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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NEW FRONTIER MEDIA, INC.
(Name of registrant as specified in its charter)
<TABLE>
<S> <C>
COLORADO 84-1084061
(State or jurisdiction of incorporation or organization) (IRS Employer Identification No.)
5435 Airport Blvd, Suite 100 MICHAEL WEINER
Boulder, CO 80301 5435 Airport Blvd, Suite 100
(303) 444-0900 Boulder, CO 80301
Facsimile No.: (303) 444-0734 (303) 444-0900
(Address, including zip code, and telephone number, (Address, including zip code, and telephone number,
including area code, of registrant's principal executive including area code, of agent for service)
offices)
</TABLE>
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Copy to:
Hank Gracin, Esq.
Lehman & Eilen
50 Charles Lindbergh Boulevard, Suite 505
Uniondale, New York 11553
(516) 222-0888 Facsimile (516) 222-0948
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after the effective date of this registration
statement.
If the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 other than securities offered only in connection with dividend or interest
reinvestment plan, please check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO OFFERING PRICE OFFERING REGISTRATION
REGISTERED BE REGISTERED PER SHARE(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value $.0001 per
share(2)........................ 1,334,180 $4.69 $6,257,304 $1,740
Common Stock, $.0001 par value(3)....... 725,000 $4.69 $3,400,250 $945
Total................................... 2,059,180 $4.69 $9,657,554 $2,685
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee. The
Proposed Maximum Aggregate Offering Price was calculated pursuant to Rule
457(c) under the Securities Act of 1933, as amended, on the basis of
$4.69 per share, which was the average of the high and low prices of the
common stock as reported in the NASDAQ SmallCap Market system on November
9, 1999.
(2) Issuable upon the conversion of the 7% Series C Convertible Preferred
Stock (the "Preferred"), which is estimated based on conversion terms of
the Preferred and is subject to adjustment and could be materially more
or less than such estimated amount, depending upon factors that cannot be
predicted by the Company at this time, including, among others, the
future market price of the Common Stock. This is not intended to
constitute a prediction as to the number of shares of Common Stock into
which the Preferred will be converted.
(3) Issuable upon exercise of warrants evidencing the right to purchase
shares of Common Stock.
---------------------
Pursuant to Rule 416, there are also registered hereby such
additional indeterminate number of shares as may become issuable as dividends or
to prevent dilution resulting from stock splits, stock dividends or similar
transactions or to provide for changes in the number of shares of Common Stock
as are issuable upon conversion of the Preferred.
The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRAION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND THE SELLING STOCKHOLDERS ARE NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION DATED NOVEMBER 12, 1999
PROSPECTUS
NEW FRONTIER MEDIA, INC.
2,059,180 SHARES OF COMMON STOCK
------------------------
The 2,059,180 shares of common stock are being offered by the selling
stockholders. The common stock currently trades on the NASDAQ SmallCap Market
under the symbol "NOOF". On November 9, 1999, the last sale price of the common
stock as reported on NASDAQ was $4.75 per share.
The common stock may be sold by the selling stockholders directly or
through underwriters, dealers or agents in market transactions or privately
negotiated transactions.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. CONSIDER CAREFULLY THE RISK
FACTORS BEGINNING ON PAGE 5 IN THIS PROSPECTUS.
The date of this prospectus is November 12, 1999
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[This page intentionally left blank]
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. It is not complete and may not contain all of the information that
is important to you. To understand this offering fully, you should read the
entire prospectus carefully, including the risk factors and financial
statements.
NEW FRONTIER MEDIA, INC.
Offices: 5435 Airport Blvd, Suite 100,
Boulder, Colorado 80301
Telephone number (303) 444-0900
Facsimile number (303) 444-0734
THE OFFERING
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<S> <C>
Common Stock Offered by Selling
Stockholders................................. 2,059,180 shares
Common Stock to be Offered by Us............. 0 shares
Common Stock Outstanding Before
Offering(1).............................. 19,697,698 shares
Common Stock Outstanding After Offering...... 21,756,878 shares based on all shares offered
under this prospectus.
Use of Proceeds.............................. All of the shares offered by this prospectus
are being offered by the selling
stockholders. New Frontier Media will not
receive any proceeds from these sales of its
stock.
</TABLE>
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(1) Based on shares outstanding as of November 11, 1999.
RISK FACTORS
This prospectus and the documents incorporated in this prospectus by
reference may contain forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. These
forward-looking statements are based on current expectations, estimates and
projections about our industry, management's beliefs and assumptions made by
management. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to predict.
Accordingly, actual results may differ materially from those expressed or
forecasted in any such forward-looking statements. Such risks and uncertainties
include those risk factors and such other uncertainties noted in the prospectus
and in the documents incorporated herein by reference. New Frontier assumes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
LIMITS ON OUR ACCESS TO DISTRIBUTION CHANNELS COULD CAUSE US TO LOSE SUBSCRIBER
REVENUES AND ADVERSELY AFFECT OUR OPERATING PERFORMANCE.
Our satellite uplink providers' services are critical to us. If our
satellite uplink providers fail to provide the services contracted for with
them, our satellite programming operations would in all likelihood be suspended,
resulting in a loss of substantial revenues to the Company. If our satellite
uplink providers improperly manage their uplink facilities, we could experience
signal disruptions and other quality problems that, if not immediately
addressed, could cause us to lose subscribers and subscriber revenues.
Our continued access to satellite transponders is critical to us. Our
satellite programming operations require continued access to satellite
transponders to transmit programming to our subscribers. We also
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use satellite transponders to transmit programming to cable operators. Material
limitations to satellite transponder capacity could materially adversely affect
our operating performance. Access to transponders may be restricted or denied
if:
* we or the satellite owner is indicted or otherwise charged as a
defendant in a criminal proceeding;
* the FCC issues an order initiating a proceeding to revoke the satellite
owner's authorization to operate the satellite;
* the satellite owner is ordered by a court or governmental authority to
deny us access to the transponder;
* we are deemed by a governmental authority to have violated any obscenity
law; or
* our satellite transponder provider determines that the content of our
programming is harmful to its name or business.
In addition to the above, the access of our networks to transponders may be
restricted or denied if a governmental authority commences an investigation
concerning the content of the transmissions.
Our ability to convince cable operators to carry our programming is
critical to us. The primary way for us to expand our cable subscriber base is to
convince additional cable operators to carry our programming. We can give no
assurance, however, that our efforts to increase our base of cable subscribers
will be successful.
WE HAVE BEEN SUED BY A PROSPECTIVE INVESTOR SEEKING TO ENFORCE AN ALLEGED
AGREEMENT TO CONVEY A 70% EQUITY INTEREST IN NEW FRONTIER MEDIA AND IF WE DO NOT
PREVAIL IN THIS LAWSUIT WE COULD SUFFER A MATERIAL FINANCIAL LOSS.
In a January 25, 1999 amended complaint in District Court in Boulder,
Colorado, (Case No. 99CV30), J.P. Lipson seeks to enforce an alleged agreement
by New Frontier Media to convey to Lipson a 70% equity interest in New Frontier
Media. Lipson is also seeking $10 million in liquidated damages and/or
unspecified damages. If we do not prevail in this lawsuit, we could suffer a
material financial loss which loss, if any, can not be estimated. We dispute
that there exists a binding and enforceable agreement to transfer any equity
interest in New Frontier Media to Lipson and filed on February 10, 1999 a motion
for partial summary judgement directed to this issue. To date the Court has
neither ruled on nor set our motion for a hearing. We will continue to
vigorously defend against Lipson's claims.
IN THE EVENT OUR SHARES OF COMMON STOCK WERE TO BE DELISTED FROM THE NASDAQ
SMALLCAP MARKET, OUR LIQUIDITY AND CAPITAL RESOURCES WOULD BE MATERIALLY AND
ADVERSELY AFFECTED AS OUR FUTURE ACCESS TO THE CAPITAL MARKETS WOULD BE
SIGNIFICANTLY IMPAIRED.
By letter dated August 20, 1999, New Frontier Media has been informed that
the Nasdaq Listing and Hearing and Review Council has called for review of the
Nasdaq Listing Qualifications Panel's decision of July 7, 1999 to continue the
listing of the shares of New Frontier Media's common stock on the Nasdaq
SmallCap Market, to determine "whether the Panel's decision was appropriate
given that the Panel found that New Frontier Media had twice violated the
shareholder approval requirement and that New Frontier Media had not remedied
the violations."
While New Frontier Media has urged the Council to affirm the Panel's
determination to continue the listing of its shares, there can be no assurance
as to what action the Council will decide to take. In the event New Frontier
Media's shares of common stock were to be delisted from the Nasdaq SmallCap
Market, New Frontier Media's liquidity and capital resources would be materially
and adversely affected as New Frontier Media's future access to the capital
markets would be significantly impaired. In addition, upon any such delisting,
the holder of New Frontier Media's 7% Series C convertible preferred stock would
have the right to require the redemption of its $6 million investment in New
Frontier Media.
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The two transactions at issue involved the issuance and sale of securities
authorized by the Board of Directors at prices less than market value and each
exceeding 20% of the outstanding shares prior to the issuance and sale. The two
transactions were approved by the Board of Directors and did not require
shareholder approval under Colorado law.
At the time of the transactions, in view of the time constraints then
involved, New Frontier Media determined to follow an informal procedure
recommended by special Nasdaq counsel of obtaining documentation from a
relatively few large shareholders that these holders of a majority of its
outstanding shares would have approved the two transactions if their proxies had
been solicited. The Nasdaq staff subsequently objected to the use of this
informal procedure indicating, among other things, that New Frontier Media
should have given prior notice of its use of the procedure to New Frontier
Media's stockholders.
On October 5, 1999, New Frontier Media made a written submission urging the
Council to affirm the Panel's determination to continue the listing of New
Frontier Media's shares. On October 27, 1999, in excess of 90 percent of the
shares represented in person or by proxy at New Frontier Media's Annual Meeting
of Shareholders were voted in favor of the ratification of the two transactions
at issue.
In a further effort to demonstrate New Frontier Media's commitment to
future compliance with applicable Nasdaq listing requirements, New Frontier
Media's Board of Directors has formed a special committee of its independent
directors, called the Nasdaq Compliance Committee. This Committee will review
all future corporate transactions to assure their compliance with Nasdaq listing
requirements. For assistance in this regard, the Committee has retained Harvey
L. Pitt, former General Counsel of the Securities and Exchange Commission, and
now a partner at the law firm of Fried, Frank, Harris, Shriver & Jacobson in
Washington, D.C. In addition, New Frontier Media has resolved to consult with
the staff of the Nasdaq Stock Market, Inc. in the event that New Frontier Media
proposes to act contrary to the advice of the Special Committee's legal counsel
on any of these matters.
IN THE EVENT OUR SHARES OF COMMON STOCK WERE TO BE DELISTED FROM THE NASDAQ
SMALLCAP MARKET, AND OUR SHARES WERE TO BECOME SUBJECT TO THE RULES ON PENNY
STOCKS, THE MARKET LIQUIDITY FOR THE COMPANY'S SECURITIES COULD BE SEVERELY
ADVERSELY AFFECTED.
In the event our shares of common stock were to be delisted from the Nasdaq
SmallCap Market, and our shares were to become subject to the rules on penny
stocks, the market liquidity for the Company's common stock could be severely
adversely affected. There are a number of special disclosures and inquires which
a broker or dealer must make before they can approve a person's account for
transactions in penny stocks. As such, it is more difficult for a company whose
securities are considered to be a penny stock to attract investors and market
interest.
Effective August 11, 1993, the Securities and Exchange Commission adopted
Rule 15g-9, which established the definition of a "penny stock," for purposes
relevant to New Frontier Media, as any equity security that has a market price
of less than $5.00 per share or with an exercise price of less than $5.00 per
share, subject to certain exceptions.
For any transaction involving a penny stock, unless exempt, the rule
requires that a broker or dealer approve a person's account for transactions in
penny stocks; and the broker or dealer receive from the investor a written
agreement to the transaction, setting forth the identity and quantity of the
penny stock to be purchased. In order to approve a person's account for
transactions in penny stocks, the broker or dealer must obtain financial
information and investment experience and objectives of the person; and make a
reasonable determination that the transactions in penny stocks are suitable for
that person and that person has sufficient knowledge and experience in financial
matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prepared by the Securities and Exchange Commission
relating to the penny stock market, which, in highlighted form: sets forth the
basis on which the broker or dealer made the suitability determination; and that
the broker or dealer received a signed, written agreement from the investor
5
<PAGE>
prior to the transaction. Disclosure also has to be made about the risks of
investing in penny stocks in both public offerings and in secondary trading, and
about commissions payable to the broker-dealer. Finally, monthly statements have
to be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks.
IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH OUR PRIMARY COMPETITOR, WHO HAS
SIGNIFICANTLY GREATER RESOURCES THAN US, WE WILL NOT BE ABLE TO INCREASE
SUBSCRIBER REVENUES OR GENERATE PROFITS.
Our ability to increase subscriber revenues and operate profitably, is
directly related to our ability to compete effectively with Playboy, our
principal competitor. Playboy has significantly greater financial, sales,
marketing and other resources to devote to the development, promotion and sale
of its cable programming products, as well as a longer operating history and
broader name recognition, than we do. We compete with Playboy as to the editing
standards of its programming, network performance in terms of subscriber buy
rates and the license fees that we offer to cable and DBS system providers.
IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH OTHER FORMS OF ADULT AND NON-ADULT
ENTERTAINMENT, WE WILL ALSO NOT BE ABLE TO INCREASE SUBSCRIBER REVENUES OR
GENERATE PROFITS.
Our ability to increase subscriber revenues and operate profitably, is also
related to our ability to compete effectively with other forms of adult and
non-adult entertainment. We face competition in the adult entertainment industry
from other providers of adult programming, adult video rentals and sales,
newspapers and magazines aimed at adult consumers, adult oriented telephone chat
lines, and adult oriented Internet services. To a lesser extent, we also face
general competition from other forms of non-adult entertainment, including
sporting and cultural events, other television networks, feature films and other
programming.
IF WE ARE NOT ABLE TO RETAIN OUR KEY EXECUTIVES IT WILL BE MORE DIFFICULT FOR US
TO MANAGE OUR OPERATIONS AND OUR OPERATING PERFORMANCE COULD BE ADVERSELY
AFFECTED.
As a small company with approximately 150 employees, our success depends
upon the contributions of our executive officers and our other key technical
personnel. The loss of the services of any of our executive officers or other
key personnel could have a significant adverse effect on our business and
operating results. We cannot assure that New Frontier Media will be successful
in attracting and retaining these personnel. It may also be more difficult for
us to attract and recruit new personnel due to the adult nature of our business.
OUR INABILITY TO IDENTIFY, FUND THE INVESTMENT IN, AND COMMERCIALLY EXPLOIT NEW
TECHNOLOGY COULD HAVE AN ADVERSE IMPACT ON OUR FINANCIAL CONDITION.
We are engaged in a business that has experienced tremendous technological
change over the past two years. As a result, we face all the risks inherent in
businesses that are subject to rapid technological advancement, such as the
possibility that a technology that we have invested in may become obsolete. In
that event, we may be required to invest in new technology. Our inability to
identify, fund the investment in, and commercially exploit such new technology
could have an adverse impact on our financial condition. Our ability to
implement our business plan and to achieve the results projected by management
will be dependent upon management's ability to predict technological advances
and implement strategies to take advantage of such changes.
GOVERNMENT REGULATION OF CABLE SYSTEM OPERATORS COULD MAKE IT MORE DIFFICULT FOR
THEM TO BROADCAST OUR PROGRAMMING AND ADVERSELY AFFECT OUR OPERATING
PERFORMANCE.
Cable system operators could become subject to new governmental regulations
which could further restrict their ability to broadcast our programming. If new
regulations make it more difficult for cable operators to broadcast our
programming our operating performance would be adversely affected. It is not
possible for us to predict what new governmental regulations we may be subject
to in the future.
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Cable system operators have been subject to Section 505 of the
Telecommunications Act of 1996 since May 18, 1997. We began offering adult
programming for cable system operators in February 1998. We have never had the
opportunity, or prior history, of selling our programming under any other
regulatory structure. It is difficult to estimate what effect this Act has had
on our potential business and potential subscribers.
Section 505 of the Telecommunications Act effectively requires each cable
system that offers adult programming either to:
* install additional blocking technology in each household to prevent any
momentary fragments of our content from accidentally becoming available to
non-subscribing cable customers or
* restrict the period during which adult programming is transmitted to the
hours between 10:00 p.m. and 6:00 a.m.
Although a United States District Court has unanimously declared this law
unconstitutional and blocked its implementation, the decision has been appealed
and accepted for review by the U.S. Supreme Court. It has been our experience
that most cable system operators are continuing to restrict the broadcast of
adult programming to the hours of 10:00 p.m. to 6:00 a.m. and are unwilling to
rely on the District Court's decision until the U.S. Supreme Court issues its
ruling on the constitutionality of Section 505 of the Act.
NEGATIVE PUBLICITY, LAWSUITS OR BOYCOTTS BY OPPONENTS OF ADULT CONTENT COULD
ADVERSELY AFFECT OUR OPERATING PERFORMANCE AND DISCOURAGE INVESTORS FROM
INVESTING IN OUR PUBLICLY TRADED SECURITIES.
We could become a target of negative publicity, lawsuits or boycotts by one
or more advocacy groups who oppose the distribution of "adult entertainment."
These groups have mounted negative publicity campaigns, filed lawsuits and
encouraged boycotts against companies whose businesses involve adult
entertainment. The costs of defending against any such negative publicity,
lawsuits or boycotts could be significant, could hurt our finances and could
discourage investors from investing in our publicly traded securities. To date,
we have not been a target of any of these advocacy groups. As a leading provider
of adult entertainment, we can not assure you that we may not become a target in
the future.
BECAUSE WE ARE INVOLVED IN THE ADULT PROGRAMMING BUSINESS, IT MAY BE MORE
DIFFICULT FOR US TO RAISE MONEY OR ATTRACT MARKET SUPPORT FOR OUR STOCK.
Some investors, investment banking entities, market makers, lenders and
others in the investment community may decide not to provide financing to us, or
to participate in our public market or other activities due to the nature of our
business, which, in turn, may hurt the value of our stock, and our ability to
attract market support.
BECAUSE IT MAY BE DIFFICULT TO EFFECT A CHANGE IN CONTROL OF NEW FRONTIER MEDIA
WITHOUT CURRENT MANAGEMENT'S CONSENT, A POTENTIAL SUITOR WHO OTHERWISE MIGHT BE
WILLING TO PAY A PREMIUM FOR ACQUIRING OUR COMPANY MAY DECIDE NOT TO ATTEMPT AN
ACQUISITION OF NEW FRONTIER MEDIA.
Issuance of a poison-pill or a large block of preferred stock with voting
rights could have the effect of delaying, deferring or preventing a change in
control of New Frontier Media. Potential suitors who otherwise might be willing
to pay a premium to acquire New Frontier Media may decide not to try to acquire
us because it may be difficult to effect a change in control of New Frontier
Media without current management's consent. New Frontier Media's board of
directors has the authority to issue up to 5,000,000 shares of preferred stock
and to determine the price, rights, preferences, privileges and restrictions,
including voting rights, of such stock without further shareholder approval. The
rights of the holders of common stock will be subjected to, and may also be
adversely affected by, the rights of the holders of any preferred stock that may
be issued in the future.
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FUTURE SALES OF COMMON STOCK MAY CAUSE THE MARKET PRICE OF THE COMMON STOCK TO
DROP.
Future sales of shares of common stock by New Frontier Media and/or its
stockholders could cause the market price of the common stock to drop. There are
currently 11,877,433 restricted shares and 7,802,265 shares of common stock
which are freely tradable or eligible to have the restrictive legend removed
pursuant to Rule 144(k) promulgated under the Securities Act. Of the
restricted shares, 1,988,800 of such shares are currently eligible for resale
under Rule 144. Sales of substantial amounts of common stock in the public
market, or the perception that such sales may occur, could have a significant
adverse effect on the market price of the common stock.
THE YEAR 2000 PROBLEM COULD CAUSE US TO SUFFER BUSINESS INTERRUPTIONS, OR
SHUTDOWN, REPUTATIONAL HARM OR LEGAL LIABILITY, AND AS A RESULT, MATERIAL
FINANCIAL LOSS.
We recognize that we, like all other businesses, are at risk if key
suppliers in utilities, communications, transportation, banking and government
are not ready for the year 2000. We also are at risk if the cable or DBS
operators with whom we do business are not ready for the year 2000. It is also
possible that our computer software applications, internal accounting, customer
billing and other business systems, working either alone or in conjunction with
those of third parties who do business with us, will not accept input of, store,
manipulate and output dates in the year 2000 or after without error. If any of
this were to happen, we may suffer business interruptions or shutdown,
reputational harm or legal liability and, as a result, material financial loss.
SHAREHOLDERS MAY NOT BE ABLE TO RE-SELL THEIR STOCK OR MAY HAVE TO SELL AT
PRICES SUBSTANTIALLY LOWER THAN THE PRICE THEY PAID FOR IT.
The trading price for the common stock has been highly volatile and could
continue to be subject to significant fluctuations in response to variations in
our quarterly operating results, general conditions in the adult entertainment
industry or the general economy, and other factors. In addition, the stock
market is subject to price and volume fluctuations affecting the market price
for public companies generally, or within broad industry groups, which
fluctuations may be unrelated to the operating results or other circumstances of
a particular company. Such fluctuations may adversely affect the liquidity of
the common stock, as well as the price that holders may achieve for their shares
upon any future sale.
INDEMNIFICATION
Our Bylaws require us, to the fullest extent permitted or required by
Colorado law, to:
* indemnify our directors against any and all liabilities and
* advance any and all reasonable expenses incurred in any proceeding to
which any such director is a party or in which such director is deposed or
called to testify as a witness because he or she is or was a director of New
Frontier Media.
