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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported):
May 6, 1998
Global Media Corp.
(Exact Name of Registrant as Specified in Its Charter)
Nevada
(State or Other Jurisdiction of Incorporation)
0-23491 91-1842480
(Commission File Number) (IRS Employer Identification No.)
83 Victoria Crescent, Nanaimo, BC Canada V9K 5B9
(Address of Principal Executive Offices) (Zip Code)
(250) 716-9949
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
On May 6, 1999, Global Media Corp. (the "Company") issued a Convertible
Debenture in the original principal amount of $8,500,000 (the "Debenture") to
RGC International Investors, LDC (the "Investor"). In connection with issuance
and sale of the Debenture, the Investor was also issued five year warrants to
purchase 680,000 shares of Common Stock at a purchase price of $8.4375 (135% of
the three day average ending April 30, 1999, the date the Investor committed to
the investment) (the "Warrants"). The Debenture and Warrants were sold pursuant
to a Securities Purchase Agreement between the Company and the Investor, in a
private placement pursuant to Regulation D under the Securities Act of 1933, as
amended.
The principal and accrued interest (at the rate of 5% per annum) of the
Debenture is convertible from time to time into shares of the Company's Common
Stock based upon the lesser of a fixed conversion price of $8.125 (130% of the
three day average ending April 30, 1999, the date the Investor committed to the
investment) or a variable conversion price equal to 100% of the future market
price of the Common Stock at the time of conversion. The fixed conversion price
and the applicable percentage of the future market price are subject to
adjustment if the Company's Common Stock is not listed on the Nasdaq National
Market or Nasdaq SmallCap Market by November 6, 1999. The holder of the
Debenture also has the option, exercisable simultaneously with the conversion of
the Debenture into Common Stock from time to time, to purchase an equal number
of additional shares of Common Stock at a per share price equal to the
conversion price in effect at the time of conversion of the Debenture (the
"Investment Options"). The exercise in full of the Investment Options could
result in an additional $8,500,000 being invested by the Investor, for a total
of $17,000,000. To the extent not previously converted, the Debenture will
automatically convert into Common Stock on May 6, 2002.
Under certain circumstances, including shareholder approval of articles of
amendment to the Company's Articles of Incorporation authorizing 100,000,000
shares of preferred stock and authorizing the Board of Directors to designate
the number and the rights, preferences, privileges and restrictions of the
preferred stock from time to time in series, the Debenture is convertible at the
option of the Company into Series A Convertible Preferred Stock (the "Series A
Preferred Stock"). The terms of the Series A Preferred Stock, which will be set
forth in a Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock, will be substantially the same as the terms of the
Debenture and will provide the holders of the Series A Preferred Stock the same
Investment Options described above.
Neither the Debenture nor, if issued, the Series A Preferred Stock have voting
rights, except that the holders of the Series A Preferred Stock will have voting
rights with regard to issues directly affecting the Series A Preferred Stock as
a class. Under certain circumstances, the Debenture or the Series A Preferred
Stock may become redeemable, mandatorily or at the option of the Investor
(depending on the applicable circumstance).
Pursuant to a Registration Rights Agreement entered between the Company and the
Investor, the Company is obligated to file with the Securities and Exchange
Commission, no later than June 21, 1999, a Registration Statement on Form SB-2
or S-1 to register for resale the shares of the Company's Common Stock which may
be acquired upon conversion of, and exercise of the
2
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Investment Options relating to, the Debenture or shares of Series A Preferred
Stock, as applicable, and upon exercise of the Warrants.
The Company's press release announcing the sale of the Convertible Debenture, as
well as the Securities Purchase Agreement dated as of May 6, 1999 between the
Company and the Investor, the Debenture, the Certificate of Designations, the
Registration Rights Agreement and the Warrant are filed as exhibits to this
Current Report on Form 8-K. This summary description of the transaction is
qualified in its entirety by reference to the documents filed as exhibits
hereto.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(C) Exhibits
99.1 Securities Purchase Agreement dated May 6, 1999 by and among Global
Media Corp. and RGC International Investors, LDC.
99.2 Convertible Debenture dated May 6, 1999 from Global Media Corp., as
Borrower, to RGC International Investors, LDC, as Holder.
99.3 Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of Global Media Corp.
99.4 Stock Purchase Warrant dated May 6, 1999 from Global Media Corp. to
RGC International Investors, LDC.
99.5 Registration Rights Agreement dated May 6, 1999 by and among Global
Media Corp. and RGC International Investors, LDC.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Global Media Corp.
(Registrant)
Date: May 18, 1999 By: /s/ L. James Porter
------------------------------
L. James Porter
Chief Financial Officer
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EXHIBIT 99.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of May 6, 1999,
by and among Global Media Corp., a Nevada corporation, with headquarters located
at 83 Victoria Crescent, Unit 29, Nanaimo, British Columbia V9R 5B9, Canada
("COMPANY"), and each of the purchasers set forth on the signature pages hereto
(the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
under Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 ACT");
B. The Company has authorized the issuance of convertible debentures of
the Company, in the form attached hereto as EXHIBIT "A", in the aggregate
principal amount of Eight Million Five Hundred Thousand Dollars ($8,500,000)
(the "DEBENTURES"). Under certain circumstances, the Debentures are convertible
into a new series of preferred stock, to be designated as Series A Convertible
Preferred Stock (the "SERIES A PREFERRED STOCK"), having the rights, preferences
and privileges set forth in the Certificate of Designations, Rights and
Preferences attached hereto as EXHIBIT "B" (the "CERTIFICATE OF DESIGNATION");
C. The Debentures are, and the Series A Preferred Stock will be,
convertible into shares of common stock, $0.001 par value per share, of the
Company (the "COMMON STOCK"), upon the terms and subject to the limitations and
conditions set forth in the Certificate of Designation;
D. The Company has authorized the issuance to the Buyers of warrants, in
the form attached hereto as EXHIBIT "C", to purchase Six Hundred Eighty Thousand
(680,000) shares of Common Stock (the "WARRANTS");
E. The Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, (i) Debentures
in the aggregate principal amount of Eight Million Five Hundred Thousand Dollars
($8,500,000), and (ii) Warrants to purchase Six Hundred Eighty Thousand
(680,000) shares of Common Stock, for an aggregate purchase price of Eight
Million Five Hundred Thousand Dollars ($8,500,000).
F. Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, such principal amount of Debentures and number of Warrants as is
set forth immediately below its name on the signature pages hereto;
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G. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as EXHIBIT "D" (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws; and
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES
AND WARRANTS.
a. PURCHASE OF DEBENTURES AND WARRANTS. On the Closing Date
(as defined below), the Company shall issue and sell to each Buyer and each
Buyer severally agrees to purchase from the Company such principal amount of
Debentures and number of Warrants as is set forth immediately below such Buyer's
name on the signature pages hereto.
b. FORM OF PAYMENT. On the Closing Date (as defined below),
(i) each Buyer shall pay the purchase price for the Debentures and the Warrants
to be issued and sold to it at the Closing (as defined below) (the "PURCHASE
PRICE") by wire transfer of immediately available funds to the Company, in
accordance with the Company's written wiring instructions, against delivery of
duly executed Debentures and Warrants which such Buyer is purchasing and (ii)
the Company shall deliver such Debentures and Warrants duly executed on behalf
of the Company, to such Buyer, against delivery of such Purchase Price.
c. CLOSING DATE. Subject to the satisfaction (or waiver) of
the conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Debentures and the Warrants pursuant to
this Agreement (the "CLOSING DATE") shall be 12:00 noon Eastern Standard Time on
May 6, 1999 or such other mutually agreed upon time. The closing of the
transactions contemplated by this Agreement (the "CLOSING") shall occur on the
Closing Date at the offices of Morgan, Lewis & Bockius LLP, 1701 Market Street,
Philadelphia, Pennsylvania 19103, or at such other location as may be agreed to
by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally
(and not jointly) represents and warrants to the Company solely as to such Buyer
that:
a. INVESTMENT PURPOSE. As of the date hereof, the Buyer is
purchasing the Debentures and, when authorized and to the extent issued upon
conversion of the Debentures, the shares of Series A Convertible Preferred Stock
(the "PREFERRED SHARES") and the
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shares of Common Stock issuable upon conversion of or otherwise pursuant to
the Debentures and the Preferred Shares (including, without limitation, (i)
such additional shares of Common Stock as are issuable as a result of the
events described in Articles I, II.D.3 or II.F of the Debentures, Articles V,
VI.D(b) or VI.E of the Certificate of Designation and Section 2(c) of the
Registration Rights Agreement and (ii) the shares of Common Stock issuable
pursuant to the investment options described in Article II.E of the
Debentures and Article VI.G of the Certificate of Designation (the
"INVESTMENT OPTIONS")) (such shares of Common Stock being collectively
referred to herein as the "CONVERSION SHARES") and the Warrants and the
shares of Common Stock issuable upon exercise thereof (the "WARRANT SHARES"
and, collectively with the Debentures, Preferred Shares, Warrants and
Conversion Shares, the "SECURITIES") for its own account and not with a
present view towards the public sale or distribution thereof, except pursuant
to sales registered or exempted from registration under the 1933 Act;
PROVIDED, HOWEVER, that by making the representations herein, the Buyer does
not agree to hold any of the Securities for any minimum or other specific
term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act.
b. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D (an "ACCREDITED
INVESTOR").
c. RELIANCE ON EXEMPTIONS. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
d. INFORMATION. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer's right to rely on the Company's representations and warranties
contained in Section 3 below. The Buyer understands that its investment in the
Securities involves a significant degree of risk.
e. GOVERNMENTAL REVIEW. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
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f. TRANSFER OR RE-SALE. The Buyer understands that (i) except
as provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect that
the Securities to be sold or transferred may be sold or transferred pursuant to
an exemption from such registration, (c) the Securities are sold or transferred
to an "affiliate" (as defined in Rule 144 promulgated under the 1933 Act (or a
successor rule) ("RULE 144")) of the Buyer who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and who is an
Accredited Investor or (d) the Securities are sold pursuant to Rule 144; (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any re-sale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained herein to
the contrary, the Securities may be pledged as collateral in connection with a
BONA FIDE margin account or other lending arrangement.
g. LEGENDS. The Buyer understands that the Debentures,
Preferred Shares and the Warrants and, until such time as the Conversion Shares
and Warrant Shares have been registered under the 1933 Act as contemplated by
the Registration Rights Agreement or otherwise may be sold pursuant to Rule 144
without any restriction as to the number of securities as of a particular date
that can then be immediately sold, the Conversion Shares and Warrant Shares, may
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the certificates for such
Securities):
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended
or any state securities laws. The securities may not be
sold, transferred or assigned in the absence of an effective
registration statement for the securities under said Act and
applicable state securities laws, or an opinion of counsel,
in form, substance and scope customary for opinions of
counsel in comparable transactions, that registration is not
required under said Act or unless sold pursuant to and in
compliance with Rule 144 under said Act."
The legend set forth above shall be removed and the Company shall
issue a
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certificate without such legend to the holder of any Security upon which it
is stamped, if, unless otherwise required by applicable state securities
laws, (a) such Security is registered for sale under an effective
registration statement filed under the 1933 Act or otherwise may be sold
pursuant to Rule 144 without any restriction as to the number of securities
as of a particular date that can then be immediately sold, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to the effect
that a public sale or transfer of such Security may be made without
registration under the 1933 Act and such sale or transfer is effected or (c)
such holder provides the Company with reasonable assurances that such
Security can be sold pursuant to Rule 144 (which shall consist of the
documentation customarily executed by a seller and its broker, if any, in
connection with a proposed sale under Rule 144). The Buyer agrees to sell
all Securities, including those represented by a certificate(s) from which
the legend has been removed, in compliance with applicable federal and state
securities law requirements, including prospectus delivery requirements, if
any.
h. AUTHORIZATION; ENFORCEMENT. This Agreement and the
Registration Rights Agreement have been duly and validly authorized. This
Agreement has been duly executed and delivered on behalf of the Buyer, and this
Agreement constitutes, and upon execution and delivery by the Buyer of the
Registration Rights Agreement, such agreement will constitute, valid and binding
agreements of the Buyer enforceable in accordance with their terms.
i. RESIDENCY. The Buyer is a resident of the jurisdiction set
forth immediately below such Buyer's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:
a. ORGANIZATION AND QUALIFICATION. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other) to
own, lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. SCHEDULE 3(a) sets forth
a list of all of the Subsidiaries of the Company and the jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which its ownership or use of property or the nature of
the business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the
Securities, (ii) the business, operations, assets, financial condition or
prospects of the Company and its Subsidiaries, if any, taken as a whole, or
(iii) on the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith. "SUBSIDIARIES"
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means any corporation or other organization, whether incorporated or
unincorporated, in which the Company owns, directly or indirectly, any equity
or other ownership interest.
b. AUTHORIZATION; ENFORCEMENT. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement and the Warrants and to consummate
the transactions contemplated hereby and thereby and to issue the Securities
(other than the Preferred Shares), in accordance with the terms hereof and
thereof, (ii) the execution and delivery of this Agreement, the Registration
Rights Agreement, the Debentures and the Warrants by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Debentures and the Warrants
and the issuance and reservation for issuance of the Conversion Shares issuable
upon conversion of or otherwise pursuant to the Debentures (including upon
exercise of the Investment Options contained therein) and the Warrant Shares
issuable upon exercise of or otherwise pursuant to the Warrants) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or its stockholders is
required, (iii) (a) upon approval by the stockholders of the Company of the
issuance of preferred stock of the Company (the "BLANK CHECK PREFERRED STOCK"),
with the designations, preferences and rights to be determined by resolution of
the Board of Directors (the "STOCKHOLDER APPROVAL") and the filing of an
amendment to the Company's Articles of Incorporation (as defined below)
authorizing for issuance the Blank Check Preferred Stock (the "ARTICLES OF
AMENDMENT"), the Company will have all requisite power and authority to file and
perform its obligations under the Certificate of Designation, (b) the issuance
of the Preferred Shares and the issuance and reservation for issuance of the
Conversion Shares issuable upon conversion of or otherwise pursuant to the
Preferred Shares (including upon exercise of the Investment Options contained
therein) have been duly authorized by the Company's Board of Directors and no
further consent or authorization of the Company, its Board of Directors, or its
stockholders (other than the Stockholder Approval) will be required, (iv) this
Agreement has been duly executed and delivered by the Company, and (v) this
Agreement constitutes, and upon execution and delivery by the Company of the
Registration Rights Agreement, the Debentures and the Warrants and upon the
execution and filing of the Certificate of Designation, each of such agreements
and instruments will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms.
c. CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 200,000,000 shares of Common Stock
of which 20,544,431 shares are issued and outstanding, 4,346,700 shares are
reserved for issuance pursuant to the Company's stock option plans, no shares
are reserved for issuance pursuant to securities (other than the Debentures,
Preferred Shares and the Warrants) exercisable for, or convertible into or
exchangeable for shares of Common Stock and 5,544,615 (2x currently required)
shares are reserved for issuance upon conversion of or otherwise pursuant to the
Debentures or the Preferred Shares (including upon exercise of the Investment
Options) and exercise of or
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otherwise pursuant to the Warrants (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(h) below); and (ii) no shares of
preferred stock. All of such outstanding shares of capital stock are, or
upon issuance will be, duly authorized, validly issued, fully paid and
nonassessable. No shares of capital stock of the Company are subject to
preemptive rights or any other similar rights of the stockholders of the
Company or any liens or encumbrances imposed through the actions or failure
to act of the Company. Except as disclosed in SCHEDULE 3(c), as of the
effective date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first
refusal, agreements, understandings, claims or other commitments or rights of
any character whatsoever relating to, or securities or rights convertible
into or exchangeable for any shares of capital stock of the Company or any
of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital
stock of the Company or any of its Subsidiaries, (ii) there are no agreements
or arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of its or their securities under the
1933 Act (except the Registration Rights Agreement) and (iii) there are no
anti-dilution or price adjustment provisions contained in any security issued
by the Company (or in any agreement providing rights to security holders)
that will be triggered by the issuance of the Debentures, the Preferred
Shares, the Warrants, the Conversion Shares or Warrant Shares. The Company
has furnished to the Buyer true and correct copies of the Company's Articles
of Incorporation as in effect on the date hereof ("ARTICLES OF
INCORPORATION"), the Company's By-laws, as in effect on the date hereof (the
"BY-LAWS"), and the terms of all securities convertible into or exercisable
for Common Stock of the Company and the material rights of the holders
thereof in respect thereto. The Company shall provide the Buyer with a
written update of this representation signed by the Company's Chief Executive
or Chief Financial Officer on behalf of the Company as of the Closing Date.
d. ISSUANCE OF SHARES. Upon receipt of the Stockholder
Approval, the filing of the Articles of Amendment and the filing of the
Certificate of Designation, the Preferred Shares will be duly authorized, and
upon issuance in accordance with the terms of this Agreement and the Debentures,
will be validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances with respect to the issue thereof and shall not
be subject to preemptive rights or other similar rights of stockholders of the
Company and will not impose personal liability upon the holder thereof. The
Conversion Shares and Warrant Shares are duly authorized and reserved for
issuance, and, upon conversion of the Debentures and the Preferred Shares and
exercise of the Warrants in accordance with the terms thereof and exercise of
the Investment Options in accordance with Article II.E of the Debentures and
Article VI.G of the Certificate of Designation, will be validly issued, fully
paid and non-assessable, and free from all taxes, liens, claims and encumbrances
and will not be subject to preemptive rights or other similar rights of
stockholders of the Company and will not impose personal liability upon the
holder thereof.
e. ACKNOWLEDGMENT OF DILUTION. The Company understands and
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acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares upon conversion of or otherwise pursuant to
the Debentures and the Preferred Shares (including upon exercise of the
Investment Options contained in the Debentures and the Certificate of
Designation) and upon issuance of the Warrant Shares upon exercise of the
Warrants. The Company's directors and executive officers have studied and fully
understand the nature of the Securities being sold hereunder. The Company
further acknowledges that its obligation to issue Conversion Shares and Warrant
Shares upon conversion of the Debentures and the Preferred Shares or exercise of
the Warrants in accordance with this Agreement, the Debentures, the Certificate
of Designation and the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company. Taking the foregoing into account, the Company's
Board of Directors has determined, in its good faith business judgment, that the
issuance of the Securities hereunder and under the Debentures, the Certificate
of Designation and the Warrants and the consummation of the transactions
contemplated hereby and thereby are in the best interest of the Company and its
stockholders.
f. SERIES OF PREFERRED STOCK. The terms, designations, powers,
preferences and relative, participating and optional or special rights, and the
qualifications, limitations and restrictions of the Preferred Shares will be as
stated in the Certificate of Designation.
g. NO CONFLICTS. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, the Debentures and the
Warrants by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the filing of
the Certificate of Designation and the issuance and reservation for issuance, as
applicable, of the Debentures, Preferred Shares, Conversion Shares (including
those issuable upon exercise of the Investment Options) and Warrant Shares) will
not (i) conflict with or result in a violation of any provision of the Articles
of Incorporation or By-laws (assuming, in the case of the Preferred Shares, the
receipt of the Stockholder Approval and the filing of the Articles of Amendment)
or (ii) violate or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time or both
could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its Subsidiaries is
a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its Subsidiaries is in violation of its Articles of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries
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is in default (and no event has occurred which with notice or lapse of time
or both could put the Company or any of its Subsidiaries in default) under,
and neither the Company nor any of its Subsidiaries has taken any action or
failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The
businesses of the Company and its Subsidiaries, if any, are not being
conducted, and shall not be conducted so long as a Buyer owns any of the
Securities, in violation of any law, ordinance or regulation of any
governmental entity except where such violation would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency,
regulatory agency, self regulatory organization or stock market (other than,
solely with respect to the Preferred Shares, the receipt of Stockholder
Approval, the filing of the Articles of Amendment and the filing of the
Certificate of Designation) or any third party in order for it to execute,
deliver or perform any of its obligations under this Agreement, the
Registration Rights Agreement, the Debentures or the Warrants in accordance
with the terms hereof or thereof or to issue and sell the Debentures,
Preferred Shares and Warrants in accordance with the terms hereof and to
issue the Conversion Shares upon conversion of or otherwise pursuant to the
Debentures or the Preferred Shares (including upon exercise of the Investment
Options) and the Warrant Shares upon exercise of or otherwise pursuant to the
Warrants. Except as disclosed in SCHEDULE 3(g), all consents,
authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company is not in violation of
the listing requirements of the Over-the-Counter Bulletin Board (the "OTC
BB") and does not reasonably anticipate that the Common Stock will cease
trading on the OTC BB in the foreseeable future (unless such cessation in
trading is due to the fact that the Common Stock has been listed or included
for quotation on the Nasdaq National Market ("NASDAQ"), the Nasdaq SmallCap
Market ("NASDAQ SMALLCAP"), the New York Stock Exchange ("NYSE") or the
American Stock Exchange (the "AMEX"). The Company and its Subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing.
h. SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as disclosed in
SCHEDULE 3(h), since December 11, 1997, the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 ACT") (all of the foregoing filed
prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits to such
documents) incorporated by reference therein, being hereinafter referred to
herein as the "SEC DOCUMENTS"). The Company has delivered to each Buyer true
and complete copies of the SEC Documents, except for such exhibits and
incorporated documents. As of their respective dates, the SEC
<PAGE>
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time
they were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have
been amended or updated in subsequent filings prior to the date hereof). As
of their respective dates, the financial statements of the Company included
in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared
in accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the financial statements of the Company
included in the SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to July 31, 1998 and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in such
financial statements, which, individually or in the aggregate, are not
material to the financial condition or operating results of the Company.
i. ABSENCE OF CERTAIN CHANGES. Since July 31, 1998, there has
been no material adverse change and no material adverse development in the
assets, liabilities, business, properties, operations, financial condition,
results of operations or prospects of the Company or any of its Subsidiaries.
j. ABSENCE OF LITIGATION. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or
directors in their capacity as such, that could have a Material Adverse
Effect. SCHEDULE 3(j) contains a complete list and summary description of any
pending or threatened proceeding against or affecting the Company or any of
its Subsidiaries, without regard to whether it would have a Material Adverse
Effect. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
k. PATENTS, COPYRIGHTS, ETC.
<PAGE>
(i) The Company and each of its Subsidiaries owns or
possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and copyrights
("INTELLECTUAL PROPERTY") necessary to enable it to conduct its business as now
operated (and, except as set forth in SCHEDULE 3(k) hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the future);
there is no claim or action by any person pertaining to, or proceeding pending,
or to the Company's knowledge threatened, which challenges the right of the
Company or of a Subsidiary with respect to any Intellectual Property necessary
to enable it to conduct its business as now operated (and, except as set forth
in SCHEDULE 3(k) hereof, to the best of the Company's knowledge, as presently
contemplated to be operated in the future); to the best of the Company's
knowledge, the Company's or its Subsidiaries' current and intended products,
services and processes do not infringe on any Intellectual Property or other
rights held by any person; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and
each of its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of their Intellectual Property.
(ii) All of the Company's computer software and computer
hardware, and other similar or related items of automated, computerized or
software systems that are used or relied on by the Company in the conduct of its
business or that were, or currently are being, sold or licensed by the Company
to customers (collectively, "INFORMATION TECHNOLOGY"), are Year 2000 Complaint.
For purposes of this Agreement, the term "YEAR 2000 COMPLIANT" means, with
respect to the Company's Information Technology, that the Information Technology
is designed to be used prior to, during and after the calendar Year 2000 A.D.,
and the Information Technology used during each such time period will accurately
receive, provide and process date and time data (including, but not limited to,
calculating, comparing and sequencing) from, into and between the 20th and 21st
centuries, including the years 1999 and 2000, and leap-year calculations, and
will not malfunction, cease to function, or provide invalid or incorrect results
as a result of the date or time data, to the extent that other information
technology, used in combination with the Information Technology, properly
exchanges date and time data with it. The Company has delivered to the Buyer
true and correct copies of all analyses, reports, studies and similar written
information, whether prepared by the Company or another party, relating to
whether the Information Technology is Year 2000 Complaint.
l. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
m. TAX STATUS. Except as set forth on SCHEDULE 3(m), the
Company and each of its Subsidiaries has made or filed all federal, state and
foreign income and all other
<PAGE>
tax returns, reports and declarations required by any jurisdiction to which
it is subject (unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and
other governmental assessments and charges that are material in amount, shown
or determined to be due on such returns, reports and declarations, except
those being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to
the periods to which such returns, reports or declarations apply. There are
no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. The Company has not executed a waiver with respect
to the statute of limitations relating to the assessment or collection of any
foreign, federal, state or local tax. Except as set forth on SCHEDULE 3(m),
none of the Company's tax returns is presently being audited by any taxing
authority.
n. CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 3(n)
and except for arm's length transactions pursuant to which the Company or any of
its Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on SCHEDULE
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
o. DISCLOSURE. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed (assuming for this purpose that the Company's reports filed under the
1934 Act are being incorporated into an effective registration statement filed
by the Company under the 1933 Act).
p. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF SECURITIES.
The Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's
<PAGE>
length purchasers with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that no Buyer is
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and that any statement made by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is
merely incidental to the Buyers' purchase of the Securities and has not been
relied upon by the Company, its officers or its directors in any way. The
Company further represents to each Buyer that the Company's decision to enter
into this Agreement has been based solely on the independent evaluation by
the Company and its representatives.
q. NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of any stockholder
approval provisions applicable to the Company or its securities.
r. NO BROKERS. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby, except for dealings with Broadmark Capital Corporation, whose
commissions and fees will be paid for by the Company.
s. PERMITS; COMPLIANCE. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "COMPANY
PERMITS") except for any Company Permits the failure of which to possess would
not have a Material Adverse Effect, and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or cancellation of any
of the Company Permits. Neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, any of the Company Permits, except
for any such conflicts, defaults or violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
Since July 31, 1998, neither the Company nor any of its Subsidiaries has
received any notification from any governmental agency or authority with respect
to possible conflicts, defaults or violations of applicable laws, except for
notices relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.
t. ENVIRONMENTAL MATTERS.
(i) Except as set forth in SCHEDULE 3(t), there are, to
the
<PAGE>
Company's knowledge, with respect to the Company or any of its Subsidiaries or
any predecessor of the Company, no past or present violations of Environmental
Laws (as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws and
neither the Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to the Company's
knowledge, threatened in connection with any of the foregoing. The term
"ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants contaminants, or toxic
or hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by the
Company or any of its Subsidiaries, and no Hazardous Materials were released on
or about any real property previously owned, leased or used by the Company or
any of its Subsidiaries during the period the property was owned, leased or used
by the Company or any of its Subsidiaries, except in the normal course of the
Company's or any of its Subsidiaries' business.
(iii) Except as set forth in SCHEDULE 3(t), there are no
underground storage tanks on or under any real property owned, leased or used by
the Company or any of its Subsidiaries that are not in compliance with
applicable law.
u. TITLE TO PROPERTY. The Company and its Subsidiaries have
good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in SCHEDULE 3(u) or
such as would not have a Material Adverse Effect. Any real property and
facilities held under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect.
v. INSURANCE. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such
<PAGE>
amounts as management of the Company believes to be prudent and customary in
the businesses in which the Company and its Subsidiaries are engaged.
Neither the Company nor any such Subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a
Material Adverse Effect.
w. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
x. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of his
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
y. SOLVENCY. The Company (both before and after giving effect
to the transactions contemplated by this Agreement) is solvent (i.e., its assets
have a fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently the Company has no information that would lead it to reasonably
conclude that the Company would not have the ability to, nor does it intend to
take any action that would impair its ability to, pay its debts from time to
time incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and does not anticipate or know of any basis upon which its
auditors might issue a qualified opinion in respect of its current fiscal year.
z. NO INVESTMENT COMPANY. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement, the
Debentures, the Warrants and the Certificate of Designation will not be, an
"investment company" required to be registered under the Investment Company Act
of 1940 (an "INVESTMENT COMPANY"). The Company is not controlled by an
Investment Company.
<PAGE>
aa. FORM SB-2 OR FORM S-1 ELIGIBILITY. The Company is
currently eligible to register the resale of its Common Stock on a registration
statement on Form SB-2 or Form S-1 under the 1933 Act. There exist no facts or
circumstances of which the Company is aware that would prohibit or delay the
preparation and filing of a registration statement on either Form SB-2 or Form
S-1 with respect to the Registrable Securities (as defined in the Registration
Rights Agreement) within the time periods referred to therein.
bb. NO GENERAL SOLICITATION. Neither the Company nor any
distributor participating on the Company's behalf in the transactions
contemplated hereby, if any, nor any person acting for the Company, or any such
distributor, has conducted any "general solicitation," as such term is defined
in Regulation D, with respect to any of the Securities being offered hereby.
4. COVENANTS.
a. BEST EFFORTS. The parties shall use their best efforts to
satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement.
b. FORM D; BLUE SKY LAWS. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Buyers at the
Closing pursuant to this Agreement under applicable securities or "blue sky"
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to each
Buyer on or prior to the Closing Date.
c. REPORTING STATUS; ELIGIBILITY TO USE FORM SB-2 OR FORM S-1.
The Company represents and warrants that it meets the requirements for use of
Form SB-2 or Form S-1 for registration of the sale by the Buyers of the
Registrable Securities (as defined in the Registration Rights Agreement). The
Company's Common Stock is registered under Section 12(g) of the 1934 Act. So
long as any Buyer beneficially owns any of the Securities, the Company shall
timely file all reports required to be filed with the SEC pursuant to the 1934
Act, and the Company shall not terminate its status as an issuer required to
file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The Company further
agrees to take all necessary action to meet the "registrant eligibility"
requirements set forth in the general instructions to Form S-3 as soon as
practicable after the date hereof and thereafter to take all necessary actions
to maintain such eligibility.
d. USE OF PROCEEDS. The Company shall use the proceeds from
the
<PAGE>
sale of the Debentures, Preferred Shares and the Warrants in the manner set
forth in SCHEDULE 4(d) attached hereto and made a part hereof and shall not,
directly or indirectly, use such proceeds for any loan to or investment in any
other corporation, partnership, enterprise or other person (except in connection
with its currently existing direct or indirect Subsidiaries). Subject to
SCHEDULE 4(d), within ten (10) business days of the Closing, the Company shall
convert (i) $127,000 of the debt owed to Ben Metcalfe set forth on Schedule 4(d)
and (ii) $115,000 of the debt owed to Sandcastle Inn Ltd. set forth on Schedule
4(d), into Common Stock at the Fixed Conversion Price (as defined in the
Debentures).
e. ADDITIONAL EQUITY CAPITAL; RIGHT OF FIRST REFUSAL.
Subject to the exceptions described below, the Company will not, without the
prior written consent of a majority-in-interest of the Buyers, negotiate or
contract with any party to obtain additional equity financing (including debt
financing with an equity component) during the period (the "LOCK-UP PERIOD")
beginning on the Closing Date and ending one hundred eighty (180) days from
the date the Registration Statement (as defined in the Registration Rights
Agreement) required pursuant to Section 2(a) of the Registration Rights
Agreement is declared effective (plus any days in which sales cannot be made
thereunder). In addition, subject to the exceptions described below, the
Company will not conduct any equity financing (including debt with an equity
component) ("FUTURE OFFERINGS") during the period beginning on the Closing
Date and ending one hundred eighty (180) days after the end of the Lock-up
Period, unless it shall have first delivered to each Buyer, at least fifteen
(15) business days prior to the closing of such Future Offering, written
notice describing the proposed Future Offering, including the terms and
conditions thereof and proposed definitive documentation to be entered into
in connection therewith, and providing each Buyer an option during the ten
(10) day period following delivery of such notice to purchase its pro rata
share (based on the ratio that the number of Preferred Shares purchased by it
hereunder bears to the aggregate number of Preferred Shares purchased
hereunder) of the securities being offered in the Future Offering on the same
terms as contemplated by such Future Offering (the limitations referred to in
this sentence and the preceding sentence are collectively referred to as the
"CAPITAL RAISING LIMITATIONS"). In the event the terms and conditions of a
proposed Future Offering are amended in any respect after delivery of the
notice to the Buyers concerning the proposed Future Offering, the Company
shall deliver a new notice to each Buyer describing the amended terms and
conditions of the proposed Future Offering and each Buyer thereafter shall
have an option during the ten (10) day period following delivery of such new
notice to purchase its pro rata share of the securities being offered on the
same terms as contemplated by such proposed Future Offering, as amended. The
foregoing sentence shall apply to successive amendments to the terms and
conditions of any proposed Future Offering. The Capital Raising Limitations
shall not apply to any transaction involving (i) issuances of securities in a
firm commitment underwritten public offering (excluding a continuous offering
pursuant to Rule 415 under the 1933 Act) or (ii) issuances of securities as
consideration for a merger, consolidation or purchase of assets, or in
connection with any strategic partnership, joint venture, alliance or similar
strategic transaction (the primary purpose of which is not to raise equity
capital), or in connection with the disposition or acquisition of a business,
product or license by the Company.
<PAGE>
The Capital Raising Limitations also shall not apply to the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof or to the
grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan approved
by the stockholders of the Company.
f. EXPENSES. The Company shall pay to Rose Glen Capital
Management, L.P. ("ROSE GLEN") at the Closing a non-accountable expense
allowance equal to Twenty-Five Thousand Dollars ($25,000) (Five Thousand Dollars
($5,000) of which has been previously paid by the Company) for all expenses
incurred by it in connection with the negotiation, preparation, execution,
delivery and performance of this Agreement and the other agreements to be
executed in connection herewith, including, without limitation, attorneys' and
consultants' fees and expenses and travel expenses.
g. FINANCIAL INFORMATION. The Company agrees to send the
following reports to each Buyer until such Buyer transfers, assigns, or sells
all of the Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-K (or Form 10-KSB), its Quarterly Reports
on Form 10-Q (or Form 10-QSB) and any Current Reports on Form 8-K; (ii) within
one (1) day after release, copies of all press releases issued by the Company or
any of its Subsidiaries; and (iii) contemporaneously with the making available
or giving to the stockholders of the Company, copies of any notices or other
information the Company makes available or gives to such stockholders.
h. RESERVATION OF SHARES. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion the outstanding
Debentures or Preferred Shares and issuance of the Conversion Shares in
connection with the Debentures or Preferred Shares (based on the lesser of the
Variable Conversion Price in effect from time to time and the Fixed Conversion
Price in effect from time to time (each as defined in the Debentures and the
Certificate of Designation)) and as otherwise required by the Debentures and the
Certificate of Designation (including sufficient shares to provide for the full
exercise of the Investment Options) and the full exercise of the Warrants and
issuance of the Warrant Shares in connection therewith (based on the Exercise
Price (as defined in the Warrants) of the Warrants in effect from time to time).
The Company shall not reduce the number of shares of Common Stock reserved for
issuance upon conversion of or otherwise pursuant to the Debentures and
Preferred Shares and upon exercise of or otherwise pursuant to the Warrants
without the consent of each Buyer. The Company shall use its best efforts at
all times to maintain the number of shares of Common Stock so reserved for
issuance at no less than two (2) times the number that is then actually issuable
upon full conversion of the Debentures and Preferred Shares and exercise of the
Investment Options thereunder (based on the lesser of the Variable Conversion
Price in effect from time to time and the Fixed Conversion Price in effect from
time to time (each as defined in the Debentures and the Certificate of
Designation)) and full exercise of the Warrants (based on
<PAGE>
the Exercise Price (as defined in the Warrants) of the Warrants in effect
from time to time). If at any time the number of shares of Common Stock
authorized and reserved for issuance is below the number of Conversion Shares
issued and issuable upon conversion of or otherwise pursuant to the
Debentures or the Preferred Shares (based on the lesser of the Variable
Conversion Price in effect from time to time and the Fixed Conversion Price
in effect from time to time (each as defined in the Debentures and the
Certificate of Designation) and assuming the full exercise of the Investment
Options thereunder) and the aggregate number of Warrant Shares issued and
issuable upon exercise of the Warrants (based on the Exercise Price (as
defined in the Warrants) of the Warrants in effect from time to time), the
Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares, including, without limitation, calling
a special meeting of stockholders to authorize additional shares to meet the
Company's obligations under this Section 4(h), in the case of an insufficient
number of authorized shares, and using its best efforts to obtain stockholder
approval of an increase in such authorized number of shares.
i. LISTING. The Company shall promptly secure the listing of
the Conversion Shares and Warrant Shares upon each national securities exchange
or automated quotation system, if any, upon which shares of Common Stock are
then listed (subject to official notice of issuance) and, so long as any Buyer
owns any of the Securities, shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Conversion Shares from time
to time issuable upon conversion of or otherwise pursuant to the Debentures or
the Preferred Shares (including upon exercise of the Investment Options under
the Debentures and the Preferred Shares) and all of the Warrant Shares from time
to time issuable upon exercise of the Warrants. The Company will, so long as
any Buyer owns any of the Securities, take all action necessary to continue the
listing and trading of its Common Stock on the OTC BB, and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the National Association of Securities Dealers ("NASD") and
such exchanges, as applicable. The Company shall promptly provide to each Buyer
copies of any notices it receives from the OTC BB and any other exchanges or
quotation systems on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on such exchanges and
quotation systems.
j. CORPORATE EXISTENCE. So long as a Buyer beneficially owns
any Debentures, Preferred Shares or Warrants, the Company shall maintain its
corporate existence and shall not sell all or substantially all of the Company's
assets, except in the event of a merger or consolidation or sale of all or
substantially all of the Company's assets, where the surviving or successor
entity in such transaction (i) assumes the Company's obligations hereunder and
under the agreements and instruments entered into in connection herewith and
(ii) is a publicly traded corporation whose Common Stock is listed for trading
on Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
k. NO INTEGRATION. The Company shall not make any offers or
sales
<PAGE>
of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
1933 Act or cause the offering of Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
l. LISTING ON NASDAQ, NASDAQ SMALLCAP, THE NYSE OR AMEX. The
Company will take all necessary action to promptly secure the listing or
quotation of the Common Stock on Nasdaq or, if the Company is not eligible for
Nasdaq, the Nasdaq SmallCap and will thereafter, so long as the Buyer owns any
of the Securities, maintain the listing or quotation of the Common Stock on
Nasdaq, the Nasdaq SmallCap, the NYSE or the AMEX.
m. STOCKHOLDER APPROVAL. The Company shall, prior to any
issuance of the Preferred Shares, use its best efforts to obtain such approvals
of the Company's stockholders as may be required to issue all of the shares of
Common Stock issuable upon conversion or exercise of, or otherwise with respect
to, the Debentures, the Preferred Shares and the Warrants in accordance with
applicable law and the rules and regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization which may have
jurisdiction over the Company upon compliance by the Company with Section 4(l)
(the "20% RULE APPROVAL"). The Company shall comply with the filing and
disclosure requirements of Section 14 under the Exchange Act in connection with
the solicitation, acquisition and disclosure of such 20% Rule Approval. The
Company represents and warrants that its Board of Directors has approved, and
will recommend that the Company's stockholders approve, the proposal
contemplated by this Section 4(m) and shall so indicate such recommendation in
the proxy statement used to solicit such 20% Rule Approval. The Company shall
use its best efforts to cause its officers and directors to vote in favor of the
proposal contemplated by this Section 4(m).
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Conversion Shares and Warrant Shares in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Debentures or the Preferred Shares (including upon exercise of
the Investment Options) or exercise of the Warrants in accordance with the terms
thereof (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration
of the Conversion Shares and Warrant Shares under the 1933 Act or the date on
which the Conversion Shares or Warrant Shares may be sold pursuant to Rule 144
without any restriction as to the number of securities as of a particular date
that can then be immediately sold, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares or Warrant
Shares may be sold pursuant to
<PAGE>
Rule 144 without any restriction as to the number of securities as of a
particular date that can then be immediately sold), will be given by the
Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the
extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Buyer's obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
federal and state securities laws, including prospectus delivery
requirements, if any, upon re-sale of the Securities. If a Buyer provides
the Company with (i) an opinion of counsel, in form, substance and scope
customary for opinions in comparable transactions, to the effect that a
public sale or transfer of such Securities may be made without registration
under the 1933 Act and such sale or transfer is effected or (ii) the Buyer
provides reasonable assurances that the Securities can be sold pursuant to
Rule 144 (which shall consist of the documentation customarily executed by a
seller and its broker, if any, in connection with a proposed sale under Rule
144), the Company shall permit the transfer, and, in the case of the
Conversion Shares and Warrant Shares, promptly instruct its transfer agent to
issue one or more certificates, free from any restrictive legend, in such
name and in such denominations as specified by such Buyer.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation
of the Company hereunder to issue and sell the Debentures and Warrants to a
Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
a. The applicable Buyer shall have executed this Agreement and
the Registration Rights Agreement and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase Price
in accordance with Section 1(b) above.
c. The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and the applicable Buyer
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
d. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the
<PAGE>
transactions contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Debentures and Warrants at
the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for such
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer duly executed
Debentures and Warrants in accordance with Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
d. The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer
shall have received a certificate or certificates, executed by the chief
executive officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Certificate of Incorporation, By-laws and Board of Directors' resolutions
relating to the transactions contemplated hereby.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
f. The Conversion Shares and the Warrant Shares shall have been
authorized for quotation on the OTC BB and trading in the Common Stock on the
OTC BB shall not have been suspended by the SEC or the OTC BB.
<PAGE>
g. The Buyer shall have received opinions of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as EXHIBIT "E-1"
and EXHIBIT "E-2" attached hereto.
h. The Buyer shall have received an officer's certificate
described in Section 3(c) above, dated as of the Closing Date.
i. No material adverse change or development in the business,
operations, properties, prospects, financial condition or operations of the
Company shall have occurred since the date hereof.
8. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed in the State of Delaware (without regard to
principles of conflict of laws). Both parties irrevocably consent to the
jurisdiction of the United States federal courts and the state courts located in
Delaware with respect to any suit or proceeding based on or arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby and irrevocably agree that all
claims in respect of such suit or proceeding may be determined in such courts.
Both parties irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. Both parties further agree that service
of process upon a party mailed by first class mail shall be deemed in every
respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect either party's right to serve process
in any other manner permitted by law. Both parties agree that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
b. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may
be executed in one or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party. This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
c. HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
<PAGE>
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
f. NOTICES. Any notices required or permitted to be given
under the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
Global Media Corp.
83 Victoria Crescent
Unit 29
Nanaimo, British Columbia V9R 5B9
Attention: Chief Executive Officer
Facsimile: (250) 716-0502
With copy to:
Davis Wright Tremaine LLP
2600 Century Square
1501 Fourth Avenue
Seattle, Washington 98101
Attention: Eric A. DeJong
Facsimile: (206) 628-7699
If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.
With copy to:
Morgan, Lewis & Bockius, LLP
1701 Market Street
Philadelphia, Pennsylvania 19103-2921
<PAGE>
Attention: Keith S. Marlowe
Facsimile: (215) 963-5299
Each party shall provide notice to the other party of any change in
address.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.
h. THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. SURVIVAL. The representations and warranties of the Company
and the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall
survive the closing hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Buyers. The Company agrees to indemnify and
hold harmless each of the Buyers and all their officers, directors, employees
and agents for loss or damage arising as a result of or related to any breach or
alleged breach by the Company of any of its representations, warranties and
covenants set forth in Sections 3 and 4 hereof or any of its covenants and
obligations under this Agreement or the Registration Rights Agreement, including
advancement of expenses as they are incurred.
j. PUBLICITY. The Company and each of the Buyers shall have
the right to review a reasonable period of time before issuance of any press
releases, filings with the SEC, the NASD or any stock exchange or interdealer
quotation system, or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of each of the Buyers, to make any press
release or public filings with respect to such transactions as is required by
applicable law and regulations (although each of the Buyers shall be consulted
by the Company in connection with any such press release prior to its release
and shall be provided with a copy thereof and be given an opportunity to comment
thereon).
k. FURTHER ASSURANCES. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. NO STRICT CONSTRUCTION. The language used in this Agreement
<PAGE>
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
m. Remedies. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to each Buyer by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that each
Buyer shall be entitled, in addition to all other available remedies in law or
in equity, to an injunction or injunctions to prevent or cure any breaches of
the provisions of this Agreement and to enforce specifically the terms and
provisions of this Agreement, without the necessity of showing economic loss and
without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
GLOBAL MEDIA CORP.
By:
Name:
Title:
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By:
Wayne D. Bloch
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Facsimile: (610) 617-0570
Telephone: (610) 617-5900
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures:
$8,500,000
Number of Warrants: 680,000
Aggregate Purchase Price: $8,500,000
<PAGE>
EXHIBIT 99.2
EXHIBIT A
TO
SECURITIES
PURCHASE
AGREEMENT
THIS CONVERTIBLE DEBENTURE AND THE SHARES ISSUABLE UPON CONVERSION HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THE SECURITIES REPRESENTED
HEREBY MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE
AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO AND IN
COMPLIANCE WITH RULE 144 UNDER SUCH ACT.
CONVERTIBLE DEBENTURE
May 6, 1999 $8,500,000
FOR VALUE RECEIVED, GLOBAL MEDIA CORP., a corporation organized under
the laws of the State of Nevada (hereinafter called the "BORROWER" or the
"CORPORATION") hereby promises to pay to the order of RGC INTERNATIONAL
INVESTORS, LDC or registered assigns (the "HOLDER") the sum of Eight Million
Five Hundred Thousand Dollars ($8,500,000) on May 6, 2002 (the "AUTOMATIC
CONVERSION DATE") and to pay interest on the unpaid principal balance hereof at
the rate of five percent (5%) per annum from the date hereof (the "ISSUE DATE")
until the same becomes due and payable (which interest shall accrue on a daily
basis),whether at maturity or upon conversion, redemption, acceleration or
otherwise. Any amount of principal of or interest on this Debenture which, to
the extent not converted in accordance with the provisions hereof, is not paid
when due shall bear interest at the rate of fifteen percent (15%) per annum
("DEFAULT INTEREST") from the due date thereof until the same is paid. Interest
shall be calculated based on a 360-day year and shall commence accruing on the
Issue Date and, to the extent not converted in accordance with the provisions
hereof, shall be payable in arrears at such time as the outstanding principal
balance hereof with respect to which such interest has accrued becomes due and
payable hereunder. All payments of principal and interest (to the extent not
converted into shares of the Corporation's common stock, par value $0.001 per
share ("COMMON STOCK"), in accordance with the terms hereof) shall be made in,
and all references herein to monetary denominations shall refer to, lawful money
of the United States
<PAGE>
of America. All payments shall be made at such address as Holder shall
hereafter give to the Borrower by written notice made in accordance with the
provisions of this Debenture. The Automatic Conversion Date is subject to
extension as provided in Article IV hereof. This Debenture is being issued
by the Borrower pursuant to the Securities Purchase Agreement, dated as of
May 6, 1999, between the Borrower and Holder (the "PURCHASE AGREEMENT").
Each capitalized term used, but not otherwise defined, herein shall have the
meaning ascribed thereto in the Purchase Agreement. For purposes hereof, the
term "DEBENTURES" shall be deemed to refer to this Debenture, all other
convertible debentures issued pursuant to the Purchase Agreement and all
convertible debentures issued in replacement hereof or thereof or otherwise
with respect hereto or thereto.
I. REDEMPTION
A. MANDATORY REDEMPTION. If any of the following events (each, a
"MANDATORY REDEMPTION EVENT") shall occur:
1. The Corporation fails to pay the principal hereof or interest
thereon when due on this Debenture, whether at maturity, upon mandatory
prepayment pursuant to Article I.B., upon acceleration or otherwise.
