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As filed with the Securities and Exchange Commission on May 12, 2000
Registration No.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SONIC FOUNDRY, INC.
(Exact Name of Registrant as specified in its charter)
Maryland 39-1783372
(State of Incorporation) (I.R.S. Employer Identification No.)
754 Williamson Street
Madison, WI 53703
(608) 256-3133
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
RIMAS BUINEVICIUS
Chairman and Chief Executive Officer
754 Williamson Street
Madison, WI 53703
(608) 256-3133
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Frederick H. Kopko, Jr., Esq.
McBreen & Kopko
20 N. Wacker Dr., Suite 2520
Chicago, IL 60606
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Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective.
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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Amount maximum maximum Amount of
Title of each class of securities to be to be offering price aggregate registration
registered registered per share(1) offering price(1) fee
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<S> <C> <C> <C> <C>
Common Stock $.01 par value.................. 4,045,556 $19.06 $77,118,411 $20,359.26
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Common Stock $.01 par value underlying
Warrants.................................... 675,000(2) $19.06 $12,867,188 $ 3,396.94
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Total........................................ 4,770,556 $89,985,599 $23,756.20
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), the average of the high and low sales price, as
reported on the NASDAQ National Market, on May 10, 2000.
(2) Represents the number of shares of common stock issuable upon exercise of
certain warrants.
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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 Section 8(a), may
determine.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
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PROSPECTUS
SONIC FOUNDRY, INC.
4,720,556 Shares of Common Stock, Par Value $.01 per Share
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This prospectus is part of a registration statement that covers 4,720,556
shares of our Common Stock (the "Shares"), consisting of 4,045,556 Shares
currently outstanding, and 675,000 Shares which may be issued upon the exercise
of certain warrants. These shares may be offered and sold from time to time by
certain of our stockholders (the "Selling Stockholders"). We will not receive
any of the proceeds from the sale of the Shares.
The Selling Stockholders may sell the Shares from time to time on the Nasdaq
National Market in regular brokerage transactions, in transactions directly
with market makers or in certain privately negotiated transactions. See "Plan
of Distribution". Each Selling Stockholder has advised us that no sale or
distribution other than as disclosed herein will be effected until after this
Prospectus shall have been appropriately amended or supplemented, if required,
to set forth the terms thereof. We will not receive any proceeds from the sale
of the Shares by the Selling Stockholders. Selling commissions, brokerage fees,
any applicable stock transfer taxes and any fees and disbursements of counsel
to the Selling Stockholders are payable individually by the Selling
Stockholders.
Each of the Selling Stockholders may be deemed to be an "Underwriter", as
such term is defined in the Securities Act of 1933, as amended (the "Securities
Act").
Our Common Stock is quoted on the Nasdaq National Market under the symbol
"SOFO". On May 10, 2000, the average of the high and low price for the Common
Stock was $19.06 per share.
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.
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The date of this Prospectus is May 12, 2000
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WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other documents with the Securities
and Exchange Commission. You may read and copy any document we file at the
SEC's public reference room at Judiciary Plaza Building, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. You should call 1-800-SEC-0330 for
more information on the public reference room. Our SEC filings are also
available to you on the SEC's Internet site at http://www.sec.gov.
This prospectus is part of the registration statement and does not contain
all of the information included in the registration statement. Whenever a
reference is made in this prospectus to any contract or other document of Sonic
Foundry, the reference may not be complete and you should refer to the exhibits
that are a part of the registration statement for a copy of the contract or
document.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus
information that we file with the SEC in other documents. This means that we
can disclose important information to you by referring to other documents that
contain that information. The information incorporated by reference is
considered to be part of this prospectus, and information that we file with the
SEC in the future and incorporate by reference will automatically update and
may supersede the information contained in this prospectus. We incorporate by
reference the documents listed below and any future filings we make with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, prior to the sale of all the shares covered by this
prospectus.
. Our Annual Report on Form 10-K for the fiscal year ended September
30,1999;
. Our Quarterly Report on Form 10-Q for the fiscal quarter ended December
31, 1999;
. Our Current Reports on Form 8-K filed on February 15, 2000, April 18,
2000, and April 20, 2000;
. All of our filings pursuant to the Exchange Act after the date of the
filing of the initial registration statement and prior to effectiveness
of the registration statement; and
. The description of our common stock contained in our Exchange Act
Registration Statement on Form 8-A, filed on April 20, 2000.
You may request free copies of these filings by writing or telephoning us at
the following address: Investor Relations, 754 Williamson Street, Madison,
Wisconsin 53703, Telephone (608) 256-3133.
FORWARD-LOOKING INFORMATION
This prospectus contains or incorporates forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. You can identify these forward-looking statements by our use of
the words "believes", "anticipates", "plans", "expects", "may", "will",
"would", "intends", "estimates" and similar expressions, whether in the
negative or affirmative. We cannot guarantee that we actually will achieve
these plans, intentions or expectations. Actual results or events could differ
materially from the plans, intentions and expectations disclosed in the
forward-looking statements we make. We have included important factors in the
cautionary statements in this prospectus, particularly under the heading "Risk
Factors", that we believe could cause our actual results to differ materially
from the forward-looking statements that we make. The forward-looking
statements do not reflect the potential impact of any future acquisitions,
mergers or dispositions. We do not assume any obligation to update any forward-
looking statement we make.
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SUMMARY OF THE BUSINESS
We are a leading provider of software products and services that enable our
customers to create and edit digital audio and video content, and deliver this
content by recording or transferring it to digital storage and playback
devices, or by preparing it for digital transmission, including Internet
distribution. Advances in technology such as compact discs, DVDs, high
definition television and digital networks, all of which store or transmit
digital content, are driving the demand for software tools and services that
help create this content. Media professionals and home users, including audio
and video engineers, musicians, multimedia developers and website developers,
use our products. Our end-user customers include Capitol Records, CBS News,
Disney, Fox News, MSNBC, Sony Pictures Entertainment Inc., BMG Music, Universal
Studios and Warner Bros., a division of Time Warner Entertainment Company,
L.P., and our reseller customers include Guitar Center, Hewlett Packard and
Ingram Micro.
Our current products include:
. Creation products--Our ACID product family offers musicians and non-
musicians an easy way to merge short segments of pre-recorded music, or
loops, into a song. We include a basic selection of loops with ACID and
sell additional libraries separately. We sell professional and consumer
versions of ACID with various levels of processing features and support
for different music genres.
. Editing products--Our Sound Forge and Vegas products allow users such as
audio and video engineers, broadcasters, website developers, musicians
and consumers to easily record and modify digital audio and video files.
In April, 2000 we announced the beta release of Vegas Video, a product
which adds significant video editing capability to our line of editing
products.
. Delivery products--Our CD Architect and Stream Anywhere products allow
users to record audio or video to a PC hard drive, prepare it for
delivery on CD or over the Internet using various streaming media
formats such as RealNetworks G2 or Microsoft Windows Media Technologies,
or convert it into popular audio and video compression formats such as
MP3 and AVI. Our newest consumer product, Siren, allows users to manage
entire music collections for local playback from a PC or MP3 player, and
to record personal music compilations on a CD using our proprietary CD
recording technology. Since its beta release in August 1999, we have
entered into agreements to include Siren with Hewlett Packard recordable
CD drives and are now customizing a version for a retail customer.
To satisfy the dramatic increase in demand for digital multimedia content,
many content creators and owners are using our technology to create new digital
content and digitally encode existing content. Many entertainment companies
have vast libraries of older content, such as films and analog audio and video
tapes, that need to be digitized to realize revenue from digital distribution
and archived to prevent deterioration. Furthermore, continuing advances in
digital storage and compression technologies often require these companies to
devote substantial resources to migrate content in current digital formats to
continually evolving new digital formats.
Our services division uses our existing technology, including unreleased
proprietary automation tools and a wide array of audio and video signal
processing algorithms, to provide format conversion and digital encoding
solutions to content owners. These new services include translating analog or
digital tapes, CDs, films and other audio and video media into various
compression and Internet streaming file formats and cleaning or filtering
recordings for improved quality. To satisfy the needs of customers that wish to
develop their own in-house encoding facility we began offering to site licenses
of both released and unreleased technology as part of a full-scale system sale,
with consulting, support and training services.
In February 2000 we announced plans to expand our services offering by
acquiring Santa Monica based STV Communications. In addition to providing
encoding, STV offers a full suite of on-line media related
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services such as delivering media files over the web or "streaming",
broadcasting of live events over the web or "webcasting" and storing media
files or "hosting".
Sonic Foundry was incorporated in Wisconsin in March 1994 and merged into a
Maryland corporation of the same name in October 1996. Our executive offices
are located at 754 Williamson Street, Madison, Wisconsin, 53703 and our
telephone number is (608) 256-3133. Our corporate website is
www.sonicfoundry.com. The information in our website is not a part of this
prospectus.
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RISK FACTORS
Our business, financial condition and results of operations have been, and
in the future may be, affected by a variety of factors, including those set
forth below and elsewhere in this prospectus.
Operating History Risks
We have a limited operating history on which you can evaluate our business
and our future prospects and our operating results will likely fluctuate
significantly.
We were incorporated in March 1994 and we have a limited operating history
and limited financial results upon which you can assess our future success. As
a result of our limited operating history and the rapidly changing nature of
the markets in which we compete, our quarterly and annual revenues and
operating results are difficult to predict and may fluctuate significantly from
quarter to quarter and from year to year. You should therefore not rely on our
revenues and our operating results for any one quarter or year as an indication
of our future revenues or operating results. Fluctuations in our revenues and
our operating results will likely increase the volatility of our stock price,
and if our revenues or results of operations fall below the expectations of
investors or public market analysts, the price of our common stock could fall
substantially. You should evaluate our chances of financial and operational
success in light of the risks, uncertainties, expenses and difficulties
frequently encountered by growing companies in new and rapidly evolving
markets.
We have a history of losses and we may never attain profitability.
We have incurred significant losses since our inception and we may never
become profitable. For the years ended September 30, 1999 and 1998 and the
twelve months ended September 30, 1997, we incurred net losses of $5,997,000,
$632,000, and $839,000, and as of September 30, 1999, we had an accumulated
deficit of $7,466,000. We cannot assure you that we will achieve or maintain
profitability in the future.
Industry Risks
The market for our products and services is relatively new, and we cannot
assure you that the market will develop as we expect.
Because the market for our products and services is relatively new and
rapidly changing, it is difficult to predict future financial results. Our
research and development and sales and marketing efforts, and business
expenditures are partially based on predictions regarding certain developments
for software products and media services. If these predictions prove
inaccurate, we may not achieve the level of revenues and operating expenses
that we expect at the time that we expect them and our revenues and operating
expenses may fluctuate.
Our markets are highly competitive, and we may not be able to compete
effectively in our business.
Competition in the markets for digital media software, products and services
is intense. We compete with several companies engaged in the software and
digital media businesses and we expect competition to increase as new companies
enter the market and our current competitors expand their products and
services. This could mean lower prices or reduced demand for our products. Many
of our current and potential competitors have longer operating histories,
greater name recognition, more employees and significantly greater financial,
technical, marketing, public relations and distribution resources than we do,
and we may not be able to successfully compete with them. Any of these
developments would harm our operating results.
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Lack of commercial acceptance of, or decreased demand for, complementary
products and technologies developed by third parties may lead to a decreased
demand for our digital media software products and services.
The success of some of our digital media software products and planned
digital media services depends, in part, on the commercial acceptance of
products and technologies developed by other companies that our digital media
software products and services may complement, including compact disc
recorders, Digital Versatile Disc players and MP3 technology. These
complementary products help drive the demand for digital media and if
businesses and consumers do not accept these products, the demand for our
products and services may decrease or fail to grow and our business may suffer.
The success of our business depends, in part, upon strategic relationships that
we have with other companies.
Our business depends, in part, on relationships that we have with strategic
partners such as Microsoft, RealNetworks, Fraunhofer Institut, Warner Bros., a
division of Time Warner Entertainment Company, L.P. and Sony Pictures Digital
Entertainment. We rely, in part, on strategic relationships to help us:
. maximize the acceptance of our products by customers through
distribution arrangements;
. increase the amount and availability of compelling media content on the
Internet to help boost demand for our products and services;
. increase awareness of our Sonic Foundry brand; and
. increase the performance and utility of our products and services.
We would be unable to realize many of these goals without the cooperation of
these partners. We anticipate that the efforts of our strategic partners will
become more important as the availability and use of multimedia content on the
Internet increases. For example, we may become more reliant on strategic
partners to provide multimedia content, provide more secure and easy-to-use
electronic commerce solutions and build out the necessary infrastructure for
media delivery. The loss of these strategic relationships, the inability to
find other strategic partners or the failure of our existing relationships to
achieve meaningful positive results could harm our business.
We rely upon a number of distributors to increase our market penetration
domestically and internationally.
We rely upon 60 distributors in 52 countries to sell and market our products
internationally. We generally do not have contracts with these distributors. If
these distributors were to cease selling and marketing our products, the
international sales of our products would decrease.
We have a distribution contract with Ingram Micro, Inc., which distributes
our software products to various computer resellers, value-added resellers,
catalog distributors and smaller retail outlets. Our contract with Ingram Micro
requires us to accept the return of any of our products that Ingram Micro does
not sell and to credit Ingram Micro for the value of these products. Our
contract with Ingram Micro also protects Ingram Micro for the value of its
inventory in the event that we lower our prices. If Ingram Micro fails to
continue to carry our products, returns a large quantity of our products to us,
or competitive pressures require us to lower the prices of the products that we
supply to Ingram Micro, our business will suffer.
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The growth of our business depends upon the increased use of the internet for
communications, commerce and advertising.
The growth of our business depends upon the continued growth of the Internet
as a medium for communications. The Internet may not be accepted as a viable
commercial medium for broadcasting digital and multimedia content or digital
media delivery for a number of reasons, including:
. potentially inadequate development of the necessary infrastructure to
accommodate growth in the number of users and Internet traffic;
. unavailability of compelling multimedia content; and
. delays in the development or adoption of new technological standards and
protocols or increased governmental regulations, which could inhibit the
growth and use of the Internet.
In addition, we believe that other Internet-related issues, including
security of transactions, reliability of data transmission, cost and ease of
use, are not fully resolved and may affect the amount of business that is
conducted over the Internet.
If Internet usage grows, its infrastructure may not be able to support the
demands placed on it by this growth, in particular growing demands for
delivering high-quality media content. As a result, its performance and
reliability may decline. In addition, websites have experienced interruptions
in service as a result of outages and other delays occurring throughout the
Internet network infrastructure. If these outages or delays occur frequently in
the future, Internet usage, as well as the use of our products and services,
could grow more slowly or decline.
Technology Risks
We depend upon access to Microsoft software codes to develop our products.
Quick access to Microsoft's software codes enables us to develop Microsoft
Windows-based software products in a timely manner. Although, in the past,
Microsoft consistently has given us quick access to its software codes,
Microsoft is under no obligation to do so and may refuse us this access in the
future at its discretion. If we do not continue to receive quick access to
Microsoft's software codes, the development of our software products will be
delayed and our business may suffer.
We may not be successful in our attempts to keep pace with rapid technological
change and evolving industry standards.
The markets for digital media products and digital media services are
characterized by rapidly changing customer requirements, evolving technologies
and industry standards, and frequent new product and service introductions. Our
future success will depend, in part, upon our ability to:
. use leading technologies effectively;
. enhance our current software products and services;
. identify, develop, and market new software products and service
opportunities; and
. influence and respond to emerging industry standards and other
technological changes.
We must accomplish these objectives in a timely and cost-effective manner.
We have experienced development delays and cost overruns in our development
efforts in the past and we may encounter such problems in the future. Delays
and cost overruns could affect our ability to respond to technological changes,
evolving industry standards, competitive developments or customer requirements.
Our products also may contain undetected errors that could cause increased
development costs, loss of revenues, adverse publicity, reduced market
acceptance of those products or lawsuits by customers. If we fail to develop
products that achieve widespread market acceptance or that fail to generate
significant revenues to offset development costs,
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our business and operating results would suffer. We may not timely and
successfully identify, develop and market new product and service
opportunities. If we introduce new products and services, they may not attain
broad market acceptance or contribute meaningfully to our revenues or
profitability. Any of these developments would have an adverse effect on our
operating results.
Demand for our digital media software products might decrease or fail to grow
if commercial acceptance of the Microsoft windows computer operating system
declines.
Our digital media software products work exclusively on the Microsoft
Windows computer operating system. Some of our competitors offer products for
the Apple Macintosh and other computer operating systems. If the Macintosh
computer operating system, which is popular with many musicians, or other
competing operating systems, including Linux and Java, were to become dominant
in the marketplace at the expense of the Microsoft Windows computer operating
system, demand for our digital media software products may decrease or fail to
grow. Moreover, if we were unable to adapt our current digital media software
products or develop new digital media software products in a timely and cost-
effective manner to work on these different operating systems, our business
might suffer.
Development of new standards for the electronic delivery of digital media,
particularly music, could significantly affect our growth and the way we do
business.
The onset of competing industry standards for the electronic delivery of
music could slow the growth of our business or force us to adjust the way in
which we do business. Some of the major recording studios have announced a plan
to develop a universal standard for the electronic delivery of music, called
Secured Digital Music Initiative, or SDMI. In addition, major corporations have
launched efforts to establish their own proprietary audio formats. The lack of
defined, generally accepted standards for delivery formats could slow the
widespread commercial acceptance of this media delivery technology and our
products. If standard delivery technology does not achieve widespread
commercial acceptance and we are unable to adapt our digital media software
products accordingly in a timely and cost-effective manner, our business may
suffer.
Our business will suffer if our systems fail or become unavailable.
A reduction in the performance, reliability and availability of our website
and network infrastructure will harm our ability to distribute our products and
services to our users, as well as our reputation and ability to attract and
retain users, customers, advertisers and content providers. Our systems and
operations could be damaged or interrupted by fire, flood, power loss,
telecommunications failure, Internet breakdown, earthquake and similar events.
Our systems are also subject to break-ins, sabotage, intentional acts of
vandalism and similar misconduct. Our computer and communications
infrastructure is located at a single facility in Madison, Wisconsin. We do not
have fully redundant systems or a formal disaster recovery plan, and we do not
carry adequate business interruption insurance to compensate us for losses that
may occur from a system outage.
Our electronic commerce and digital distribution activities are managed by
sophisticated software and computer systems. We are in the process of adopting
a new enterprise information system, which handles all of our accounting,
operations, sales and information systems. We may encounter delays in adopting
this or other systems that we use. Furthermore, these systems may contain
undetected errors that could cause the systems to fail. Any system error or
failure that causes interruption in availability of products or content or an
increase in response time could result in a loss of potential or existing
business services customers. If we suffer sustained or repeated interruptions,
our products, services and website could be less attractive and our business
may suffer.
A sudden and significant increase in traffic on our website could strain the
capacity of the software, hardware and telecommunications systems that we
deploy or use. This could lead to slower response times or
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system failures. We depend on Web browsers, ISPs and online service providers
to provide Internet users access to our website. Many of these providers have
experienced significant outages in the past, and could experience outages,
delays and other difficulties due to system failures unrelated to our systems.
Intellectual Property Risks
We may not be successful in protecting our intellectual property and
proprietary rights.
Our inability to protect our proprietary rights, and the costs of doing so,
could harm our business. Our success and ability to compete partly depend on
the superiority, uniqueness or value of our technology, including both
internally developed technology and technology licensed from third parties. To
protect our proprietary rights, we rely on a combination of trademark,
copyright and trade secret laws, confidentiality agreements with our employees
and third parties and "shrink wrap" licenses. Despite our efforts to protect
our proprietary rights, unauthorized parties may copy or infringe aspects of
our technology, products, services or trademarks, or obtain and use information
we regard as proprietary. In addition, others may independently develop
technologies that are similar or superior to ours, which could reduce the value
of our intellectual property.
Companies in the computer industry have frequently resorted to litigation
regarding intellectual property rights. We may have to litigate to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of other parties' proprietary rights. From time to time,
other parties' proprietary rights, including patent rights, have come to our
attention and on several occasions we have received notice of claims of
infringement of other parties' proprietary rights, and we may receive such
notices in the future.
Our intellectual property may infringe the rights of others.
Because we protect our proprietary rights with a combination of trademark,
copyright and trade secret laws, confidentiality agreements with our employees
and third parties and "shrink wrap" licenses rather than with patents, our
intellectual property may unintentionally infringe upon the proprietary rights
of others. If a third party's claim of intellectual property right infringement
were to prevail, we could be forced to pay damages, comply with injunctions, or
halt distribution of our products while we re-engineer them or seek licenses to
necessary technology, which might not be available on reasonable terms. We
could also be subject to claims for indemnification resulting from infringement
claims made against our customers and strategic partners, which could increase
our defense costs and potential damages. In addition, we have agreed to
indemnify certain distributors and original equipment manufacturers, or OEMs,
for infringement claims of other parties. If these other parties sue the
distributors or OEMs, we may be responsible for defending the lawsuit and for
paying any judgment that may result. Any of these events could harm our
business.
We may be unable to retain technology licensed or obtained from third parties
and strategic partners.
We rely upon licenses from third parties and strategic partners for some of
our technologies. These companies that license the technologies to us may
decide to discontinue the licenses at any time. If they do so, our business may
suffer.
Further, the Internet and software industries have experienced substantial
consolidation and a proliferation of strategic transactions. We expect this
consolidation and strategic partnering to continue. Acquisitions or strategic
relationships could harm us in a number of ways. For example:
. our competitors could acquire or form partnerships with companies with
which we have strategic relationships and discontinue our relationship,
resulting in the loss of distribution opportunities for our products and
services or the loss of certain enhancements or value-added features to
our products and services; or
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. a party with significant resources and experience could acquire a
competitor of ours, increasing the ability of the competitor to compete
with our products and services.
Management Risks
We may not successfully manage our growth.
We cannot successfully implement our business model if we fail to manage
our growth. We have rapidly and significantly expanded our operations
domestically and internationally and anticipate further expansion to take
advantage of market opportunities. We have increased the number of our full-
time employees from 43 on January 1, 1998 to 332 on April 15, 2000. Managing
this substantial expansion has placed a significant strain on our management,
operational and financial resources. If our growth continues, we will need to
continue to improve our financial and managerial control and reporting systems
and procedures.
We may pursue acquisitions and investments that could adversely affect our
business.
We have made acquisitions of businesses and may make additional
acquisitions of, or investments in, businesses, products and technologies that
could complement or expand our business in the future. We currently have no
commitments or agreements with respect to any business acquisitions or
investments. We may not be able to successfully integrate recently acquired
businesses into our existing business and products. Likewise, if we identify a
future acquisition candidate, we may not be able to negotiate or finance the
acquisition or integrate these acquired businesses, products or technologies
into our existing business and products. Future acquisitions could result in
potentially dilutive issuances of equity securities, the incurrence of debt
and contingent liabilities, amortization expenses, write-downs of acquired
assets.
Our international operations involve risks.
We have offices in Canada and the Netherlands, and we use over 60
distributors to market and sell our products in 52 countries. For the year
ended September 30, 1999, approximately 17% of our revenues were from outside
North America. We are subject to the normal risks of doing business
internationally any of which may harm our business. These risks include:
. unexpected changes in regulatory requirements;
. export and import restrictions;
. tariffs and trade barriers and limitations on fund transfers;
. longer payment cycles and problems in collecting accounts receivable;
. potential adverse tax consequences;
. exchange rate fluctuations; and
. increased risk of piracy and limits on our ability to enforce our
intellectual property rights.
Any of these factors could harm our business. We do not currently hedge our
foreign currency exposure.
We may be subject to assessment of sales and other taxes for the sale of our
products, license of technology or provision of services.
We may have to pay past sales or other taxes that we have not collected
from our customers. We do not currently collect sales or other taxes on the
sale of our products, license of technology or provision of services in states
and countries other than Wisconsin. The federal Internet Tax Freedom Act,
passed in 1998, imposes a three-year moratorium on discriminatory sales taxes
on electronic commerce. We cannot assure you that this moratorium will be
extended. Further, foreign countries or, following the moratorium, one or more
states, may seek to impose sales or other tax obligations on companies that
engage in such activities within their
9
<PAGE>
jurisdictions. Our business would suffer if one or more states or any foreign
country were able to require us to collect sales or other taxes from current or
past sales of products, licenses of technology or provision of services,
particularly because we would be unable to go back to customers to collect
sales taxes for past sales and may have to pay such taxes out of our own funds.
