that are exercisable under certain circumstances under this Agreement by SOFO
shall also, at SOFO's option, be exercisable by any Affiliate of SOFO, with the
result that all references to SOFO in connection with the exercise of the
Liquidation Call Right and the Retraction/Redemption Call Right and the right of
SOFO to purchase the Non-Voting Exchangeable Shares pursuant to the exercise of
such rights shall be deemed to refer to such Affiliate, and further, an
Affiliate of SOFO shall, at SOFO's option, be entitled to enforce and/or fulfil
SOFO's and the Corporation's rights and obligations under the Liquidation Call
Right, the Retraction/Redemption Call Right, the Exchange Right, the Automatic
Exchange Right and under Articles 4, 5 and 6 of the Corporation Articles and in
exercising such rights, such Affiliate will not be required to purchase Non-
Voting Exchangeable Shares from itself, SOFO or any other Affiliate of SOFO. For
greater certainty, notwithstanding any such assignment, SOFO shall not be
released from its obligations hereunder if the Affiliate fails to perform SOFO's
obligations hereunder.
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ARTICLE 4
CERTAIN SOFO COVENANTS
4.1 Exchange Right. As long as Non-Voting Exchangeable Shares are
outstanding, SOFO will take all actions and do all such things as are necessary
or desirable to perform the obligations of SOFO with respect to the exercise by
the Holders of the Exchange Right, including the delivery of SOFO Common Shares
to the Holders of the Non-Voting Exchangeable Shares in accordance with the
provisions of the Corporation Articles and the terms and provisions hereof.
4.2 Encumbrances, Liens. SOFO hereby represents, warrants and covenants
that all SOFO Common Shares issued under this Agreement, including pursuant to
the exercise by a Holder of such Holder's Exchange Right, the Automatic
Exchange, the exercise of such Holder's rights pursuant to the provisions of the
Corporation Articles, or the exercise by SOFO of the Liquidation Call Right or
the Retraction/Redemption Call Right (each, a "Share Exchange") shall be duly
issued as fully paid and non-assessable and shall be free and clear of any lien,
claim or encumbrance.
4.3 Transfer Agent. SOFO covenants that it will supply or will cause to be
supplied to its transfer agent with duly executed share certificates for the
purpose of completing a Share Exchange.
4.4 Notice of Insolvency Event. As soon as practicable following the
occurrence of an Insolvency Event or any event that with the giving of notice or
the passage of time or both would be an Insolvency Event, SOFO and the
Corporation shall give written notice thereof to each Holder, which notice shall
contain a brief statement of the rights of the Holders with respect to the
Exchange Right.
4.5 Obligation to Pay Dividends. In the event that a dividend is declared
but not paid on the Non-Voting Exchangeable Shares prior to the occurrence of a
Share Exchange because the record date (the "Record Date") for such dividend
falls on a date subsequent to the date of such Share Exchange, SOFO shall pay
the amount equivalent to such dividend or cause such amount to be paid to the
Holder of the Non-Voting Exchangeable Shares subject to the Share Exchange in
respect of the SOFO Common Shares received by such Holder. If SOFO does not pay
or cause such amount to be paid to the Holder on the Record Date, the
Corporation shall be required to make a payment of such amount forthwith to such
Holder.
4.6 Registration of SOFO Common Shares. SOFO covenants to register the
SOFO Common Shares received by the Holders hereunder in accordance with the
provision of the Stock Registration Rights Agreement.
4.7 Compliance with Support Agreement. SOFO covenants that it will comply
with its obligations under the Support Agreement.
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ARTICLE 5
GENERAL
5.1 SOFO and the Corporation.
(a) The provisions of this Agreement shall be binding upon, and inure to
the benefit of, the respective transferees, successors, assigns,
executors, administrators and legal representatives of SOFO, the
Corporation and the Holders, provided, however, that this Agreement
may not be assigned by the Holders. This Agreement may not be assigned
by SOFO or the Corporation, in whole or in part, except to one or more
of their Affiliates designated to perform their obligations hereunder,
or except as expressly provided herein. For greater certainty,
notwithstanding any such assignment, SOFO shall not be released from
its obligations hereunder if an Affiliate fails to perform SOFO's
obligations hereunder.
