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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
August 4, 1999
MDI ENTERTAINMENT, INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware 0-24919 73-1515699
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(State or Other (Commission File (IRS Employer
Jurisdiction of Number) Identification No.)
Incorporation)
201 Ann Street
Hartford, Connecticut 06103
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including
area code: (860) 527-5359
(Former Address, if changed since last report)
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Item 5: Other Events
MDI Entertainment, Inc. (the "Company") received gross proceeds of
$1,750,000 on August 4, 1999 from the private sale to an investor of 2,027
shares of Series A Convertible Preferred Stock (the "Preferred Stock"),
representing approximately 20% of the outstanding common stock of the Company on
an as converted basis. The Preferred Stock has a liquidation preference of
$1,750,000, pays a dividend at the rate of 10% per annum, payable in cash or
common stock at the discretion of the Company, and is convertible into an
aggregate of 2,027,000 shares of the Company's common stock, subject to
adjustment under certain circumstances. As long as 2,027 shares of the Preferred
Stock remain outstanding, the holders of a majority of such shares may elect a
director of the Company. In addition, such holders are entitled to a right of
first refusal on new securities issued by the Company, subject to certain
exclusions. The Company may not create or increase the authorized number of
shares of any class or series of stock ranking prior to or on parity with the
Preferred Stock either as to dividends or liquidation without approval of a
majority of the holders of the Preferred Stock.
The Company has agreed to file a registration statement with respect to the
resale of the common stock underlying the Preferred Stock within 45 days
following closing, which is required to be declared effective within 120 days of
closing, subject to certain exceptions. If such filing and effectiveness are not
achieved by the deadlines, the investor may be entitled to certain penalties. In
addition, upon effectiveness of such registration statement, the Preferred Stock
will pay a reduced dividend at the rate of 5% per annum. If not previously
converted by the investor, the Preferred Stock will automatically convert into
common stock in quarterly installments over a period of one year following the
effectiveness of the registration statement.
In connection with the placement, MDI paid Venture Partners Capital, LLC, a
registered broker-dealer a $140,000 cash fee and a seven-year warrant to
purchase 566,875 shares of common stock at $1.31 per share.
Item 7: Financial Statements, Pro Forma Financial information and Exhibits.
(c) Exhibits
99.1 Stock Purchase Agreement, dated August 4, 1999, between MDI
Entertainment, Inc. and International Capital Partners, LLC.
99.2 Registration Rights Agreement, dated August 4, 1999, between MDI
Entertainment, Inc. and International Capital Partners, LLC.
99.3 MDI Entertainment, Inc. Certificate of Designations, Preferences
and Rights of Series A Preferred Stock, executed August 4, 1999.
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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.
Dated: August 12, 1999
MDI ENTERTAINMENT, INC.
By: /s/ Steven M. Saferin
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Steven M. Saferin
President and Chief Executive Officer
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Exhibit 99.1
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is entered into as of the 4th day of
August, 1999, by and between MDI Entertainment, Inc., a Delaware corporation
(the "Corporation"), with its principal place of business located at 201 Ann
Street, Suite 210, Hartford, Connecticut 06103, and International Capital
Partners, LLC (the "Investor").
WHEREAS, the Investor wishes to purchase from the Corporation, and the
Corporation wishes to sell to the Investor, certain shares of the Corporation's
Series A Preferred Stock; and
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
SECTION 1. Filing of Certificate of Designation; Reservation of Shares
of Common Stock.
(a) Immediately prior to the execution and delivery of this
Agreement, the Corporation filed with the Secretary of State of Delaware a
Certificate of Designation, Preferences and Rights of Series A Preferred Stock
of the Corporation (the "Certificate of Designation"), a copy of which is
included in Exhibit 1.1 hereto (the Certificate of Incorporation of the
Corporation, as amended by the Certificate of Designation and in effect on the
date hereof, being hereinafter referred to as the "Certificate of
Incorporation").
(b) The Corporation has authorized and reserved and covenants to
continue to reserve, free and clear of preemptive and other preferential rights,
a sufficient number of its previously authorized but unreserved shares of Common
Stock, par value $.001 per share (the "Common Stock"), to satisfy the rights of
conversion of the holders of the Series A Preferred Stock.
SECTION 2. Purchase and Sale of the Series A Preferred Stock. The
Corporation agrees to sell to the Investor, and the Investor agrees to purchase
from the Corporation, at the Closing (as hereinafter defined) and upon the terms
and conditions hereinafter set forth, 2,027 number of shares of Series A
Preferred Stock (the "Shares"). The purchase price for the Shares to be sold
pursuant to this Agreement shall be $863.33 per share so purchased.
SECTION 3. Delivery of the Shares and Other Documents. The closing
hereunder with respect to the transactions with the Investor contemplated hereby
(the "Closing") shall take place at the offices of Foley, Hoag & Eliot LLP, One
Post Office Square, Boston, Massachusetts 02109, on July 28, 1999 at 10:00 a.m.
Boston Time or at such other mutually agreed to time. At the Closing, the
Corporation shall deliver to the Investor a stock certificate, registered in the
name of the Investor, representing the Shares. Delivery to the Investor shall be
made against receipt by the Corporation of the full amount of the purchase price
for the Shares being purchased by the Investor hereunder by check payable to the
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order of the Corporationor or by wire transfer of immediately available funds to
an account specified in writing by the Corporation.
SECTION 4. Use of Proceeds. The Corporation shall use the proceeds from
the sale of the Shares to fund operating losses, to purchase capital equipment
necessary for operations and to fund the Corporation's general working capital
needs.
SECTION 5. Representations and Warranties of the Corporation. The
Corporation hereby represents and warrants to the Investor as follows:
5.1 Organization. The Corporation is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own and lease its
properties, to carry on its business as presently conducted and as proposed to
be conducted and to carry out the transactions contemplated hereby. The
Corporation is duly qualified as a foreign corporation and is in good standing
in all such other jurisdictions (which jurisdictions are listed in Exhibit 5.1)
in which the conduct of its business or its ownership or leasing of property
requires such qualification and in which the failure so to qualify or so to be
in good standing would have a materially adverse effect on the Corporation's
operations or financial condition.
5.2 Capitalization. The entire authorized capital stock of the
Corporation and the rights to acquire capital stock of the Corporation consists
of:
(a) 25,000,000 shares of Common Stock of which 7,776,500 shares
have been duly and validly issued and are outstanding, fully paid and
nonassessable, (ii) 2,027,000 shares have been reserved for issuance
upon conversion of the Series A Preferred Stock, and (iii) no shares
are held as treasury shares;
(b) 2,027 shares of Series A Preferred Stock of which (i) prior
to the Closing, no shares were issued and outstanding and (ii) 2,027
shares will be held by the Investor after the Closing and will, upon
issuance in accordance with this Agreement, have been duly and validly
issued and be outstanding, fully paid and nonassessable; and
(c) Exhibit 5.2(c)
5.3 Equity Investments. Except as disclosed in Exhibit 5.3, the
Corporation has never had, nor does it currently own, any capital stock or other
proprietary interest, directly or indirectly, in any corporation, association,
trust, partnership, joint venture or other entity.
5.4 Reporting Company Status. The Corporation has registered its
Common Stock pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Common Stock is listed and traded on the
NASDAQ/OTC Bulletin Board. The Company has timely filed all material required to
be filed pursuant to all reporting obligations under either Section 13(a) or
15(d) of the Exchange Act, and has received no notice, either oral or written,
with respect to the continued eligibility of the Common Stock for such listing.
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5.5 SEC Filings. None of the documents filed by the Corporation with
the Securities and Exchange Commission (the "SEC") pursuant to the Securities
Act of 1933, as amended (the "Securities Act") and the Exchange Act since
September 28, 1998 (collectively, the "SEC Documents") at the time they were
filed, contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. The Corporation has timely filed all requisite forms, reports and
exhibits thereto with the SEC.
5.6 Financial Statements. The Corporation has furnished to the
Investor the audited balance sheet of the Corporation as of May 31, 1998 and the
related statements of operation, stockholders' equity and cash flow of the
Corporation, together with related schedules and notes, if any, for the year
ended May 31, 1998, and the unaudited balance sheet of the Corporation as of
February 28, 1999 (the "Balance Sheet") and the related unaudited statements of
operation, stockholders' equity and statements of cash flow of the Corporation
for the 9 months then ended ("Statement of Operations"). The Balance Sheet and
the Statement of Operations (the "Financial Statements") have been prepared in
accordance with generally accepted accounting principles consistently applied.
The Balance Sheet fairly presents, in all material respects, the financial
position of the Corporation as of its date, and the Statement of Operations
fairly presents the results of operations of the Company for the period therein
set forth.
5.7 Absence of Liabilities. Except as set forth in the Balance Sheet
or disclosed in the SEC documents and except for obligations and liabilities
incurred since February 28, 1999 in the ordinary course of business, the
Corporation has no material obligation or liability (absolute, accrued or
contingent) as of the date hereof.
5.8 Absence of Changes. Except as disclosed in the SEC Documents,
since February 28, 1999 there has not been (a) any material adverse change in
the financial condition, results of operations, assets, liabilities, business or
prospects of the Corporation, (b) any material asset or property of the
Corporation made subject to a lien of any kind, (c) any waiver of any valuable
right of the Corporation, or the cancellation of any material debt or claim held
by the Corporation, (d) any payment of dividends on, or other distribution with
respect to, or any direct or indirect redemption or acquisition of, any shares
of the capital stock of the Corporation, or any agreement or commitment
therefor, (e) any mortgage, pledge or hypothecation of any tangible or
intangible asset of the Corporation, except in the ordinary course of business,
(f) any sale or assignment of any tangible asset of the Corporation having a
book value in excess of $10,000, except in the ordinary course of business, (g)
any loan by the Corporation to, or any loan to the Corporation from, any
officer, director, employee or stockholder of the Corporation, or any agreement
or commitment therefor, (h) any damage, destruction or loss (whether or not
covered by insurance) materially and adversely affecting the assets, property or
business of the Corporation, or (i) any change in the accounting methods or
practices followed by the Corporation.
5.9 Intellectual Property Rights. Except in each case as set forth
in Exhibit 5.9:
(a) the Corporation has the right to use the Intellectual
Property Rights (as hereinafter defined) necessary or required for the
conduct of its business as presently conducted or as proposed to be
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conducted, free and clear of all rights of others. A complete list of
all Intellectual Property Rights, including all licenses, contract
rights and registrations or applications therefor, is set forth in
Exhibit 5.9;
(b) no royalties or other amounts are payable by the Corporation
to other persons by reason of the ownership or use of said
Intellectual Property Rights;
(c) to the best of the Corporation's knowledge, no product
marketed or sold or proposed to be marketed or sold by the Corporation
violates or will violate any license or infringes any Intellectual
Property Rights of another;
(d) the Corporation has not received any notice that any of such
Intellectual Property Rights or the operation or proposed operation of
the Corporation's business conflicts or will conflict with the rights
of others, nor is the Corporation aware of any reasonable basis to
believe that any such violation, infringement or conflict will or may
exist; and
(e) the Corporation has taken reasonable measures to protect and
preserve the security, confidentiality and value of its Intellectual
Property Rights, including its trade secrets and other confidential
information. To the best knowledge of the Corporation, all trade
secrets and other confidential information of the Corporation are
presently valid and protectible and are not part of the public domain
or knowledge, nor, to the best knowledge of the Corporation, have they
been used, divulged or appropriated for the benefit of any person
other than the Corporation or otherwise to the detriment of the
Corporation.
As used herein, the term "Intellectual Property Rights" means all patents,
trademarks, service marks, trade names, copyrights, inventions, trade secrets,
proprietary processes and formulae, applications for patents, trademarks,
service marks and copyrights, and other industrial and intellectual property
rights.
