<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): July 24, 1997
Wavephore, Inc.
(Exact name of registrant as specified in its charter)
Indiana 0-24858 86-0419428
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification Number)
incorporation)
3311 North 44th Street, Phoenix, AZ 85018
(Address of principal executive offices)
Registrant's telephone number, including area code: (602) 952-5500
Not Applicable
(Former name or former address, if changed since last report)
<PAGE> 2
Item 5. Other Events.
On July 24, 1997, the Company issued 24,000 shares of its Series C
Convertible Preferred Stock and related Warrants in a private placement to
institutional investors. The Company estimates the net proceeds of the offering,
after expenses, to be approximately $22,750,000. The Series C Convertible
Preferred Stock is subject to the terms and conditions of the Articles of
Amendment attached hereto as Exhibit 3.1. The Warrants are subject to the terms
and conditions of the form of Warrant attached hereto as Exhibit 4.1. Pursuant
to a Registration Rights Agreement attached as Exhibit 4.2, the Company has
agreed to prepare and file with the Securities and Exchange Commission a
registration statement covering the resale of the shares of Common Stock
issuable pursuant to the terms of the Series C Preferred Stock and related
Warrants. The terms of the private placement are more fully set forth in the
Securities Purchase Agreement attached hereto as Exhibit 10.1.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit
Number Description
------ -----------
3.1 Articles of Amendment
4.1 Form of Warrant
4.2 Registration Rights Agreement
10.1 Securities Purchase Agreement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WAVEPHORE, INC.
/s/ Kenneth D. Swenson
Dated: July 30, 1997 ____________________________________________________
Kenneth D. Swenson
Executive Vice President and Chief Financial Officer
<PAGE> 1
EXHIBITS 3.1
Exhibit B to Securities Purchase Agreement
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
WAVEPHORE, INC.
The undersigned officer of WavePhore, Inc. (the "Corporation"), a
corporation existing pursuant to the provisions of the Indiana Business
Corporation Law, as amended (the "Act"), desiring to give notice of corporate
action effectuating the amendment of certain provisions of the Corporation's
Articles of Incorporation, sets forth the following facts:
ARTICLE I
AMENDMENT
Section 1. The Corporation was incorporated on November 13, 1990.
Section 2. The name of the Corporation following this Amendment to the
Articles of Incorporation is WavePhore, Inc.
Section 3. The exact text of new subsection (6) of Article III, Section
C of the Articles of Incorporation is now as follows:
(6) Designation of Rights of Series C Convertible Preferred Shares.
The Corporation is authorized to issue a Series of its Preferred Shares
consisting of 24,000 Preferred Shares having a stated value of One Thousand
Dollars ($1,000) per share (the "Stated Value"), to be designated as the Series
C Convertible Preferred Stock (the "Series C Preferred Stock"). The rights,
privileges and preferences of the Series C Preferred Stock, and the limitations
and restrictions thereon, are as follows:
1. DIVIDENDS.
(a) Dividend Rate; Payments. The holders (each, a "Holder" and
collectively, the "Holders") of shares of Series C Preferred Stock (the "Series
C Preferred Shares") shall be entitled to receive, to the extent permitted by
applicable law, subject to the prior, full payment of any accumulated and unpaid
dividends on any class or series of Senior Securities (as defined below) and in
preference to the payment of any dividend on any class or series of Junior
Securities (as defined below), cumulative dividends ("Dividends") on each Series
C Preferred Share in an amount equal to, on an annualized basis, the Stated
Value of such Series C Preferred Share times six percent (6%) (such percentage
being subject to ratable adjustment in the event of any stock split or
combination of the Series C Preferred Stock and to equitable adjustment in the
event of a reclassification of the Series C Preferred Stock or other similar
event). Dividends shall accrue,
<PAGE> 2
whether or not earned or declared, on each Series C Preferred Share from the
date of original issuance thereof (the "Purchase Date") through the earlier to
occur of (A) the Maturity Date (as defined below) and (B) the redemption or
conversion thereof in accordance with the terms hereof. Accrued Dividends on a
Series C Preferred Share shall be payable quarterly on each June 30, September
30, December 31 and March 31 following the date hereof (or if such date is not a
Business Day, on the next succeeding Business Day), on any Redemption Date (as
defined below) and on the Maturity Date (as defined below), the first such
payment of which shall be prorated and made on September 30, 1997 (each, a
"Dividend Payment Date") to the record holder of such Series C Preferred Share
on the relevant Dividend Payment Date. If, on any date, Dividends on the
outstanding Series C Preferred Shares have not been paid or declared by the
Board of Directors in accordance with applicable law and set apart for payment
with respect to all Dividend Payment Dates preceding such date, the aggregate
amount of such Dividends shall be fully paid or declared and set apart for
payment before any distribution, whether by way of dividend or otherwise, shall
be declared, paid or set apart with respect to any Junior Securities on or after
such date. In the event that a Holder elects to convert a Series C Preferred
Share on a Conversion Date (as defined below) which is not a Dividend Payment
Date, such Holder shall not be entitled to receive any Dividends which have
accrued on such Series C Preferred Share since the immediately prior Dividend
Payment Date (the "Cut-off Date"); provided, however, that, in such event, such
Holder shall be entitled to receive, on such Conversion Date, any Dividends that
have accrued but remain unpaid with respect to each day prior to the Cut-off
Date and such Conversion Date shall be deemed to be a Dividend Payment Date with
respect to such accrued Dividends. Dividends shall be paid either in cash or, at
the option of the Corporation (the "Stock Payment Option"), and subject to the
satisfaction of the conditions set forth in paragraph 2(e) below (the "Stock
Payment Conditions"), in shares of Common Stock (the "Dividend Payment Shares").
Cash Dividends shall be paid to each Holder within five (5) Business Days
following the applicable Dividend Payment Date by delivering immediately
available funds to such Holder in accordance with such Holder's wiring
instructions. Any amount of Dividends payable in cash which is not paid within
five Business Days of the applicable Dividend Payment Date shall bear interest
at an annual rate equal to the lower of (x) the "prime" rate (as published in
the Wall Street Journal) on such fifth Business Day plus three percent (3%) and
(y) the highest rate permitted by applicable law, for the number of days elapsed
from the third such Business Day until such amount is paid in full (the "Default
Interest Rate").
(b) Exercise of Stock Payment Option. If the Corporation elects to
exercise the Stock Payment Option, it shall do so by delivering written notice
thereof to each Holder at least ten (10) but no more than thirty (30) Business
Days prior to the applicable Dividend Payment Date, which notice shall set forth
the amount of the Dividend to which such Holder is entitled and the formula
pursuant to which the determination of the number of Dividend Payment Shares
issuable to such Holder will be made. The Stock Payment Option may be exercised
with respect to all or any part of the aggregate Dividend payable to all Holders
on a Dividend Payment Date; provided, however, that, if the Stock Payment Option
is exercised with respect to less than all of such aggregate Dividend, each
Holder shall be entitled to receive Dividend Payment Shares on a pro rata basis
in proportion to the amount payable as a Dividend to such Holder on such
Dividend Payment Date relative to the amount of the aggregate Dividend payable
to all Holders.
-2-
<PAGE> 3
(c) Delivery of Dividend Payment Shares. Upon exercise of the Stock
Payment Option, the Corporation shall deliver to each Holder, on or before the
third (3rd) Business Day following the applicable Dividend Payment Date (the
"Dividend Payment Share Delivery Date"), the aggregate number of whole Dividend
Payment Shares that is determined by dividing (x) the amount of the Dividend to
which such Holder is entitled as of such Dividend Payment Date with respect to
all of such Holder's Series C Preferred Shares by (y) the average Closing Sale
Price (as defined below) for the Common Stock during the five (5) Trading Days
(as defined below) occurring immediately prior to, but not including, the
Dividend Payment Date. The Corporation shall effect delivery of Dividend Payment
Shares to a Holder by, as long as (A) purchases and sales of shares of Common
Stock are eligible for settlement at the Depository Trust Company ("DTC") and
(B) such Holder or its nominee (as identified to the Corporation by such Holder)
maintains on the applicable Dividend Payment Share Delivery Date an account at
DTC for the receipt of securities, crediting the account of such Holder or
nominee at DTC with the number of Dividend Payment Shares required to be
delivered, no later than the close of business on such Dividend Payment Share
Delivery Date. In the event that either or both of the conditions specified in
clauses (A) and (B) above are not satisfied as of the applicable Dividend
Payment Share Delivery Date, the Corporation shall effect delivery of Dividend
Payment Shares by delivering to the Holder or its nominee physical certificates
representing such Dividend Payment Shares, no later than the close of business
on such Dividend Payment Share Delivery Date. No fractional Dividend Payment
Shares shall be issued; the Corporation shall, in lieu thereof, either issue a
number of Dividend Payment Shares which reflects a rounding up to the next whole
number of shares or pay such amount in cash. The Dividend Payment Shares shall
be fully paid and non-assessable, free and clear of any liens, claims,
preemptive rights or encumbrances imposed by or through the Corporation.