(b) The Liquidation Call Right and the Retraction/Redemption Call Right
exercisable by SOFO shall also, at SOFO's option, be exercisable by
any Affiliate of SOFO, with the result that all references to SOFO in
connection with the exercise of the Liquidation Call Right and the
Retraction/Redemption Call Right and the right of SOFO to purchase the
Non-Voting Exchangeable Shares pursuant to the exercise of such rights
shall be deemed to refer to such Affiliate. An Affiliate of SOFO
shall, at SOFO's option, be entitled to enforce and/or fulfill SOFO's
and the Corporation's rights and obligations under the Liquidation
Call Right, the Retraction/Redemption Call Right, the Exchange Right
and Automatic Exchange Right and under Articles 4, 5 and 6 of the
Corporation Articles and in exercising such rights, such Affiliate
will not be required to purchase Non-Voting Exchangeable Shares from
itself, SOFO or any other Affiliate of SOFO. SOFO shall remain liable
for its obligations hereunder if the Affiliate fails to perform or
fulfil such obligations.
5.2 SOFO Successors. SOFO shall not voluntarily enter into any transaction
(whether by way of reconstruction, reorganization, consolidation, merger,
transfer, sale, lease or otherwise) whereby all or substantially all of its
undertaking, property and assets would become the property of any other person
or, in the case of a merger, of the continuing corporation resulting therefrom
(a "Material Transaction") unless such other person or continuing corporation
(herein called the "SOFO Successor"), by operation of law, becomes bound by the
terms and provisions of this Agreement or, if not so bound, executes, prior to
or contemporaneously with the consummation of such transaction an agreement
supplemental hereto as such other instruments (if any) that are, in the opinion
of a single legal counsel to such Holders (other than SOFO or its Affiliates),
necessary or advisable to evidence the assumption by such SOFO Successor of
liability for all moneys payable and property deliverable hereunder and the
covenant of such SOFO Successor to pay and deliver or cause to be delivered the
same and its agreement to observe and perform all the covenants and obligations
of SOFO under this Agreement.
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5.3 Notice of Material Transactions. SOFO shall provide at least 30 days
prior written notice of the closing of any Material Transaction to the Holders.
SOFO shall also provide at least 15 days' prior written notice of the expiration
date of any tender offer made for the shares of SOFO.
5.4 Wholly-Owned Subsidiaries. Subject to Article 3 hereof, nothing herein
shall be construed as preventing the amalgamation, merger or other combination
of any wholly-owned direct or indirect subsidiary of SOFO, other than the
Corporation, with or into SOFO or the winding-up, liquidation or dissolution of
any wholly-owned subsidiary of SOFO, other than the Corporation, provided that
all of the assets of such subsidiary are transferred to, and all obligations of
such subsidiary are assumed by, SOFO or another wholly-owned direct or indirect
subsidiary of SOFO, provided that SOFO shall continue to be liable for its
obligations hereunder and the obligations of its subsidiaries.
5.5 Transfers by Holders. Each Holder acknowledges that the Corporation
Articles and this section restrict transfers of its Non-Voting Exchangeable
Shares and accordingly, that such Holder will not be able to transfer his or its
Non-Voting Exchangeable Shares (except to the Corporation, SOFO or an Affiliate
pursuant to the Corporation Articles and/or this Agreement). At the time a
Share Exchange occurs, the Holder shall: (a) be a resident of Ontario or British
Columbia; or (b) resident in a jurisdiction in which such Holder will be legally
entitled under applicable securities and other laws of its relevant jurisdiction
of residence to exercise their rights with respect to the Non-Voting
Exchangeable Shares and can agree to be legally bound by this Agreement and the
Stock Registration Rights Agreement, which legal rights and capacity shall, in
any event, be confirmed in writing by an opinion of legal counsel from the
relevant jurisdictions satisfactory to SOFO.