5.10 Proprietary Information of Third Parties. To the best of the
Corporation's knowledge, no third party has claimed or has reason to claim that
any person employed by or affiliated with the Corporation has (a) violated or
may be violating any of the terms or conditions of his or her employment,
non-competition, non-disclosure or inventions agreement with such third party,
(b) disclosed or may be disclosing or utilized or may be utilizing any trade
secret or proprietary information or documentation of such third party or (c)
interfered or may be interfering in the employment relationship between such
third party and any of its present or former employees. No third party has
requested information from the Corporation which suggests that such a claim
might be contemplated. To the best of the Corporation's knowledge, no person
employed by or affiliated with the Corporation has employed or proposes to
employ any trade secret or any information or documentation proprietary to any
former employer, and, to the best of the Corporation's knowledge, no person
employed by or affiliated with the Corporation has violated any confidential
relationship which such person may have had with any third party, in connection
with the development, manufacture or sale of any product or proposed product or
the development or sale of any service or proposed service of the Corporation,
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and the Corporation has no reason to believe there will be any such employment
or violation.
5.11 Litigation. Except as set forth in Exhibit 5.1, there is no
action, suit, claim, proceeding or investigation, at law, in equity or
otherwise, or by or before any governmental instrumentality or other agency, now
pending, or, to the Corporation's knowledge, threatened against or affecting the
Corporation, nor, to the Corporation's knowledge, does there exist any
reasonable basis therefor, which in either case could reasonably be expected to
have a material effect on the Corporation.
5.12 No Defaults. The Corporation is not in violation or breach of,
or in default under, any provision of (a) the Certificate of Incorporation or
the By-Laws or any note, indenture, mortgage, lease, contract, purchase order or
other instrument, document or agreement to which the Corporation is a party or
by which it or any of its property is bound or affected or (b) any ruling, writ,
injunction, order, judgment or decree of any court, administrative agency or
other governmental body, which breach could reasonably be expected to have a
material adverse effect on the corporation. To the best knowledge of the
Corporation, there exists no condition, event or act which after notice, lapse
of time, or both, could constitute a violation or breach of, or a default under,
any of the foregoing.
5.13 Authorization of this Agreement and Registration Rights
Agreement. The execution, delivery and performance by the Corporation of this
Agreement and the Registration Rights Agreement dated of the even date herewith
by and between the Corporation and the Investor (the "Registration Rights
Agreement") have been duly authorized by all requisite corporate action. This
Agreement and the Registration Rights Agreement have been duly executed and
delivered on behalf of the Corporation and constitute the valid and binding
obligations of the Corporation, enforceable in accordance with their respective
terms. The execution, delivery and performance of this Agreement and the
Registration Rights Agreement, the issuance, sale and delivery of the Shares,
and the shares of Common Stock issuable upon conversion of the Series A
Preferred Stock (the "Reserved Shares"), and compliance with the provisions
hereof and thereof by the Corporation, do not and will not, with or without the
passage of time or the giving of notice or both, (a) violate any provision of
law, statute, ordinance, rule or regulation or any ruling, writ, injunction,
order, judgment or decree of any court, administrative agency or other
governmental body or (b) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute a default (or give rise to any
right of termination, cancellation or acceleration) under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Corporation under, the Certificate of Incorporation
or By-Laws or any note, indenture, mortgage, lease, contract, purchase order or
other instrument, document or agreement to which the Corporation is a party or
by which it or any of its property is bound or affected.
5.14 Authorization of Shares. The issuance, sale and delivery
hereunder by the Corporation of the Shares have been duly authorized by all
requisite corporate action of the Corporation, and when so issued, sold and
delivered, the Shares will be validly issued and outstanding, fully paid and
nonassessable, and not subject to preemptive or any other similar rights of the
stockholders of the Corporation or others.
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5.15 Authorization of Reserved Shares. The issuance, sale and
delivery by the Corporation of the Reserved Shares have been duly authorized by
all requisite corporate action of the Corporation, and the Reserved Shares have
been duly reserved for issuance upon conversion of all or any of the shares of
Series A Preferred Stock, and when so issued and delivered upon conversion of
any of the Shares, the Reserved Shares will be validly issued and outstanding,
fully paid and nonassessable, and not subject to preemptive or any other similar
rights of the stockholders of the Corporation or others.
5.16 No Governmental Consent or Approval Required. No authorization,
consent, approval or other order of, declaration to, or filing with, any
governmental agency or body is required for or in connection with the valid and
lawful authorization, execution, delivery and performance by the Corporation of
this Agreement or the Registration Rights Agreement, for or in connection with
the valid and lawful authorization, issuance, sale and delivery of the Shares or
for or in connection with the valid and lawful authorization, reservation,
issuance, sale and delivery of the Reserved Shares except for SEC approvals and
"blue sky" approvals and filings contemplated by the Registration Rights
Agreement.
5.17 Registration Rights. Except as contemplated by the Registration
Rights Agreement, no person has any right to cause the Corporation to effect the
registration under the Securities Act of any shares of Common Stock or any other
securities of the Corporation.
5.18 Exemptions from Securities Laws. Subject to the accuracy of the
representations and warranties of the Investor set forth in Section 6 hereof,
the provisions of Section 5 of the Securities Act are inapplicable to the
offering, issuance, sale and delivery of the Shares and the Reserved Shares by
virtue of the exemption afforded by Section 4(2) of the Securities Act, and no
consent, approval, qualification or registration or filing under any state
securities or blue sky laws is required in connection therewith.
5.19 Compliance. The Corporation has (a) complied in all material
respects with all Federal, state, local or foreign laws, statutes, ordinances,
rules, regulations and orders applicable to its business and (b) all Federal,
state, local and foreign governmental licenses, registrations and permits
material to or necessary for the conduct of its business, and such licenses,
registrations and permits are in full force and effect except for those which
failure to comply would not have a material adverse effect. No proceeding is
pending or, to the Corporation's knowledge, threatened to revoke or limit any
thereof.
5.20 Taxes. The Corporation has filed all Federal, state, local and
foreign tax returns which are required to be filed by it and all such returns
are true and correct in all material respects. The Corporation has paid all
taxes pursuant to such returns or pursuant to any assessments received by it or
which it is obligated to withhold from amounts owing to any employee, creditor
or third party, except, in each case, for those which are not yet due and
payable pursuant to such returns. The income tax returns of the Corporation have
never been audited by state or Federal authorities. The Corporation has not
waived any statute of limitations with respect to taxes or agreed to any
extension of time with respect to any tax assessment or deficiency. Neither the
Corporation nor, to its knowledge, any of its stockholders, has ever filed a
consent pursuant to Section 341(f) of the Internal Revenue Code of 1986, as
amended (the "Code"), relating to collapsible corporations.
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5.21 Disclosure. Neither this Agreement nor any other document,
certificate or written statement furnished to the Investor by or on behalf of
the Corporation contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein not misleading.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor
represents and warrants to the Corporation that:
(a) The Investor is acquiring the Shares, and, in the event an
Investor should acquire Reserved Shares upon conversion of the Shares, such
Investor will be acquiring the Reserved Shares, for its own account, for
investment and not for, with a view to or in connection with the distribution
thereof.
(b) The Investor understands that the Shares have not been
registered under the Securities Act or any state securities law, by reason of
their issuance in a transaction exempt from the registration requirements of the
Securities Act and such laws, and that the Shares must be held indefinitely
unless they are subsequently registered under the Securities Act and such laws
or a subsequent disposition thereof is exempt from registration. The
certificates for the Shares shall bear a legend to such effect, and appropriate
stock transfer instructions shall be issued.
(c) The Investor understands that the exemption from registration
afforded by Rule 144 promulgated by the Securities and Exchange Commission (the
"Commission") under the Securities Act depends upon the satisfaction of various
conditions and that, if applicable, Rule 144 affords the basis for sales only in
limited amounts.
(d) The Investor (i) has sufficient knowledge and experience in
business and financial matters and with respect to investment in securities of
companies comparable to the Corporation so as to enable it to analyze and
evaluate the merits and risks of the investment contemplated hereby and (ii) is
able to bear the economic risk of such investment. The Investor is an
"accredited investor" with the meaning of Regulation D under the Securities Act.
(e) The Investor and its advisors, if any, have been furnished with
all materials relating to the business, finances and operations of the
Corporation and materials relating to the offer and sale of the Preferred Stock
which have been requested by the Investor. The Investor and its advisors, if
any, have been afforded the opportunity to ask questions of the Corporation and
have received complete and satisfactory answers to any such inquiries. Without
limiting the generality of the foregoing, the Investor has also had the
opportunity to obtain and to review the Corporation's (1) Registration Statement
on Form 10-SB filed on September 28, 1998 as amended; (2) Quarterly Reports on
Form 10-QSB for the fiscal quarters ended August 31, 1998, November 30, 1998 and
February 28, 1999; (3) The Corporation's Proxy Statement for its Annual Meeting
of Stockholders held February 9, 1999.
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(f) This Agreement has been duly and validly authorized, executed
and delivered on behalf of the Investor and is a valid and binding agreement of
the Investor enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.
None of the representations and warranties contained in this Section 6
shall in any way affect the right of the Investor to rely fully on the
representations, warranties and covenants of the Corporation in this Agreement
or otherwise.
SECTION 7. Conditions Precedent to Closing by the Investor. The
obligation of the Investor to purchase and pay for the Shares being purchased by
the Investor is subject to satisfaction of the following conditions precedent at
or before the Closing:
7.1 Corporate Proceedings. All corporate and other proceedings to be
taken and all waivers and consents to be obtained in connection with the
transactions contemplated by this Agreement shall have been taken or obtained
and all documents incident to such transactions shall be satisfactory in form
and substance to the Investor and its counsel, who shall have received all such
originals or certified or other copies of such documents as they may reasonably
request.
7.2 Representations and Warranties Correct. The representations and
warranties made by the Corporation in Section 5 hereof shall be true and correct
when made, and shall be true and correct at the time of the Closing, with the
same force and effect as if they had been made at and as of the time of the
Closing.
7.3 Compliance with Covenants. The Corporation shall have duly
complied with and performed all covenants and agreements of the Corporation
herein which are required to be complied with and performed at or before the
Closing.
7.4 Certificate of President. The Corporation shall have provided to
the Investor a certificate, signed by its President and dated the date of the
Closing, in form and substance reasonably satisfactory to the Investor and its
counsel, confirming compliance with the conditions set forth in Sections 7.1
through 7.3.
7.5 Opinion of Counsel. At the Closing, the Investor shall have
received from Squadron Ellenoff Plesent & Sheinfeld LLP for the Corporation,
their opinion addressed to the Investor, dated the date of the Closing, to the
effect set forth in Exhibit 7.5.
7.6 Registration Rights Agreement and Documents. At or before the
Closing, the Corporation and the Investor shall have executed and delivered the
Registration Rights Agreement and the Corporation shall have delivered to the
Investor such other documents as any of them shall reasonably request.
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SECTION 8. Additional Agreements of the Corporation.
8.1 Board of Directors; Indemnification.
(a) Following the Closing, the Board of Directors shall consist of
not more than nine (9) directors to be elected in the manner provided in the
Certificate of Incorporation. The Corporation shall hold meetings of the Board
of Directors not less frequently then one time every 3 months.
(b) The Certificate of Incorporation or By-laws of the Corporation
shall at all times provide for the indemnification of the members of the Board
of Directors of the Corporation to the full extent provided by the law of the
jurisdiction in which the Corporation is organized and the Corporation shall,
promptly after the Closing and in no event later than 90 days after the Closing,
obtain and maintain, with a financially sound and responsible insurer, insurance
coverage in an amount not less than $2 million for indemnification of the
members of the Board of Directors.