2. The Corporation (i) fails to issue shares of Common Stock to the
holders of the Debentures upon exercise by the holders of their conversion
rights in accordance with the terms of the Debentures (including upon
exercise of or otherwise pursuant to the Investment Options (as defined in
Article II.E below) (for a period of at least sixty (60) days if such failure
is solely as a result of the circumstances governed by the second paragraph
of Article II.F below and the Corporation is using its best efforts to
authorize a sufficient number of shares of Common Stock as soon as
practicable), (ii) fails to transfer or to cause its transfer agent to
transfer (electronically or in certificated form) any certificate for shares
of Common Stock issued to the holders upon conversion of or otherwise
pursuant to the Debentures (or upon exercise of or otherwise pursuant to the
Investment Options (as defined in Article II.E below)) as and when required
by the Debentures or the Registration Rights Agreement, dated as of May 6,
1999, by and among the Corporation and the other signatories thereto (the
"REGISTRATION RIGHTS AGREEMENT"), (iii) fails to remove any restrictive
legend (or to withdraw any stop transfer instructions in respect thereof) on
any certificate or any shares of Common Stock issued to the holders of the
Debentures upon conversion of or otherwise pursuant to the Debentures (or
upon exercise of or otherwise pursuant to the Investment Options) as and when
required by the Debentures, the Purchase Agreement or the Registration Rights
Agreement, or (iv) fails to fulfill its obligations pursuant to Sections
4(c), 4(d), 4(e), 4(i), 4(j), or 5 of the Purchase Agreement (or makes any
announcement, statement or threat that it does not intend to honor the
obligations described in this paragraph), and any such failure shall continue
uncured (or any announcement, statement or threat not to honor its
obligations shall not be rescinded in writing) for ten (10) days after the
Corporation shall have been notified thereof in writing by any holder of the
Debentures;
<PAGE>
3. The Corporation fails to obtain effectiveness with the Securities
and Exchange Commission (the "SEC") prior to November 6, 1999 of the
Registration Statement(s) (as defined in the Registration Rights Agreement,
the "REGISTRATION STATEMENT(S)") required to be filed pursuant to Section
2(a) of the Registration Rights Agreement, or fails to obtain the
effectiveness of any additional Registration Statement (required to be filed
pursuant to Section 3(b)of the Registration Rights Agreement) within sixty
(60) days after the Registration Trigger Date (as defined in the Registration
Rights Agreement), or any such Registration Statement, after its initial
effectiveness and during the Registration Period (as defined in the
Registration Rights Agreement), lapses in effect or sales of all of the
Registrable Securities (as defined in the Registration Rights Agreement, the
"REGISTRABLE SECURITIES") otherwise cannot be made thereunder (whether by
reason of the Corporation's failure to amend or supplement the prospectus
included therein in accordance with the Registration Rights Agreement, the
Corporation's failure to file and obtain effectiveness with the SEC of an
additional Registration Statement required pursuant to Section 3(b) of the
Registration Rights Agreement or otherwise) for more than thirty (30)
consecutive days or more than sixty (60) days in any twelve (12) month period
after such Registration Statement becomes effective;
4. The Corporation or any Significant Subsidiary (as defined in Rule
1-02(w) of Regulation S-X promulgated by the SEC) (a "SIGNIFICANT
SUBSIDIARY") of the Corporation shall make an assignment for the benefit of
creditors, or apply for or consent to the appointment of a receiver or
trustee for it or for all or substantially all of its property or business;
or such a receiver or trustee shall otherwise be appointed;
5. Bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against the Corporation or any
Significant Subsidiary of the Corporation;
6. The Corporation shall: (i) fail to maintain the listing of the
Common Stock on the Over-the-Counter Bulletin Board (the "OTC BB") and such
failure shall remain uncured for at least ten (10) days or (ii) following the
date on which listing or quotation of the Common Stock on the Nasdaq National
Market ("NASDAQ"), the New York Stock Exchange (the "NYSE") or the American
Stock Exchange ("AMEX") or, if the Corporation is not eligible for Nasdaq,
the NYSE or AMEX, the Nasdaq SmallCap Market (the "NASDAQ SMALLCAP") has been
secured by the Corporation, fail to maintain such listing on any of Nasdaq,
Nasdaq SmallCap, the NYSE or AMEX;
7. The sale, conveyance or disposition of all or substantially all
of the assets of the Corporation, the effectuation by the Corporation of a
transaction or series of related transactions in which more than 50% of the
voting power of the Corporation is disposed of, or the consolidation, merger
or other business combination of the Corporation with or into any other
individual, corporation, limited liability company, partnership, association,
trust or other entity or organization (each, a "PERSON") or Persons when the
Corporation is not the survivor; or
<PAGE>
8. The Corporation breaches any covenant contained in Article III
hereof and such breach continues uncured for a period of ten (10) days after
written notice thereof to the Corporation from any holder of Debentures,
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs 1, 2, 3, 6, 7 or 8 at the option
of the holders of at least 50% of the then outstanding principal amount of
the Debentures exercisable by the delivery of written notice (the"MANDATORY
REDEMPTION NOTICE") to the Corporation of such Mandatory Redemption Event, or
upon the occurrence of any Mandatory Redemption Event specified in
subparagraphs 4 or 5, the then outstanding Debentures shall become
immediately redeemable and the Corporation shall purchase each holder's
outstanding Debentures for an amount equal to the greater of (i) the
Redemption Percentage (as defined below) multiplied by the sum of (a) the
then outstanding principal amount of the Debentures, plus (b) all accrued and
unpaid interest thereon for the period beginning on the Issue Date and ending
on the date of payment of the Mandatory Redemption Amount (the "MANDATORY
REDEMPTION DATE"), plus (c) Default Interest, if any, on the amounts referred
to in clauses (a) and/or (b), plus (d) all Conversion Default Payments (as
defined in Article II.F below), Delivery Default Payments (as defined in
Article II.D.3 below) and any other amounts owed to such holder pursuant to
Section 2(c) of the Registration Rights Agreement, and (ii) the "PARITY
VALUE" of the Debentures to be redeemed, where parity value means the product
of (a) the highest number of shares of Common Stock issuable upon conversion
of or otherwise pursuant to such Debentures in accordance with the terms
hereof (without giving any effect to any limitations on conversions of
Debentures contained herein, and treating the Trading Day (as defined in
Article II.B.1) immediately preceding the Mandatory Redemption Date as the
"CONVERSION DATE" (as defined in Article II.B.1) for purposes of determining
the lowest applicable Conversion Price, unless the Mandatory Redemption Event
arises as a result of a breach in respect of a specific Conversion Date in
which case such Conversion Date shall be the Conversion Date), multiplied by
(b) the highest Closing Bid Price (as defined in Article II.B.1) for the
Common Stock during the period beginning on the date of first occurrence of
the Mandatory Redemption Event and ending one day prior to the Mandatory
Redemption Date (the greater of such amounts being referred to as the
"MANDATORY REDEMPTION AMOUNT"). The Mandatory Redemption Amount, together
with all other ancillary amounts payable hereunder, shall immediately become
due and payable, all without demand, presentment or notice, all of which
hereby are expressly waived, together with all costs, including, without
limitation, reasonable legal fees and expenses of collection, and Holder
shall be entitled to exercise all other rights and remedies available at law
or in equity. The "REDEMPTION PERCENTAGE" shall mean (i) 118% for purposes
of a Mandatory Redemption Event specified in subparagraph 7 and (ii) 120% for
all other purposes.
B. TRADING MARKET REDEMPTION. If and to the extent any Debentures
cease to be convertible by any holder as a result of the limitations
described in Article II.A.2 below (a "TRADING MARKET REDEMPTION EVENT"), and
the Corporation has not, prior to the date that such Trading Market
Redemption Event arises, either (i) obtained the Stockholder Approval (as
<PAGE>
defined in Article II.A.2) or (ii) eliminated any prohibitions under
applicable law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Corporation or any of its securities on the Corporation's ability to
issue shares of Common Stock in excess of the Maximum Share Amount (as
defined in Article II.A.2), then the Corporation shall be obligated to redeem
immediately all of the then outstanding principal amount of the Debentures
which ceases to be convertible as a result of the Maximum Share Amount, in
accordance with this Article I.B. An irrevocable redemption notice (the
"TRADING MARKET REDEMPTION NOTICE") shall be delivered promptly to the
holders of the Debentures in accordance with the terms hereof and shall state
(i) that the Maximum Share Amount (as defined in Article II.A.2) has been
issued upon conversion of the Debentures, (ii) that the Corporation is
obligated to redeem all of the outstanding Debentures and (iii) the Mandatory
Redemption Date, which shall be a date within five (5) business days of the
earlier of (a) the date of the Trading Market Redemption Notice or (b) the
date on which the holders of the Debentures notify the Corporation of the
occurrence of a Trading Market Redemption Event. On the Mandatory Redemption
Date, the Corporation shall make payment of the Mandatory Redemption Amount
(as defined in Article I.A above) in cash.
C. FAILURE TO PAY REDEMPTION AMOUNTS. In the case of a Mandatory
Redemption Event, if the Corporation fails to pay the Mandatory Redemption
Amount within five (5) business days of written notice that such amount is
due and payable, then (assuming there are sufficient authorized shares) in
addition to all other available remedies, Holder shall have the right at
anytime, so long as the Mandatory Redemption Event continues, to require the
Corporation, upon written notice, to issue as soon as practicable thereafter
(in accordance with and subject to the terms of Article II below, including
paragraph A.2 thereof), in lieu of the Mandatory Redemption Amount, the
number of shares of Common Stock of the Corporation equal to such applicable
redemption amount divided by any Conversion Price (as defined below), as
chosen in the sole discretion of Holder, in effect from the date of the
Mandatory Redemption Event until the date Holder elects to exercise its
rights pursuant to this Article I.C.
II. CONVERSION AT THE OPTION OF HOLDER
A. OPTIONAL CONVERSION
1. CONVERSION AMOUNT. Subject to Articled II.A.2 below, Holder
may, at its option at any time and from time to time, upon surrender of this
Debenture, convert all or any portion of this Debenture into Common Stock as
set forth below (an "OPTIONAL CONVERSION"). This Debenture shall be
convertible into such number of fully paid and nonassessable shares of Common
Stock as such Common Stock exists on the Issue Date, or any other shares of
capital stock or other securities of the Corporation into which such Common
Stock is thereafter changed or reclassified, as is determined by dividing (a)
the Conversion Amount (as defined below) by (b) the Conversion Price (as
defined in Article II.B below); PROVIDED, HOWEVER, that in no event (other
than pursuant to the Automatic Conversion (as defined in Article IV)) shall
Holder be
<PAGE>
entitled to convert this Debenture (or exercise Investment Options in
connection with any such conversion) to the extent that the sum of (x) the
number of shares of Common Stock beneficially owned by Holder and its
affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of this
Debenture, the unexercised Investment Options or the unexercised or
unconverted portion of any other securities of the Corporation (including,
without limitation, the warrants issued by the Corporation pursuant to the
Purchase Agreement) subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (y) the number of shares
of Common Stock issuable upon the conversion of the portion of this Debenture
(and upon the exercise, if any, of Investment Options in connection
therewith) with respect to which the determination of this proviso is being
made, would result in beneficial ownership by Holder and Holder's affiliates
of more than 4.9% of the outstanding shares of Common Stock. For purposes of
the proviso to the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13(d) of the Securities Exchange Act
of 1934, as amended, and Regulation 13D-G thereunder, except as otherwise
provided in clause (x) of such proviso. "CONVERSION AMOUNT" means (i) the
portion of the principal amount of this Debenture being converted, plus (ii)
all accrued and unpaid interest thereon for the period beginning on the Issue
Date and ending on the Conversion Date (as defined in Article II.B.1), plus
(iii) Default Interest, if any, on the amounts referred to in the immediately
preceding clauses (i) and/or (ii), plus (iv) any Conversion Default Payments
(as defined in Article II.F) and Delivery Default Payments (as defined in
Article II.D.3) payable with respect thereto, together with any other amounts
owed to Holder pursuant to Section 2(c) of the Registration Rights Agreement.
2. TRADING MARKET LIMITATION. Unless the Corporation either (i)
is permitted (or not prohibited) by the applicable rules and regulations of
the principal securities market on which the Common Stock is listed or traded
to issue shares of Common Stock upon conversion of or otherwise pursuant to
the Debentures and upon exercise of or otherwise pursuant to the Investment
Options in excess of the Maximum Share Amount (as defined below) or (ii) has
obtained stockholder approval of the issuance of shares of Common Stock upon
conversion of or otherwise pursuant to the Debentures and upon exercise of or
otherwise pursuant to the Investment Options in excess of the Maximum Share
Amount in accordance with applicable law and the rules and regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Corporation or any of its securities
(the "STOCKHOLDER APPROVAL"), in no event shall the total number of shares of
Common Stock issued upon conversion of or otherwise pursuant to the
Debentures and upon exercise of or otherwise pursuant to the Investment
Options (including any shares of Common Stock issued or issuable upon
conversion of or otherwise pursuant to the Series A Preferred Stock (as
defined in Article V) issued pursuant to Article V and upon exercise of or
otherwise pursuant to any Investment Options contained therein and any shares
of capital stock or rights to acquire shares of capital stock issued by the
Corporation which are aggregated or integrated with the Common Stock issued
or issuable upon conversion of or otherwise pursuant to the Debentures and
upon exercise of or otherwise pursuant to the Investment Options for purposes
of any such rule or regulation) exceed 4,106,831 (19.99% of the total shares
of Common Stock outstanding on the
<PAGE>
Issue Date) (the "MAXIMUM SHARE AMOUNT"), subject to equitable adjustments
from time to time for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring
after the Issue Date. With respect to each Holder of Debentures, the Maximum
Share Amount shall refer to such Holder's pro rata share thereof determined
in accordance with Article V.J below. In the event that the sum of (x) the
aggregate number of shares of Common Stock actually issued upon conversion of
or otherwise pursuant to the Debentures and upon exercise of or otherwise
pursuant to the Investment Options (including any shares of Common Stock
issued upon exercise of or otherwise pursuant to the Warrants and any shares
of capital stock or rights to acquire shares of capital stock issued by the
Corporation which are aggregated or integrated with the Common Stock issued
upon conversion of or otherwise pursuant to the Debentures and upon exercise
of or otherwise pursuant to the Investment Options for purposes of any such
rule or regulation) plus (y) the aggregate number of shares of Common Stock
that remain issuable upon conversion of or otherwise pursuant to the then
outstanding Debentures at the then effective Conversion Price and upon
exercise of or otherwise pursuant to the Investment Options (including any
shares of Common Stock issuable upon exercise of or otherwise pursuant to the
Warrants and any shares of capital stock or rights to acquire shares of
capital stock issued by the Corporation which are aggregated or integrated
with the Common Stock issuable upon conversion of or otherwise pursuant to
the Debentures and upon exercise of or otherwise pursuant to the Investment
Options for purposes of any such rule or regulation), represents at least one
hundred percent (100%) of the Maximum Share Amount (the "TRIGGERING EVENT"),
the Corporation will use its best efforts to seek and obtain Stockholder
Approval (or obtain such other relief as will allow conversions hereunder in
excess of the Maximum Share Amount) as soon as practicable following the
Triggering Event.
B. CONVERSION PRICE
1. CALCULATION OF CONVERSION PRICE. Subject to subparagraph 2
below, the "CONVERSION PRICE " shall be the lesser of the Variable Conversion
Price (as defined herein) and the Fixed Conversion Price (as defined herein).
The Conversion Price shall be subject to adjustments pursuant to the
provisions of Article II.C below. "VARIABLE CONVERSION PRICE" shall mean the
product of (x) the Applicable Percentage (as defined below) and (y) the
Market Price (as defined below). "MARKET PRICE" shall mean the lowest
average of the Closing Bid Prices for any seven (7) consecutive Trading Day
period (the "MARKET PRICE DAYS") during the thirty-five (35) consecutive
Trading Day period ending one (1) Trading Day prior to the date (the
"CONVERSION DATE") the Notice of Conversion (as defined in Article II.D) is
sent by a holder to the Corporation via facsimile (the "PRICING PERIOD").
The Market Price Days shall be designated by the converting holder (from
among the days comprising the Pricing Period) in the Notice of Conversion.
"FIXED CONVERSION PRICE" shall mean $8.125; PROVIDED, HOWEVER, that if the
Common Stock is not listed on Nasdaq or, if the Corporation is not eligible
for Nasdaq, the Nasdaq SmallCap on November 6, 1999, the Fixed Conversion
Price shall mean the lesser of $8.125 and 110% of the average of the Closing
Bid Prices for the ten (10) consecutive Trading Days ending November 6, 1999.
"APPLICABLE PERCENTAGE" shall mean 100%; PROVIDED,
<PAGE>
HOWEVER, that if the Common Stock is not listed on Nasdaq or, if the
Corporation is not eligible for Nasdaq, the Nasdaq SmallCap prior to November
6, 1999, or, if so listed on or prior to that date, the Common Stock is at
any time thereafter delisted from Nasdaq or the Nasdaq SmallCap (other than
delisting, for no more than two (2) Trading Days, solely in connection with
the simultaneous listing of the Common Stock on the NYSE or AMEX), the
Applicable Percentage shall mean 80%. "CLOSING BID PRICE" means, for any
security as of any date, the closing bid price on the OTC BB as reported by
Bloomberg Financial Markets or an equivalent reliable reporting service
mutually acceptable to and hereafter designated by the holders of a majority
in interest of the Debentures and the Corporation ("BLOOMBERG") or, if the
OTC BB is not the principal trading market for such security, the closing bid
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or, if no
closing bid price of such security is available in any of the foregoing
manners, the average of the bid prices of any market makers for such security
that are listed in the "pink sheets" by the National Quotation Bureau, Inc.
If the Closing Bid Price cannot be calculated for such security on such date
in the manner provided above, the Closing Bid Price shall be the fair market
value as mutually determined by the Corporation and the holders of a majority
in interest of the Debentures being converted for which the calculation of
the Closing Bid Price is required in order to determine the Conversion Price
of such Debentures. "TRADING DAY" shall mean any day on which the Common
Stock is traded for any period on OTC BB, or on the principal securities
exchange or other securities market on which the Common Stock is then being
traded.
2. CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS. Notwithstanding
anything contained in subparagraph 1 of this Paragraph B to the contrary, in
the event the Corporation (a) makes a public announcement that it intends to
consolidate or merge with any other corporation (other than a merger in which
the Corporation is the surviving or continuing corporation and its capital
stock is unchanged) or sell or transfer all or substantially all of the
assets of the Corporation or (b) any person, group or entity (including the
Corporation) publicly announces a tender offer to purchase 50% or more of the
Corporation's Common Stock then outstanding (or any other takeover scheme)
(the date of the announcement referred to in clause (a) or (b) is hereinafter
referred to as the "ANNOUNCEMENT DATE"), then the Conversion Price shall,
effective on the Announcement Date and continuing through the Adjusted
Conversion Price Termination Date (as defined below), be equal, for each such
date, to the lower of (x) the Conversion Price which would have been
applicable for an Optional Conversion occurring on the Announcement Date and
(y) the Conversion Price that would otherwise be in effect on such date.
From and after the Adjusted Conversion Price Termination Date, the Conversion
Price shall be determined as set forth in subparagraph 1 of this Article
II.B. For purposes hereof, "ADJUSTED CONVERSION PRICE TERMINATION DATE"
shall mean, with respect to any proposed transaction or tender offer (or
takeover scheme) for which a public announcement as contemplated by this
subparagraph 2 has been made, the date upon which the Corporation (in the
case of clause (a) above) or the person, group or entity (in the case of
clause (b) above) consummates or publicly announces the termination or
abandonment of the proposed transaction or tender offer (or takeover scheme)
which caused this subparagraph 2 to become operative.
<PAGE>
C. ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price shall be
subject to adjustment from time to time as follows:
1. ADJUSTMENT TO CONVERSION PRICE DUE TO STOCK SPLIT, STOCK
DIVIDEND, ETC. If at any time when this Debenture is outstanding, the number
of outstanding shares of Common Stock is increased or decreased by a stock
split, stock dividend, combination, reclassification rights offering below
the Trading Price (as defined below) to all holders of Common Stock or other
similar event, which event shall have taken place during the reference period
for determination of the Conversion Price for any Optional Conversion or
Automatic Conversion, then the Conversion Price shall be calculated giving
appropriate effect to the stock split, stock dividend, combination,
reclassification or other similar event. In such event, the Corporation
shall notify the Transfer Agent of such change on or before the effective
date thereof. "TRADING PRICE," which shall be measured as of the record date
in respect of the rights offering, means (i) the average of the last reported
sale prices for the shares of Common Stock on the OTC BB as reported by
Bloomberg, as applicable, for the five Trading Days immediately preceding
such date, or (ii) if the OTC BB is not the principal trading market for the
shares of Common Stock, the average of the last reported sale prices on the
principal trading market for the Common Stock during the same period as
reported by Bloomberg, or (iii) if market value cannot be calculated as of
such date on any of the foregoing bases, the Trading Price shall be the fair
market value as reasonably determined in good faith by (x) the Board of
Directors of the Corporation or, (y) at the option of the holders of a
majority of the then outstanding principal amount of the Debentures, by an
independent investment bank of nationally recognized standing in the
valuation of businesses similar to the business of the Corporation.
2. ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any time
when this Debenture is outstanding and prior to the conversion of all
Debentures, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a result of
which shares of Common Stock of the Corporation shall be changed into the
same or a different number of shares of another class or classes of stock or
securities of the Corporation or another entity, or in case of any sale or
conveyance of all or substantially all of the assets of the Corporation other
than in connection with a plan of complete liquidation of the Corporation,
then Holder shall thereafter have the right to receive upon conversion of
this Debenture (and upon exercise of the Investment Options), upon the basis
and upon the terms and conditions specified herein and in lieu of the shares
of Common Stock immediately theretofore issuable upon conversion (and upon
exercise of the Investment Options), such stock, securities or assets which
Holder would have been entitled to receive in such transaction had this
Debenture been converted (and had the Investment Options been exercised) in
full immediately prior to such transaction (without regard to any limitations
on conversion contained herein), and in any such case appropriate provisions
shall be made with respect to the rights and interests of Holder to the end
that the provisions hereof (including, without limitation, provisions for
adjustment of the Conversion Price and of the number of shares of Common
Stock issuable upon conversion of this Debenture (and upon exercise of the
Investment Options)) shall thereafter be applicable, as
<PAGE>
nearly as may be practicable in relation to any securities or assets
thereafter deliverable upon the conversion of this Debenture (and upon
exercise of the Investment Options). The Corporation shall not effect any
transaction described in this subparagraph 2 unless (i) it first gives, to
the extent practical, thirty (30) days' prior written notice (but in any
event at least fifteen (15) business days prior written notice) of the record
date of the special meeting of stockholders to approve, or if there is no
such record date, the consummation of, such merger, consolidation, exchange
of shares, recapitalization, reorganization or other similar event or sale of
assets (during which time Holder shall be entitled to convert this Debenture
(and exercise the Investment Options)), which notice shall be given
concurrently with the first public announcement of such transaction, and (ii)
the resulting successor or acquiring entity (if not the Corporation) assumes
by written instrument the obligations of the Corporation hereunder (including
under this subparagraph 2). The above provisions shall similarly apply to
successive consolidations, mergers, sales, transfers or share exchanges.
3. ADJUSTMENT DUE TO DISTRIBUTION. Subject to Article III.A, if the
Corporation shall declare or make any distribution of its assets (or rights
to acquire its assets) to holders of Common Stock as a dividend, stock
repurchase, by way of return of capital or otherwise (including any dividend
or distribution to the Corporation's shareholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e., a
spin-off)) (a "DISTRIBUTION"), then Holder shall be entitled, upon any
conversion of this Debenture (and upon any exercise of Investment Options)
after the date of record for determining shareholders entitled to such
Distribution, to receive the amount of such assets which would have been
payable to Holder with respect to the shares of Common Stock issuable upon
such conversion (or upon such exercise of Investment Options) had Holder been
the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
4. PURCHASE RIGHTS. Subject to Article III.A, if at any time when
this Debenture is outstanding the Corporation issues any convertible
securities or rights to purchase stock, warrants, securities or other
property (the "PURCHASE RIGHTS") pro rata to the record holders of any class
of Common Stock, then Holder will been titled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which
Holder could have acquired if Holder had held the number of shares of Common
Stock acquirable upon complete conversion of this Debenture (including upon
exercise of the Investment Options) (without regard to any limitations on
conversion contained herein and based upon the Conversion Price as would then
be in effect) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is
taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
5. ADJUSTMENT FOR RESTRICTED PERIODS. In the event that (a) the
Corporation fails to obtain effectiveness with the SEC of any Registration
Statement required to be filed pursuant to the Registration Rights
Agreement on or prior to the date on which such Registration Statement is
required to become effective pursuant to the terms of the Registration Rights
<PAGE>
Agreement, or (b) any such Registration Statement, after its initial
effectiveness and during the Registration Period (as defined in the
Registration Rights Agreement), lapses in effect, or sales of all of the
Registrable Securities (as defined in the Registration Rights Agreement)
otherwise cannot be made thereunder, whether by reason of the Corporation's
failure or inability to amend or supplement the prospectus (the "PROSPECTUS")
included therein in accordance with the Registration Rights Agreement or
otherwise (including without, limitation, during an Allowed Delay (as defined
in Section 3(f) of the Registration Rights Agreement), then, at the election
of Holder, the Pricing Period shall be comprised of (x) in the case of an
event described in clause (a), the thirty-five (35) Trading Days preceding
the date on which such Registration Statement is required to become effective
pursuant to the terms of the Registration Rights Agreement, plus all Trading
Days through and including the third (3rd) Trading Day following the actual
date of effectiveness of the Registration Statement and (y) in the case of an
event described in clause (b), the thirty-five (35) Trading Days preceding
the date on which Holder is first notified that sales may not be made under
the Registration Statement, plus all Trading Days through and including the
third (3rd) Trading Day following the date on which Holder is first notified
that such sales may again be made under the Registration Statement. If
Holder determines that sales may not be made pursuant to the Registration
Statement (whether by reason of the Corporation's failure or inability to
amend or supplement the Prospectus or otherwise) it shall so notify the
Corporation in writing and, unless the Corporation provides such holder with
a written opinion of the Corporation's counsel to the contrary, such
determination shall be binding for purposes of this paragraph.
D. MECHANICS OF CONVERSION. In order to convert this Debenture into
shares of Common Stock, Holder shall: (1) submit a copy of the fully executed
notice of conversion in the form attached hereto as Exhibit A ("NOTICE OF
CONVERSION") to the Corporation by facsimile dispatched prior to Midnight,
New York City time (the "CONVERSION NOTICE DEADLINE"), on the date specified
therein as the Conversion Date (as defined in Article II.D.5) (or by other
means resulting in, or reasonably expected to result in, written notice to
the Corporation on the date specified therein as the Conversion Date) to the
office of the Corporation or its designated Transfer Agent for the
Debentures, which notice shall specify the principal amount of this Debenture
to be converted, the applicable Conversion Price and a calculation of the
number of shares of Common Stock issuable upon such conversion (including the
number of shares issuable upon exercise of the Investment Options, if any);
and (2) subject to Article II.D.1 below, surrender this Debenture along with
a copy of the Notice of Conversion to the office of the Corporation as soon
as practicable thereafter. In the case of a dispute as to the calculation of
the Conversion Price, the Corporation shall promptly issue that number of
shares of Common Stock as is not disputed in accordance with subparagraph (3)
below. The Corporation shall submit the disputed calculations to its outside
accountant via facsimile within two (2) business days of receipt of the
Notice of Conversion. The accountant shall audit the calculations and notify
the Corporation and Holder of the results no later than 48 hours from the
time it receives the disputed calculations. The accountant's calculation
shall be deemed conclusive absent manifest error.