5.6 Non-Resident of Canada at Time of Exchange. Notwithstanding the
provisions of any section of this Agreement, in the event that a Holder does not
represent and warrant that such Holder is not a non-resident of Canada within
the meaning of the Income Tax Act (Canada) prior to the occurrence of any Share
Exchange, such Holder shall provide to SOFO a certificate pursuant to section
116 of the Income Tax Act (Canada) or any successor provision thereto and any
analogous provisions of provincial tax law (such certificate being hereinafter
referred to as a "Certificate") having a certificate limit which is not less
than the fair market value of the SOFO Common Shares which such Holder is
entitled to receive upon such exchange and otherwise conforming in all respects
with the provisions of section 116 of the Income Tax Act (Canada) or any
successor provisions thereto and any analogous provisions of provincial tax law,
in each case as amended or re-enacted from time to time. If such Holder does not
provide such Certificate to SOFO or its Affiliate on or before the date on which
the Share Exchange is to occur, or if the Certificate is for an amount less than
the fair market value of the SOFO Common Shares which such Holder is entitled to
receive, SOFO or its Affiliate shall be entitled to withhold such amounts,
including SOFO Common Shares, as would have a fair market value equal to the
amount of any taxes that SOFO or its Affiliate would be required to withhold and
remit to the Canada Customs and Revenue Agency on behalf of the Holder pursuant
to Section 116 of the Income Tax Act (Canada) or any successor thereto and any
analogous provisions of provincial tax law, in each case as amended or re-
enacted from time to time. SOFO or its Affiliate shall be entitled to sell such
SOFO Common Shares to the Holder or otherwise, and to remit the sale proceeds to
the Canada Customs and Revenue Agency and/or a relevant provincial tax authority
<PAGE>
-14-
on account of any such taxes, as will enable it to comply with the requirements
of section 116 of the Income Tax Act (Canada) or any successor provision thereto
and any analogous provisions of provincial tax law, in each case as amended or
re-enacted from time to time. The Holder shall bear all reasonable costs and
expenses, including legal fees, associated with any such sale and remittance.
5.7 Stamp or Other Transfer Taxes. Notwithstanding any other provision of
this Agreement, upon any sale or transfer of Non-Voting Exchangeable Shares to
SOFO pursuant to the Exchange Right or the Automatic Exchange Right, the share
certificate or certificates representing SOFO Common Shares to be delivered in
connection with the payment of the total purchase price therefor shall be issued
in the name of the Holder of the Non-Voting Exchangeable Shares so sold or in
such names as such Holder may otherwise direct in writing if permitted to do so
under the Share Purchase Agreement and Stock Registration Rights Agremeent,
without charge to the Holder of the Non-Voting Exchangeable Shares so sold or
transferred; provided, however, that such Holder (a) shall pay (and neither SOFO
nor any Affiliate shall be required to pay) any documentary, stamp, transfer or
other taxes that may be payable in respect of any transfer involved in the
issuance or delivery of such shares to a person other than such Holder or (b)
shall have evidenced to the satisfaction of SOFO that such taxes, if any, have
been paid.
5.8 No Fractional Shares. No certificates representing fractional Non-
Voting Exchangeable Shares, SOFO Common Shares or securities of any other entity
shall be issued pursuant to the provisions of this Agreement, the Support
Agreement or the Corporation Articles. Such fractional interests shall not
entitle the owner thereof to exercise any rights as a securityholder of the
Corporation, SOFO, or another entity, as the case may be. In lieu of any such
fractional interests, each person entitled to a fractional interest will
receive, at the applicable time, an amount of cash (rounded to the nearest whole
cent), without interest, equal to the value of the applicable security (as
determined by the Board of Directors of SOFO or the Corporation acting in good
faith) multiplied by such fractional interest.