(d) Failure to Deliver Dividend Payment Shares. If the Corporation
fails to issue and deliver the appropriate number of Dividend Payment Shares to
a Holder on or before the tenth (10th) Business Day following the Dividend
Payment Share Delivery Date, the Corporation shall, upon written notice by such
Holder, immediately pay the amount of the Dividend in cash, together with
Default Interest on such unpaid amount calculated from the applicable Dividend
Payment Date until the date on which such amount is paid. Each Holder shall have
the right to pursue actual damages for the Corporation's failure to issue and
deliver Dividend Payment Shares on the Dividend Payment Share Delivery Date for
a Dividend, including, without limitation, damages relating to any purchase of
shares of Common Stock by such Holder to make delivery on a sale effected in
anticipation of receiving Dividend Payment Shares, such damages to be in an
amount equal to (A) the aggregate amount paid by such Holder for the shares of
Common Stock so purchased minus (B) (i) the aggregate amount of net proceeds, if
any, received by such Holder from the sale of the Dividend Payment Shares issued
by the Corporation with respect to such Dividend and (ii) the amount of any cash
received in lieu of such Dividend Payment Shares pursuant to the first sentence
of this paragraph (d), and such Holder shall have the right to pursue all
remedies available to it at law or in equity (including, without limitation, a
decree of specific performance and/or injunctive relief).
-3-
<PAGE> 4
(e) Conditions to Stock Payment Option. The Corporation may exercise
the Stock Payment Option with respect to Dividends payable to a Holder only if
each of the following conditions has been satisfied as of the applicable
Dividend Payment Date:
(i) the number of shares of Common Stock authorized, unissued
and unreserved for all other purposes, or held in the Corporation's treasury, is
sufficient to effect the issuance and delivery of at least 125% of the aggregate
of (i) the number of shares of Common Stock into which all outstanding Series C
Preferred Shares are convertible (the "Conversion Shares"), (ii) the number of
shares of Common Stock (the "Warrant Shares") issuable upon exercise of the
Warrants (the "Warrants") issued and sold pursuant to the terms of a Securities
Purchase Agreement governing the issuance and sale of the Series C Preferred
Stock (the "Securities Purchase Agreement") and which are then outstanding, and
(iii) the number of Dividend Payment Shares issuable pursuant to such exercise;
(ii) the Corporation's common stock (the "Common Stock") is
authorized for quotation on the Nasdaq National Market or for listing or
quotation on the New York Stock Exchange or any other national securities
exchange;
(iii) (A) a Registration Statement covering the resale of
shares of Common Stock (the "Registration Statement") is effective and available
for the sale of no less than 125% of the aggregate of (i) the number of
Conversion Shares into which all outstanding Series C Preferred Shares are then
convertible, (ii) the number of Warrant Shares then issuable upon the exercise
of all outstanding Warrants in full, (iii) the number of Conversion Shares and
Warrant Shares, respectively, that are then held by all of the Holders and with
respect to which a registration statement is required to be maintained under the
terms of the Registration Rights Agreement, pursuant to which the Conversion
Shares, the Warrant Shares and the Dividend Payment Shares are required to be
registered under the Registration Statement (the "Registration Rights
Agreement") and (iv) the number of Dividend Payment Shares issuable pursuant to
such exercise or (B) a Registration Statement is no longer required to be
maintained under the Registration Rights Agreement;
(iv) a Mandatory Redemption Event (as defined herein) has not
occurred; and
(v) such payment in Dividend Payment Shares, after giving
effect to the Conversion of all Series C Preferred Shares, the exercise of all
Warrants and the prior issuance of all shares of Common Stock hereunder, in each
case effected on or before such Dividend Payment Date, will not violate the
limitations set forth in Section 4 below.