<PAGE>
1. SURRENDER OF DEBENTURE UPON CONVERSION. Notwithstanding
anything to the contrary set forth herein, upon conversion of this Debenture
in accordance with the terms hereof, Holder shall not be required to
physically surrender this Debenture to the Corporation unless the entire
unpaid principal amount of this Debenture is so converted. Holder and the
Corporation shall maintain records showing the principal amount so converted
and the dates of such conversions or shall use such other method, reasonably
satisfactory to Holder and the Corporation, so as not to require physical
surrender of this Debenture upon each such conversion. In the event of any
dispute or discrepancy, such records of the Corporation shall be controlling
and determinative in the absence of manifest error. Notwithstanding the
foregoing, if any portion of this Debenture is converted as aforesaid, Holder
may not transfer this Debenture unless Holder first physically surrenders
this Debenture to the Corporation, whereupon the Corporation will forthwith
issue and deliver upon the order of Holder a new Debenture of like tenor,
registered as Holder may request, representing in the aggregate the remaining
unpaid principal amount of this Debenture. Holder and any assignee, by
acceptance of this Debenture, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of a portion of this
Debenture, the unpaid and unconverted principal amount of this Debenture may
be less than the amount stated on the face hereof.
2. LOST OR STOLEN DEBENTURES. Upon receipt by the Corporation of
evidence of the loss, theft, destruction or mutilation of this Debenture, and
(in the case of loss, theft or destruction) of indemnity reasonably
satisfactory to the Corporation, and upon surrender and cancellation of this
Debenture, if mutilated, the Corporation shall execute and deliver a new
Debenture of like tenor and date.
3. DELIVERY OF COMMON STOCK UPON CONVERSION. Upon the submission
of a Notice of Conversion, the Corporation shall, within two (2) business
days after the Conversion Date (the "DELIVERY PERIOD"), issue and deliver (or
cause its Transfer Agent to so issue and deliver) in accordance with the
terms hereof and the Purchase Agreement (including, without limitation, in
accordance with the requirements of Section 2(g) of the Purchase Agreement)
to or upon the order of Holder that number of shares of Common Stock for the
portion of this Debenture converted (and, if applicable, the number of shares
of Common Stock issuable upon exercise of Investment Options in connection
therewith) as shall be determined in accordance herewith. In addition to any
other remedies available to Holder, including actual damages and/or equitable
relief, the Corporation shall pay to Holder $2,000 per day in cash for each
day beyond a two (2) business day grace period following the Delivery Period
that the Corporation fails to deliver Common Stock (a "DELIVERY DEFAULT")
issuable upon conversion of this Debenture (or exercise of Investment
Options) until such time as the Corporation has delivered all such Common
Stock (the "DELIVERY DEFAULT PAYMENTS"). Such Delivery Default Payments
shall be paid to Holder by the fifth (5th) day of the month following the
month in which they have accrued or, at the option of Holder (by written
notice to the Corporation by the first day of the month following the month
in which they have accrued), shall be convertible into Common Stock in
accordance with the terms of this Article II.
<PAGE>
So long as the Common Stock issuable upon conversion to the holder
is either registered under the 1933 Act or such shares may be sold under
Rule 144 promulgated under the 1933 Act without restriction as to the number
of shares as of a particular date that can then be immediately sold, in lieu
of delivering physical certificates representing the Common Stock issuable
upon conversion, provided the Corporation's Transfer Agent is participating
in the Depository Trust Company ("DTC") Fast Automated Securities Transfer
("FAST") program, upon written request of Holder and its compliance with the
provisions contained in Article II.A and in this Article II.D, the
Corporation shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to Holder
by crediting the account of Holder's Prime Broker with DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system. The time periods for
delivery and penalties described in the immediately preceding paragraph shall
apply to the electronic transmittals described herein.
4. NO FRACTIONAL SHARES. If any conversion of this Debenture
would result in a fractional share of Common Stock or the right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded
and the number of shares of Common Stock issuable upon conversion of this
Debenture shall be the next higher number of shares.
5. CONVERSION DATE. The "CONVERSION DATE" shall be the date
specified in the Notice of Conversion, provided that the Notice of Conversion
is submitted by facsimile (or by other means resulting in, or reasonably
expected to result in, written notice) to the Corporation or its Transfer
Agent before Midnight, New York City time, on the date so specified,
otherwise the Conversion Date shall be the first business day after the date
so specified on which the Notice of Conversion is actually received by the
Corporation or its Transfer Agent. The person or persons entitled to receive
the shares of Common Stock issuable upon conversion of this Debenture (or
exercise of Investment Options) shall be treated for all purposes as the
record holder or holders of such securities as of the Conversion Date and all
rights with respect to this Debenture (or portion thereof) surrendered shall
forthwith terminate except the right to receive the shares of Common Stock or
other securities or property issuable on such conversion (or exercise) and
except that the holders preferential rights as a Holder of this Debenture
shall survive to the extent the Corporation fails to deliver such securities.
E. INVESTMENT OPTIONS. On any Conversion Date relating to a conversion
of this Debenture by Holder, the Holder shall have the option to purchase one
additional share of Common Stock for every share of Common Stock issuable as
a result of such conversion at an exercise price equal to the applicable
Conversion Price (the option to purchase such additional shares shall be
referred to herein as the "INVESTMENT OPTIONS"). Holder (i) shall indicate
on the Notice of Conversion in respect of such Conversion Date that it is
exercising its Investment Option with respect to such conversion and shall
specify the number of shares of Common Stock with respect to which the
Investment Option is being so exercised, and (ii) shall pay to the
Corporation, in immediately available funds, on or within one (1) business
day following the Conversion Date, the aggregate purchase price for the
shares of Common Stock issuable as a result of the exercise of such
Investment Options. The provisions of paragraphs A, D.3 (so long
<PAGE>
as the holder has delivered to the Corporation the aggregate purchase price
due in connection with the exercise of the Investment Options) and F of this
Article II shall apply to any exercise by the Holder of Investment Options.
F. RESERVATION OF SHARES. A number of shares of the authorized but
unissued Common Stock sufficient to provide for the conversion in full of the
Debentures outstanding (based on the lesser of the Variable Conversion Price
in effect from time to time and the Fixed Conversion Price in effect from
time to time) and the exercise in full of the Investment Options shall at all
times be reserved by the Corporation, free from preemptive rights, for such
conversion or exercise. As of the Issue Date, 4,184,615 authorized and
unissued shares of Common Stock have been duly reserved for issuance upon
conversion of the Debentures and upon exercise of the Investment Options (the
"RESERVED AMOUNT"). The Reserved Amount shall be increased from time to time
in accordance with the Corporation's obligations pursuant to Section 4(h) of
the Purchase Agreement. In addition, if the Corporation shall issue any
securities or make any change in its capital structure which would change the
number of shares of Common Stock into which the Debentures shall be
convertible and for which the Investment Options shall be exercisable, the
Corporation shall at the same time also make proper provision so that
thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
Debentures and exercise of the Investment Options.
If at any time Holder submits a Notice of Conversion, and the
Corporation does not have sufficient authorized but unissued shares of Common
Stock duly reserved and available for issuance to effect such conversion in
accordance with the provisions of this Article II (including any Investment
Options exercised in connection therewith) (a "CONVERSION DEFAULT"), subject
to Article V.J, the Corporation shall issue to Holder all of the shares of
Common Stock which are available to effect such conversion. The portion of
the principal amount of this Debenture (or the number of shares of Common
Stock underlying the Investment Options) included in the Notice of Conversion
which exceeds the amount which is then convertible (or exercisable) into
available shares of Common Stock (the "EXCESS AMOUNT") shall, notwithstanding
anything to the contrary contained herein, not be convertible (or
exercisable) into Common Stock in accordance with the terms hereof until (and
at Holder's option at any time after) the date additional shares of Common
Stock are authorized and duly reserved by the Corporation to permit such
conversion (or exercise), at which time the Conversion Price in respect
thereof shall be the lesser of (i) the Conversion Price on the Conversion
Default Date (as defined below) and (ii) the Conversion Price on the
Conversion Date elected by Holder in respect thereof. The Corporation shall
use its best efforts to effect an increase in the authorized number of shares
of Common Stock as soon as possible following the earlier of (x) such time
that Holder notifies the Corporation or that the Corporation otherwise
becomes aware that there are or likely will be insufficient authorized and
unissued shares to allow full conversion hereof and (y) a Conversion Default.
In addition, the Corporation shall pay to Holder payments ("CONVERSION
DEFAULT PAYMENTS") for a Conversion Default in the amount of (a) .24,
multiplied by (b) the Conversion Default Amount (as defined below),
multiplied by (c)(N/365), where N = the number of days from the day Holder
submits a
<PAGE>
Notice of Conversion giving rise to a Conversion Default (the "CONVERSION
DEFAULT DATE") to the date (the "AUTHORIZATION DATE") that the Corporation
authorizes a sufficient number of shares of Common Stock to effect conversion
of the Debentures. "CONVERSION DEFAULT AMOUNT" means the then outstanding
principal amount of all Debentures held by Holder plus the aggregate accrued
interest thereon as of the first day of the Conversion Default. The
Corporation shall send notice to Holder of the authorization of additional
shares of Common Stock, the Authorization Date and the amount of Holder's
accrued Conversion Default Payments. The accrued Conversion Default Payment
for each calendar month shall be paid in cash or shall be convertible into
Common Stock at the applicable Conversion Price, at the Corporation's option,
as follows:
1. In the event Holder elects to take such payment in cash, cash
payment shall be made to Holder by the fifth (5th) day of the month following
the month in which it has accrued.
2. In the event the Holder elects to take such payment in Common
Stock, Holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of Conversion) at any time after
the fifth day of the month following the month in which it has accrued in
accordance with the terms of this Article II (so long as there is then a
sufficient number of authorized shares of Common Stock).
Holder's election shall be made in writing to the Corporation at
any time prior to 9:00 p.m, New York City time, on the third (3rd) day of the
month following the month in which Conversion Default payments have accrued.
If no election is made, Holder shall be deemed to have elected to receive
cash. Nothing herein shall limit Holder's right to pursue actual damages (to
the extent in excess of the Conversion Default Payments) for the
Corporation's failure to maintain a sufficient number of authorized shares of
Common Stock, and Holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance
and/or injunctive relief).
G. NOTICE OF CONVERSION PRICE ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this
Article II, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare
and furnish to Holder a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at
any time of Holder, furnish or cause to be furnished to Holder a like
certificate setting forth (i) such adjustment or readjustment, (ii) the
Conversion Price at the time in effect and (iii) the number of shares of
Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of this Debenture.
III. CERTAIN COVENANTS
<PAGE>
A. DISTRIBUTIONS ON CAPITAL STOCK. So long as the Corporation shall
have any obligation under this Debenture, the Corporation shall not, without
the Holder's written consent (a) pay, declare or set apart for such payment,
any dividend or other distribution (whether in cash, property or other
securities) on shares of capital stock or (b) directly or indirectly through
any subsidiary make any other payment or distribution in respect of its
capital stock.
B. RESTRICTION ON STOCK REPURCHASES. So long as the Corporation
shall have any obligation under this Debenture, the Corporation shall not,
without the Holder's written consent redeem, repurchase or otherwise acquire
(whether for cash or in exchange for property or other securities or
otherwise) in any one transaction or series of related transactions any
shares of capital stock of the Corporation or any warrants, rights or options
to purchase or acquire any such shares.
C. BORROWINGS. So long as the Corporation shall have any obligation
under this Debenture, the Corporation shall not, without the written consent
of the holders of a majority of the then outstanding principal amount of the
Debentures, create, incur, assume or suffer to exist any liability for
borrowed money, except (a) borrowings in existence or committed on the date
hereof and of which the Corporation has informed Holder in writing prior to
the date hereof, (b) indebtedness to trade creditors incurred in the ordinary
course of business, (c) borrowings, the proceeds of which shall be used to
repay this Debenture.
D. SALE OF ASSETS. So long as the Corporation shall have any
obligation under this Debenture, the Corporation shall not, without the
written consent of the holders of a majority of the then outstanding
principal amount of the Debentures, sell, lease or otherwise dispose of any
of its assets outside the ordinary course of business. Any consent to the
disposition of any assets may be conditioned on a specified use of the
proceeds of disposition.
E. ADVANCES AND LOANS. So long as the Corporation shall have any
obligation under this Debenture, the Corporation shall not, without the
written consent of the holders of a majority of the then outstanding
principal amount of the Debentures, lend money, give credit or make advances
to any person, firm, joint venture or corporation, including, without
limitation, officers, directors, employees, subsidiaries and affiliates of
the Corporation, except loans, credits or advances (a) in existence or
committed on the date hereof and which the Corporation has informed Holder in
writing prior to the date hereof, and (b) made in the ordinary course of
business.
F. CONTINGENT LIABILITIES. So long as the Corporation shall have any
obligation under this Debenture, the Corporation shall not, without the
written consent of the holders of a majority of the then outstanding
principal amount of the Debentures, assume, guarantee, endorse, contingently
agree to purchase or otherwise become liable upon the obligation of any
person, firm, partnership, joint venture or corporation, except by the
endorsement of negotiable instruments for deposit or collection and except
assumptions, guarantees, endorsements and
<PAGE>
contingencies (a) in existence or committed on the date hereof and which the
Corporation has informed Holder in writing prior to the date here of, and (b)
similar transactions in the ordinary course of business.
IV. AUTOMATIC CONVERSION
Subject to the limitations on conversion set forth in Article
II.A.2 and so long as (i) all of the shares of Common Stock issuable upon
conversion of or otherwise pursuant to all of the then outstanding Debentures
are then (x) authorized and reserved for issuance, (y) registered for re-sale
under the Securities Act by the holder of the Debentures (or may otherwise be
able to be resold publicly without registration or restriction) and (z)
eligible to be traded on the OTC BB, the Nasdaq, the NYSE, the AMEX or the
Nasdaq SmallCap and (ii) there is not then a continuing Mandatory Redemption
Event or Trading Market Redemption Event, the entire principal amount of the
Debentures then outstanding (together with any accrued and unpaid interest
thereon, Default Interest, Conversion Default Payments, Delivery Default
Payments and all other amounts due and payable by the Corporation pursuant to
Section 2(c) of the Registration Rights Agreement) on the Automatic
Conversion Date, automatically shall be converted into shares of Common Stock
on such date at the then effective Conversion Price in accordance with, and
subject to, the provisions of Article II hereof (including the right to
exercise the Investment Options in accordance with Article II.E) (the
"AUTOMATIC CONVERSION"). The Automatic Conversion Date shall be delayed by
one (1) Trading Day for each Trading Day occurring prior thereto and prior to
the full conversion of the Debentures that (i) any Registration Statement
required to be filed and to be effective pursuant to the Registration Rights
Agreement is not effective or sales of all of the Registrable Securities
otherwise cannot be made thereunder during the Registration Period (whether
by reason of the Corporation's failure to properly supplement or amend the
prospectus included therein in accordance with the terms of the Registration
Rights Agreement or otherwise), (ii) any Mandatory Redemption Event or
Trading Market Redemption Event exists, without regard to whether any cure
periods shall have run or (iii) the Corporation is in breach of any of its
obligations pursuant to Section 4(h) of the Purchase Agreement. The
Automatic Conversion Date shall be the Conversion Date for purposes of
determining the Conversion Price and the time within which certificates
representing the Common Stock must be delivered to the holder.
V. CONVERSION BY THE CORPORATION
So long as (i) (a) all of the shares of Corporation's Series A
Convertible Preferred Stock (the "SERIES A PREFERRED STOCK") are authorized
and reserved for issuance, (b) all approvals of the Corporation's board of
directors and stockholders necessary for the issuance of the Series A
Preferred Stock have been obtained, (c) the Certificate of Designations,
Preferences and Rights
<PAGE>
of Series A Convertible Preferred Stock of the Corporation in the form
attached as EXHIBIT B to the Purchase Agreement (the "CERTIFICATE OF
DESIGNATIONS") has been accepted for filing by the Secretary of State of the
State of Nevada and (d) the Holder has received an opinion of counsel to the
Corporation, in form, substance and scope satisfactory to the Holder, as to
the foregoing and such other matters which the Holder may reasonably request;
(ii) shares of Common Stock issuable upon conversion of all outstanding
shares of Series A Preferred Stock are then (x) authorized and reserved for
issuance and (y) eligible to be traded on the OTC BB, Nasdaq, the NYSE, the
AMEX or Nasdaq SmallCap and (iii) there is not then a continuing Mandatory
Redemption Event or Trading Market Redemption Event, then, at any time after
the Issue Date, so long as the requirements set forth in clauses (i), (ii)
and (iii) above have been met, the Corporation shall have the right,
exercisable on not less than two (2) Trading Days prior written notice (the
"CORPORATION CONVERSION NOTICE") to the Holder (which notice may not be sent
to the Holder until the Corporation is permitted to convert this Debenture
pursuant to this Article V), to convert the entire outstanding principal
amount of this Note into shares of Series A Preferred Stock in accordance
with this Article V. The number of shares of Series A Preferred Stock
issuable upon conversion pursuant to this Article V shall be determined by
dividing the Preferred Stock Conversion Amount (as defined below) by the
Stated Value (as defined in the Certificate of Designations) of the Series A
Preferred Stock. The "PREFERRED STOCK CONVERSION AMOUNT" means (i) the entire
outstanding principal amount of this Debenture, plus (ii) Default Interest,
if any, on the amount referred to in the immediately preceding clause, plus
(iii) any Conversion Default Payments and Delivery Default Payments payable
with respect thereto, together with any other amounts owed to Holder pursuant
to Section 2(c) of the Registration Rights Agreement. Any conversion under
this Article V shall be effected as of the date the Holder receives, at its
registered addresses appearing on the books and records of the Corporation,
the proper number of shares of Series A Preferred Stock as determined in the
preceding sentence (the "CORPORATION CONVERSION NOTICE"). As of the
Corporation Conversion Date the Holder shall cease to be a Holder of this
Debenture and shall become a holder of Series A Preferred Stock. As soon as
practicable after receipt by the Holder of such proper number of shares of
Series A Preferred Stock, the Holder shall forfeit this Debenture to the
office of the Corporation.
VI. MISCELLANEOUS
A. FAILURE OF INDULGENCE NOT WAIVER. No failure or delay on the part
of Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.
B. NOTICES. Any notices required or permitted to be given under the
terms of this Debenture shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, and shall be effective five days
after being placed in the mail, if mailed, or upon receipt or refusal of
<PAGE>
receipt, if delivered personally or by courier or by facsimile, in each case
addressed to a party. The addresses for such communications shall be:
If to the Corporation:
Global Media Corp.
83 Victoria Crescent
Unit 29
Nanaimo, British Columbia V9R 5B9
Canada
Attention: Chief Executive Officer
Facsimile: (250) 716-0502
With copy to:
Davis Wright Tremaine LLP
2600 Century Square
1501 Fourth Avenue
Seattle, Washington 98101
Attention: Eric A. DeJong
Facsimile: (206) 628-7699
If to Holder, to the address set forth immediately below Holder's name
on the signature pages to the Purchase Agreement or such other address as is
communicated to the Corporation by notice by Holder in accordance with the
terms hereof.
With copy to:
Morgan, Lewis & Bockius, LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
Attention: Keith S. Marlowe
Facsimile: (215) 963-5299
C. AMENDMENT PROVISION. The Debentures may be amended only by an
instrument in writing signed by the Corporation and the holders of a majority
of the then outstanding principal amount of the Debentures.
D. ASSIGNABILITY. This Debenture shall be binding upon the
Corporation and its successors and assigns and shall inure to the benefit of
Holder and its successors and assigns. In the event Holder shall sell or
otherwise transfer any portion of this Debenture, each transferee shall be
allocated a pro rata portion of such transferor's Maximum Share Amount and
Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount
which remains
<PAGE>
allocated to any person or entity which does not hold any Debentures shall be
allocated to the remaining holders of Debentures, pro rata based on the total
principal amount of Debentures then held by such holders.
E. COST OF COLLECTION. If default is made in the payment of this
Debenture, the Corporation shall pay Holder costs of collection, including
reasonable attorneys' fees.
F. GOVERNING LAW. This Debenture shall be governed by and construed
in accordance with the laws of the State of Delaware applicable to contracts
made and to be performed in the State of Delaware (without regard to
principles of conflict of laws). The Corporation and Holder irrevocably
consent to the jurisdiction of the United States federal courts and state
courts located in Delaware in any suit or proceeding based on or arising
under this Debenture, the agreements entered into in connection herewith or
the transactions contemplated hereby or thereby and irrevocably agree that
all claims in respect of such suit or proceeding may be determined in such
courts. The Corporation and Holder irrevocably waive the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The
Corporation and Holder further agree that service of process upon a party
mailed by first class mail shall be deemed in every respect effective service
of process upon the party in any such suit or proceeding. Nothing herein
shall affect Holder's right to serve process in any other manner permitted by
law. The Corporation and Holder agree that a final non-appealable judgment
in any such suit or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on such judgment or in any other lawful manner.
G. DENOMINATIONS. At the request of Holder, upon surrender of this
Debenture, the Corporation shall promptly issue new Debentures in the
aggregate outstanding principal amount hereof, in the form hereof, in such
denominations of at least $25,000 as Holder shall request.
H. PAYMENT OF CASH; DEFAULTS. Whenever the Corporation is required to
make any cash payment to Holder under this Debenture (as a Conversion Default
Payment or otherwise but not including payments of principal and interest
hereunder), such cash payment shall be made to Holder within five Trading
Days after delivery by Holder of a notice specifying that Holder elects to
receive such payment in cash and the method (e.g., by check, wire transfer)in
which such payment should be made and appropriate delivery instructions,
including any necessary wire transfer instructions. If such payment is not
delivered within such five (5)Trading Day period, Holder shall thereafter be
entitled to interest on the unpaid amount at a per annum rate equal to the
lower of 24% and the highest interest rate permitted by applicable law until
such amount is paid in full to Holder.
I. STATUS AS DEBENTUREHOLDER. Upon submission of a Notice of
Conversion by Holder, the principal amount of this Debenture and the interest
thereon covered thereby (other than any portion of this Debenture, if any,
which cannot be converted because the conversion thereof would exceed such
holder's allocated portion of the Maximum Share Amount or Reserved Amount)
shall be deemed converted into shares of Common Stock as of the Conversion
Date and Holder's rights as a holder of this Debenture shall cease and
terminate,
<PAGE>
excepting only the right to receive certificates for such shares of Common
Stock and to any remedies provided herein or otherwise available at law or in
equity to such holder because of a failure by the Corporation to comply with
the terms of this Debenture. Notwithstanding the foregoing, if Holder has
not received certificates for all shares of Common Stock prior to the tenth
business day after the expiration of the Delivery Period with respect to a
conversion for any reason, then (unless Holder otherwise elects to retain its
status as a holder of Common Stock by so notifying the Corporation) the
portion of the principal amount and interest thereon subject to such
conversion shall be deemed outstanding under this Debenture and the
Corporation shall, as soon as practicable, return this Debenture to Holder.
In all cases, Holder shall retain all of its rights and remedies
(including, without limitation, (i) the right to receive Conversion Default
Payments pursuant to Article II.F to the extent required thereby for such
Conversion Default and any subsequent Conversion Default and (ii) the right
to have the Conversion Price with respect to subsequent conversions
determined in accordance with Article II.F) for the Corporation's failure to
convert this Debenture.
J. PRO RATA ALLOCATIONS. The Maximum Share Amount and the Reserved
Amount (including any increases thereto) shall be allocated by the
Corporation pro rata among the holders of the Debentures based on the total
principal amount of Debentures originally issued to each holder. Each
increase to the Maximum Share Amount and the Reserved Amount shall be
allocated pro rata among the holders of the Debentures based on the total
principal amount of Debentures held by each holder at the time of the
increase in the Maximum Share Amount or Reserved Amount. In the event a
holder shall sell or otherwise transfer any of such holder's shares of the
Debentures, each transferee shall be allocated a pro rata portion of such
transferor's Maximum Share Amount and Reserved Amount. Any portion of the
Maximum Share Amount or Reserved Amount which remains allocated to any person
or entity which does not hold any the Debentures shall be allocated to the
remaining holders of shares of the Debentures, pro rata based on the total
principal amount of Debentures held by such holders.