Generally, Colorado statutory law permits indemnification of a director
upon a determination that he or she acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The right to
indemnification granted in our Bylaws is not exclusive of any other rights to
indemnification against liabilities or the advancement of expenses which a
director may be entitled to under any written agreement, Board resolution, vote
of stockholders, Colorado law or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant under the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
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WHERE YOU CAN GET MORE INFORMATION
At your request, we will provide you, without charge, a copy of any
exhibits to our registration statement incorporated by reference in this
prospectus. If you want more information, write or call us at:
New Frontier Media, Inc.
5435 Airport Blvd, Suite 100
Boulder, Colorado 80301
Telephone number: (303) 444-0900
Toll Free number: 1-888-875-0632
Facsimile number: (303) 444-0734
Our fiscal year ends on March 31. We furnish our shareholders annual
reports containing audited financial statements and other appropriate reports.
In addition, we are a reporting company and file annual, quarterly and current
reports, proxy statements and other information with the SEC. You may read and
copy any reports, statements or other information we file at the SEC's public
reference room in Washington D.C. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings are also available to the public on the SEC Internet site
at http:\\www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to these documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below, which we have already filed with the
SEC, and any future filings we make with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934 until the selling stockholders
sell all of the securities offered by this prospectus.
New Frontier Sec Filings (File No. 0-23697)
* Annual Report on Form 10-KSB/A for the year ended March 31, 1999
* All other reports and other documents filed by us pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 since March 31, 1999
* Our registration statement on Form 8-A12G filed on January 30, 1998
registering the common stock under Section 12(g) of the Securities Exchange
Act of 1934
This prospectus is part of a registration statement we filed with the SEC.
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus or the documents incorporated by reference is
accurate as of any date other than the date on the front of this prospectus or
those documents.
REGISTRATION RIGHTS
In connection with our private placement of 600 shares of 7% Series C
convertible preferred stock, we are obligated to use our best efforts to cause
this registration statement to become effective by February 11, 2000. We are
further obligated to register and qualify the registerable shares under such
state securities laws as the selling stockholders may reasonably request. We
will bear the reasonable expenses of the registration and qualification of the
shares under the Securities Act and state securities laws other than any
underwriting discounts and commissions and the expenses of counsel for the
selling stockholders.
If the registration statement is not effective by April 11, 2000, then JNC
Opportunity Fund Ltd. has the right to require New Frontier Media to redeem all
or a portion of the preferred stock then held by them.
9
<PAGE>
USE OF PROCEEDS FROM SALE OF COMMON STOCK
Proceeds from the sale of the shares of common stock being registered
hereby will be received directly by the selling stockholders. Accordingly, we
will not receive any proceeds from the sale of the shares.
SELLING STOCKHOLDERS
The selling stockholders whose shares of common stock are being registered
hereunder are: JNC Opportunity Fund Ltd., Doug Moreland, Columbine Financial
Solutions, Inc., Kent Krausman, Robert Seefeld and Michael Seeley.
No selling stockholder has any affiliation with New Frontier Media or its
officers, directors, promoters or principal shareholders.
JNC Opportunity Fund Ltd. purchased an aggregate of 600 shares of our 7%
Series C Convertible Preferred Stock and a warrant to purchase 360,000 shares of
our common stock for an aggregate purchase price of $6 million in a private
placement transaction which closed effective September 30, 1999. The preferred
stock may be converted into shares of our common stock. Holders of the preferred
stock and the warrant are prohibited from converting or exercising into and
acquiring shares of our common stock to the extent that such conversion or
exercise would result in such holder, together with any affiliate thereof,
beneficially owning in excess of 4.999% of the outstanding shares of our common
stock following such conversion or exercise. This restriction may be waived by
the holder as to itself on not less than 61 days' notice to us.
Since the number of shares of our common stock that will be issuable upon
conversion of the preferred stock will, on April 11, 2000 and each three month
anniversary thereof, change based upon fluctuations of the market price of
shares of our common stock prior to a conversion, the actual number of shares of
our common stock that will be issuable upon conversion of the preferred stock
cannot be determined at this time. Because of this fluctuating characteristic,
we have agreed to register a number of shares of our common stock that exceeds
the number of our shares of common stock currently beneficially owned by JNC.
The number of shares of our common stock listed in the table below as currently
being beneficially owned by JNC includes the shares of our common stock that are
issuable to it, subject to the 4.999% limitation, upon conversion of the
preferred stock and exercise of the warrant. However, the 4.999% limitation
would not prevent JNC from acquiring and selling in excess of 4.999% of shares
of our common stock through a series of conversions and sales under the
preferred stock and exercises and sales under the warrant while never
beneficially owning more than 4.999% at any one time.
New Frontier has agreed to register the public offering of the selling
stockholders' shares of common stock under the Securities Act and to pay all
expenses in connection with such registration, other than brokerage commissions
and discounts in connection with the sale of the common stock and the expenses
of counsel.
The following table sets forth the names of the selling stockholders, the
number of shares of common stock owned beneficially by each of the selling
stockholders as of November 12, 1999, the number of shares which may be offered
for resale pursuant to this prospectus and the number of shares of common stock
owned beneficially by each of the selling stockholders after the offering.
The information included below is based upon information provided by the
selling stockholders. Because the selling stockholders may offer all, some or
none of their common stock, no definitive estimate as to the number of shares
that will be held by the selling stockholders after such offering can be
provided and the following table has been prepared on the assumption that all
shares of common stock offered under this prospectus will be sold.
10
<PAGE>
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK SHARES OF COMMON STOCK
BENEFICIALLY COMMON BENEFICIALLY
OWNED PRIOR TO STOCK BEING OWNED AFTER
NAME OF SELLING STOCKHOLDER OFFERING(1) OFFERED OFFERING(2)
- ---------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
JNC Opportunity Fund Ltd...................... 1,036,502 1,694,180 0
Doug Moreland................................. 100,000 100,000 0
Columbine Financial........................... 100,000 100,000 0
Kent Krausman................................. 75,000 75,000 0
Robert Seefeld................................ 50,000 50,000 0
Michael Seeley................................ 40,000 40,000 0
</TABLE>
- ------------------
(1) Beneficial ownership is calculated in accordance with Rule 13d-3(d) under
the Exchange Act except with respect to JNC Opportunity Fund's beneficial
ownership, which is subject to the 4.999% limitation described above.
(2) Assumes the sale of all shares offered by this prospectus.
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:
* ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
* block trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as principal
to facilitate the transaction;
* purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
* an exchange distribution in accordance with the rules of the applicable
exchange;
* privately negotiated transactions;
* short sales, except as described below;
* broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
* a combination of any such methods of sale; and
* any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling stockholders may also engage in short sales against the box,
puts and calls and other transactions in securities of New Frontier Media or
derivatives of New Frontier Media securities and may sell or deliver shares in
connection with these trades; provided that the holders of the 7% Series C
convertible preferred stock may not enter into any "Short Sales" during the
applicable conversion price reset periods for the preferred stock. The selling
stockholders may pledge their shares to their brokers under the margin
provisions of customer agreements. If a selling stockholder defaults on a margin
loan, the broker may, from time to time, offer and sell the pledged shares.
Brokers-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling stockholders and any broker-dealers or agents that are involved
in selling the shares may be deemed to be "underwriters" within the meaning of
the Securities Act in connection with such
11
<PAGE>
sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
New Frontier Media is required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
selling stockholders. New Frontier Media has agreed to indemnify the selling
stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
DIVIDEND POLICY
We have not paid any cash or other dividends on our common stock since our
inception and do not anticipate paying any such dividends in the foreseeable
future. We intend to retain any earnings for use in our operations and to
finance the expansion of its business.
LEGAL MATTERS
The legality of the Shares offered hereby has been passed upon for us by
Thorburn, Sakol & Throne of Denver, Colorado.
EXPERTS
The financial statements of New Frontier Media as of March 31, 1999 and
1998 and for the years ended March 31, 1999 and 1998, incorporated by reference
in this prospectus from the Annual Report, have been incorporated herein in
reliance on the report of Spicer, Jeffries & Co., independent certified public
accountants, given on the authority of said firm as experts in accounting and
auditing.
12
<PAGE>
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.......................................... 3
The Offering................................................ 3
Risk Factors................................................ 3
Indemnification............................................. 8
Where You Can Get More Information.......................... 9
Registration Rights......................................... 9
Use of Proceeds from Sale of Common Stock................... 10
Selling Stockholders........................................ 10
Plan of Distribution........................................ 11
Dividend Policy............................................. 12
Legal Matters............................................... 12
Experts..................................................... 12
<PAGE>
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Filing fee under the Securities Act of 1933........................ $ 2,685
Blue Sky qualification fees and expenses (1)....................... 1,000
Printing and engraving (1)......................................... 5,000
Legal Fees (1)..................................................... 25,000
Accounting Fees (1)................................................ 3,000
Miscellaneous (1).................................................. 1,315
Total.......................................... $ 38,000
</TABLE>
- ------------------------------------------------------------------------
(1) Estimates
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(I) ARTICLE 3, SECTION 3.17 OF THE COMPANY'S FIRST AMENDED
AND RESTATED BYLAWS PROVIDES AS FOLLOWS:
"SECTION 3.17
LIMITATIONS ON LIABILITY
To the fullest extent permitted by the Colorado Business
Corporation Act as the same exists or may hereafter be amended, a director of
the corporation shall not be liable to the corporation or its stockholders for
monetary damages for any action taken or any failure to take any action as a
director. Notwithstanding the foregoing, a director will have liability for
monetary damages for a breach or failure which involves: (i) a violation of
criminal law; (ii) a transaction from which the director derived an improper
personal benefit, either directly or indirectly; (iii) distributions in
violation of the Colorado Business Corporation Act or the Articles of the
corporation (but only to the extent provided by law); (iv) willful misconduct or
disregard for the best interests of the corporation concerning any acts or
omissions concerning any proceeding other than in the right of the corporation
or a shareholder; or (v) reckless, malicious or wanton acts or omissions
concerning any proceeding other than in the right of the corporation or of a
shareholder. No repeal, amendment or modification of this Article, whether
direct or indirect, shall eliminate or reduce its effect with respect to any act
or omission of a director of the corporation occurring prior to such repeal,
amendment or modification."
(ii) Article 3, Section 3.18 of the Company's First Amended
and Restated Bylaws provides as follows:
"SECTION 3.18
INDEMNIFICATION
Subject to and in accordance with the Colorado Business
Corporation Act, and except as may be expressly limited by the Articles of
Incorporation and any amendments thereto, the corporation shall indemnify any
person:
(i) made a party to any proceeding (other than an action
by, or in the right of, the corporation) by reason of the fact that he is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the corporation's request, as a director, officer, employee or
agent or another corporation, or other enterprise; or
(ii) who was or is a party to any proceeding by or in the
right of the corporation, to procure a judgement in its favor by reason of
the fact that he is or was a director, officer, employee, or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise. This indemnification shall be
mandatory in all circumstances in which indemnification is permitted by law.
II-1
<PAGE>
The corporation may maintain indemnification insurance
regardless of its power to indemnify under the Colorado Business Corporation
Act.
The corporation may make any other or further
indemnification or advancement of expenses of any of the directors, officers,
employees or agents under any bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and to action in another capacity while holding such office, except an
indemnification against material criminal or unlawful misconduct as set forth by
statute, or as to any transaction wherein the director derived an improper
personal benefit.
Except to the extent reimbursement shall be mandatory in
accordance herewith, the corporation shall have the right to refuse
indemnification, in whole or in part, in any instance in which the person to
whom indemnification would otherwise have been applicable, if he or she
unreasonably refused to permit the corporation, at its own expense and through
counsel of its own choosing, to defend him or her in the action, or unreasonably
refused to cooperate in the defense of such action."
ITEM 16. EXHIBITS THE EXHIBITS ATTACHED HERETO ARE AS FOLLOWS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------------------------------------
<C> <S>
3.01 --Articles of Incorporation of Company, with Amendment*
3.02 --First Amended Bylaws of Company*
4.01 --Form of Common Stock Certificate*
4.02 --Certificate of Designation of Preferences, Rights and Limitations of 7%
Series C Convertible Preferred Stock filed with the State of Colorado on
October 14, 1999.*****
5.01 --Opinion of Thorburn, Sakol & Throne, counsel to the Company, concerning the
legality of the securities being registered*****
10.01 --Asset Purchase Agreement Among the Company, CSB, Fifth Dimension
Communications (Barbados) Inc., and Merlin Sierra, Inc.*
10.02 --Asset Purchase Agreement Among the Company, CSB, and 1043133 Ontario Inc.*
10.03 --Asset Purchase Agreement Among the Company, CSB, and 1248663 Ontario Inc.*
10.04 --Settlement and Stock and Warrant Transfer Agreement, dated June 16, 1998, by
and among the Company, BIG, Quarto Holdings, Inc., New Frontier Media,
Inc., Mark Kreloff, Michael Weiner, Andrew Brandt and Scott Wussow**
10.05 --Convertible Preferred Stock Purchase Agreement dated as of September 30,
1999, by and between the Company and JNC Opportunity Fund Ltd.*****
10.06 --Registration Rights Agreement dated as of September 30, 1999, by and between
the Company and JNC Opportunity Fund Ltd.*****
10.07 --Warrant Agreement dated as of September 30, 1999 by and between the Company
and JNC Opportunity Fund Ltd.*****
10.08 --Form of Warrant Agreement.*****
10.09 --Employment Agreement, dated December 22, 1998, by and between the Company
and Mark Kreloff.****
10.10 --Employment Agreement, dated December 22, 1998, by and between the Company
and Michael Weiner.****
10.11 --Office Lease Agreement, dated August 12, 1998, for premises at 5435 Airport
Boulevard, Boulder CO.***
10.12 --Content License Agreement with Pleasure Productions LLC****
21.01 --Subsidiaries of the Company***
23.01 --Consent of Spicer, Jefferies & Co.*****
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----- ------------------------------------------------------------------------------
23.02 --Consent of Thorburn, Sakol & Throne, counsel to the Company (included in
their opinion filed as Exhibit 5.01).
<C> <S>
27.01 --Financial Data Schedule.***
</TABLE>
- ------------------------------------------------------------------------
* Incorporated by reference to the Company's Registration Statement on Form
SB-2 (File No. 333-35337)
** Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended March 31, 1998.
*** Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended March 31, 1999.
**** Incorporated by reference to the Company's Registration Statement No.
333-75733 on Form S-3 filed on April 6, 1999.
***** Filed with this Registration Statement.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes:
(a) That insofar as indemnification for liabilities arising
under the 1933 Act may be permitted to directors, officers and controlling
persons of the Company, the Company has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the 1933 Act, and
will be governed by the final adjudication of such issue.
(b) That, subject to the terms and conditions of Section 13
(a) of the Securities Exchange Act of 1934, it will file with the Securities and
Exchange Commission such supplementary and periodic information, documents and
reports as may be prescribed by any rule or regulation of the Commission
heretofore or hereafter duly adopted pursuant to authority conferred in that
section.
(c) That any post-effective amendment filed will comply with
the applicable form, rules and regulations of the Commission in effect at the
time such post-effective amendment is filed.
(d) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10 (a) (3)
of the 1933 Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
(e) That, for the purpose of determining any liability under
the 1933 Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(f) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of this offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the 1933 Act, as amended,
the Company certifies that it has reasonable grounds to believe that it meets
the requirements of filing on Form S-3 and has caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in Boulder, Colorado on November 12, 1999.
NEW FRONTIER MEDIA, INC.
By: /s/ Mark H. Kreloff
---------------------------
Mark H. Kreloff
President
Pursuant to the requirements of the 1933 Act, as amended,
this Registration Statement has been signed below by the following persons on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ---------------------------- ----------------------
<C> <S> <C>
/s/ MARK H. KRELOFF Chairman, Chief Executive November 12, 1999
- ---------------------------------------- Officer and
Mark H. Kreloff President
/s/ MICHAEL WEINER Executive Vice President, November 12, 1999
- ---------------------------------------- Secretary, Treasurer
Michael Weiner and Director
/s/ KARYN MILLER Chief Financial Officer November 12, 1999
- ---------------------------------------- (Principal
Karyn Miller Accounting Officer)
/s/ KOUNG Y. WONG Director November 12, 1999
- ----------------------------------------
Koung Y. Wong
/s/ EDWARD J. BONN Director November 12, 1999
- ----------------------------------------
Edward J. Bonn
/s/ BRADLEY A. WEBER Director November 12, 1999
- ----------------------------------------
Bradley A. Weber
/s/ ALAN ISAACMAN Director November 12, 1999
- ----------------------------------------
Alan Isaacman
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------------------------------------
<C> <S>
3.01 --Articles of Incorporation of Company, with Amendment*
3.02 --First Amended Bylaws of Company*
4.01 --Form of Common Stock Certificate*
4.02 --Certificate of Designation of Preferences, Rights and Limitations of 7%
Series C Convertible Preferred Stock filed with the State of Colorado on
October 14, 1999.*****
5.01 --Opinion of Thorburn, Sakol & Throne, counsel to the Company, concerning the
legality of the securities being registered*****
10.01 --Asset Purchase Agreement Among the Company, CSB, Fifth Dimension
Communications (Barbados) Inc., and Merlin Sierra, Inc.*
10.02 --Asset Purchase Agreement Among the Company, CSB, and 1043133 Ontario Inc.*
10.03 --Asset Purchase Agreement Among the Company, CSB, and 1248663 Ontario Inc.*
10.04 --Settlement and Stock and Warrant Transfer Agreement, dated June 16, 1998, by
and among the Company, BIG, Quarto Holdings, Inc., New Frontier Media,
Inc., Mark Kreloff, Michael Weiner, Andrew Brandt and Scott Wussow**
10.05 --Convertible Preferred Stock Purchase Agreement dated as of September 30,
1999, by and between the Company and JNC Opportunity Fund Ltd.*****
10.06 --Registration Rights Agreement dated as of September 30, 1999, by and between
the Company and JNC Opportunity Fund Ltd.*****
10.07 --Warrant Agreement dated as of September 30, 1999 by and between the Company
and JNC Opportunity Fund Ltd.*****
10.08 --Form of Warrant Agreement.*****
10.09 --Employment Agreement, dated December 22, 1998, by and between the Company
and Mark Kreloff.****
10.10 --Employment Agreement, dated December 22, 1998, by and between the Company
and Michael Weiner.****
10.11 --Office Lease Agreement, dated August 12, 1998, for premises at 5435 Airport
Boulevard, Boulder CO.***
10.12 --Content License Agreement with Pleasure Productions LLC****
21.01 --Subsidiaries of the Company***
23.01 --Consent of Spicer, Jefferies & Co.*****
23.02 --Consent of Thorburn, Sakol & Throne, counsel to the Company (included in
their opinion filed as Exhibit 5.01).
27.01 --Financial Data Schedule.***
</TABLE>
- ------------------------------------------------------------------------
* Incorporated by reference to the Company's Registration Statement on Form
SB-2 (File No. 333-35337)
** Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended March 31, 1998.
*** Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended March 31, 1999.
**** Incorporated by reference to the Company's Registration Statement No.
333-75733 on Form S-3 filed on April 6, 1999.
***** Filed with this Registration Statement.
II-5
EXHIBIT 4.02
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF 7% SERIES C CONVERTIBLE PREFERRED STOCK
OF
NEW FRONTIER MEDIA, INC.
New Frontier Media, Inc. (the "Company"), a corporation organized and existing
under the Business Corporation Act of the State of Colorado, does hereby certify
that, pursuant to authority conferred upon the Board of Directors of the Company
by the Certificate of Incorporation, as amended, of the Company, and pursuant to
Section 8.2 of the Business Corporation Act of the State of Colorado, the Board
of Directors of the Company at a meeting duly held, adopted resolutions (i)
authorizing a series of the Company's previously authorized preferred stock, par
value $0.10 per share, and (ii) providing for the designations, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of six hundred (600) shares of 7% Series C
Convertible Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 600 shares of 7% Series C
Convertible Preferred Stock (the "Preferred Shares"), par value $0.10 per share,
which shall have the following powers, designations, preferences and other
special rights:
Terms of Preferred Stock
Section 1. Designation, Amount and Par Value. The series of
preferred stock shall be designated as its 7% Series C Convertible Preferred
Stock (the "Preferred Stock") and the number of shares so designated shall be
600 (which shall not be subject to increase without the consent of the holders
of the Preferred Stock (each, a "Holder" and collectively, the "Holders")). Each
share of Preferred Stock shall have a par value of $.10 and a stated value equal
to the sum of $10,000 plus all accrued dividends to the date of determination to
the extent not previously paid in cash in accordance with the terms hereof (the
"Stated Value").
Section 2. Dividends.
(a) Holders shall be entitled to receive, out of funds legally
available therefor, and the Company shall pay, cumulative dividends at the rate
per share (as a percentage of the Stated Value per share) of 7% per annum,
payable on the Conversion Date (as defined herein) for such share and on each
December 31, March 31, June 30 and September 30 for so long as such share shall
be outstanding, commencing December 31, 1999 (each of a Conversion Date and such
quarterly dates are referred to herein as a "Dividend Payment Date") commencing
on the earlier to occur of such Conversion Date and December 31, 1999, in cash
or shares of Common Stock (as defined in Section 8). Subject to the terms and
conditions herein, the decision whether to pay dividends hereunder in Common
Stock or cash shall be at the discretion of the Company. The Company shall
provide the Holders written notice of its intention to pay dividends in cash or
shares of Common Stock not less than ten (10) days prior to each Dividend
Payment Date for so long as shares of Preferred Stock are outstanding. Failure
to timely provide such written notice shall be deemed (if permitted hereunder)
an election by the Company to pay
1
<PAGE>
dividends for such period in shares of Common Stock pursuant to the terms
hereof. Dividends on the Preferred Stock shall be calculated on the basis of a
360-day year, shall accrue daily commencing on the Original Issue Date (as
defined in Section 8), and shall be deemed to accrue from such date whether or
not earned or declared and whether or not there are profits, surplus or other
funds of the Company legally available for the payment of dividends. Except as
otherwise provided herein, if at any time the Company pays less than the total
amount of dividends then accrued on account of the Preferred Stock, such payment
shall be distributed ratably among the Holders based upon the number of shares
of Preferred Stock held by each Holder. Any dividends to be paid in cash
hereunder that are not paid within three (3) Trading Days (as defined in Section
8) following a Dividend Payment Date shall continue to accrue and shall entail a
late fee, which must be paid in cash, at the rate of 18% per annum or the lesser
rate permitted by applicable law (such fees to accrue daily, from the date such
dividend is due hereunder through and including the date of payment).