Corporate Governance Risks
Stockholders may be unable to exercise control because our management controls
a large percentage of our stock.
Our directors, officers and affiliated persons beneficially own
approximately 38% of our common stock and exercise significant influence over
stockholder voting matters. If our directors, officers and affiliated persons
act together, they will be able to influence the composition of our board of
directors, and will continue to have significant influence over our affairs in
general.
Provisions of our charter documents and Maryland law could discourage an
acquisition of our company that would benefit our stockholders.
Provisions of our articles of incorporation and by-laws may make it more
difficult for a third party to acquire control of our company, even if a change
in control would benefit our stockholders. Our articles authorize our board of
directors, without stockholder approval, to issue one or more series of
preferred stock, which could have voting and conversion rights that adversely
affect or dilute the voting power of the holders of common stock. Furthermore,
our articles of incorporation provide for classified voting, which means that
our stockholders may vote on the retention of only one of our five directors
each year. Moreover, Maryland corporate law restricts certain business
combination transactions with "interested stockholders".
Market Risks
Our stock price has been and may continue to be volatile.
The trading price of our common stock has been and is likely to continue to
be highly volatile. For example, during the 52-week period ended May 5, 2000,
the price of our common stock ranged from $3.94 to $64.97 per share. (All share
and price per share data in this prospectus reflects a two-for-one stock split
of our shares distributed to stockholders of record on April 7, 2000). In
addition, the stock market in general, and the market for technology companies
in particular, have experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of these
companies. These broad market and industry factors may reduce our stock price,
regardless of our operating performance.
Exercise of outstanding options and warrants will result in further dilution.
The issuance of shares of common stock upon the exercise of our outstanding
options and warrants will result in dilution to the interests of our
stockholders and you as an investor in the Offering, and may reduce the trading
price and market for our common stock.
We have outstanding options and warrants exercisable to acquire 2,901,478
shares of common stock, 1,280,134 of which are subject to future vesting.
Included in the foregoing are 892,433 options which have been granted under our
1995 Employee Stock Option Plan and our non-employee director stock option
plan, 524,732 of which are immediately exercisable.
To the extent that these stock options or warrants are exercised, the
dilution to the interests of our stockholders and you as an investor will
likely occur. Additional options and warrants may be issued in the future at
prices not less than 85% of the fair market value of the underlying security on
the date of grant. Exercise of these options or warrants, or even the potential
of their exercise of conversion may have an adverse
10
<PAGE>
effect on the trading price and market for our common stock. The holders of our
options or our warrants are likely to exercise them at times when the market
price of the common stock exceeds the exercise price of the securities.
Accordingly, the issuance of shares of common stock upon exercise of the
options or our warrants will likely result in dilution of the equity
represented by the then outstanding shares of common stock held by other
stockholders. Holders of our options or our warrants can be expected to
exercise them at a time when we would, in all likelihood, be able to obtain any
needed capital on terms which are more favorable to us than the exercise terms
provided by these options or warrants.
Substantial sales of our common stock could lower our stock price.
The market price for our common stock could drop as a result of sales of a
large number of our presently outstanding shares, or the perception that these
sales could occur. These factors also could make it more difficult for us to
raise funds through future offerings of our common stock.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the Shares by the Selling
Stockholders; all proceeds will go to the Selling Stockholders.
MARKET FOR COMMON EQUITY, DIVIDEND POLICY, AND RELATED STOCKHOLDER MATTERS
Our common stock was traded on the American Stock Exchange under the symbol
"SFO" since our initial public offering in April of 1998 until April 21, 2000.
On April 24, 2000, our common stock began trading on the Nasdaq National Market
under the symbol "SOFO".
The following table sets forth, for the periods indicated, the high and low
sale prices per share of our common stock as reported on the American Stock
Exchange. Price per share data and share data set forth below and otherwise in
this prospectus reflects a two-for-one stock split distributed to stockholders
of record on April 7, 2000.
<TABLE>
<CAPTION>
High Low
------ -----
<S> <C> <C>
Year Ended September 30, 1998
Third Quarter (commencing April 22, 1998)......................... $ 5.07 $3.07
Fourth Quarter.................................................... 4.47 2.88
Year Ended September 30, 1999
First Quarter..................................................... 7.44 2.69
Second Quarter.................................................... 5.44 3.35
Third Quarter..................................................... 10.38 5.06
Fourth Quarter.................................................... 6.13 3.94
Year Ended September 30, 2000
First Quarter..................................................... 12.75 4.25
Second Quarter.................................................... 64.97 11.34
Third Quarter (through May 10, 2000).............................. 49.63 15.03
</TABLE>
The last traded price on May 10, 2000 for our common stock was $16.94. The
quotations reflect inter-dealer prices, without retail mark-up, markdown or
commission and may not necessarily represent actual transactions.
The Company has not paid any cash dividends and does not intend to pay any
cash dividends in the foreseeable future.
At April 7, 2000 there were 172 common stockholders of record. Many shares
are held by brokers and other institutions on behalf of stockholders.
11
<PAGE>
SELLING STOCKHOLDERS
On April 3, 2000, we merged STV Communications, Inc. into one of our
subsidiaries. We issued 2,107,066 Shares to former STV stockholders in
connection with that transaction. On March 3, 2000, we completed the private
placement of 1,765,254 Shares. We also issued 75,000 Shares on January 14, 2000
and 25,000 Shares on March 20, 2000 upon the exercise of 100,000 warrants. On
April 6, 2000, we issued 53,422 Shares in a private placement to Sony Pictures
Entertainment Inc. On February 1, 2000, we issued 19,814 shares in connection
with the acquisition of Jedor, Inc.
We also issued warrants to purchase Shares, as follows: On August 1, 1999,
we issued warrants to purchase 60,000 Shares in connection with a financing
commitment. On November 1, 1999 we issued warrants to purchase 400,000 Shares
in connection with an investor relations contract. On December 13, 1999 we
issued warrants to purchase 15,000 Shares in connection with investment banking
services. On February 1, 2000, we issued warrants to purchase 50,000 Shares in
connection with services rendered by a director. On April 6, 2000, we issued
warrants to purchase 150,000 Shares in connection with the private placement to
Sony Pictures Entertainment Inc.
This Prospectus covers the 4,720,556 Shares presently issued or to become
issuable upon exercise of the above-described warrants. The following table
sets forth certain information as of May 10, 2000 with respect to the Selling
Stockholders.
Pursuant to certain agreements we have with (i) STV, (ii) the private
placement purchasers identified opposite note (5) in the table below, and (iii)
Sony Pictures Entertainment Inc., we agreed to file a registration statement
covering the Shares held by (i) the former shareholders of STV identified
opposite note (1) in the table below, (ii) the private placement purchasers
identified opposite note (5) in the table below, and (iii) Sony Pictures
Entertainment Inc. Share data and price per share data set forth below and
otherwise in this prospectus reflect a two-for-one stock split distributed to
stockholders of record on April 7, 2000.
<TABLE>
<CAPTION>
Percent of Class
Owned After Sale
of all Common
Number of Stock in this
Common Shares Number of Shares Offering (if over
Beneficially of Common Stock 1% of
Owned Prior Included in Total Common Stock
Beneficial Owners to Offering Offering Outstanding)
----------------- ------------- ---------------- ------------------
<S> <C> <C> <C>
COMMON SHAREHOLDERS
Jan Brzeski (1)(2)(3)........ 538,088 538,088 --
Jeffrey Gerst (1)(3)(4)...... 260,198 260,198 --
Steven Buxbaum (1)........... 3,732 3,732 --
Dorian D. Field (1).......... 894 894 --
Melinda Moore (1)............ 3,892 3,892 --
Lynne Silverstein (1)........ 166 166 --
David Wein (1)............... 3,980 3,980 --
Matt Lugar (1)............... 3,184 3,184 --
Peter Fahey (1).............. 128,276 128,276 --
Ronald Posner (1)............ 13,270 13,270 --
John A. Gambling (1)......... 11,676 11,676 --
Barry MacLean (1)............ 70,772 70,772 --
Cynthia Tsai (1)............. 12,738 12,738 --
Gerst Family Partnership (1). 10,616 10,616 --
John R. Gambling (1)......... 35,386 35,386 --
David George (1)............. 63,696 63,696 --
David Fife (1)(3)............ 31,848 31,848 --
Brzeski Family Partnership
(1)(2)...................... 31,848 31,848 --
Forest Barbieri (1).......... 31,848 31,848 --
Thomas Doyle (1)............. 55,910 55,910 --
Alan Fisher (1).............. 91,296 91,296 --
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Percent of Class
Number of Owned After
Common Shares Number of Shares Offering (if
Beneficially of Common Stock over 1% of Total
Owned Prior Included in Common Stock
Beneficial Owners to Offering Offering Outstanding
----------------- ------------- ---------------- ----------------
<S> <C> <C> <C>
Andrew McNally IV, L.P. (1).... 21,232 21,232 --
Tony and Lily Hsu Family Trust,
dated 11/8/89 (1)............. 15,038 15,038 --
Jerry M. Moore and Susan A.
Moore (1)..................... 10,616 10,616 --
Dana P. Goldman and Sandra H.
Hsu (1)....................... 23,354 23,354 --
Winn Holdings I, L.P. (1)...... 6,368 6,368 --
Ken Hao (1).................... 636 636 --
Donald M. Keller, Jr. (1)...... 1,060 1,060 --
Marcia Warren (1).............. 10,616 10,616 --
McMahon Investment Partners,
L.P. (1)...................... 15,924 15,924 --
Steve Malkenson (1)............ 9,730 9,730 --
Fife Capital, LLC (1)(3)....... 69,004 69,004 --
FW-Ellesmere Limited
Partnership (1)............... 26,540 26,540 --
Andrew Management IV L.P. (1).. 26,540 26,540 --
Deer Valley, L.P. (1).......... 84,928 84,928 --
Plough Penny Partners (1)...... 67,942 67,942 --
David Ford (1)................. 50,956 50,956 --
Alpine Capital Group (1)....... 42,464 42,464 --
Andreef Equity, L.P. (1)....... 42,464 42,464 --
Andy Boszhordt (1)............. 33,970 33,970 --
The G. Christopher Fischer 1997
Trust (1)..................... 33,970 33,970 --
The Ellesmere Island Fund, L.P.
(1)........................... 16,984 16,984 --
Joseph Strubel (1)............. 16,984 16,984 --
Mike Armstrong (1)............. 8,492 8,492 --
Dom Pang (1)................... 8,492 8,492 --
Michael Risley (1)............. 8,492 8,492 --
Anthony Scoramucci (1)......... 8,492 8,492 --
Vawter Capital (1)............. 42,464 42,464 --
Capital Trust Management (5)... 300,000 300,000 --
Cranshire Capital, L.P. (5).... 70,000 70,000 --
David King & Maggie S. King
(5)........................... 30,000 30,000 --
RS Pacific Partners (5)........ 29,200 29,200 --
RS Pacific Partners Onshore LP
(5)........................... 170 170 --
RS Emerging Growth Partners LP
(5)........................... 12,400 12,400 --
RS Premium Partners LP (5)..... 15,880 15,880 --
RS Emerging Growth Fund (5).... 523,570 523,570 --
RS Internet Age Fund (5)....... 18,780 18,780 --
Societe Generale (5)........... 82,730 82,730 --
Warner Bros., a division of
Time Warner Entertainment
Company, L.P. (5)............. 62,048 62,048 --
Montrose Investments Ltd. (5).. 165,460 165,460
Strong River Investments, Inc.
(5)........................... 165,460 165,460
AMPAL-American Israel
Corporation (5)............... 82,730 82,730 --
Essex Global High Technology
Fund-II (USA) a series of
Essex qualified purchaser
funds LLC, c/o Essex
Investment Management Co., LLC
(5)........................... 2,884 2,884 --
Essex High Technology Offshore
II Fund, Limited Partnership,
c/o Essex Investment
Management Co., LLC (5)....... 24,438 24,438 --
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Percent of Class
Number of Owned After
Common Shares Number of Shares Offering (if
Beneficially of Common Stock over 1% of Total
Owned Prior Included in Common Stock
Beneficial Owners to Offering Offering Outstanding
----------------- ------------- ---------------- ----------------
<S> <C> <C> <C>
Essex High Technology (USA)
Fund, Limited Partnership c/o
Essex Investment Management
Co., LLC (5).................. 46,202 46,202 --
Permal Media & Communications
Fund, Limited Partnership, c/o
Essex Investment Management
Co., LLC (5).................. 99,368 99,368 --
Essex High Technology (Bermuda)
Fund, Limited Partnership, c/o
Essex Investment Management
Co., LLC (5).................. 33,934 33,934 --
John Knoeller (6)(7)........... 25,000 25,000 --
John Feith (6)................. 50,000 50,000 --
Frank Shibilski (6)............ 25,000 25,000 --
Sony Pictures Entertainment
Inc. (8)...................... 53,422 53,422 --
Anton Jedlovsky (9)............ 7,232 7,232 --
Steven Brennemann (9).......... 5,350 5,350 --
Brian Orr (9).................. 7,232 7,232 --
WARRANT HOLDERS
NJB Partners, L.P. (10)........ 60,000 60,000 --
STrategic Growth International,
Inc. (11)..................... 400,000 400,000 --
David Enzer (12)............... 15,000 15,000 --
Frederick H. Kopko, Jr. (13)... 50,000 50,000 --
Sony Pictures Entertainment
Inc. (8)...................... 150,000 150,000 --
</TABLE>
- --------
(1) Former stockholders of STV Communications, Inc. ("STV").
(2) Mr. Brzeski is the former Chairman and Chief Executive Officer of STV and
currently is a director of STV.
(3) Pursuant to a Voting and Option Agreement, dated March 15, 2000, between
us and Jan Brzeski, David Fife, Jeffrey Gerst and Fife Capital, L.L.C., we
agreed to nominate a designee of STV as one of our directors at our next
annual stockholders meeting. In addition, Messrs. Brzeski, Gerst, Fife,
and Fife Capital, L.L.C., have agreed to restrict the sale of their Shares
pursuant to a Stock Restriction and Registration Agreement. See "Plan of
Distribution".
(4) Mr. Gerst is the former Secretary and General Counsel of STV.
(5) Issued to private placement investors in an offering which terminated on
March 3, 2000.
(6) Issued upon conversion of warrants.
(7) John Knoeller is one of our employees.
(8) Issued in a private placement which closed on March 31, 2000.
(9) Issued in connection with our acquisition of Jedor, Inc.
(10) Issued in connection with a financing commitment issued by NJB Partners,
L.P., on August 1, 1999. Frederick H. Kopko, Jr. is one of our directors
and a general partner of NJB Partners, L.P.
(11) Warrants issued in connection with an investor relations contract entered
into on November 1, 1999.
(12) Warrants issued in connection with investment banking services, such
warrant having been issued on December 13, 1999.
(13) Warrants issued to a director on February 1, 2000.
14
<PAGE>
PLAN OF DISTRIBUTION
Resales of the shares by the Selling Stockholders may be made on the Nasdaq
National Market, in the over-the-counter market or in private transactions. The
shares will be offered for sale on terms to be determined when the agreement to
sell is made or at the time of sale, as the case may be. The Selling
Stockholders may sell some or all of the Shares in transactions involving
broker-dealers who may act solely as agent and or may acquire Shares as
principal. Broker-dealers participating in such transactions as agent may
receive commissions from the Selling Stockholders (and, if they act as agent
for the purchaser of such Shares, from such purchaser), such commissions
computed in appropriate cases in accordance with the applicable rules of
NASDAQ, which commissions may be at negotiated rates where permissible under
such rules. Participating broker-dealers may agree with the Selling
Stockholders to sell a specific number of Shares at a stipulated price per
share and, to the extent such broker-dealer is unable to do so acting as agent,
for the Selling Stockholders to purchase as principal any unsold shares at the
price required to fulfill the broker-dealer's commitment to the Selling
Stockholders. Any such sales may be by block trade.
The Selling Stockholders may also engage in short sales, including short
sales against the box, puts and calls and other transactions in securities of
the Company or derivatives of Company securities and may sell or deliver Shares
in connection with these trades. The Selling Stockholders may pledge their
Shares to their brokers under the margin provisions of customer agreements. If
a Selling Stockholder defaults on a margin loan, the broker may, from time to
time, offer and sell the pledged Shares.
Certain Shares are also restricted from sale, as follows:
(i) Pursuant to a Stock Restriction and Registration Agreement we entered
into with Jan Brzeski, Jeffrey Gerst, David Fife, and Fife Capital,
L.L.C., (y) Messrs. Brzeski and Gerst agreed not to sell any Shares
until October 3, 2000, and agreed not to sell more than 10% of their
Shares until April 3, 2001, and (z) Mr. Fife and Fife Capital, L.L.C.
agreed not to sell any Shares until October 3, 2000, and agreed not to
sell more than 10% of their Shares until January 3, 2001.
(ii) Pursuant to various Subscription Agreements we entered into with
certain of the subscribers set forth opposite note (5) in the Selling
Stockholders table, certain subscribers agreed not to sell their
Shares until six months following the Closing of each Subscription
Agreement.
LEGAL MATTERS
The legality of the issuance of the Shares offered in this prospectus will
be passed upon for the Company by McBreen & Kopko, Chicago, Illinois. Frederick
H. Kopko, Jr., a member of that firm and a director of the Company,
beneficially owns 183,192 shares of our Common Stock and has options and
warrants to purchase 140,000 shares of our Common Stock.
EXPERTS
The financial statements of Sonic Foundry, Inc. at September 30, 1999 and
for the fiscal year then ended, incorporated by reference in this Prospectus
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report incorporated by reference herein, and are included in reliance
upon such report given on the authority of such firm as experts in accounting
and auditing.
INFORMATION CONTAINED ONLY IN PROSPECTUS
We have not authorized anyone to give information beyond what is set forth
in this prospectus. Sales of the Shares described in this prospectus are not
directed at anyone in any jurisdiction in which an offer or
15
<PAGE>
solicitation of such securities is not authorized, or in which the person
making the offer or solicitation is not qualified to do so, or to any person to
whom it is unlawful to make such offer or solicitation. The information
contained in this prospectus is correct as of the date of this prospectus.
Neither delivery of this prospectus nor any sale made pursuant to this
prospectus shall imply that the information contained in this prospectus is
correct as of any time after the date of this prospectus.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Where You Can
Find More
Information. 1
Information
Incorporated
by
Reference... 1
Forward
Looking
Information. 1
Summary of
the
Business.... 2
Risk Factors. 4
Use of
Proceeds.... 11
Market for
Common
Equity,
Dividend
Policy, and
Related
Stockholder
Matters..... 11
Selling
Stockholders. 12
Plan of
Distribution. 15
Legal
Matters..... 15
Experts...... 15
Information
Contained
Only in
Prospectus.. 15
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered hereby. Normal commission expenses and brokerage fees are payable
individually by the Selling Stockholders. All amounts are estimated except the
Securities and Exchange Commission registration fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $23,756
Legal fees and expenses.......................................... 25,000
Accounting fees and expenses..................................... 10,000
-------
Total............................................................ $58,756
=======
</TABLE>
Item 15. Indemnification of Directors and Officers.
Our Articles of Incorporation limit the liability of our directors, in their
capacity as directors but not in their capacity as officers, to the fullest
extent permitted by the Maryland General Corporation Law, or MGCL. Accordingly,
pursuant to the terms of the MGCL as presently in effect, we may indemnify any
director unless it is established that:
. the act or omission of the director was material to the matter giving
rise to the proceeding and was committed in bad faith or was the result
of active and deliberate dishonesty;
. the director actually received an improper personal benefit in money,
property or services;
. or in the case of any criminal proceeding, the directors had reasonable
cause to believe that the act or omission was unlawful.
In addition, our Bylaws require us to indemnify each person who is or was, a
director, officer, employee or agent of ours to the fullest extent permitted by
the laws of the State of Maryland in the event he is involved in legal
proceedings by reason of the fact that he is or was a director, officer,
employee or agent of ours, or is or was serving at our request as a director,
officer, employee or agent of another corporation, partnership or other
enterprise. We may also advance to such persons expenses incurred in defending
a proceeding to which indemnification might apply, upon terms and conditions,
if any, deemed appropriate by the Board of Directors upon receipt of an
undertaking by or on behalf of such director or officer to repay all such
advanced amounts if it is ultimately determined that he is not entitled to be
indemnified as authorized by the laws of the State of Maryland. In addition, we
carry director and officer liability insurance
In connection with this offering, certain of the Selling Stockholders have
agreed to indemnify us, our directors and officers and each such person who
controls us, against any and all liability arising from inaccurate information
provided to us by the Selling Stockholders and contained herein.
II-1
<PAGE>
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
2.1(1) Agreement and Plan of Merger, dated as of March 15, 2000, by and
among the Company, New Sonic, Inc., and STV Communications, Inc.
2.2 Stock Purchase Agreement, dated January 18, 2000, by and among the
Company, Jedor, Inc., and certain principals of Jedor, Inc.
3.1(2) Amended and Restated Articles of Incorporation.
3.2(2) Amended and Restated By-Laws.
4.1(2) Specimen Common Stock Certificate.
4.2 Stock Restriction and Registration Agreement, dated as of March 15,
2000, among the Company, Jan Brzeski, Jeffrey Gerst, David Fife, and
Fife Capital, L.L.C.
4.3 Voting and Option Agreement, dated March 15, 2000, among the Company,
certain of its stockholders, and Jan Brzeski, David Fife, Jeffrey
Gerst, and Fife Waterfield.
4.4(3) Subscription Agreement dated February 8, 2000 between Subscribers and
the Company.
4.5 Registration Rights Agreement, dated February 8, 2000, by and among
the Company and certain investors.
4.6 Registration Rights Agreement, dated March 31, 2000, among the
Company and Sony Pictures Entertainment Inc.
5.1 Opinion of McBreen & Kopko, regarding the legality of the securities.
23.1 Consent of McBreen & Kopko (see Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
24.1 Power of Attorney (see page II-4).
</TABLE>
- --------
(1) Incorporated by reference from Form 8-K, filed on April 17, 2000.
(2) Incorporated by reference from Registration Statement No. 333-46005 on
Form SB-2 filed on February 10, 1998.
(3) Incorporated by reference from Form 8-K, filed on February 15, 2000.
Item 17. Undertakings.
1. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
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;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of the
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
II-2
<PAGE>
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
Provided, however, that the undertakings set forth in paragraphs
(1)(i) and (1)(ii) above shall not apply if the information
required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the
registrant pursuant to the Securities Exchange Act of 1934 that
are incorporated by reference in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
2. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant 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 whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
3. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Madison, State of Wisconsin, on May , 2000.
SONIC FOUNDRY, INC.
/s/ Rimas Buinevicius
By: _________________________________
Rimas P. Buinevicius,
Chairman, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Rimas P. Buinevicius and Kenneth A.
Minor, jointly and severally, his or her true and lawful attorneys-in-fact,
each with full power of substitution, for him or her in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact or any
of them, or his or their substitute or substitutes, may lawfully do or cause to
be done or by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Rimas P. Buinevicius Chief Executive Officer and May 10, 2000
____________________________________ Chairman
Rimas P. Buinevicius
/s/ Monty R. Schmidt President and Director May 10, 2000
____________________________________
Monty R. Schmidt
/s/ Curtis J. Palmer Chief Technology Officer and May 10, 2000
____________________________________ Director
Curtis J. Palmer
/s/ Kenneth A. Minor Chief Financial Officer and May 10, 2000
____________________________________ Assistant Secretary
Kenneth A. Minor
/s/ Frederick H. Kopko, Jr. Secretary and Director May 10, 2000
____________________________________
Frederick H. Kopko, Jr.
/s/ Arnold Pollard Director May 10, 2000
____________________________________
Arnold Pollard
/s/ David C. Kleinman Director May 10, 2000
____________________________________
David C. Kleinman
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
2.1(1) Agreement and Plan of Merger, dated as of March 15, 2000, by and
among the Company, New Sonic, Inc., and STV Communications, Inc.