K. REMEDIES CUMULATIVE. The remedies provided in this Debenture shall
be cumulative and in addition to all other remedies available under this
Debenture, at law or in equity (including a decree of specific performance
and/or other injunctive relief), no remedy contained herein shall be deemed a
waiver of compliance giving rise to such remedy and nothing herein shall
limit Holder's right to pursue actual damages for any failure by the
Corporation to comply with the terms of this Debenture. The Corporation
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to Holder and that the remedy at law for any such breach may
be inadequate. The Corporation therefore agrees, in the event of any such
breach or threatened breach, Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without
the necessity of showing economic loss and without any bond or other security
being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Debenture to be
signed in its name by its duly authorized officer as of the date first above
written.
GLOBAL MEDIA CORP.
By:
------------------------------------
L. James Porter
Chief Financial Officer
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debentures)
The undersigned hereby irrevocably elects to convert $________
principal amount of the Debenture (defined below) plus $________ of accrued
interest and other payments thereon into shares of common stock, par value
$0.001 per share ("COMMON STOCK"), of Global Media Corp., a Nevada
corporation (the "CORPORATION"), according to the conditions of the
convertible debentures of the Corporation dated as of May __, 1999 (the
"DEBENTURES"), as of the date written below. If securities are to be issued
in the name of a person other than the undersigned, the undersigned will pay
all transfer taxes payable with respect thereto and is delivering herewith
such certificates. No fee will be charged to the Holder for any conversion,
except for transfer taxes, if any. A copy of each Debenture is attached
hereto (or evidence of loss, theft or destruction thereof).
The undersigned hereby irrevocably elects to exercise its
Investment Option to purchase _______________ shares of Common Stock of the
Corporation (up to the number of shares of Common Stock issuable pursuant to
the conversion of the Debenture) at the Applicable Conversion Price set forth
below and shall make payment of $__________ for such shares by wire transfer
of such amount to the Corporation simultaneously upon transfer of the shares
of Common Stock by the Corporation.
So long as the Common Stock issuable pursuant to this Notice of
Conversion is either registered under the Act (as defined below) or may be
sold under Rule 144 promulgated under the Act without restriction as to the
number of shares as of a particular date that can then be immediately sold,
the Corporation shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or
its nominee with DTC through its Deposit Withdrawal Agent Commission system
("DWAC TRANSFER").
Name of DTC Prime Broker:
-------------------------------------------
Account Number:
-----------------------------------------------------
In lieu of receiving shares of Common Stock issuable pursuant to
this Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Corporation issue a certificate or certificates for the
number of shares of Common Stock set forth below (which numbers are based on
the Holder's calculation attached hereto) in the name(s) specified
immediately below or, if additional space is necessary, on an attachment
hereto:
Name:
---------------------------------------------------------------
Address:
------------------------------------------------------------
<PAGE>
The undersigned represents and warrants that all offers and sales
by the undersigned of the securities issuable to the undersigned upon
conversion of the Debentures and exercise of the Investment Options shall be
made pursuant to registration of the securities under the Securities Act of
1933, as amended (the "ACT"), or pursuant to an exemption from registration
under the Act.
Date of Conversion:
----------------------------
Market Price Days:
----------------------------
Applicable Conversion Price:
---------------------
Number of Shares of Common Stock to be Issued
Pursuant to (i) Conversion of the Debentures:
-----------------
(ii) exercise of Investment Options:
------------
Signature:
----------------------------------------
Name:
----------------------------------------
Address:
-------------------------------------
AGREED and ACKNOWLEDGED:
GLOBAL MEDIA CORP.
By:
-----------------------------------
Name and Title:
-----------------------
*Subject to Article II.D of the Debenture(s), the Corporation is not required
to issue shares of Common Stock until the original Debenture(s) (or evidence
of loss, theft or destruction thereof) to be converted are received by the
Corporation or its Transfer Agent and, in the case of shares issuable upon
exercise of Investment Options, it has received payment for such shares. The
Corporation shall issue and deliver shares of Common Stock to an overnight
courier not later than three business days following receipt of the original
Debenture(s) to be converted, and shall make payments pursuant to the
Debentures for the number of business days such issuance and delivery is late
(subject to the applicable grace period set forth in the Debenture(s)).
<PAGE>
EXHIBIT 99.3
EXHIBIT B
TO
SECURITIES
PURCHASE
AGREEMENT
CERTIFICATE OF
DESIGNATIONS, PREFERENCES, AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
GLOBAL MEDIA CORP.
(Pursuant to Section 78.1955 of the
Nevada General Corporation Law)
GLOBAL MEDIA CORP., a corporation organized and existing under the
Nevada General Corporation Law (the "CORPORATION"), hereby certifies that the
following resolutions were adopted by the Board of Directors of the Corporation
on _______ ___, [1999/200_] pursuant to authority of the Board of Directors as
required by Section 78.195 of the Nevada General Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "BOARD OF DIRECTORS" or the "BOARD")
in accordance with the provisions of its Articles of Incorporation, the Board of
Directors hereby authorizes a series of the Corporation's previously authorized
Preferred Stock, par value $0.001 per share (the "PREFERRED STOCK"), and hereby
states the designation and number of shares, and fixes the relative rights,
preferences, privileges, powers and restrictions thereof as follows:
Series A Convertible Preferred Stock:
<PAGE>
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of _______ [Preferred
Stock Conversion Amount (as defined in the Debentures) DIVIDED BY 1,000] shares
of Preferred Stock, is Series A Convertible Preferred Stock (the "SERIES A
PREFERRED STOCK") and the stated value shall be One Thousand Dollars ($1,000)
per share (the "STATED VALUE").
II. RANK
The Series A Preferred Stock shall rank (i) prior to the Corporation's
common stock, par value $0.001 per share (the "COMMON STOCK"); (ii) prior to any
class or series of capital stock of the Corporation hereafter created (unless,
with the consent of the holders of Series A Preferred Stock obtained in
accordance with Article IX hereof, such class or series of capital stock
specifically, by its terms, ranks senior to or pari passu with the Series A
Preferred Stock) (collectively, with the Common Stock, "JUNIOR SECURITIES");
(iii) pari passu with any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, on parity with the Series A Preferred Stock ("PARI PASSU SECURITIES");
and (iv) junior to any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, senior to the Series A Preferred Stock ("SENIOR SECURITIES"), in each
case as to distribution of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary.
III. DIVIDENDS
The Series A Preferred Stock shall not bear any dividends. In no
event, so long as any Series A Preferred Stock shall remain outstanding, shall
any dividend whatsoever be declared or paid upon, nor shall any distribution be
made upon, any Junior Securities, nor shall any shares of Junior Securities be
purchased or redeemed by the Corporation nor shall any moneys be paid to or made
available for a sinking fund for the purchase or redemption of any Junior
Securities (other than a distribution of Junior Securities), without, in each
such case, the written consent of the holders of a majority of the outstanding
shares of Series A Preferred Stock, voting together as a class.
IV. LIQUIDATION PREFERENCE
A. LIQUIDATION EVENT. If the Corporation shall commence a voluntary
case under the Federal bankruptcy laws or any other applicable Federal or State
bankruptcy, insolvency or similar law, or consent to the entry of an order for
relief in an involuntary case
<PAGE>
under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay
its debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of
any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and any such decree or order shall be unstayed
and in effect for a period of thirty (30) consecutive days and, on account of
any such event, the Corporation shall liquidate, dissolve or wind up, or if
the Corporation shall otherwise liquidate, dissolve or wind up (each such
event being considered a "LIQUIDATION EVENT"), no distribution shall be made
to the holders of any shares of capital stock of the Corporation (other than
Senior Securities) upon liquidation, dissolution or winding up unless prior
thereto, the holders of shares of Series A Preferred Stock, subject to this
Article IV, shall have received the Liquidation Preference (as defined in
Article IV.C) with respect to each share. If upon the occurrence of a
Liquidation Event, the assets and funds available for distribution among the
holders of the Series A Preferred Stock and holders of PARI PASSU Securities
(including any dividends or distribution paid on any PARI PASSU Securities
after the date of filing of this Certificate of Designation) shall be
insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of the Corporation
legally available for distribution to the Series A Preferred Stock and the
PARI PASSU Securities shall be distributed ratably among such shares in
proportion to the ratio that the Liquidation Preference payable on each such
share bears to the aggregate liquidation preference payable on all such
shares. Any prior dividends or distribution made after the date of filing of
this Certificate of Designation shall offset, dollar for dollar, the amount
payable to the class or series to which such distribution was made.
B. CERTAIN ACTS DEEMED LIQUIDATION EVENT. At the option of any
holder of Series A Preferred Stock, (a) the sale, conveyance or disposition of
all or substantially all of the assets of the Corporation, (b) the effectuation
by the Corporation of a transaction or series of related transactions in which
more than 50% of the voting power of the Corporation is disposed of, or (c) the
consolidation, merger or other business combination of the Corporation with or
into any other Person (as defined below) or Persons when the Corporation is not
the survivor, shall either: (i) be deemed to be a liquidation, dissolution or
winding up of the Corporation pursuant to which the Corporation shall be
required to distribute upon consummation of and as a condition to such
transaction an amount equal to 118% of the Liquidation Preference with respect
to each outstanding share of Series A Preferred Stock or (ii) if applicable, be
treated pursuant to Article VI.C(b) hereof. Any holder of Series A Preferred
Stock making an election under this Article IV.B. shall notify the Corporation
of such election prior to the closing of the transaction which would trigger
such holder's rights pursuant to this Article IV.B. The above provisions shall
similarly apply to successive consolidations, mergers, business combinations,
sales or dispositions. "PERSON" shall mean any individual, corporation, limited
liability company,
<PAGE>
partnership, association, trust or other entity or organization.
C. LIQUIDATION PREFERENCE. For purposes hereof, the "LIQUIDATION
PREFERENCE" with respect to a share of the Series A Preferred Stock shall mean
an amount equal to the sum of (i) the Stated Value thereof plus (ii) an amount
equal to five percent (5%) per annum of such Stated Value for the period
beginning on May 6, 1999 (the "CLOSING DATE") and ending on the date of final
distribution to the holder thereof (prorated for any portion of such period).
The liquidation preference with respect to any PARI PASSU Securities shall be as
set forth in the Certificate of Designation filed in respect thereof.
V. REDEMPTION
A. MANDATORY REDEMPTION. If any of the following events (each, a
"MANDATORY REDEMPTION EVENT") shall occur:
(i) The Corporation fails to issue shares of Common Stock to
the holders of Series A Preferred Stock upon exercise by the holders of their
conversion rights in accordance with the terms of this Certificate of
Designation (including upon exercise of or otherwise pursuant to the
Investment Options (as defined in Article VI.G below)) (for a period of at
least sixty (60) days if such failure is solely as a result of the
circumstances governed by the second paragraph of Article VI.E below and the
Corporation is using its best efforts to authorize a sufficient number of
shares of Common Stock as soon as practicable), fails to transfer or to cause
its transfer agent to transfer (electronically or in certificated form) any
certificate for shares of Common Stock issued to the holders upon conversion
of or otherwise pursuant to the Series A Preferred Stock (or upon exercise of
or otherwise pursuant to the Investment Options) as and when required by this
Certificate of Designation or the Registration Rights Agreement, dated as of
May 6, 1999, by and among the Corporation and the other signatories thereto
(the "REGISTRATION RIGHTS AGREEMENT"), fails to remove any restrictive legend
(or to withdraw any stop transfer instructions in respect thereof) on any
certificate or any shares of Common Stock issued to the holders of Series A
Preferred Stock upon conversion of or otherwise pursuant to the Series A
Preferred Stock (or upon exercise of or otherwise pursuant to the Investment
Options) as and when required by this Certificate of Designation, the
Securities Purchase Agreement dated as of May 6, 1999, by and between the
Corporation and the other signatories thereto (the "PURCHASE AGREEMENT") or
the Registration Rights Agreement, or fails to fulfill its obligations
pursuant to Sections 4(c), 4(d), 4(e), 4(i), 4(j) or 5 of the Purchase
Agreement (or makes any announcement, statement or threat that it does not
intend to honor the obligations described in this paragraph) and any such
failure shall continue uncured (or any announcement, statement or threat not
to honor its obligations shall not be rescinded in writing) for ten (10) days
after the Corporation shall have been notified thereof in writing by any
holder of Series A Preferred Stock;
(ii) The Corporation fails to obtain effectiveness with the
Securities
<PAGE>
and Exchange Commission (the "SEC"), prior to November 6, 1999 of the
Registration Statement(s) (as defined in the Registration Rights Agreement,
the "REGISTRATION STATEMENT(S)") required to be filed pursuant to Section
2(a) of the Registration Rights Agreement, or fails to obtain the
effectiveness of any additional Registration Statement (required to be filed
pursuant to Section 3(b) of the Registration Rights Agreement) within sixty
(60) days after the Registration Trigger Date (as defined in the Registration
Rights Agreement), or any such Registration Statement, after its initial
effectiveness and during the Registration Period (as defined in the
Registration Rights Agreement), lapses in effect or sales of all of the
Registrable Securities (as defined in the Registration Rights Agreement, the
"REGISTRABLE SECURITIES") otherwise cannot be made thereunder (whether by
reason of the Corporation's failure to amend or supplement the prospectus
included therein in accordance with the Registration Rights Agreement, the
Corporation's failure to file and obtain effectiveness with the SEC of any
additional Registration Statement required pursuant to Section 3(b) of the
Registration Rights Agreement or otherwise) for more than thirty (30)
consecutive days or more than sixty (60) days in any twelve (12) month period
after such Registration Statement becomes effective;
(iii) The Corporation or any Significant Subsidiary (as
defined in Rule 1-02(w) of Regulation S-X promulgated by the SEC) (a
"SIGNIFICANT SUBSIDIARY") of the Corporation shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for all or substantially all of its property or
business; or such a receiver or trustee shall otherwise be appointed;
(iv) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation or
any Significant Subsidiary of the Corporation;
(v) The Corporation shall (i) fail to maintain the listing of
the Common Stock on the Over-the-Counter Bulletin Board (the "OTC BB") and such
failure shall remain uncured for at least ten (10) days or (ii) following the
date on which listing or quotation of the Common Stock on the Nasdaq National
Market ("NASDAQ"), the New York Stock Exchange (the "NYSE") or the American
Stock Exchange ("AMEX") or, if the Corporation is not eligible for Nasdaq, the
NYSE or AMEX, the Nasdaq SmallCap Market (the "NASDAQ SMALLCAP") has been
secured by the Corporation, fails to maintain such listing on any of Nasdaq,
Nasdaq SmallCap, the NYSE or AMEX,
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (i), (ii) or (v), at the option of
the holders of at least 50% of the then outstanding shares of Series A Preferred
Stock exercisable by the delivery of written notice (the "MANDATORY REDEMPTION
NOTICE") to the Corporation of such Mandatory Redemption Event, or upon the
occurrence of any Mandatory Redemption Event specified in subparagraphs (iii) or
(iv), the then outstanding shares of Series A Preferred Stock shall become
immediately redeemable and the Corporation shall purchase each holder's
outstanding shares of Series A Preferred Stock for an amount per share equal to
the greater of (1) 120% multiplied by the sum of (a) the Stated
<PAGE>
Value of the shares to be redeemed plus (b) an amount equal to five percent
(5%) per annum of such Stated Value for the period beginning on the Closing
Date and ending on the date of payment of the Mandatory Redemption Amount
(the "MANDATORY REDEMPTION DATE"), plus (c) all Conversion Default Payments
(as defined in Article VI.E below), Delivery Default Payments (as defined in
Article VI.D below) and any other amounts owed to such holder pursuant to
Section 2(c) of the Registration Rights Agreement, and (2) the "PARITY VALUE"
of the shares to be redeemed, where parity value means the product of (a) the
highest number of shares of Common Stock issuable upon conversion of such
shares of Series A Preferred Stock in accordance with Article VI below
(without giving effect to any limitations on conversions contained herein and
treating the Trading Day (as defined in Article VI.B) immediately preceding
the Mandatory Redemption Date as the "CONVERSION DATE" (as defined in Article
VI.B(a)) for purposes of determining the lowest applicable Conversion Price
(as defined below), unless the Mandatory Redemption Event arises as a result
of a breach in respect of a specific Conversion Date in which case such
Conversion Date shall be the Conversion Date), multiplied by (b) the highest
Closing Price (as defined below) for the Common Stock during the period
beginning on the date of first occurrence of the Mandatory Redemption Event
and ending one day prior to the Mandatory Redemption Date (the greater of
such amounts being referred to as the "MANDATORY REDEMPTION AMOUNT").
"CLOSING PRICE," as of any date, means the last sale price of the Common
Stock on the OTC BB as reported by Bloomberg Financial Markets or an
equivalent reliable reporting service mutually acceptable to and hereafter
designated by the holders of a majority in interest of the shares of Series A
Preferred Stock and the Corporation ("BLOOMBERG") or, if OTC BB is not the
principal trading market for such security, the last sale price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or, if no last sale
price of such security is available in any of the foregoing manners, the
average of the bid prices of any market makers for such security that are
listed in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Price cannot be calculated for such security on such date in the
manner provided above, the Closing Price shall be the fair market value as
mutually determined by the Corporation and the holders of a
majority-in-interest of shares of Series A Preferred Stock being converted
for which the calculation of the Closing Price is required in order to
determine the Conversion Price of such Series A Preferred Stock.
B. TRADING MARKET REDEMPTION. If and to the extent the Series A
Preferred Stock ceases to be convertible by any holder as a result of the
limitations described in Article VI.A(b) below (a "TRADING MARKET REDEMPTION
EVENT"), and the Corporation has not, prior to the date that such Trading Market
Redemption Event arises, (i) obtained the Stockholder Approval (as defined in
Article VI.A(b)) or (ii) eliminated any prohibitions under applicable law or the
rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Corporation or any
of its securities on the Corporation's ability to issue shares of Common Stock
in excess of the Maximum Share Amount (as defined in Article VI.A(b)), then the
Corporation shall be obligated to redeem immediately all of the then outstanding
Series A Preferred Stock which ceases to be convertible as a result of the
Maximum Share Amount, in accordance with this Article V.B. An irrevocable
redemption
<PAGE>
notice (the "TRADING MARKET REDEMPTION NOTICE") shall be delivered promptly
to the holders of Series A Preferred Stock at their registered address
appearing on the records of the Corporation and shall state (i) that the
Maximum Share Amount (as defined in Article VI.A(b)) has been issued upon
conversion of the Series A Preferred Stock, (ii) that the Corporation is
obligated to redeem all of the outstanding Series A Preferred Stock and (iii)
the Mandatory Redemption Date, which shall be a date within five (5) business
days of the earlier of (a) the date of the Redemption Notice or (b) the date
on which the holders of the Series A Preferred Stock notify the Corporation
of the occurrence of a Trading Market Redemption Event. On the Mandatory
Redemption Date, the Corporation shall make payment of the Mandatory
Redemption Amount (as defined in Article V.A above) in cash.
C. FAILURE TO PAY REDEMPTION AMOUNTS. In the case of a Mandatory
Redemption Event, if the Corporation fails to pay the Mandatory Redemption
Amount within five (5) business days of written notice that such amount is due
and payable, then (assuming there are sufficient authorized shares) in addition
to all other available remedies, each holder of Series A Preferred Stock shall
have the right at any time, so long as the Mandatory Redemption Event
continues, to require the Corporation, upon written notice, to immediately issue
(in accordance with and subject to the terms of Article VI below), in lieu of
the Mandatory Redemption Amount, the number of shares of Common Stock of the
Corporation equal to such applicable redemption amount divided by any Conversion
Price (as defined below), as chosen in the sole discretion of the holder of
Series A Preferred Stock, in effect from the date of the Mandatory Redemption
Event until the date such holder elects to exercise its rights pursuant to this
Article V.C.
VI. CONVERSION AT THE OPTION OF THE HOLDER
A. OPTIONAL CONVERSION
(a) CONVERSION AMOUNT. Subject to Article VI.A(b) below, each
holder of shares of Series A Preferred Stock may, at its option at any time and
from time to time, upon surrender of the certificates therefor, convert any or
all of its shares of Series A Preferred Stock into Common Stock as set forth
below (an "OPTIONAL CONVERSION"). Each share of Series A Preferred Stock shall
be convertible into such number of fully paid and nonassessable shares of Common
Stock as such Common Stock exists on the date of issuance of the Series A
Preferred Stock (the "ISSUE DATE"), or any other shares of capital stock or
other securities of the Corporation into which such Common Stock is thereafter
changed or reclassified, as is determined by dividing (1) the sum of (a) the
Stated Value thereof plus (b) the Premium Amount (as defined below), by (2) the
then effective Conversion Price (as defined below); PROVIDED, HOWEVER, that in
no event (other than pursuant to the Automatic Conversion (as defined in Article
VII)) shall a holder of shares of Series A Preferred Stock be entitled to
convert any such shares (or exercise any Investment Options in connection with
any such conversion) in excess of that number of shares upon conversion of which
the sum of (x) the number of shares of Common
<PAGE>
Stock beneficially owned by the holder and its affiliates (other than shares
of Common Stock which may be deemed beneficially owned through the ownership
of the unconverted portion of the shares of Series A Preferred Stock, the
unexercised Investment Options or the unexercised or unconverted portion of
any other securities of the Corporation (including, without limitation, the
warrants issued by the Corporation pursuant to the Securities Purchase
Agreement (the "WARRANTS")) subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (y) the number of shares
of Common Stock issuable upon the conversion of the shares of Series A
Preferred Stock (and upon the exercise, if any, of Investment Options in
connection therewith) with respect to which the determination of this proviso
is being made, would result in beneficial ownership by a holder and such
holder's affiliates of more than 4.9% of the outstanding shares of Common
Stock. For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended, and Regulation 13D-G
thereunder, except as otherwise provided in clause (x) of such proviso. The
"PREMIUM AMOUNT" means the product of the Stated Value, multiplied by .05,
multiplied by (N/365), where "N" equals the number of days elapsed from the
Closing Date to and including the Conversion Date (as defined in Article
VI.B).
(b) TRADING MARKET LIMITATION. Unless the Corporation either (i)
is permitted (or not prohibited) by the applicable rules and regulations of the
principal securities market on which the Common Stock is listed or traded to
issue shares of Common Stock upon conversion of or otherwise pursuant to the
Series A Preferred Shares and upon exercise of or otherwise pursuant to the
Investment Options in excess of the Maximum Share Amount (as defined below) or
(ii) has obtained approval of the issuance of the Common Stock upon conversion
of or otherwise pursuant to the Series A Preferred Stock and upon exercise of or
otherwise pursuant to the Investment Options in excess of the Maximum Share
Amount in accordance with applicable law and the rules and regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Corporation or any of its securities
(the "STOCKHOLDER APPROVAL"), in no event shall the total number of shares of
Common Stock issued upon conversion of or otherwise pursuant to the Series A
Preferred Stock and upon exercise of or otherwise pursuant to the Investment
Options (including shares of Common Stock issuable upon conversion of or
otherwise pursuant to the Debentures (as defined in the Purchase Agreement, the
"DEBENTURES")(including shares issuable upon exercise of or otherwise pursuant
to the Investment Options contained therein), shares issuable upon exercise of
or otherwise pursuant to the Warrants and any shares of capital stock or rights
to acquire shares of capital stock issued by the Corporation which are
aggregated or integrated with the Common Stock issued or issuable upon
conversion of or otherwise pursuant to the Series A Preferred Stock and upon
exercise or otherwise pursuant to the Investment Options for purposes of any
such rule or regulation) exceed 4,106,831 (19.99% of the total shares of Common
Stock outstanding on the Issue Date) (the "MAXIMUM SHARE AMOUNT"), subject to
equitable adjustments from time to time for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the Common
Stock occurring after the Issue Date. With respect to each holder of Series A
Preferred Stock, the Maximum Share Amount shall refer
<PAGE>
to such holder's PRO RATA share thereof determined in accordance with Article
X below. In the event that the sum of (x) the aggregate number of shares of
Common Stock actually issued upon conversion of or otherwise pursuant to the
shares of Series A Preferred Stock and upon exercise of or otherwise pursuant
to the Investment Options (including shares of Common Stock actually issued
upon conversion of or otherwise pursuant to the Debentures (including shares
issued upon exercise of or otherwise pursuant to the Investment Options
contained therein), shares issued upon exercise of or otherwise pursuant to
the Warrants and any shares of capital stock or rights to acquire shares of
capital stock issued by the Corporation which are aggregated or integrated
with the Common Stock issued or issuable upon conversion of or otherwise
pursuant to the Series A Preferred Stock and upon exercise or otherwise
pursuant to the Investment Options for purposes of any such rule or
regulation) PLUS (y) the aggregate number of shares of Common Stock that
remain issuable upon conversion of or otherwise pursuant to the outstanding
shares of Series A Preferred Stock at the then effective Conversion Price,
upon exercise of or otherwise pursuant to the Investment Options, upon
exercise of or otherwise pursuant to the Warrants at the then effective
Exercise Price (as defined in the Warrants) and any shares of capital stock
or rights to acquire shares of capital stock issuable by the Corporation
which are aggregated or integrated with the Common Stock issued or issuable
upon conversion of or otherwise pursuant to the Series A Preferred Stock and
upon exercise or otherwise pursuant to the Investment Options for purposes of
any such rule or regulation, represents at least one hundred percent (100%)
of the Maximum Share Amount (the "TRIGGERING EVENT"), the Corporation will
use its best efforts to seek and obtain Stockholder Approval (or obtain such
other relief as will allow conversions hereunder in excess of the Maximum
Share Amount) as soon as practicable following the Triggering Event.