(b) Notwithstanding anything to the contrary contained herein,
the Company must pay dividends in cash if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes is insufficient to pay
such dividends in shares of Common Stock;
(ii) after the Dividend Effectiveness Date (as
defined in Section 8), Underlying Shares (as defined in Section 8) (x) are not
registered for resale pursuant to an effective Underlying Shares Registration
Statement (as defined in Section 8) or (y) may not be sold without volume
restrictions pursuant to Rule 144 promulgated under the Securities Act (as
defined in Section 8), as determined by counsel to the Company pursuant to a
written opinion letter, addressed to the Company's transfer agent in the form
and substance acceptable to the applicable Holder and such transfer agent (if
the Company is permitted and elects to pay dividends in shares of Common Stock
under this clause (ii) prior to the Dividend Effectiveness Date and thereafter
an Underlying Shares Registration Statement shall be declared effective by the
Commission (as defined in Section 8), the Company shall, within three (3)
Trading Days after the date of such declaration of effectiveness, exchange such
Underlying Shares for shares of Common Stock that are free of restrictive
legends of any kind);
(iii) the Common Stock is not then listed or quoted
on the Nasdaq SmallCap Market ("NASDAQ"), or on the New York Stock Exchange,
American Stock Exchange or Nasdaq National Market (each, a "Subsequent Market");
(iv) the Company has failed to timely satisfy its
conversion obligations hereunder; or
(v) the issuance of the Underlying Shares issuable as
payment of such dividend would result in a violation of Section 5(a)(iii) or the
rules of the Nasdaq Stock Market or any other rules and regulations governing
any Subsequent Market on which the Common Stock is then listed or quoted for
trading.
2
<PAGE>
(c) So long as any Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 8), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 5 or dividends due and paid in the ordinary course on
preferred stock of the Company at such times when the Company is in compliance
with its payment and other obligations hereunder) upon, nor shall any
distribution be made in respect of, any Junior Securities, nor shall any monies
be set aside for or applied to the purchase or redemption (through a sinking
fund or otherwise) of any Junior Securities or shares pari passu with the
Preferred Stock.
Section 3. Voting Rights. Except as otherwise provided herein
and as otherwise required by law, the Preferred Stock shall have no voting
rights. However, so long as any shares of Preferred Stock are outstanding, the
Company shall not, without the affirmative vote of the Holders of a majority of
the shares of the Preferred Stock then outstanding, (a) alter or change
adversely the powers, preferences or rights given to the Preferred Stock or
alter or amend this Certificate of Designation, (b) authorize or create any
class of stock ranking as to dividends or distribution of assets upon a
Liquidation (as defined in Section 4) senior to or otherwise pari passu with the
Preferred Stock, (c) amend its certificate of incorporation or other charter
documents so as to affect adversely any rights of the Holders, (d) increase the
authorized number of shares of Preferred Stock, or (e) enter into any agreement
with respect to the foregoing.
Section 4. Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the Holders shall be entitled to receive out of the assets of the Company,
whether such assets are capital or surplus, for each share of Preferred Stock an
amount equal to the Stated Value per share before any distribution or payment
shall be made to the holders of any Junior Securities, and if the assets of the
Company shall be insufficient to pay in full such amounts, then the entire
assets to be distributed to the Holders shall be distributed among the Holders
ratably in accordance with the respective amounts that would be payable on such
shares if all amounts payable thereon were paid in full. A sale, conveyance or
disposition of all or substantially all of the assets of the Company or the
effectuation by the Company of a transaction or series of related transactions
in which more than 33% of the voting power of the Company is disposed of, or a
consolidation or merger of the Company with or into any other company or
companies into one or more companies not wholly-owned by the Company shall not
be treated as a Liquidation, but instead shall be subject to the provisions of
Section 5. The Company shall mail written notice of any such Liquidation, not
less than 45 days prior to the payment date stated therein, to each record
Holder.
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Section 5. Conversion.
(a)(i) Conversions at Option of Holder. Each share of
Preferred Stock shall be convertible into shares of Common Stock (subject to the
limitations set forth in Section 5(a)(iii)), at the Conversion Ratio (as defined
in Section 8), at the option of the Holder at any time and from time to time
from and after the Original Issue Date. Holders shall effect conversions by
surrendering the certificate or certificates representing the shares of
Preferred Stock to be converted to the Company, together with the form of
conversion notice attached hereto as Exhibit A (a "Conversion Notice"). Each
Conversion Notice shall specify the number of shares of Preferred Stock to be
converted and the date on which such conversion is to be effected, which date
may not be prior to the date the Holder delivers such Conversion Notice by
facsimile (the "Conversion Date"). If no Conversion Date is specified in a
Conversion Notice, the Conversion Date shall be the date that the Conversion
Notice is deemed delivered hereunder. If the Holder is converting less than all
shares of Preferred Stock represented by the certificate or certificates
tendered by the Holder with the Conversion Notice, or if a conversion hereunder
cannot be effected in full for any reason, the Company shall promptly deliver to
such Holder (in the manner and within the time set forth in Section 5(b)) a
certificate representing the number of shares of Preferred Stock as have not
been converted.
(ii) Automatic Conversion. Subject to the
provisions of this paragraph and Section 5(a)(iii)(C) and (D), all outstanding
shares of Preferred Stock for which conversion notices have not previously been
received or for which redemption has not been made or required hereunder shall
be automatically converted on the third (3rd) anniversary of the Original Issue
Date for such shares at the then applicable Conversion Price (as defined
herein). The conversion contemplated by this paragraph shall not occur at such
time as (a)(1) an Underlying Shares Registration Statement is not then effective
or (2) the Holder is not permitted to resell Underlying Shares pursuant to Rule
144(k) promulgated under the Securities Act, without volume restrictions, as
evidenced by an opinion letter of counsel acceptable to the Holder and the
transfer agent for the Common Stock; (b) there are not sufficient shares of
Common Stock authorized and reserved for issuance upon such conversion; or (c)
the Company shall have defaulted on its covenants and obligations hereunder or
under the Purchase Agreement or Registration Rights Agreement (each as defined
in Section 8). Notwithstanding the foregoing, the three-year period for
conversion under this Section shall be extended (on a day-for-day basis) for any
Trading Days after the Effectiveness Date that a Holder is unable to resell
Underlying Shares under an Underlying Shares Registration Statement due to (a)
the Common Stock not being listed or quoted for trading on the NASDAQ or any
Subsequent Market, (b) the failure of such Underlying Shares Registration
Statement to be declared effective, or if so declared, to remain effective
during the Effectiveness Period (as defined in the Registration Rights
Agreement) as to all Underlying Shares, or (c) the suspension of the Holder's
right to resell Underlying Shares thereunder. The provisions of Sections
5(a)(iii)(A) and (B) shall not apply to any automatic conversion pursuant to
this Section 5(a)(ii).
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(iii) Certain Conversion Restrictions.
(A) A Holder may not convert shares of Preferred
Stock to the extent such conversion would result in the Holder, together with
any affiliate thereof, beneficially owning (as determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules promulgated thereunder) in excess of 4.999% of the then
issued and outstanding shares of Common Stock, including shares issuable upon
such conversion and held by such Holder after application of this Section. Since
the Holder will not be obligated to report to the Company the number of shares
of Common Stock it may hold at the time of a conversion hereunder, unless the
conversion at issue would result in the issuance of shares of Common Stock in
excess of 4.999% of the then outstanding shares of Common Stock without regard
to any other shares which may be beneficially owned by the Holder or an
affiliate thereof (including as a result of any other exercise or conversion of
other derivative or convertible instruments of the Company), the Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the shares of Preferred Stock are
convertible shall be the responsibility and obligation of the Holder. If the
Holder has delivered a Notice of Conversion for a number of shares of Preferred
Stock that would result in the issuance in excess of the permitted amount
hereunder, the Company shall notify the Holder of this fact and shall honor the
exercise for the maximum number of shares of Preferred Stock permitted to be
converted on such Conversion Date in accordance with the periods described
herein and disregard the balance of such Conversion Notice, as if never
delivered The provisions of this Section may be waived by a Holder (but only as
to itself and not to any other Holder) upon not less than 61 days prior notice
to the Company. Other Holders shall be unaffected by any such waiver.
(B) A Holder may not convert shares of Preferred
Stock to the extent such conversion would result in the Holder, together with
any affiliate thereof, beneficially owning (as determined in accordance with
Section 13(d) of the Exchange Act and the rules promulgated thereunder) in
excess of 9.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon such conversion and held by such Holder after
application of this Section. Since the Holder will not be obligated to report to
the Company the number of shares of Common Stock it may hold at the time of a
conversion hereunder, unless the conversion at issue would result in the
issuance of shares of Common Stock in excess of 9.999% of the then outstanding
shares of Common Stock without regard to any other shares which may be
beneficially owned by the Holder or an affiliate thereof (including as a result
of any other exercise or conversion of other derivative or convertible
instruments of the Company), the Holder shall have the authority and obligation
to determine whether the restriction contained in this Section will limit any
particular conversion hereunder and to the extent that the Holder determines
that the limitation contained in this Section applies, the determination of
which portion of the shares of Preferred Stock are convertible shall be the
responsibility and obligation of the Holder. If the Holder has delivered a
Notice of Conversion for a number of shares of Preferred Stock that would result
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in the issuance in excess of the permitted amount hereunder, the Company shall
notify the Holder of this fact and shall honor the exercise for the maximum
number of shares of Preferred Stock permitted to be converted on such Conversion
Date in accordance with the periods described herein and disregard the balance
of such Conversion Notice, as if never delivered. The provisions of this Section
may be waived by a Holder (but only as to itself and not to any other Holder)
upon not less than 61 days prior notice to the Company. Other Holders shall be
unaffected by any such waiver.
(C) A Holder may not receive shares of Common Stock
upon conversion of shares of Preferred Stock to the extent such conversion would
result in the Holder, together with any affiliate thereof, owning in excess of
its pro rata portion (based upon the percentage of all shares of Preferred Stock
acquired by it on the Original Issue Date) of 35% of the then issued and
outstanding shares of Common Stock, including shares issuable upon such
conversion and held by such Holder after application of this Section unless the
vote of the shareholders of the Company as may be required by the Rules of the
Nasdaq Stock Market, Inc. or the rules of any Subsequent Market on which the
Common Stock is then listed or quoted for trading shall have been obtained to
approve such an issuance. Shares previously delivered to a Holder in respect of
prior conversions of Preferred Stock but no longer owned by it shall not count
towards this amount.
(D) If the Common Stock is then listed for trading on
the NASDAQ or the Nasdaq National Market and the Company has not obtained the
Shareholder Approval (as defined below), then the Company may not issue in
excess of 2,722,259 shares of Common Stock upon conversions of Preferred Stock
and shares of Common Stock issuable as payment of dividends hereunder, which
number of shares of Common Stock shall be subject to adjustment pursuant to
Section 5(c)(ii)(b), (c) and (d) (such number of shares, the "Issuable
Maximum"). The Issuable Maximum equals 19.999% of the number of shares of Common
Stock outstanding immediately prior to the closing of transactions set forth in
the Purchase Agreement multiplied by the quotient obtained by dividing (x) the
number of shares of Preferred Stock issued and sold to the original Holder on
the Original Issue Date by (y) the number of shares of Preferred Stock issued
and sold by the Company on the Original Issue Date. If on any Conversion Date
(A) the shares of Common Stock are listed for trading on the NASDAQ or the
Nasdaq National Market, (B) the Conversion Price then in effect is such that the
aggregate number of shares of Common Stock that would then be issuable upon
conversion in full of all then outstanding shares of Preferred Stock (which
includes shares issuable on account of accrued dividends to be paid in shares of
stock), together with any shares of Common Stock previously issued upon
conversion of shares of Preferred Stock (which includes any shares issued to pay
accrued dividends in shares of Common Stock), would exceed the Issuable Maximum,
and (C) the Company shall not have previously obtained the vote of shareholders
(the "Shareholder Approval"), if any, as may be required by the applicable rules
and regulations of the Nasdaq Stock Market (or any successor entity) applicable
to approve the issuance of shares of Common Stock in excess of the Issuable
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Maximum pursuant to the terms hereof, then the Company shall issue to the Holder
requesting a conversion a number of shares of Common Stock equal to the Issuable
Maximum and, with respect to the remainder of the aggregate Stated Value of the
shares of Preferred Stock then held by such Holder for which a conversion
(including the portion of such conversion that would result in an issuance of
shares as payment of accrued dividends) in accordance with the Conversion Price
would result in an issuance of shares of Common Stock in excess of the Issuable
Maximum (the "Excess Stated Value"), the converting Holder shall have the option
to require the Company to either (1) use its best efforts to obtain the
Shareholder Approval applicable to such issuance as soon as is possible, but in
any event not later than the 60th day after such request, or (2) pay cash to the
converting Holder in an amount equal to the Mandatory Redemption Amount (as
defined in Section 8) for the Excess Stated Value. If the converting Holder
shall have elected the first option pursuant to the immediately preceding
sentence and the Company shall have failed to obtain the Shareholder Approval on
or prior to the 60th day after such request, then within three (3) days of such
60th day, the Company shall pay cash to the converting Holder an amount equal to
the Mandatory Redemption Amount for the Excess Stated Value. If the Company
fails to pay the Mandatory Redemption Amount in full pursuant to this Section
within seven (7) days after the date payable, the Company will pay interest
thereon at a rate of 18% per annum or such lesser maximum amount that is
permitted to be paid by applicable law, to the converting Holder, accruing daily
from the Conversion Date until such amount, plus all such interest thereon, is
paid in full. The Company and the Holder understand and agree that shares of
Common Stock issued to and then held by the Holder as a result of conversions of
Preferred Stock shall not be entitled to cast votes on any resolution to obtain
Shareholder Approval pursuant hereto.
(b)(i) Not later than three (3) Trading Days after each
Conversion Date, the Company will deliver to the Holder (A) a certificate or
certificates which shall be free of restrictive legends and trading restrictions
(other than those required by Section 3.1(b) of the Purchase Agreement)
representing the number of shares of Common Stock being acquired upon the
conversion of shares of Preferred Stock (subject to the limitations set forth in
Section 5(a)(iii) hereof), (B) one or more certificates representing the number
of shares of Preferred Stock not converted and (C) a bank check in the amount of
accrued and unpaid dividends (if the Company has elected or is required to pay
accrued dividends in cash). Notwithstanding the foregoing or anything to the
contrary contained herein, the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon conversion of
any shares of Preferred Stock until one (1) Trading Day after certificates
evidencing such shares of Preferred Stock are delivered for conversion to the
Company, or the Holder of such Preferred Stock notifies the Company that such
certificates have been lost, stolen or destroyed and provides a bond (or other
adequate security) reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection therewith. The Company shall,
upon request of the Holder, if available, use its best efforts to deliver any
certificate or certificates required to be delivered by the Company under this
Section electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions. If in the case of
any Conversion Notice such certificate or certificates are not delivered to or
as directed by the applicable Holder by the third (3rd) Trading Day after the
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Conversion Date, the Holder shall be entitled to elect by written notice to the
Company at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the certificates representing the shares of Preferred Stock
tendered for conversion.
(ii) If the Company fails to deliver to the Holder
such certificate or certificates pursuant to Section 5(b)(i), by the third (3rd)
Trading Day after the Conversion Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, $5,000 for each Trading Day
after such third (3rd) Trading Day until such certificates are delivered.
Nothing herein shall limit a Holder's right to pursue actual damages for the
Company's failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such Holder shall have
the right to pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.
(iii) In addition to any other rights available to
the Holder, if the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 5(b)(i), by the third (3rd) Trading Day after
the Conversion Date, and if after such third (3rd) Trading Day the Holder
purchases (in an open market transaction or otherwise) Common Stock to deliver
in satisfaction of a sale by such Holder of the Underlying Shares which the
Holder was entitled to receive upon such conversion (a "Buy-In"), then the
Company shall (A) pay in cash to the Holder the amount by which (x) the Holder's
total purchase price (including brokerage commissions, if any) for the Common
Stock so purchased exceeds (y) the product of (1) the aggregate number of shares
of Common Stock that such Holder was entitled to receive from the conversion at
issue multiplied by (2) the market price of the Common Stock at the time of the
sale giving rise to such purchase obligation and (B) at the option of the
Holder, either return the shares of Preferred Stock for which such conversion
was not honored or deliver to such Holder the number of shares of Common Stock
that would have been issued had the Company timely complied with its conversion
and delivery obligations under Section 5(b)(i). For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of shares of Preferred Stock with
respect to which the market price of the Underlying Shares on the date of
conversion totaled $10,000, under clause (A) of the immediately preceding
sentence the Company shall be required to pay the Holder $1,000. The Holder
shall provide the Company written notice indicating the amounts payable to the
Holder in respect of the Buy-In. Nothing herein shall limit a Holder's right to
pursue actual damages for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.
(c)(i) The conversion price for each share of Preferred Stock
in effect on any Conversion Date (the "Conversion Price") shall be determined,
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subject to the provisions of this Section, as follows: Initially, the Conversion
Price shall equal $7.87 (the "Fixed Conversion Price"). On the sixth (6th) month
anniversary of the Original Issue Date and on each subsequent third (3rd) month
anniversary thereof (the sixth (6th) month anniversary of the Original Issue
Date and each third (3rd) month anniversary thereof, collectively, a "Reset
Date"), the Conversion Price shall reset to the lesser of the Fixed Conversion
Price and the lowest Reset Conversion Price (as defined below) calculated
hereunder. A "Reset Conversion Price" shall be determined on each Reset Date and
shall equal 95% of the average of the five (5) lowest Average Prices during the
ten (10) Trading Days preceding the applicable Reset Date, provided, that such
ten (10) Trading Day period shall be extended for the number of Trading Days
during such period in which (A) trading in the Common Stock is suspended by the
NASDAQ or a Subsequent Market on which the Common Stock is then listed, or (B)
after the date declared effective by the Commission, the Underlying Shares
Registration Statement is not effective, or (C) after the date declared
effective by the Commission, the Prospectus included in the Underlying Shares
Registration Statement may not be used by the Holder for the resale of
Underlying Shares.
If (a) an Underlying Shares Registration Statement is not
filed on or prior to the Filing Date (as defined under the Registration Rights
Agreement) (if the Company files such Underlying Shares Registration Statement
without affording the Holder the opportunity to review and comment on the same
as required by Section 3(a) of the Registration Rights Agreement, the Company
shall not be deemed to have satisfied this clause (a)), or (b) the Company fails
to file with the Commission a request for acceleration in accordance with Rule
12d1-2 promulgated under the Exchange Act, within five (5) days of the date that
the Company is notified (orally or in writing, whichever is earlier) by the
Commission that an Underlying Shares Registration Statement will not be
"reviewed," or not subject to further review, or (c) the Underlying Shares
Registration Statement is not declared effective by the Commission on or prior
to the Effectiveness Date, or (d) such Underlying Shares Registration Statement
is filed with and declared effective by the Commission but thereafter ceases to
be effective as to all Registrable Securities (as defined in the Registration
Rights Agreement) at any time prior to the expiration of the Effectiveness
Period (as defined in the Registration Rights Agreement), without being
succeeded within ten (10) days by an amendment to such Underlying Shares
Registration Statement or by a subsequent Underlying Shares Registration
Statement filed with and declared effective by the Commission, or (e) the Common
Stock shall be delisted or suspended from trading on the NASDAQ or on any
Subsequent Market for more than three (3) days (which need not be consecutive
days), or (f) the conversion rights of the Holders are suspended for any reason,
or (g) an amendment to the Underlying Shares Registration Statement is not filed
by the Company with the Commission within ten (10) days of the Commission's
notifying the Company that such amendment is required in order for the
Underlying Shares Registration Statement to be declared effective (any such
failure or breach being referred to as an "Event," and for purposes of clauses
(a), (c), (f) the date on which such Event occurs, or for purposes of clause (b)
the date on which such five (5) day period is exceeded, or for purposes of
clauses (d) and (g) the date which such 10 day-period is exceeded, or for
purposes of clause (e) the date on which such three day-period is exceeded,
being referred to as "Event Date"), then, other than with respect to an Event
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pursuant to Section 5(c)(i)(e) hereof, on the Event Date and each monthly
anniversary thereof until the applicable Event is cured, the Company shall pay
to the Holder 2.0% of the aggregate Stated Values of the shares of Preferred
Stock then held by such Holder (which, for purposes hereof shall include all
shares of Preferred Stock tendered for conversion by such Holder but for which
Underlying Shares due in respect thereof shall not have been received by such
Holder), in cash, as liquidated damages and not as a penalty. On the occurrence
of an Event Date pursuant to Section 5(c)(i)(e) hereof, the Company shall, on
such Event Date and each monthly anniversary thereof until such time as the
applicable Event pursuant to Section 5(c)(i)(e) hereof is cured, pay to the
Holder $1,500 in cash, as liquidated damages and not as a penalty. If the
Company fails to pay any liquidated damages pursuant to this Section in full
within seven (7) days after the date payable, the Company will pay interest
thereon at a rate of 18% per annum (or such lesser maximum amount that is
permitted to be paid by applicable law) to the Holder, accruing daily from the
date such liquidated damages are due until such amounts, plus all such interest
thereon, are paid in full. The liquidated damages pursuant to the terms hereof
shall apply on a pro-rata basis for any portion of a month prior to the cure of
an Event. The provisions of this Section are not exclusive and shall in no way
limit the Company's obligations under the Registration Rights Agreement.