2.2 Stock Purchase Agreement, dated January 18, 2000, by and among the
Company, Jedor, Inc., and certain principals of Jedor, Inc.
3.1(2) Amended and Restated Articles of Incorporation.
3.2(2) Amended and Restated By-Laws.
4.1(2) Specimen Common Stock Certificate.
4.2 Stock Restriction and Registration Agreement, dated as of March 15,
2000, among the Company, Jan Brzeski, Jeffrey Gerst, David Fife, and
Fife Capital, L.L.C.
4.3 Voting and Option Agreement, dated March 15, 2000, among the Company,
certain of its stockholders, and Jan Brzeski, David Fife, Jeffrey
Gerst, and Fife Waterfield.
4.4(3) Subscription Agreement dated February 8, 2000 between Subscribers and
the Company.
4.5 Registration Rights Agreement, dated February 8, 2000, by and among
the Company and certain investors.
4.6 Registration Rights Agreement, dated March 31, 2000, among the
Company and Sony Pictures Entertainment Inc.
5.1 Opinion of McBreen & Kopko, regarding the legality of the securities.
23.1 Consent of McBreen & Kopko (see Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
24.1 Power of Attorney (see page II-4).
</TABLE>
- --------
(1) Incorporated by reference from Form 8-K, filed on April 18, 2000.
(2) Incorporated by reference from Registration Statement No. 333-46005 on
Form SB-2 filed on February 10, 1998.
(3) Incorporated by reference from Form 8-K, filed on February 15, 2000.
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT made this 18th day of January, 2000 by and
between the Purchaser Sonic Foundry, Inc., ("SONIC FOUNDRY"), a Maryland
corporation having its principal place of business in Madison, Wisconsin, USA;
the Seller Jedor, Inc., a Canadian corporation, ("JEDOR"), and the JEDOR
Principals, being Steven Brenneman, Anton Jedlovsky, and Brian Orr (the "JEDOR
Principals").
Whereas, JEDOR and the JEDOR Principals have developed that certain software
product entitled "Viscosity" (the "Title") and related documentation and other
software;
Whereas, the JEDOR Principals collectively hold all of the issued and
outstanding stock of JEDOR;
Whereas, SONIC FOUNDRY wishes to purchase, and the JEDOR Principals wish to
sell, all of the issued and outstanding stock of JEDOR (the "Shares") on the
terms herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
parties agree as follows:
ARTICLE I. TERMS OF PURCHASE AND SALE
1.1 Purchase and Sale of Shares of JEDOR. On the Closing Date, the JEDOR
Principals shall sell to SONIC FOUNDRY, and SONIC FOUNDRY shall purchase from
the JEDOR Principals, the Shares for the purchase price specified herein. At
the Closing, JEDOR shall deliver to SONIC FOUNDRY certificates representing all
of the Shares which are required to be delivered or are otherwise deliverable by
JEDOR pursuant hereto at the Closing duly endorsed in blank for transfer or
accompanied by duly executed stock powers assigning such Shares in blank, and
SONIC FOUNDRY shall deliver to JEDOR Principals the Purchase Price as determined
below.
1.2 Acceptance and Closing. This agreement will become effective only if
executed on behalf and all of the JEDOR Principals and delivered to Sonic
Foundry, attention Rimas Buinevicius, by JEDOR and the JEDOR Principals by 3:00
P.M. January 24, 2000 via Facsimile at (608) 256-6689. The purchase and sale of
the Shares shall take place at the offices of SONIC FOUNDRY at 10:00 a.m. on
February 1, 2000 (the "Closing Date"). In no event shall the Closing Date be
later than February 20, 2000. The Closing shall be deemed to have taken place at
5:00 P.M. on the Closing Date.
1.3 PURCHASE PRICE. The purchase price (the "Purchase Price") for the shares
shall be a total amount of $450,000.00 US to be payable as follows:
A. Cash Payable At the Closing. At the Closing, SONIC FOUNDRY shall pay
the JEDOR Principals a total cash payment of $150,000.00 US by check or
wire transfer of immediately available funds. The payment of $150,000.00
pursuant to this paragraph shall be divided equally among the JEDOR
Principals, or as indicated in a writing signed
<PAGE>
by all of them, and shall be made to the accounts designated by each of the
JEDOR Principals, respectively.
B. Sonic Foundry Common Stock and Sonic Foundry Options Granted as
Additional Consideration. SONIC FOUNDRY shall issue shares of its common
stock valued at $300,000.00 (US), at such times and subject to the
allocation and vesting provisions in Paragraphs C. and D. below.
C. Number of Shares to be Issued. The number of SONIC FOUNDRY shares to
be issued by SONIC FOUNDRY pursuant to this paragraph 1.3 shall be
determined by dividing $300,000.00 by the average closing bid price for
SONIC FOUNDRY's common stock on the 30 days prior to the date hereof
($30.28 per common share). The resulting number of shares shall be
allocated as follows: to Steven Brenneman, 27%, to Anton Jedlovsky, 36-
1/2%, and to Brian Orr, 36-1/2% (hereafter referred to as "Allocated
Shares"). The number of Allocated Shares due to any of them is subject to
the reduction upon termination of employment as specified in Paragraph
1.3.D below.
D. Effect of Termination of Employment for Cause or Voluntary Resignation
of any JEDOR Principal Prior to 3 Years From Closing Date. The JEDOR
Principals will be offered employment with SONIC FOUNDRY under the
Employment Agreement attached as Exhibit A hereto.
In the event that the employment of any of the JEDOR Principals is
terminated (through voluntary resignation or for cause under the
employment agreement) before the expiration of 36 months from the
Closing Date, the number of Allocated Shares to be vested with the
terminating JEDOR Principal shall be reduced as follows:
I. Reduction of Allocated Shares Upon Termination During the first
Year after the Closing Date. If the employment of a JEDOR Principal
is terminated prior to the expiration of 3 months after the Closing
Date, he shall not be entitled any of his Allocated Shares; if
terminated after 3 months but prior to the expiration of 6 months from
the Closing Date, he shall be entitled to receive 5% of his Allocated
Shares; if terminated after the expiration of 6 months but prior to
the expiration of 9 months from the Closing Date, he shall be entitled
to receive 10% of his Allocated Shares; and if terminated after the
expiration of 9 months but prior to the expiration of 12 months from
the Closing Date, he shall be entitled to receive 15% of his Allocated
Shares.
II. Reduction of Allocated Shares Upon Termination After One Year
from the Closing Date. If the employment of any JEDOR Principal is
terminated after 1 year from the Closing Date but prior to the
expiration of 2 years from the Closing Date, he shall be entitled to
receive 20% of his Allocated Shares; if terminated after 2 years from
the Closing Date but prior to the expiration of 3 years, he shall be
entitled to receive 50% of his Allocated Shares.
<PAGE>
E. Option Rights Granted at Closing. At the Closing, each of the JEDOR
Principals shall receive option rights to purchase 5,000 shares of
SONIC FOUNDRY common stock, according to the Option Agreement attached
as Exhibit B hereto.
F. Lockup. Each of the JEDOR Principals acknowledges and agrees that he
will not sell or otherwise dispose of any Allocated Shares prior to 3 years
from the Closing Date.
G. Full Vesting of Shares and Options Under Certain Events. In the event
that SONIC FOUNDRY shall elect to relocate the office of JEDOR to a
location outside of Canada or to terminate the employment agreement of any
JEDOR Principal (other than a termination for cause), the Allocated Shares
and options of each JEDOR Principal shall vest fully. The Allocated Shares
and options of any JEDOR Principal who dies or becomes disabled prior to
the date on which they would otherwise vest under subparagraph 3.E. above
shall also vest fully.
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF JEDOR
The Parties agree that JEDOR shall prepare a Disclosure Schedule (Schedule
A to be attached and incorporated herein) to be completed prior to the Closing
Date, as it may be extended by agreement.
JEDOR and the JEDOR Principals hereby represent and warrant:
2.1 Corporate Existence of JEDOR. JEDOR is a corporation duly incorporated,
validly existing and in good standing under the laws of Canada, has all
requisite corporate power and authority to own or lease and operate its
properties and to carry on its business as presently conducted. JEDOR is duly
qualified as a corporation, and is in good standing, in Canada. Attached to
the Disclosure Schedule is a certified copy of JEDOR's Certificate of
Incorporation, as amended to date, , and JEDOR's By-Laws, as currently in
effect. This Agreement has been duly executed and delivered on behalf of JEDOR
and constitutes the valid and binding obligation of JEDOR, enforceable against
JEDOR in accordance with its terms, subject to general equitable principles and
except as the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws of general
application relating to creditors' rights.
2.2 Capitalization. All the outstanding shares of JEDOR are owned by the JEDOR
Principals. All outstanding Shares have been duly authorized and validly
issued, are fully paid and non-assessable and were not issued in violation of
any preemptive rights. There is outstanding no security, option, warrant,
right, call, subscription, agreement, commitment or understanding of any nature
whatsoever, fixed or contingent, that directly or indirectly (i) calls for the
issuance, sale, pledge or other disposition of any Shares or of any other
capital stock of JEDOR or any securities convertible into, or other rights to
acquire, any such Shares or other capital stock of JEDOR or (ii) obligates JEDOR
to grant, offer or enter into any of the foregoing or (iii) relates to
<PAGE>
the voting or control of such Shares, capital stock, securities or rights. No
person has any right to require JEDOR to register any of its securities.
2.3 Title to Shares. The sale and delivery of the Shares to SONIC FOUNDRY
pursuant to this Agreement will vest in SONIC FOUNDRY legal and valid title to
the Shares, free and clear of all liens, security interests, adverse claims or
other encumbrances of any character whatsoever ("Encumbrances") (other than
Encumbrances created by SONIC FOUNDRY and restrictions on resales of the Shares
under applicable securities laws).
2.4. [reserved]
2.5. Consents and Approvals. Except as set forth on the Disclosure Schedule,
there is no authorization, consent order or approval of, or notice to or filing
with, any governmental authority required to be obtained or given or waiting
period required to expire as a condition to the lawful consummation by Jedor of
the sale of the Shares pursuant to this Agreement.
2.6 No Conflicts. Except as set forth in the Disclosure Schedule, the
execution, delivery and performance of this Agreement by JEDOR and the
consummation by JEDOR of the transactions contemplated hereby will not conflict
with, or constitute or result in a breach, default or violation of (with or
without the giving of notice or the passage of time) any of the terms,
provisions or conditions of, (i) the Articles of Incorporation or By-Laws of
JEDOR; (ii) any law, ordinance, regulation or rule applicable to JEDOR; (iii)
any order, judgment, injunction or other decree by which JEDOR or any of their
respective assets or properties is bound; or (iv) any written or oral contract,
agreement, or commitment to which JEDOR is a party or by which they or any of
their respective assets or properties is bound; nor will such execution,
delivery and performance result in the creation of any material Encumbrance upon
any properties, assets or rights JEDOR.
2.7 Subsidiaries. JEDOR does not own any equity ownership interest, directly
or indirectly, in any person, corporation or other entity.
2.8 Financial Statements. JEDOR will supply materially true and correct
financial statements as of October 31, 1999, and will certify as of the Closing
Date that they remain materially true and correct.
2.9 Liabilities. Except as set forth in the Disclosure Schedule, neither JEDOR
nor any Subsidiary has any debts, obligations or liabilities of whatever kind or
nature, either direct or indirect, absolute or contingent, matured or unmatured,
except debts, obligations and liabilities that are fully reflected in, or
reserved against on, the Financial Statements, provided that, the reduction in
the shareholder's equity of JEDOR in the amount not greater than (CN)$15,000
from that shown on the Financial Statements shall be acceptable to the Company.
2.10 Absence of Certain Changes or Events. Except as set forth in the
Disclosure Schedule or except as otherwise contemplated by this Agreement, from
the date of the Financial Statements to the date hereof there has not been (a)
any damage, destruction or casualty loss to the physical properties of JEDOR
(whether covered by insurance or not); (b) any material change in the
<PAGE>
business, operations or financial condition of JEDOR and the Subsidiaries; (c)
any entry into any transaction, commitment or agreement (including without
limitation any borrowing or capital expenditure) material to JEDOR and the
Subsidiaries course of business; (d) any redemption or other acquisition by
JEDOR or any Subsidiary of JEDOR's capital stock or any declaration, setting
aside or payment of any dividend or other distribution in cash, stock or
property with respect to JEDOR's capital stock; (e) any increase in the rate or
terms of compensation payable or to become payable by JEDOR or any subsidiary to
its directors, officers or employees or any increase in the rate or terms of any
bonus, pension, insurance or other employee benefit plan, payment or arrangement
made to, for or with any such directors, officers or key employees; (f) any
change in production schedules, acceleration of sales, or reduction of aggregate
administrative, marketing, advertising and promotional expenses or research and
development expenditures other than in the ordinary course of business; (g) any
sale, transfer or other disposition of any asset of JEDOR, except for payment of
third-party obligations incurred in the ordinary course of business in
accordance with JEDOR's or the Subsidiaries' regular payment practices; (h) any
termination or waiver of any rights of value to the business of JEDOR and the
Subsidiaries; or (i) any failure by JEDOR or the Subsidiaries to pay their
accounts payable or other obligations in the ordinary course of business
consistent with past practice.
2.11 Title to Properties. Except as set forth on the Disclosure Schedule, JEDOR
and the Subsidiaries have good and marketable title to all of the assets and
properties which they purport to own and which are reflected on the Interim
Balance Sheet, free and clear of all Encumbrances, except for (a) liens for
current taxes not yet due and payable or for taxes the validity of which is
being contested in good faith by appropriate proceedings, and (b) encumbrances
which individually or in the aggregate do not materially and adversely affect
the business, operations or financial condition of JEDOR and the Subsidiaries.
2.12 Patents, Trademarks, Etc. (a) Jedor makes no representation or warranty
with respect to the trade name VISCOSITY, but the right of JEDOR to use same has
not been questioned in any litigation to which JEDOR was a party, nor has any
litigation been threatened or claims of third parties made; and (b) the conduct
of the business of JEDOR as now conducted, to the best of knowledge of JEDOR and
the JEDOR Principals, does not conflict with any valid patents, trademarks,
trade names, service marks or copyrights of others. The consummation of the
transactions contemplated hereby will not result in the loss or impairment of
any patent and trademark rights.
2.13 Insurance. All insurance policies with respect to the properties, assets,
operations and business of JEDOR and the Subsidiaries (the "Insurance Policies")
are in full force and effect. Except as set forth in the Disclosure Schedule
there are no pending claims against the Insurance Policies by JEDOR or any of
the Subsidiaries as to which the insurers have denied liability and with respect
to which there is a reasonable likelihood of a settlement or determination
adverse JEDOR and the Subsidiaries. There are no circumstances existing which
would enable the insurers to avoid liability under the Insurance Policies or no
other parties having an interest under the Insurance Policies. Except as set
forth in the Disclosure Schedule (i) there exists no material claims under the
Insurance Policies that have not been properly filed by JEDOR or a Subsidiary,
(ii) no insurance company has refused to renew any material insurance policy of
<PAGE>
JEDOR during the past 18 months, and (iii) there have been no material rate or
premium increases or written notice of prospective changes therein on general
liability, property or directors and officers liability Insurance Policies
during the past 18 months. The Disclosure Schedule contains a list that includes
all Insurance Policies.
2.14 JEDOR Contracts. The Disclosure Schedule lists the following (to the
extent any of the following exist) (such agreements, commitments, and written
summaries of oral agreements being sometimes collectively referred to herein as
the "JEDOR Contracts"):
(i) all leases of real property to which JEDOR is a party (whether as lessor or
lessee);
(ii) all machinery or equipment owned of record or beneficially by JEDOR, all
leases of machinery or equipment to which JEDOR is a party (whether as lessor or
lessee), with the annual rental, the termination date, and the conditions of
assignment and renewal being given with respect to each lease;
(iii) all rights and all licenses, leases, and other agreements relating to
rights in other tangible personal property to which JEDOR is a party.
(iv) all policies of insurance and fidelity or surety bonds in force with
respect to the directors, officers, properties, assets, liabilities, or
operations of JEDOR in each case with a notation as to the status of premiums
paid thereon;
(v) all agreements of JEDOR for the borrowing or lending of money;
(vi) all agreements granting any person a lien, security interest, or mortgage
on any property or asset of JEDOR, including any factoring agreement or
agreement for the assignment of receivables or inventory;
(vii) all agreements of JEDOR guaranteeing, indemnifying, or otherwise becoming
liable for the obligations or liabilities of another;
(viii) all agreements of JEDOR with any manufacturer or supplier with respect to
discounts or allowances or extended payment terms;
(ix) all agreements of JEDOR with any distributor, dealer, sales agent, or
representative;
(x) all agreements which restrict JEDOR from doing any kind of business or from
doing business in any jurisdiction or from competing with any person;
(xi) all agreements for the purchase of goods, materials, supplies, machinery,
capital assets or services;
(xii) all collective bargaining agreements and employee pension benefit plans
which are currently in effect and all information relating to such employee
benefit plans required to be
<PAGE>
disclosed pursuant to Section 2.18 (b) hereof;
(xiii) all bonus, deferred compensation, profit sharing, pension, retirement,
stock option, stock purchase, hospitalization, insurance, medical, dental, or
other plans, arrangements, or practices providing employee or executive
benefits;
(xiv) all shareholders' agreements, proxies, voting trusts, or powers of
attorney to act on behalf of JEDOR or in connection with its properties or
business affairs other than such powers to so act as normally pertain to
corporate officers;
(xv) all agreements relating to the sale of assets of JEDOR;
(xvi) all joint venture or partnership agreements with any other person;
(xvii) all agreements for the construction or modification of any building or
structure or for the incurrence of any other capital expenditure;
(xviii) all advertising agreements;
(xix) all agreements giving any party the right to renegotiate or require a
reduction in price or the repayment of any amount previously paid;
(xx) all other agreements and commitments (including employment and consulting
agreements) to which JEDOR is a party, by which it is or may be bound, or from
which it does or may derive benefit, and a description of the terms thereof,
with the termination date and conditions of assignment and renewal being given
in each case;
(xxi) the name of each retired employee, officer, or director, if any, of JEDOR
who is receiving or is entitled to receive any payment; and
(xxii) the name of each bank in which any company has an account or safe deposit
box and the names of all persons authorized to draw thereon or to have access
thereto.
Except as set forth in the Disclosure Schedule, each of JEDOR Contracts is
valid, binding, and enforceable in accordance with its terms for the periods (if
any) stated therein, except to the extent enforce ability may be limited by
bankruptcy, insolvency, moratorium, or other similar laws affecting creditors'
rights generally and limitations on the availability of equitable remedies;
JEDOR has fulfilled or has taken all actions necessary to enable it to fulfill
when due all of its obligations under JEDOR Contracts, and there is not, under
any of the foregoing, any existing default or event of default or any event
which, with or without the giving of notice or the passage of time, would
constitute a default under any of JEDOR Contracts. There are no laws,
regulations, rules or decrees currently in effect or to be in effect which
adversely affect or might adversely affect JEDOR's rights under any of JEDOR
Contracts.
2.15 Litigation. Except as set forth in the Disclosure Schedule, there is no
action, proceeding or
<PAGE>
investigation in any court or before any governmental or regulatory authority
pending or threatened in writing or orally (a) against JEDOR or against the
JEDOR Principals in connection with the conduct of the businesses of JEDOR, (b)
which seeks to enjoin or obtain damages in respect of the consummation of the
transactions contemplated hereby, or (c) render SONIC FOUNDRY unable to hold
shares in, or designate at least a majority of the members of the Board of
Directors of, or exercise control over, JEDOR. The actions or proceedings
described in clauses (a), (b) and (c) are collectively referred to as
"Litigation." Except as disclosed in the Disclosure Schedule, neither JEDOR nor
any of the Subsidiaries is subject to any outstanding order, writ, judgment or
decree. The Disclosure Schedule includes all Litigation.
2.16 Taxes. (a) Except as set forth in the Disclosure Schedule, (i) all
income, franchise, excise, sales and use tax ("Taxes") returns required to be
filed with respect to JEDOR have been filed in a timely manner (taking into
account all extensions of due dates); (ii) JEDOR has paid, or have made
sufficient provision for, or have set up adequate reserves for the payment of,
all Taxes shown as due on such returns; (iii) neither JEDOR nor any Subsidiary
has executed any presently effective waiver or extension of any statute of
limitations against assessment and collection of Taxes with respect to JEDOR or
any Subsidiary; and (iv) the proper amounts have been withheld by JEDOR from
employees with respect to all cash compensation paid to employees for all
periods in compliance in all material respects with the tax and other
withholding provisions of all applicable laws. Except as set forth in the
Disclosure Schedule, no deficiencies for any taxes have been asserted in writing
or assessed against JEDOR which remain unpaid.
2.17 Compliance with Laws. Except as set forth in the Disclosure Schedule,
JEDOR has complied in all material respects with all laws, statutes, rules,
regulations, judgments, decrees and orders applicable to their business
(including without limitation, any of the above which relate to the
environment).
2.18 Employee Benefits and Agreements. (a) The Disclosure Schedule contains a
list of (1) all material employment contracts between JEDOR and each executive
officer thereof, (2) all collective bargaining agreements between JEDOR and
employee representatives, and (3) all bonus, incentive, stock option, stock
purchase, phantom stock, stock appreciation rights, performance shares, and
similar plans either currently maintained by JEDOR, or, if terminated, under
which employees or former employees have rights that are outstanding, and all
awards and agreements under any of such plans pursuant to which any employees or
former employees hold outstanding rights.
(b) The Disclosure Schedule contains a list of each employee pension benefit
plan to which JEDOR contributes or is required to contribute on behalf of its
employees.
2.19 Consents. Except as set forth in the Disclosure Schedule, no consent,
approval or authorization of, exemption by, or filing with, any governmental or
regulatory authority is required in connection with the execution, delivery and
performance by JEDOR of this Agreement and the consummation by JEDOR of the
transactions contemplated hereby.
2.20 Licenses and Permits. JEDOR has all governmental licenses and permits and
other
<PAGE>
governmental authorizations and approvals required for the conduct of their
businesses as presently conducted ("Material Permits"). The Disclosure Schedule
includes a list of all Material Permits.
2.21 Business Relations. JEDOR is not required to provide any bonding or other
financial security arrangements in connection with any transactions with any of
its customers or suppliers. No customer or supplier of JEDOR will cease to do
business with JEDOR after the consummation of the transactions contemplated
hereby. Except as set forth in the Disclosure Schedule, JEDOR has not
experienced any difficulties in obtaining any raw materials necessary to the
operations of its business, and, no such shortage of raw materials is
threatened.
2.22 Interest in Competitors, Suppliers, Customers, Etc. Neither JEDOR nor any
of the JEDOR Principals nor any officer or director of JEDOR or any affiliate of
any such officer or director has any ownership interest in any competitor,
supplier or customer of JEDOR accounting for more than 1% of JEDOR's purchases
from Suppliers in the most recently ended fiscal year or any property used in
the operation of the business of JEDOR.
2.23 Accounts Receivable. All accounts receivable reflected in the Financial
Statements supplied under Paragraph 2.8 above represent sales actually made or
services actually rendered in the ordinary course of business on or prior to
October 31, 1999; all accounts receivable of JEDOR as of the Closing Date will
represent sales actually made on services actually rendered in the ordinary
course of business or prior to the Closing Date.
2.24 Employee Relations. No union organizational campaign is in process or
threatened in writing. JEDOR has not incurred any work stoppages, general labor
disputes, or union strikes in the past three (3) years which have had an adverse
effect on the business operations or financial condition of JEDOR nor have any
which would have such an adverse effect been threatened in writing.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SONIC FOUNDRY
SONIC FOUNDRY hereby represents and warrants to JEDOR as follows:
3.1 Organization. SONIC FOUNDRY is a corporation duly organized, validly
existing and in good standing under the laws of Maryland and has all requisite
corporate power and authority to carry on its business as it is now being
conducted and to execute, deliver and perform this Agreement and to consummate
the transactions contemplated hereby.