B. CONVERSION PRICE.
(a) CALCULATION OF CONVERSION PRICE. Subject to subparagraph
(b) below, the "CONVERSION PRICE" shall be the lesser of the Variable Conversion
Price (as defined herein) and the Fixed Conversion Price (as defined herein).
The Conversion Price shall be subject to adjustments pursuant to the provisions
of Article VI.C below. "VARIABLE CONVERSION PRICE" shall mean the product of
(x) the Applicable Percentage (as defined below) and (y) the Market Price (as
defined below). "MARKET PRICE" shall mean the lowest average of the Closing Bid
Prices for any seven (7) consecutive Trading Day period (the "MARKET PRICE
DAYS") during the thirty-five (35) consecutive Trading Day period ending one (1)
Trading Day prior to the date (the "CONVERSION DATE") the Notice of Conversion
(as defined in Article VI.E) is sent by a holder to the Corporation via
facsimile (the "PRICING PERIOD"). The Market Price Days shall be designated by
the converting holder (from among the days comprising the Pricing Period) in the
Notice of Conversion. "FIXED CONVERSION PRICE" shall mean $8.125; PROVIDED,
HOWEVER, that if the Common Stock is not listed on Nasdaq or, if the Corporation
is not eligible for Nasdaq, the Nasdaq SmallCap on November 6, 1999, the Fixed
Conversion Price shall mean the lesser of $8.125 and 110% of the average of the
Closing Bid Prices for the ten (10) consecutive Trading Days ending November 6,
1999. "APPLICABLE PERCENTAGE" shall mean 100%; PROVIDED, HOWEVER, that if the
Common Stock is not listed on Nasdaq or, if the Corporation is not eligible
<PAGE>
for Nasdaq, the Nasdaq SmallCap prior to November 6, 1999, or, if so listed
on or prior to that date, the Common Stock is at any time thereafter delisted
from Nasdaq or the Nasdaq SmallCap (other than delisting, for no more than
two (2) Trading Days, solely in connection with the simultaneous listing of
the Common Stock on the NYSE or AMEX), the Applicable Percentage shall mean
80%. "CLOSING BID PRICE" means, for any security as of any date, the closing
bid price on the OTC BB as reported by Bloomberg or, if the OTC BB is not the
principal trading market for such security, the closing bid price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or, if no closing bid
price of such security is available in any of the foregoing manners, the
average of the bid prices of any market makers for such security that are
listed in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price cannot be calculated for such security on such date in the
manner provided above, the Closing Bid Price shall be the fair market value
as mutually determined by the Corporation and the holders of a majority in
interest of shares of Series A Preferred Stock being converted for which the
calculation of the Closing Bid Price is required in order to determine the
Conversion Price of such Series A Preferred Stock. "TRADING DAY" shall mean
any day on which the Common Stock is traded for any period on the OTC BB, or
on the principal securities exchange or other securities market on which the
Common Stock is then being traded.
(b) CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS.
Notwithstanding anything contained in subparagraph (a) of this Paragraph B to
the contrary, in the event the Corporation (i) makes a public announcement that
it intends to consolidate or merge with any other corporation (other than a
merger in which the Corporation is the surviving or continuing corporation and
its capital stock is unchanged) or sell or transfer all or substantially all of
the assets of the Corporation or (ii) any person, group or entity (including the
Corporation) publicly announces a tender offer to purchase 50% or more of the
Corporation's Common Stock then outstanding (or any other takeover scheme) (the
date of the announcement referred to in clause (i) or (ii) is hereinafter
referred to as the "ANNOUNCEMENT DATE"), then the Conversion Price shall,
effective upon the Announcement Date and continuing through the Adjusted
Conversion Price Termination Date (as defined below), be equal, for each such
date, to the lower of (x) the Conversion Price which would have been applicable
for an Optional Conversion occurring on the Announcement Date and (y) the
Conversion Price that would otherwise be in effect on such date. From and after
the Adjusted Conversion Price Termination Date, the Conversion Price shall be
determined as set forth in subparagraph (a) of this Article VI.B. For purposes
hereof, "ADJUSTED CONVERSION PRICE TERMINATION DATE" shall mean, with respect to
any proposed transaction or tender offer (or takeover scheme) for which a public
announcement as contemplated by this subparagraph (b) has been made, the date
upon which the Corporation (in the case of clause (i) above) or the person,
group or entity (in the case of clause (ii) above) consummates or publicly
announces the termination or abandonment of the proposed transaction or tender
offer (or takeover scheme) which caused this subparagraph (b) to become
operative.
C. ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price shall be
subject to adjustment from time to time as follows:
<PAGE>
(a) ADJUSTMENT TO CONVERSION PRICE DUE TO STOCK SPLIT, STOCK
DIVIDEND, ETC. If at any time when Series A Preferred Stock is issued and
outstanding, the number of outstanding shares of Common Stock is increased or
decreased by a stock split, stock dividend, combination, reclassification,
rights offering below the Trading Price (as defined below) to all holders of
Common Stock or other similar event, which event shall have taken place during
the reference period for determination of the Conversion Price for any Optional
Conversion or Automatic Conversion of the Series A Preferred Stock, then the
Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event. In
such event, the Corporation shall notify the Transfer Agent of such change on or
before the effective date thereof. "TRADING PRICE," which shall be measured as
of the record date in respect of the rights offering, means (i) the average of
the last reported sale prices for the shares of Common Stock on the OTC BB as
reported by Bloomberg, as applicable, for the five (5) Trading Days immediately
preceding such date, or (ii) if the OTC BB is not the principal trading market
for the shares of Common Stock, the average of the last reported sale prices on
the principal trading market for the Common Stock during the same period as
reported by Bloomberg, or (iii) if market value cannot be calculated as of such
date on any of the foregoing bases, the Trading Price shall be the fair market
value as reasonably determined in good faith by (a) the Board of Directors of
the Corporation or, (b) at the option of a majority-in-interest of the holders
of the outstanding Series A Preferred Stock, by an independent investment bank
of nationally recognized standing in the valuation of businesses similar to the
business of the Corporation.
(b) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any
time when Series A Preferred Stock is issued and outstanding and prior to the
conversion of all Series A Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Corporation
shall be changed into the same or a different number of shares of another class
or classes of stock or securities of the Corporation or another entity, or in
case of any sale or conveyance of all or substantially all of the assets of the
Corporation other than in connection with a plan of complete liquidation of the
Corporation, then the holders of Series A Preferred Stock shall thereafter have
the right to receive upon conversion of the Series A Preferred Stock (and upon
exercise of the Investment Options), upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion (and upon exercise of the
Investment Options), such stock, securities or assets which the holders of
Series A Preferred Stock would have been entitled to receive in such transaction
had the Series A Preferred Stock been converted (and had the Investment Options
been exercised) in full immediately prior to such transaction (without regard to
any limitations on conversion contained herein), and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the holders of Series A Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Conversion
Price and of the number of shares of Common Stock issuable upon conversion of
the Series A Preferred Stock (and upon exercise of the Investment Options))
shall thereafter be applicable, as
<PAGE>
nearly as may be practicable in relation to any securities or assets
thereafter deliverable upon the conversion of Series A Preferred Stock (and
upon exercise of the Investment Options). The Corporation shall not effect
any transaction described in this subsection (b) unless (a) it first gives,
to the extent practical, thirty (30) days' prior written notice (but in any
event at least fifteen (15) business days prior written notice) of the record
date of the special meeting of stockholders to approve, or if there is no
such record date, the consummation of, such merger, consolidation, exchange
of shares, recapitalization, reorganization or other similar event or sale of
assets (during which time the holders of Series A Preferred Stock shall be
entitled to convert the Series A Preferred Stock (and exercise the Investment
Options)) and (b) the resulting successor or acquiring entity (if not the
Corporation) assumes by written instrument the obligations of the Corporation
under this Certificate of Designation (including under this subsection (b)).
The above provisions shall similarly apply to successive consolidations,
mergers, sales, transfers or share exchanges.
(c) [Intentionally Omitted]
(d) ADJUSTMENT DUE TO DISTRIBUTION. Subject to Article III, if
the Corporation shall declare or make any distribution of its assets (or rights
to acquire its assets) to holders of Common Stock as a dividend, stock
repurchase, by way of return of capital or otherwise (including any dividend or
distribution to the Corporation's shareholders in cash or shares (or rights to
acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a
"DISTRIBUTION"), then the holders of Series A Preferred Stock shall be entitled,
upon any conversion of shares of Series A Preferred Stock (and upon any exercise
of Investment Options) after the date of record for determining shareholders
entitled to such Distribution, to receive the amount of such assets which would
have been payable to the holder with respect to the shares of Common Stock
issuable upon such conversion (or upon such exercise of Investment Options) had
such holder been the holder of such shares of Common Stock on the record date
for the determination of shareholders entitled to such Distribution.
(e) PURCHASE RIGHTS. Subject to Article III, if at any time
when any Series A Preferred Stock is issued and outstanding, the Corporation
issues any convertible securities or rights to purchase stock, warrants,
securities or other property (the "PURCHASE RIGHTS") pro rata to the record
holders of any class of Common Stock, then the holders of Series A Preferred
Stock will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
complete conversion of the Series A Preferred Stock (including upon exercise of
the Investment Options) (without regard to any limitations on conversion
contained herein) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
(f) ADJUSTMENT FOR RESTRICTED PERIODS. In the event that (i)
the Corporation fails to obtain effectiveness with the SEC of any Registration
Statement (as defined in the Registration Rights Agreement) required to be filed
pursuant to the Registration Rights
<PAGE>
Agreement on or prior to the date on which such Registration Statement is
required to become effective pursuant to the terms of the Registration Rights
Agreement, or (ii) any such Registration Statement, after its initial
effectiveness and during the Registration Period (as defined in the
Registration Rights Agreement), lapses in effect, or sales of all the
Registrable Securities otherwise cannot be made thereunder, whether by reason
of the Corporation's failure or inability to amend or supplement the
prospectus (the "PROSPECTUS") included therein in accordance with the
Registration Rights Agreement or otherwise (including, without limitation,
during an Allowed Delay (as defined in Section 3(f) of the Registration
Rights Agreement), then, at the election of each holder of Series A Preferred
Stock, the Pricing Period shall be comprised of, (x) in the case of an event
described in clause (i), the thirty-five (35) Trading Days preceding the date
on which such Registration Statement is required to become effective pursuant
to the terms of the Registration Rights Agreement, plus all Trading Days
through and including the third (3rd) Trading Day following the date of
actual effectiveness of such Registration Statement; and (y) in the case of
an event described in clause (ii), the thirty-five (35) Trading Days
preceding the date on which the holder of the Series A Preferred Stock is
first notified that sales may not be made under the Prospectus, plus all
Trading Days through and including the third (3rd) Trading Day following the
date on which the Holder is first notified that such sales may again be made
under the Registration Statement. If a holder of Series A Preferred Stock
determines that sales may not be made pursuant to the Registration Statement
(whether by reason of the Corporation's failure or inability to amend or
supplement the Prospectus or otherwise) it shall so notify the Corporation in
writing and, unless the Corporation provides such holder with a written
opinion of the Corporation's counsel to the contrary, such determination
shall be binding for purposes of this paragraph.
D. MECHANICS OF CONVERSION. In order to convert Series A Preferred
Stock into full shares of Common Stock, a holder of Series A Preferred Stock
shall: (i) submit a copy of the fully executed notice of conversion in the form
attached hereto as Exhibit A ("NOTICE OF CONVERSION") to the Corporation by
facsimile dispatched prior to Midnight, New York City time (the "CONVERSION
NOTICE DEADLINE"), on the date specified therein as the Conversion Date (or by
other means resulting in, or reasonably expected to result in, notice to the
Corporation on the Conversion Date) to the office of the Corporation or its
designated Transfer Agent for the Series A Preferred Stock, which notice shall
specify the number of shares of Series A Preferred Stock to be converted, the
applicable Conversion Price and a calculation of the number of shares of Common
Stock issuable upon such conversion (including the number of shares issuable
upon exercise of the Investment Options, if any), together with a copy of the
first page of each certificate to be converted; and (ii) surrender the original
certificates representing the Series A Preferred Stock being converted (the
"PREFERRED STOCK CERTIFICATES"), duly endorsed, along with a copy of the Notice
of Conversion to the office of the Corporation or the Transfer Agent for the
Series A Preferred Stock as soon as practicable thereafter. The Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such conversion, unless either the Preferred Stock
Certificates are delivered to the Corporation or its Transfer Agent as provided
above, or the holder notifies the Corporation or its Transfer Agent that such
certificates have been lost, stolen or destroyed (subject to the requirements of
<PAGE>
subparagraph (a) below). In the case of a dispute as to the calculation of
the Conversion Price, the Corporation shall promptly issue such number of
shares of Common Stock that are not disputed in accordance with subparagraph
(b) below. The Corporation shall submit the disputed calculations to its
outside accountant via facsimile within two (2) business days of receipt of
the Notice of Conversion. The accountant shall audit the calculations and
notify the Corporation and the holder of the results no later than 48 hours
from the time it receives the disputed calculations. The accountant's
calculation shall be deemed conclusive absent manifest error.
(a) LOST OR STOLEN CERTIFICATES. Upon receipt by the
Corporation of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of Series A Preferred Stock,
and (in the case of loss, theft or destruction) of indemnity reasonably
satisfactory to the Corporation, and upon surrender and cancellation of the
Preferred Stock Certificate(s), if mutilated, the Corporation shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date.
(b) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon the
surrender of certificates as described above together with a Notice of
Conversion, the Corporation shall, within two (2) business days after such
surrender (or, in the case of lost, stolen or destroyed certificates, after
provision of agreement and indemnification pursuant to subparagraph (a) above)
(the "DELIVERY PERIOD"), issue and deliver (or cause its Transfer Agent to so
issue and deliver) in accordance with the terms hereof and the Purchase
Agreement (including, without limitation, in accordance with the requirements of
Section 2(g) of the Purchase Agreement) to or upon the order of the holder (i)
that number of shares of Common Stock for the portion of the shares of Series A
Preferred Stock converted (and, if applicable, the number of shares of Common
Stock issuable upon exercise of Investment Options in connection therewith) as
shall be determined in accordance herewith and (ii) a certificate representing
the balance of the shares of Series A Preferred Stock not converted, if any. In
addition to any other remedies available to the holder, including actual damages
and/or equitable relief, the Corporation shall pay to a holder $2,000 per day in
cash for each day beyond a two (2) business day grace period following the
Delivery Period that the Corporation fails to deliver Common Stock (a "DELIVERY
DEFAULT") issuable upon conversion of shares of Series A Preferred Stock (or
exercise of Investment Options) until such time as the Corporation has delivered
all such Common Stock (the "DELIVERY DEFAULT PAYMENTS"). Such Delivery Default
Payments shall be paid to such holder by the fifth day of the month following
the month in which it has accrued or, at the option of the holder (by written
notice to the Corporation by the first day of the month following the month in
which it has accrued), shall be convertible into Common Stock in accordance with
the terms of this Article VI.
So long as the Common Stock issuable upon conversion to the holder is
either registered under the 1933 Act or such shares may be sold under Rule 144
promulgated under the 1933 Act without restriction as to the number of shares as
of a particular date that can then be immediately sold, in lieu of delivering
physical certificates representing the Common Stock issuable upon conversion,
provided the Corporation's Transfer Agent is participating in the Depository
Trust Company ("DTC") Fast Automated Securities Transfer ("FAST") program,
<PAGE>
upon request of the holder and its compliance with the provisions contained
in Article VI.A and in this Article VI.D, the Corporation shall use its best
efforts to cause its Transfer Agent to electronically transmit the Common
Stock issuable upon conversion to the holder by crediting the account of
holder's Prime Broker with DTC through its Deposit Withdrawal Agent
Commission ("DWAC") system. The time periods for delivery and penalties
described in the immediately preceding paragraph shall apply to the
electronic transmittals described herein.
(c) NO FRACTIONAL SHARES. If any conversion of Series A
Preferred Stock would result in a fractional share of Common Stock or the right
to acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon Conversion of
the Series A Preferred Stock shall be the next higher number of shares.
(d) CONVERSION DATE. The "CONVERSION DATE" shall be the date
specified in the Notice of Conversion, provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in, or reasonably expected
to result in, notice) to the Corporation or its Transfer Agent before Midnight,
New York City time, on the date so specified, otherwise the Conversion Date
shall be the first business day after the date so specified on which the Notice
of Conversion is actually received by the Corporation or its Transfer Agent.
The person or persons entitled to receive the shares of Common Stock issuable
upon conversion of the Series A Preferred Stock (or exercise of Investment
Options) shall be treated for all purposes as the record holder or holders of
such securities as of the Conversion Date and all rights with respect to the
shares of Series A Preferred Stock surrendered shall forthwith terminate except
the right to receive the shares of Common Stock or other securities or property
issuable on such conversion and except that the holders preferential rights as a
holder of Series A Preferred Stock shall survive to the extent the Corporation
fails to deliver such securities.
E. RESERVATION OF SHARES. A number of shares of the authorized but
unissued Common Stock sufficient to provide for the full conversion of the
Series A Preferred Stock outstanding (based on the lesser of the then current
Variable Conversion Price in effect from time to time and the Fixed Conversion
Price in effect from time to time) and the exercise in full of the Investment
Options shall at all times be reserved by the Corporation, free from preemptive
rights, for such conversion or exercise. As of the date of issuance of the
Series A Preferred Stock, ___________ [2x required] authorized and unissued
shares of Common Stock have been duly reserved for issuance upon conversion of
the Series A Preferred Stock and upon exercise of the Investment Options (the
"RESERVED AMOUNT"). The Reserved Amount shall be increased from time to time in
accordance with the Company's obligations pursuant to Section 4(h) of the
Purchase Agreement. In addition, if the Corporation shall issue any securities
or make any change in its capital structure which would change the number of
shares of Common Stock into which each share of the Series A Preferred Stock
shall be convertible and for which the Investment Options shall be exercisable,
the Corporation shall at the same time also make proper provision so that
thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Series A
<PAGE>
Preferred Stock and exercise of the Investment Options.
If at any time a holder of shares of Series A Preferred Stock submits
a Notice of Conversion, and the Corporation does not have sufficient authorized
but unissued shares of Common Stock available to effect such conversion in
accordance with the provisions of this Article VI (including any Investment
Options exercised in connection therewith) (a "CONVERSION DEFAULT"), subject to
Article X, the Corporation shall issue to the holder all of the shares of Common
Stock which are available to effect such conversion. The number of shares of
Series A Preferred Stock (or number of shares of Common Stock underlying the
Investment Options) included in the Notice of Conversion which exceeds the
amount which is then convertible (or exercisable) into available shares of
Common Stock (the "EXCESS AMOUNT") shall, notwithstanding anything to the
contrary contained herein, not be convertible (or exercisable) into Common Stock
in accordance with the terms hereof until (and at the holder's option at any
time after) the date additional shares of Common Stock are authorized by the
Corporation to permit such conversion (or exercise), at which time the
Conversion Price in respect thereof shall be the lesser of (i) the Conversion
Price on the Conversion Default Date (as defined below) and (ii) the Conversion
Price on the Conversion Date elected by the holder in respect thereof. The
Corporation shall use its best efforts to effect an increase in the authorized
number of shares of Common Stock as soon as possible following the earlier of
(i) such time that a holder of Series A Preferred Stock notifies the Corporation
or that the Corporation otherwise becomes aware that there are or likely will be
insufficient authorized and unissued shares to allow full conversion thereof and
(ii) a Conversion Default. In addition, the Corporation shall pay to the holder
payments ("CONVERSION DEFAULT PAYMENTS") for a Conversion Default in the amount
of (a) .24, multiplied by (b) the sum of the Stated Value plus the Premium
Amount per share of Series A Preferred Stock held by such holder through the
Authorization Date (as defined below), multiplied by (c) (N/365), where N = the
number of days from the day the holder submits a Notice of Conversion giving
rise to a Conversion Default (the "CONVERSION DEFAULT DATE") to the date (the
"AUTHORIZATION DATE") that the Corporation authorizes a sufficient number of
shares of Common Stock to effect conversion of the full number of shares of
Series A Preferred Stock. The Corporation shall send notice to the holder of
the authorization of additional shares of Common Stock, the Authorization Date
and the amount of holder's accrued Conversion Default Payments. The accrued
Conversion Default Payment for each calendar month shall be paid in cash or
shall be convertible into Common Stock at the applicable Conversion Price, at
the holder's option, as follows:
(a) In the event the holder elects to take such payment in cash,
cash payment shall be made to holder by the fifth (5th) day of the month
following the month in which it has accrued; and
(b) In the event the holder elects to take such payment in
Common Stock, the holder may convert such payment amount into Common Stock at
the Conversion Price (as in effect at the time of Conversion) at any time after
the fifth day of the month following the month in which it has accrued in
accordance with the terms of this Article VI (so long as there is
<PAGE>
then a sufficient number of authorized shares of Common Stock).
The holder's election shall be made in writing to the Borrower at any
time prior to 9:00 p.m, New York City Time, on the third (3rd) day of the month
following the month in which Conversion Default payments have accrued. If no
election is made, the holder shall be deemed to have elected to receive cash.
Nothing herein shall limit the holder's right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) for the Corporation's
failure to maintain a sufficient number of authorized shares of Common Stock,
and each holder shall have the right to pursue all remedies available at law or
in equity (including a decree of specific performance and/or injunctive relief).
F. NOTICE OF CONVERSION PRICE ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this Article
VI, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a share of
Series A Preferred Stock.
G. INVESTMENT OPTIONS. On any Conversion Date relating to a
conversion of the Series A Preferred Stock by a holder thereof, the holder shall
have the option to purchase one additional share of Common Stock for every share
of Common Stock issuable as a result of such conversion at an exercise price
equal to the applicable Conversion Price (the option to purchase such additional
shares shall be referred to herein as the "INVESTMENT OPTIONS"). The holder (i)
shall indicate on the Notice of Conversion in respect of such Conversion Date
that it is exercising its Investment Option with respect to such conversion and
shall specify the number of shares of Common Stock with respect to which the
Investment Option is being so exercised, and (ii) shall pay to the Corporation,
in immediately available funds, on or within one (1) business day following the
Conversion Date, the aggregate purchase price for the shares of Common Stock
issuable as a result of the exercise of such Investment Options. The provisions
of paragraphs A, D(b) (so long as the holder has delivered to the Corporation
the aggregate purchase price due in connection with the exercise of the
Investment Options) and E of this Article VI shall apply to any exercise by the
holder or the Series A Preferred Stock of Investment Options.
H. STATUS AS STOCKHOLDERS. Upon submission of a Notice of
Conversion by a holder of Series A Preferred Stock, (i) the shares covered
thereby (other than the shares, if any, which cannot be issued because their
issuance would exceed such holder's allocated portion of the Reserved Amount or
Maximum Share Amount) shall be deemed converted into shares of Common Stock and
(ii) the holder's rights as a holder of such converted shares of Series A
<PAGE>
Preferred Stock shall cease and terminate, excepting only the right to receive
certificates for such shares of Common Stock and to any remedies provided herein
or otherwise available at law or in equity to such holder because of a failure
by the Corporation to comply with the terms of this Certificate of Designation.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to a conversion of shares of
Series A Preferred Stock for any reason, then (unless the holder otherwise
elects to retain its status as a holder of Common Stock by so notifying the
Corporation) the holder shall regain the rights of a holder of such shares of
Series A Preferred Stock with respect to such unconverted shares of Series A
Preferred Stock and the Corporation shall, as soon as practicable, return such
unconverted shares of Series A Preferred Stock to the holder or, if such shares
of Series A Preferred Stock have not been surrendered, adjust its records to
reflect that such shares of Series A Preferred Stock have not been converted.
In all cases, the holder shall retain all of its rights and remedies (including,
without limitation, (i) the right to receive Conversion Default Payments
pursuant to Article VI.E to the extent required thereby for such Conversion
Default and any subsequent Conversion Default and (ii) the right to have the
Conversion Price with respect to subsequent conversions determined in accordance
with Article VI.E.) for the Corporation's failure to convert the Series A
Preferred Stock.