For purposes of subparagraphs (e)(i) and (e)(iii) above, the
determination of the number of Conversion Shares or Warrant Shares issuable at
any time shall be made without regard to the limitations set forth in Section 4
below or in paragraph 4 of the Warrant.
-4-
<PAGE> 5
2. PRIORITY.
(a) Payment upon Dissolution.
(i) Upon the occurrence of (x) any insolvency or bankruptcy
proceedings, or any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, commenced by the Corporation or by its
creditors, as such, or relating to its assets or (y) the dissolution or other
winding up of the Corporation whether total or partial, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy proceedings,
or (z) any assignment for the benefit of creditors or any marshalling of the
material assets or material liabilities of the Corporation (each, a "Liquidation
Event"), no distribution shall be made to the holders of any shares of Junior
Securities (as defined below) unless, following the payment of preferential
amounts on all Senior Securities (as defined below), each Holder shall have
received the Liquidation Preference (as defined below) with respect to each
Series C Preferred Share then held by such Holder. In the event that upon the
occurrence of a Liquidation Event, and following the payment of preferential
amounts on all Senior Securities (as defined below), the assets available for
distribution to the Holders and the holders of securities ranking pari passu
with the Series C Preferred Stock in respect of dividends, redemption or
distribution upon liquidation (the "Pari Passu Securities") are insufficient to
pay the Liquidation Preference with respect to all of the outstanding Series C
Preferred Shares and the preferential amounts payable to such holders, the
entire assets of the Corporation shall be distributed ratably among the Series C
Preferred Shares and the shares of Pari Passu Securities in proportion to the
ratio that the preferential amount payable on each such share (which shall be
the Liquidation Preference in the case of a Series C Preferred Share) bears to
the aggregate preferential amount payable on all such shares.
(ii) The "Liquidation Preference" with respect to a Series C
Preferred Share shall mean an amount equal to the Stated Value of such Series C
Preferred Share plus any accrued and unpaid Dividends thereon. "Junior
Securities" shall mean the Common Stock and all other capital stock of the
Corporation that are not Pari Passu Securities or do not have a preference over
the Series C Preferred Stock in respect of dividends, redemption or distribution
upon liquidation. "Senior Securities" shall mean any securities of the
Corporation which by their terms have a preference over the Series C Preferred
Stock in respect of dividends, redemption or distribution upon liquidation. For
purposes hereof, the Corporation's Series A Preferred Stock and Series B
Preferred Stock shall be deemed to be Senior Securities and the Corporation's
Series 1994 Cumulative Preferred Stock and any other series of capital stock
that does not constitute Junior Securities or Senior Securities shall be deemed
to be Pari Passu Securities.
3. CONVERSION.
(a) Right to Convert. Subject to the limitations contained in Section 4
below, each Holder shall have the right to convert, at any time and from time to
time, from and after the date which is three months following the Purchase Date
(the "Initial Conversion Date"), all or any part of the Series C Preferred
Shares held by such Holder into such number of fully paid and non-
-5-
<PAGE> 6
assessable shares of Common Stock ("Conversion Shares") as is computed in
accordance with the terms hereof (a "Conversion").