(ii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall (a) pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities or pari
passu securities payable in shares of Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine outstanding
shares of Common Stock into a smaller number of shares, or (d) issue by
reclassification and exchange of the Common Stock any shares of capital stock of
the Company, then the Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding after such event. Any adjustment made pursuant to this
Section 5(c)(ii) shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification. The Company may not
pay any stock dividends or otherwise make any distribution on shares of its
Junior Securities or pari passu securities that are payable in shares of Common
Stock unless the Company shall have obtained the Shareholder Approval
contemplated in Section 5(a)(iii)(D).
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights, warrants or options to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value at the
record date mentioned below, then the Conversion Price shall be multiplied by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such rights, warrants or
options, plus the number of shares of Common Stock which the aggregate offering
price of the total number of shares so offered would purchase at such Per Share
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Market Value, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of Common Stock offered for subscription or purchase. Such
adjustment shall be made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right, warrant or option to purchase shares of Common Stock
the issuance of which resulted in an adjustment in the Conversion Price pursuant
to this Section 5(c)(iii), if any such right, warrant or option shall expire and
shall not have been exercised, the Conversion Price shall immediately upon such
expiration shall be recomputed and effective immediately upon such expiration
shall be increased to the price which it would have been (but reflecting any
other adjustments in the Conversion Price made pursuant to the provisions of
this Section 5 upon the issuance of other rights or warrants) had the adjustment
of the Conversion Price made upon the issuance of such rights, warrants, or
options been made on the basis of offering for subscription or purchase only
that number of shares of Common Stock actually purchased upon the exercise of
such rights, warrants or options actually exercised. The Company may not issue
any rights, warrants or options as described in this sub-Section unless the
Company shall have obtained the Shareholder Approval contemplated in Section
5(a)(iii)(D).
(iv) If the Company or any subsidiary thereof, as
applicable with respect to Common Stock Equivalents (as defined below), at any
time while any shares of Preferred Stock are outstanding, shall issue shares of
Common Stock or rights, warrants, options or other securities or debt that is
convertible into or exchangeable for shares of Common Stock ("Common Stock
Equivalents"), entitling any Person to acquire shares of Common Stock at a price
per share less than the Conversion Price (if the holder of the Common Stock or
Common Stock Equivalent so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights issued in
connection with such issuance at a price less than the prevailing Conversion
Price, such issuance shall be deemed to have occurred for less than the
Conversion Price), then the Conversion Price shall be multiplied by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such Common Stock or such Common Stock
Equivalents plus the number of shares of Common Stock which the offering price
for such shares of Common Stock or Common Stock Equivalents would purchase at
the Conversion Price, and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior to such issuance
plus the number of shares of Common Stock so issued or issuable, provided, that
for purposes hereof, all shares of Common Stock that are issuable upon
conversion, exercise or exchange of Common Stock Equivalents shall be deemed
outstanding immediately after the issuance of such Common Stock Equivalents.
Such adjustment shall be made whenever such Common Stock or Common Stock
Equivalents are issued. However, upon the expiration of any Common Stock
Equivalents the issuance of which resulted in an adjustment in the Conversion
Price pursuant to this Section, if any such Common Stock Equivalents shall
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expire and shall not have been exercised, the Conversion Price shall immediately
upon such expiration be recomputed and effective immediately upon such
expiration be increased to the price which it would have been (but reflecting
any other adjustments in the Conversion Price made pursuant to the provisions of
this Section after the issuance of such Common Stock Equivalents) had the
adjustment of the Conversion Price made upon the issuance of such Common Stock
Equivalents been made on the basis of offering for subscription or purchase only
that number of shares of the Common Stock actually purchased upon the exercise
of such Common Stock Equivalents actually exercised. Notwithstanding anything
herein to the contrary, the following shall not be subject to the provisions of
this Section: (1) issuances of any stock or stock options under any employee
benefit plan of the Company whether now existing or approved by the Company and
its stockholders in the future, (2) the rights, options and warrants outstanding
prior to the Original Issue Date and specified in Schedule 2.1(c) to the
Purchase Agreement, but not any modifications thereof, (3) the issuance of
shares of Common Stock in payment of the purchase price of a Strategic
Transaction (as defined below) and (4) the issuance of up to an aggregate of
300,000 shares of Common Stock in settlement of any litigation, provided, that
any shares of Common Stock issuable pursuant to subsections (3) and (4) herein
shall not be entitled to be registered for resale and shall not be permitted to
be resold or otherwise disposed of by the holders thereof, in each case, prior
to the ninetieth (90th) Trading Day following the date that an Underlying Shares
Registration Statement is declared effective by the Commission, provided,
further, that such ninety (90) Trading Day period shall be extended for the
number of Trading Days during such period in which (A) trading in the Common
Stock is suspended by the NASDAQ or a Subsequent Market on which the Common
Stock is then listed, or (B) the Underlying Shares Registration Statement is not
effective, or (C) the Prospectus included in the Underlying Shares Registration
Statement may not be used by the Holder for the resale of Underlying Shares. For
purposes of this Section, a "Strategic Transaction" shall mean a transaction or
relationship in which the Company issues shares of Common Stock to an entity
which is, itself or through its subsidiaries, an operating company in a business
related to the business of the Company and in which the Company receives
material benefits in addition to the investment of funds, but shall not include
a transaction in which the Company is issuing securities primarily for the
purpose of raising capital.
(v) If the Company, at any time while shares of
Preferred Stock are outstanding, shall distribute to all holders of Common Stock
(and not to Holders) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred to
in Sections 5(c)(ii)-(iv) above), then in each such case the Conversion Price at
which each share of Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect immediately prior to
the record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per Share
Market Value determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value on such record date less the then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding shares of Common
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Stock as determined by the Board of Directors in good faith; provided, that in
the event of a distribution exceeding ten percent (10%) of the net assets of the
Company, if the Holders of a majority in interest of the Preferred Stock dispute
such valuation, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) (an "Appraiser")
selected in good faith by the Holders of a majority in interest of the shares of
Preferred Stock then outstanding; and provided, further, that the Company, after
receipt of the determination by such Appraiser shall have the right to select an
additional Appraiser, in good faith, in which case the fair market value shall
be equal to the average of the determinations by each such Appraiser. In either
case the adjustments shall be described in a statement provided to the Holders
of the portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above. The Company may not
distribute evidences of its indebtedness or assets or rights or warrants for
subscription as described in this sub-Section unless the Company shall have
obtained the Shareholder Approval contemplated in Section 5(a)(iii)(D).
(vi) All calculations under this Section 5 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Conversion Price is adjusted
pursuant to Section 5(c)(ii),(iii),(iv), or (v) the Company shall promptly mail
to each Holder, a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(viii) In case of any reclassification of the Common
Stock, or any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property (other than compulsory share
exchanges which constitute Change of Control Transactions), the Holders of the
Preferred Stock then outstanding shall have the right thereafter to convert such
shares only into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
reclassification or share exchange, and the Holders of the Preferred Stock shall
be entitled upon such event to receive such amount of securities, cash or
property as a holder of the number of shares of Common Stock of the Company into
which such shares of Preferred Stock could have been converted immediately prior
to such reclassification or share exchange would have been entitled. This
provision shall similarly apply to successive reclassifications or share
exchanges. The Company may not reclassify the Common Stock or approve a
compulsory share exchange as described in this sub-Section unless the Company
shall have obtained the Shareholder Approval contemplated in Section
5(a)(iii)(D).
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(ix) In case of any (1) merger or consolidation of
the Company with or into another Person that would constitute a Change of
Control Transaction, or (2) sale by the Company of more than one-half of the
assets of the Company (on an as valued basis) in one or a series of related
transactions, or (3) tender or other offer or exchange (whether by the Company
or another Person) pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, stock, cash or property of
the Company or another Person, a Holder shall have the right thereafter to (A)
convert its shares of Preferred Stock into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger, consolidation or sale, and such Holder shall
be entitled upon such event or series of related events to receive such amount
of securities, cash and property as the shares of Common Stock into which such
shares of Preferred Stock could have been converted immediately prior to such
merger, consolidation or sales would have been entitled, (B) in the case of a
merger or consolidation, (x) require the surviving entity to issue shares of
convertible preferred stock or convertible debentures with such aggregate stated
value or in such face amount, as the case may be, equal to the Stated Value of
the shares of Preferred Stock then held by such Holder, plus all accrued and
unpaid dividends and other amounts owing thereon, which newly issued shares of
preferred stock or debentures shall have terms identical (including with respect
to conversion) to the terms of the Preferred Stock (except, in the case of
debentures, as may be required to reflect the differences between debt and
equity) and shall be entitled to all of the rights and privileges of a Holder of
Preferred Stock set forth herein and the agreements pursuant to which the
Preferred Stock was issued (including, without limitation, as such rights relate
to the acquisition, transferability, registration and listing of such shares of
stock other securities issuable upon conversion thereof), and (y) simultaneously
with the issuance of such convertible preferred stock or convertible debentures,
shall have the right to convert such instrument only into shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger or consolidation, or (C) in the
event of an exchange or tender offer or other transaction contemplated by clause
(3) of this Section, tender or exchange its shares of Preferred Stock for such
securities, stock, cash and other property receivable upon or deemed to be held
by holders of Common Stock that have tendered or exchanged their shares of
Common Stock following such tender or exchange, and such Holder shall be
entitled upon such exchange or tender to receive such amount of securities, cash
and property as the shares of Common Stock into which such shares of Preferred
Stock could have been converted (taking into account all then accrued and unpaid
dividends) immediately prior to such tender or exchange would have been entitled
as would have been issued. In the case of clause (B), the conversion price
applicable for the newly issued shares of convertible preferred stock or
convertible debentures shall be based upon the amount of securities, cash and
property that each share of Common Stock would receive in such transaction, the
Conversion Ratio immediately prior to the effectiveness or closing date for such
transaction and the Conversion Price stated herein. The terms of any such
merger, sale, consolidation, tender or exchange shall include such terms so as
continue to give the Holders of Preferred Stock the right to receive the
securities, cash and property set forth in this Section upon any conversion or
redemption following such event. This provision shall similarly apply to
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<PAGE>
successive such events. The rights set forth in this Section 5(c)(ix) shall not
alter the rights of a Holder set forth in Section 7, provided, that, a Holder
may only exercise the rights set forth in this Section 5(c)(ix) or the rights
set forth in Section 7 with respect to a single event giving rise to such
rights.
(x) If (a) the Company shall declare a dividend (or
any other distribution) on the Common Stock, (b) the Company shall declare a
special nonrecurring cash dividend on or a redemption of the Common Stock, (c)
the Company shall authorize the granting to all holders of Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights, (d) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share of exchange whereby the Common Stock is converted into other
securities, cash or property, or (e) the Company shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Company; then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of Preferred Stock, and shall cause to
be mailed to the Holders at their last addresses as they shall appear upon the
stock books of the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y) the
date on which such reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share
exchange. Holders are entitled to convert shares of Preferred Stock during the
20-day period commencing the date of such notice to the effective date of the
event triggering such notice.
(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of Common Stock
solely for the purpose of issuance upon conversion of Preferred Stock and
payment of dividends on Preferred Stock, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holders, not less than such number of shares of Common Stock as
shall be issuable (taking into account the provisions of Section 5(a) and
Section 5(c)) upon the conversion of all outstanding shares of Preferred Stock.
The Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
15
<PAGE>
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. If
the Company elects not, or is unable, to make such a cash payment, the Holder of
a share of Preferred Stock shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for Common Stock on
conversion of Preferred Stock shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such shares of Preferred
Stock so converted.
(g) Shares of Preferred Stock converted into Common Stock or
redeemed in accordance with the terms hereof shall be canceled and may not be
reissued.
(h) Any and all notices or other communications or deliveries
to be provided by the Holders of the Preferred Stock hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight courier
service, addressed to the attention of the Chief Financial Officer of the
Company addressed to 5435 Airport Blvd., Suite 100, Boulder, CO 80301 or to
facsimile number (303) 413-0553, or to such other address or facsimile number as
shall be specified in writing by the Company for such purpose. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile or sent by
a nationally recognized overnight courier service, addressed to each Holder at
the facsimile telephone number or address of such Holder appearing on the books
of the Company, or if no such facsimile telephone number or address appears, at
the principal place of business of the Holder. Any notice or other communication
or deliveries hereunder shall be deemed given and effective on the earliest of
(i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
6:30 p.m. (New York City time), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) upon receipt, if sent by a nationally recognized overnight courier
service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.
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<PAGE>
Section 6. Optional Redemption. (a) Subject to provisions of
this Section 6, from and after the Original Issue Date, the Company shall have
the right, upon ten (10) Trading Days' notice (an "Optional Redemption Notice")
to the Holders, to redeem all or any portion of the shares of Preferred Stock
which have not previously been redeemed or for which Conversion Notices shall
not have been delivered, at a price equal to the Optional Redemption Price (as
defined below). In addition to the requirements set forth in the first sentence
of this section, the Company may only deliver an Optional Redemption Notice if:
(i) the number of shares of Common Stock at the time authorized, unissued and
unreserved for all purposes is sufficient to satisfy the Company's conversion
obligations of all shares of Preferred Stock then outstanding, (ii) the
Underlying Shares then outstanding are registered for resale pursuant to an
effective Underlying Shares Registration Statement pursuant to which the Holders
are permitted to utilize to sell Underlying Shares, and (iii) the Common Stock
is listed for trading on the NASDAQ or on a Subsequent Market. Each of clauses
(i) - (iii) of the immediately preceding sentence must be true during the entire
ten (10) Trading Days between the date of delivery of an Optional Redemption
Notice and the date of payment of the Optional Redemption Price. The entire
Optional Redemption Price shall be paid in cash. A Holder may, subject to
Section 5(a)(i) hereof, convert (and the Company shall honor such conversions in
accordance with the terms hereof) any or all of the shares of Preferred Stock
subject to an Optional Redemption Notice, provided that the Conversion Notice
for such shares is delivered prior to the 9th Trading Day following the receipt
by such Holder of such an Optional Redemption Notice.
(b) Failure by the Company to pay any portion of the Optional
Redemption Price by the 10th (tenth) Trading Day following the date of an
Optional Redemption Notice shall result in the invalidation ab initio of the
unpaid portion of such optional redemption, and, notwithstanding anything herein
to the contrary, the Company shall thereafter have no further rights to
optionally redeem any shares of Preferred Stock. In such event, the Company
shall, at the option of the Holder, either, (i) not later than three (3) Trading
Days from receipt of Holder's request for such election, return to the Holder
all of the shares of Preferred Stock for which such Optional Redemption Price
has not been paid in full (the "Unpaid Redemption Shares") or (ii) convert of
all or any portion of the Unpaid Redemption Shares in which event the Per Share
Market Value for such shares shall be the lower of the Per Share Market Value
calculated on the date the Optional Redemption Price was originally due and the
Per Share Market Value as of the Holder's written demand for conversion. If the
Holder elects option (ii) above, the Company shall within three (3) Trading Days
of its receipt of such election deliver to the Holder the shares of Common Stock
issuable upon conversion of the Unpaid Redemption Shares subject to such Holder
conversion demand and otherwise perform its obligations hereunder with respect
thereto.
(c) The "Optional Redemption Price" shall equal the sum of the
sum of (i) the greater of (A) 115% of the aggregate of the Stated Value of the
shares of Preferred Stock to be redeemed and (B) the product of (x) the number
of shares of Preferred Stock to be redeemed and (y) the product of (1) the Per
Share Market Value on (I) the 10th Trading Day following the date of the
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<PAGE>
Optional Redemption Notice or (II) the date of payment in full by the Company of
the Optional Redemption Price, whichever is greater, and (2) the Conversion
Ratio calculated on the 10th Trading Day following the date of the Optional
Redemption Notice, and (ii) all other amounts, costs, expenses and liquidated
damages due in respect of such shares of Preferred Stock.
Section 7. Redemption Upon Triggering Events.
(a) Upon the occurrence of a Triggering Event, each Holder
shall (in addition to all other rights it may have hereunder or under applicable
law), have the right, exercisable at the sole option of such Holder, to require
the Company to redeem all or a portion of the Preferred Stock then held by such
Holder for a redemption price, in cash, equal to the sum of (i) the Mandatory
Redemption Amount plus (ii) the product of (A) the number of Underlying Shares
issued in respect of conversions hereunder and then held by the Holder and (B)
the Per Share Market Value on the date such redemption is demanded or the date
the redemption price hereunder is paid in full, whichever is greater (such sum,
the "Redemption Price"). The Redemption Price shall be due and payable within
five (5) Trading Days of the date on which the notice for the payment therefor
is provided by a Holder. If the Company fails to pay the Redemption Price
hereunder in full pursuant to this Section on the date such amount is due in
accordance with this Section, the Company will pay interest thereon at a rate of
18% per annum (or the lesser amount permitted by applicable law), accruing daily
from such date until the Redemption Price, plus all such interest thereon, is
paid in full. For purposes of this Section, a share of Preferred Stock is
outstanding until such date as the Holder shall have received Underlying Shares
upon a conversion (or attempted conversion) thereof that meets the requirements
hereof.
A "Triggering Event" means any one or more of the following
events (whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
(i) the failure of an Underlying Shares Registration
Statement to be declared effective by the Commission on or prior to the 180th
day after the Original Issue Date;
(ii) if, during the Effectiveness Period, the
effectiveness of the Underlying Shares Registration Statement lapses for any
reason for more than an aggregate of three (3) Trading Days, or the Holder shall
not be permitted to resell Registrable Securities under the Underlying Shares
Registration Statement for more than an aggregate of three (3) Trading Days
(which need not be consecutive Trading Days);
(iii) the failure of the Common Stock to be listed
for trading on the NASDAQ or on a Subsequent Market or the suspension of the
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<PAGE>
Common Stock from trading on the NASDAQ or on a Subsequent Market, in either
case, for more than three (3) Trading Days (which need not be consecutive
Trading Days);
(iv) the Company shall fail for any reason to deliver
certificates representing Underlying Shares issuable upon a conversion hereunder
that comply with the provisions hereof prior to the tenth (10th) day after the
Conversion Date or the Company shall provide notice to any Holder, including by
way of public announcement, at any time, of its intention not to comply with
requests for conversion of any Preferred Stock in accordance with the terms
hereof;
(v) the Company shall be a party to any Change of
Control Transaction, shall agree to sell (in one or a series of related
transactions) all or substantially all of its assets (whether or not such sale
would constitute a Change of Control Transaction) or shall redeem more than a de
minimis number of Common Stock or other Junior Securities (other than
redemptions of Underlying Shares);
(vi) an Event shall not have been cured to the
satisfaction of the Holders prior to the expiration of sixty (60) days from the
Event Date relating thereto (other than an Event pursuant to Section 5(c)(i)(c)
hereof) or any material term of this security shall have been breached without
having been cured to the reasonable satisfaction of the Holder within five (5)
days of notice of such breach (the provisions of Section 5(c) are material for
these purposes);
(vii) the Company shall fail for any reason to pay in
full the amount of cash due pursuant to a Buy-In within seven (7) days after
notice therefor is delivered hereunder;
(viii) the Company shall fail to have available a
sufficient number of authorized and unreserved shares of Common Stock to issue
to such Holder upon a conversion hereunder;
(xix) the Company shall fail to obtain the vote of
its shareholders at the Company's shareholder meeting to be held on October 27,
1999 to required to approve the acquisition by the Company of the all of the
outstanding stock of Interactive Gallery, Inc. (the "Gallery Acquisition"); or
(x) within five (5) Trading Days following the
closing of the Gallery Acquisition, if any, the Company shall fail to execute a
lock-up agreement with each recipient of the shares of Common Stock received in
consideration for the Gallery Acquisition (the "Gallery Shares"), which lock-up
agreement shall restrict such recipient, for a period of not less than one (1)
year from the closing of the Gallery Acquisition, from, directly or indirectly,
offering to selling, contracting to sell or otherwise selling, disposing of,
loaning, pledging or granting any rights with respect to the Gallery Shares.
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Section 8. Definitions. For the purposes hereof, the
following terms shall have the following meanings:
"Average Price"means on any Trading Day, the daily volume
weighted average price of the Common Stock on the NASDAQ or a Subsequent Market
as reported by Bloomberg Financial Services, Inc. (or any successor to its
function of reporting stock prices) using the AQR function.
"Change of Control Transaction" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 33% of the
voting securities of the Company, (ii) a replacement at one time or over time of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), (iii) the merger of the Company with or into
another entity that is not wholly-owned by the Company, consolidation or sale of
all or substantially all of the assets of the Company in one or a series of
related transactions, or (iv) the execution by the Company of an agreement to
which the Company is a party or by which it is bound, providing for any of the
events set forth above in (i), (ii) or (iii).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, par value
$.0001 per share, and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, the
numerator of which is Stated Value and the denominator of which is the
Conversion Price at such time.
"Dividend Effectiveness Date" means the earlier to occur of
(x) the Effectiveness Date (as defined in the Registration Rights Agreement) and
(y) the date that an Underlying Shares Registration Statement is declared
effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Junior Securities" means the Common Stock and all other
equity securities of the Company other than those securities that are
outstanding on the Original Issue Date and which are explicitly senior in rights
or liquidation preference to the Preferred Stock.