VII. AUTOMATIC CONVERSION
Subject to the limitations on conversion set forth in Article VI.A(b)
and so long as (i) all of the shares of Common Stock issuable upon conversion of
all outstanding shares of Series A Preferred Stock (and upon exercise of the
Investment Options) are then (x) authorized and reserved for issuance, (y)
registered for re-sale under the 1933 Act by the holders of the Series A
Preferred Stock (or may otherwise be resold publicly without registration or
restriction) and (z) eligible to be traded on OTC BB, Nasdaq, the NYSE, the AMEX
or Nasdaq SmallCap and (ii) there is not then a continuing Mandatory Redemption
Event or Trading Market Redemption Event, each share of Series A Preferred Stock
issued and outstanding on May 6, 2002 (the "AUTOMATIC CONVERSION DATE"),
automatically shall be converted into shares of Common Stock on such date at the
then effective Conversion Price in accordance with, and subject to, the
provisions of Article VI hereof (including the right to exercise the Investment
Options in accordance with Article VI.G) (the "AUTOMATIC CONVERSION"). The
Automatic Conversion Date shall be delayed by one (1) Trading Day for each
Trading Day occurring prior thereto and prior to the full conversion of the
Series A Preferred Stock that (i) any Registration Statement required to be
filed and to be effective pursuant to the Registration Rights Agreement is not
effective or sales of all of the Registrable Securities otherwise cannot be made
thereunder during the Registration Period (as defined in the Registration Rights
Agreement) (whether by reason of the Corporation's failure to properly
supplement or amend the prospectus included therein in accordance with the terms
of the Registration Rights Agreement or otherwise, including any Allowed Delays
(as defined in Section 3(f) of the Registration Rights Agreement), (ii) any
Mandatory Redemption Event or Trading Market Redemption Event exists, without
regard to whether any cure periods shall have run or (iii) that the Corporation
is in breach of any
<PAGE>
of its obligations pursuant to Section 4(h) of the Purchase
Agreement. The Automatic Conversion Date shall be the Conversion Date for
purposes of determining the Conversion Price and the time within which
certificates representing the Common Stock must be delivered to the holder.
VIII. VOTING RIGHTS
The holders of the Series A Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Nevada General Corporation Law
("NVGCL"), in this Article VIII, and in Article IX below.
Notwithstanding the above, the Corporation shall provide each holder
of Series A Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least ten (10) days prior to the record date
specified therein (or thirty (30) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the NVGCL the vote of the holders of the
Series A Preferred Stock, voting separately as a class or series as applicable,
is required to authorize a given action of the Corporation, the affirmative vote
or consent of the holders of at least a majority of the shares of the Series A
Preferred Stock represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the shares of Series A Preferred Stock
(except as otherwise may be required under the NVGCL) shall constitute the
approval of such action by the class. To the extent that under the NVGCL
holders of the Series A Preferred Stock are entitled to vote on a matter with
holders of Common Stock, voting together as one class, each share of Series A
Preferred Stock shall be entitled to a number of votes equal to the number of
shares of Common Stock into which it is then convertible using the record date
for the taking of such vote of shareholders as the date as of which the
Conversion Price is calculated. Holders of the Series A Preferred Stock shall
be entitled to notice of all shareholder meetings or written consents (and
copies of proxy materials and other information sent to shareholders) with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation's bylaws and the NVGCL.
<PAGE>
IX. PROTECTIVE PROVISIONS
So long as shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the NVGCL) of the holders of at least a majority of the
then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
Series A Preferred Stock or any capital stock of the Corporation so as to affect
adversely the Series A Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article II hereof, "SENIOR SECURITIES");
(c) create any new class or series of capital stock ranking PARI
PASSU with the Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article II hereof, "PARI PASSU SECURITIES");
(d) increase the authorized number of shares of Series A
Preferred Stock;
(e) issue any Senior Securities or PARI PASSU Securities;
(f) increase the par value of the Common Stock, or
(g) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series A Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event holders of at least a majority of the then outstanding
shares of Series A Preferred Stock agree to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series A Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series A Preferred
Stock, then the Corporation will deliver notice of such approved change to the
holders of the Series A Preferred Stock that did not agree to such alteration or
change (the "DISSENTING HOLDERS") and Dissenting Holders shall have the right
for a period of thirty (30) days to convert into Common Stock pursuant to the
terms of this Certificate of Designation as they exist prior to such alteration
or change or continue to hold their shares of Series A Preferred Stock.
<PAGE>
X. PRO RATA ALLOCATIONS
The Maximum Share Amount and the Reserved Amount (including any
increases thereto) shall be allocated by the Corporation pro rata among the
holders of Series A Preferred Stock based on the number of shares of Series A
Preferred Stock issued to each holder. Each increase to the Maximum Share
Amount and the Reserved Amount shall be allocated pro rata among the holders of
Series A Preferred Stock based on the number of shares of Series A Preferred
Stock held by each holder at the time of the increase in the Maximum Share
Amount or Reserved Amount. In the event a holder shall sell or otherwise
transfer any of such holder's shares of Series A Preferred Stock, each
transferee shall be allocated a pro rata portion of such transferor's Maximum
Share Amount and Reserved Amount. Any portion of the Maximum Share Amount or
Reserved Amount which remains allocated to any person or entity which does not
hold any Series A Preferred Stock shall be allocated to the remaining holders of
shares of Series A Preferred Stock, pro rata based on the number of shares of
Series A Preferred Stock then held by such holders.
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this ___ day of ________, [1999/200_].
GLOBAL MEDIA CORP.
By:
-----------------------------
Name:
Title:
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ______ shares of
Series A Preferred Stock, represented by stock certificate No(s). __________
(the "PREFERRED STOCK CERTIFICATES") into shares of common stock ("COMMON
STOCK") of Global Media Corp., a Nevada corporation (the "CORPORATION")
according to the conditions of the Certificate of Designation of Series A
Preferred Stock, as of the date written below. If securities are to be issued
in the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates. No fee will be charged to the Holder for any conversion, except
for transfer taxes, if any. A copy of each Preferred Stock Certificate is
attached hereto (or evidence of loss, theft or destruction thereof).
The undersigned hereby irrevocably elects to exercise its Investment
Option to purchase _______________ shares of Common Stock of the Corporation (up
to the number of shares of Common Stock issuable pursuant to the conversion of
the Series A Preferred Stock) at the Applicable Conversion Price set forth below
and shall make payment of $__________ for such shares by wire transfer of such
amount to the Corporation simultaneously upon transfer of the shares of Common
Stock by the Corporation.
So long as the Common Stock issuable pursuant to this Notice of Conversion
is either registered under the Act (as defined below) or may be sold under Rule
144 promulgated under the Act without restriction as to the number of shares as
of a particular date that can then be immediately sold, the Corporation shall
electronically transmit the Common Stock issuable pursuant to this Notice of
Conversion to the account of the undersigned or its nominee with DTC through its
Deposit Withdrawal Agent Commission system ("DWAC TRANSFER").
Name of DTC Prime Broker:
-------------------------------------------------
Account Number:
-----------------------------------------------------------
/ / In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Corporation issue a certificate or certificates for the
number of shares of Common Stock set forth above (which numbers are based
on the Holder's calculation attached hereto) in the name(s) specified
immediately below or, if additional space is necessary, on an attachment
hereto:
Name:
---------------------------------
Address:
------------------------------
------------------------------
<PAGE>
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series A Preferred Stock and exercise of the Investment Options shall be made
pursuant to registration of the securities under the Securities Act of 1933, as
amended (the "ACT"), or pursuant to an exemption from registration under the
Act.
Conversion Date:
----------------------------
Applicable Conversion Price:
-----------------
Number of Shares of Common Stock to be Issued pursuant to:
(i) conversion of Series A Preferred Stock:
---------------------------------------------
(ii) exercise of Investment Options:
--------
Signature:
----------------------------------
Name:
---------------------------------------
Address:
------------------------------------
*The Corporation is not required to issue shares of Common Stock until the
original Series A Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or its
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than two (2) business days following receipt
of the original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Certificate of Designation for the number of business
days such issuance and delivery is late (subject to the applicable grace period
set forth in the Certificate of Designation).
<PAGE>
EXHIBIT 99.4
EXHIBIT C
TO
SECURITIES
PURCHASE
AGREEMENT
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
OR ANY STATE SECURITIES LAWS. EXCEPT AS OTHERWISE SET FORTH HEREIN OR
IN A SECURITIES PURCHASE AGREEMENT DATED AS OF MAY 6, 1999, NEITHER
THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SECURITIES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS
OR, AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE, CUSTOMARY FOR
OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO AND IN
COMPLIANCE WITH RULE 144 UNDER SUCH ACT.
Right to
Purchase
680,000
Shares of
Common Stock,
par value $0.001
per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, RGC International Investors,
LDC or its registered assigns, is entitled to purchase from Global Media
Corp., a Nevada corporation (the "Company"), at any time or from time to time
during the period specified in Paragraph 2 hereof, Six Hundred Eighty
Thousand (680,000) fully paid and nonassessable shares of the Company's
Common Stock, par value $0.001 per share (the "Common Stock"), at an exercise
price of $8.4375 per share (the "Exercise Price"). The term "Warrant
Shares," as used herein, refers to the shares of Common Stock purchasable
hereunder. The Warrant Shares and the Exercise Price are subject to
adjustment as provided in Paragraph 4 hereof. The term Warrants means this
Warrant and the other warrants issued pursuant to that certain Securities
Purchase Agreement, dated May 6, 1999, by and among the Company and the
Buyers listed on the execution page
<PAGE>
thereof (the "Securities Purchase Agreement").
This Warrant is subject to the following terms, provisions, and conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the holder hereof or such holder's designee, as
the record owner of such shares, as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise Agreement
shall have been delivered, and payment shall have been made for such shares (or
any election to effect a Cashless Exercise) as set forth above. Certificates
for the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding two (2) business days, after this
Warrant shall have been so exercised. The certificates so delivered shall be in
such denominations as may be requested by the holder hereof and shall be
registered in the name of such holder or such other name as shall be designated
by such holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the time
of delivery of such certificates, deliver to the holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised.
Notwithstanding anything in this Warrant to the contrary, in no event
shall the Holder of this Warrant be entitled to exercise a number of Warrants
(or portions thereof) in excess of the number of Warrants (or portions thereof)
upon exercise of which the sum of (i) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and the unexercised or unconverted portion of any other
securities of the Company (including shares of Series [A] Preferred Stock (as
defined in the Securities Purchase Agreement) and the Investment Options (as
defined in the Securities Purchase Agreement)) subject to a limitation on
conversion or exercise analogous to the limitation contained herein) and (ii)
the number of shares of Common Stock issuable upon exercise of the Warrants (or
portions thereof) with respect to which the determination described herein is
being made, would result in beneficial ownership by the Holder and its
affiliates of more than 4.9% of the outstanding shares of Common Stock. For
purposes of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities
<PAGE>
Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as
otherwise provided in clause (i) hereof.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities Purchase Agreement (the "Issue Date")
and before 5:00 p.m., New York City time on the fifth (5th) anniversary of the
Issue Date (the "Exercise Period").
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance
in accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, and charges with respect to the
issue thereof.
(b) RESERVATION OF SHARES. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(c) LISTING. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of the Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment
of its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
<PAGE>
(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.
4. ANTIDILUTION PROVISIONS. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Paragraph 4.
In the event that any adjustment of the Exercise Price as required herein
results in a fraction of a cent, such Exercise Price shall be rounded up to the
nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON ISSUANCE
OF COMMON STOCK. Except as otherwise provided in Paragraphs 4(c) and 4(e)
hereof, if and whenever on or after the date of Issue Date, the Company issues
or sells, or in accordance with Paragraph 4(b) hereof is deemed to have issued
or sold, any shares of Common Stock for no consideration or for a consideration
per share (before deduction of reasonable expenses or commissions or
underwriting discounts or allowances in connection therewith) less than the
Market Price (as hereinafter defined) on the date of issuance (or deemed
issuance) of such Common Stock (a "Dilutive Issuance"), then immediately upon
the Dilutive Issuance, the Exercise Price will be reduced to a price determined
by multiplying the Exercise Price in effect immediately prior to the Dilutive
Issuance by a fraction, (i) the numerator of which is an amount equal to the sum
of (x) the number of shares of Common Stock actually outstanding immediately
prior to the Dilutive Issuance, plus (y) the quotient of the aggregate
consideration, calculated as set forth in Paragraph 4(b) hereof, received by the
Company upon such Dilutive Issuance divided by the Market Price in effect
immediately prior to the Dilutive Issuance, and (ii) the denominator of which is
the total number of shares of Common Stock Deemed Outstanding (as defined below)
immediately after the Dilutive Issuance.
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or
other securities convertible into or exchangeable for Common Stock
("Convertible Securities") (such warrants, rights and options to purchase
Common Stock or Convertible Securities are hereinafter referred to as
"Options") and the price per share for which Common Stock is issuable upon
the exercise of such Options is less than the Market Price on the date of
issuance or grant of such Options, then the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options will, as of the
date of the issuance or grant of such Options, be deemed to be outstanding
and to have been issued and sold by the Company for such price per share.
For purposes of the preceding sentence, the "price per share for which Common
Stock is issuable upon the exercise of such Options" is determined by
dividing (i) the total amount, if any, received or receivable by the Company
as consideration for the issuance or granting of all such Options, plus the
minimum aggregate amount of additional
<PAGE>
consideration, if any, payable to the Company upon the exercise of all such
Options, plus, in the case of Convertible Securities issuable upon the
exercise of such Options, the minimum aggregate amount of additional
consideration payable upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the exercise
of all such Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon
the actual issuance of such Common Stock upon the exercise of such Options or
upon the conversion or exchange of Convertible Securities issuable upon
exercise of such Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any
manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Market Price on the date of issuance of
such Convertible Securities, then the maximum total number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such Convertible Securities,
be deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For the purposes of the preceding sentence, the "price
per share for which Common Stock is issuable upon such conversion or exchange"
is determined by dividing (i) the total amount, if any, received or receivable
by the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If there is
a change at any time in (i) the amount of additional consideration payable to
the Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
of any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options
or Convertible Securities still outstanding provided for such changed
additional consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. If, in any case, the total number of shares of Common Stock
issuable upon exercise of any Option or upon conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to convert or exchange such Convertible Securities shall
<PAGE>
have expired or terminated, the Exercise Price then in effect will be
readjusted to the Exercise Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Securities,
to the extent outstanding immediately prior to such expiration or termination
(other than in respect of the actual number of shares of Common Stock issued
upon exercise or conversion thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for
cash, the consideration received therefor for purposes of this Warrant will
be the amount received by the Company therefor, before deduction of
reasonable commissions, underwriting discounts or allowances or other
reasonable expenses paid or incurred by the Company in connection with such
issuance, grant or sale. In case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration part or all of which shall
be other than cash, the amount of the consideration other than cash received
by the Company will be the fair value of such consideration, except where
such consideration consists of securities, in which case the amount of
consideration received by the Company will be the Market Price thereof as of
the date of receipt. In case any Common Stock, Options or Convertible
Securities are issued in connection with any acquisition, merger or
consolidation in which the Company is the surviving corporation, the amount
of consideration therefor will be deemed to be the fair value of such portion
of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or
securities will be determined in good faith by the Board of Directors of the
Company.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No adjustment
to the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities granted, issued and outstanding on the date of
issuance of this Warrant; (ii) upon the grant or exercise of any stock or
options which may hereafter be granted or exercised under any employee benefit
plan of the Company now existing or to be implemented in the future, so long as
the issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority of
the members of a committee of independent directors established for such
purpose; (iii) upon the exercise of the Warrants; (iv) the issuance of shares of
Common Stock as contemplated in Schedule 4(d) of the Securities Purchase
Agreement; and (v) the issuance of warrants (and the issuance of Common Stock
upon the exercise thereof) to Broadmark Capital Corporation in connection with
the Securities Purchase Agreement and the transactions contemplated thereby.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at
any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at
any time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares,
<PAGE>
then, after the date of record for effecting such combination, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) CONSOLIDATION, MERGER OR SALE. In case of any consolidation of
the Company with, or merger of the Company into any other corporation, or in
case of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company, then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the holder of this Warrant
will have the right to acquire and receive upon exercise of this Warrant in lieu
of the shares of Common Stock immediately theretofore acquirable upon the
exercise of this Warrant, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
this Warrant had such consolidation, merger or sale or conveyance not taken
place. In any such case, the Company will make appropriate provision to insure
that the provisions of this Paragraph 4 hereof will thereafter be applicable as
nearly as may be in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) assumes by
written instrument the obligations under this Paragraph 4 and the obligations to
deliver to the holder of this Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the holder may be entitled to
acquire.
(f) DISTRIBUTION OF ASSETS. In case the Company shall declare or
make any distribution of its assets (including cash) to holders of Common Stock
as a partial liquidating dividend, by way of return of capital or otherwise,
then, after the date of record for determining stockholders entitled to such
distribution, but prior to the date of distribution, the holder of this Warrant
shall be entitled upon exercise of this Warrant for the purchase of any or all
of the shares of Common Stock subject hereto, to receive the amount of such
assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of stockholders entitled to such distribution.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts
<PAGE>
upon which such calculation is based. Such calculation shall be certified by
the chief financial officer of the Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) NO FRACTIONAL SHARES. No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained
earnings) to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all its assets
to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Common Stock
for stock or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such
<PAGE>
notice shall be given at least 30 days prior to the record date or the date
on which the Company's books are closed in respect thereto. Failure to give
any such notice or any defect therein shall not affect the validity of the
proceedings referred to in clauses (i), (ii), (iii) and (iv) above.
(k) CERTAIN EVENTS. If any event occurs of the type contemplated by
the adjustment provisions of this Paragraph 4 but not expressly provided for by
such provisions, the Company will give notice of such event as provided in
Paragraph 4(g) hereof, and the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of shares of Common
Stock acquirable upon exercise of this Warrant so that the rights of the Holder
shall be neither enhanced nor diminished by such event.
(l) CERTAIN DEFINITIONS.
(i) "COMMON STOCK DEEMED OUTSTANDING" shall mean the number of
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) pursuant to Paragraph
4(b)(i) hereof, the maximum total number of shares of Common Stock issuable upon
the exercise of Options, as of the date of such issuance or grant of such
Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the maximum
total number of shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible
Securities, if any.
(ii) "MARKET PRICE," as of any date, (i) means the average of
the last reported sale prices for the shares of Common Stock on the
Over-the-Counter Bulletin Board (the "OTC BB") for the five (5) trading days
immediately preceding such date as reported by Bloomberg Financial Markets or
an equivalent reliable reporting service mutually acceptable to and hereafter
designated by the holder of this Warrant and the Company ("Bloomberg"), or
(ii) if the OTC BB is not the principal trading market for the shares of
Common Stock, the average of the last reported sale prices on the principal
trading market for the Common Stock during the same period as reported by
Bloomberg, or (iii) if market value cannot be calculated as of such date on
any of the foregoing bases, the Market Price shall be the fair market value
as reasonably determined in good faith by (a) the Board of Directors of the
Corporation or, at the option of a majority-in-interest of the holders of the
outstanding Warrants by (b) an independent investment bank of nationally
recognized standing in the valuation of businesses similar to the business of
the corporation. The manner of determining the Market Price of the Common
Stock set forth in the foregoing definition shall apply with respect to any
other security in respect of which a determination as to market value must be
made hereunder.
(iii) "COMMON STOCK," for purposes of this Paragraph 4,
includes the Common Stock, par value $0.001 per share, and any additional
class of stock of the Company having no preference as to dividends or
distributions on liquidation, provided that the shares purchasable pursuant
to this Warrant shall include only shares of Common Stock, par value $0.001
per share, in respect of which this Warrant is exercisable, or shares
resulting from any subdivision or combination of such Common Stock, or in the
case of any reorganization,
<PAGE>
reclassification, consolidation, merger, or sale of the character referred to in
Paragraph 4(e) hereof, the stock or other securities or property provided for in
such Paragraph.
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
(a) RESTRICTION ON TRANSFER. This Warrant and the rights granted to
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Paragraph 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Paragraph 7(f) hereof and to the applicable
provisions of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary.
Notwithstanding anything to the contrary contained herein, the registration
rights described in Paragraph 8 are assignable only in accordance with the
provisions of that certain Registration Rights Agreement, dated as of May 6,
1999, by and among the Company and the other signatories thereto (the
"Registration Rights Agreement").
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant
is exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) below, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
<PAGE>
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Paragraph 7.
(e) REGISTER. The Company shall maintain, at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee and each prior
owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the time of
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel, which opinion and counsel are
acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under applicable
state securities or blue sky laws, (ii) that the holder or transferee execute
and deliver to the Company an investment letter in form and substance acceptable
to the Company and (iii) that the transferee be an "accredited investor" as
defined in Rule 501(a) promulgated under the Securities Act; provided that no
such opinion, letter or status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the Securities Act. The
first holder of this Warrant, by taking and holding the same, represents to the
Company that such holder is acquiring this Warrant for investment and not with a
view to the distribution thereof.
8. REGISTRATION RIGHTS. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in Section 2 of the Registration
Rights Agreement.
9. NOTICES. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at Global Media
<PAGE>
Corp., 83 Victoria Crescent, Unit 29 , Nanaimo, British Columbia V9R 5B9,
Canada, Attention: Chief Executive Officer, or at such other address as
shall have been furnished to the holder of this Warrant by notice from the
Company. Any such notice, request, or other communication may be sent by
facsimile, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail or by recognized
overnight mail courier as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
receipt thereof by the person entitled to receive such notice at the address
of such person for purposes of this Paragraph 9, or, if mailed by registered
or certified mail or with a recognized overnight mail courier upon deposit
with the United States Post Office or such overnight mail courier, if postage
is prepaid and the mailing is properly addressed, as the case may be.
10. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed in the State of Delaware (without regard to principles of
conflict of laws). The Company and the holder irrevocably consent to the
jurisdiction of the United States federal courts and the state courts located in
Delaware in any suit or proceeding based on or arising under this Warrant, the
agreements entered into in connection herewith or the transactions contemplated
hereby or thereby and irrevocably agree that all claims in respect of such suit
or proceeding may be determined in such courts. The Company and the holder
irrevocably waive the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Company and the holder further agree that service
of process upon a party mailed by first class mail shall be deemed in every
respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect the right of the Company or the holder
hereof to serve process in any other manner permitted by law. The Company and
the holder agree that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) CASHLESS EXERCISE. Notwithstanding anything to the contrary
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act, this Warrant may be exercised by presentation and surrender of
this Warrant to the Company at its principal executive offices with a written
notice of the holder's intention to effect a cashless exercise, including a
calculation of the number of shares of Common Stock to be issued upon such
exercise in accordance with the
<PAGE>
terms hereof (a "Cashless Exercise"). In the event of a Cashless Exercise,
in lieu of paying the Exercise Price in cash, the holder shall surrender this
Warrant for that number of shares of Common Stock determined by multiplying
the number of Warrant Shares to which it would otherwise be entitled by a
fraction, the numerator of which shall be the difference between the then
current Market Price per share of the Common Stock and the Exercise Price,
and the denominator of which shall be the then current Market Price per share
of Common Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
GLOBAL MEDIA CORP.
By:
-------------------------------
L. James Porter
Chief Financial Officer
Dated as of May 6, 1999
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: ________ __, ____
To: Global Media Corp.
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:
Name:
----------------------------------
Signature:
------------------------------
Address:
------------------------------
------------------------------
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No of Shares
---------------- ------- ------------
, and hereby irrevocably constitutes and appoints ______________________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: ________ __, ____
In the presence of:
- -------------------------
Name:
----------------------------------
Signature:
------------------------------
Title of Signing Officer or Agent
(if any):
--------------------------------
Address:
------------------------------
------------------------------
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant.
<PAGE>
EXHIBIT 99.5
EXHIBIT D
TO SECURITIES
PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of May 6, 1999,
by and among Global Media Corp., a Nevada corporation, with headquarters located
at 83 Victoria Crescent, Unit 29, Nanaimo, British Columbia V9R 5B9, Canada (the
"COMPANY"), and each of the undersigned (together with their respective
affiliates and any assignee or transferee of all of their respective rights
hereunder, the "INITIAL INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the
Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors (i) convertible debentures
(the "DEBENTURES") that are convertible into shares of the Company's common
stock, par value $0.001 per share (the "COMMON STOCK"), upon the terms and
subject to the limitations and conditions set forth in the Debentures; and (ii)
warrants (the "WARRANTS") to acquire 680,000 shares of Common Stock (the
"WARRANT SHARES"), upon the terms and conditions and subject to the limitations
and conditions set forth in the Warrants dated May 6, 1999. Under certain
circumstances, the Debentures are convertible into shares of the Company's
Series A Convertible Preferred Stock (the "PREFERRED SHARES"). The Preferred
Shares are convertible into shares of Common Stock upon the terms and subject to
the limitations and conditions set forth in the Certificate of Designations,
Rights, Preferences, Privileges and Restrictions with respect to the Series A
Preferred Stock (the "CERTIFICATE OF DESIGNATION"); and
B. To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 ACT"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the
Initial Investors hereby agree as follows:
<PAGE>
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "INVESTORS" means the Initial Investors and any transferee
or assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("RULE 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(iii) "REGISTRABLE SECURITIES" means (A) the Conversion
Shares issued or issuable upon conversion or otherwise pursuant to the
Debentures and/or the Preferred Shares (including, without limitation, any
shares issued or issuable upon exercise of the Investment Options (as defined in
the Debentures and the Certificate of Designation) or pursuant to Articles I,
II.D.3 or II.F of the Debentures, Articles V, VI.D(b) and VI.E of the
Certificate of Designation and Section 2(c) herein); (B) the Warrant Shares
issued or issuable upon exercise of the Warrants; and (C) any shares of capital
stock issued or issuable as a dividend on or in exchange for or otherwise with
respect to any of the foregoing.