3.2 Corporate Power and Authority. The execution, delivery and performance by
SONIC FOUNDRY of this Agreement and the consummation by SONIC FOUNDRY of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of SONIC FOUNDRY. This Agreement has been duly and
validly executed and delivered by SONIC FOUNDRY and constitutes the valid and
binding obligation of SONIC FOUNDRY, enforceable in accordance with its terms,
except to the extent that such enforce ability (i) may be
<PAGE>
limited by bankruptcy, insolvency or other similar laws relating to creditors'
rights generally, and (ii) is subject to general principles of equity.
3.3 No Conflicts. The execution, delivery and performance by SONIC FOUNDRY of
this Agreement and the consummation by SONIC FOUNDRY of the transactions
contemplated hereby will not, with or without the giving of notice or the lapse
of time, or both, (i) violate any provision of law, statute, rule or regulation
to which SONIC FOUNDRY is subject, (ii) violate any order, judgment or decree
applicable to SONIC FOUNDRY or (iii) conflict with, or result in a breach or
default under, any term or condition of the Certificate of Incorporation or By-
Laws of SONIC FOUNDRY or Any material agreement or other instrument to which
SONIC FOUNDRY is a party or by which any of them may be bound; except for
violations, conflicts, breaches or defaults which in the aggregate would not
materially hinder or impair the consummation of the transactions contemplated
hereby.
3.4 Investment Intent. SONIC FOUNDRY is acquiring the Shares solely for its
own account and not with a view to a sale or distribution thereof in violation
of any securities laws. SONIC FOUNDRY acknowledges that it has received, or has
had access to, all information which it considers necessary or advisable to
enable it to make a decision concerning its purchase of the Shares, provided
that the foregoing shall not limit or otherwise affect the rights or remedies of
SONIC FOUNDRY hereunder with respect to the breach of any representations,
warranties, covenants or agreements of JEDOR contained herein.
3.5 Consents. Except as set forth in the Disclosure Schedule, no consent,
approval or authorization of, exemption by, or filing with, any governmental or
regulatory authority is required in connection with the execution, delivery and
performance by SONIC FOUNDRY of this Agreement or the consummation by SONIC
FOUNDRY of the transactions contemplated hereby, excluding, however, consents,
approvals, authorizations, exemptions and filings, if any, which JEDOR is
required to obtain or make.
3.6 Title to Shares. The title of the Shares and options granted to the JEDOR
Principals contemplated by this Agreement will vest in each of them,
respectively, legal and valid title to the Shares, free and clear of all liens,
security interests, adverse claims or other encumbrances of any character
whatsoever ("Encumbrances") (other than restrictions on resales of the Shares
under applicable securities laws).
ARTICLE IV. CERTAIN COVENANTS OF THE PARTIES
JEDOR and the JEDOR Principals, on the one hand, and SONIC FOUNDRY, on the
other hand, hereby covenant to and agree with one another as follows:
4.1 Conduct of Business. Except as may be otherwise contemplated by this
Agreement or required by any of the documents listed in the Disclosure Schedule
or except as SONIC FOUNDRY may otherwise consent to in writing (which consent
shall not be unreasonably withheld), between the date hereof and the Closing
Date:
<PAGE>
(a) JEDOR will (i) operate its businesses only in the ordinary course (for
purposes of this Agreement, the current oral agreement with Avion International
under which JEDOR or the JEDOR Principals provide Website development and
maintenance services shall be deemed to be in the ordinary course of business);
(ii) use its best efforts to preserve the business organization of JEDOR as a
whole intact; (iii) maintain its properties, machinery and equipment in
sufficient operating condition and repair to enable JEDOR to operate its
business in the manner in which it was operated immediately prior to the date
hereof, except for maintenance required by reason of fire, flood or other acts
of God (except that any insurance proceeds paid by reason of any such casualty
after the date hereof shall be applied towards such maintenance); (iv) continue
all of the Insurance Policies (or comparable insurance) in full force and
effect; (v) use its best efforts to keep available until the Closing Date the
services of their present officers and key employees; (vi) pay its accounts
payable and all other obligations in the ordinary course of business; and (vii)
use its best efforts to preserve its relationships with its material lenders,
suppliers, customers, licensors and licensees and others having material
business dealings with JEDOR such that the business will not be impaired; and
(b) JEDOR and the JEDOR Principals will cause JEDOR not to (i) make any change
in its charter of incorporation, By-Laws or similar charter documents; (ii) make
any change in its issued or outstanding capital stock, or issue any warrant,
option or other right to purchase shares of its capital stock or any security
convertible into shares of its capital stock, or redeem, purchase or otherwise
acquire any shares of its capital stock, or declare any dividends or make any
other distribution in respect of its capital stock; (iii) voluntarily incur or
assume, whether directly or by way of guarantee or otherwise, any material
obligation or liability, except obligations and liabilities incurred in the
ordinary course of business; (iv) mortgage, pledge or encumber any material part
of their properties or assets, tangible or intangible; (v) sell or transfer any
material part of their assets, property or rights, or cancel any material debts
or claims; (vi) amend or terminate any JEDOR Contract or any Material Permit to
which it is a party, except in the ordinary course of business pursuant to the
terms of such Agreement; (vii) make any material change in any JEDOR benefit
plans, except as required by law and except for changes made in the ordinary
course of business in accordance with its customary practices (including
increases in compensation and benefits after normal periodic performance
reviews); (viii) make any changes in the accounting methods, principles or
practices employed by them, except as required by generally accepted accounting
principles; (ix) make any capital expenditure or enter into any commitment
therefor; (x) incur any debt or make any borrows, or enter into any commitment
therefor; or (xi) enter into any other agreement, course of action or
transaction material to JEDOR and the Subsidiaries except in the ordinary course
of business.
4.2 Undertakings. JEDOR, the JEDOR Principals, and SONIC FOUNDRY will use
their best efforts, and will cooperate with one another, to secure all necessary
consents, approvals, authorizations and exemptions from governmental agencies
and other third parties, and to obtain the satisfaction of the conditions
specified in Articles VI and VII, as shall be required in order to enable JEDOR
and SONIC FOUNDRY to effect the transactions contemplated hereby in accordance
with the terms and conditions hereof.
<PAGE>
4.3 Access. Subject to compliance by SONIC FOUNDRY with the provisions of
Section 4.4, from the date of this Agreement to the Closing Date, JEDOR and the
JEDOR Principals shall (i) provide SONIC FOUNDRY with such information as SONIC
FOUNDRY may from time to time request with respect to JEDOR and the transactions
contemplated by this Agreement, (ii) provide SONIC FOUNDRY and its officers,
counsel and other authorized representatives reasonable access during regular
business hours and upon reasonable notice to the properties, books, and records
of JEDOR, or as SONIC FOUNDRY may otherwise from time to time reasonably
request, and (iii) permit SONIC FOUNDRY to make such inspections thereof as
SONIC FOUNDRY may reasonably request.
4.4 Confidentiality. (a) Unless and until the Closing is consummated, SONIC
FOUNDRY or JEDOR, the JEDOR Principals or the Subsidiaries, as the case may be
(the "Recipient"), will keep confidential any information which has been
furnished to it by or on behalf of JEDOR, or by or on behalf of SONIC FOUNDRY,
as the case may be (the "Provider"), in connection with the transactions
contemplated by this Agreement ("Confidential Information"), and shall use the
Confidential Information solely in connection with the transactions contemplated
by this Agreement. If this Agreement is terminated, the Recipient will return
all Confidential Information to the Provider and either destroy any writings
prepared by or on behalf of the Recipient based on Confidential Information or
deliver such writings to the Provider. Confidential Information does not
include information which (i) is or becomes (but only when it becomes) generally
available to the public other than as a result of disclosure in violation of
this Section 4.4, or (ii) is or becomes (but only when it becomes) available to
the Recipient on a non-confidential basis from a source other than the Provider,
or any of its agents or advisors or employees, provided that such source is not
bound by a confidentiality agreement with the Provider in respect thereof.
(b) The Recipient may disclose Confidential Information to any of its directors,
officers, employees, agents, advisors and, in the case of SONIC FOUNDRY, its
prospective lenders and equity participants who need to know such Confidential
Information in connection with the transactions contemplated by this Agreement;
provided that, prior to making such disclosure, the Recipient shall inform all
such persons and entities of the confidential nature of such Confidential
Information and such persons and entities shall agree, for the benefit of the
Provider, to be bound by the terms and conditions of this Section 4.4. In any
event, the Recipient will be responsible for damages incurred by the Provider
arising from any breach of this Section 4.4 by any person or entity to whom
Confidential Information shall have been furnished. The Recipient may disclose
Confidential Information if required by legal process or by operation of
applicable law (but only to the extent so required), provided that such JEDOR
shall first promptly notify SONIC FOUNDRY thereof so that SONIC FOUNDRY may seek
an appropriate protective order and/or waive compliance by such JEDOR with the
provisions of this Section 4.4.
4.6 Exclusivity. SONIC FOUNDRY shall have the exclusive right through the
close of business on February 20, 2000 (or such later date as the term of this
Agreement may be extended by the parties hereto in writing) to consummate the
transactions contemplated herein, and during such exclusive period, neither
JEDOR nor any of their authorized representatives will solicit or accept
<PAGE>
any other offer to purchase any of the capital stock or all or any significant
part of the assets of JEDOR or any similar transaction nor hold discussions or
negotiations with, or provide any information to, any other individual or
corporation, partnership or other entity concerning such purchase (other than
such discussions which are in furtherance of the transactions contemplated
herein).
ARTICLE V. COVENANTS RELATING TO THE SHARES
5.1 Preemptive Rights. JEDOR shall not issue to a party other than SONIC
FOUNDRY additional shares of any class of capital stock with general voting
rights for the election of directors ("Voting Stock") (other than pursuant to a
stock dividend or other distribution of its shares of its voting capital stock
to all of JEDOR's stockholders in accordance with their proportionate
shareholdings in JEDOR so that such holdings continue immediately after such
issuance to be in the same proportion), SONIC FOUNDRY shall have the right
("Preemptive Right") to purchase shares of Voting Stock so that, immediately
following its purchase and such issuance of Voting Stock, SONIC FOUNDRY shall
own the same percentage of shares of JEDOR's general voting capital stock for
the election of directors as it had owned immediately prior to the proposed
issuance.
ARTICLE VI. CONDITIONS TO SONIC FOUNDRY'S OBLIGATIONS
The obligations of SONIC FOUNDRY to consummate the transactions
contemplated hereby shall be subject to the satisfaction on or prior to the
Closing Date of all of the following conditions, except such conditions as SONIC
FOUNDRY may waive:
6.1 Representations, Warranties and Covenants of JEDOR. JEDOR shall have
complied in all material respects with all of its agreements and covenants
contained herein required to be complied with at or prior to the Closing Date,
and all the representations and warranties of JEDOR contained herein shall be
true on and as of the Closing Date with the same effect as though made on and as
of the Closing Date, except as otherwise contemplated hereby, and except to the
extent that such representations and warranties expressly make reference to a
specified date and as to such representations and warranties the same shall
continue on the Closing Date to have been true as of the specified date. All
items supplied or which should have been supplied in the Disclosure Schedule
shall be satisfactory to SONIC FOUNDRY in its sole discretion. SONIC FOUNDRY
shall have received a certificate executed by or on behalf of JEDOR, and dated
as of the Closing Date, certifying as to the fulfillment of the conditions set
forth in this Section 6.1.
6.2 Further Action. All action (including notifications and filings) that
shall be required to be taken by JEDOR in order to consummate the transactions
contemplated hereby shall have been taken and all consents, approvals,
authorizations and exemptions from third parties that shall be required in order
to enable JEDOR to consummate the transactions contemplated hereby shall have
been duly obtained (except for such actions, consents, approvals, authorizations
and exemptions, the absence of which would not prohibit consummation of such
transactions or render such consummation illegal), and, as of the Closing Date,
the transactions contemplated
<PAGE>
hereby shall not violate any applicable law or governmental regulation.
6.3 No Governmental or Other Proceeding. No order of any court or governmental
or regulatory authority or body which restrains or prohibits the transactions
contemplated hereby shall be in effect on the Closing Date and no suit or
investigation by any government agency to enjoin the transactions contemplated
hereby or seek damages or other relief as a result thereof shall be pending or
threatened as of the Closing Date.
6.4 Opinion of JEDOR's Counsel. SONIC FOUNDRY shall have received the opinion
of JEDOR's counsel, substantially in the form of Exhibit C hereto. In
expressing such opinions, such counsel may rely (i) as to factual matters upon
the representations and warranties of the JEDOR Principals contained in this
Agreement and upon certificates or other documents furnished by JEDOR, by the
officers and directors of JEDOR or by governmental officials and (ii) upon such
other documents (including opinions of local counsel) and information as such
counsel deem appropriate and reasonable as a basis for such opinion.
6.5 Delivery of Shares. SONIC FOUNDRY shall have received certificates
representing the Shares.
6.6 Resignations. SONIC FOUNDRY shall have received the resignations of all
the officers and directors of JEDOR.
ARTICLE VII. CONDITIONS TO JEDOR'S OBLIGATIONS
The obligations of JEDOR to consummate the transactions contemplated hereby
shall be subject to the satisfaction on or prior to the Closing Date of all of
the following conditions, except such conditions as JEDOR may waive:
7.1 Representations, Warranties and Covenants of SONIC FOUNDRY. SONIC FOUNDRY
shall have complied in all material respects with all of its agreements and
covenants contained herein required to be complied with at or prior to the
Closing Date, and of the representations and warranties of SONIC FOUNDRY
contained herein shall be true in all material respects on and as of the Closing
Date with the same effect as though made on and as of the Closing Date, except
as otherwise contemplated hereby, and except to the extent that such
representations and warranties expressly make reference to a specified date and
as to such representations and warranties the same shall continue on the Closing
Date to have been true as of the specified date. JEDOR shall have received a
certificate of SONIC FOUNDRY, dated as of the Closing Date and signed by an
officer of SONIC FOUNDRY, certifying as to the fulfillment of the condition set
forth in this Section 7.1, and an opinion of counsel of SONIC FOUNDRY
substantially in the form of Exhibit D.
7.2 Further Action. All action (including notifications and filings) that
shall be required to be taken by SONIC FOUNDRY in order to consummate the
transactions contemplated hereby shall have been taken and all consents,
approvals, authorizations and exemptions from third parties that shall be
required in order to enable JEDOR to consummate the transactions contemplated
<PAGE>
hereby shall have been duly obtained (except for such actions, consents,
approvals, authorizations and exemptions, the absence of which would not
prohibit consummation of such transactions or render such consummation illegal),
and, as of the Closing Date, the transactions contemplated hereby shall not
violate any applicable law or governmental regulation.
7.3 No Governmental or Other Proceeding. No order of any court or governmental
or regulatory authority or body which restrains or prohibits the transactions
contemplated hereby shall be in effect on the Closing Date and no suit or
investigation by any government agency to enjoin the transactions contemplated
hereby or seek damages or other relief as a result thereof shall be pending or
threatened in writing as of the Closing Date.
ARTICLE VIII. SURVIVAL AND INDEMNIFICATION
8.1 Survival. The representations, warranties, covenants and agreements
contained herein to be performed or complied with after the Closing shall
survive without limitation as to time, unless the covenant or agreement
specifies a term, in which case such covenant or agreement shall survive until
the expiration of such specified term. A claim for indemnification by a party
against the other under this Article VIII for inaccuracy in a representation or
warranty or breach of any covenants and agreements contained herein must be
asserted in writing and in accordance with Section 8.3 prior to the expiration
of the applicable time period referenced above, following which the same shall
be barred for all purposes. If written notice of a claim for indemnification is
given in accordance with Section 8.3 prior to the expiration of the applicable
time period referenced above, then the representation, warranty, covenant, or
agreement applicable to such claim shall survive until, but only for purposes
of, resolution of such claim.
8.2 Indemnification. Subject to the provisions of Section 8.1, from and after
the Closing, JEDOR, SONIC FOUNDRY, and the Jedor Principals, jointly and
severally shall indemnify and hold harmless the other (the party seeking
indemnification being referred to as the "Indemnified Party") from and against
any and all claims, losses, liabilities and damages, including, without
limitation, amounts paid in settlement, reasonable costs of investigation and
reasonable fees and disbursements of counsel, arising out of or resulting from
the inaccuracy of any representation or warranty, or the breach of any covenant
or agreement, contained herein or in any instrument or certificate delivered
pursuant hereto, by the party against whom indemnification is sought (the
"Indemnifying Party"); all of JEDOR and the JEDOR Principals being considered
one Indemnifying Party for these purposes. An Indemnified Party shall make no
claims against an Indemnifying Party for indemnification with respect to the
representations and warranties contained herein or in any Certificate or the
covenants and agreements contained in Section 4.1, (a) unless and until the
aggregate amount of such claims against the Indemnifying Party exceeds $5,000 US
(the "Deductible"), whereupon the Indemnified Party may claim indemnification
for the amounts of such claims, or any portion thereof, exceeding the
Deductible.
8.3 Notice of Claim. The Indemnified Party shall promptly notify the
Indemnifying Party in writing of any claim for indemnification, specifying in
detail the basis of such claim, the facts pertaining thereto and, if known, the
amount, or an estimate of the amount, of the liability arising
<PAGE>
therefrom. The Indemnified Party shall provide to the Indemnifying Party as
promptly as practicable thereafter all information and documentation necessary
to support and verify the claim asserted and the Indemnifying Party shall be
given reasonable access to all books and records in the possession or control of
the Indemnified Party or any of its affiliates which the Indemnifying Party
reasonably determines to be related to such claim.
8.4 Defense. If the facts giving rise to a right to indemnification arise out
of the claim of any third party, or if there is any claim against a third party,
the Indemnifying Party may assume the defense or the prosecution thereof,
including the employment of counsel, at its cost and expense. The Indemnified
Party shall have the right to employ counsel separate from counsel employed by
the Indemnifying Party in any such action and to participate therein, but the
fees and expenses of such counsel employed by the Indemnified Party shall be at
its expense. The Indemnifying Party shall not be liable for any settlement of
any such claim effected without its prior written consent which consent shall
not be unreasonably withheld. Whether or not the Indemnifying Party does choose
to so defend or prosecute such claim, all the parties hereto shall cooperate in
the defense or prosecution thereof and shall furnish such records, information
and testimony, and attend at such conferences, discovery proceedings, hearings,
trials and appeals, as may be reasonably requested in connection therewith. The
Indemnifying Party shall be surrogate to all rights and remedies of the
Indemnified Party to the extent of any indemnification provided hereunder.
ARTICLE IX. TERMINATION PRIOR TO CLOSING
9.1 Termination of Agreement. This Agreement may be terminated at any time
prior to the Closing:
(i) By the mutual written consent of SONIC FOUNDRY and the JEDOR Principals;
or
(ii) By SONIC FOUNDRY or JEDOR in writing if the Closing shall not have
occurred on or before February 20, 2000, or such other date to which the
Agreement has been extended pursuant to Section 1.2;
(iii) By either party, against the other, if one or the other, as the case may
be, shall (x) fail to perform in any material respect its agreements contained
herein required to be performed prior to the Closing Date, or (y) materially
breach any of its representations, warranties, covenants or agreements contained
herein, which failure or breach is not cured within (five) days after the party
seeking to terminate has notified the other party of its intent to terminate
this Agreement pursuant to this clause.
(iv) By SONIC FOUNDRY in writing, if any item supplied or which should have
been supplied in the Disclosure schedule shall not be satisfactory as SONIC
FOUNDRY in its sole discretion shall determine.
(v) By Sonic Foundry, in writing, if SONIC FOUNDRY, in its sole discretion,
shall determine: that JEDOR has not materially complied with any provision of
Article II above, or
<PAGE>
that any provision or item supplied by JEDOR in the Disclosure Schedule, or any
provision or item which should have been supplied, is not satisfactory.
9.2 Termination of Obligations. Termination of this Agreement pursuant to this
Article IX shall terminate all obligations of the parties hereunder, except for
the obligations under Sections 4.4 and 10.6; provided, however, that termination
pursuant to clause (ii) or (iii) of Section 9.1 shall not relieve the defaulting
or breaching party from any liability to the other party hereto resulting from
its willful breach of this Agreement.
ARTICLE X. MISCELLANEOUS
10.1 Entire Agreement. This Agreement (including the Disclosure Schedule)
constitutes the sole understanding of the parties with respect to the subject
matter hereof. No amendment, modification or alteration of the terms or
provisions of this Agreement shall be binding unless the same shall be in
writing and duly executed by the parties hereto.
10.2 Successors and Assigns. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors of the
parties hereto; provided, however, that this Agreement may not be assigned by
any party without the prior written consent of the other party hereto, except
that SONIC FOUNDRY may, at its election and without the prior written consent of
JEDOR, assign this Agreement to any direct or indirect wholly-owned subsidiary
or any other affiliate of SONIC FOUNDRY so long as the representations and
warranties of SONIC FOUNDRY made herein are equally true of such assignee. If
this Agreement is assigned with such consent or pursuant to such exceptions, the
terms and conditions hereof shall be binding upon and shall inure to the benefit
of the parties hereto and their respective assigns; provided, however, that no
assignment of this Agreement or any of the rights or obligations hereof shall
relieve any party of its obligations under this Agreement. With the exception of
the parties to this Agreement, (except as set forth in Article V) there shall
exist no right of any person to claim a beneficial interest in this Agreement or
any rights occurring by virtue of this Agreement.
10.3 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall for all purposes be deemed to be an original and all of
which shall constitute the same instrument.
10.4 Headings. The headings of the Sections and paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.
10.5 No Waiver. No action taken pursuant to this Agreement, including any
investigation by or on behalf of any party hereto, will be deemed to constitute
a waiver by the party taking any action of compliance with any representation,
warranty or agreement contained herein. The waiver by any party hereto of any
condition or of a breach of any other provision of this Agreement will not
operate or be construed as a waiver of any other condition or subsequent
<PAGE>
breach. The waiver by any party of any of the conditions precedent to its
obligations under the Agreement will not preclude it from seeking redress for
breech of this Agreement other than with respect to the condition so waived.
10.6 Expenses. JEDOR, the JEDOR Principals and SONIC FOUNDRY shall each pay
all costs and expenses incurred by it or on its behalf in connection with this
Agreement and the transactions contemplated hereby, including, without limiting
the generality of the foregoing, fees and expenses of its own financial
consultants, accountants and counsel.
10.7 Notices. Any notice, request, instruction or other document (each, a
"notice") to be given hereunder by any party hereto to any other party hereto
shall be in writing and delivered personally or sent by registered or certified
mail, postage prepaid,
if to SONIC FOUNDRY, to: Sonic Foundry, Inc., 754 Williamson Street,
Madison, WI 53703, ATTN: Rimas Buinevicius,
Chief Executive Officer.
with a copy to: James R. Stern;, Esq., McBreen, McBreen &
Kopko, 20 N. Wacker Drive, Site 2520, Chicago
IL 60606
if to JEDOR, to: Jedor, Inc., 421 King St., N., Waterloo, ONT
N2J 4E4 Canada
if to the Selling Shareholders,
to them c/o: David Amy, Esq., Amy, Appleby & Brennan,
372 Erb St., West, Waterloo, Ont, N2L 1W6
Telefax 519/ 884-7390
10.8 Further Assurances. From and after the Closing Date, each party, at the
request of the other party and at the requesting party's expense, will each take
all such action and deliver all such documents as shall be reasonably necessary
or appropriate to confirm and vest title to the Shares in SONIC FOUNDRY and
otherwise enable SONIC FOUNDRY and JEDOR to enjoy the respective benefits
contemplated by this Agreement.
10.9 Governing Law. The validity, performance and enforcement of this
Agreement and any agreement entered into pursuant hereto, unless expressly
provided to the contrary, will be governed by the Laws of Wisconsin, without
giving effect to the principles of conflicts of law thereof.