8.2 Right of First Refusal.
(a) The Corporation hereby grants to the Investor and any assignee
of the Investor (each, a "Right Holder") a right of first refusal to purchase,
pro rata, all (or any part) of any New Securities (as defined in this Section
8.2) that the Corporation may, from time to time, propose to sell or issue. Each
such Right Holder's pro rata share, for purposes of this right of first refusal,
is the ratio of (i) the number of shares of Common Stock then held of record by,
or issuable on conversion of Series A Preferred Stock then held of record by,
such Right Holder to (ii) the sum of the total number of shares of the Common
Stock then held of record by, or issuable on conversion of Series A Preferred
Stock then held of record by, all Right Holders at such time. Such right shall
terminate upon a Qualifying Public Offering (as defined in the Certificate of
Designations).
(b) "New Securities" shall mean any equity securities of the
Corporation, whether now authorized or not, and rights, options, or warrants to
purchase said equity securities, and securities of any type whatsoever that are,
or may become, convertible into said equity securities; provided, however, that
"New Securities" does not include (i) up to 1,130,000 shares (appropriately
adjusted to take account of any stock split, stock dividend, combination of
shares, recapitalization or the like) of Common Stock (or options, warrants or
other rights to purchase Common Stock) issued or to be issued to employees,
officers or other persons performing services for the Corporation pursuant to
any stock offering, plan or arrangement approved by the Board of Directors of
the Corporation; (ii) shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by the Corporation; (iii) shares of
Common Stock issued upon conversion of shares of Series A Preferred Stock
including any shares issued as a dividend; (iv) shares of Common Stock to be
sold in a Qualifying Public Offering; (v) securities issued in connection with
the acquisition of another corporation by the Corporation by merger or by
purchase of substantially all the stock or assets of such corporation; and (vi)
securities issued in connection with a strategic alliance or acquisition with an
entity with which the Corporation will have executed non-disclosure agreements
prior to the date hereof.
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(c) In the event that the Corporation proposes to issue New
Securities, at least 20 days before such issuance, it shall give to each Right
Holder written notice of its intention, describing in such notice the type of
New Securities, the price, and the terms upon which the Corporation proposes to
issue the same (the "Offer Notice"). Each Right Holder shall have 10 days from
the date of its receipt of any such Offer Notice to agree to purchase all or a
part of its pro rata share of such New Securities for the price and upon the
terms specified in the Offer Notice by giving written notice to the Corporation
and stating therein the quantity of New Securities to be purchased. Upon the
earlier of (x) the expiration of such 10-day period or (y) receipt by the
Corporation of notices from all Right Holders pursuant to the immediately
preceding sentence, the Corporation shall give to all Right Holders exercising
in full their right to purchase their respective pro rata shares of such New
Securities a written notice setting forth the number of New Securities
subscribed to be purchased pursuant to the exercise of such rights by all Right
Holders and the number of New Securities that have not been subscribed to be so
purchased. If any Right Holder fails to exercise its right hereunder to purchase
all of its pro rata portion of New Securities, the other Right Holders may agree
to purchase the nonpurchasing Right Holder's unpurchased portion on a pro rata
basis, up to and including all the New Securities proposed to be sold by the
Corporation, within 10 days from the Corporation's giving of the notice referred
to in the immediately preceding sentence. Any agreement by a Right Holder to
purchase New Securities shall, subject to the provision of Section 8.2(d)(ii)
below, be binding on such Right Holder. In the event that Right Holders have
agreed to purchase or otherwise acquire all of the New Securities proposed to be
issued, the Corporation shall designate by written notice to Right Holders a
date for the closing of the issuance and sale of such New Securities to occur
not earlier than five (5) days nor later than fifteen (15) days following the
expiration of such 10 plus 10 day period.
(d) In the event that the Right Holders fail to exercise in full the
above-described right of first refusal within said 10 plus 10 day period or to
purchase in a timely manner all New Securities respecting which such right was
exercised or such purchase made, (i) the Corporation shall have 120 days
thereafter to issue or sell to one or more third parties the New Securities
respecting which such right was not exercised or such purchase was not made, at
a price and upon terms no more favorable to the purchasers thereof than
specified in the Offer Notice and (ii) no Right Holder that has agreed to
purchase or otherwise acquire any New Securities pursuant to the exercise of the
right of first refusal set forth in this Section 8.2 shall be obligated to
consummate such purchase or acquisition unless and until New Securities
available for issuance or sale to one or more third parties have actually been
issued or sold in accordance with the terms set forth in the Offer Notice, in
which event a closing with respect to both the purchase by such Right Holder and
such third party or parties shall occur simultaneously. In the event the
Corporation has not so sold the New Securities within said 120 day period, the
Corporation shall not thereafter issue or sell any New Securities without first
offering such New Securities to the Right Holders in the manner provided above.
(e) This Right of First Refusal may be assigned, in whole or in
part, (i) to a partner, stockholder or Affiliate (as hereinafter defined) of any
Right Holder who acquires not less than 200,000 shares of Common Stock, or (ii)
to any assignee who acquires not less than 200,000 shares of Common Stock
(including in each case such number of shares of Common Stock issuable upon
conversion of Series A Preferred Stock), appropriately adjusted to take account
of any stock split, stock dividend, combination of shares, or the like; provided
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that any such assignment under (i) or (ii) is not to a competitor of the
Corporation in the reasonable opinion of the Corporation.
(f) As used in this Section, an Affiliate of a Right Holder shall
mean any partner of the Right Holder or any person or entity that, directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, the Right Holder.
8.3 Insurance. The Corporation either has obtained or shall obtain
promptly, and shall maintain, with a financially sound and responsible insurer
(a) term life insurance, payable to the Investor until three years after the
Closing or until the conversion of all the shares of Series A Preferred Stock,
whichever is earlier, on the life of Steven Saferin in the amount of $1,500,000,
which insurance shall remain in force for so long as such employee is employed
by the Corporation; and (b) such other insurance as may be satisfactory to the
Board of Directors.
8.4 Reporting Status. So long as the Investor beneficially owns any
of the Preferred Stock, the Corporation shall file all reports required to be
filed with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, and the
Corporation shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination.
8.5 Transfer Agent Instructions.
(a) Promptly following the delivery by the Investor of the aggregate
purchase price for the Preferred Stock in accordance with Section 2 hereof, the
Corporation will irrevocably instruct its transfer agent to issue Common Stock
from time to time upon conversion of the Preferred Stock in such amounts as
specified from time to time by the Corporation to the transfer agent registered
in the name of the Investor or its nominee and in such denominations to be
specified by the Investor in connection with each conversion of the Preferred
Stock. The Corporation warrants that no instruction other than such instructions
referred to in this Section 8.5, and the Registration Rights Agreement prior to
registration and sale of the Shares under the 1933 Act will be given by the
Corporation to the transfer agent and that the Shares shall otherwise be freely
transferable on the books and records of the Corporation as to the extent
provided in the Agreement, the Registration Rights Agreement, and applicable
law. Nothing in this Section shall affect in any way the Investor's obligations
and agreement to comply with all applicable securities laws upon resale of the
Shares. If the Investor provides the Corporation with an opinion of counsel
reasonably satisfactory to the Corporation that registration of a resale by the
Investor of any of the Shares is not required under the Securities Act, the
Corporation shall permit the transfer of the Shares and promptly instruct the
Corporation's transfer agent to issue one or more certificates for Common Stock
in such name and in such denominations as specified by the Investor.
(b) The Corporation will permit the Investor to exercise its right
to convert the Preferred Stock by telecopying an executed and completed Notice
of Conversion to the Corporation with copies to Squadron, Ellenoff, Plesent &
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Sheinfield, and delivering within three business days thereafter, the original
Notice of Conversion and the certificate for the Preferred Stock representing
the Shares to the Corporation by express courier. Each date on which a Notice of
Conversion is telecopied to and received by the Corporation in accordance with
the provisions hereof shall be deemed a Conversion Date. The Corporation will
immediately confirm receipt of such notice by telecopy and transmit the
certificates representing the Shares of Common Stock issuable upon conversion of
any Preferred Stock (together with the Preferred Stock representing the Shares
not so converted) to the Investor via express courier, within three business
days after receipt by the Corporation of the original Notice of Conversion and
the certificate for the Preferred Stock representing the Shares to be converted
(the "Delivery Date").
(c) The Corporation understands that a delay in the issuance of the
Shares of Common Stock beyond the Delivery Date could result in economic loss to
the Investor. As compensation to the Investor for such loss, the Corporation
agrees to pay late payments, not exceeding $200,000 per tranche, to the Investor
for late issuance of Shares upon Conversion in accordance with the following
schedule (where "No. Business Days Late" is defined as the number of business
days beyond three (3) business days from Delivery Date:
Late Payment for Each $10,000 of
Preferred Stock
No. Business Days Late Principal Amount Being Converted
---------------------- --------------------------------
1 $ 0
2 $ 0
3 $ 100
4 $ 200
5 $ 300
6 $ 400
7 $ 500
8 $ 600
9 $ 700
10 $ 800
10 $ 800 + $200 for each Business
Day Late beyond 10 days
The Corporation shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit a Investor's
right to pursue actual damages for the Corporation's failure to issue and
deliver Common Stock to the Investor. Furthermore, in addition to any other
remedies which may be available to the Investor, in the event that the
Corporation fails for any reason to effect delivery of such shares of Common
Stock within five business days after the Delivery Date, the Investor will be
entitled to revoke the relevant Notice of Conversion by delivering a notice to
such effect to the Corporation whereupon the Corporation and the Investor shall
each be restored to their respective positions immediately prior to delivery of
such Notice of Conversion (and in such event, the late payments described above
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shall not be due and payable).
8.6 Intellectual Property. The Corporation shall use its reasonable
efforts to possess, obtain the right to use and maintain all Intellectual
Property Rights necessary to the conduct of its business, without any known
conflict with or infringement of the Intellectual Property Rights of others.
8.7 License Agreements. The Corporation shall use its best efforts
to negotiate changes in the license agreements between the Corporation and
Harley-Davidson Motor Company, AM General Corporation, and The Rock and Roll
Hall of Fame and Museum, Inc. such that changes in the direct or indirect
ownership or operating management of the Corporation shall not give rise to
termination rights for Harley-Davidson Motor Company, AM General Corporation, or
The Rock and Roll Hall of Fame and Museum, Inc..
SECTION 9. Fees. The Corporation shall pay, and save the Investor
harmless against all liability for the payment of, (a) all costs and other
expenses incurred in connection with the Corporation's performance of and
compliance with all agreements and conditions contained herein on its part to be
performed or complied with, and (b) the reasonable fees and disbursements of
Foley, Hoag & Eliot LLP, counsel for the Investor, for their services in
connection with this financing not to exceed $25,000. The Corporation further
agrees that it shall pay, and shall save the Investor harmless from, any and all
liability with respect to any stamp, issue or similar taxes which may be
determined to be payable in connection with the execution, delivery and
performance of this Agreement, the conversion of shares of Series A Preferred
Stock or any modification, amendment or alteration of the terms or provisions of
this Agreement. In addition, the Corporation shall pay, and save the Investor
harmless from, all liability for the payment of the reasonable fees and
disbursements of counsel for the Investor in connection with any modification,
amendment or alteration of, or waiver with respect to, this Agreement or the
Registration Rights Agreement, or in connection with enforcement of their
respective rights hereunder or thereunder.