(iv) "REGISTRATION STATEMENT(S)" means a registration
statement(s) of the Company under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare, and, on or
prior to the date (the "FILING DATE") which is forty-five (45) days after the
Closing Date under the Securities Purchase Agreement (the "CLOSING DATE"), file
with the SEC a Registration Statement on Form SB-2 or Form S-1 (or, if Form SB-2
or Form S-1 is not then available, on such form of Registration Statement as is
then available to effect a registration of the Registrable Securities, subject
to the consent of the Initial Investors, which consent will not be unreasonably
withheld) covering the resale of the Registrable Securities, which Registration
Statement, to the extent allowable under the 1933 Act and the rules and
regulations promulgated thereunder (including Rule 416), shall state that such
Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of or otherwise
<PAGE>
pursuant to the Debentures and/or the Preferred Shares (including, but not
limited to, shares issued or issuable upon exercise of the Investment Options)
and exercise of or otherwise pursuant to the Warrants to prevent dilution
resulting from stock splits, stock dividends or similar transactions. The
number of shares of Common Stock initially included in such Registration
Statement shall be no less than two (2) times the sum of (i) the aggregate
number of Conversion Shares that are then issuable upon conversion of or
otherwise pursuant to the Debentures and/or the Preferred Shares (including upon
exercise of the Investment Options under the Debentures and/or the Preferred
Shares) (in each case based on the lesser of Variable Conversion Price and the
Fixed Conversion Price (each as defined in the Debentures and the Certificate of
Designation) then in effect) and (ii) the Warrant Shares issuable upon exercise
of or otherwise pursuant to the Warrants, in each case without regard to any
limitation on the Investor's ability to convert the Debentures and/or Preferred
Shares or exercise the Warrants. The Company acknowledges that the number of
shares initially included in the Registration Statement represents a good faith
estimate of the maximum number of shares issuable upon conversion of the
Debentures and/or the Preferred Shares (including exercise of the Investment
Options under the Debentures and/or the Preferred Shares) and exercise of the
Warrants. The Registration Statement (and each amendment or supplement thereto,
and each request for acceleration of effectiveness thereof) shall be provided to
(and subject to the approval of) the Initial Investors and their counsel prior
to its filing or other submission.
b. UNDERWRITTEN OFFERING. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority-in-interest of the Registrable
Securities subject to such underwritten offering, with the consent of a
majority-in-interest of the Initial Investors, shall have the right to select
one legal counsel and an investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company. In the event that any
Investors elect not to participate in such underwritten offering, the
Registration Statement covering all of the Registrable Securities shall contain
appropriate plans of distribution reasonably satisfactory to the Investors
participating in such underwritten offering and the Investors electing not to
participate in such underwritten offering (including, without limitation, the
ability of non-participating Investors to sell from time to time at any time
during the effectiveness of such Registration Statement). If the Investors who
hold a majority-in-interest of the Registrable Securities wish to have the
Registrable Securities delivered through an underwriter, such Investors shall
notify the Company of their desire to use an underwriter within a reasonable
time prior to the effectiveness of such Registration Statement pertaining to
such underwritten offering.
c. PAYMENTS BY THE COMPANY. The Company shall use its best efforts
to obtain effectiveness of the Registration Statement as soon as practicable,
but in any event not later than the one-hundred fiftieth (150th) day after the
Closing Date (the "REGISTRATION DEADLINE"). If (i) the Registration
Statement(s) covering the Registrable Securities required to be filed by the
Company pursuant to Section 2(a) hereof is not declared effective by the SEC by
the Registration Deadline, or (ii) after the Registration Statement has been
declared effective by
<PAGE>
the SEC, sales of all of the Registrable Securities cannot be made pursuant
to the Registration Statement during the Registration Period (as defined in
Section 3(a)), then the Company will make payments to the Investors in such
amounts and at such times as shall be determined pursuant to this Section
2(c) as partial relief for the damages to the Investors by reason of any such
delay in or reduction of their ability to sell the Registrable Securities
(which remedy shall not be exclusive of any other remedies available at law
or in equity). The Company shall pay to each holder of the Debentures,
Preferred Shares or Registrable Securities an amount equal to the product of
(i) the aggregate principal amount of such holder's Debentures then
outstanding or the stated value of such holder's Preferred Shares then
outstanding (and, in the case of holders of Registrable Securities which have
not been sold pursuant to the Registration Statement required to be filed
pursuant to Section 2(a), the aggregate principal amount of Debentures or
stated value of Preferred Shares from which such Registrable Securities were
converted) ("AGGREGATE SHARE PRICE"), multiplied by (ii) the Applicable
Percentage (as defined below), multiplied by (iii) the sum of: (A) the number
of months (prorated for partial months) after the Registration Deadline and
prior to the date the Registration Statement required to be filed pursuant to
Section 2(a) is declared effective by the SEC; PROVIDED, HOWEVER, that there
shall be excluded from such period any delays which are solely attributable
to changes required by the Investors in the Registration Statement with
respect to information relating to the Investors, including, without
limitation, changes to the plan of distribution, or to the failure of the
Investors to conduct their review of the Registration Statement pursuant to
Section 3(h) below in a reasonably prompt manner; and (B) the number of
months (prorated for partial months) during the Registration Period that
sales of all of the Registrable Securities cannot be made pursuant to the
Registration Statement after the Registration Statement has been declared
effective (including, without limitation, when sales cannot be made by reason
of the Company's failure to properly supplement or amend the prospectus
included therein in accordance with the terms of this Agreement (including
Section 3(b) hereof or otherwise), but excluding any days during an Allowed
Delay (as defined in Section 3(f))). The term "APPLICABLE PERCENTAGE" means
two hundredths (.02). (For example, if the Registration Statement becomes
effective one (1) month after the Registration Deadline, the Company would
pay $20,000 for each $1,000,000 of Aggregate Share Price. If thereafter,
sales could not be made pursuant to the Registration Statement for an
additional period of one (1) month, the Company would pay an additional
$20,000 for each $1,000,000 of Aggregate Share Price). Such amounts shall be
paid in cash or, at each Investor's option, may be added to the principal
amount of the Debentures or the stated value of the Preferred Shares and
thereafter be convertible into Common Stock at the "CONVERSION PRICE" (as
defined in the Debentures and the Certificate of Designation) in accordance
with the terms of the Debentures or Preferred Shares, as applicable. Any
shares of Common Stock issued upon conversion of such amounts shall be
Registrable Securities. If the Investor desires to convert the amounts due
hereunder into Registrable Securities, it shall so notify the Company in
writing within two (2) business days of the date on which such amounts are
first payable in cash and such amounts shall be so convertible (pursuant to
the mechanics set forth in the Debentures and the Certificate of Designation,
as applicable), beginning on the last day upon which the cash amount would
otherwise be due in accordance with the following sentence. Payments of cash
pursuant hereto shall be made within five (5) days after the end of each
period that gives rise to such obligation,
<PAGE>
provided that, if any such period extends for more than thirty (30) days,
interim payments shall be made for each such thirty (30) day period.
d. PIGGY-BACK REGISTRATIONS. Subject to the last sentence of this
Section 2(d), if at any time prior to the expiration of the Registration Period
(as hereinafter defined) the Company shall determine to file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans), the Company shall send to each Investor who is entitled to
registration rights under this Section 2(d) written notice of such determination
and, if within fifteen (15) days after the effective date of such notice, such
Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; PROVIDED, HOWEVER, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
by contract or otherwise to inclusion of such securities in such Registration
Statement or are not entitled to pro rata inclusion with the Registrable
Securities; and PROVIDED, FURTHER, HOWEVER, that, after giving effect to the
immediately preceding proviso, any exclusion of Registrable Securities shall be
made pro rata with holders of other securities having the contractual right to
include such securities in the Registration Statement other than holders of
securities entitled to inclusion of their securities in such Registration
Statement by reason of demand registration rights. No right to registration of
Registrable Securities under this Section 2(d) shall be construed to limit any
registration required under Section 2(a) hereof. If an offering in connection
with which an Investor is entitled to registration under this Section 2(d) is an
underwritten offering, then each Investor whose Registrable Securities are
included in such Registration Statement shall, unless otherwise agreed by the
Company, offer and sell such Registrable Securities in an underwritten offering
using the same underwriter or underwriters and, subject to the provisions of
this Agreement, on the same terms and conditions as other shares of Common Stock
included in such underwritten offering. Notwithstanding anything to the
contrary set forth herein, the registration rights of the Investors pursuant to
this Section 2(d) shall only be available in the event the Company fails to
timely file, obtain effectiveness or maintain effectiveness of any Registration
Statement to be filed pursuant to Section 2(a) in accordance with the terms of
this Agreement.
<PAGE>
e. ELIGIBILITY FOR FORM SB-2 OR FORM S-1, CONVERSION TO FORM S-3.
The Company represents and warrants that it meets the requirements for the use
of Form SB-2 or Form S-1 for registration of the sale by the Initial Investors
and any other Investors of the Registrable Securities. The Company agrees to
file all reports required to be filed by the Company with the SEC in a timely
manner so as to become eligible, and thereafter to maintain its eligibility, for
the use of Form S-3. Not later than ten (10) days after the Company first meets
the registration eligibility and transaction requirements for the use of Form
S-3 (or any successor form) for registration of the offer and sale by the
Initial Investors and any other Investors of Registrable Securities, the Company
shall file a Registration Statement on Form S-3 (or such successor form) with
respect to the Registrable Securities covered by the Registration Statement on
Form SB-2 or Form S-1, whichever is applicable, filed pursuant to Section 2(a)
(and include in such Registration Statement on Form S-3 the information required
by Rule 429 under the 1933 Act) or convert the Registration Statement on Form
SB-2 or Form S-1, whichever is applicable, filed pursuant to Section 2(a) to a
Form S-3 pursuant to Rule 429 under the 1933 Act and use its best efforts to
have such Registration Statement (or such amendment) declared effective as soon
as practicable thereafter.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC as soon
as practicable after the Closing Date (but in no event later than the Filing
Date), a Registration Statement with respect to the number of Registrable
Securities provided in Section 2(a), and thereafter use its best efforts to
cause such Registration Statement relating to Registrable Securities to become
effective as soon as possible after such filing, (but in no event later than
one-hundred fifty (150) days after the Closing Date), and keep the Registration
Statement (and, following the effectiveness of the Registration Statement on
Form S-3 referred to in Section 2(e) such later Registration Statement)
effective pursuant to Rule 415 at all times until such date as is the earlier of
(i) the date on which all of the Registrable Securities have been sold and (ii)
the date on which the Registrable Securities (in the opinion of counsel to the
Initial Investors) may be immediately sold to the public without registration or
restriction (including without limitation as to volume by each holder thereof)
under the 1933 Act (the "REGISTRATION PERIOD"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statements and the prospectus used in connection with the Registration
Statements as may be necessary to keep the Registration Statements effective at
all times during the Registration Period, and, during such
<PAGE>
period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by the
Registration Statements until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition
by the seller or sellers thereof as set forth in the Registration Statements.
In the event that on any Trading Day (as defined in the Debentures and the
Certificate of Designation) (such Trading Day being a "REGISTRATION TRIGGER
DATE") the number of shares available under a Registration Statement filed
pursuant to this Agreement is insufficient to cover all of the Registrable
Securities issued or issuable upon conversion of or otherwise pursuant to the
Debentures and/or Preferred Shares (including upon exercise of the Investment
Options under the Debentures and/or Preferred Shares) (in each case based on
the lesser of the Variable Conversion Price and the Fixed Conversion Price
(each as defined in the Debentures and the Certificate of Designation) then
in effect) and exercise of or otherwise pursuant to the Warrants, in each
case without giving effect to any limitations on the Investors' ability to
convert the Debentures and/or the Preferred Shares or exercise the Warrants,
the Company shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefore, if
applicable), or both, so as to cover two hundred (200%) percent of all of the
Registrable Securities so issued or issuable (without giving effect to any
limitations on conversion or exercise contained in the Debentures, the
Certificate of Designation or Warrants, as applicable) as of the Registration
Trigger Date, in each case, as soon as practicable, but in any event within
twenty (20) days after the necessity therefor arises (based on the market
price of the Common Stock and other relevant factors on which the Company
reasonably elects to rely). The Company shall use its best efforts to cause
such amendment and/or new Registration Statement to become effective as soon
as practicable following the filing thereof, but in any event within sixty
(60) days of the Registration Trigger Date. The provisions of Section 2(c)
above shall be applicable with respect to the Company's obligations under
this Section 3(b).
c. The Company shall furnish to each Investor whose Registrable
Securities are included in a Registration Statement and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of each Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion of any thereof which contains information for which the Company
has sought confidential treatment), and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor. The Company will immediately notify each Investor by
facsimile of the effectiveness of each Registration Statement or any
post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC, with a view towards causing each Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable and shall file an acceleration request as soon as practicable
following the resolution or clearance
<PAGE>
of all SEC comments or, if applicable, following notification by the SEC that
any such Registration Statement or any amendment thereto will not be subject
to review.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statements under
such other securities or "blue sky" laws of such jurisdictions in the United
States as the Investors who hold a majority in interest of the Registrable
Securities being offered reasonably request, (ii) prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; PROVIDED, HOWEVER, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its stockholders.
e. In the event Investors who hold a majority-in-interest of the
Registrable Securities being offered in the offering (with the approval of a
majority-in-interest of the Initial Investors) select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor of the happening of any event, of which
the Company has knowledge, as a result of which the prospectus included in any
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to any Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request; provided that, for not more than ten (10) consecutive
trading days (or a total of not more than thirty (30) trading days in any twelve
(12) month period), the Company may delay the disclosure of material non-public
information concerning the Company (as well as prospectus or Registration
Statement updating) the disclosure of which at the time is not, in the good
faith opinion of the Company, in the best interests of the Company (an "ALLOWED
DELAY"); provided, further, that the Company shall promptly (i) notify the
Investors in writing of the existence of (but in no event, without the prior
written consent of an Investor, shall the Company disclose to such Investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and
<PAGE>
(ii) advise the Investors in writing to cease all sales under such
Registration Statement until the end of the Allowed Delay. Upon expiration of
the Allowed Delay, the Company shall again be bound by the first sentence of
this Section 3(f) with respect to the information giving rise thereto.
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of any Registration
Statement, and, if such an order is issued, to obtain the withdrawal of such
order at the earliest possible moment and to notify each Investor who holds
Registrable Securities being sold (or, in the event of an underwritten offering,
the managing underwriters) of the issuance of such order and the resolution
thereof.
h. The Company shall permit a single firm of counsel designated by
the Initial Investors to review such Registration Statement and all amendments
and supplements thereto (as well as all requests for acceleration or
effectiveness thereof) a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of such Registration Statement without
prior notice to such counsel. The sections of such Registration Statement
covering information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company or the Investors intended method of
disposition of Registrable Securities shall conform to the information provided
to the Company by each of the Investors.
i. The Company shall make generally available to its security
holders as soon as practicable, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish, on the
date that Registrable Securities are delivered to an underwriter, if any, for
sale in connection with any Registration Statement or, if such securities are
not being sold by an underwriter, on the date of effectiveness thereof (i) an
opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters, if any, and the Investors and (ii) a letter, dated such date, from
the Company's independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters, if any, and
the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Initial Investors, (iv) one firm of attorneys
and one firm of accountants or other agents retained by all other Investors, and
(v) one firm of attorneys retained by all such underwriters (collectively, the
"INSPECTORS") all pertinent financial and other records, and pertinent corporate
documents and properties of the
<PAGE>
Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably
request for purposes of such due diligence; PROVIDED, HOWEVER, that each
Inspector shall hold in confidence and shall not make any disclosure (except
to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena
or other order from a court or government body of competent jurisdiction, or
(c) the information in such Records has been made generally available to the
public other than by disclosure in violation of this or any other agreement.
The Company shall not be required to disclose any confidential information in
such Records to any Inspector until and unless such Inspector shall have
entered into confidentiality agreements (in form and substance satisfactory
to the Company) with the Company with respect thereto, substantially in the
form of this Section 3(k). Each Investor agrees that it shall, upon learning
that disclosure of such Records is sought in or by a court or governmental
body of competent jurisdiction or through other means, give prompt notice to
the Company and allow the Company, at its expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for, the
Records deemed confidential. Nothing herein (or in any other confidentiality
agreement between the Company and any Investor) shall be deemed to limit the
Investor's ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations.
l. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall (i) cause all the Registrable Securities
covered by the Registration Statement to be listed on each national securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) to the extent the securities
of the same class or series are not then listed on a national securities
exchange, secure the designation and quotation of all the Registrable Securities
covered by the Registration Statement on Nasdaq or the Nasdaq SmallCap or, if
not eligible for Nasdaq or the Nasdaq
<PAGE>
SmallCap, on the OTC BB and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with
respect to such Registrable Securities.
n. The Company shall provide a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. Provided the Registrable Securities are registered under the 1933
Act, the Company shall cooperate with the Investors who hold Registrable
Securities being offered and the managing underwriter or underwriters, if any,
to facilitate the timely preparation and delivery of certificates (not bearing
any restrictive legends) representing Registrable Securities to be offered
pursuant to such Registration Statement and enable such certificates to be in
such denominations or amounts, as the case may be, as the managing underwriter
or underwriters, if any, or the Investors may reasonably request and registered
in such names as the managing underwriter or underwriters, if any, or the
Investors may request, and, within three (3) business days after a Registration
Statement which includes Registrable Securities is ordered effective by the SEC,
the Company shall deliver, and shall cause legal counsel selected by the Company
to deliver, to the transfer agent for the Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) an instruction in the form attached hereto as EXHIBIT 1 and an
opinion of such counsel in the form attached hereto as EXHIBIT 2.
p. At the request of the holders of a majority-in-interest of the
Registrable Securities, the Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and any prospectus used in connection with the
Registration Statement as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.
q. The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including without limitation the 1933 Act and the 1934 Act and the rules and
regulations promulgated by the SEC).
r. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.
s. The Company shall not, and shall not agree to, allow the holders
of any securities of the Company to include any of their securities in any
Registration Statement under Section 2(a) hereof or any amendment or supplement
thereto under Section 3(b) hereof without the consent of the holders of a
majority-in-interest of the Registrable Securities. In addition, the Company
shall not offer any securities for its own account or the account of others in
any
<PAGE>
Registration Statement under Section 2(a) hereof or any amendment or
supplement thereto under Section 3(b) hereof without the consent of the
holders of a majority-in-interest of the Registrable Securities.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least three
(3) business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statements hereunder, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statements.
c. In the event Investors holding a majority-in-interest of the
Registrable Securities being registered (with the approval of the Initial
Investors) determine to engage the services of an underwriter, each Investor
agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's
<PAGE>
possession, of the prospectus covering such Registrable Securities current at
the time of receipt of such notice.
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel selected by the Initial Investors pursuant to Sections 2(b) and 3(h)
hereof shall be borne by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable Securities,
(ii) the directors, officers, partners, employees, agents and each person who
controls any Investor within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 ACT"), if any, (iii) any underwriter
(as defined in the 1933 Act) for the Investors, and (iv) the directors,
officers, partners, employees and each person who controls any such underwriter
within the meaning of the 1933 Act or the 1934 Act, if any (each, an
"INDEMNIFIED PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "CLAIMS") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged
<PAGE>
omission to state therein any material fact necessary to make the statements
made therein, in light of the circumstances under which the statements
therein were made, not misleading; or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, "VIOLATIONS"). Subject to the restrictions set forth in
Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse the Indemnified Person, promptly as such expenses are incurred and
are due and payable, for any reasonable legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any
such Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not
apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of such Registration
Statement or any such amendment thereof or supplement thereto; (ii) shall not
apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent
shall not be unreasonably withheld; and (iii) with respect to any preliminary
prospectus, shall not inure to the benefit of any Indemnified Person if the
untrue statement or omission of material fact contained in the preliminary
prospectus was corrected on a timely basis in the prospectus, as then amended
or supplemented, such corrected prospectus was timely made available by the
Company pursuant to Section 3(c) hereof, and the Indemnified Person was
promptly advised in writing not to use the incorrect prospectus prior to the
use giving rise to a Violation and such Indemnified Person, notwithstanding
such advice, used it. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"INDEMNIFIED PARTY"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation by such Investor, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other expenses (promptly
as such expenses are incurred and are due and payable) reasonably incurred by
them in connection with investigating or defending any such Claim; PROVIDED,
HOWEVER, that the indemnity agreement
<PAGE>
contained in this Section 6(b) shall not apply to amounts paid in settlement
of any Claim if such settlement is effected without the prior written consent
of such Investor, which consent shall not be unreasonably withheld; PROVIDED,
FURTHER, HOWEVER, that the Investor shall be liable under this Agreement
(including this Section 6(b) and Section 7) for only that amount as does not
exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors pursuant
to Section 9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified
Party if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; PROVIDED, HOWEVER, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the Registration
Statement to which the Claim relates (with the approval of a
majority-in-interest of the Initial Investors), if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
<PAGE>
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; PROVIDED, HOWEVER, that (i) no
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section
6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the investors to sell securities of the Company
to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such
<PAGE>
registration rights are being transferred or assigned, (iii) following such
transfer or assignment, the further disposition of such securities by the
transferee or assignee is restricted under the 1933 Act and applicable state
securities laws, (iv) at or before the time the Company receives the written
notice contemplated by clause (ii) of this sentence, the transferee or
assignee agrees in writing with the Company to be bound by all of the
provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "ACCREDITED INVESTOR" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company, each of the Initial
Investors (to the extent such Initial Investor still owns Registrable
Securities) and Investors who hold a majority interest of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the terms
hereof shall be sent by certified or registered mail (return receipt requested)
or delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five days after being placed in
the mail, if mailed by regular United States mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
Global Media Corp.
83 Victoria Crescent
Unit 29
Nanaimo, British Columbia V9R 5B9
Canada
Attention: Chief Executive Officer
Facsimile: (250) 716-0502
<PAGE>
With copy to:
Davis Wright Tremaine LLP
2600 Century Square
1501 Fourth Avenue
Seattle, Washington 98101
Attention: Eric A. DeJong
Facsimile: (206) 628-7699
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
With copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103-2921
Attention: Keith S. Marlowe
Facsimile: (215) 963-5299
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware applicable to agreements made and to be
performed in the State of Delaware (without regard to principles of conflict of
laws). Both parties irrevocably consent to the jurisdiction of the United
States federal courts and the state courts located in Delaware with respect to
any suit or proceeding based on or arising under this Agreement, the agreements
entered into in connection herewith or the transactions contemplated hereby or
thereby and irrevocably agree that all claims in respect of such suit or
proceeding may be determined in such courts. Both parties irrevocably waive the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
Both parties further agree that service of process upon a party mailed by first
class mail shall be deemed in every respect effective service of process upon
the party in any such suit or proceeding. Nothing herein shall affect either
party's right to serve process in any other manner permitted by law. Both
parties agree that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
e. This Agreement and the Securities Purchase Agreement (including
all schedules and exhibits thereto) constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There are
no restrictions, promises, warranties
<PAGE>
or undertakings, other than those set forth or referred to herein and
therein. This Agreement and the Securities Purchase Agreement supersede all
prior agreements and understandings among the parties hereto with respect to
the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding a majority of the Registrable Securities, determined
as if the all of the shares of Preferred Shares then outstanding have been
converted into for Registrable Securities.
k. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to each Investor by vitiating the intent
and purpose of the transactions contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for breach of its obligations hereunder will
be inadequate and agrees, in the event of a breach or threatened breach by the
Company of any of the provisions hereunder, that each Investor shall be
entitled, in addition to all other available remedies in law or in equity, to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, without
the necessity of showing economic loss and without any bond or other security
being required.
l. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
m. In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed
<PAGE>
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereof
which may prove invalid or unenforceable under any law shall not affect the
validity or enforceability of any other provision hereof.
n. The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable Securities
included thereon shall be allocated pro rata among the Investors based on the
number of Registrable Securities held by each Investor at the time of such
establishment or increase, as the case may be. In the event an Investor shall
sell or otherwise transfer any of such holder's Registrable Securities, each
transferee shall be allocated a pro rata portion of the number of Registrable
Securities included on a Registration Statement for such transferor. Any shares
of Common Stock included on a Registration Statement and which remain allocated
to any person or entity which does not hold any Registrable Securities shall be
allocated to the remaining Investors, pro rata based on the number of shares of
Registrable Securities then held by such Investors. For the avoidance of doubt,
the number of Registrable Securities held by an Investor shall be determined as
if all Debentures, Preferred Shares and Warrants then outstanding and held by an
Investor were converted into or exercised for Registrable Securities.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company and the undersigned Initial Investors
have caused this Agreement to be duly executed as of the date first above
written.
GLOBAL MEDIA CORP.
By:
--------------------------------
Name:
-----------------------------
Title:
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RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By:
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Wayne D. Bloch
Managing Director