(b) Conversion Notice. In order to convert Series C Preferred Shares, a
Holder shall send by facsimile transmission, at any time prior to 11:59 p.m.,
eastern time, on the date on which such Holder wishes to effect such Conversion
(the "Conversion Date"), (i) a notice of conversion (a "Conversion Notice") to
the Corporation and to its designated transfer agent for the Common Stock (the
"Transfer Agent") stating the number of Series C Preferred Shares to be
converted, the applicable Conversion Price (as defined below) and a calculation
of the number of shares of Common Stock issuable upon such Conversion and (ii) a
copy of the certificate or certificates representing the Series C Preferred
Shares being converted. The Holder shall thereafter send the original of the
Conversion Notice and of such certificate or certificates by overnight mail to
the Transfer Agent. The Corporation shall issue a new certificate for Series C
Preferred Shares in the event that less than all of the Series C Preferred
Shares represented by a certificate delivered to the Corporation in connection
with a Conversion are converted. Upon receipt of a facsimile of the Conversion
Notice, the Corporation shall send by facsimile to the Holder submitting such
Conversion Notice a confirmation of the receipt thereof ("a Confirmation
Notice"). In the case of an unresolved good faith dispute as to the calculation
of the Conversion Price or the number of Conversion Shares issuable upon a
Conversion, the Corporation shall promptly issue to the Holder the number of
Conversion Shares that are not disputed and shall submit the disputed
calculations to its independent accountants within three (3) Business Days of
receipt of the Holder's Conversion Notice. The Corporation shall cause such
accountant to calculate the Conversion Price as provided herein and to notify
the Corporation and the Holder of the results in writing no later than three (3)
Business Days following the day on which it received the disputed calculations.
Such accountant's calculation shall be deemed conclusive absent manifest error.
The fees of any such accountant shall be borne by the party whose calculations
were most at variance with those of such accountant.
(c) Number of Conversion Shares; Conversion Price. The number of
Conversion Shares to be delivered by the Corporation pursuant to a Conversion
shall be determined by dividing the aggregate Stated Value of the Series C
Preferred Shares to be converted by the Conversion Price (as defined herein) in
effect on the Conversion Date. During the first six months following the
Purchase Date (the "Fixed Conversion Price Period"), "Conversion Price" shall
mean 115% of the average of the Closing Sale Prices for the Common Stock on the
five (5) Trading Days (as defined herein) occurring immediately prior to (but
not including) the Purchase Date (the "Fixed Conversion Price"). Following the
end of the Fixed Conversion Price Period, "Conversion Price" shall mean the
lesser of (A) the Fixed Conversion Price and (B) a price (the "Floating
Conversion Price") calculated by (i) determining the seven lowest Closing Sale
Prices for the Common Stock during the thirty (30) Trading Days occurring
immediately prior to (but not including) the Conversion Date, (ii) determining
the average of the five highest of such seven Closing Sale Prices and (iii)
multiplying such average by a percentage determined as described below (the
"Conversion Percentage")(for the avoidance of doubt, the Floating Conversion
Price shall be equal to the product of such average times the Conversion
Percentage). The Conversion Percentage shall be equal to (i) as long as the
Common Stock is quoted on the Nasdaq National Market or listed on a national
securities exchange, 100% (ii) if the Common Stock is quoted on the Nasdaq
SmallCap Market,
-6-
<PAGE> 7
85% and (iii) if the Common Stock is neither quoted on the Nasdaq National
Market or on the Nasdaq SmallCap Market, nor listed on a national securities
exchange, 75%. Upon the satisfaction of each of the Extension Conditions (as
defined below), the Fixed Conversion Price Period shall be extended for an
additional six month period (the "Extension Period"), subject to the prior
expiration of such period as described below. The "Extension Conditions" are as
follows: (1) the Corporation's earnings deficiency before interest, taxes,
depreciation and amortization for the third quarter of 1997 is not greater than
$2,500,000, (2) the Corporation's revenues for the third quarter of 1997 are at
least $6,500,000, and (3) the average of the Closing Sale Prices for the Common
Stock on the five (5) Trading Days occurring immediately prior to (but not
including) the day on which the Fixed Conversion Price Period would otherwise
expire is equal to or greater than 125% of the Fixed Conversion Price.
Notwithstanding the satisfaction of the Extension Conditions, if on any three
(3) consecutive Trading Days occurring during the Extension Period, the Closing
Sale Price for the Common Stock is less than the Closing Sale Price for the
Common Stock on the Purchase Date, the Extension Period will automatically
expire at 5:00 p.m, eastern time, on the third such Trading Day.