SECTION 10. Exchanges; Lost, Stolen or Mutilated Certificates. Upon
surrender by any Investor to the Corporation of a certificate or certificates
representing shares of Series A Preferred Stock purchased or acquired by such
Investor hereunder or Reserved Shares received upon conversion or exercise of
any such shares of Series A Preferred Stock, the Corporation at its expense
shall issue in exchange therefor, and deliver to such Investor, a new
certificate or certificates representing such shares, in such denomination or
denominations as may be requested by such Investor. Upon receipt of evidence
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
any certificate representing any shares of Series A Preferred Stock purchased or
acquired by the Investor hereunder or Reserved Shares received upon conversion
or exercise of any such shares of Series A Preferred Stock and in case of any
such loss, theft or destruction, upon delivery of any indemnity agreement
reasonably satisfactory to the Corporation, or in case of any such mutilation,
upon surrender and cancellation of such certificate, the Corporation at its
expense shall issue and deliver to such Investor a new certificate for such
shares of Series A Preferred Stock or Reserved Shares, of like tenor, in lieu of
such lost, stolen or mutilated certificate. The provisions of this Section 10
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shall control, any provision of the Corporation's By-laws to the contrary
notwithstanding.
SECTION 11. Survival of Representations, Warranties and Agreements. The
covenants, representations and warranties of the Investor and the Corporation
contained herein shall survive the Closing. The Investor and the Corporation may
rely on such covenants, representations and warranties, irrespective of any
investigation made, or notice or knowledge held by, it or any other person. All
statements contained in any certificate or other instrument delivered by the
Corporation pursuant to this Agreement or in connection with the transactions
contemplated by this Agreement shall constitute representations and warranties
by the Corporation under this Agreement.
SECTION 12. Indemnification. The Corporation shall indemnify, defend and
hold harmless the Investor from and against all liabilities, losses, and
damages, together with all reasonable costs and expenses related thereto
(including, without limitation, legal and accounting fees and expenses), which
would not have been incurred if (a) all of the representations and warranties of
the Corporation herein had been true and correct when made or (b) all of the
covenants and agreements of the Corporation herein had been duly and timely
complied with and performed.
SECTION 13. Remedies. The parties agree and acknowledge that money
damages are not an adequate remedy for any breach of the provisions of this
Agreement and that, in addition to any other remedy a party may have for a
breach of this Agreement, that party shall be entitled to an injunction
restraining any such breach or threatened breach, or a decree of specific
performance, without posting any bond or security. The remedy in this Section 13
is in addition to, and not in lieu of, any other rights or remedies a party may
have.
SECTION 14. Successors and Assigns. This Agreement shall be binding
upon, and inure to the benefit of, each of the parties hereto and, except as
otherwise expressly provided herein, each other person who shall become a
registered holder named in any certificate evidencing shares of Common Stock or
Series A Preferred Stock transferred to such holder by any of the Investor or
their permitted transferees, and (except as aforesaid) their respective legal
representatives, successors and assigns.
SECTION 15. Entire Agreement; Effect on Prior Documents. This Agreement
and the other documents referred to herein or delivered pursuant hereto contain
the entire agreement among the parties with respect to the financing
transactions contemplated hereby and supersede all prior negotiations,
commitments, agreements and understandings among them with respect thereto.
SECTION 16. Notices. Any notice or communication given pursuant to this
Agreement by any party to any other party shall be in writing and shall be
sufficiently given if personally delivered, sent by facsimile or other means of
electronic transmission or sent by mail, postage prepaid to the parties at the
following addresses or to such other address as either party may hereafter
designate to the others by like notice:
(i) if to the Corporation, to:
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201 Ann Street
Suite 210
Hartford, CT 06103
Attention: President
Telephone: (860) 527-5359
Telecopy: (860) 527-5920
with a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld LLP
551 Fifth Avenue
New York, NY 10176
Attention: Kenneth R. Koch, Esq.
Tel: (212) 661-6500
Fax: (212) 697-6686
(ii) if to the Investor, to its address set forth on the
signature page hereto, with a copy to:
David Broadwin, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Telephone: (617) 832-1000
Telecopy: (617) 832-7000
SECTION 17. Amendments; Waivers. Except as otherwise provided herein,
this Agreement may be amended, and compliance with any provision of this
Agreement may be omitted or waived, only by the written agreement of the
Corporation and the Investor.
SECTION 18. Counterparts. This Agreement may be executed in any number
of counterparts, each such counterpart shall be deemed to be an original
instrument, and all such counterparts together shall constitute but one
agreement.
SECTION 19. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
SECTION 20. Nouns and Pronouns. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice-versa.
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<PAGE>
SECTION 21. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the substantive laws of The State of
Delaware without regard to its principles of conflicts of laws.
SECTION 22. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 23. Brokerage Fee. The Corporation and the Investor each
represent that no broker other than Venture Partners Ltd. and its affiliates
(the "Broker") has been involved in this transaction and each party agrees to
indemnify and hold the others harmless from payment of any brokerage fee,
finder's fee, or commission claimed by any party who claims to have been
involved because of association with such party; provided that the Corporation
shall (pursuant to an agreement between the Corporation and Broker) pay all fees
owed to the Broker in connection with the transaction.
[Remainder of the Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the day and year first above written.
MDI ENTERTAINMENT, INC.
By: /s/ Steven M. Saferin
-------------------------
Name: Steven M. Saferin
Title: President
INTERNATIONAL CAPITAL PARTNERS LLC
By: /s/ Mack Obioha
-------------------
Name: Mack Obioha
Title: Managing Director
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Exhibit 99.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of August 4, 1999 (this
"Agreement") is made by and between MDI Entertainment, Inc., a Delaware
corporation (the "Company"), and International Capital Partners, LLC (the
"Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Stock
Purchase Agreement, dated as of August 4, 1999, between the Initial Investor and
the Company (the "Stock Purchase Agreement"), the Company has agreed to issue
and sell to the Initial Investor shares of Series A Preferred Stock of the
Company (the "Preferred Stock"), which Preferred Stock will be convertible into
shares of the common stock, $.001 par value (the "Common Stock"), of the Company
(the "Conversion Shares") upon the terms and subject to the conditions of such
Preferred Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Stock 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
"Securities Act"), with respect to the Conversion Shares;
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 the
Initial Investor hereby agrees as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investor" means the Initial Investor and any permitted
transferee or assignee who holds Registrable Securities (as defined
below) and agrees to become bound by the provisions of this Agreement
in accordance with Section 9 hereof.
(ii) "Potential Material Event" means any of the following:
(a) the possession by the Company of material information not ripe for
disclosure in a registration statement, which shall be evidenced by
determinations in good faith by the Board of Directors of the Company
that disclosure of such information in the registration statement would
be detrimental to the business and affairs of the Company; or (b) any
material engagement or activity by the Company which would, in the good
faith determination of the Board of Directors of the Company, be
adversely affected by disclosure in a registration statement at such
time, which determination shall be accompanied by a good faith
determination by the Board of Directors of the Company that the
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<PAGE>
registration statement would be materially misleading absent the
inclusion of such information.
(iii) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a registration statement
or statements in compliance with the Securities Act and pursuant to
Rule 415 under the Securities 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").
(iv) "Registrable Securities" means (1) the Conversion Shares,
(2) any Common Stock issued as a dividend or other distribution with
respect to, or in exchange or replacement of, such Series A Preferred
Stock or Common Stock, or (3) any Common Stock of the Company issuable
upon conversion, exercise or exchange of convertible securities,
warrants, options or similar rights issued as a dividend or other
distribution with respect to, or in exchange or replacement of such
Series A Preferred Stock or Common Stock.
(v) "Registration Statement" means a registration statement of
the Company under the Securities Act.
(b) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Stock Purchase Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare and file with the
SEC, no later than forty-five (45) days following the Closing Date under the
Stock Purchase Agreement, a Registration Statement on Form SB-2, or other
applicable form, registering for resale a sufficient number of shares of Common
Stock by the Initial Investor (or such lesser number as may be required by the
SEC, but in no event less than the number of shares into which the Preferred
Stock would be convertible at the time of filing of the Form SB-2 or other
applicable form, and such Registration Statement shall state that, in accordance
with Rule 416 and 457 under the Securities Act, it also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Preferred Stock resulting from adjustment in the
Conversion Price, or to prevent dilution resulting from stock splits, or stock
dividends). Such Registration Statement shall also provide for offering of the
securities on a continuous basis in accordance with Rule 415. If at any time the
number of shares of Common Stock into which the Preferred Stock may be converted
exceeds the aggregate number of shares of Common Stock then registered, the
Company shall, within fifteen (15) business days after receipt of a written
notice from any Investor, either (i) amend the Registration Statement filed by
the Company pursuant to the preceding sentence, if such Registration Statement
has not been declared effective by the SEC at that time, to register all shares
of Common Stock into which the Preferred Stock may be converted, or (ii) if such
Registration Statement has been declared effective by the SEC at that time, file
with the SEC an additional Registration Statement on Form SB-2, or other
applicable form, to register the shares of Common Stock into which the Preferred
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Stock may be converted that exceed the aggregate number of shares of Common
Stock already registered. If the staff of the SEC determines that all of the
Conversion Shares cannot be registered by the Company for resale by the Investor
because, in the view of the staff, such registration would constitute a primary
offering the Company, then the Company shall have an additional sixty (60) days
in which to amend such Registration Statement to another available form.
(b) PAYMENTS BY THE COMPANY.
(i) If the Registration Statement covering the Registrable
Securities is not filed in proper form with the SEC within forty-five
(45) days after the Closing, the Company will make payment to the
Initial Investor in the amount of $500 per day for each $10,000 in
principal amount of Preferred Stock outstanding for each day thereafter
until such Registration Statement, in proper form, is filed with the
SEC.
(ii) If the Registration Statement covering the Registrable
Securities required to be filed by the Company pursuant to Section 2(a)
hereof is not effective (x) on the earlier of (i) five days after
notice from the SEC that the Registration Statement may be declared
effective, or (ii) one hundred twenty (120) days following the initial
Closing Date (the "Initial Date"), (except as provided by the last
sentence of Section 2(a)), or (y) on the conclusion of a Suspension
Period (as defined in Section 3(f)), then the Company will make
payments to the Initial Investor in such amounts and at such times as
shall be determined pursuant to this Section 2(b); provided that the
one hundred twenty (120) day period set forth in the preceding clause
shall be extended by (A) the number of days in excess of thirty (30)
after filing of the Registration Statement by which the Company
receives the SEC's first round of comments on the Registration
Statement, plus (B) the number of days in excess of fourteen (14) after
the Company's response to the prior round of SEC comments by which the
Company receives the SEC's second and third rounds of comments on the
Registration Statement. There shall be no extension for other rounds of
SEC comments. The amount to be paid by the Company to the Initial
Investor shall be determined as of each Computation Date, and such
amount shall be equal to one and three-quarters (1 3/4 %) percent of
the purchase price paid by the Initial Investor for all Preferred Stock
then purchased and outstanding pursuant to the Stock Purchase Agreement
for any period from the Initial Date (as extended in accordance with
the preceding sentence) to the first Computation Date, and shall
increase by 1/4% for each computation period thereafter to a maximum of
2 1/2%, to the date the Registration Statement is declared effective by
the SEC (pro rated for partial periods) (the "Periodic Amount"). The
Company will use its best efforts to cause the Registration Statement
to be declared effective and to keep it effective and will respond as
promptly as practicable upon receipt of comments from the SEC. The
Company will respond to the first three rounds of comments from the SEC
within ten business days of receiving such comments; provided, however,
that if the SEC does not send first round comments within thirty (30)
days of receipt of the initial filing of the Registration Statement
then the Company shall have one (1) extra day to respond to SEC
comments for each day over thirty (30) days that it takes the SEC to
comment. The Company shall respond to any further rounds of comments
within ten (10) business days regardless of the amount of days it takes
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the SEC to send comments. The amount to be paid by the Company to
Initial Investor if the Company fails to respond within the time limits
set out above shall be $25,000 per day for each day in excess of the
amount of days allowed by this provision; provided that if the
Registration Statement shall be declared effective within one hundred
twenty (120) days of the date hereof, all amounts paid in accordance
with this sentence shall be refunded to the Company within five (5)
business days of the effective date of the Registration Statement. The
full Periodic Amount shall be paid by the Company in immediately
available funds within three business days after each Computation Date.