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<PAGE>
"Mandatory Redemption Amount" for each share of Preferred
Stock means the sum of (i) the greater of (A) 120% of the Stated Value and (B)
the product of (a) the Per Share Market Value on the Trading Day immediately
preceding (x) the date of the Triggering Event or the Conversion Date, as the
case may be, or (y) the date of payment in full by the Company of the applicable
redemption price, whichever is greater, and (b) the Conversion Ratio calculated
on the date of the Triggering Event, or the Conversion Date, as the case may be,
and (ii) all other amounts, costs, expenses and liquidated damages due in
respect of such share of Preferred Stock.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the number of
transfers of any particular shares of Preferred Stock and regardless of the
number of certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of Common Stock on such date on the NASDAQ or on the
Subsequent Market on which the Common Stock is then listed or quoted, or if
there is no such price on such date, then the closing bid price on the NASDAQ or
on such Subsequent Market on the date nearest preceding such date, or (b) if the
Common Stock is not then listed or quoted on the NASDAQ or on a Subsequent
Market, the closing bid price for a shares of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices),
then the average of the "Pink Sheet" quotes for the relevant conversion period,
as determined in good faith by the Holder, or (d) if the Common Stock are not
then publicly traded the fair market value of a share of Common Stock as
determined by an Appraiser selected in good faith by the Holders of a majority
of the shares of the Preferred Stock.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock
Purchase Agreement, dated as of the Original Issue Date, between the Company and
the original Holder, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder, as amended, modified or supplemented from time to time in
accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended.
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"Trading Day" means (a) a day on which the Common Stock is
traded on the NASDAQ or on the Subsequent Market on which the Common Stock is
then listed or quoted, as the case may be, or (b) if the Common Stock is not
listed on the NASDAQ or on a Subsequent Market, a day on which the Common Stock
is traded in the over-the-counter market, as reported by the OTC Bulletin Board,
or (c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however, that in
the event that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.
"Underlying Shares" means, collectively, the shares of Common
Stock into which the Shares are convertible and the shares of Common Stock
issuable upon payment of dividends thereon in accordance with the terms hereof.
"Underlying Shares Registration Statement" means a
registration statement that meets the requirements of the Registration Rights
Agreement and registers the resale of all Underlying Shares by the Holder, who
shall be named as a "selling stockholder" thereunder.
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<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of 7% Series C
Convertible Preferred Stock indicated below, into shares of Common Stock, par
value $.0001 per share (the "Common Stock"), of New Frontier Media, Inc., a
Colorado corporation (the "Company"), according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the Holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations:
-----------------------------------------
Date to Effect Conversion
-----------------------------------------
Number of shares of Preferred Stock to be
Converted
-----------------------------------------
Stated Value of shares of Preferred Stock
to be Converted
-----------------------------------------
Number of shares of Common Stock to be
Issued
-----------------------------------------
Applicable Conversion Price
-----------------------------------------
Signature
-----------------------------------------
Name
-----------------------------------------
Address
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IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Mark Kreloff, its President and Chief Executive
Officer, on this 13th day of October, 1999.
ISSUER
By: _______________________________
Name: Mark Kreloff
Its: President and Chief
Executive Officer
24
Exhibit 5.01
<PAGE>
Thorburn, Sakol & Throne
an Association of Professional Corporations
Attorneys and Counsellors at Law
255 Canyon Boulevard at Cloud Creek
Suite 100
Boulder, Colorado 80302-4920
Telephone (303) 449-1873
Telefax (303) 447-9840
November 12, 1999
Board of Directors
New Frontier Media, Inc.
5435 Airport Blvd., Suite 100
Boulder, Co 80301
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
At your request, this letter relates to the Registration Statement on
Form S-3 filed by New Frontier Media, Inc. (the "Company") with the Securities
and Exchange Commission on November 12, 1999 (the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as amended,
of 2,059,180 shares of common stock (herein, the "Shares").
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the proceedings taken by the
Company in connection with the issuance of the Shares, the Registration
Statement and such corporate records, agreements, documents and other
instruments, and such certificates or comparable documents of public officials
and of officers and representatives of the Company, and have made such inquiries
of such officers and representatives, as we have deemed relevant or necessary as
a basis for the opinions hereinafter set forth.
In such examination, we have assumed without independent verification,
the genuineness of all signatures, the authenticity of all documents submitted
to us as originals, the conformity to original documents of documents submitted
to us as certified or photostatic copies and the authenticity of the originals
of such latter documents. As to all questions of fact material to this opinion
that have not been independently established, we have relied upon
representations of the Company in the Registration Statement, certificates or
comparable documents of officers of the Company and of public officials.
Based on the foregoing, and subject to the qualifications stated
herein, as of the date hereof, it is our opinion that such Shares, upon due
conversion of the Company's 7% Series C Convertible Preferred Stock, will be
validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Thorburn, Sakol & Throne
Thorburn, Sakol & Throne
EXHIBIT 10.05
<PAGE>
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement"),
dated as of September 30, 1999, among New Frontier Media, Inc., a Colorado
corporation (the "Company"), and the investors signatory hereto (each such
investor is a "Purchaser" and all such investors are, collectively, the
"Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers and the
Purchasers, severally and not jointly, desire to purchase from the Company,
shares of the Company's 7% Series C Convertible Preferred Stock, par value $.10
per share (the "Preferred Stock"), which are convertible into shares of the
Company's common stock, par value $.0001 per share (the "Common Stock").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy are
hereby acknowledged, the Company and the Purchasers agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 The Closing.
(a) The Closing. (i) Subject to the terms and conditions set forth in
this Agreement, the Company shall issue and sell to the Purchasers and the
Purchasers shall, severally and not jointly, purchase 600 shares of Preferred
Stock (the "Shares") for an aggregate purchase price of $6,000,000. The closing
of the purchase and sale of the Shares (the "Closing") shall take place at the
offices of Robinson Silverman Pearce Aronsohn & Berman LLP ("Robinson
Silverman"), 1290 Avenue of the Americas, New York, New York 10104, immediately
following the execution hereof or such later date as the parties shall agree.
The date of the Closing is hereinafter referred to as the "Closing Date."
(ii) On the Closing Date, the parties shall deliver or shall cause to
be delivered the following: (A) the Company shall deliver to each Purchaser (1)
stock certificates, registered in the name of such Purchaser, representing a
number of Shares equal to the quotient obtained by dividing the purchase price
indicated below such Purchaser's name on the signature page to this Agreement by
10,000, (2) a Common Stock purchase warrant, in the form of Exhibit D,
registered in the name of such Purchaser, pursuant to which such Purchaser shall
have the right at any time and from time to time thereafter through the fifth
anniversary of the Closing Date to acquire shares of Common Stock (collectively,
the "Warrants"), (3) the legal opinion of Lehman & Eilen LLP, counsel to the
Company in the form of Exhibit C, and (4) all other documents, instruments and
writings required to have been delivered at or prior to the Closing Date by the
Company pursuant to this Agreement, including an executed Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers, in the
form of Exhibit B (the "Registration Rights Agreement") the Irrevocable Transfer
Agent Instructions, in the form of Exhibit E, delivered to and acknowledged by
the Company's transfer agent (the "Transfer Agent Instructions"); and (B) each
Purchaser shall deliver (1) the purchase price indicated below such Purchaser's
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name on the signature page to this Agreement in United States dollars in
immediately available funds by wire transfer to an account designated in writing
by the Company for such purpose, and (2) all documents, instruments and writings
required to have been delivered at or prior to the Closing Date by such
Purchaser pursuant to this Agreement, including, without limitation, an executed
Registration Rights Agreement.
1.2 Terms of Preferred Stock. The Preferred Stock shall have the
rights preferences and privileges set forth in Exhibit A, and shall be
incorporated into a Certificate of Designation (the "Certificate of
Designation") which shall be filed on or prior to the Closing Date by the
Company with the Secretary of State of the State of Colorado, in form and
substance mutually agreed to by the parties.For purposes of this Agreement,
"Conversion Price," "Original Issue Date," and "Trading Day" shall have the
meanings set forth in Exhibit A; "Business Day" shall mean any day except
Saturday, Sunday and any day which shall be a federal legal holiday or a day on
which banking institutions in the State of New York or the State of Colorado are
authorized or required by law or other governmental action to close; "Person"
means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchasers:
(a) Organization and Qualification. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Colorado, with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. The
Company has no subsidiaries other than as set forth in Schedule 2.1(a)
(collectively the "Subsidiaries"). Each of the Subsidiaries is an entity, duly
incorporated or otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization (as
applicable), with the full power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Each of the Company
and the Subsidiaries is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of the Securities (as defined below) or any of this
Agreement, the Registration Rights Agreement or the Warrants (collectively, the
"Transaction Documents"), (y) have or result in a material adverse effect on the
results of operations, assets, prospects, or condition (financial or otherwise)
of the Company and the Subsidiaries, taken as a whole, or (z) adversely impair
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the Company's ability to perform fully on a timely basis its obligations under
any of the Transaction Documents (any of (x), (y) or (z), a "Material Adverse
Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company. Each of
the Transaction Documents has been duly executed by the Company and, when
delivered (or filed, as the case may be) in accordance with the terms hereof,
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate of incorporation, by-laws or other charter documents.
(c) Capitalization. The number of authorized, issued and outstanding
capital stock of the Company is set forth in Schedule 2.1(c). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any holder of
the Common Stock entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any of the Transaction
Documents. Except as a result of the purchase and sale of the Shares and the
Warrants and except as disclosed in Schedule 2.1(c), there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person (as defined below)
any right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock. To
the knowledge of the Company, except as specifically disclosed in the SEC
Documents (as defined below) or Schedule 2.1(c), no Person or group of related
Persons beneficially owns (as determined pursuant to Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), or
has the right to acquire by agreement with or by obligation binding upon the
Company, in excess of 5% of the Common Stock.
(d) Issuance of the Shares and the Warrants. The Shares and the
Warrants are duly authorized and, when issued and paid for in accordance with
the terms hereof, will be duly and validly issued, fully paid and nonassessable,
free and clear of all liens, encumbrances and rights of first refusal of any
kind (collectively, "Liens"). The Company has on the date hereof and will, at
all times while the Shares and the Warrants are outstanding, maintain an
adequate reserve of duly authorized shares of Common Stock, reserved for
issuance to the holders of the Shares and the Warrants, to enable it to perform
its conversion, exercise and other obligations under this Agreement, the
Certificate of Designation and the Warrants. Such number of reserved and
available shares of Common Stock is not less than the sum of (i) 175% of the
number of shares of Common Stock which would be issuable upon conversion in full
of the Shares, assuming that the Shares are outstanding for three (3) years and
that such conversion occurred on the Original Issue Date (as defined in Exhibit
A) at the Conversion Price applicable thereto, and (ii) the number of shares of
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Common Stock issuable upon exercise of the Warrants (such number of shares of
Common Stock as contemplated in clauses (i)-(ii), the "Initial Minimum"). All
such authorized shares of Common Stock shall be duly reserved for issuance to
the holders of the Shares and the Warrants. The shares of Common Stock issuable
upon conversion of the Shares and upon exercise of the Warrants are collectively
referred to herein as the "Underlying Shares." The Shares, the Warrants and the
Underlying Shares are collectively referred to herein as, the "Securities." When
issued in accordance with the Certificate of Designation and the Warrants, the
Underlying Shares will be duly authorized, validly issued, fully paid and
nonassessable, free and clear of all Liens.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof), or (ii) subject to
obtaining the Required Approvals (as defined below), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, loan, credit facility, indenture or instrument
(evidencing a Company debt or otherwise) or other understanding to which the
Company or any Subsidiary is a party or by which any property or asset of the
Company or any Subsidiary is bound or affected, or (iii) result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company is
subject (including Federal and state securities laws and regulations), or by
which any property or asset of the Company is bound or affected, except in the
case of each of clauses (ii) and (iii), as could not, individually or in the
aggregate, have or result in a Material Adverse Effect. The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental authority, except for violations which, individually or in
the aggregate, could not have or result in a Material Adverse Effect.
(f) Filings, Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
Federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing of the Certificate of
Designation with the Secretary of State of Colorado, (ii) the filings required
pursuant to Section 3.11, (iii) the filing with the Securities and Exchange
Commission (the "Commission") of a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale of the Underlying Shares by the Purchasers (the "Underlying Shares
Registration Statement"), (iv) the application(s) to the Nasdaq SmallCap Market
("NASDAQ") for the listing of the Underlying Shares for trading on the NASDAQ
(and with any other national securities exchange or market on which the Common
Stock is then listed), (v) applicable Blue Sky filings and (vi) in all other
cases where the failure to obtain such consent, waiver, authorization or order,
or to give such notice or make such filing or registration could not have or
result in, individually or in the aggregate, a Material Adverse Effect
(collectively, the "Required Approvals").
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(g) Litigation; Proceedings. There is no action, suit, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries
or any of their respective properties before or by any court, governmental or
administrative agency or regulatory authority (Federal, state, county, local or
foreign) which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii)
could, individually or in the aggregate, have or result in a Material Adverse
Effect.
(h) No Default or Violation. Neither the Company nor any Subsidiary (i)
is in default under or in violation of (and no event has occurred which has not
been waived which, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound, (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is in violation of any statute, rule or regulation
of any governmental authority, in each case of clauses (i), (ii) or (iii) above,
except as could not individually or in the aggregate, have or result in a
Material Adverse Effect.
(i) Private Offering. Assuming the accuracy of the representations and
warranties of the Purchasers set forth in Sections 2.2(b)-(g), the offer,
issuance and sale of the Securities to the Purchasers as contemplated hereby are
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"). Neither the Company nor any Person acting on its
behalf has taken any action that could subject the offering, issuance or sale of
the Securities to the registration requirements of the Securities Act.
(j) SEC Documents; Financial Statements. The Company has filed all
reports required to be filed by it under the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two (2) years preceding the date hereof
(or such shorter period as the Company was required by law to file such
material) (the foregoing materials being collectively referred to herein as the
"SEC Documents" and, together with the Schedules to this Agreement, the
"Disclosure Materials") on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Documents prior to the expiration
of any such extension. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All material
agreements to which the Company is a party or to which the property or assets of
the Company are subject have been filed as exhibits to the SEC Documents as
required. The financial statements of the Company included in the SEC Documents
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved ("GAAP"), except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company and its consolidated subsidiaries
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as of and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments. Since June 30, 1999, except as
specifically disclosed in the SEC Documents, (a) there has been no event,
occurrence or development that has or that could result in a Material Adverse
Effect, (b) the Company has not incurred any liabilities (contingent or
otherwise) other than (x) liabilities incurred in the ordinary course of
business consistent with past practice and (y) liabilities not required to be
reflected in the Company's financial statements pursuant to GAAP or required to
be disclosed in filings made with the Commission, (c) the Company has not
altered its method of accounting or the identity of its auditors and (d) the
Company has not declared or made any payment or distribution of cash or other
property to its stockholders or officers or directors (other than in compliance
with existing Company stock option plans) with respect to its capital stock, or
purchased, redeemed (or made any agreements to purchase or redeem) any shares of
its capital stock. The Company last filed audited financial statements with the
Commission on August 16, 1999, and has not received any comments from the
Commission in respect thereof.
(k) Investment Company. The Company is not, and is not an Affiliate (as
defined in Rule 405 under the Securities Act) of, an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(l) Certain Fees. Except for certain fees payable to Jim Tilton &
Company by the Company, no fees or commissions will be payable by the Company to
any broker, financial advisor or consultant, finder, placement agent, investment
banker, or bank with respect to the transactions contemplated by this Agreement.
The Purchasers shall have no obligation with respect to any fees or with respect
to any claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the transactions
contemplated by this Agreement. The Company shall indemnify and hold harmless
the Purchasers, their employees, officers, directors, agents, and partners, and
their respective Affiliates, from and against all claims, losses, damages, costs
(including the costs of preparation and attorney's fees) and expenses suffered
in respect of any such claimed or existing fees, as such fees and expenses are
incurred.
(m) Solicitation Materials. Neither the Company nor any Person acting
on the Company's behalf has solicited any offer to buy or sell the Securities by
means of any form of general solicitation or advertising.
(n) Form S-3 Eligibility. The Company is eligible to register
securities for resale with the Commission under Form S-3 promulgated under the
Securities Act.
(o) Exclusivity. The Company shall not issue and sell the Shares to any
Person other than the Purchasers other than with the specific prior written
consent of the Purchasers.
(p) Seniority. No class of equity securities of the Company is senior
to the Shares in right of payment, whether upon liquidation or dissolution, or
otherwise.
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(q) Listing and Maintenance Requirements Compliance. Except as set
forth in the SEC Documents, the Company has not, in the two (2) years preceding
the date hereof, received notice (written or oral) from the NASDAQ or any other
stock exchange, market or trading facility on which the Common Stock is or has
been listed (or on which it has been quoted) to the effect that the Company is
not in compliance with the listing or maintenance requirements of such exchange
or market. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such maintenance
requirements.
(r) Patents and Trademarks. The Company has, or has rights to use, all
patents, patent applications, trademarks, trademark applications, service marks,
trade names, copyrights, licenses and rights which are necessary or material for
use in connection with its business, and which the failure to so have would have
a Material Adverse Effect (collectively, the "Intellectual Property Rights"). To
the best knowledge of the Company all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights.
(s) Registration Rights; Rights of Participation. Except as set forth
on Schedule 6(b) to the Registration Rights Agreement, the Company has not
granted or agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority which has not been satisfied. No
Person, has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.
(t) Regulatory Permits . The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate Federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Documents, except where the failure to
possess such permits could not, individually or in the aggregate, have or result
in a Material Adverse Effect ("Material Permits"), and neither the Company nor
any such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
(u) Title. The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them which is material to the
business of the Company and its Subsidiaries and good and marketable title in
all personal property owned by them which is material to the business of the
Company and its Subsidiaries, in each case free and clear of all Liens, except
for Liens as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its Subsidiaries. Any real property and facilities held under lease
by the Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(v) Disclosure. The Company confirms that it has not provided any of
the Purchasers or its agents or counsel with any information that constitutes or
might constitute material non-public information. The Company understands and
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confirms that the Purchasers shall be relying on the foregoing representations
in effecting transactions in securities of the Company. All disclosure provided
to the Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement, furnished by or
on behalf of the Company are true and correct and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
2.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby represents and warrants to the Company as follows:
(a) Organization; Authority. Such Purchaser is a corporation, limited
liability company or limited partnership validly existing and in good standing
under the laws of the jurisdiction of its organization with the requisite power
and authority, to enter into and to consummate the transactions contemplated by
the Transaction Documents and otherwise to carry out its obligations thereunder.
The purchase by such Purchaser of the Securities hereunder has been duly
authorized by all necessary corporate or partnership action on the part of such
Purchaser. Each of this Agreement and the Registration Rights Agreement has been
duly executed and delivered by such Purchaser and constitutes the valid and
legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms.
(b) Investment Intent. Such Purchaser is acquiring the Securities
offered and sold to it hereunder as principal for its own account for investment
purposes only and not with a view to or for distributing or reselling such
Securities or any part thereof or interest therein, without prejudice, however,
to such Purchaser's right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise dispose of all
or any part of such Securities pursuant to an effective registration statement
under the Securities Act and in compliance with applicable state securities laws
or under an exemption from such registration. By making this representation,
such Purchaser does not represent that it will hold such Securities for any
period of time.
(c) Purchaser Status. At the time such Purchaser was offered the Shares
and its respective Warrant, it was, and at the date hereof it is, and at each
exercise date under its respective Warrant, it will be, an "accredited investor"
as defined in Rule 501(a) under the Securities Act. Such Purchaser has not been
formed solely for the purpose of acquiring the Securities.
(d) Experience of the Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
(e) Ability of the Purchaser to Bear Risk of Investment. Such Purchaser
is able to bear the economic risk of an investment in the Securities and, at the
present time, is able to afford a complete loss of such investment.
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(f) Access to Information. Such Purchaser acknowledges that it has
reviewed the Disclosure Materials and has been afforded (i) the opportunity to
ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted by or on
behalf of such Purchaser or its representatives or counsel shall modify, amend
or affect such Purchaser's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
(g) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of or subsequent to any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.
(h) Reliance. Such Purchaser understands and acknowledges that (i) the
Securities are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents to such
reliance.
The Company acknowledges and agrees that no Purchaser makes or has made
any representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act. In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred securities under the
Securities Act. Notwithstanding the foregoing, the Company hereby consents to
and agrees to register on the books of the Company and with any transfer agent
for the securities of the Company any transfer of Securities by a Purchaser to
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an Affiliate of such Purchaser or to one or more funds or managed accounts under
common management with such Purchaser, and any transfer among any such
Affiliates or one or more funds or managed accounts, provided that the
transferee certifies to the Company that it is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and that it is acquiring the
Securities solely for investment purposes (subject to the qualifications
hereof). Any such transferee shall agree in writing to be bound by the terms of
this Agreement and shall have the rights of a Purchaser under this Agreement and
the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required by
this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
Underlying Shares shall not contain the legend set forth above
nor any other legend if the conversion of Shares and exercise of the Warrants or
other issuances of Underlying Shares as contemplated hereby, by the Certificate
of Designation or the Warrants occurs at any time while an Underlying Shares
Registration Statement is effective under the Securities Act or, in the event
there is not an effective Underlying Shares Registration Statement, at such
time, in the opinion of counsel to the Company, such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company shall cause its counsel to issue the legal opinion included in the
Transfer Agent Instructions to the Company's transfer agent on the day that the
Underlying Shares Registration Statement is declared effective by the
Commission. The Company agrees that, in the event any Underlying Shares are
issued with a legend in accordance with this Section 3.1(b), it will, within
three (3) Trading Days after request therefor by a Purchaser, provide such
Purchaser with a certificate or certificates representing such Underlying
Shares, free from such legend at such time as such legend would not have been
required under this Section 3.1(b) had such issuance occurred on the date of
such request. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company which enlarge the restrictions
of transfer set forth in this Section.
3.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Underlying Shares upon (i) conversion of the Shares in
accordance with the terms of the Certificate of Designation, and (ii) exercise
of the Warrants in accordance with their terms, will result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
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certain market conditions. The Company further acknowledges that its obligation
to issue Underlying Shares upon (x) conversion of the Shares in accordance with
the terms of the Certificate of Designation, and (y) exercise of the Warrants in
accordance with their terms, is unconditional and absolute, subject to the
limitations set forth herein, in the Certificate of Designation or pursuant to
the Warrants, regardless of the effect of any such dilution.