10.10 Consent to Jurisdiction. Each of SONIC FOUNDRY and JEDOR (a) consents
and submits to the jurisdiction of the Courts of Wisconsin and of the Courts of
the United States for a judicial district within the territorial limits of
Wisconsin for all purposes of this Agreement and any Ancillary Document to which
it is a party, including, without limitation, any action or
<PAGE>
proceeding instituted for the enforcement of any right, remedy, obligation or
liability arising under or by reason hereof and thereof; (b) consents a submits
to the venue of such action or proceeding in Dane County, Wisconsin (or such
judicial district of a Court of the United States as will include the same); (c)
irrevocably appoints SONIC FOUNDRY as its attorney-in-fact and agent in its
name, place and stead to accept service of legal process in any such action or
proceeding; (d) consents that service of legal process in any such action or
proceeding may be made upon it by service upon SONIC FOUNDRY and by mailing a
copy thereof by certified mail, return receipt requested, postage prepaid, to
such party at its address specified in Section 10.7.
10.11 Public Announcements. JEDOR and SONIC FOUNDRY shall consult with each
other before issuing any press releases or otherwise making any public
statements with respect to this Agreement and the transactions contemplated
hereby and shall not issue any such press release or make any public statement
prior to such consultation.
10.12 Specific Performance. SONIC FOUNDRY on the one hand, and JEDOR, on the
other hand, each acknowledges that the other will be irreparably harmed and that
there will be no adequate remedy at law in the event of a violation by it of any
of its covenants or agreements which are contained in this Agreement. It is
accordingly agreed that, in addition to any other remedies which may be
available upon the breach of such covenants and agreements, JEDOR or SONIC
FOUNDRY, as the case may be, shall have the right to obtain injunctive relief to
restrain any breach or threatened breach of, or otherwise to obtain specific
performance of, the other's covenants or agreements contained in this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed on its behalf as of the date first above written.
SONIC FOUNDRY:
By:___________________________
Title:________________________
JEDOR:
By:___________________________
President
<PAGE>
The JEDOR Principals
____________________________
Steven Brenneman
____________________________
Anton Jedlovsky
____________________________
Brian Orr
<PAGE>
STOCK RESTRICTION AND REGISTRATION AGREEMENT
--------------------------------------------
THIS STOCK RESTRICTION AGREEMENT dated as of March 15, 2000, is by and
among Sonic Foundry, Inc., a Maryland corporation (the "Buyer") and Jan Brzeski
("Brzeski"), Jeffrey Gerst ("Gerst"), David Fife ("Fife"), and Fife Capital,
L.L.C. ("Capital") (collectively, "New Stockholders").
WHEREAS, the Buyer, New Sonic, Inc., a Maryland corporation (sometimes "New
Sonic" and sometimes the "Surviving Corporation") which is a wholly owned
subsidiary of Buyer, and STV Communications, Inc., a Delaware corporation (the
"Company") are parties to an Agreement and Plan of Merger dated as of the date
hereof (the "Merger Agreement") pursuant to which the Company will merge with
and into New Sonic, upon the terms and conditions set forth therein (the
"Merger"); and
WHEREAS, the New Stockholders will acquire, pursuant to the Merger, the
number of shares of common stock of the Buyer set forth on Exhibit A hereto (the
"Shares"); and
WHEREAS, the parties desire to provide for certain restrictions and other
matters relating to the Shares;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
---------
TERM OF AGREEMENT
-----------------
Term of Agreement. This Agreement and the rights and obligations of the
parties under this Agreement, shall terminate on the earliest to occur of the
following: (a) one year following the closing of the Merger Agreement (the
"Closing"), or (b) immediately prior to the consummation of (i) the sale of all,
or substantially all, of the Buyer's assets or capital stock either through a
direct sale or merger, consolidation, reorganization or any other form of
business combination or acquisition in which the Buyer is the target of such
acquisition, or (ii) the sale of 50% or more of the Company's capital stock
pursuant to a "change in control" of the Buyer, provided, however, that the New
Stockholders shall at all times comply with all applicable requirements of
federal and state securities law, including Rule 144, with respect to the sale
of the Shares.
ARTICLE II
----------
LOCK-UP PROVISIONS
------------------
Section 2.1 Lock-up Provisions. Brzeski, Gerst, Fife, and Capital hereby
agree that, without the prior written consent of Buyer, they will not (1) offer,
pledge, sell, contract to sell,
<PAGE>
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any Restricted Shares or (2)
enter into any swap or other arrangement that transfers to another, in whole or
in part, any of the economic consequences of ownership of the Restricted Shares.
Section 2.2 Definition of Restricted Shares of Brzeski and Gerst.
Restricted Shares of Brzeski and Gerst shall mean all Shares acquired by Brzeski
and Gerst at the Closing, provided, however, that the amount of Shares deemed
"Restricted Shares" with respect to each of Brzeski and Gerst shall decrease
with time according to the schedule set forth below:
<TABLE>
- ---------------------------------------------------------------------------------------
<S> <C>
Time Period Amount of Restricted Shares
- ---------------------------------------------------------------------------------------
Until 6 months following All Shares acquired by each of Brzeski
Closing and Gerst at the Closing
- ---------------------------------------------------------------------------------------
Beginning 6 months following 90% of the Shares acquired by each of
Closing Brzeski and Gerst at the Closing shall
be deemed Restricted Shares.
- ---------------------------------------------------------------------------------------
Beginning 12 months following No Shares shall be deemed Restricted
Closing Shares.
- ---------------------------------------------------------------------------------------
</TABLE>
Section 2.3 Definition of Restricted Shares of Fife and Capital.
Restricted Shares of Fife and Capital shall mean all Shares acquired by Fife and
Capital at the Closing, provided, however, that the amount of Shares deemed
"Restricted Shares" with respect to each of Fife and Capital shall decrease with
time according to the schedule set forth below:
<TABLE>
- ---------------------------------------------------------------------------------------
<S> <C>
Time Period Amount of Restricted Shares
- ---------------------------------------------------------------------------------------
Until 6 months following All Shares acquired by each of Fife
Closing and Capital at the Closing
- ---------------------------------------------------------------------------------------
Beginning 6 months following 90% of the Shares acquired by each of
Closing Fife and Capital at the Closing shall
be deemed Restricted Shares.
- ---------------------------------------------------------------------------------------
Beginning 9 months following No Shares shall be deemed Restricted
Closing Shares.
- ---------------------------------------------------------------------------------------
</TABLE>
Section 2.4 Exception for Termination Without Cause. If any New
Stockholder who becomes an employee of the Company at the Closing and/or
pursuant to Section 6.13 of the Merger Agreement is terminated from employment
from the Company without cause, then, notwithstanding the remaining provisions
of this Article II, no Shares held by such Stockholder shall be deemed
Restricted Shares.
2
<PAGE>
Section 2.5 Exception for Pro-Rata Registration. Notwithstanding anything
herein to the contrary, no Shares which the Buyer registers, or is required to
register, under Section 4.2 hereof shall be deemed Restricted Shares.
ARTICLE III
-----------
GENERAL PROVISIONS
------------------
Section 3.1 Specific Enforcement. Because the Shares cannot be readily
purchased or sold in the open market, the parties hereby acknowledge and agree
that they may be irreparably damaged in the event that this Agreement is not
specifically enforced. Upon a breach or threatened breach of the terms,
covenants and/or conditions of this Agreement by any party, the other parties
shall, in addition to all other remedies, be entitled to a temporary or
permanent injunction, without showing any actual damage, and/or a decree for
specific performance, in accordance with the provisions hereof.
Section 3.2 Legend. All certificates evidencing any of the New
Stockholder's Shares subject to this Agreement shall also bear a legend
substantially as follows during the term of this Agreement:
"The shares represented by this certificate are subject to
restrictions on transfer and may not be sold, exchanged, transferred,
pledged, hypothecated or otherwise disposed of except in accordance with
and subject to all the terms and conditions of a certain Stock
Restriction and Registration Agreement, a copy of which the Company will
furnish to the holder of this certificate upon request and without
charge."
Section 3.3 Governing Law; Successors and Assigns. This Agreement shall
be construed in accordance with and governed by the laws of the State of
Wisconsin and shall be binding upon the heirs, personal successor, executors,
administrators, successors and assigns of the parties.
Section 3.4 Notices. Notices given hereunder shall be deemed to have been
duly given (i) on the date of personal delivery or (ii) one business day
following delivery by express overnight courier service, to the party being
notified at its address set forth herein or such other address as it may
subsequently notify the other party in writing.
Section 3.5 Entire Agreement and Amendments. This Agreement constitutes
the entire agreement of the parties with respect to the subject matter hereof,
and may not be modified, amended or terminated except by the written consent of
the Company and by each New Stockholder who is to be bound thereby.
3
<PAGE>
Section 3.6 Waivers. No waiver of any breach or default hereunder shall
be considered valid unless in writing, and no such waiver shall be deemed a
waiver of any subsequent breach or default of the same or similar nature.
Section 3.7 Severability. If any provision of this Agreement shall be
held to be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other severable provision
of this Agreement, and this Agreement shall be carried out as if any such
illegal, invalid or unenforceable provision were not contained herein.
Section 3.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument.
ARTICLE IV
----------
REGISTRATION
------------
Section 4.1 Shelf Registration. The Buyer shall (i) file with the
Securities and Exchange Commission (the "SEC") a registration statement for the
Shares on Form S-3 (the "Shelf Registration") within 90 days of the date of
Closing, (ii) use its best efforts to have such registration statement declared
effective with the SEC, and (iii) use its best efforts to maintain the
effectiveness of the Registration Statement for a period not less than one year
from the Closing. Should the Shelf Registration not be declared effective or
should its effectiveness lapse for any reason during the period set forth above,
the Buyer shall use its best efforts to have the Shares registered on another
registration statement as soon as reasonably practicable.
Section 4.2 Pro-Rata Registration. In the event that the Buyer registers
shares of its common stock for sale by a Vice President or other employee of the
Company ("Existing Employee") at or above the level of Vice President, then the
Company shall also register Shares of the New Stockholders in the same manner as
registered with respect to such Existing Employee, if such Shares are not
already registered in such manner. The amount of Shares to be registered with
respect to such New Stockholder shall be no less than the amount determined by
multiplying (x) if Shares of one Existing Employee are being registered, the
ratio of the number of shares being registered for such Existing Employee
divided by the total number of shares held by such Existing Employee, and if
shares of more than one Existing Employee are being registered, the highest such
ratio with respect to all Existing Employees whose shares are being registered,
and (y) the number of shares held by such New Employee.
Section 4.3 Survival of Restrictions. Notwithstanding any registration
pursuant to Article IV hereof, the remaining provisions of this Agreement shall
survive the registration of the Shares, as set forth herein.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement.
SONIC FOUNDRY, INC.
By:
---------------------------
Title: Chief Executive Officer
754 Williamson Street
Madison, WI 53703
NEW STOCKHOLDERS
------------------------------
Jan Brzeski
------------------------------
Jeffrey Gerst
------------------------------
David Fife
FIFE CAPITAL, L.L.C.
By:
---------------------------
Its:
--------------------------
5
<PAGE>
VOTING AND OPTION AGREEMENT
THIS VOTING AND OPTION AGREEMENT, dated as of March 15, 2000 (this
"Agreement"), is made by and between Sonic Foundry, Inc., a Maryland corporation
("Purchaser"), each of the other undersigned parties (each a "Shareholder"),
severally but not jointly, and Rimas P. Buinevicius, Monty R. Schmidt, Curtis J.
Palmer, and Frederick H. Kopko, Jr. (each, a "SFO Shareholder").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this
Agreement, Purchaser, STV Communications, Inc., a Delaware corporation (the
"Company") and New Sonic Inc., a Maryland corporation and a wholly-owned
subsidiary of Purchaser ("Sub") are entering into an Agreement and Plan of
Merger, dated as of the date hereof, (as such agreement may hereafter be amended
from time to time, the "Merger Agreement"), pursuant to which the Company would
be merged with and into the Sub (the "Merger");
WHEREAS, each Shareholder is, as of the date hereof, the record and
beneficial owner of that number of shares of Company Common Stock that is listed
next to its name in Schedule 1 to this Agreement; and
WHEREAS, as an inducement and a condition to Purchaser and Sub
entering into the Merger Agreement, Purchaser and Sub have required that each
Shareholder agree, and each Shareholder has agreed, to enter into this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the premises,
representations, warranties, covenants and agreements contained herein,
Purchaser and each Shareholder, intending to be legally bound, hereby agree as
follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the terms set forth in the Addendum shall
have the meanings specified therein.
ARTICLE II
2.1 Voting Agreement. Each Shareholder hereby agrees that during the
period commencing on the date hereof and continuing until the first to occur of
(i) the Effective Time and (ii) the termination of this Agreement pursuant to
Article IV hereof, at any meeting of the holders of Company Capital Stock,
however called, or in connection with any written consent of the holders of
Company Capital Stock, such Shareholder shall vote (or cause to be voted) the
<PAGE>
Option Shares as follows: (i) in favor of the approval of the plan of merger set
forth in the Merger Agreement; (ii) in favor of any other action related to the
Merger or in furtherance of the transactions contemplated by the Merger
Agreement and this Agreement; (iii) against any action or agreement that would
result in a breach in any respect of any covenant, representation or warranty or
any other obligation or agreement of the Company under the Merger Agreement or
of any Shareholder under this Agreement; and (iv) except for the Merger and the
transactions contemplated by or permitted under the Merger Agreement and as
otherwise agreed to in writing in advance by Purchaser, against (A) any
Acquisition Proposal; (B) any change in the present capitalization of the
Company or any amendment of the Company's certificate of incorporation or by-
laws; (C) any other material change in the Company's corporate structure or
business; and (D) any other action involving the Company or its Subsidiaries
which is intended, or could reasonably be expected, to impede, interfere with,
delay, postpone, or otherwise adversely affect the Merger and the transactions
contemplated by this Agreement or the Merger Agreement.
2.2 Proxy. Each Shareholder shall, concurrently with the execution of
this Agreement, execute and deliver to Purchaser an irrevocable proxy in the
form attached hereto as Exhibit A with respect to the Option Shares (the
"Proxy"). Each Shareholder shall make all filings and give all notices with
respect to the Proxy as may be required by the Company or applicable law.
2.3 Other Agreements. No Shareholder shall enter into any agreement
or understanding with any Person the effect of which would be inconsistent with
or violative of the provisions and agreements contained in this Article II.
2.4 STV Designee.
(a) The Purchaser agrees that, as soon as practicable following the
Effective Time, but no earlier than the day following the next annual
stockholders meeting of the Purchaser, it will expand its board of directors by
one seat and appoint a designee of the Company, as constituted prior to Closing,
to fill the vacancy created thereby. The Purchaser further agrees that, provided
such designee, if an employee of Purchaser, has not been terminated with or
without cause prior to such time (or, if such designee is not an employee of
Purchaser, both Jeffrey Gerst and Jan Brzeski have not been terminated with or
without cause prior to such time), it will nominate such designee for election
at the annual stockholders meeting of the Purchaser to be held immediately
following the date of appointment.
(b) Each SFO Shareholder hereby agrees that he shall vote his shares
of Purchaser common stock at the annual stockholders meeting to be held
immediately following the date of appointment of such designee in favor of the
person designated as director pursuant to paragraph (a) above provided such
designee, if an employee of Purchaser, has not been terminated with or without
cause prior to such time (or, if such designee is not an employee of Purchaser,
provided both Jeffrey Gerst and Jan Brzeski have not been terminated with or
without cause prior to such time).
2
<PAGE>
ARTICLE III
STOCK OPTION
3.1 Stock Option.
(a) On the terms and subject to the conditions set forth herein
(including without limitation Section 3.2(a)), each Shareholder hereby grants to
Purchaser an irrevocable option (the "Stock Option") to purchase all of the
right, title and interest of such Shareholder in and to the Option Shares.
(b) The consideration to be paid by Purchaser to each Shareholder in
respect of the Option Shares shall be an amount in Purchaser stock (valued at
the closing price of such stock on the American Stock Exchange on the day
immediately preceding the date of the exercise of the Stock Option) equal to the
product of (i) the number of Option Shares and (ii) [$8.33] (the "Purchase
Price"), payable on the date of such purchase by wire transfer of immediately
available funds to an account designated by such Shareholder at least one
business day in advance of such payment (provided that the failure or refusal of
the Shareholder to designate such a bank account shall not preclude Purchaser
from exercising the Stock Option);
3.2 Exercise of the Stock Option.
(a) At any time prior to the occurrence of an Exercise Termination
Event, Purchaser may exercise the Stock Option in accordance with the terms of
Section 2.1 hereof in whole, but not in part, but solely in the event that the
Merger Agreement is terminated and the Termination Fee provided for in Section
8.3(c) of the Merger Agreement has become payable to Purchaser in accordance
with the terms thereof (the "Triggering Event").
(b) In the event that Purchaser is entitled to and wishes to exercise
the Stock Option, Purchaser shall send a written notice to each Shareholder (the
"Notice" on the date on which the Notice is sent shall be referred to herein as
the "Notice Date") specifying the place and the date (the "Closing Date") not
later than sixty business days from the Notice Date for the closing of such
purchase (the "Closing"); provided, however, that in the event that prior
notification to, or approval of, any regulatory or antitrust agency is required
in connection with the exercise of the Stock Option, Purchaser shall promptly
file the required notice or application for approval and shall promptly notify
the Company of such filing, and the period of time that otherwise would run
pursuant to this Section 3.2(b) shall run instead from the last date on which
all required notification or waiting periods shall have expired or been
terminated or all required approvals shall have been obtained; provided, further
that in the event there shall be in effect any preliminary or final injunction
or other order issued by any court or governmental, administrative or regulatory
agency or authority prohibiting the exercise of the Stock Option pursuant to
this Agreement, the period of time that otherwise would run pursuant to this
Section 3.2(b) shall run instead from the date on which such prohibition shall
have been vacated, terminated or waived.
(c) Any exercise of the Stock Option shall be deemed to have occurred
on the
3
<PAGE>
Notice Date relating thereto.
3.3 Closing.
(a) Subject to the terms and conditions of this Agreement, in
reliance on the representations, warranties and covenants of each Shareholder
contained herein and in full payment for the Option Shares, Purchaser will pay
to such Shareholder the Purchase Price, on the Closing Date, in accordance with
the provisions of Sections 2.1 and 2.2 hereof.
(b) At the Closing, simultaneously with the payment by Purchaser of
the Purchase Price, each Shareholder shall deliver, or cause to be delivered, to
Purchaser certificates representing the Option Shares duly executed by the
Shareholder in blank, together with any necessary stock transfer stamps properly
affixed.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
Each Shareholder hereby represents and warrants to Purchaser as
follows:
4.1 Ownership of the Option Shares; Voting Power.
(a) As of the date hereof, the Shareholder is the record and
beneficial owner of the Option Shares, and the shares of Company Common Stock
set forth opposite its name on Schedule 1 to this Agreement constitute all such
shares owned of record or beneficially owned by the Shareholder as of the date
hereof.
(b) The Shareholder now has, and at all times during the term hereof
will have, sole voting power and sole power to issue instructions with respect
to the matters set forth in Article II hereof, sole power of disposition, sole
power of conversion, sole power to demand appraisal rights and sole power to
agree to all of the matters set forth in this Agreement, in each case with
respect to all of the Option Shares, with no limitations, qualifications or
restrictions on such rights, subject to applicable securities laws and the terms
of this Agreement.
4.2 Authority: Binding Agreement.
(a) The Shareholder has the legal capacity, power and authority to
enter into and perform all of the Shareholder's obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Shareholder does not (and will not) violate any other agreement to which the
Shareholder is a party including, without limitation, any voting agreement,
shareholders' agreement or voting trust. This Agreement has been duly and
validly executed and delivered by the Shareholder and constitutes a valid and
binding agreement of the Shareholder, enforceable against the Shareholder in
accordance with its terms.
4
<PAGE>
(b) The Shareholder hereby revokes any and all proxies with respect
to any of the Option Shares except for the Proxy.
4.3 No Conflicts. Except for filings and approvals under the Hart-
Scott Rodino Act or the Securities Exchange Act of 1934 (the "Exchange Act"), if
applicable, (i) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority or any Person is
necessary for the execution and delivery of this Agreement by the Shareholder
and the consummation by the Shareholder of the transactions contemplated hereby
and (ii) none of the execution and delivery of this Agreement by the
Shareholder, the consummation by the Shareholder with any of the provisions
hereof shall (A) result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give rise to any third
party right of termination, cancellation, modification or acceleration) under
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding, agreement
or other instrument or obligation of any kind to which the Shareholder is a
party or by which the Shareholder or any of the Shareholder's properties or
assets may be bound, or (B) violate any order, writ, injunction, decree,
judgment, order, statute, rule or regulation applicable to the Shareholder or
any of the Shareholder's properties or assets.
4.4 No Finder's Fees. No broker, investment banker, financial advisor
or other Person is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of the Shareholder.
4.5 No Encumbrances. All of the Option Shares and the certificates
representing such option Shares are now, and at all times during the term hereof
will be, held by the Shareholder, or by a nominee or custodian for the benefit
of the Shareholder, free and clear of all liens, claims, options, charges,
security interests, proxies, voting trusts or agreements, understandings or
arrangements or any other legal or equitable rights or encumbrances whatsoever,
except for any such encumbrances or proxies arising hereunder. The transfer by
the Shareholder of the Option Shares to Purchaser hereunder (after payment in
full of the Purchase Price) shall pass to, and unconditionally vest in,
Purchaser good and valid title to all of the Option Shares, free and clear of
all claims, liens, restrictions, security interests, pledges, limitations and
encumbrances whatsoever.
4.6 No Other Agreements. Except pursuant to the Merger Agreement and
this Agreement, no Shareholder has any legal obligation, absolute or contingent,
to any other Person to sell, dispose of or otherwise transfer all or any portion
of the Option Shares.
4.7 Reliance by Purchaser. Each Shareholder understands and
acknowledges that Purchaser is entering into and causing Sub to enter into, the
Merger Agreement in reliance upon Shareholder's execution, delivery and
performance of this Agreement.
5
<PAGE>
ARTICLE V
ADDITIONAL COVENANTS
OF THE SHAREHOLDERS
In addition to the covenants and agreements included elsewhere herein,
each Shareholder covenants to, and agrees with, Purchaser as follows:
5.1 No Solicitation. The Shareholder shall not directly or
indirectly, initiate or solicit (including by way of furnishing information),
encourage or respond to or take any other action knowingly to facilitate, any
inquiries or the making of any proposal by any Person (other than Purchaser or
any affiliate of Purchaser) with respect to, an Acquisition Proposal. The
Shareholder will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any Person conducted heretofore
with respect to any of the foregoing. If the Shareholder receives any inquiry or
proposal regarding any Acquisition Proposal, the Shareholder shall promptly
inform Purchaser of that inquiry or proposal, the details thereof, the identity
of the Person making such inquiry or proposal and shall in the case of written
proposals or inquiries, furnish Purchaser with a copy of such proposal or
inquiry (and all amendments and supplements thereto).
5.2 Restriction on Transfer, Proxies and Non-Interference. Except as
contemplated by this Agreement, the Shareholder shall not directly or
indirectly, (a) offer for sale, sell, transfer, tender, pledge, encumber, assign
or otherwise dispose of, or enter into any contract, option or other arrangement
or understanding with respect to, or consent to the offer for sale, transfer,
tender, pledge, encumbrance, assignment or other disposition of, any or all of
the Option Shares or any interest therein; (b) grant any proxies or powers of
attorney, deposit any Option Shares into a voting trust or enter into a voting
agreement with respect to any Option Shares; or (c) take any action that would
make any representation or warranty of the Shareholder contained herein untrue
or incorrect or have the effect of preventing or disabling the Shareholder from
performing the Shareholder's obligations under this Agreement.
5.3 Waiver of Appraisal Rights. The Shareholder has no rights of
appraisal or rights to dissent from the Merger and waives any such rights that
it may at any time hereafter have or acquire.