5.9 Term. This Agreement shall come into force and be effective as of the
date hereof and shall terminate and be of no further force and effect at such
time as the last of the outstanding Non-Voting Exchangeable Shares (or
securities or rights convertible into or exchangeable for or carrying rights to
acquire the Non-Voting Exchangeable Shares), other than Non-Voting Exchangeable
Shares held by SOFO or an Affiliate, are exchanged for SOFO Common Shares or are
purchased by SOFO or the Corporation.
5.10 Amendments and Supplements. This Agreement may not be amended,
modified or supplemented by the parties hereto in any manner, except by an
instrument in writing signed on behalf of SOFO and the Corporation by their duly
authorized officers or representatives and by the Holders of all of the Non-
Voting Exchangeable Shares (other than Non-Voting Exchangeable Shares held by or
on behalf of SOFO and its Affiliates) as a class.
5.11 No Waiver. The failure of any party hereto to enforce at any time any
of the provisions of this Agreement shall in no way be construed to be a waiver
of any such provision, nor in any way to affect the validity of this Agreement
or any part hereof or the right of such party thereafter to enforce each and
every such provision. No waiver of any breach of or non-
<PAGE>
-15-
compliance with this Agreement shall be held to be a waiver of any other or
subsequent breach or non-compliance.
5.12 Governing Law and Attornment. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the Province of Ontario
and the laws of Canada applicable therein. SOFO agrees that any action or
proceeding arising out of or relating to this Agreement shall be instituted in
the courts of Ontario, waives any objection which it may have now or hereafter
to the venue of any such action or proceeding, irrevocably submits to the
jurisdiction of the said courts in any such action or proceeding, agrees to be
bound by any judgment or order of the said courts and the enforcement thereof
and not to seek, and hereby waives, any review of the merits of any such
judgment or order by the courts of any other jurisdiction and hereby appoints
the Corporation at its registered office in the Province of Ontario as SOFO's
attorney for service of process.
5.13 Notice. All notices requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
Business Days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to SOFO: Copy to:
----------- --------
Sonic Foundry, Inc. Frederick H. Kopko, Jr.
1617 Sherman Avenue McBreen & Kopko
Madison, WI 53704 20 North Wacker Drive,
Suite 2520
Attention: Kenneth A. Minor Chicago, IL 60606
Telephone: (608) 204-8060
Facsimile: (608) 204-8807 Telephone: (312) 332-6405
Facsimile: (312) 332-2657
If to the Corporation: Copy to:
---------------------- --------
Sonic Foundry, Inc. Frederick H. Kopko, Jr.
1617 Sherman Avenue McBreen & Kopko
Madison, WI 53704 20 North Wacker Drive, Suite 2520
Chicago, IL 60606
Attention: Kenneth A. Minor
Telephone: (608) 204-8060 Telephone: (312) 332-6405
Facsimile: (608) 204-8807 Facsimile: (312) 332-2657
<PAGE>
-16-
If to Charles Ferkranus and
1096159 Ontario Limited: Copy to:
--------------------------- --------
10 Cygnus Drive J.A. Nixon
Richmond Hill, Ontario Loopstra Nixon
L4C 8P2 135 Queens Plate Drive, Suite 600
Etobicoke, Ontario
Telephone: (905) 508-8641 M9W 6V7
Facsimile: . Telephone: (416) 746-4710
Facsimile: (416) 746-8319
If to Michael Ferkranus and
1402083 Ontario Limited: Copy to:
--------------------------- ---------
19 Cygnus Drive J.A. Nixon
Richmond Hill, Ontario Loopstra Nixon
L4C 8P4 135 Queens Plate Drive, Suite 600
Etobicoke, Ontario
Telephone: (905) 508-9898 M9W 6V7
Facsimile: .