Notwithstanding the foregoing, the amounts payable by the Company
pursuant to this provision shall not be payable to the extent any delay
in the effectiveness of the Registration Statement occurs because of an
act of, or a failure to act or to act timely by the Investor or its
counsel, or in the event all of the Registrable Securities may be sold
pursuant to Rule 144 or another available exemption under the
Securities Act.
As used in this Section 2(b), the following terms shall have the
following meanings:
"Computation Date" means the date which is the earlier of (i) five days
after notice from the SEC that the Registration Statement may be declared
effective, or (ii) one hundred twenty (120) days after the initial Closing Date
(except as provided by the last sentence of Section 2(a)), and, if the
Registration Statement required to be filed by the Company pursuant to Section
2(a) has not theretofore been declared effective by the SEC or a Suspension
Period is in effect, each date which is thirty (30) days after the previous
Computation Date (pro rated for partial periods) until such Registration
Statement is so declared effective.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration of
the Registrable Securities, the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC by forty-five (45) days
after the initial Closing Date, a Registration Statement with respect to not
less than the number of Registrable Securities provided in Section 2(a) above,
and thereafter used its best efforts to cause each Registration Statement
relating to Registrable Securities to become effective on the earlier of (i)
five days after notice from the SEC that the Registration Statement may be
declared effective, or (b) one hundred twenty (120) days after the Closing Date,
and keep the Registration Statements effective at all times until the earliest
(the "Registration Period") of (i) the date that is one year after the Closing
Date (ii) the date when the Investors may sell all Registrable Securities under
Rule 144 or (iii) the date the Investors no longer own any of the Registrable
Securities, 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, in light of the
circumstances in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
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provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
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 Statement;
(c) The Company shall permit a single firm of counsel designated by the
Investors to review the Registration Statement and all amendments and
supplements thereto 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;
(d) Furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel identified to the Company
(i) promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a 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;
(e) As promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement or other appropriate filing with the
SEC to correct such untrue statement or omission, and deliver a number of copies
of such supplement or amendment to each Investor as such Investor may reasonably
request;
(f) Notwithstanding the foregoing, if at any time or from time to time
after the date of effectiveness of the Registration Statement, the Company
notifies the Investors in writing of the existence of a Potential Material
Event, the Investors shall not offer or sell any Registrable Securities, or
engage in any other transaction involving or relating to the Registrable
Securities, from the time of the giving of notice with respect to a Potential
Material Event until such Investor receives written notice from the Company that
such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event; provided, however, that the
Company may not so suspend the right to such holders of Registrable Securities
for more than two (2) twenty (20) day periods in the aggregate during any
12-month period (the "Suspension Period") with at least a ten (10) business day
interval between such periods, during the period the Registration Statement is
required to be in effect. The Company may extend one (1) of the twenty (20) day
periods for (a) up to ninety (90) days if the Potential Material Event involves
an acquisition which requires pro forma financial information to be filed in
accordance with Item 7 of Form 8-K pursuant to the Securities Exchange Act of
1934 and the acquired company does not have audited financial statements; or (b)
up to forty-five (45) days if the Potential Material Event involves an
acquisition which requires pro forma financial information to be filed in
accordance with Item 7 of Form 8-K pursuant to the Securities and Exchange Act
of 1934 and the acquired company has audited financial statements.
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(g) As promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of a Notice of Effectiveness or any stop order or other suspension of
the effectiveness of the Registration Statement at the earliest possible time;
(h) Use its reasonable efforts as soon as it qualifies to secure
designation of all the Registrable Securities covered by the Registration
Statement as a National Association of Securities Dealers Automated Quotations
System ("NASDAQ") "Small Capitalization" within the meaning of Rule 11Aa2-1 of
the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the quotation of the Registrable Securities of the NASDAQ Small Cap
Market; or if, despite the Company's reasonable efforts to satisfy the preceding
clause, the Company is unsuccessful in doing so, to secure NASDAQ/OTC Bulletin
Board authorization and quotation for such Registrable Securities 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;
(i) 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;
(j) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may reasonably
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 appropriate instruction and opinion of such counsel; and
(k) Take all other reasonable actions necessary to expedite and
facilitate disposition by the Investors of the Registrable Securities pursuant
to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the registration
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 five (5) 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 (the "Requested Investment") if such Investor elects to have any
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of such Investor's Registrable Securities included in the Registration
Statement. If at least two (2) business days prior to the filing date the
Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive 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
Statement 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 Statement; and
(c) 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(e) or
3(f), above, 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(e) or 3(f) 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 possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. EXPENSES OF REGISTRATION. All reasonable expenses (other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualification pursuant to Section 3), but including,
without limitation, all registration, listing, and qualifications fees, printers
and accounting fees, the fees and disbursements of counsel for the Company and
one counsel for the Investors, 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 and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act, against any losses, claims, damages, liabilities or expenses
(joint or several) incurred (collectively, "Claims") to which any of them may
become subject under the Securities Act, the Exchange Act or otherwise, insofar
as such Claims (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations in the Registration Statement, or any post-effective
amendment thereof, or any prospectus included therein: (i) any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or any post-effective amendment thereof or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact 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 omission
to state therein any material fact necessary to make the statements made
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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 Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). The Company shall reimburse the Investors, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigation or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a) shall not
(I) apply to a Claim arising out of or based upon a Violation with respect to an
Investor which occurs in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of such Investor expressly
for use in connection with the preparation of the Registration Statement or any
such amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(b) hereof; (II) be available to
the extent such Claim is based on a failure of the Investor to deliver or cause
to be delivered the prospectus made available by the Company; or (III) 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. Each Investor will indemnify the Company and its
officers, directors and agents against any claims 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 or on behalf of such Investor, expressly
for use in connection with the preparation of the Registration Statement,
subject to such limitations and conditions as are applicable to the
indemnification provided by the Company pursuant to this Section 6. 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) 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 reasonable 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. In such event, the Company shall pay for only one
separate legal counsel for the Investors; such legal counsel shall be selected
by the Investors holding a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. 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
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of any liability to the indemnified person or indemnified party under this
Section 6, except to the extent that the indemnifying party is 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. 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 (a) 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; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution 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 EXCHANGE ACT. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities 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 Securities Act and the Exchange Act;
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 Securities Act
and the Exchange 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 THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by Initial Investors and the Investors to any transferee
of at least 25% of the Registrable Securities only if: (a) 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, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) immediately following
such transfer or assignment the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, and (d) at or before the time the Company received the
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written notice contemplated by clause (b) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein. In the event of any delay in filing or effectiveness of the
Registration Statement as a result of such assignment, the Company shall not be
liable for any damages arising from such delay, or the payments set forth in
Section 2(c) hereof.
10. (A) AMENDMENT OF REGISTRATION RIGHTS. Any provision 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 the written consent of the Company and Investors who
hold a fifty-one percent (51%) interest of the Registrable Securities. Any
amendment or waiver effective 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) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission, receipt
confirmed, or other means) or sent by certified mail, return receipt requested,
properly addressed and with proper postage pre-paid (i) if to the Company, MDI
Entertainment, Inc., 201 Ann Street, Suite 210, Hartford, Connecticut 06103,
with a copy to Squardron, Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue,
New York, NY 10176; (ii) if to the Initial Investor, at the address set forth
under its name in the Stock Purchase Agreement, with a copy to David A.
Broadwin, Esquire, Foley, Hoag & Eliot LLP, One Post Office Square, Boston,
Massachusetts 02109; and (iii) if to any other Investor, at such address as such
Investor shall have provided in writing to the Company, or at such other address
as each such party furnishes by notice given in accordance with this Section
11(b), and shall be effective, when personally delivered, upon receipt and, when
so sent by certified mail, four (4) calendar days after deposit with the United
States Postal Service.
(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 interpreted in accordance
with the laws of the State of Delaware. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
County of Lancaster or the state courts of the State of Delaware sitting in the
County of Lancaster in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions.
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(e) 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.
(f) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(g) 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.
(h) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(i) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(j) 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 telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(k) The Company acknowledges that any failure by the Company to perform
its obligations under Section 3(a), or any delay in such performance could
result in harm to the Investors and the Company agrees that, in addition to any
other liability of the Company may have by reason of any such failure or delay,
the Company shall be liable for all direct damages caused by any such failure or
delay, unless same is the result of force majeure. Neither party shall be liable
for consequential damages.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
MDI ENTERTAINMENT, INC.
By: /s/ Steven M. Saferin
-------------------------
Name: Steven M. Saferin
Title: President
INTERNATIONAL CAPITAL PARTNERS LLC
By: /s/ Mack Obioha
-------------------
Name: Mack Obioha
Title: Managing Director
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Exhibit 99.3
MDI ENTERTAINMENT, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A PREFERRED STOCK
The undersigned officer of MDI Entertainment, Inc., a corporation
organized and existing under the General Corporation Law of the State of
Delaware, does hereby certify that, pursuant to authority conferred by the
Certificate of Incorporation, as amended to date, and pursuant to the provisions
of Section 151(g) of the General Corporation Law of the State of Delaware, the
Board of Directors of MDI Entertainment, Inc., on July 27, 1999, adopted a
resolution providing for certain powers, designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations or
restrictions thereof, of certain shares of Series A Preferred Stock, $.001 par
value, of the Corporation, which resolution are as follows:
RESOLVED: That a series of Preferred Stock, par value $.001 per share,
to be known as "Series A Preferred Stock," of the Corporation be hereby created,
and that the designation and amount thereof and the voting powers, preferences
and relative, participating, optional and other special rights of the shares of
such series, and the qualifications, limitations or restrictions thereof shall
be fixed as set forth in the Certificate of Designations, Preferences and Rights
of Series A Preferred Stock of the Corporation (the "Certificate of
Designations") substantially in the form presented to the Board of Directors;
and it is further
RESOLVED: That the appropriate officer or officers of the Corporation
be, and they hereby are, authorized pursuant to the authority conferred upon
them by the Certificate of Incorporation, and pursuant to the provisions of
Section 151 of the General Corporation Law of the State of Delaware, to file
such Certificate of Designations with the Secretary of State of the State of
Delaware.
EXECUTED as of this 4th day of August, 1999.
MDI ENTERTAINMENT, INC.
By: /s/ Steven M. Saferin
President
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DESCRIPTION AND DESIGNATION OF SERIES A PREFERRED STOCK
1. DESIGNATION AND DEFINITIONS.
(a) DESIGNATION. A total of 2,027 shares of the Corporation's
previously undesignated Preferred Stock, $.001 par value, shall be designated as
the "Series A Preferred Stock." The original issue price per share of the Series
A Preferred Stock shall be $863.33 (the "ORIGINAL ISSUE PRICE").
(b) CERTAIN DEFINITIONS. As used herein, the following terms,
unless the context otherwise requires, have the following respective meanings:
(i) "AVERAGE QUOTED PRICE" means the average of the
closing bid price of the Common Stock of the Corporation as reported by the
NASDQ/OTC Bulletin Board, Nasdaq SmallCap Market or Nasdaq National Market or,
if the Corporation's Common Stock is no longer traded on a Nasdaq market, such
other exchange on which the Corporation's Common Stock is then traded, for the
five (5) Trading Days immediately preceding any holder's Conversion Date, the
Mandatory Conversion Date (as defined in Section 5(c) below), as the case may
be.