3.3 Furnishing of Information. As long as the Purchasers own
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act. As long as the Purchasers own Securities, if
the Company is not required to file reports pursuant to such sections, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act such information as is
required for the Purchasers to sell the Securities under Rule 144 promulgated
under the Securities Act. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell Underlying
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act,
including the legal opinion referenced above in this Section. Upon the request
of any such Person, the Company shall deliver to such Person a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
3.4 Integration. The Company shall not, and shall use its best efforts
to ensure that, no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers.
3.5 Increase in Authorized Shares. If on any date the Company would be,
if a notice of conversion or exercise (as the case may be) were to be delivered
on such date, precluded from (a) issuing (a) 175% of the number of Underlying
Shares as would then be issuable upon a conversion in full of the Shares, and
(b) the number of Underlying Shares upon exercise in full of the Warrants (the
"Current Required Minimum"), in either case, due to the unavailability of a
sufficient number of authorized but unissued or reserved shares of Common Stock,
then the Board of Directors of the Company shall promptly (and in any case,
within 30 Business Days from such date) prepare and mail to the stockholders of
the Company proxy materials requesting authorization to amend the Company's
certificate of incorporation to increase the number of shares of Common Stock
which the Company is authorized to issue to at least such number of shares as
reasonably requested by the Purchasers in order to provide for such number of
authorized and unissued shares of Common Stock to enable the Company to comply
with its issuance, conversion exercise and reservation of shares obligations as
set forth in this Agreement, the Certificate of Designation and the Warrants
(the sum of (x) the number of shares of Common Stock then outstanding plus all
shares of Common Stock issuable upon exercise of all outstanding options,
warrants and convertible instruments, and (y) the Current Required Minimum,
shall be a reasonable number). In connection therewith, the Board of Directors
shall (a) adopt proper resolutions authorizing such increase, (b) recommend to
and otherwise use its best efforts to promptly and duly obtain stockholder
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<PAGE>
approval to carry out such resolutions (and hold a special meeting of the
stockholders no later than the 60th day after delivery of the proxy materials
relating to such meeting) and (c) within five (5) Business Days of obtaining
such stockholder authorization, file an appropriate amendment to the Company's
certificate of incorporation to evidence such increase.
3.6 Reservation and Listing of Underlying Shares. (a) The Company shall
(i) in the time and manner required by NASDAQ and such other exchange, market or
quotation system on which the Common Stock is traded, prepare and file with the
NASDAQ (and such other national securities exchange or market or trading or
quotation facility on which the Common Stock is then listed) an additional
shares listing application covering a number of shares of Common Stock which is
not less than the Initial Minimum, (ii) take all steps necessary to cause such
shares of Common Stock to be approved for listing in the NASDAQ (as well as on
any such other national securities exchange or market or trading or quotation
facility on which the Common Stock is then listed) as soon as possible
thereafter, and (iii) provide to the Purchasers evidence of such listing, and
the Company shall maintain the listing of its Common Stock thereon. If the
number of Underlying Shares issuable upon conversion in full of the then
outstanding Shares and upon exercise of the then unexercised portion of the
Warrants exceeds 85% of the number of Underlying Shares previously listed on
account thereof with NASDAQ (and any such other required exchanges), then the
Company shall take the necessary actions to immediately list a number of
Underlying Shares as equals no less than the then Current Required Minimum.
(b) The Company shall maintain a reserve of shares of Common Stock for
issuance upon conversion of the Shares and upon exercise in full of the Warrants
in accordance with this Agreement, the Certificate of Designation and the
Warrants, respectively, in such amount as may be required to fulfill its
obligations in full under the Transaction Documents, which reserve shall equal
no less than the then Current Required Minimum.
3.7 Conversion and Exercise Procedures. The Transfer Agent
Instructions, Conversion Notice (as defined in the Certificate of Designation)
and Notice of Exercise under the Warrants set forth the totality of the
procedures with respect to the conversion of the Shares and exercise of the
Warrants, including the form of legal opinion, if necessary, that shall be
rendered to the Company's transfer agent and such other information and
instructions as may be reasonably necessary to enable the Purchasers to convert
their Shares and exercise their Warrants as contemplated in the Certificate of
Designation and the Warrants (as applicable).
3.8 Notice of Breaches. Each of the Company and the Purchasers shall
give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained therein to be
incorrect or breached as of the Closing Date. However, no disclosure by either
party pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in any Transaction
Document.
3.9 Conversion and Exercise Obligations of the Company. The Company
shall honor conversions of the Shares and exercises of the Warrants and shall
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deliver Underlying Shares in accordance with the respective terms, conditions
and time periods set forth in the Certificate of Designation and the Warrants.
3.10 Right of First Refusal; Subsequent Registrations. (a) The Company
shall not, directly or indirectly, without the prior written consent of the
Purchasers, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities including the issuance of any debt or other instrument at any time
over life thereof convertible into or exchangeable for Common Stock, or any
other transaction intended to be exempt or not subject to registration under the
Securities Act (a "Subsequent Placement") for a period of 180 Trading Days after
the date the Underlying Shares Registration Statement is declared effective by
the Commission, provided, that such 180 Trading Day period shall be extended for
the number of Trading Days during such period (A) in which trading in the Common
Stock is suspended by the NASDAQ or such market or quotation system on which the
Common Stock is then listed, or (B) during which the Underlying Shares
Registration Statement is not effective, or (C) during which the prospectus
included in the Underlying Shares Registration Statement may not be used by the
holders thereof for the resale of Underlying Shares, except (i) the granting of
options or warrants to employees, officers and directors, and the issuance of
shares upon exercise of options granted, under any stock option plan heretofore
or hereinafter duly adopted by the Company, (ii) shares of Common Stock issuable
upon exercise of any currently outstanding warrants and upon conversion of any
currently outstanding convertible securities of the Company, in each case
disclosed in Schedule 2.1(c), (iii) shares of Common Stock issuable upon
conversion of Shares and upon exercise of the Warrants in accordance with the
Certificate of Designation or the Warrants, (iv) a bona fide underwritten
offering of Common Stock through a nationally recognized investment bank (a line
of equity offering or similar type of financing shall not be deemed a bona fide
underwritten offering of Common Stock) with proceeds in excess of $7,500,000,
respectively, and (v) shares of Common Stock issued as payment of the purchase
price in connection with a Strategic Transaction (as defined below), unless (A)
the Company delivers to the Purchasers a written notice (the "Subsequent
Placement Notice") of its intention to effect such Subsequent Placement, which
Subsequent Placement Notice shall describe in reasonable detail the proposed
terms of such Subsequent Placement, the amount of proceeds intended to be raised
thereunder, the Person with whom such Subsequent Placement shall be effected,
and attached to which shall be a term sheet or similar document relating thereto
and (B) the Purchasers shall not have notified the Company by 5:00 p.m. (New
York City time) on the tenth (10th) Trading Day after their receipt of the
Subsequent Placement Notice of their willingness to cause the Purchasers to
provide (or to cause its sole designee to provide), subject to completion of
mutually acceptable documentation, financing to the Company on the same terms
set forth in the Subsequent Placement Notice. If the Purchasers shall fail to
notify the Company of their intention to enter into such negotiations within
such time period, the Company may effect the Subsequent Placement substantially
upon the terms and to the Persons (or Affiliates of such Persons) set forth in
the Subsequent Placement Notice; provided, that the Company shall provide the
Purchasers with a second Subsequent Placement Notice, and the Purchasers shall
again have the right of first refusal set forth above in this paragraph (a), if
the Subsequent Placement subject to the initial Subsequent Placement Notice
shall not have been consummated for any reason on the terms set forth in such
Subsequent Placement Notice within thirty (30) Trading Days after the date of
the initial Subsequent Placement Notice with the Person (or an Affiliate of such
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<PAGE>
Person) identified in the Subsequent Placement Notice. If the Purchasers shall
indicate a willingness to provide financing in excess of the amount set forth in
the Subsequent Placement Notice, then each Purchaser shall be entitled to
provide financing pursuant to such Subsequent Placement Notice up to an amount
equal to such Purchaser's pro-rata portion of the aggregate number of Shares
purchased by such Purchaser under this Agreement, but the Company shall not be
required to accept financing from the Purchasers in an amount in excess of the
amount set forth in the Subsequent Placement Notice. For purposes of this
Section 3.10, a "Strategic Transaction" shall mean a transaction or relationship
in which the Company issues Common Stock to an entity which is, itself or
through its subsidiaries, an operating company in a business related to the
business of the Company and in which the Company receives material benefits in
addition to the investment of funds, but shall not include a transaction in
which the Company is issuing securities primarily for the purpose of raising
capital.
(b) Except for (x) Underlying Shares, (y) other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered, and securities of the Company permitted pursuant to Schedule 6(b) of
the Registration's Rights Agreement to be registered, in the Underlying Shares
Registration Statement in accordance with the Registration Rights Agreement, and
(z) Common Stock permitted to be issued pursuant to paragraph (a)(i) - (v) of
Section 3.10(a), the Company shall not, for a period of not less than 90 Trading
Days after the date that the Underlying Shares Registration Statement is
declared effective by the Commission, without the prior written consent of the
Purchasers (i) issue or sell any of its or any of its Affiliates' equity or
equity-equivalent securities pursuant to Regulation S promulgated under the
Securities Act, or (ii) register any securities of the Company. Any days that a
Purchaser is unable to sell Underlying Shares under the Underlying Shares
Registration Statement shall be added to such 90 Trading Day period for the
purposes of (i) and (ii) above.
3.11 Certain Securities Laws Disclosures; Publicity. The Company shall:
(i) issue a press release acceptable to the Purchasers disclosing the
transactions contemplated hereby on the Closing Date, (ii) file with the
Commission a Report on Form 8-K disclosing the transactions contemplated hereby
within ten (10) Business Days after the Closing Date, and (iii) timely file with
the Commission a Form D promulgated under the Securities Act as required under
Regulation D promulgated under the Securities Act and provide a copy thereof to
the Purchasers promptly after the filing thereof. The Company shall, no less
than two (2) Business Days prior to the filing of any disclosure required by
clauses (ii) and (iii) above, provide a copy thereof to the Purchasers. No such
filing or disclosure may be made that mentions the Purchasers by name without
the prior consent of the Purchasers. Such filings shall be subject to Section
4.11 hereof.
3.12 Transfer of Intellectual Property Rights. Except in connection
with the sale of all or substantially all of the assets of the Company or a bona
fide licensing arrangement in the ordinary course of the Company's business, the
Company shall not transfer, sell or otherwise dispose of any Intellectual
Property Rights, or allow any of the Intellectual Property Rights to become
subject to any Liens, or fail to renew such Intellectual Property Rights (if
renewable and it would otherwise lapse if not renewed), without the prior
written consent of the Purchasers.
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<PAGE>
3.13 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Shares hereunder for working capital purposes only and not for the
satisfaction of any Company debt (which, for such purposes, shall include
accounts payable).
3.14 Reimbursement. If any Purchaser, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith, as such expenses are incurred. In addition, other than
with respect to any matter in which a Purchaser is a named party, the Company
will pay such Purchaser the charges, as reasonably determined by such Purchaser,
for the time of any officers or employees of such Purchaser devoted to appearing
and preparing to appear as witnesses, assisting in preparation for hearings,
trials or pretrial matters, or otherwise with respect to inquiries, hearings,
trials, and other proceedings relating to the subject matter of this Agreement.
The reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of the applicable Purchaser or entity in connection with
the transactions contemplated by this Agreement.
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. At the Closing, the Company shall reimburse the
Purchasers for $25,000 of their legal fees and expenses incurred in connection
with the preparation and negotiation of the Transaction Documents and $5,000 for
their due diligence expenses incurred in connection with the transactions
contemplated hereby. Each of the amounts contemplated by the immediately
preceding sentence shall be retained by the Purchasers and shall not be
delivered to the Company at the Closing. Other than the amounts contemplated in
the immediately preceding sentence, and except as otherwise set forth in the
Registration Rights Agreement, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all stamp and
other taxes and duties levied in connection with the issuance of the Securities.
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<PAGE>
4.2 Entire Agreement; Amendments. The Transaction Documents, together
with the Exhibits and Schedules thereto, and the Transfer Agent Instructions
contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters, which the parties acknowledge have been
merged into such documents, exhibits and schedules.
4.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 6:30 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Agreement later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. The address for such notices and
communications shall be as follows:
If to the Company: New Frontier Media, Inc.
5435 Airport Blvd., Suite 100
Boulder, CO 80301
Facsimile No.: (303) 413-1553
Attn: Chief Financial Officer
With copies to: Lehman & Eilen, LLP
50 Charles Lindbergh Boulevard,
Suite 505
Uniondale, NY 1553
Facsimile No.: (516) 222-0948
Attn: Hank Gracin, Esq.
If to a Purchaser: To the address set forth under such
Purchaser's name on the signature pages hereto.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each of the Purchasers or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
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<PAGE>
4.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Except as set forth in
Section 3.1(a), the Purchasers may not assign this Agreement or any of the
rights or obligations hereunder without the consent of the Company. This
provision shall not limit any Purchaser's right to transfer securities or
transfer or assign rights under the Registration Rights Agreement.
4.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
4.8 Governing Law. The corporate laws of the State of Colorado shall
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
4.9 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery and conversion or
exercise (as the case may be) of the Shares and the Warrants.
4.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
17
<PAGE>
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11 Publicity. The Company and the Purchasers shall consult with each
other in issuing any press releases or otherwise making public statements or
filings and other communications with the Commission or any regulatory agency or
stock market or trading facility with respect to the transactions contemplated
hereby and neither party shall issue any such press release or otherwise make
any such public statement, filings or other communications without the prior
written consent of the other, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
party with prior notice of such public statement, filing or other communication.
Notwithstanding the foregoing and except pursuant to the Underlying Shares
Registration Statement, the Company shall not publicly disclose the names of the
Purchasers, or include the names of the Purchasers in any filing with the
Commission, or any regulatory agency, trading facility or stock market without
the prior written consent of the Purchasers, except to the extent such
disclosure (but not any disclosure as to the controlling Persons thereof) is
required by law, in which case the Company shall provide the Purchasers with
prior notice of such disclosure.
4.12 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
4.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers will be entitled to specific performance of the obligations of the
Company under the Transaction Documents. The Company and each of the Purchasers
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of its obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate.
4.14 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of the other Purchaser hereunder, and neither Purchaser shall be
responsible in any way for the performance of the obligations of the other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
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<PAGE>
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for the other Purchaser to
be joined as an additional party in any proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Convertible Preferred Stock Purchase Agreement to be duly executed by their
respective authorized signatories as of the date first indicated above.
NEW FRONTIER MEDIA, INC.
By:_____________________________________
Name:
Title:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
20
<PAGE>
JNC OPPORTUNITY FUND LTD.
By: Encore Capital Management, L.L.C.
Its Investment Adviser
By:____________________________________
Neil T. Chau
Managing Member
Purchase Price for Shares to be acquired at
Closing: $6,000,000
Address for Notice:
JNC Opportunity Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
Williams House, 20 Reid Street
Facsimile No.: (441) 295-2305
Attn: Director
With copies to:
Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
and
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen. Esq.
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===============================================================================
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Among
NEW FRONTIER MEDIA, INC.,
and
THE INVESTORS SIGNATORY HERETO
Dated as of September 30, 1999
===============================================================================
<PAGE>
EXHIBIT 10.06
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of September 30, 1999, among New Frontier Media, Inc., a
Colorado corporation (the "Company"), and the investors signatory hereto (each
such investor is a "Purchaser" and all such investors are, collectively, the
"Purchasers").
This Agreement is made pursuant to the Convertible Preferred Stock
Purchase Agreement, dated as of the date hereof among the Company and the
Purchasers (the "Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the state of
New York or the state of Colorado generally are authorized or required by law or
other government actions to close.
"Closing Date" shall have the meaning set forth in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, par value $.0001 per
share, or such securities that such stock shall hereafter be reclassified into.
"Effectiveness Date" means the 120th day following the Closing Date.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Filing Date" means the 30th day following the Closing Date.
<PAGE>
"Holder" or "Holders" means the holder or holders, as the case may be,
from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
"Indemnifying Party" shall have the meaning set forth in Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the Company's Series C Convertible Preferred
Stock, $.10 par value per share, issued to the Purchasers in accordance with the
Purchase Agreement.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" means the shares of Common Stock issuable upon
(i) conversion in full of the Preferred Stock and (ii) exercise in full of the
Warrants.
"Registration Statement" means the registration statement and any
additional registration statements contemplated by Section 2(a), including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
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"Rule 424" means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Special Counsel" means one special counsel to the Holders, for which
the Holders will be reimbursed by the Company pursuant to Section 4.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"Warrants" shall mean the Common Stock purchase warrants issued to the
Purchasers pursuant to the Purchase Agreement.
2. Shelf Registration
(a) On or prior to the Filing Date, the Company shall prepare and file
with the Commission a "Shelf" Registration Statement covering the resale of all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form S-3 (except if the
Company is not then eligible to register for resale the Registrable Securities
on Form S-3, in which case such registration shall be on another appropriate
form in accordance herewith as the Holders may consent). The Company shall use
its best efforts to cause the Registration Statement to be declared effective
under the Securities Act as promptly as possible after the filing thereof, but
in any event prior to the Effectiveness Date, and shall use its best efforts to
keep such Registration Statement continuously effective under the Securities Act
until the date which is two (2) years after the date that such Registration
Statement is declared effective by the Commission or such earlier date when all
Registrable Securities covered by such Registration Statement have been sold or
may be sold without volume restrictions pursuant to Rule 144(k) as determined by
the counsel to the Company pursuant to a written opinion letter to such effect,
addressed and acceptable to the Company's transfer agent and the affected
Holders (the "Effectiveness Period"), provided, that the Company shall not be
deemed to have used its best efforts to keep the Registration Statement
effective during the Effectiveness Period if it voluntarily takes any action
that would result in the Holders not being able to sell the Registrable
Securities covered by such Registration Statement during the Effectiveness
Period, unless such action is required under applicable law or the Company has
filed a post-effective amendment to the Registration Statement and the
Commission has not declared it effecti(a)ve.
(b) The initial Registration Statement required to be filed hereunder
shall include (but not be limited to), for the benefit of the Holders, a number
of shares of Common Stock equal to the sum of (i) the number of shares of Common
Stock as would be issuable upon exercise in full of the Warrants, (ii) 175% of
the number of shares of Common Stock as would be issuable upon conversion in
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full of the shares of Preferred Stock, assuming for such purposes that such
shares of Preferred Stock are outstanding for three (3) years and that the
conversion occurred on the Closing Date or the Filing Date, whichever yields the
lowest Conversion Price (as defined in the Purchase Agreement).
(c) If the Holders of a majority of the Registrable Securities then
outstanding so elect, an offering of Registrable Securities pursuant to the
Registration Statement may be effected in the form of an Underwritten Offering.
In such event, and, if the managing underwriters advise the Company and such
Holders in writing that in their opinion the amount of Registrable Securities
proposed to be sold in such Underwritten Offering exceeds the amount of
Registrable Securities which can be sold in such Underwritten Offering, there
shall be included in such Underwritten Offering the amount of such Registrable
Securities which in the opinion of such managing underwriters can be sold, and
such amount shall be allocated pro-rata among the Holders proposing to sell
Registrable Securities in such Underwritten Offering.
(d) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering upon consultation with the Company. No
Holder may participate in any Underwritten Offering hereunder unless such Holder
(i) agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
3. Registration Procedures
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement on the form contemplated by Section 2(a) which
Registration Statement shall contain (except if otherwise directed by the
Holders) the "Plan of Distribution" attached hereto as Annex A, and cause the
Registration Statement to become effective and remain effective as provided
herein; provided, however, that not less than three (3) Business Days prior to
the filing of the Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), the Company
shall, (i) furnish to the Holders, their Special Counsel and any managing
underwriters, copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference) will
be subject to the review of such Holders, their Special Counsel and such
managing underwriters, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the reasonable opinion of respective counsel to such Holders
and such underwriters, to conduct a reasonable investigation within the meaning
of the Securities Act. The Company shall not file the Registration Statement or
any such Prospectus or any amendments or supplements thereto to which the
Holders of a majority of the Registrable Securities, their Special Counsel, or
any managing underwriters, shall reasonably object.
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(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement and the Prospectus used
in connection therewith as may be necessary to keep the Registration Statement
continuously effective as to the applicable Registrable Securities for the
Effectiveness Period and prepare and file with the Commission such additional
Registration Statements in order to register for resale under the Securities Act
all of the Registrable Securities; (ii) cause the related Prospectus to be
amended or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424; (iii) respond as
promptly as reasonably possible, and in any event within ten (10) days, to any
comments received from the Commission with respect to the Registration Statement
or any amendment thereto and as promptly as reasonably possible provide the
Holders true and complete copies of all correspondence from and to the
Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) (i) File additional Registration Statements if the number of
Registrable Securities at any time exceeds 85% of the number of shares of Common
Stock then registered in a Registration Statement. The Company shall have twenty
(20) days to file such additional Registration Statements after such requirement
notice of which may be given by the Holders). In such event, the Registration
Statement required to be filed by the Company shall include a number of shares
of Common Stock equal to no less than 175% of the number of shares of Common
Stock into which all then outstanding shares of Preferred Stock are convertible
(assuming such conversion occurred on the Filing Date for such Registration
Statement or the date of the filing of the final acceleration request therefor,
whichever date yields a lower Conversion Price) and any other Registrable
Securities not then registered in a Registration Statement.
(ii) File such supplements or attach "stickers" to the Registration
Statement or Prospectus as and when required by the Commission to evidence a
material amount of resales by a Holder pursuant to a Prospectus. In connection
therewith, if such supplements or such "stickers" are periodically required by
the Commission, the Company shall, within four (4) Business Days, file such
supplements or attach such "stickers" whenever a Holder has sold 50% of the
Registrable Securities covered by the then outstanding Prospectus (as last
supplemented or "stickered") in order to cover 100% of the number of the
outstanding Registrable Securities.