5.4 Stop Transfer; Changes in Option Shares. The Shareholder shall
not request that the Company register the transfer (book-entry or otherwise) of
any certificate or uncertificated interest representing any of the Option
Shares, unless such transfer is made in compliance with this Agreement. In the
event of a stock dividend or distribution, or any change in the Company Common
Stock by reason of any stock dividend, split-up, merger, recapitalization,
combination, conversion exchange of shares or the like (in each case with a
record date prior to the termination of this Agreement), (a) the term "Option
Shares" shall be deemed to refer to and include the Option Shares as well as all
such stock dividends and
6
<PAGE>
distributions and any securities into which or for which any or all of the
Option Shares may be changed or exchanged and such dividends, distributions and
securities, as the case may be, shall be paid to Purchaser at the Closing or
promptly following the receipt of such dividend or distribution, if the Closing
theretofore shall have occurred and (b) the number and kind of shares subject to
this Agreement and the Purchase Price shall be appropriately adjusted to reflect
changes made in the Company Common Stock so that Purchaser shall receive, upon
exercise of the Stock Option and payment of the Cash Purchase Price the number
and class of shares, other securities, property or cash that Purchaser would
have received in respect of the Option Shares if the Stock Option had been
exercised and the Option Shares had been issued to Purchaser immediately prior
to such event or the record date therefor, as applicable.
5.5 Confidentiality. The Shareholder recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to the matters referred to herein. In this
connection, the Shareholder hereby agrees not to disclose or discuss such
matters with any Person (other than Purchaser and the respective counsel and
advisors of the Shareholder and Purchaser) without the prior written consent of
Purchaser, except for filings required pursuant to the Exchange Act and the
rules and regulations thereunder or disclosures necessary in order to fulfill
the Shareholder's obligations imposed by law, in which event the Shareholder
shall give prior written notice of such disclosure to Purchaser as promptly as
practicable so as to enable Purchaser to seek a protective order from a court of
competent jurisdiction with respect thereto.
ARTICLE VI
TERMINATION
Except as set forth in Section 2.4, which shall survive in accordance
with its terms, no party hereto shall have any rights or obligations hereunder,
and this Agreement shall terminate and become null and void, from and after the
last date on which the Stock Option is or may become exercisable pursuant to
Section 3.2(a).
ARTICLE VII
MISCELLANEOUS
7.1 Further Assurances. From time to time, upon any request from the
Purchaser to any Shareholder or any Shareholder to the Purchaser, each party
hereto shall execute and deliver such additional documents and take all such
further lawful action as may be necessary or appropriate to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement.
7.2 Entire Agreement; No Third Party Beneficiaries. This Agreement,
the Merger Agreement, and the Stock Restriction and Registration Agreement,
dated the date hereof,
7
<PAGE>
constitute the entire agreement between the Purchaser and each of the
Shareholders hereto with respect to the subject matter hereof and supersede all
other prior agreements and understandings, both written and oral, between such
parties hereto with respect tot the subject matter hereof. This Agreement is not
intended for the benefit of or intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.
7.3 Certain Events. Each Shareholder agrees that this Agreement and
the obligations hereunder shall attach to the Option Shares and shall be binding
upon any Person to which legal or beneficial ownership of such Option Shares
shall pass, whether by operation of law or otherwise, including, without
limitation, such Shareholder's heirs, guardians, administrators or successors.
Notwithstanding any transfer of Option Shares, the transferor shall remain
liable for the performance of all obligations under this Agreement of the
transferor.
7.4 Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other party hereto
provided that Purchaser may assign, in it s sole discretion, its rights and
obligations hereunder to any direct or indirect wholly-owned subsidiary of
Purchaser, although no such assignment shall relieve Purchaser of its
obligations hereunder if such assignee does not perform such obligations.
7.5 Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the Purchaser and
each Shareholder.
7.6 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram or
telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Fed Ex, providing proof of
delivery. All communications hereunder shall be delivered to the respective
parties at the addresses specified in Schedule 2 to this Agreement or to such
other address as either party hereto may have previously furnished to the other
in writing in the manner set forth above.
7.7 Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
7.8 Specific Performance. Each Shareholder recognizes and
acknowledges that a breach by him of any covenants or agreements contained in
this Agreement will cause Purchaser to sustain damages for which it would not
have an adequate remedy at law for money damages, and therefore such Shareholder
agrees that in the event of any such breach Purchaser shall be entitled to the
remedy of specific performance of each covenants and agreements and
8
<PAGE>
injunctive and other equitable relief in addition to any other remedy to which
it may be entitled, at law or in equity.
7.9 Remedies Cumulative. All rights, powers and remedies provided
under this Agreement and the Letter of Intent or otherwise available in respect
hereof at law or in equity shall be cumulative and not alternative, and the
exercise of any thereof by any party hereto shall not preclude the simultaneous
or later exercise of any other such right, power or remedy by such party.
Without limiting the generality of the foregoing, the exercise of the Stock
Option herein and the obligation of the Company to pay the amount set forth in
Section 11 of the Letter of Intent shall be cumulative and not alternative
remedies, and the exercise by the Purchaser of either such remedy shall not
preclude the simultaneous or later exercise of the other remedy.
7.10 No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by its counterparty
party hereunder with its or his obligations hereunder, and any custom or
practice of the parties hereto at variance with the terms hereof shall not
constitute a waiver by such party of its or his right to exercise any such or
other right, power or remedy or to demand such compliance.
7.11 Governing Law. This agreement shall be governed by and construed
in accordance with, the laws of the state of Wisconsin without regard to the
conflicts of laws provisions thereof. Each of the parties hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the state of Wisconsin and the courts of the United States of America located
in the state of Wisconsin for any litigation arising out of or relating to this
agreement or any of the other transactions contemplated hereby (and agrees not
to commence any litigation relating hereto except in such courts), and further
agrees that service of any process, summons, notice or document by U.S.
registered mail to its respective address set forth in Schedule 2 shall be
effective service of process for any litigation brought against it in any such
court.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF
THIS AGREEMENT OR ANY OF THE OTHER TRANSACTIONS CONTEMPLATED HEREBY IN THE
COURTS OF THE STATE OF WISCONSIN OR THE COURTS OF THE UNITED STATES OF AMERICA
LOCATED IN THE STATE OF WISCONSIN AND HEREBY FURTHER IRREVOCABLY AND
UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT
ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN CONNECTION WITH
ANY LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER
TRANSACTIONS CONTEMPLATED HEREBY.
7.12 Descriptive Headings. The descriptive headings used herein are
inserted
9
<PAGE>
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
7.13 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same Agreement.
IN WITNESS WHEREOF, Purchaser has caused this Agreement to be duly
executed by its representative thereunto duly authorized and each Shareholder
has duly executed this Agreement as of the date and year first above written.
SONIC FOUNDRY, INC.
By
-------------------------------------
Name:
Title:
Jan Brzeski
---------------------------------------
David Fife
---------------------------------------
Jeffrey Gerst
---------------------------------------
Fife Waterfield
By
-------------------------------------
Name:
Title:
---------------------------------------
Rimas P. Buinevicius
---------------------------------------
Monty R. Schmidt
10
<PAGE>
Schedule 1
Shareholder Number of Shares
----------- ----------------
Jan Brzeski
David Fife
Jeffrey Gerst
Fife Waterfield
12
<PAGE>
Schedule 2
Purchaser:
Sonic Foundry, Inc.
754 Williamson Street
Madison, Wisconsin 53703
Shareholders:
Jan Brzeski
David Fife
Jeffrey Gerst
Fife Waterfield
13
<PAGE>
Addendum
Definitions
-----------
Capitalized terms used but not defined in this Agreement shall have the
meaning assigned to them in the Merger Agreement. As used in this Agreement, the
following terms shall have the meanings specified below:
Acquisition Proposal shall mean any inquiry, proposal or offer from any
Person (other than Purchaser) relating to any (i) direct or indirect acquisition
or purchase of a business of the Company or any of its subsidiaries, that
constitutes 10% or more of the consolidated net revenues, net income or assets
of the Company and its subsidiaries, (ii) direct or indirect acquisition or
purchase of 10% or more of any class of equity securities of the Company or any
of its subsidiaries whose business constitutes 10% or more of the consolidated
net revenues, net income or assets of the Company and its subsidiaries, (iii)
tender offer or exchange offer that if consummated would result in any person
beneficially owning 10% or more of any class or series of capital stock of the
Company, or (iv) merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any of
its subsidiaries whose business constitutes 10% or more of the consolidated net
revenues, net income or assets of the Company and its subsidiaries.
Beneficially own or Beneficial ownership shall mean, with respect to any
securities, having beneficial ownership of such securities as determined
pursuant to Rule 13d-3 under the Exchange Act.
Closing shall have the meaning assigned to it in Section 3.2(b) hereof.
Closing Date shall have the meaning assigned to it in Section 3.2(b)
hereof.
Company shall have the meaning assigned to it in the recitals to this
Agreement.
Delaware Business Corporation Law shall mean the Business Corporation Law
of the State of Delaware.
Exercise Termination Event shall mean the first to occur of any of the
following: (i) the Effective Time; (ii) the termination of the Merger Agreement
in accordance with the provisions thereof, provided that such termination of the
Merger Agreement does not result in a Triggering Event; or (iii) the passage of
twelve (12) months following the occurrence of the Triggering Event.
Merger shall have the meaning assigned to it in the recitals to this
Agreement.
Merger Agreement shall have the meaning assigned to it in the recitals to
this Agreement.
Notice shall have the meaning assigned to it in Section 3.2(b) hereof.
14
<PAGE>
Notice Date shall have the meaning assigned to it in Section 3.2(b) hereof.
Option Shares shall mean, subject to Section 5.4 hereof, and in respect of
any Shareholder, the shares of Company Common Stock set forth next to such
Shareholder's name in Schedule 1 to this Agreement, together with any other
shares of Company Common Stock acquired by a Shareholder after the date hereof
and prior to the termination of this Agreement, whether upon the exercise of
options, warrants or rights, the conversion or exchange of convertible or
exchangeable securities, or by means of purchase, dividend, distribution or
otherwise.
Proxy shall have the meaning assigned to it in Section 2.2 hereof.
Purchase Price shall have the meaning assigned to it in Section 3.1 hereof.
SFO Shareholder shall have the meaning assigned to it in the first
paragraph of this Agreement.
Purchaser shall have the meaning assigned to it in the first paragraph of
this Agreement.
Shareholder shall have the meaning assigned to it in the first paragraph of
this Agreement.
Stock Option shall have the meaning assigned to it in Section 3.1 hereof.
Sub shall have the meaning assigned to it in the recitals to this
Agreement.
Triggering Event shall have the meaning assigned to it in Section 3.2(a)
hereof.
15
<PAGE>
EXHIBIT A
Form of Irrevocable Proxy
Pursuant to Section 2.2 of the Voting and Option Agreement, dated as
of , 2000, as the same may be amended form time to time (the "Voting and
Option Agreement"), among Sonic Foundry, Inc., a Maryland corporation
("Purchaser") and the undersigned, the undersigned shareholder of STV
Communications, Inc., a Delaware corporation (the "Company"), hereby irrevocably
appoints Rimas P. Buinevicius and Kenneth A. Minor, and each of them, or any
other designee of Purchaser, the attorneys-in-fact and proxies of the
undersigned, each with full power of substitution:
(a) to attend any meeting (whether annual or special or both) of the
shareholders of the Company, including any adjournment or postponement thereof,
on behalf of the undersigned, and at such meeting, with respect to all shares of
common or preferred stock of the Company owned (or beneficially owned) by the
undersigned on the date hereof or acquired hereafter that are entitled to vote
at such meeting or over which the undersigned has voting power (and any and all
other shares of common or preferred stock of the Company or other securities
issued on or after the date hereof in respect of any such shares), including,
without limitation, the shares indicated in the last paragraph of this proxy:
(i) to vote (in person or by proxy) in favor of the approval of
the plan of merger (as such term is used in the Delaware Business Corporation
Law) contained in Agreement and Plan of Merger, dated as of , 2000, as the same
may be amended from time to time (the "Merger Agreement"), by and among
Purchaser, New Sonic, Inc., a Maryland corporation and wholly owned subsidiary
of Purchaser and the Company, and in favor of any other action related to the
Merger (as used herein, as defined in the Merger Agreement) or in furtherance of
the transactions contemplated by the Merger Agreement, and otherwise to act with
respect to such shares as each such attorney and proxy or his substitute shall
in his reasonable discretion deem necessary or appropriate for such purpose; and
(ii) to vote (in person or by proxy) against (A) any merger
agreement or merger (other than the Merger Agreement and the Merger),
consolidation, liquidation, dissolution, recapitalization, reorganization,
winding up or other business combination, acquisition or sale or other
disposition of a material amount of assets or securities, tender offer or
exchange offer or any other similar transaction involving the Company, its
securities or any of its material subsidiaries or divisions, (B) any action or
agreement that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of the company
under the Merger Agreement or the Shareholder under the Voting and Option
Agreement, (C) any change in present capitalization of the Company or any
amendment of the Company's certificate of incorporation or by-laws, (D) any
other material change in the company's corporate structure or business and (E)
any other action involving the Company or its subsidiaries which is intended, or
could reasonably be expected, to impede, interfere with, delay, postpone, or
otherwise adversely affect the Merger and the transactions contemplated by the
Merger Agreement; and
<PAGE>
(b) to execute and deliver one or more consents in writing in lieu of
such meeting or adjournment thereof.
The undersigned affirms that this proxy is issued in connection with
the Merger Agreement to facilitate the transactions contemplated thereunder and
in consideration of Purchaser entering into the Merger Agreement and as such is
coupled with an interest and is irrevocable. This proxy will terminate upon the
termination of the Merger Agreement in accordance with its terms. For purposes
of this proxy, any written consent shall be deemed delivered to such attorneys
and proxies and their substitutes when delivered to Purchaser in accordance with
the Merger Agreement, and any written consent shall be deemed delivered to the
Company when delivered to it in accordance with the Merger Agreement.
By execution and delivery of this proxy to the designees of Purchaser,
the undersigned (a) confirms that the undersigned has received a copy of the
Merger Agreement, and that all other information deemed necessary by the
undersigned concerning the Merger, and the Merger Agreement, and the
transactions contemplated thereunder or any other matters considered by the
undersigned to be relevant to the undersigned's decision to execute this proxy
has been made available to the undersigned and (b) agrees that the undersigned
will not sell, transfer or otherwise dispose of any shares of common or
preferred stock of the Company owned by the undersigned unless the purchaser or
transferee of such shares agrees in writing (a copy of which shall be delivered
by the undersigned to Purchaser) prior to such sale, transfer or disposition to
be bound by and subject to the provisions contained in this proxy.
All authority herein conferred or agreed to be conferred shall survive
the death, liquidation or incapacity of the undersigned and any obligation of
the undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned. This proxy revokes
any and all other proxies heretofore granted by the undersigned to vote or
otherwise to act with respect to any of the shares to which this proxy relates.
The undersigned will not give any subsequent proxy (and such proxy if given will
be deemed not to be effective) with respect to such shares that purports to
grant authority within the scope of the authority hereby conferred, except on
the express condition that such proxy shall not be effective unless and until
this proxy shall have terminated in accordance with its terms. This proxy shall
be governed by the internal laws of the State of Wisconsin.
2
<PAGE>
As of the date hereof, the undersigned owns or possesses voting power
with respect to shares of common stock of the Company and such shares are
entitled to vote with respect to the approval by the shareholders of the Company
of the plan of merger set forth in the Merger Agreement and each of the other
transactions contemplated by the Merger Agreement.
---------------------------------------
[THE SHAREHOLDER]
Dated:______________, 2000
3
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into
as of February 8, 2000 by and among SONIC FOUNDRY, INC., a Maryland corporation
(the "Corporation"), and the persons and the entities listed below (each, an
"Investor" and collectively, the "Investors"). The Corporation and the
Investors are sometimes referred to herein collectively as the "Parties" or each
individually as a "Party."
WHEREAS, in connection with the Subscription Agreement of even date
herewith by and among the Parties hereto (the "Subscription Agreement"), the
Corporation has agreed, upon the terms and subject to the conditions of the
Subscription Agreement, to issue and sell to the Investors 300,000 to 500,000
shares of Common Stock of the Corporation, par value $.01 per share (the
"Shares"); and
WHEREAS, to induce the Investors to execute and deliver the
Subscription Agreement, the Corporation agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws.
NOW, THEREFORE, in considerations of the premises and mutual covenants
and obligations hereafter set forth and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Parties,
intending to be legally bound, hereby agree as follows:
1. Registration Rights.
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
(a) "Additional Issuance Event" shall mean the obligation of the
Corporation, in the event that the shelf registration statement for the Shares
on Form S-3 is not effective within 180 days after the Closing, to deliver,
monthly, until effectiveness of the registration statement, to each Investor
additional Shares of Common Stock equal to 2 1/2% of the number of Shares
purchased by such Investor.
(b) "Closing" shall be deemed to have occurred as of February
14, 2000.
(c) "Commission" shall mean the United States Securities and
Exchange Commission or any other federal agency at the time administering the
Securities Act and the Exchange Act.
(d) "Common Stock" shall mean the Corporation's common stock,
$.01 par value per share.
<PAGE>
(e) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar federal statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
(f) "Holder" shall mean any Person or Persons to whom
Registrable Securities have been or are issued or any permitted transfers.
(g) "Initiating Holders" shall mean any Holder or Holders of at
least thirty percent (30%) of the Registrable Securities, in the aggregate.
(h) "Person" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, a trust, an
individual, a governmental or political subdivision thereof or a governmental
agency.
(i) The terms "register," "registered" and "registration" refer
to a registration effected by preparing and filing a Registration Statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such Registration Statement by the Commission.
(j) "Registrable Securities" shall mean (i) all of the Shares,
if the Shelf Registration Statement is not declared effective or its
effectiveness lapses, and (ii) all of the shares of Common Stock delivered by
the Corporation to any Investors by way of the Additional Issuance Event.
(k) "Registration Expenses" shall mean all expenses, except as
otherwise stated below, incurred by the Corporation in complying with Sections
1.2 and 1.3 hereof, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Corporation, reasonable fees and disbursements
of the Holders' Counsel (as hereinafter defined), "blue sky" fees and expenses
and the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Corporation which shall be paid in any event by the Corporation). Registration
Expenses shall not include Selling Expenses.
(l) "Registration Rights" shall mean the usual and customary
registration rights, including two demand registration rights if called by
Investors holding more than 30% of the Shares, and unlimited piggyback
registration rights, in the event that the Shelf Registration is not declared
effective or its effectiveness lapses.
(m) "Registration Statement" shall mean any registration
statement which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the prospectus included therein, all
amendments and supplements to such Registration Statement, including post-
effective amendments, all exhibits and all material incorporated by reference in
such Registration Statement.
(n) "Restricted Shares" shall mean the Shares which are held by
the Investors which have not theretofore been sold to the public pursuant to a
registration statement under the Securities Act or pursuant to Rule 144.
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<PAGE>
(o) "Rule 144" shall mean Rule 144 promulgated under the
Securities Act or any successor rule thereto or any complementary rule thereto
(such as Rule 144A).
(p) "Rule 145" shall mean Rule 145 promulgated under the
Securities Act or any successor rule thereto or any complementary rule thereto.
(q) "Rule 415" shall mean Rule 415 promulgated under the
Securities Act or any successor rule thereto or any complementary rule thereto.
(r) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(s) "Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and all reasonable fees and disbursements of counsel
for the selling Holders (other than those included in Registration Expenses).
(t) "Shelf Registration" shall mean the shelf registration
statement for the Shares on Form S-3 which shall be filed by the Corporation
with the SEC within 90 days and shall be declared effective within 180 days
after the Closing.
1.2 Registration on Form S-3.
(a) Shelf Registration. The Corporation shall effect the Shelf
Registration for the Shares on Form S-3. This Shelf Registration shall be filed
with the SEC within 90 days, and shall be declared effective within 180 days
after the Closing. Such Shelf Registration shall be continuously maintained in
effect for a period not less than two years from the Closing. If necessary, the
Corporation shall cause to be filed, and shall use its best efforts to have
declared effective as soon as practicable following filing, additional
registration statements or amendments as necessary to maintain such
effectiveness for such two-year period.
(b) Additional Issuance Event. Should the Shelf Registration not
be declared effective within the 180 day period, the Corporation shall, monthly
until effectiveness, on the 211th day after the Closing, and on each successive
30th day thereafter until such Registration Statement shall be declared
effective, deliver to each Investor a number of additional shares of Common
Stock equal to 2 1/2% of the number of Shares purchased by such Investor. If the
Corporation is required to issue any additional shares of Common Stock, the
Corporation shall include those additional shares of Common Stock in the
Registration Statement.
1.3 Additional Registration Rights. Should the Shelf Registration
not be declared effective or should its effectiveness lapse for any reason while
the Corporation has any obligation to maintain such Registration Statement, the
Investors shall have Registration Rights, at the Corporation's expense, which
shall include:
-3-
<PAGE>
(a) Demand Registration.
(i) Request for Registration. Subject to the terms hereof,
the Initiating Holders may make a demand in writing for registration under the
Securities Act of all or part of their Registrable Securities (the "Demand
Registration"). The Holders shall be entitled to two (2) Demand Registrations.
If the Corporation receives from the Initiating Holders a written request that
the Corporation effect a registration under the Securities Act of Registrable
Securities, the Corporation will:
(A) promptly give written notice of the proposed
registration, qualification or compliance to all of the other Holders; and
(B) as soon as reasonably practicable, use its best
efforts to effect such registration, qualification or compliance (including,
without limitation, appropriate qualification under applicable "blue sky" or
other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all of such Registrable Securities as
are specified in such request; provided, however, that the Corporation shall not
be obligated to take any action to effect any such registration, qualification
or compliance pursuant to this Section 1.3(a)(i):
(i) in any particular jurisdiction in which the
Corporation would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance unless the
Corporation is already subject to service in such jurisdiction and except as may
be required by the Securities Act; and
(ii) after the Corporation has effected two (2)
such registrations pursuant to this Section 1.3(a)(i), and such registrations
have been declared or ordered effective; and
(iii) after the closing or until all of the
Registrable Securities are freely saleable without restrictions.
In the event that a request for registration is made pursuant to this
Section 1.3(a)(i) but the Corporation is not obligated to effect such requested
registration by virtue of the foregoing clauses (B)(i) through (B)(iii), such
request shall not be deemed to be a demand for registration for purposes of this
Section 1.3(a)(i). Subject to the foregoing clauses (B)(i) through (B)(iii),
the Corporation shall prepare and file a Registration Statement covering the
Registrable Securities so requested to be registered immediately after receipt
of the request or requests of the Initiating Holders.
(ii) Underwriting. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Corporation as a part of their request
made pursuant to Section 1.3(a)(i) hereof and the Corporation shall include such
information in the written notice referred to in Section 1.3(a)(i) hereof. In
such event, the right of any Holder to participate in such registration shall be
conditioned upon such Holder's participation in the underwriting arrangements
required by this
-4-
<PAGE>
Section 1.3(a)(i), and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent requested shall be limited to the extent provided
herein.
The Corporation shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form (but subject to the reasonable approval
of the Holders holding a majority of the Registrable Securities to be included
in such underwriting) with the managing underwriter selected for such
underwriting by the Holders holding a majority of the Registrable Securities to
be included in such underwriting, which managing underwriter shall be reasonably
acceptable to the Corporation. The Corporation and the Holders participating in
such underwriting shall reasonably cooperate with any such underwriter.
Notwithstanding any other provision of this Section 1.3, if the managing
underwriter advises the Initiating Holders in writing that, in its good faith
judgment, marketing factors require a limitation of the number of shares to be
underwritten, then the Corporation shall so advise all participating Holders and
the number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders pro rata on
the basis of the amounts of Registrable Securities held by such Holders at the
time of filing the Registration Statement shall be included in such Registration
Statement. No Registrable Securities excluded from the underwriting by reason
of the underwriter's marketing limitation shall be included in such
registration. If the underwriter has not limited the number of Registrable
Securities to be underwritten, the Corporation may include securities for its
own account (or for the account of other shareholders in accordance with the
terms of this Agreement) in such registration if the underwriter so agrees and
if the number of Registrable Securities that would otherwise have been included
in such registration and underwriting will not thereby be limited.
If the number of Registrable Securities excluded from the underwriting
exceeds fifty percent (50%) of the total Registrable Securities requested to be
included in such underwriting by the Holders, then Holders of a majority of the
Registrable Securities requested to be included in such underwriting may elect
to terminate the registration.
(b) Unlimited Piggyback Registration Rights.