(ii) "COMMON STOCK" means the common stock, par value
$.001 per share, of the Corporation.
(iii) "CONVERSION DATE" means each date on which the
Corporation receives by telecopy written notice in accordance with Section 5(j)
hereof from a holder of Series A Preferred Stock that such holder elects to
convert shares of its Series A Preferred Stock.
(iv) "AUTOMATIC CONVERSION DATE" means each date on
which the shares of Series A Preferred Stock are automatically converted in
accordance with Section 5(d) below.
(v) "ISSUE DATE" means, with respect to each share of
Series A Preferred Stock held by any holder, the date on which the Corporation
originally issued such share to a holder (regardless of the number of times
transfer of such share is made on the stock transfer books maintained by or for
the Corporation, and regardless of the number of certificates which may be
issued to evidence such share, and irrespective of any subsequent transfer or
other disposition of such share to any other holder).
(vi) "REGISTRATION STATEMENT" means the registration
statement required to be filed pursuant to the Registration Rights Agreement,
dated August 4, 1999, by and between the Corporation and International Capital
Partners, LLC.(the "REGISTRATION RIGHTS AGREEMENT").
(vii) "TRADING DAY" means a day on which the principal
national securities exchange on which the Common Stock is listed or admitted to
trading is open for the transaction of business; or, if the Common Stock is not
listed or admitted to trading on any national securities exchange but is listed
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on the Nasdaq system (or such other trading system then in use by the National
Association of Securities Dealers, Inc.), a day on which such system is open for
the transaction of business; or, if the foregoing does not apply, any Business
Day.
2. DIVIDENDS.
(a) PREFERRED DIVIDEND - CASH AND/OR IN-KIND. When and as
declared by the Board of Directors and to the extent permitted by the General
Corporation Law of the State of Delaware, the Corporation shall pay preferential
dividends to the holders of the Series A Preferred Stock as provided in this
Section 2(a).
(i) PREFERRED DIVIDEND. Except as otherwise provided
herein, dividends on each share of Series A Preferred Stock shall accrue,
cumulatively, at the rate of ten percent (10.00%) per annum of the Original
Issue Price, from and including the Issue Date of such share to and including
the date on which the Liquidation Value of such share is paid or such share is
converted in accordance with the provisions hereof (the "PREFERRED DIVIDEND").
The Preferred Dividend shall be reduced to five percent (5%) per annum of the
Original Issue Price commencing on the date on which the Registration Statement
is declared effective by the Securities and Exchange Commission. Such Preferred
Dividend will accrue whether or not it has been declared and whether or not
there are profits, surplus or other funds of the Corporation legally available
for its payment.
(ii) QUARTERLY PAYMENTS. Commencing on August 4, 1999,
the Preferred Dividend shall be payable in cash subject to Section 2(a)(v) below
quarterly, for the actual number of days elapsed, on each March 31, June 30,
September 30 and December 31, to the holders of record of shares of Series A
Preferred Stock as of the tenth (10th) trading day preceding the applicable
dividend payment date.
(iii) NO INTEREST. Accrued but unpaid Preferred
Dividends shall not bear interest. Preferred Dividends paid in cash in an amount
less than the total amount of such dividends at the time accrued and payable
shall be allocated on a share-by-share basis among all shares of Series A
Preferred Stock at the time outstanding.
(iv) PAYMENT UPON CONVERSION. On the date on which any
holder's shares of Series A Preferred Stock are converted into Common Stock
pursuant to Section 5 hereof, the accrued Preferred Dividend with respect to the
shares so converted shall be paid to such holder. All accrued Preferred
Dividends also shall be payable upon the liquidation, dissolution or winding up
of the Corporation.
(v) PAYMENT IN COMMON STOCK. The Corporation, at its
sole discretion, may pay the Preferred Dividends in cash or in shares of Common
Stock at the then fair market value per share of Common Stock as of the date on
which the Preferred Dividend is payable. For purposes of this Section 2(a)(v),
fair market value shall be the average of the closing bid price of the Common
Stock of the Corporation as reported by NASDQ/OTC Bulletin Board, the Nasdaq
SmallCap Market or Nasdaq National Market or, if the Corporation's Common Stock
is no longer traded on a Nasdaq market, such other exchange on which the
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Corporation's Common Stock is then traded, for the thirty (30) Trading Days
immediately preceding the date on which the Preferred Dividend is payable.
(vi) FRACTIONAL SHARES. Notwithstanding anything herein
to the contrary, no fractional shares shall be issued pursuant to this Section
2, and the number of shares of Common Stock issued upon the payment of the
Preferred Dividend shall be rounded up or down to the nearest whole share.
(b) DECLARED DIVIDENDS ON COMMON STOCK. If the Board of
Directors shall declare a cash dividend payable upon the then outstanding shares
of Common Stock (other than a stock dividend on the Common Stock distributed
solely in the form of additional shares of Common Stock), the holders of the
Series A Preferred Stock shall be entitled to the amount of dividends on the
Series A Preferred Stock as would be declared payable on the largest number of
whole shares of Common Stock into which the shares of Series A Preferred Stock
held by each holder thereof could be converted pursuant to the provisions of
Section 5 hereof, such number determined as of the record date for the
determination of holders of Common Stock entitled to receive such dividend. Such
determination of "whole shares" shall be based upon the aggregate number of
shares of Series A Preferred Stock held by each holder, and not upon each share
of Series A Preferred Stock so held by the holder.
(c) DIVIDENDS ON OTHER SECURITIES. Subject to the foregoing
provisions of this Section 2, the Board of Directors may declare and the
Corporation may pay or set apart for payment, or cause the accrual of, stated or
cumulative dividends and other distributions on any other series of preferred
stock hereafter designated, and may purchase or otherwise redeem any of the same
(or any warrants, rights, options or other securities exercisable therefor or
convertible or exchangeable thereinto), and the holders of Series A Preferred
Stock shall not be entitled to share therein.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. In
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, or in the event of its insolvency, before any
distribution or payment is made to any holders of Common Stock or any other
class or series of capital stock of the Corporation designated to be junior to
the Series A Preferred Stock, and subject to the liquidation rights and
preferences of any class or series of Preferred Stock designated by the Board of
Directors in the future to be senior to or on a parity with the Series A
Preferred Stock with respect to liquidation preferences, the holder of each
share of Series A Preferred Stock shall be entitled to be paid first out of the
assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, whether such assets are capital,
surplus or earnings, an amount equal to the Original Issue Price per share of
Series A Preferred Stock held by any holder, plus the Preferred Dividend
accruing to the Series A Preferred Stock pursuant to Section 2 above (the
"LIQUIDATION VALUE").
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If, upon liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of the Series A Preferred
Stock the full amount to which they otherwise would be entitled, the holders of
Series A Preferred Stock shall share ratably in any distribution of available
assets pro rata in proportion to the respective liquidation preference amounts
which would otherwise be payable upon liquidation with respect to the
outstanding shares of the Series A Preferred Stock if all liquidation preference
amounts with respect to such shares were paid in full, based upon the aggregate
Liquidation Value payable upon all shares of Series A Preferred Stock then
outstanding.
After such payment shall have been made in full to the holders
of the Series A Preferred Stock, or funds necessary for such payment shall have
been set aside by the Corporation in trust for the account of holders of the
Series A Preferred Stock so as to be available for such payment, the remaining
assets available for distribution shall be distributed ratably among the holders
of the Common Stock and any class or series of capital stock designated to be
junior to the Series A Preferred Stock (if any) in right of payment upon any
liquidation, dissolution or winding up of the Corporation.
The amounts set forth above shall be subject to equitable
adjustment by the Board of Directors whenever there shall occur a stock
dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Series A Preferred Stock.
(b) DISTRIBUTIONS OTHER THAN CASH. Whenever the distributions
provided for in this Section shall be payable in property other than cash, the
value of such distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors. All distributions (including
distributions other than cash) made hereunder shall be made pro rata to the
holders of Series A Preferred Stock.
(c) MERGER AS LIQUIDATION, ETC. The merger or consolidation of
the Corporation into or with another corporation, or the sale of all or
substantially all of the assets of the Corporation (other than a merger,
consolidation or sale in which the stockholders of the Corporation, before
giving effect to any such merger, consolidation or sale, beneficially own at
least 70% of the outstanding shares of capital stock of, or other equity
interests in, the surviving or acquiring corporation or entity, calculated on a
fully-diluted basis), shall be deemed to be a liquidation, dissolution or
winding up of the Corporation for purposes of this Section 3 unless the holders
of at least two-thirds of the then outstanding shares of Series A Preferred
Stock (voting as a single class on an as-converted basis) elect to the contrary
by giving written notice thereof to the Corporation at least three days before
the effective date of such event. If such notice is given, the provisions of
Section 5(h) shall apply. The amount deemed distributed to the holders of Series
A Preferred Stock upon any such merger or consolidation shall be the cash or the
value of the property, rights or securities distributed to such holders by the
acquiring person, firm or other entity. The value of such property, rights or
other securities shall be determined in good faith by the Board of Directors of
the Corporation.
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(d) NOTICE AND OPPORTUNITY TO EXERCISE CONVERSION RIGHTS.
Notwithstanding anything to the contrary that may be inferred from the
provisions of this Section 3, each holder of shares of Series A Preferred Stock
shall be entitled to receive notice from the Corporation of any proposed
liquidation, dissolution or winding up of the Corporation at least 30 days prior
to date on which any such liquidation, dissolution or winding up of the
Corporation is scheduled to occur and, at any time prior to any such
liquidation, dissolution or winding up of the Corporation, to convert any or all
of such holder's shares of Series A Preferred Stock into shares of Common Stock
pursuant to Section 5 hereof.
4. VOTING POWER.
(a) GENERAL. Except as otherwise expressly provided in this
Section 4 or as otherwise required by the General Corporation Law of the State
of Delaware, each holder of Series A Preferred Stock shall be entitled to vote
on all matters and shall be entitled to that number of votes equal to the
largest number of whole shares of Common Stock into which such holder's shares
of Series A Preferred Stock could be converted, pursuant to the provisions of
Section 5 hereof, at the record date for the determination of stockholders
entitled to vote on any matter or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise expressly required by law, the holders of shares of Series A
Preferred Stock and Common Stock shall vote together (or render written consents
in lieu of a vote) as a single class on all matters submitted to the
stockholders of the Corporation.
Such determination of "whole shares" shall be based upon the
aggregate number of shares of Series A Preferred Stock held by each holder, and
not upon each share of Series A Preferred Stock so held by the holder.
(b) AMENDMENTS TO CHARTER. For so long as there are any shares
of Series A Preferred Stock outstanding, the Corporation shall not amend its
Certificate of Incorporation or this Certificate of Designation without the
approval, by vote or written consent, of the holders of at least a majority of
the then outstanding shares of Series A Preferred Stock, voting together as a
class, each share of Series A Preferred Stock to be entitled to one vote in each
instance, if such amendment would adversely affect the rights of the holders of
Series A Preferred Stock. Without limiting the generality of the foregoing, the
creation, or increase in the authorized number of shares, of any class or series
of stock ranking prior to or on a parity with the Series A Preferred Stock
either as to dividends or upon liquidation shall be deemed to adversely affect
the rights of the holders of Series A Preferred Stock for purposes of this
Section 4(b).