(d) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters as promptly as reasonably possible
(and, in the case of (i)(A) below, not less than five (5) Business Days (or, in
the case of a supplement or "sticker" required to be filed pursuant to Section
3(c)(ii), within one Business Day) prior to such filing) and (if requested by
any such Person) confirm such notice in writing no later than one (1) Business
Day following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement (the Company shall provide true and complete copies
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thereof and all written responses thereto to each of the Holders); and (C) with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective; (ii) of any request by the Commission or any other
Federal or state governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional information; (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) if at any time any of the
representations and warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event or passage of time that makes
the financial statements included in the Registration Statement ineligible for
inclusion therein or any statement made in the Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any 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.
(e) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(f) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection with
an Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
managing underwriters and such Holders reasonably agree should be included
therein, and (ii) make all required filings of such Prospectus supplement or
such post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment,provided, that the Company shall not be
required to take any action pursuant to this Section 3(f) that would, in the
opinion of counsel for the Company, violate applicable law or be materially
detrimental to the business prospects of the Company.
(g) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.
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(h) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders and any underwriters in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(i) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders, any
underwriters and their Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder or underwriter
requests in writing, to keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness Period and to do any and
all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by a Registration
Statement; provided, however, that the Company shall not be required to qualify
generally to do business in any jurisdiction where it is not then so qualified
or subject the Company to any material tax in any such jurisdiction where it is
not then so subject.
(j) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent
permitted by the Purchase Agreement, of all restrictive legends, and to enable
such Registrable Securities to be in such denominations and registered in such
names as any such managing underwriters or Holders may request.
(k) Upon the occurrence of any event contemplated by Section 3(d)(vi),
as promptly as reasonably possible, prepare a supplement or amendment, including
a post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an 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 under which they were made, not misleading.
(l) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on the Nasdaq SmallCap Market
("NASDAQ") or on any other stock market or trading facility on which the shares
of Common Stock are traded, listed or quoted (each a "Subsequent Market") as and
when required pursuant to the Purchase Agreement.
(m) Enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in Underwritten Offerings) and take
all such other actions in connection therewith (including those reasonably
requested by any managing underwriters and the Holders of a majority of the
Registrable Securities being sold) in order to expedite or facilitate the
disposition of such Registrable Securities, and whether or not an underwriting
agreement is entered into, (i) make such representations and warranties to such
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Holders and such underwriters as are customarily made by issuers to underwriters
in underwritten public offerings (subject to the scheduling of appropriate
exceptions to insure such representations and warranties are accurate), and
confirm the same if and when requested; (ii) in the case of an Underwritten
Offering obtain and deliver copies thereof to each Holder and the managing
underwriters, if any, of opinions of counsel to the Company and updates thereof
addressed to each Holder and each such underwriter, in form, scope and substance
reasonably satisfactory to any such managing underwriters and Special Counsel to
the selling Holders covering the matters customarily covered in opinions
requested in Underwritten Offerings and such other matters as may be reasonably
requested by such Special Counsel and underwriters; (iii) immediately prior to
the effectiveness of the Registration Statement, and, in the case of an
Underwritten Offering, at the time of delivery of any Registrable Securities
sold pursuant thereto, use its best reasonable efforts to obtain and deliver
copies to the Holders and the managing underwriters, if any, of "cold comfort"
letters and updates thereof from the independent certified public accountants of
the Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data is, or is required to
be, included in the Registration Statement), addressed to the Company in form
and substance as are customary in connection with Underwritten Offerings; (iv)
if an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to the selling
Holders and the underwriters, if any, than those set forth in Section 5 (or such
other provisions and procedures acceptable to the managing underwriters, if any,
and holders of a majority of Registrable Securities participating in such
Underwritten Offering); and (v) deliver such documents and certificates as may
be reasonably requested by the Holders of a majority of the Registrable
Securities being sold, their Special Counsel and any managing underwriters to
evidence the continued validity of the representations and warranties made
pursuant to Section 3(m)(i) above and to evidence compliance with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company.
(n) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case reasonably requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement, provided, that any information that is determined in
good faith by the Company in writing to be of a confidential nature at the time
of delivery of such information shall be kept confidential by such Persons,
unless (i) disclosure of such information is required by court or administrative
order or is necessary to respond to inquiries of regulatory authorities; (ii)
disclosure of such information, in the opinion of counsel to such Person, is
required by law; (iii) such information becomes generally available to the
public other than as a result of a disclosure or failure to safeguard by such
Person; or (iv) such information becomes available to such Person from a source
other than the Company and such source is not known by such Person to be bound
by a confidentiality agreement with the Company.
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(o) Comply with all applicable rules and regulations of the Commission.
(p) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such Holder as
is required by law to be disclosed in the Registration Statement, and the
Company may exclude from such registration the Registrable Securities of any
such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
(q) If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar Federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
4. Registration Expenses
(a) All fees and expenses incident to the performance of or compliance
with this Agreement by the Company, except as and to the extent specified in
Section 4(b), shall be borne by the Company whether or not pursuant to an
Underwritten Offering and whether or not the Registration Statement is filed or
becomes effective and whether or not any Registrable Securities are sold
pursuant to the Registration Statement. The fees and expenses referred to in the
foregoing sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with respect
to filings required to be made with the NASDAQ and any Subsequent Market on
which the Common Stock is then listed for trading, and (B) in compliance with
state securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Holders in connection with Blue Sky
qualifications or exemptions of the Registrable Securities and determination of
the eligibility of the Registrable Securities for investment under the laws of
such jurisdictions as the managing underwriters, if any, or the Holders of a
majority of Registrable Securities may designate)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriters, if any, or by the
holders of a majority of the Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company and Special Counsel for the Holders (in
the case of Special Counsel for the Holders, up to an aggregate of $5,000), (v)
Securities Act liability insurance, if the Company so desires such insurance,
and (vi) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement. In addition, the Company shall be responsible for all of its internal
expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit and the fees and expenses incurred in connection
with the listing of the Registrable Securities on any securities exchange as
required hereunder.
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(b) If the Holders require an Underwritten Offering pursuant to the
terms hereof and there shall not be at such time an effective Registration
Statement covering all of the Registrable Securities pursuant to which the
Holders are both named Selling Securityholders thereunder and permitted to
utilize the Prospectus thereunder to resell such Registrable Securities held by
them, then the Company shall be responsible for all costs, fees and expenses in
connection therewith, except for the fees and disbursements of the Underwriters
(including any underwriting commissions and discounts) and their legal counsel
and accountants. By way of illustration which is not intended to diminish from
the provisions of Section 4(a), the Holders shall not be responsible for, and
the Company shall be required to pay, the fees or disbursements incurred by the
Company (including by its legal counsel and accountants) in connection with, the
preparation and filing of a Registration Statement and related Prospectus for
such offering, the maintenance of such Registration Statement in accordance with
the terms hereof, the listing of the Registrable Securities in accordance with
the requirements hereof, and printing expenses incurred to comply with the
requirements hereof. If the Holders require an Underwritten Offering at a time
when all of the circumstances specified in the opening clause to the first
sentence of this Section 4(b) are present, then such Holders shall bear all the
fees and disbursements of the underwriters, including those costs specified in
this Section 4(b).
5. Indemnification
(a) Indemnification by the Company. The Company shall, notwithstanding
any termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents (including any underwriters retained by such Holder
in connection with the offer and sale of Registrable Securities), brokers
(including brokers who offer and sell Registrable Securities as principal as a
result of a pledge or any failure to perform under a margin call of Common
Stock), investment advisors and employees of each of them, each Person who
controls any such Holder (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out
of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that (1) such
untrue statements or omissions are based solely upon information regarding such
Holder furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (2) in the case of an occurrence of an event
of the type specified in Section 3(d)(ii)-(vi), the use by such Holder of an
outdated or defective Prospectus after the Company has notified such Holder in
writing that the Prospectus is outdated or defective and prior to the receipt by
such Holder of the Advice contemplated in Section 6(f). The Company shall notify
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the Holders promptly of the institution, threat or assertion of any Proceeding
of which the Company is aware in connection with the transactions contemplated
by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus, or in any amendment or supplement thereto. In no event shall the
liability of any selling Holder hereunder be greater in amount than the dollar
amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
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shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of fraudulent
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misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section are
in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a Holder,
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has entered, as of the date hereof, nor shall the Company or any of
its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as and to the extent specified in Schedule 6(b)
hereto, neither the Company nor any of its subsidiaries has previously entered
into any agreement granting any registration rights with respect to any of its
securities to any Person. Without limiting the generality of the foregoing,
without the written consent of the Holders of a majority of the then outstanding
Registrable Securities, the Company shall not grant to any Person the right to
request the Company to register any securities of the Company under the
Securities Act unless the rights so granted are subject in all respects to the
prior rights in full of the Holders set forth herein, and are not otherwise in
conflict or inconsistent with the provisions of this Agreement.
(c) No Piggyback on Registrations. Except as and to the extent
specified in Schedule 6(b) hereto, neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.
(d) Piggy-Back Registrations. If at any time when there is not an
effective Registration Statement covering all of the Registrable Securities, the
Company shall determine to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities, other than on Form S-4
or Form S-8 (each as promulgated under the Securities Act) or their then
equivalents relating to equity securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then the Company
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shall send to each Holder written notice of such determination and, if within
twenty (20) days after receipt of such notice, any such holder shall so request
in writing, the Company shall include in such registration statement all or any
part of such Registrable Securities such holder requests to be registered;
provided, however, that the Company shall not be required to register any
Registrable Securities pursuant to this Section 6(d) that are eligible for sale
pursuant to Rule 144(k) of the Commission.
(e) Prospectus Delivery Requirements. Each Holder covenants and agrees
that (i) it will not sell any Registrable Securities under the Registration
Statement until it has received copies of the Prospectus as then amended or
supplemented as contemplated in Section 3(h) and notice from the Company that
such Registration Statement and any post-effective amendments thereto have
become effective as contemplated by Section 3(d) and (ii) it and its officers,
directors or Affiliates, if any, will comply with the prospectus delivery
requirements of the Securities Act as applicable to any of them in connection
with sales of Registrable Securities pursuant to the Registration Statement.
(f) Discontinued Disposition. Each Holder agrees by its acquisition of
such Registrable Securities that, upon receipt of a notice from the Company of
the occurrence of any event of the kind described in Sections 3(d)(ii),
3(d)(iii), 3(d)(iv), 3(d)(v) or 3(d)(vi), such Holder will forthwith discontinue
disposition of such Registrable Securities under the Registration Statement
until such Holder's receipt of the copies of the supplemented Prospectus and/or
amended Registration Statement contemplated by Section 3(k), or until it is
advised in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement. The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph.
(g) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and the
Holders of at least two-thirds of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders and that does not directly or indirectly affect the rights of other
Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(h) Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 6:30 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in the Purchase Agreement later than 6:30 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
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such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
If to the Company: New Frontier Media, Inc.
5435 Airport Blvd., Suite 100
Boulder, CO 80301
Facsimile No.: (303) 413-1553
Attn: Chief Financial Officer
With copies to: Lehman & Eilen, LLP
50 Charles Lindbergh Boulevard, Suite 505
Uniondale, NY 1553
Facsimile No.: (516) 222-0948
Attn: Hank Gracin, Esq.
If to a Purchaser: To the address set forth under such
Purchaser's name on the signature pages
hereto.
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears
in the stock transfer books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(i) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Each Holder may assign their respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.
(j) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(k) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
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York, without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
(l) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
(m) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(n) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(o) Shares Held by the Company and its Affiliates. Whenever the consent
or approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its Affiliates
(other than any Holder or transferees or successors or assigns thereof if such
Holder is deemed to be an Affiliate solely by reason of its holdings of such
Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the Holders of such required percentage.
(p) Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of any other Purchaser hereunder, and neither Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
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create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES TO FOLLOW]
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IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
NEW FRONTIER MEDIA, INC.
By:_____________________________________
Name:
Title:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES OF PURCHASERS TO FOLLOW]
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JNC OPPORTUNITY FUND LTD.
By: Encore Capital Management, L.L.C.
Its Investment Adviser
By:____________________________________
Neil T. Chau
Managing Member
Address for Notice:
JNC Opportunity Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
Williams House, 20 Reid Street
Facsimile No.: (441) 295-2305
Attn: Director
With copies to:
Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
and
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen. Esq.
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Annex A
Plan of Distribution
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:
* ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
* block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
* purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
* an exchange distribution in accordance with the rules of the applicable
exchange;
* privately negotiated transactions;
* short sales;
* broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share;
* a combination of any such methods of sale; and
* any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The Selling Stockholders may also engage in short sales against the
box, puts and calls and other transactions in securities of the Company or
derivatives of Company securities and may sell or deliver shares in connection
with these trades. The Selling Stockholders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a Selling
Stockholder defaults on a margin loan, the broker may, from time to time, offer
and sell the pledged shares.
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
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acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
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EXHIBIT 10.07
<PAGE>
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
NEW FRONTIER MEDIA, INC.
WARRANT
Warrant No. 1 Dated: September 30, 1999
New Frontier Media, Inc., a Colorado corporation (the "Company"),
hereby certifies that, for value received, JNC Opportunity Fund Ltd., or its
registered assigns ("Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company up to a total of 360,000 shares of common
stock, $.0001 par value per share (the "Common Stock"), of the Company (each
such share, a "Warrant Share" and all such shares, the "Warrant Shares") at an
exercise price equal to $7.87 per share (as adjusted from time to time as
provided in Section 9, the "Exercise Price"), at any time and from time to time
from and after the date hereof and through and including September 30, 2004 (the
"Expiration Date"), and subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of this
Warrant in the Warrant Register, upon surrender of this Warrant, with the Form
of Assignment attached hereto duly completed and signed, to the Transfer Agent
or to the Company at the office specified in or pursuant to Section 3(b). Upon
<PAGE>
any such registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "New Warrant"),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by the
Holder to the office of the Company specified in or pursuant to Section 3(b) for
one or more New Warrants, evidencing in the aggregate the right to purchase the
number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered Holder on any
business day before 8:00 P.M., New York City time, at any time and from time to
time on or after the date hereof to and including the Expiration Date. At 8:00
P.M., New York City time on the Expiration Date, the portion of this Warrant not
exercised prior thereto shall be and become void and of no value. Prior to the
Expiration Date, the Company may not call or otherwise redeem this Warrant
without the prior written consent of the Holder.
(b) Subject to Sections 2(b), 6 and 10, upon surrender of this Warrant,
with the Form of Election to Purchase attached hereto duly completed and signed,
to the Company at its address for notice set forth in Section 13 and upon
payment of the Exercise Price multiplied by the number of Warrant Shares that
the Holder intends to purchase hereunder, in the manner provided hereunder, all
as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends except (i) either in the event that a
registration statement covering the resale of the Warrant Shares and naming the
Holder as a selling stockholder thereunder is not then effective or the Warrant
Shares are not freely transferable without volume restrictions pursuant to Rule
144(k) promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), or (ii) if this Warrant shall have been issued pursuant to a written
agreement between the original Holder and the Company, as required by such
agreement. Any person so designated by the Holder to receive Warrant Shares
shall be deemed to have become holder of record of such Warrant Shares as of the
Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
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<PAGE>
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable, either in its entirety or, from
time to time, for a portion of the number of Warrant Shares. If less than all of
the Warrant Shares which may be purchased under this Warrant are exercised at
any time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.
4. Piggyback Registration Rights. During the Effectiveness Period (as
defined in the Registration Rights Agreement, of even date herewith, between the
Company and the original Holder), the Company may not file any registration
statement with the Securities and Exchange Commission (other than registration
statements of the Company filed on Form S-8 or Form S-4, each as promulgated
under the Securities Act, pursuant to which the Company is registering
securities pursuant to a Company employee benefit plan or pursuant to a merger,
acquisition or similar transaction including supplements thereto, but not
additionally filed registration statements in respect of such securities) at any
time when there is not an effective registration statement covering the resale
of the Warrant Shares and naming the Holder as a selling stockholder thereunder,
unless the Company provides the Holder with not less than 20 days notice of its
intention to file such registration statement and provides the Holder the option
to include any or all of the applicable Warrant Shares therein. The piggyback
registration rights granted to the Holder pursuant to this Section shall
continue until all of the Holder's Warrant Shares have been sold in accordance
with an effective registration statement or upon the Expiration Date. The
Company will pay all registration expenses in connection therewith.
5. Demand Registration Rights. During the Effectiveness Period if the
Warrant Shares are not registered pursuant to an effective registration
statement, the Holder may make a written request for the registration under the
Securities Act (a "Demand Registration"), of all of the Warrant Shares (the
"Registrable Securities"), and the Company shall use its best efforts to effect
such Demand Registration as promptly as possible, but in any case within 90 days
thereafter. Any request for a Demand Registration shall specify the aggregate
number of Registrable Securities proposed to be sold and shall also specify the
intended method of disposition thereof. The right to cause a registration of the
Registrable Securities under this Section 5 shall be limited to one such
registration. In any registration initiated as a Demand Registration, the
Company will pay all of its registration expenses in connection therewith. A
Demand Registration shall not be counted as a Demand Registration hereunder
until the registration statement filed pursuant to the Demand Registration has
been declared effective by the Securities and Exchange Commission and maintained
continuously effective for a period of at least 360 days or such shorter period
when all Registrable Securities included therein have been sold in accordance
with such registration statement, provided, however that any days on which such
registration statement is not effective or on which the Holder is not permitted
by the Company or any governmental authority to sell Warrant Shares under such
registration statement shall not count towards such 360 day period.
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6. Payment of Taxes. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Warrant or receiving Warrant
Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
requested, satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
8. Reservation of Warrant Shares. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holder (taking into account the adjustments and
restrictions of Section 9). The Company covenants that all Warrant Shares that
shall be so issuable and deliverable shall, upon issuance and the payment of the
applicable Exercise Price in accordance with the terms hereof, be duly and
validly authorized, issued and fully paid and nonassessable.
9. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9. Upon each such adjustment of the Exercise
Price pursuant to this Section 9, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend (except scheduled dividends paid on outstanding
preferred stock as of the date hereof which contain a stated dividend rate) or
otherwise make a distribution or distributions on shares of its Common Stock or
on any other class of capital stock payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock into a larger number of shares, or
(iii) combine outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price shall be multiplied by a fraction of which the
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<PAGE>
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision or
combination, and shall apply to successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification or share exchange, and the Holder
shall be entitled upon such event to receive such amount of securities or
property equal to the amount of Warrant Shares such Holder would have been
entitled to had such Holder exercised this Warrant immediately prior to such
reclassification or share exchange. The terms of any such reclassification or
share exchange shall include such terms so as to continue to give to the Holder
the right to receive the securities or property set forth in this Section 9(b)
upon any exercise following any such reclassification or share exchange.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to holders of this
Warrant) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
9(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly examines
the financial statements of the Company (an "Appraiser").
(d) If at any time the Company or any subsidiary thereof, as applicable
with respect to Common Stock Equivalents (as defined below), shall issue shares
of Common Stock or rights, warrants, options or other securities or debt that is
convertible into or exchangeable for shares of Common Stock ("Common Stock
Equivalents"), entitling any person or entity to acquire shares of Common Stock
at a price per share less than both the market price of the Common Stock at the
time of issuance and the Exercise Price then in effect (if the holder of the
Common Stock or Common Stock Equivalent so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights
issued in connection with such issuance at a price less than the prevailing
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Exercise Price or market price, such issuance shall be deemed to have occurred
for less than such Exercise Price or market price), then, forthwith upon such
issue or sale, the Exercise Price shall be reduced to the price (calculated to
the nearest cent) determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the sum
of (i) the number of shares of Common Stock outstanding immediately prior to
such issuance, and (ii) the number of shares of Common Stock which the aggregate
consideration received (or to be received, assuming exercise or conversion in
full of such Common Stock Equivalents) for the issuance of such additional
shares of Common Stock would purchase at the Exercise Price, and the denominator
of which shall be the sum of the number of shares of Common Stock outstanding
immediately after the issuance of such additional shares. For purposes hereof,
all shares of Common Stock that are issuable upon conversion, exercise or
exchange of Common Stock Equivalents shall be deemed outstanding immediately
after the issuance of such Common Stock Equivalents. Such adjustment shall be
made whenever such Common Stock or Common Stock Equivalents are issued. However,
upon the expiration of any Common Stock Equivalents the issuance of which
resulted in an adjustment in the Exercise Price pursuant to this Section, if any
such Common Stock Equivalents shall expire and shall not have been exercised,
the Exercise Price shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Exercise Price made
pursuant to the provisions of this Section after the issuance of such Common
Stock Equivalents) had the adjustment of the Exercise Price made upon the
issuance of such Common Stock Equivalents been made on the basis of offering for
subscription or purchase only that number of shares of the Common Stock actually
purchased upon the exercise of such Common Stock Equivalents actually exercised.