(i) Notice of Registration. If the Corporation at any time
proposes to file a registration statement with respect to any class of equity
securities, whether for its own account (other than in connection with the
Registration Statement contemplated by Section 1.3(a) hereof or a registration
statement on Form S-8 (or any successor or substantially similar form) relating
to an employee stock option, stock purchase or compensation plan or securities
issued or issuable pursuant to any such plan), or a registration statement on
Form S-4 (or any successor or substantially similar form) or for the account of
a holder of securities of the Corporation, other than for the registration of
securities for sale on a continuous or delayed basis pursuant to Rule 415, then
the Corporation will:
(A) promptly give to each Holder written notice
thereof at least twenty (20) days before the anticipated initial filing date of
any such registration statement, and such notice shall offer to all Holders the
opportunity to have any or all of the Registrable Securities held by such
Holders included in such registration statement; and
-5-
<PAGE>
(B) include in such registration statement (and any
related qualification under sky" laws or other compliance), and in any
underwriting involved therein, (A) all the Registrable Securities specified in a
written request or requests to be included therein, made within twenty (20) days
after receipt of such written n otice from the Corporation, by any Holder.
Subject to the underwriter limitations, if any, described in Section
1.3(b)(iii) below, each Holder shall be entitled to have its Registrable
Securities included in an unlimited number of registrations pursuant to this
Section 1.3(b)(i).
No right to registration of Registrable Securities under this Section
1.3(b)(i) shall be construed to limit any registration required under Section
1.3(a).
(ii) Holdback by the Corporation. If the Corporation has
previously filed a Statement with respect to Registrable Securities pursuant to
Section 1.3(a), and if such previous registration has not been withdrawn or
abandoned, the Corporation will not file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except for a registration relating solely to employee benefits plans or to
a transaction under Rule 145), whether on its own behalf or at the request of
any holder or holders of such securities, until a period of ninety (90) days has
elapsed from the effective date of such a previous registration.
(iii) Underwriting. If the registration of which the
Corporation gives notice is for a registered public offering involving an
underwriting, the Corporation shall so advise the Holders as a part of the
written notice given pursuant to Section 1.3(b)(i)(A). In such event the right
of any Holder to registration pursuant to this Section 1.3(b) shall be
conditioned upon such Holder's participation in such underwriting to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Corporation and the other Holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Corporation, but subject to the reasonable approval
of Holders holding a majority of the Registrable Securities to be included in
such registration. Notwithstanding any other provision of this Section 1.3(b),
if the managing underwriter determines in its good faith judgment that marketing
factors require limitation of the number of shares to be underwritten, the
managing underwriter may limit the Registrable Securities to be included in such
registration. The Corporation shall so advise all Holders and the number of
shares of securities that may be included in the registration and underwriting
(other than in behalf of the Corporation) shall first be allocated among all
Holders pro rata on the basis of the amounts of Registrable Securities held by
such Holders at the time of filing of the registration statement; provided,
however, unless otherwise agreed upon by the Holders of a majority of the
Registrable Securities desiring to participate in the offering, in no event
shall the amount of Registrable Securities of the Holders included in the
offering be reduced below thirty percent (30%) of the total amount of securities
included in such offering. No securities of the Corporation held by parties
other than the Holders or the Corporation shall be included in any registration
and underwriting to which this section applies if the number of Registrable
Securities that would otherwise have been included in such registration and
underwriting will thereby be
-6-
<PAGE>
limited. If any Holder disapproves of the terms of any such underwriting, he
may elect to withdraw therefrom by written notice to the Corporation and the
managing underwriter. No right to registration of Registrable Securities under
this Section 1.3(b) may be exercised if such rights would be inconsistent with
the rights granted to holders of Registrable Securities pursuant to the
Registration Rights Agreements dated February 8, 2000 or February 17, 2000.
1.4 Limitations on Subsequent Registration Rights. From and after
the date hereof, without the approval of the Holders of a majority of the
Registrable Securities, the Corporation shall not enter into any agreement
granting any holder or prospective holder of any securities of the Corporation
registration rights with respect to such securities unless: (a) the agreement
does not allow the holder to include the securities in a registration filed
under Section 1.3(b) hereof unless it would not thereby limit the number of
Registrable Securities of the Holders included in the registration; and (b) the
agreement does not grant rights which would delay the ability of the Holders to
obligate the Corporation to file a registration statement on the Holders' behalf
pursuant to Sections 1.2 or 1.3. The Corporation has not previously and shall
not in the future enter into any agreement, arrangement or understanding with
respect to its securities which is inconsistent with the rights granted to the
Holders of Registrable Securities in this Agreement or otherwise conflicts with
the provisions hereof.
1.5 Expenses of Registration. All Registration Expenses shall be
borne by the Corporation, except as otherwise provided in Section 1.3(a)(ii).
All Selling Expenses relating to securities registered on behalf of the Holders
shall be borne by the Holders of such securities pro rata on the basis of the
number of shares so registered.
1.6 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Corporation pursuant to this Section
1, the Corporation will keep each Holder advised in writing as to the initiation
of each registration and such amendment thereof and as to the completion
thereof. At its expense the Corporation will:
(a) Promptly prepare and file with the Commission a Registration
Statement with respect to such securities and use its best efforts to cause such
Registration Statement to become effective as promptly as possible and remain
effective until the earlier of (i) the date which is one hundred and eighty
(180) days after the effective date of such Registration Statement and (ii) the
date on which all Registrable Securities covered by such Registration Statement
have been sold and the distribution contemplated thereby has been completed (the
"Registration Period"); provided, however, that if, after such Registration
Statement has become effective, the offering of the Registrable Securities
pursuant to such registration is interfered with by any stop order, injunction
or similar order of the Commission or other governmental agency or court (other
than by reason of any untrue statement of a material fact or any omission of a
material fact required to be stated in the Registration Statement or necessary
to make the statements therein not misleading, to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
or affidavit furnished in writing by a Holder to the Corporation specifically
for inclusion therein), such registration will be deemed not to have been
effected. Notwithstanding the foregoing, if within sixty (60) days after the
effective date of the stop order, injunction or similar order of the Commission
or other governmental agency or court, the same is lifted and the effectiveness
of the registration is restored, the registration shall be deemed to have been
effected, provided, that the Registration
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<PAGE>
Period (i) will be tolled during the period the stop order, injunction or
similar order is in effect, (ii) shall resume upon the lifting thereof and (iii)
shall be extended one day for each day during the period that the stop order,
injunction or similar order is in effect.
(b) Furnish, at least five (5) business days before filing a
Registration Statement that registers such Registrable Securities, a prospectus
relating thereto and any amendments or supplements relating to such a
Registration Statement or prospectus, to one counsel selected by the Holders
(the "Holders' Counsel"), copies of all such documents proposed to be filed (it
being understood that such five-business-day period need not apply to successive
drafts of the same document proposed to be filed so long as such successive
drafts are supplied to the Holders' Counsel in advance of the proposed filing by
a period of time that is customary and reasonable under the circumstances).
(c) Prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary to keep such Registration
Statement effective for the Registration Period, and to comply with the
provisions of the Securities Act with respect to the sale and other disposition
of all securities covered by such Registration Statement.
(d) Notify in writing to the Holders' Counsel promptly (i) of
the receipt by the Corporation of any notification with respect to any comments
by the Commission with respect to such Registration Statement or prospectus or
any amendment or supplement thereto or any request by the Commission for the
amending or supplementing thereof or for additional information with respect
thereto, (ii) of the receipt by the Corporation of any notification with respect
to the issuance by the Commission of any stop order suspending the effectiveness
of such Registration Statement or prospectus or any amendment or supplement
thereto or the initiation or threatening of any proceeding for that purpose and
(iii) of the receipt by the Corporation of any notification with respect to the
suspension of the qualification of such Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purposes.
(e) Use its best efforts to register and qualify the securities
covered by such Registration Statement under such other securities or "blue sky"
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Corporation shall not be required in connection therewith or
as a condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(f) Furnish to the Holders participating in such registration
and to the underwriters of the securities being registered such number of copies
of the Registration Statement, preliminary prospectus, final prospectus and such
other documents as such Holders or underwriters may reasonably request in order
to facilitate the public offering of such securities.
(g) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
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<PAGE>
(h) Notify each Holder of Registrable Securities covered by such
Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(i) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
Registration Statement with respect to such securities becomes effective, (i) a
copy addressed to Holders of the opinion, dated such date, of the counsel
representing the Corporation for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and (in a non-underwritten
offering) to the Holders requesting registration of Registrable Securities and
(ii) a copy addressed to Holders of the letter dated such date, from the
independent certified public accountants of the Corporation, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and (in a non-underwritten offering) to the Holders requesting
registration of Registrable Securities.
(j) List such Registrable Securities on any national securities
exchange on which any shares of the Common Stock are listed or, if the Common
Stock is not listed on a national securities exchange, use its best efforts to
qualify such Registrable Securities on the American Stock Exchange or such other
national securities exchange as the Corporation shall determine, subject to the
approval by the holders of a majority of the Registrable Securities included in
the registration, which approval the Holders shall not unreasonably withhold.
(k) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission and the securities commission or other
regulatory authority of any relevant state or other jurisdiction and make
available to its securityholders, as soon as reasonably practicable, earnings
statements (which need not be audited) covering a period of 12 months beginning
within three months after the effective date of the Registration Statement,
which earnings statements shall satisfy the provisions of Section 11(a) of the
Securities Act.
(l) Use its best efforts to take all other steps reasonably
necessary to effect the registration of such Registrable Securities contemplated
hereby.
1.7 Indemnification.
(a) The Corporation will indemnify each Holder; each Holder's
officers, directors, employees, principals, equity holders and partners; each
underwriter, broker or any other Person (other than the Corporation) acting on
behalf of such Holder, and each Person (other than the Corporation) controlling
such Person within the meaning of Section 15 of the Securities Act, with respect
to which registration, qualification or that compliance has been effected
pursuant to this Section 1, against all expenses, claims, losses, damages or
liabilities,
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joint or several (or actions in respect thereof) (collectively, "Losses"),
including any of the foregoing incurred in settlement of any litigation,
commenced or threatened, arising out of or (i) based on any untrue statement (or
alleged untrue statement) of a material fact contained in any Registration
Statement, preliminary or final prospectus, offering circular or other document,
or any amendment or supplement thereto, incident to any such registration,
qualification or compliance, or (ii) based on any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading, or (iii) any violation by the Corporation of the
Securities Act, state securities or "blue sky" laws or any rule or regulation
promulgated thereunder applicable to the Corporation in connection with any such
registration, qualification or compliance (each statement, omission or violation
referred to in clauses (i), (ii) and (iii) of this Section 1.7(a) being referred
to as a "Violation"), and the Corporation will reimburse each such Holder, each
of its officers and directors, each such underwriter, broker or other Person
(other than the Corporation) acting on behalf of such Holder, and each such
controlling Person (other than the Corporation) for any legal and any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such Loss, provided that the Corporation will not be liable to any
such Person in any such case to the extent that any such Loss arises out of or
is based on any untrue statement or omission (or alleged untrue statement or
omission), made in conformity with written information furnished to the
Corporation by an instrument duly executed by such Holder, underwriter or
controlling Person and stated to be specifically for use therein or the
preparation thereby.
(b) Each Holder will, if Registrable Securities held by such
Holder are included, in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Corporation, each
of its directors and officers, each underwriter, broker or other Person acting
on behalf of the Holders, and each Person who controls any of the foregoing
Persons within the meaning of Section 15 of the Securities Act, and each other
such Holder, each of its officers and directors and each person controlling such
Holder within the meaning of Section 15 of the Securities Act, against all
Losses arising out of any untrue statement (or alleged untrue statement) of a
material fact contained in any such Registration Statement, preliminary or final
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Corporation, such Holders, such directors, officers, underwriters, brokers,
other Persons acting on behalf of the Holders or control Persons for any legal
or any other expenses reasonably incurred in connection with investigating,
preparing or defending any such Loss, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such Registration Statement, preliminary or
final prospectus, offering circular or other document in conformity with written
information furnished to the Corporation by an instrument duly executed by such
Holder and stated to be specifically for use therein or the preparation thereby.
Notwithstanding the foregoing, the liability of each Holder under this
subsection (b) shall be limited to an amount equal to the aggregate proceeds
received by such Holder from the sale of Registrable Securities in such
registration.
(c) Each Person entitled to indemnification under this Section
1.7 (the "Indemnified Party") shall give notice to the Party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim
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as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such Indemnified Party's expense, and provided
further, that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 1.7 unless the failure to give such notice is materially prejudicial to
an Indemnifying Party's ability to defend such action and provided further, that
the Indemnifying Party shall not assume the defense for matters as to which
there is a conflict of interest or separate and different defenses. If (i) the
Indemnifying Party shall have failed to assume the defense of such claim and to
employ counsel reasonably satisfactory to the Indemnified Party in a timely
manner or (ii) in the reasonable judgment of any Indemnified Party a conflict of
interest may exist between such Indemnified Party and the Indemnifying Party
with respect to such claim, the fees and expenses of any counsel employed by the
Indemnified Party shall be at the expense of the Indemnifying Party; provided
that, if the Indemnifying Party is obligated to pay the fees and expenses of
counsel for other Indemnified Parties, such Indemnifying Party shall be
obligated to pay only the fees and expenses associated with one attorney or law
firm for the Indemnified Parties, unless there exists a conflict of interest or
separate and different defenses among the Indemnified Parties. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.
(d) If the indemnification provided for in this Section 1.7 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, claim, damage, liability or action referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amounts paid or payable by such
Indemnified Party as a result of such loss, claim, damage, liability or action
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss, claim,
damage, liability or action as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Notwithstanding the foregoing, the maximum
amount which any Holder shall be required to contribute pursuant to this Section
1.7(d) shall be limited to an amount equal to the net proceeds actually received
by such Holder from the sale of Registrable Securities effected pursuant to such
registration.
1.8 Information by Holder. The Holders of securities included in any
registration shall furnish to the Corporation in writing such information
regarding such Holders, the Registrable Securities held by such Holders and the
distribution proposed by such Holders as the Corporation may reasonably request
in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 1.
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1.9 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, the
Corporation agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144, at all times after the effective date
that the Corporation becomes subject to the reporting requirements of the
Securities Act or the Exchange Act.
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Corporation under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements);
(c) So long as a Holder owns any Registrable Securities to
furnish to the Holder forthwith upon request a written statement by the
Corporation as to its compliance with the reporting requirements of said Rule
144, and of the Securities Act and the Exchange Act, a copy of the most recent
annual or quarterly report of the Corporation, and such other reports and
documents of the Corporation and other information in the possession of or
reasonably obtainable by the Corporation as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Holder to
sell any such securities without registration. The Corporation will take action
reasonably requested by a Holder to facilitate the transfer of Registrable
Securities pursuant to Rule 144.
1.10 Transfer of Registration Rights. Any Holder may assign its
rights hereunder to any purchaser of the Registrable Securities; provided, that
immediately after the transfer the further disposition of any of the securities
is restricted by the Securities Act; and provided further, however, that such
purchaser or transferee shall, as a condition to the effectiveness of such
assignment, be required to execute a counterpart to this Agreement agreeing to
be treated as the seller or transferor hereunder whereupon such purchaser or
transferee shall have the benefits of, and shall be subject to the restrictions
contained in, this Agreement applicable to the seller or transferor.
2. Miscellaneous.
2.1 Governing Law; Submission to Jurisdiction. (a) This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York applicable to contracts made and to be performed wholly therein,
without regard to principles of the conflict of laws thereof.
(b) Each Party hereto hereby agrees that any suit or judgment
entered by any court in respect thereof may be brought to the extent permitted
by applicable law in the State of New York, County of Manhattan or in any United
States District Court for the District of the State of New York, as the Party
commencing such suit, action or proceeding may elect in its sole discretion; and
each Party hereto hereby irrevocably submits to the jurisdiction of such courts
and any appellate court or body thereof for the purpose of any suit, action,
proceeding or
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judgment (and waives for such purpose any other preferential jurisdiction by
reason of its present of future domicile or otherwise).
(c) Each Party hereby irrevocably waives any objection which it
may now or hereafter have to the laying of the venue of any suit, action or
proceeding arising out of or relating to this Agreement brought in the State of
New York, County of Manhattan or in any United States District Court for the
District of the State of New York and hereby further irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.
2.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Holder, and
the closing of the transactions contemplated hereby.
2.3 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the Parties hereto.
2.4 Entire Agreement. This Agreement and the Subscription Agreement
contain the entire understanding and agreement of the Parties with respect to
the subject matter hereof and thereof. This Agreement and the Subscription
Agreement supersede all prior agreements and understandings among the Parties
hereto with respect to the subject matter hereof.
2.5 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
mailed by certified or registered mail, postage prepaid, return receipt
requested, by courier or facsimile (provided confirmation of transmission is
mechanically generated and kept on file by the sending party), addressed (a) if
to any Holder, at such Holder's address as set forth in the Corporation's
records, or at such other address as such Holder shall have furnished to the
Corporation in writing with copies to CEUT at 10 East 50th Street, 20th Floor,
New York, NY 10022, Attention: Steven P. Novak, (b) if to the Corporation, at
754 Williamson Street, Madison, WI 53703, Attention: Rimas P. Buinevicius, or at
such other address as the Corporation shall have furnished to such Holders in
writing. Notices that are mailed shall be deemed to have been given five days
after deposit in the United States mail and notices delivered personally, by
facsimile or by courier shall be deemed to have been given upon delivery to
recipient's address.
2.6 Delays or Omissions. No failure or delay by any Holder in
exercising any right, power or privilege hereunder and no course of dealing
between the Corporation, on the one hand, and any Holder, on the other hand,
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder. Any
Person having rights under any provision of this Agreement shall be entitled to
enforce such rights specifically or to recover damages or to exercise any other
remedy available to it at law or in equity. The foregoing rights and remedies
shall be cumulative and the exercise of any right or remedy provided herein
shall not preclude any Person from exercising any other right or remedy provided
herein. The Corporation agrees that monetary damages would not be adequate
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compensation for any loss incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate. No
notice to or demand on the Corporation in any case shall entitle the Corporation
to any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of any Holder to any other or further action
in any circumstances without notice or demand. Each covenant contained herein
shall operate independently of any other covenant contained herein.
2.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
2.8 Severability. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable the remainder of this Agreement and application of such provision
to Persons or circumstances shall be interpreted so as best to reasonably effect
the intent of the parties hereto, the parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and enforceable
provision which will achieve to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
2.9 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
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COUNTERPART SIGNATURE PAGE TO
REGISTRATION RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date first written above.
CORPORATION:
SONIC FOUNDRY, INC.
By:
-------------------------
Name:
Title:
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INVESTORS:
________________________________
________________________________
________________________________
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REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into
as of March 31, 2000 by and among SONIC FOUNDRY, INC., a Maryland corporation
(the "Corporation"), and SONY PICTURES ENTERTAINMENT INC., a Delaware
corporation (the "Investor"). The Corporation and the Investor are sometimes
referred to herein collectively as the "Parties" or each individually as a
"Party."
WHEREAS, in connection with the Stock Purchase Agreement of even date
herewith by and among the Parties hereto (the "Stock Purchase Agreement"), the
Corporation has agreed, upon the terms and subject to the conditions of the
Stock Purchase Agreement, to issue and sell to the Investor 26,711 shares of
Common Stock of the Corporation, par value $.01 per share; and
WHEREAS, in connection with the Warrant issued to Investor, of even
date herewith (the "Warrant"), the Corporation has agreed to issue and sell to
Investor 75,000 shares of Common Stock upon exercise of the Warrant in
accordance with its terms, and in connection with the Global Agreement, of even
date herewith, by and among the Parties hereto (the "Global Agreement"), the
Corporation has agreed to issue to the Investor Common Stock purchase warrants
for the purchase of additional shares of Common Stock upon the terms and
conditions set forth in the Global Agreement (the shares of Common Stock when
issued and sold by the Corporation and purchased and acquired by Investor, or
its assigns, pursuant to the Stock Purchase Agreement, the Warrant and the
Global Agreement are hereinafter referred to as the "Shares"); and
WHEREAS, to induce the Investor to execute and deliver the Stock
Purchase Agreement and the Global Agreement and to purchase the Warrant, the
Corporation has agreed to provide certain registration rights under the
Securities Act of 1933, as amended, and the rules and regulations thereunder, or
any similar successor statute (collectively, the "1933 Act"), and applicable
state securities laws.
NOW, THEREFORE, in considerations of the premises and mutual covenants
and obligations hereafter set forth and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Parties,
intending to be legally bound, hereby agree as follows:
1. Registration Rights.
-------------------
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
(a) "Closing" shall mean the date of closing of the sale of the
Shares.
(b) "Commission" shall mean the United States Securities and
Exchange Commission or any other federal agency at the time administering the
Securities Act and the Exchange Act.
<PAGE>
(c) "Common Stock" shall mean the Corporation's common stock,
$.01 par value per share.
(d) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar federal statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
(e) "Holder" shall mean any Person or Persons to whom
Registrable Securities have been or are issued or who holds Registrable
Securities from any permitted transfers.
(f) "Initiating Holders" shall mean any Holder or Holders of at
least thirty percent (30%) of the Registrable Securities, in the aggregate.
(g) "Person" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, a trust, an
individual, a governmental or political subdivision thereof or a governmental
agency.
(h) The terms "register," "registered" and "registration" refer
to a registration effected by preparing and filing a Registration Statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such Registration Statement by the Commission.
(i) "Registrable Securities" shall mean all of the Shares, if
the Shelf Registration Statement is not declared effective or its effectiveness
lapses.
(j) "Registration Expenses" shall mean all expenses, except as
otherwise stated below, incurred by the Corporation in complying with Sections
1.2 and 1.3 hereof, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Corporation, reasonable fees and disbursements
of the Holders' Counsel (as hereinafter defined), "blue sky" fees and expenses
and the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Corporation which shall be paid in any event by the Corporation). Registration
Expenses shall not include Selling Expenses.
(k) "Registration Rights" shall mean the usual and customary
registration rights, including one demand registration right if called by
Investor or a Holder holding more than 70% of the Shares, and unlimited
piggyback registration rights, in the event that the Shelf Registration is not
declared effective or its effectiveness lapses.
(l) "Registration Statement" shall mean any registration
statement which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the prospectus included therein, all
amendments and supplements to such Registration Statement, including post-
effective amendments, all exhibits and all material incorporated by reference in
such Registration Statement.
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(m) "Restricted Shares" shall mean the Shares which are held by
the Investor which have not theretofore been sold to the public pursuant to a
registration statement under the Securities Act or pursuant to Rule 144.
(n) "Rule 144" shall mean Rule 144 promulgated under the
Securities Act or any successor rule thereto or any complementary rule thereto
(such as Rule 144A).
(o) "Rule 145" shall mean Rule 145 promulgated under the
Securities Act or any successor rule thereto or any complementary rule thereto.
(p) "Rule 415" shall mean Rule 415 promulgated under the
Securities Act or any successor rule thereto or any complementary rule thereto.
(q) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(r) "Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and all reasonable fees and disbursements of counsel
for the selling Holders (other than those included in Registration Expenses).
(s) "Shelf Registration" shall mean the shelf registration
statement for the Shares on Form S-3 which shall be filed by the Corporation
with the Commission within 90 days and shall be declared effective within 180
days after the Closing.
1.2 Registration on Form S-3.
------------------------
(a) Shelf Registration. The Corporation shall effect the Shelf
Registration for the Shares on Form S-3 equal to the sum of (i) the number of
shares of Common Stock issued under the Stock Purchase Agreement and (ii) the
number of shares of Common Stock that would be issuable upon full exercise of
the Warrant. This Shelf Registration shall be filed with the Commission within
90 days, and shall be declared effective within 180 days after the Closing. Such
Shelf Registration shall be continuously maintained in effect for a period of
not less than two years from the Closing and for so long as the Global Agreement
shall remain in effect, plus one year following its effective date of
termination or cancellation (the "Effectiveness Period"). If necessary, the
Corporation shall cause to be filed, and shall use its best efforts to have
declared effective as soon as practicable following filing, additional
registration statements or amendments as necessary to maintain such
effectiveness for such Effectiveness Period.