(c) At all times during which at least 2,027 shares of Series
A Preferred Stock remain outstanding, the holders of a majority of such
outstanding shares of Series A Preferred Stock shall have the exclusive right,
voting separately from the Common Stock, to elect one director of the
Corporation (such director being referred to herein as the "Series A Director").
(d) Notwithstanding any provision of the By-laws of the
Corporation to the contrary, the number of directors (including Series A
Directors) constituting the entire Board of Directors of the Corporation shall
not exceed nine and, so long as at least 2,027 shares of Series A Preferred
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Stock are outstanding, (a) the number of directors may only be increased by the
affirmative vote of the holders of two-thirds of the outstanding shares of
Series A Preferred Stock and (b) each Series A Director shall at all times be
entitled to membership on all committees of the Board of Directors.
5. CONVERSION RIGHTS.
(a) CONVERSION AT THE OPTION OF HOLDERS. Each holder of Series
A Preferred Stock shall have the right, at such holder's option, to convert at
any time any of the shares of Series A Preferred Stock held by such holder into
such number of fully paid and nonassessable shares of Common Stock as shall be
determined by multiplying the number of shares of Series A Preferred Stock to be
converted by a fraction, the numerator of which is the Original Issue Price, and
the denominator of which is the applicable Conversion Price (as defined below).
(b) CONVERSION PRICE. The conversion price per share (the
"CONVERSION PRICE") shall be initially $ .86333. The initial Conversion Price
shall be subject to adjustment, in order to adjust the number of shares of
Common Stock into which the Series A Preferred Stock is convertible, as
hereinafter provided.
(c) [INTENTIONALLY OMITTED]
(d) AUTOMATIC CONVERSION
(i) Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price upon the earlier of (x) the effectiveness of the Registration
Statement as more fully set forth in Section 5(d)(ii) below or (y) the closing
of an underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Corporation to the public at such a
public offering price per share that would imply a minimum pre-money market
capitalization of the Corporation not less than $40,000,000 and with gross
proceeds to the Corporation of not less than $5,000,000 (calculated after
deducting underwriters' discounts and commissions but before calculation of
expenses) (a "Qualifying Public Offering"). In the event of a Qualifying Public
Offering, the person(s) entitled to receive the Common Stock issuable upon such
conversion of the Series A Preferred Stock shall not be deemed to have converted
their Series A Preferred Stock until the closing of the Qualifying Public
Offering.
(ii) If ninety (90) days after the effectiveness of the
Registration Statement, 506 shares of Series A Preferred Stock have not been
voluntarily converted, a number of shares equal to the difference between the
number of shares of Series A Preferred Stock then converted and 506 shall be
automatically converted without any further action by the holders of such
shares; if one hundred eighty (180) days after the effectiveness of the
Registration Statement, 1,013 shares of Series A Preferred Stock have not been
voluntarily converted, a number of shares equal to the difference between the
number of shares of Series A Preferred Stock then converted and 1,013 shall be
automatically converted without any further action by the holders of such
shares; if two hundred seventy (270) days after the effectiveness of the
Registration Statement, 1,520 shares of Series A Preferred Stock have not been
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voluntarily converted, a number of shares equal to the difference between the
number of shares of Series A Preferred Stock then converted and 1,520 shall be
automatically converted without any further action by the holders of such
shares; if three hundred sixty (360) days after the effectiveness of the
Registration Statement all of the Series A Preferred Stock has not been
voluntarily converted, the remainder shall be automatically converted without
any further action by the holders of such shares; provided, however, that in
each instance if the Automatic Conversion Date falls during a restricted period
as set forth in Section 3(f) of the Registration Rights Agreement, the shares of
Series A Preferred Stock will not be automatically converted until the next
consecutive Automatic Conversion Date. In the event that there is more than one
holder of shares of Series A Preferred Stock the shares to be automatically
converted shall be selected pro rata from each holder.
(iii) Upon the happening of an automatic conversion in
accordance with this Section 5(d), the Series A Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; provided, however, that the Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such conversion unless certificates evidencing such shares
of the Series A Preferred Stock being converted are either delivered to the
Corporation or its transfer agent, or the holder of such shares notifies the
Corporation or any transfer agent that such certificates have been lost, stolen,
or destroyed and executes an agreement reasonably satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection therewith. Upon the automatic conversion of the Series A Preferred
Stock, the holders of such Series A Preferred Stock shall surrender the
certificates representing such shares at the office of the Corporation or of its
transfer agent. Thereupon, there shall be issued and delivered to such holder,
promptly at such office and in his name as shown on such surrendered certificate
or certificates, a certificate or certificates for the number of shares of
Common Stock into which the shares of the Series A Preferred Stock surrendered
were convertible on the date on which such automatic conversion occurred. No
fractional shares of Common Stock shall be issued upon conversion of the Series
A Preferred Stock. In lieu of any fractional shares to which the holder would
otherwise be entitled, the Corporation shall pay cash equal to such fraction
multiplied by the then effective Conversion Price.
(e) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) Special Definitions. For purposes of this Section
5(e), the following definitions shall apply:
(1) "Option" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire either Common
Stock or Convertible Securities.
(2) "Convertible Securities" shall mean any
evidences of indebtedness, shares (other than shares of Common Stock
and Series A Preferred Stock) or other securities directly or
indirectly convertible into or exchangeable for Common Stock.
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<PAGE>
(3) "Additional Shares of Common Stock" shall mean
all shares of Common Stock issued (or, pursuant to Section 5(e)(iii),
deemed to be issued) by the Corporation after the Original Issue Date,
other than:
(A) up to 2,027,000 shares of Common
Stock issued or issuable upon conversion of shares of Series A
Preferred Stock, including any shares issued as a dividend pursuant to
Section 2, provided that the number of shares referred to in this
clause shall be appropriately adjusted to give effect to any changes in
the Conversion Price pursuant to these antidilution provisions of this
Section 5; and
(B) shares of Common Stock issued or
issuable to officers or employees or directors of, or consultants to,
the Corporation pursuant to either (i) outstanding warrants and
options; (ii) a stock purchase or option plan or other employee stock
bonus arrangement (collectively, the "Plans") in existence prior to the
Issue Date providing for issuance of up to 800,000 shares of Common
Stock; (iii) any Plan adopted by this Corporation after the Issue Date
which is approved by the affirmative vote of a majority of the whole
Board of Directors, provided that the number of shares referred to in
this clause may be adjusted pursuant to antidilution provisions
contained in any such Plan; or securities issued pursuant to a
strategic alliance or acquisition with an entity with which the
Corporation will have executed non-disclosure agreements prior to the
date hereof.
(ii) No Adjustment of Conversion Price. No
adjustment in the number of shares of Common Stock into which the
Series A Preferred Stock is convertible shall be made, by adjustment in
the Series A Conversion Price, in respect of the issuance of Additional
Shares of Common Stock or otherwise, unless the consideration per share
for an Additional Share of Common Stock issued or deemed to be issued
by the corporation is less than the Conversion Price in effect on the
date of, and immediately prior to, the issue of such Additional Share
of Common Stock.
(iii) Issue or Sale of Securities Deemed Issue of
Additional Shares of Common Stock.
(1) Options and Convertible Securities. In
the event the Corporation at any time or from time to time after the
Issue Date shall issue or sell any Options or Convertible Securities
(other than those excluded from the definition of Additional Shares of
Common Stock in Section 5(e)(i)(4) pursuant to clauses (A) or (B)
thereof) or shall fix a record date for the determination of holders of
any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth
in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common
Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue or sale or, in case
such a record date shall have been fixed, as of the close of business
on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per
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share (determined pursuant to Section 5(e)(v) hereof) of such
Additional Shares of Common Stock would be less than the Conversion
Price in effect on the date of and immediately prior to such issue or
sale or such record date, as the case may be, and provided further that
in any such case in which Additional Shares of Common Stock are deemed
to be issued:
(A) no further adjustment in the
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options
or conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible
Securities by their terms provide, with the passage of time or
otherwise, for any increase in the consideration payable to the
Corporation, or decrease in the number of shares of Common Stock
issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(C) upon the expiration of any such
Options or any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Conversion Price
computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration, be recomputed as if:
(I) In the case of Convertible
Securities or Options for Common Stock, the only Additional
Shares of Common Stock issued were the shares of Common
Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible
Securities, and the consideration received therefor was the
consideration actually received by the Corporation for the
issue of all such Options, whether or not exercised, plus the
consideration actually received by the Corporation upon such
exercise, or for the issue of all such Convertible Securities
which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the
Corporation upon such conversion or exchange; and
(II) in the case of Options
for Convertible Securities, only the Convertible Securities,
if any, actually issued upon the exercise thereof were issued
at the time of issue of such Options, and the consideration
received by the Corporation for the Additional Shares of
Common Stock deemed to have been then issued was the
consideration actually received by the Corporation for the
issue of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Corporation
(determined pursuant to Section 5(e)(v)) upon the issue of
the Convertible Securities with respect to which such Options
were actually exercised;
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(D) in the case of any Options which
expire by their terms not more than 30 days after the date of issue
thereof, no adjustment of the applicable Conversion Price shall be made
until the expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in clause (C)
above; and
(E) if such record date shall have been
fixed and such Options or Convertible Securities are not issued on the
date fixed therefor, the adjustment previously made in the Conversion
Price which became effective on such record date shall be cancelled as
of the close of business on such record date, and thereafter the
applicable Conversion Price shall be adjusted pursuant to this Section
5(e)(iii) as of the actual date of their issuance.
(2) Stock Dividends, Stock Distributions and
Subdivisions. In the event the Corporation at any time or from time to
time after the Issue Date shall declare or pay any dividend or make any
other distribution on the Common Stock payable in Common Stock or
effect a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise) then and in any such event, Additional
Shares of Common Stock shall be deemed to have been issued:
(A) in the case of any such dividend or
distribution, immediately after the close of business on the record
date for the determination of holders of any class of securities
entitled to receive such dividend or distribution, or
(B) in the case of any such subdivision,
at the close of business on the date immediately prior to the date upon
which such corporate action becomes effective.
If such record date shall have been fixed and no part of such dividend
shall have been paid on the date fixed therefor, the adjustment
previously made in the Conversion Price which became effective on such
record date shall be cancelled as of the close of business on such
record date, and thereafter the Conversion Price shall be adjusted
pursuant to this Section 4(d)(iii) as of the time of actual payment of
such dividend.
(iv) Adjustment of Conversion Price Upon Issuance,
Sale or Deemed Issuance of Additional Shares of Common Stock. In the
event that at any time or from time to time after the Issue Date, the
Corporation shall issue or sell Additional Shares of Common Stock
(including, without limitation, Additional Shares of Common Stock
deemed to be issued pursuant to Section 5(e)(iii)(1) but other than
Additional Shares of Common Stock deemed to be issued pursuant to
Section 5(e)(iii)(1) as a result of a dividend or other distribution on
the Common Stock payable in Common Stock or a subdivision of
outstanding shares of Common Stock), without consideration or for a
consideration per share less than the Conversion Price in effect on the
date of and immediately prior to such issue or sale, then and in such
event, the Conversion Price shall be reduced, concurrently with such
issue, to a price (calculated to the nearest cent) determined in
accordance with the following formula:
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P1Q1 + P2Q2
Conversion Price = --------------
Q1 + Q2
where:
Conversion Price = New Conversion Price.
P1 = Conversion Price of Series A
Preferred Stock in effect
immediately prior to such new issue
or sale.
Q1 = Number of shares of Common Stock
deemed outstanding immediately prior
to such new issue or sale.
P2 = Weighted average price per share
received by the Corporation upon
such new issue or sale.
Q2 = Number of shares of Common Stock
issued or sold, or deemed to have
been issued, in the subject
transaction.