Notwithstanding anything herein to the contrary, the following shall not be
subject to the provisions of this Section: (1) issuances of any stock or stock
options under any employee benefit plan of the Company whether now existing or
approved by the Company and its stockholders in the future, (2) the rights,
options and warrants outstanding prior to the date hereof and specified in
Schedule 2.1(c) to the Purchase Agreement of even date herewith between the
original Holder and the Company (the "Purchase Agreement"), but not any
modifications thereof, (3) the issuance of shares of Common Stock in payment of
the purchase price of a Strategic Transaction (as defined below) and (4) the
issuance of up to an aggregate of 300,000 shares of Common Stock in settlement
of any litigation, provided, that any shares of Common Stock issuable pursuant
to subsections (3) and (4) herein shall not be entitled to be registered for
resale and shall not be permitted to be resold or otherwise disposed of by the
holders thereof, in each case, prior to the ninetieth (90th) Trading Day (as
defined in the Purchase Agreement) following the date that the registration
statement covering the resale of the Warrant Shares and naming the Holder as a
selling stockholder thereunder (the "Registration Statement") is declared
effective by the Securities and Exchange Commission, provided, further, that
such ninety (90) Trading Day period shall be extended for the number of Trading
Days during such period in which (A) trading in the Common Stock is suspended by
the Nasdaq SmallCap Market or a Subsequent Market (as defined in the Purchase
Agreement) on which the Common Stock is then listed, or (B) the Registration
Statement is not effective, or (C) the Prospectus included in the Registration
Statement may not be used by the Holder for the resale of Warrant Shares. For
purposes of this Section, a "Strategic Transaction" shall mean a transaction or
relationship in which the Company issues shares of Common Stock to an entity
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<PAGE>
which is, itself or through its subsidiaries, an operating company in a business
related to the business of the Company and in which the Company receives
material benefits in addition to the investment of funds, but shall not include
a transaction in which the Company is issuing securities primarily for the
purpose of raising capital.
(e) In case of any (1) merger or consolidation of the Company with or
into another Person, or (2) sale by the Company of more than one-half of the
assets of the Company (on a book value basis) in one or a series of related
transactions, or (3) tender or other offer or exchange (whether by the Company
or another Person) pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, stock, cash or property of
the Company or another Person; then the Holder shall have the right thereafter
to (A) exercise this Warrant for the shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of Common Stock
following such merger, consolidation or sale, and the Holder shall be entitled
upon such event or series of related events to receive such amount of
securities, cash and property as the Common Stock for which this Warrant could
have been exercised immediately prior to such merger, consolidation or sales
would have been entitled, (B) in the case of a merger or consolidation, (x)
require the surviving entity to issue to the Holder a warrant entitling the
Holder to acquire shares of such entity's common stock, which warrant shall have
terms identical (including with respect to exercise) to the terms of this
Warrant and shall be entitled to all of the rights and privileges set forth
herein and the agreements pursuant to which this Warrant was issued (including,
without limitation, as such rights relate to the acquisition, transferability,
registration and listing of such shares of stock other securities issuable upon
exercise thereof), or (C) in the event of an exchange or tender offer or other
transaction contemplated by clause (3) of this Section, tender or exchange this
Warrant for such securities, stock, cash and other property receivable upon or
deemed to be held by holders of Common Stock that have tendered or exchanged
their shares of Common Stock following such tender or exchange, and the Holder
shall be entitled upon such exchange or tender to receive such amount of
securities, cash and property as the shares of Common Stock for which this
Warrant could have been exercised immediately prior to such tender or exchange
would have been entitled as would have been issued. In the case of clause (B),
the exercise price applicable for the newly issued warrant shall be based upon
the amount of securities, cash and property that each shares of Common Stock
would receive in such transaction and the Exercise Price immediately prior to
the effectiveness or closing date for such transaction. The terms of any such
merger, sale, consolidation, tender or exchange shall include such terms so as
continue to give the Holder the right to receive the securities, cash and
property set forth in this Section upon any conversion or redemption following
such event. This provision shall similarly apply to successive such events.
(f) For the purposes of this Section 9, the following clauses shall
also be applicable:
(i) Record Date. In case the Company shall take a record of the holders
of its Common Stock for the purpose of entitling them (A) to receive a dividend
or other distribution payable in Common Stock or in securities convertible or
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<PAGE>
exchangeable into shares of Common Stock, or (B) to subscribe for or purchase
Common Stock or securities convertible or exchangeable into shares of Common
Stock, then such record date shall be deemed to be the date of the issue or sale
of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(ii) Treasury Shares. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Company, and the disposition of any such shares shall be considered an
issue or sale of Common Stock.
(g) All calculations under this Section 9 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.
(h) Whenever the Exercise Price is adjusted pursuant to Section 9(c)
above, the Holder, after receipt of the determination by the Appraiser, shall
have the right to select an additional appraiser (which shall be a nationally
recognized accounting firm), in which case the adjustment shall be equal to the
average of the adjustments recommended by each of the Appraiser and such
appraiser. The Holder shall promptly mail or cause to be mailed to the Company,
a notice setting forth the Exercise Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment. Such adjustment
shall become effective immediately after the record date mentioned above.
(i) If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or
of any rights; or
(iv) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, or any
8
<PAGE>
compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; or
(v) the Company shall authorize the voluntary dissolution,
liquidation or winding up of the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
10. Payment of Exercise Price. The Holder shall pay the Exercise Price
in one of the following manners:
(a) Cash Exercise. The Holder may deliver immediately available funds;
or
(b) Cashless Exercise. In the event that the Registration Statement is
not then effective and the Warrant Shares are not freely transferable without
volume restrictions pursuant to Rule 144(k) promulgated under the Securities
Act, the Holder may surrender this Warrant to the Company together with a notice
of cashless exercise, in which event the Company shall issue to the Holder the
number of Warrant Shares determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be
issued to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is being
exercised.
A = the average of the closing sale prices
of the Common Stock for the five (5) trading
days immediately prior to (but not
including) the Date of Exercise.
B = the Exercise Price.
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<PAGE>
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
11. Certain Exercise Restrictions.
(a) A Holder may not exercise this Warrant to the extent such exercise
would result in the Holder, together with any affiliate thereof, beneficially
owning (as determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the rules promulgated
thereunder) in excess of 4.999% of the then issued and outstanding shares of
Common Stock, including shares of Common Stock issuable upon such exercise and
held by such Holder after application of this Section. Since the Holder will not
be obligated to report to the Company the number of shares of Common Stock it
may hold at the time of an exercise hereunder, unless the exercise at issue
would result in the issuance of shares of Common Stock in excess of 4.999% of
the then outstanding shares of Common Stock without regard to any other shares
of Common Stock which may be beneficially owned by the Holder or an affiliate
thereof, the Holder shall have the authority and obligation to determine whether
the restriction contained in this Section will limit any particular exercise
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of this
Warrant is exercisable shall be the responsibility and obligation of the Holder.
If the Holder has delivered a Form of Election to Purchase for a number of
Warrant Shares that would result in the issuance in excess of the permitted
amount hereunder, the Company shall notify the Holder of this fact and shall
honor the exercise for the maximum portion of this Warrant permitted to be
exercised on such Date of Exercise in accordance with the periods described
herein and disregard the balance of such Form of Election to Purchase, as if
never delivered The provisions of this Section may be waived by a Holder (but
only as to itself and not to any other Holder) upon not less than 61 days prior
notice to the Company. Other Holders shall be unaffected by any such waiver.
(b) A Holder may not exercise this Warrant to the extent such exercise
would result in the Holder, together with any affiliate thereof, beneficially
owning (as determined in accordance with Section 13(d) of the Exchange Act and
the rules promulgated thereunder) in excess of 9.999% of the then issued and
outstanding shares of Common Stock, including shares of Common Stock issuable
upon such exercise and held by such Holder after application of this Section.
Since the Holder will not be obligated to report to the Company the number of
shares of Common Stock it may hold at the time of an exercise hereunder, unless
the exercise at issue would result in the issuance of shares of Common Stock in
excess of 9.999% of the then outstanding shares of Common Stock without regard
to any other shares of Common Stock which may be beneficially owned by the
Holder or an affiliate thereof, the Holder shall have the authority and
obligation to determine whether the restriction contained in this Section will
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<PAGE>
limit any particular exercise hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of this Warrant is exercisable shall be the
responsibility and obligation of the Holder. If the Holder has delivered a Form
of Election to Purchase for a number of Warrant Shares that would result in the
issuance in excess of the permitted amount hereunder, the Company shall notify
the Holder of this fact and shall honor the exercise for the maximum portion of
this Warrant permitted to be exercised on such Date of Exercise in accordance
with the periods described herein and disregard the balance of such Form of
Election to Purchase, as if never delivered The provisions of this Section may
be waived by a Holder (but only as to itself and not to any other Holder) upon
not less than 61 days prior notice to the Company. Other Holders shall be
unaffected by any such waiver.
12. Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section, be issuable on
the exercise of this Warrant, the Company shall pay an amount in cash equal to
the Exercise Price multiplied by such fraction.
13. Notices. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 8:00 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 8:00 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the business day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company, to
5435 Airport Blvd., Suite 100, Boulder, CO 80301, Attention: Chief Financial
Officer, or to Facsimile No. (303) 413-0553, or (ii) if to the Holder, to the
Holder at the address or facsimile number appearing on the Warrant Register or
such other address or facsimile number as the Holder may provide to the Company
in accordance with this Section.
14. Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may appoint a
new warrant agent. Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
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<PAGE>
15. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns. This Warrant may be
amended only in writing signed by the Company and the Holder and their
successors and assigns.
(b) Subject to Section 15(a), above, nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant. This
Warrant shall inure to the sole and exclusive benefit of the Company and the
Holder.
(c) The corporate laws of the State of Colorado shall govern all issues
concerning the relative rights of the Company and its stockholders. All other
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. The Company and the Holder hereby
irrevocably submit to the exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, or that such suit,
action or proceeding is improper. Each of the Company and the Holder hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by receiving a copy thereof sent
to the Company at the address in effect for notices to it under this instrument
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.
(d) The headings herein are for convenience only, do not constitute a
part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
NEW FRONTIER MEDIA, INC.
By: ______________________________________
Name: ____________________________________
Title: ___________________________________
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To New Frontier Media, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of common stock, $.0001 par value per share, of New Frontier Media, Inc.
(the "Common Stock") and , if such Holder is not utilizing the cashless exercise
provisions set forth in this Warrant, encloses herewith $________ in cash,
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
___________________________________
_______________________________________________________________________________
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
_______________________________________________________________________________
Dated: ___________, ___ Name of Holder:
(Print)___________________________________
(By:)_____________________________________
(Name:)
(Title:)
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
<PAGE>
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of New Frontier Media,
Inc. to which the within Warrant relates and appoints ________________ attorney
to transfer said right on the books of New Frontier Media, Inc. with full power
of substitution in the premises.
Dated:
_______________, ____
__________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
__________________________________________
Address of Transferee
__________________________________________
__________________________________________
In the presence of:
___________________________________
<PAGE>
EXHIBIT 10.08
<PAGE>
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY OTHER SECURITIES
LAWS (THE "ACTS"). NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK
PURCHASABLE HEREUNDER MAY BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THIS WARRANT OR COMMON
STOCK PURCHASABLE HEREUNDER, AS APPLICABLE, UNDER THE ACTS, OR (B) AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.
NEW FRONTIER MEDIA, INC
WARRANT AGREEMENT
Issue Date: ______________________
1. Basic Terms. This Warrant Agreement (the "Warrant") certifies that,
for value received, the registered holder specified below or its registered
assigns ("Holder"), is the owner of a warrant of New Frontier Media, Inc., a
Colorado corporation (the "Corporation"), subject to adjustments as provided
herein, to purchase ______________________shares of the Common Stock, $.0001 par
value (the "Common Stock"), of the Corporation from the Corporation at the price
per share shown below (the "Exercise Price").
Holder:
Exercise Price per share: $
Except as specifically provided otherwise, all references in this Warrant to the
Exercise Price and the number of shares of Common Stock purchasable hereunder
shall be to the Exercise Price and number of shares after any adjustments are
made thereto pursuant to this Warrant.
2. Corporation's Representations/Covenants. The Corporation represents
and covenants that the shares of Common Stock issuable upon the exercise of this
Warrant shall at delivery be fully paid and non-assessable and free from taxes,
liens, encumbrances and charges with respect to their purchase. The Corporation
shall take any necessary actions to assure that the par value per share of the
Common Stock is at all times equal to or less than the then current Exercise
Price per share of Common Stock issuable pursuant to this Warrant. The
Corporation shall at all times reserve and hold available sufficient shares of
Common Stock to satisfy all conversion and purchase rights of outstanding
convertible securities, options and warrants of the Corporation, including this
Warrant.
3. Method of Exercise; Fractional Shares. This Warrant is exercisable
at the option of the Holder, in increments at least _______ shares, at any time
by surrendering this
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Warrant, on any business day during the period (the "Exercise Period") beginning
four months after the issue date of this Warrant specified above and ending at
5:00 p.m. (New York time) ______ (__) years after the issue date. To exercise
this Warrant, the Holder shall surrender this Warrant at the principal office of
the Corporation or that of the duly authorized and acting transfer agent for its
Common Stock, together with the executed exercise form (substantially in the
form of that attached hereto) and together with payment for the Common Stock
purchased under this Warrant. The principal office of the Corporation is located
at the address specified on the signature page of this Warrant; provided,
however, that the Corporation may change its principal office upon notice to the
Holder. Payment shall be made by check payable to the order of the Corporation
or by wire transfer. This Warrant is not exercisable with respect to a fraction
of a share of Common Stock. In lieu of issuing a fraction of a share remaining
after exercise of this Warrant as to all full shares covered by this Warrant,
the Corporation shall either at its option (a) pay for the fractional share cash
equal to the same fraction at the fair market price for such share; or (b) issue
scrip for the fraction in the registered or bearer form which shall entitle the
Holder to receive a certificate for a full share of Common Stock on surrender of
scrip aggregating a full share.
4. Protection Against Dilution. The number of shares of Common Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth as follows. If at any time or from time to time after the date of this
Warrant, the Corporation:
(1) takes a record of the holders of its outstanding shares of
Common Stock for the purposes of entitling them to receive a dividend payable
in, or other distribution of, Common Stock; or
(2) subdivides its outstanding shares of Common Stock into a
larger number of shares of Common Stock; or
(3) combines its outstanding shares of Common Stock into a
smaller number of shares of Common Stock;
then, and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event by a fraction (A) the numerator of which is the total number of
outstanding shares of Common Stock immediately prior to such event and (B) the
denominator of which is the total number of outstanding shares of Common Stock
immediately after such event.
Upon each adjustment in the Exercise Price under this Warrant
such number of shares of Common Stock purchasable under this Warrant shall be
adjusted by multiplying the number of shares of Common Stock by a fraction, the
numerator of which is the Exercise Price immediately prior to such adjustment
and the denominator of which is the Exercise Price in effect upon such
adjustment.
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<PAGE>
5. Adjustment for Reorganization, Consolidation, Merger, Etc.
(1) During the Exercise Period, the Corporation shall, prior
to consummation of a consolidation with or merger into another corporation, or
conveyance of all or substantially all of its assets to any other corporation or
corporations, whether affiliated or unaffiliated (any such corporation being
included within the meaning of the term "successor corporation"), or agreement
to so consolidate, merge or convey assets, require the successor corporation to
assume, by written instrument delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock, securities or property as, in
accordance with the provisions of paragraph 5(b), the Holder shall be entitled
to purchase or receive.
(2) In the case of any capital reorganization or
reclassification of the Common Stock of the Corporation (or any other
corporation the stock or other securities of which are at the time receivable on
the exercise of this Warrant) during the Exercise Period or in case, during the
Exercise Period, the Corporation (or any such other corporation) shall
consolidate with or merge into another corporation or convey all or
substantially all its assets to another corporation, the Holder, upon exercise,
at any time after the consummation of such reorganization, consolidation, merger
or conveyance, shall be entitled to receive, in lieu of the Common Stock of the
Corporation (or such other corporation), the proportionate share of all stock,
securities or other property issued, paid or delivered for or on all of the
Common Stock of the Corporation (or such other corporation) as is allocable to
the shares of Common Stock then called for by this Warrant as if the Holder had
exercised the Warrant immediately prior thereto, all subject to further
adjustment as provided in paragraph 4 of this Warrant.
6. Notice of Adjustment. On the happening of an event requiring an
adjustment of the Exercise Price or the shares purchasable under this Warrant,
the Corporation shall immediately give written notice to the Holder stating the
adjusted Exercise Price and the adjusted number and kind of securities or other
property purchasable under this Warrant resulting from the event and setting
forth in reasonable detail the method of calculation and the facts upon which
the calculation is based.
7. Dissolution, Liquidation. In case the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation (other than in
connection with a reorganization, consolidation, merger, or other transaction
covered by paragraph 5 above) is at any time proposed, the Corporation shall
give at least thirty days prior written notice to the Holder. Such notice shall
contain: (a) the date on which the transaction is to take place; (b) the record
date (which shall be at least thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction; (c) a brief description of the transaction, (d) a
brief description of the distributions to be made to holders of Common Stock as
a result of the transaction; and (d) an estimate of the fair value of the
distributions. On the date of the transaction, if it actually occurs, this
Warrant and all rights under this Warrant shall terminate.
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<PAGE>
8. Rights of Holder. The Corporation shall deliver to the Holder all
notices and other information provided to its holders of shares of Common Stock
or other securities which may be issuable hereunder concurrently with the
delivery of such information to the holders. This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions, any
other rights as a shareholder of the Corporation. No dividends are payable or
will accrue on this Warrant or the Shares purchasable under this Warrant until,
and except to the extent that, this Warrant is exercised. Upon the surrender of
this Warrant and payment of the Exercise Price as provided above, the person or
entity entitled to receive the shares of Common Stock issuable upon such
exercise shall be treated for all purposes as the record holder of such shares
as of the close of business on the date of the surrender of this Warrant for
exercise as provided above. Upon the exercise of this Warrant, the Holder shall
have all of the rights of a shareholder in the Corporation.
9. Exchange for Other Denominations. This Warrant is exchangeable, on
its surrender by the Holder to the Corporation, for a new Warrant of like tenor
and date representing in the aggregate the right to purchase the balance of the
number of shares purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.
10. Substitution. Upon receipt by the Corporation of evidence
satisfactory (in the exercise of reasonable discretion) to it of the ownership
of and the loss, theft or destruction or mutilation of the Warrant, and (in the
case or loss, theft or destruction) of indemnity satisfactory (in the exercise
of reasonable discretion) to it, and (in the case of mutilation) upon the
surrender and cancellation thereof, the Corporation will issue and deliver, in
lieu thereof, a new Warrant of like tenor.
11. Restrictions on Transfer; Registration Rights. Neither this Warrant
nor the shares of Common Stock issuable on exercise of this Warrant have been
registered under the Securities Act or any other securities laws (the "Acts").
Neither this Warrant nor the shares of Common Stock purchasable hereunder may be
sold, transferred, pledged or hypothecated in the absence of (a) an effective
registration statement for this Warrant or Common Stock purchasable hereunder,
as applicable, under the Acts, or (b) an opinion of counsel reasonably
satisfactory to the Corporation that registration is not required under such
Acts. If the Holder seeks an opinion as to transfer without registration from
Holder's counsel, the Corporation shall provide such factual information to
Holder's counsel as Holder's counsel reasonably request for the purpose of
rendering such opinion. Each certificate evidencing shares of Common Stock
purchased hereunder will bear a legend describing the restrictions on transfer
contained in this paragraph unless, in the opinion of counsel reasonably
acceptable to the Corporation, the shares need no longer to be subject to the
transfer restrictions.
12. Transfer. Except as otherwise provided in this Warrant, this
Warrant is transferable only on the books of the Corporation by the Holder in
person or by attorney, on surrender of this Warrant, properly endorsed.
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13. Recognition of Holder. Prior to due presentment for registration of
transfer of this Warrant, the Corporation shall treat the Holder as the person
exclusively entitled to receive notices and otherwise to exercise rights under
this Warrant. All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the Holder at the address of the Holder appearing in the records of the
Corporation.
14. Payment of Taxes. The Corporation shall pay all taxes and other
governmental charges, other than applicable income taxes, that may be imposed
with respect to the issuance of shares of Common Stock pursuant to the exercise
of this Warrant.
15. Headings. The headings in this Warrant are for purposes of
convenience in reference only, shall not be deemed to constitute a part of this
Warrant and shall not affect the meaning or construction of any of the
provisions of this Warrant.
16. Miscellaneous. This Warrant may not be changed, waived, discharged
or terminated except by an instrument in writing signed by the Corporation and
the Holder. This Warrant shall inure to the benefit of and shall be binding upon
the successors and assigns of the Corporation. Under no circumstances may this
Warrant be assigned by the Holder.
17. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Colorado without giving effect to its
principles governing conflicts of law.
NEW FRONTIER MEDIA, INC.,
a Colorado corporation
By:__________________________________
Authorized Officer
Printed Name:________________________
Title:_______________________________
5435 Airport Road, Suite 100
Boulder, CO 80301
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NEW FRONTIER MEDIA, INC.
Form of Transfer
(To be executed by the Holder to transfer the Warrant)
For value received the undersigned registered holder of the attached Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:
Names of Number of shares
Assignee Address Taxpayer ID No. subject to transferred
Warrant
The undersigned registered holder further irrevocably appoints
____________________ _______________________________ attorney (with full power
of substitution) to transfer this Warrant as aforesaid on the books of the
Corporation.
Date:______________________________
______________________________
Signature
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NEW FRONTIER MEDIA, INC.
Exercise Form
(To be executed by the Holder to purchase
Common Stock pursuant to the Warrant)
The undersigned holder of the attached Warrant hereby: (1) irrevocably
elects to exercise purchase rights represented by such Warrant for, and to
purchase, ___________ shares of Common Stock of New Frontier Media, Inc, a
Colorado corporation, and encloses a check or has wired payment of
$___________________________ therefor; (2) requests that a certificate for the
shares be issued in the name of the undersigned; and (3) if such number of
shares is not all of the shares purchasable under this Warrant, that a new
Warrant of like tenor for the balance of the remaining shares purchasable under
this Warrant be issued.
Date:______________________________
______________________________
Signature
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EXHIBIT 23.01
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-3 of New Frontier Media, Inc. and Subsidiaries
of our report dated June 9, 1999, accompanying the consolidated financial
statements of New Frontier Media, Inc. and Subsidiaries for the years ended
March 31, 1999 and 1998 which is part of the Annual Report on Form 10-KSB, and
to the reference to us under the heading "Experts" in such registration
statement.
SPICER, JEFFRIES & CO.
Denver, Colorado
November 12, 1999