1.3 Additional Registration Rights. Should the Shelf Registration not
be declared effective or should its effectiveness lapse for any reason while the
Corporation has any obligation to maintain such Registration Statement, the
Investor shall have Registration Rights, at the Corporation's expense, which
shall include:
(a) Demand Registration.
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(i) Request for Registration. Subject to the terms hereof,
the Initiating Holders may make a demand in writing for registration under the
Securities Act of all or part of their Registrable Securities (the "Demand
Registration"). The Holders shall be entitled to one (1) Demand Registration. If
the Corporation receives from the Initiating Holders a written request that the
Corporation effect a registration under the Securities Act of Registrable
Securities, the Corporation will:
(A) promptly give written notice of the proposed
registration, qualification or compliance to all of the other Holders; and
(B) as soon as reasonably practicable, use its best
efforts to effect such registration, qualification or compliance (including,
without limitation, appropriate qualification under applicable "blue sky" or
other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all of such Registrable Securities as
are specified in such request; provided, however, that the Corporation shall not
be obligated to take any action to effect any such registration, qualification
or compliance pursuant to this Section 1.3(a)(i):
(i) in any particular jurisdiction in which the
Corporation would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance unless the
Corporation is already subject to service in such jurisdiction and except as may
be required by the Securities Act; and
(ii) after all of the Registrable Securities are
freely saleable without restrictions.
In the event that a request for registration is made pursuant to this
Section 1.3(a)(i) but the Corporation is not obligated to effect such requested
registration by virtue of the foregoing clauses (B)(i) and (B)(ii), such request
shall not be deemed to be a Demand Registration for purposes of this Section
1.3(a)(i). Subject to the foregoing clauses (B)(i) and (B)(ii), the Corporation
shall prepare and file a Registration Statement covering the Registrable
Securities so requested to be registered immediately after receipt of the
request or requests of the Initiating Holders.
(ii) Underwriting. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Corporation as a part of their request
made pursuant to Section 1.3(a)(i) hereof and the Corporation shall include such
information in the written notice referred to in Section 1.3(a)(i) hereof. In
such event, the right of any Holder to participate in such registration shall be
conditioned upon such Holder's participation in the underwriting arrangements
required by this Section 1.3(a)(i), and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent requested shall be
limited to the extent provided herein.
The Corporation shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form (but subject to the reasonable approval
of the Holders holding a majority of the Registrable
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Securities to be included in such underwriting) with the managing underwriter
selected for such underwriting by the Holders holding a majority of the
Registrable Securities to be included in such underwriting, which managing
underwriter shall be reasonably acceptable to the Corporation. The Corporation
and the Holders participating in such underwriting shall reasonably cooperate
with any such underwriter. Notwithstanding any other provision of this Section
1.3, if the managing underwriter advises the Initiating Holders in writing that,
in its good faith judgment, marketing factors require a limitation of the number
of Shares to be underwritten, then the Corporation shall so advise all
participating Holders and the number of shares of Registrable Securities that
may be included in the registration and underwriting shall be allocated among
all Holders pro rata on the basis of the amounts of Registrable Securities held
by such Holders at the time of filing the Registration Statement shall be
included in such Registration Statement. No Registrable Securities excluded from
the underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. If the underwriter has not limited the number of
Registrable Securities to be underwritten, the Corporation may include
securities for its own account (or for the account of other shareholders in
accordance with the terms of this Agreement) in such registration if the
underwriter so agrees and if the number of Registrable Securities that would
otherwise have been included in such registration and underwriting will not
thereby be limited.
If the number of Registrable Securities excluded from the underwriting
exceeds fifty percent (50%) of the total Registrable Securities requested to be
included in such underwriting by the Holders, then Holders of a majority of the
Registrable Securities requested to be included in such underwriting may elect
to terminate the registration.
(b) Unlimited Piggyback Registration Rights.
(i) Notice of Registration. If the Corporation at any time
proposes to file a registration statement with respect to any class of equity
securities, whether for its own account (other than in connection with the
Registration Statement contemplated by Section 1.3(a) hereof or a registration
statement on Form S-8 (or any successor or substantially similar form) relating
to an employee stock option, stock purchase or compensation plan or securities
issued or issuable pursuant to any such plan), or a registration statement on
Form S-4 (or any successor or substantially similar form) or for the account of
a holder of securities of the Corporation, other than for the registration of
securities for sale on a continuous or delayed basis pursuant to Rule 415, then
the Corporation will:
(A) promptly give to each Holder written notice
thereof at least twenty (20) days before the anticipated initial filing date of
any such registration statement, and such notice shall offer to all Holders the
opportunity to have any or all of the Registrable Securities held by such
Holders included in such registration statement; and
(B) include in such registration statement (and any
related qualification under "blue sky" laws or other compliance), and in any
underwriting involved therein, (A) all the Registrable Securities specified in a
written request or requests to be included therein, made within twenty (20) days
after receipt of such written notice from the Corporation, by any Holder.
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Subject to the underwriter limitations, if any, described in Section
1.3(b)(iii) below, each Holder shall be entitled to have its Registrable
Securities included in an unlimited number of registrations pursuant to this
Section 1.3(b)(i).
No right to registration of Registrable Securities under this Section
1.3(b)(i) shall be construed to limit any registration required under Section
1.3(a).
(ii) Holdback by the Corporation. If the Corporation has
previously filed a Registration Statement with respect to Registrable Securities
pursuant to Section 1.3(a), and if such previous registration has not been
withdrawn or abandoned, the Corporation will not file or cause to be effected
any other registration of any of its equity securities or securities convertible
or exchangeable into or exercisable for its equity securities under the
Securities Act (except for a registration relating solely to employee benefits
plans or to a transaction under Rule 145), whether on its own behalf or at the
request of any holder or holders of such securities, until a period of ninety
(90) days has elapsed from the effective date of such a previous registration.
(iii) Underwriting. If the registration of which the
Corporation gives notice is for a registered public offering involving an
underwriting, the Corporation shall so advise the Holders as a part of the
written notice given pursuant to Section 1.3(b)(i)(A). In such event the right
of any Holder to registration pursuant to this Section 1.3(b) shall be
conditioned upon such Holder's participation in such underwriting to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Corporation and the other Holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Corporation, but subject to the reasonable approval
of Holders holding a majority of the Registrable Securities to be included in
such registration. Notwithstanding any other provision of this Section 1.3(b),
if the managing underwriter determines in its good faith judgment that marketing
factors require limitation of the number of shares to be underwritten, the
managing underwriter may limit the Registrable Securities to be included in such
registration. The Corporation shall so advise all Holders and the number of
shares of securities that may be included in the registration and underwriting
(other than in behalf of the Corporation) shall first be allocated among all
Holders pro rata on the basis of the amounts of Registrable Securities held by
such Holders at the time of filing of the registration statement; provided,
however, unless otherwise agreed upon by the Holders of a majority of the
Registrable Securities desiring to participate in the offering, in no event
shall the amount of Registrable Securities of the Holders included in the
offering be reduced below thirty percent (30%) of the total amount of securities
included in such offering. No securities of the Corporation held by parties
other than the Holders or the Corporation shall be included in any registration
and underwriting to which this section applies if the number of Registrable
Securities that would otherwise have been included in such registration and
underwriting will thereby be limited. If any Holder disapproves of the terms of
any such underwriting, he may elect to withdraw therefrom by written notice to
the Corporation and the managing underwriter.
1.4 Limitations on Subsequent Registration Rights. From and after the
date hereof, without the approval of the Holders of a majority of the
Registrable Securities, the Corporation shall not enter into any agreement
granting any holder or prospective holder of any
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securities of the Corporation registration rights with respect to such
securities unless: (a) the agreement does not allow the holder to include the
securities in a registration filed under Section 1.3(b) hereof unless it would
not thereby limit the number of Registrable Securities of the Holders included
in the registration; and (b) the agreement does not grant rights which would
delay the ability of the Holders to obligate the Corporation to file a
registration statement on the Holders' behalf pursuant to Sections 1.2 or 1.3.
Except as set forth in section 1.11, the Corporation has not previously and
shall not in the future enter into any agreement, arrangement or understanding
with respect to its securities which is inconsistent with the rights granted to
the Holders of Registrable Securities in this Agreement or otherwise conflicts
with the provisions hereof.
1.5 Expenses of Registration. All Registration Expenses shall be
borne by the Corporation, except as otherwise provided in Section 1.3(a)(ii).
All Selling Expenses relating to securities registered on behalf of the Holders
shall be borne by the Holders of such securities pro rata on the basis of the
number of shares so registered.
1.6 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Corporation pursuant to this Section
1, the Corporation will keep each Holder advised in writing as to the initiation
of each registration and such amendment thereof and as to the completion
thereof. At its expense the Corporation will:
(a) Promptly prepare and file with the Commission a Registration
Statement with respect to such securities and use its best efforts to cause such
Registration Statement to become effective as promptly as possible and remain
effective until the earlier of (i) the date which is one hundred and eighty
(180) days after the effective date of such Registration Statement and (ii) the
date on which all Registrable Securities covered by such Registration Statement
have been sold and the distribution contemplated thereby has been completed (the
"Registration Period"); provided, however, that if, after such Registration
Statement has become effective, the offering of the Registrable Securities
pursuant to such registration is interfered with by any stop order, injunction
or similar order of the Commission or other governmental agency or court (other
than by reason of any untrue statement of a material fact or any omission of a
material fact required to be stated in the Registration Statement or necessary
to make the statements therein not misleading, to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
or affidavit furnished in writing by a Holder to the Corporation specifically
for inclusion therein), such registration will be deemed not to have been
effected. Notwithstanding the foregoing, if within sixty (60) days after the
effective date of the stop order, injunction or similar order of the Commission
or other governmental agency or court, the same is lifted and the effectiveness
of the registration is restored, the registration shall be deemed to have been
effected, provided, that the Registration Period (i) will be tolled during the
period the stop order, injunction or similar order is in effect, (ii) shall
resume upon the lifting thereof and (iii) shall be extended one day for each day
during the period that the stop order, injunction or similar order is in effect.
(b) Furnish, at least five (5) business days before filing a
Registration Statement that registers such Registrable Securities, a prospectus
relating thereto and any amendments or supplements relating to such a
Registration Statement or prospectus, to one counsel selected by the Holders
(the "Holders' Counsel"), copies of all such documents proposed
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to be filed (it being understood that such five-business-day period need not
apply to successive drafts of the same document proposed to be filed so long as
such successive drafts are supplied to the Holders' Counsel in advance of the
proposed filing by a period of time that is customary and reasonable under the
circumstances).
(c) Prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary to keep such Registration
Statement effective for the Registration Period, and to comply with the
provisions of the Securities Act with respect to the sale and other disposition
of all securities covered by such Registration Statement.
(d) Notify in writing to the Holders' Counsel promptly (i) of
the receipt by the Corporation of any notification with respect to any comments
by the Commission with respect to such Registration Statement or prospectus or
any amendment or supplement thereto or any request by the Commission for the
amending or supplementing thereof or for additional information with respect
thereto, (ii) of the receipt by the Corporation of any notification with respect
to the issuance by the Commission of any stop order suspending the effectiveness
of such Registration Statement or prospectus or any amendment or supplement
thereto or the initiation or threatening of any proceeding for that purpose and
(iii) of the receipt by the Corporation of any notification with respect to the
suspension of the qualification of such Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purposes.
(e) Use its best efforts to register and qualify the securities
covered by such Registration Statement under such other securities or "blue sky"
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Corporation shall not be required in connection therewith or
as a condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(f) Furnish to the Holders participating in such registration
and to the underwriters of the securities being registered such number of copies
of the Registration Statement, preliminary prospectus, final prospectus and such
other documents as such Holders or underwriters may reasonably request in order
to facilitate the public offering of such securities.
(g) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(h) Notify each Holder of Registrable Securities covered by such
Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
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(i) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
Registration Statement with respect to such securities becomes effective, (i) a
copy addressed to Holders of the opinion, dated such date, of the counsel
representing the Corporation for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and (in a non-underwritten
offering) to the Holders requesting registration of Registrable Securities and
(ii) a copy addressed to Holders of the letter dated such date, from the
independent certified public accountants of the Corporation, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and (in a non-underwritten offering) to the Holders requesting
registration of Registrable Securities.
(j) List such Registrable Securities on any national securities
exchange on which any shares of the Common Stock are listed or, if the Common
Stock is not listed on a national securities exchange, use its best efforts to
qualify such Registrable Securities on the American Stock Exchange or such other
national securities exchange as the Corporation shall determine, subject to the
approval by the Holders of a majority of the Registrable Securities included in
the registration, which approval the Holders shall not unreasonably withhold.
(k) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission and the securities commission or other
regulatory authority of any relevant state or other jurisdiction and make
available to its securityholders, as soon as reasonably practicable, earnings
statements (which need not be audited) covering a period of 12 months beginning
within three months after the effective date of the Registration Statement,
which earnings statements shall satisfy the provisions of Section 11(a) of the
Securities Act.
(l) Use its best efforts to take all other steps reasonably
necessary to effect the registration of such Registrable Securities contemplated
hereby.
1.7 Indemnification.
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(a) The Corporation will indemnify each Holder; each Holder's
officers, directors, employees, principals, equity holders and partners; each
underwriter, broker or any other Person (other than the Corporation) acting on
behalf of such Holder, and each Person (other than the Corporation) controlling
such Person within the meaning of Section 15 of the Securities Act, with respect
to which registration, qualification or that compliance has been effected
pursuant to this Section 1, against all expenses, claims, losses, damages or
liabilities, joint or several (or actions in respect thereof) (collectively,
"Losses"), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or (i) based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
Registration Statement, preliminary or final prospectus, offering circular or
other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or (ii) based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the
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circumstances in which they were made, not misleading, or (iii) any violation by
the Corporation of the Securities Act, state securities or "blue sky" laws or
any rule or regulation promulgated thereunder applicable to the Corporation in
connection with any such registration, qualification or compliance (each
statement, omission or violation referred to in clauses (i), (ii) and (iii) of
this Section 1.7(a) being referred to as a "Violation"), and the Corporation
will reimburse each such Holder, each of its officers and directors, each such
underwriter, broker or other Person (other than the Corporation) acting on
behalf of such Holder, and each such controlling Person (other than the
Corporation) for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such Loss, provided
that the Corporation will not be liable to any such Person in any such case to
the extent, but only to the extent, that any such Loss arises out of or is based
on any untrue statement or omission (or alleged untrue statement or omission),
made in conformity with written information which relates to such Person
furnished to the Corporation by an instrument duly executed by such Holder,
underwriter or controlling Person and stated to be specifically for use therein
or the preparation thereby.
(b) Each Holder will, if Registrable Securities held by such
Holder are included, in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Corporation, each
of its directors and officers, each underwriter, broker or other Person acting
on behalf of the Holders, and each Person who controls any of the foregoing
Persons within the meaning of Section 15 of the Securities Act, and each other
such Holder, each of its officers and directors and each person controlling such
Holder within the meaning of Section 15 of the Securities Act, against all
Losses arising out of any untrue statement (or alleged untrue statement) of a
material fact contained in any such Registration Statement, preliminary or final
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Corporation, such Holders, such directors, officers, underwriters, brokers,
other Persons acting on behalf of the Holders or control Persons for any legal
or any other expenses reasonably incurred in connection with investigating,
preparing or defending any such Loss, in each case to the extent, but only to
the extent, that such loss arises out of or based upon an untrue statement (or
alleged untrue statement) or omission (or alleged omission) made in such
Registration Statement, preliminary or final prospectus, offering circular or
other document in conformity with written information furnished to the
Corporation by an instrument duly executed by such Holder and stated to be
specifically for use therein or the preparation thereby. Notwithstanding the
foregoing, the liability of each Holder under this subsection (b) shall be
limited to an amount equal to the aggregate proceeds received by such Holder
from the sale of Registrable Securities in such registration.
(c) Each Person entitled to indemnification under this Section
1.7 (the "Indemnified Party") shall give notice to the Party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
Indemnified Party's expense, and provided further, that the failure of any
Indemnified Party to give notice as provided herein shall
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not relieve the Indemnifying Party of its obligations under this Section 1.7
unless the failure to give such notice is materially prejudicial to an
Indemnifying Party's ability to defend such action and provided further, that
the Indemnifying Party shall not assume the defense for matters as to which
there is a conflict of interest or separate and different defenses. If (i) the
Indemnifying Party shall have failed to assume the defense of such claim and to
employ counsel reasonably satisfactory to the Indemnified Party in a timely
manner or (ii) in the reasonable judgment of any Indemnified Party a conflict of
interest may exist between such Indemnified Party and the Indemnifying Party
with respect to such claim, the fees and expenses of any counsel employed by the
Indemnified Party shall be at the expense of the Indemnifying Party; provided
that, if the Indemnifying Party is obligated to pay the fees and expenses of
counsel for other Indemnified Parties, such Indemnifying Party shall be
obligated to pay only the fees and expenses associated with one attorney or law
firm for the Indemnified Parties, unless there exists a conflict of interest or
separate and different defenses among the Indemnified Parties. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.
(d) If the indemnification provided for in this Section 1.7 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, claim, damage, liability or action referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amounts paid or payable by such
Indemnified Party as a result of such loss, claim, damage, liability or action
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss, claim,
damage, liability or action as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Notwithstanding the foregoing, the maximum
amount which any Holder shall be required to contribute pursuant to this Section
1.7(d) shall be limited to an amount equal to the net proceeds actually received
by such Holder from the sale of Registrable Securities effected pursuant to such
registration.
1.8 Information by Holder. The Holders of securities included in any
registration shall furnish to the Corporation in writing such information
regarding such Holders, the Registrable Securities held by such Holders and the
distribution proposed by such Holders as the Corporation may reasonably request
in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 1.
1.9 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, the
Corporation agrees to use its best efforts to:
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(a) Make and keep public information available, as those terms
are understood and defined in Rule 144, at all times after the effective date
that the Corporation becomes subject to the reporting requirements of the
Securities Act or the Exchange Act.
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Corporation under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements);
(c) So long as a Holder owns any Registrable Securities to
furnish to the Holder forthwith upon request a written statement by the
Corporation as to its compliance with the reporting requirements of said Rule
144, and of the Securities Act and the Exchange Act, a copy of the most recent
annual or quarterly report of the Corporation, and such other reports and
documents of the Corporation and other information in the possession of or
reasonably obtainable by the Corporation as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Holder to
sell any such securities without registration. The Corporation will take action
reasonably requested by a Holder to facilitate the transfer of Registrable
Securities pursuant to Rule 144.
1.10 Transfer of Registration Rights. Any Holder may assign its rights
hereunder to any purchaser of the Registrable Securities; provided, that
immediately after the transfer the further disposition of any of the securities
is restricted by the Securities Act; and provided further, however, that such
purchaser or transferee shall, as a condition to the effectiveness of such
assignment, be required to execute a counterpart to this Agreement agreeing to
be treated as the seller or transferor hereunder whereupon such purchaser or
transferee shall have the benefits of, and shall be subject to the restrictions
contained in, this Agreement applicable to the seller or transferor.
2. Miscellaneous.
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2.1 Governing Law; Submission to Jurisdiction. (a) This Agreement
shall be governed by and construed in accordance with the laws of the State of
Maryland applicable to contracts made and to be performed wholly therein,
without regard to principles of the conflict of laws thereof.
(b) Each Party hereto hereby agrees that any suit or judgment
entered by any court in respect thereof may be brought to the extent permitted
by applicable law in the State of California or in any United States District
Court for the State of California, as the Party commencing such suit, action or
proceeding may elect in its sole discretion; and each Party hereto hereby
irrevocably submits to the jurisdiction of such courts and any appellate court
or body thereof for the purpose of any suit, action, proceeding or judgment (and
waives for such purpose any other preferential jurisdiction by reason of its
present of future domicile or otherwise).
(c) Each Party hereby irrevocably waives any objection which it
may now or hereafter have to the laying of the venue of any suit, action or
proceeding arising out of or relating to this Agreement brought in the State of
California, or in any United States District
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Court for the State of California and hereby further irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.
2.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Holder, and
the closing of the transactions contemplated hereby.
2.3 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the Parties hereto.
2.4 Entire Agreement. This Agreement contains the entire
understanding and agreement of the Parties with respect to the subject matter
hereof. This Agreement supersedes all prior agreements and understandings among
the Parties hereto with respect to the subject matter hereof.
2.5 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
mailed by certified or registered mail, postage prepaid, return receipt
requested, by courier or facsimile (provided confirmation of transmission is
mechanically generated and kept on file by the sending party), addressed (a) if
to Investor, at 10202 West Washington Boulevard, Culver City, CA, Attention:
Sony Pictures Digital Entertainment Inc., President, or to Facsimile No. (310)
244-1381, with copies to: Columbia TriStar Interactive, 3960 Ince Boulevard,
Culver City, CA 90232; Attention: Vice President - Operations, or to Facsimile
No. (310) 840-8878 and Sony Pictures Entertainment Inc., 10202 West Washington
Boulevard, Culver City, CA 90232, Attention: Corporate/International Legal
Department, or to Facsimile No. (310) 244-2182; or if to any other Holder, at
such Holder's address as set forth in the Corporation's records, or at such
other address as such Holder shall have furnished to the Corporation, (b) if to
the Corporation, at 754 Williamson Street, Madison, WI 53703, Attention: Rimas
P. Buinevicius, or at such other address as the Corporation shall have furnished
to such Holders in writing. Notices that are mailed shall be deemed to have been
given five days after deposit in the United States mail and notices delivered
personally, by facsimile or by courier shall be deemed to have been given upon
delivery to recipient's address.
2.6 Delays or Omissions. No failure or delay by any Holder in
exercising any right, power or privilege hereunder and no course of dealing
between the Corporation, on the one hand, and any Holder, on the other hand,
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder. Any
Person having rights under any provision of this Agreement shall be entitled to
enforce such rights specifically or to recover damages or to exercise any other
remedy available to it at law or in equity. The foregoing rights and remedies
shall be cumulative and the exercise of any right or remedy provided herein
shall not preclude any Person from exercising any other right or remedy provided
herein. The Corporation agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate. No
notice to or demand on the Corporation in any case shall
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entitle the Corporation to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of any Holder to any
other or further action in any circumstances without notice or demand. Each
covenant contained herein shall operate independently of any other covenant
contained herein.
2.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
2.8 Severability. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable the remainder of this Agreement and application of such provision
to Persons or circumstances shall be interpreted so as best to reasonably effect
the intent of the parties hereto, the parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and enforceable
provision which will achieve to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
2.9 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date first written above.
CORPORATION: SONIC FOUNDRY, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
INVESTOR: SONY PICTURES ENTERTAINMENT INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
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EXHIBIT 5.1
[OPINION OF MCBREEN & KOPKO]
May 11, 2000
Sonic Foundry, Inc.
754 Williamson Street
Madison, WI 53703
REGISTRATION STATEMENT ON FORM S-3
____________________________
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 which you intend to
file with the Securities and Exchange Commission on or about May 11, 2000 (the
"Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of 4,045,556 shares of your Common Stock
issued, and 675,000 Shares of your Common Stock issuable upon conversion of the
Warrants (the "Shares") to be sold by certain stockholders described in the
Registration Statement (the "Selling Stockholders"). As your legal counsel, we
have examined the proceedings taken and are familiar with the proceedings
proposed to be taken by you in connection with the sale of the Shares by the
Selling Stockholders in the manner set forth in the Registration Statement in
the section entitled "Plan of Distribution."
It is our opinion that the Shares, when sold by the Selling Stockholders in
the manner referred to in the Registration Statement, will be legally and
validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever it appears in the
Registration Statement and any amendments to it.
Sincerely,
MCBREEN & KOPKO
/s/ MCBREEN & KOPKO
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EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Sonic Foundry, Inc.
for the registration of 4,720,556 shares of its common stock issued and issuable
upon conversion of warrants and to the incorporation by reference therein of our
report dated November 5, 1999, with respect to the financial statements and
schedule of Sonic Foundry, Inc. included in its Annual Report (Form 10-K) for
the year ended September 30, 1999, filed with the Securities and Exchange
Commission.
Milwaukee, Wisconsin
May 5, 2000