For the purpose of this Section 5(e)(iv), (i) the number of shares of
Common Stock outstanding at any given time shall exclude shares in the
treasury of the Corporation or shares of Common Stock held for the
account of the Corporation or any of its subsidiaries, (ii) all shares
of Common Stock issuable upon conversion of shares of Series A
Preferred Stock outstanding immediately prior to the issue or sale of
Additional Shares of Common Stock triggering the adjustment provided
for by this Section 5(e)(iv) shall be deemed to be outstanding, and
(iii) immediately after any Additional Shares of Common Stock are
deemed issued pursuant to Section 5(e)(iii), such Additional Shares of
Common Stock shall be deemed to be outstanding. Anything contained in
this Section 5(e)(iv) to the contrary notwithstanding, the applicable
Conversion Price shall not be reduced at any time if the amount of such
reduction would be an amount less than $.01, but any such amount shall
be carried forward and reduction with respect thereto made at the time
of and together with any subsequent reduction which, together with such
amount and any other amount or amounts so carried forward, shall
aggregate $.01 or more.
(v) Determination of Consideration. For purposes
of this Section 5(e),the consideration received by the Corporation for
the issue of any Additional Shares of Common Stock shall be computed as
follows:
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(1)Cash and Property: Such consideration shall:
(A) insofar as it consists of cash, be
computed at the aggregate amounts of cash received by the Corporation
excluding amounts paid or payable for accrued interest or accrued
dividends;
(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such
issue or sale, as determined in good faith by the Board of Directors;
and
(C) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other
assets of the Corporation for consideration which covers both, be the
proportion of such consideration so received, computed as provided in
clauses (A) and (B) above, as determined in good faith by the Board of
Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional
Shares of Common Stock deemed to have been issued pursuant to Section
5(e)(iii)(1) relating to Options and Convertible Securities shall be
determined by dividing (x) the total amount, if any, received or
receivable as consideration for the issue of such Options or
Convertible Securities plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent
adjustment of such consideration) payable to the Corporation upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and
the conversion or exchange of such Convertible Securities by (y) the
maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) Adjustment for Dividends, Distributions,
Subdivisions, Combinations or Consolidations of Common Stock.
(1) Stock Dividends, Distributions or
Subdivisions. In the event Additional Shares of Common Stock shall be
deemed to have been issued in a dividend or other distribution on the
Common Stock payable in Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise)
described in Section 5(e)(iii)(2), the Conversion Price in effect
immediately prior to the record date or effectiveness, as the case may
be, of such dividend, distribution or subdivision shall, concurrently
with such record date or effectiveness, be proportionately decreased.
(2) Combinations or Consolidations. In the
event the outstanding shares of Common Stock shall be combined or
consolidated (by reclassification or otherwise) into a lesser number of
shares of Common Stock, the Conversion Price in effect immediately
prior to such combination or consolidation shall, concurrently with the
effectiveness of such combination or consolidation, be proportionately
increased.
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(f) ADJUSTMENTS FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In
the event that at any time or from time to time after the Issue Date the
Corporation shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation other than shares of Common Stock, then
and in each such event provision shall be made so that the holders of Series A
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had their Series A Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
conversion date, retained such securities receivable by them as aforesaid during
such period, giving application during such period to all adjustments called for
herein.
(g) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR
SUBSTITUTION. In the event that at any time or from time to time after the Issue
Date, the Common Stock issuable upon the conversion of the Series A Preferred
Stock shall be changed into the same or a different number of shares of any
class or classes of stock, whether by capital reorganization, reclassification,
or otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a merger, consolidation, or sale of assets
provided for below), then and in each such event the holder of each such share
of Series A Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by a holder of the number of shares of Common Stock into which such share of
Series A Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(h) ADJUSTMENT FOR MERGER, CONSOLIDATION OR SALE OF ASSETS. In
the event that at any time or from time to time after the Issue Date, the
Corporation shall merge or consolidate with or into another entity or sell all
or substantially all of its assets (other than a consolidation, merger or sale
which is treated as a liquidation pursuant to Section 3(c)), each share of
Series A Preferred Stock shall thereafter be convertible into the kind and
amount of shares of stock or other securities or property to which a holder of
the number of shares of Common Stock of the Corporation deliverable upon
conversion of such Series A Preferred Stock would have been entitled upon such
consolidation, merger or sale; and, in such case, appropriate adjustment (as
determined in good faith by the Board of Directors) shall be made in the
application of the provisions in this Section 5 set forth with respect to the
rights and interest thereafter of the holders of Series A Preferred Stock, to
the end that the provisions set forth in this Section 5 (including provisions
with respect to changes in and other adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the Series A Preferred Stock.
(i) CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY CORPORATION. In
each case of an adjustment or readjustment of the Original Issue Price, the
Corporation at its expense will furnish each holder of Series A Preferred Stock
so affected with a certificate prepared by an officer of the Corporation,
showing such adjustment or readjustment, and stating in detail the facts upon
which such adjustment or readjustment is based.
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(j) EXERCISE OF CONVERSION PRIVILEGE. To exercise its
conversion privilege, a holder of Series A Preferred Stock shall give written
notice by telecopy to the Corporation at its principal office that such holder
elects to convert shares of its Series A Preferred Stock and shall thereafter
surrender the original certificate(s) representing the shares being converted to
the Corporation at its principal office together with an originally executed
copy of such notice. Such notice shall also state the name or names (with its
address or addresses, as well as the address(es) for delivery) in which the
certificate(s) for shares of Common Stock issuable upon such conversion shall be
issued. The certificate(s) for the shares of Series A Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Corporation or in blank. As promptly as practicable after the Corporation
receives the original certificate(s) for the shares of Series A Preferred Stock
surrendered for conversion, the proper assignment thereof to the Corporation or
in blank and the original notice of conversion (collectively, the "ORIGINAL
DOCUMENTATION"), but in no event more than three (3) Trading Days after the
Corporation's receipt of the Original Documentation, the Corporation shall issue
and shall deliver to the holder of the shares of Series A Preferred Stock being
converted, at the addresses set forth therefor by the holder, such
certificate(s) as it may request for the number of whole shares of Common Stock
issuable upon the conversion of such shares of Series A Preferred Stock in
accordance with the provisions of this Section 5, and cash, as provided in
Section 5(k), in respect of any fraction of a share of Common Stock issuable
upon such conversion. Such conversion shall be deemed to have been effected
immediately prior to the close of business on the Conversion Date, and at such
time the rights of the holder as holder of the converted shares of Series A
Preferred Stock shall cease and the person(s) in whose name(s) any
certificate(s) for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder(s) of record of the shares of Common
Stock represented thereby. If the Corporation fails to issue and deliver to such
holder such certificate(s) for shares of Common Stock within three (3) Trading
Days after the Corporation's receipt of the Original Documentation, the
Corporation shall pay the liquidated damages set forth in the Stock Purchase
Agreement between the Corporation and the initial purchasers of the Series A
Preferred Stock.
(k) CASH IN LIEU OF FRACTIONAL SHARES. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series A Preferred Stock. Instead of any fractional
shares of Common Stock that would otherwise be issuable upon conversion of
Series A Preferred Stock, the Corporation shall pay to the holder of the shares
of Series A Preferred Stock being converted a cash adjustment in respect of such
fractional shares in an amount equal to the same fraction of the market price
per share of the Common Stock (as determined in a reasonable manner prescribed
by the Board of Directors) at the close of business on the Conversion Date. The
determination as to whether or not any fractional shares are issuable shall be
based upon the aggregate number of shares of Series A Preferred Stock being
converted at any one time by any holder thereof, not upon each share of Series A
Preferred Stock being converted.
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(l) PARTIAL CONVERSION. In the event some but not all of the
shares of Series A Preferred Stock represented by a certificate(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series A Preferred Stock which were not
converted. Such new certificate shall be so delivered on or prior to the date
set forth in Section 5(j) for the delivery of certificates for shares of Common
Stock.
(m) RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series A Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock (including any shares of
Series A Preferred Stock represented by any warrants, options, subscription or
purchase rights for the Series A Preferred Stock), and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Series A Preferred
Stock (including any shares of Series A Preferred Stock represented by any
warrants, options, subscriptions or purchase rights for the Series A Preferred
Stock), then the Corporation shall be deemed to be in breach and default of its
obligations hereunder, and in addition to all charges, claims and rights at law
or in equity that each holder shall be entitled to, the Corporation shall use
all means reasonably available to it, and promptly take any and all actions as
may be necessary, to increase its authorized but unissued shares of Common Stock
to such number of shares as shall be sufficient for such purpose.
6. REDEMPTION AND REPURCHASE RIGHTS.The Corporation shall have no
right to redeem, and holders of shares of Series A Preferred Stock shall have no
right to cause the Corporation to redeem, any or all of the outstanding shares
of Series A Preferred Stock.
7. NOTICES OF RECORD DATE. In the event of any:
(a) taking by the Corporation of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of capital stock of any
class or any other securities or property, or to receive any other right, or
(b) capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other Corporation, or
any other entity or person, or
(c) voluntary or involuntary dissolution, liquidation or
winding up of the Corporation, then and in each such event the Corporation shall
telecopy and thereafter mail or cause to be mailed to each holder of Series A
Preferred Stock a notice specifying (i) the date on which any such record is to
be taken for the purpose of such dividend, distribution or right and a
description of such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the time, if any, that is to be fixed, as to when
the holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be telecopied and thereafter mailed by first class
mail, postage prepaid, or by express overnight courier service, at least ten
(10) days prior to the date specified in such notice on which such action is to
be taken.
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8. GENERAL.
(a) REPLACEMENT OF CERTIFICATES. Upon the Corporation's
receipt, from the holder of any certificate evidencing shares of Series A
Preferred Stock, of evidence reasonably satisfactory to the Corporation (an
affidavit of such holder will be satisfactory) of the ownership and the loss,
theft, destruction or mutilation of such certificate, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation, and in the case of any such mutilation, upon
surrender of such certificate, the Corporation (at its expense) shall execute
and deliver to such holder, in lieu of such certificate, a new certificate that
represents the number of shares represented by, is dated the date of, is issued
in the name of the holder of, and is substantially identical in form of, such
lost, stolen, destroyed or mutilated certificate.
(b) PAYMENT OF TAXES. The Corporation shall pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed in connection with the issuance or delivery of any shares of Common
Stock (or other of the Corporation's securities) that results from (i) the
conversion of shares of Series A Preferred Stock pursuant to this Certificate of
Designations or (ii) the application of Section 2(a)(v) hereof. Notwithstanding
the foregoing, if the Corporation, pursuant to a notice from a holder of any
shares of Series A Preferred Stock, effects the issuance or delivery of any
shares of Common Stock (or other of the Corporation's securities) in any name(s)
other than such holder's name, then such holder shall deliver to the Corporation
with the aforesaid notice (A) all transfer taxes and other governmental charges
payable upon the issuance or delivery of securities in such other name(s) or (B)
evidence satisfactory to the Corporation that such taxes and charges have been
or shall be paid in full.
(c) STATUS OF REDEEMED OR CONVERTED SHARES. Shares of Series A
Preferred Stock that are redeemed, converted or otherwise acquired by the
Corporation in any manner (including by purchase or exchange) shall be canceled
and upon cancellation (i) shall no longer be deemed to be outstanding, (ii)
shall become authorized but unissued shares of preferred stock undesignated as
to series and (iii) may be reissued as part of another series of preferred
stock.
(d) WAIVER. Any provision of the Certificate of Designations,
Preferences and Rights of Series A Preferred Stock may be amended and observance
thereof may be waived only with the written consent of the holders of not less
than fifty-one percent (51%) of the outstanding shares of the Series A Preferred
Stock.
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