Telephone: (416) 746-4710
Facsimile: (416) 746-8319
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
5.14 Surrender of Certificates. Any presentation and surrender by a Holder
of Non-Voting Exchangeable Shares to SOFO or an Affiliate of certificates
representing Non-Voting Exchangeable Shares in connection with any Share
Exchange (other than in accordance with Articles 4, 5 and 6 of the Corporation
Articles) shall be made by registered mail (postage prepaid) to the principal
corporate office of SOFO or by delivery to the principal corporate office of
SOFO. Any such presentation and surrender of certificates shall only be deemed
to have been made and to be effective upon actual receipt thereof by SOFO. Any
such presentation and surrender of certificates made by registered mail shall be
at the sole risk of the Holder mailing the same.
5.15 Obligations of Holders Several. The obligations of the Holders under
this Agreement are several and not joint and several.
5.16 Construction of Agreement. A reference to an Article or a Section
shall mean an Article of or a Section in this Agreement unless otherwise
expressly stated. The titles and
<PAGE>
-17-
headings herein are for reference purposes only and shall not in any manner
limit the construction of this Agreement which shall be considered as a whole.
The words "include," "includes" and "including" when used herein shall be deemed
in each case to be followed by the words "without limitation."
5.17 Entire Agreement, Assignability, etc. This Agreement together with
other concurrent written documentation, including the Share Purchase Agreement
and the Support Agreement, relating to the Non-Voting Exchangeable Shares
constitutes the entire agreement, and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof. This Agreement is not intended to confer upon any person
other than the parties hereto and any rights or remedies hereunder, except as
otherwise expressly provided herein, and shall not be assignable by the Holders.
5.18 Validity. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, each of which shall remain in full force and
effect.
5.19 Currency. Except where otherwise expressly provided, all amounts in
this Agreement are stated and shall be paid in United States currency. Any
payment to be made under this Agreement in a particular currency (the "proper
currency") that is made in a currency (the "other currency") other than the
proper currency, whether voluntarily or pursuant to a judgment or order of any
court or tribunal or otherwise, will discharge the obligations of the
undersigned under this Agreement only to the extent of the amount of the proper
currency that the party entitled to the payment (the "Payee") is able, on or
before the close of business on the business day following receipt of such
payment, to purchase with the amount of the other currency so received. If the
amount of the proper currency that the Payee can purchase is less than the
amount of the proper currency originally due to it, the party obligated to make
the payment (the "Payor") will indemnify and save the Payee harmless from and
against any loss or damage arising because of such deficiency. This indemnity
is an obligation separate and independent from any other obligation of the
undersigned in respect of this Agreement or otherwise, will give rise to a
separate and independent cause of action, will apply irrespective of any
indulgence granted by the Payee from time to time, will continue in full force
and effect notwithstanding any judgment in order for a liquidated sum in respect
of an amount due under this Agreement or under any judgment or order and will
not merge in any order of foreclosure made in respect of any security given by
the Payor or any other person to or for the benefit of the Payee. The Payor
shall also indemnify the Payee against reasonable currency exchange fees
incurred by the Payee in purchasing the proper currency pursuant to this Section
6.10.
<PAGE>
-18-
5.20 Counterparts. This Agreement may be executed in one or more
counterparts, all of which together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
SONIC FOUNDRY, INC.
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
SONIC FOUNDRY (NOVA SCOTIA), INC.
By:_________________________________
Name:
Title:
By:__________________________________
Name:
Title:
1096159 ONTARIO LIMITED
By:___________________________________
Name:
Title:
By:___________________________________
Name:
Title:
1402083 ONTARIO LIMITED
By:___________________________________
Name:
Title:
By:___________________________________
Name:
Title:
<PAGE>
-19-
_______________________ __________________________________
Witness Charles Ferkranus
_______________________ __________________________________
Witness Michael Ferkranus