(d) Certain Definitions. "Trading Day" shall mean any day on which the
Common Stock is traded on the Nasdaq National Market or on the principal
securities exchange or market on which the Common Stock is then traded. "Closing
Sale Price" means, with respect to a security, the closing sale price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg Financial Markets or, if
Bloomberg Financial Markets is not then reporting closing sale prices of such
security, a comparable reporting service of national reputation selected by the
Corporation and reasonably acceptable to holders of a majority of the then
outstanding Series C Preferred Shares (collectively, "Bloomberg"), or if the
foregoing does not apply, the last reported sale price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no sale price is reported for such security by
Bloomberg, the average of the sale prices of all market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Sale Price cannot be calculated for such security on any of the
foregoing bases, the Closing Sale Price of such security shall be the fair
market value as reasonably determined by an investment banking firm selected by
the Holders (which may be a Holder) of a majority of the then outstanding Series
C Preferred Shares and reasonably acceptable to the Corporation, with the costs
of such appraisal to be borne by the Corporation. "Business Day" means any day
on which the New York Stock Exchange and commercial banks located in the City of
New York are open for business
(e) Delivery of Common Stock Upon Conversion. Upon receipt of a
Conversion Notice from a Holder pursuant to paragraph 3(b) above, the
Corporation shall, no later than the close of business on the later to occur of
(i) the third (3rd) Business Day following the Conversion Date set forth in such
Conversion Notice, (ii) the first Business Day following delivery of the
original certificates, duly endorsed, representing the Series C Preferred Shares
being converted pursuant thereto, if such delivery is effected at or prior to
2:00 p.m., Arizona time, and (iii) the second Business Day following delivery of
such original certificates if such delivery is effected after 2:00 p.m., Arizona
time (the "Delivery Date"), issue and deliver or cause to be delivered to such
Holder the number of Conversion Shares as shall be determined as provided
herein. The Corporation shall
-7-
<PAGE> 8
effect delivery of Conversion Shares to a Holder by, as long as (A) purchases
and sales of shares of Common Stock are eligible for settlement at DTC and (B)
such Holder or its nominee (as advised by such Holder) maintains on the
applicable Delivery Date an account at DTC for the receipt of securities,
crediting the account of such Holder or nominee at DTC with the number of
Conversion Shares required to be delivered, no later than the close of business
on such Delivery Date. In the event that either or both of the conditions
specified in clauses (A) or (B) above are not satisfied as of the applicable
Delivery Date, or if a Holder so specifies in a Conversion Notice, the
Corporation shall effect delivery of Conversion Shares by delivering to the
Holder or its nominee physical certificates representing such Conversion Shares,
no later than the close of business on such Delivery Date. If any Conversion
would create a fractional Conversion Share, such fractional Conversion Share
shall be disregarded and the number of Conversion Shares issuable upon such
Conversion, in the aggregate, shall be the next higher number of Conversion
Shares. Conversion Shares delivered to the Holder shall not contain any
restrictive legend as long as the sale of such Conversion Shares is covered by
an effective Registration Statement or may be made pursuant to Rule 144(k) under
the Securities Act of 1933, as amended (the "Securities Act"), or any successor
rule or provision.
(f) Failure to Deliver Conversion Shares.
(i) In the event that the Corporation fails for any reason
(other than by operation of Section 4 below) to deliver to a Holder certificates
representing the number of Conversion Shares specified in the applicable
Conversion Notice on or before the Delivery Date therefor (a "Conversion
Default"), such Holder shall notify the Corporation by facsimile of such
Conversion Default (a "Default Notice"). If, after the Holder has sent a Default
Notice to the Corporation, the Corporation has not delivered such certificates,
and such failure continues for three (3) Business Days following the later to
occur of the Delivery Date and the date on which the Default Notice is sent, the
Corporation shall pay to such Holder payments ("Conversion Default Payments") in
the amount of (i) (N/365) multiplied by (ii) the aggregate Liquidation
Preference of the Series C Preferred Shares represented by the Conversion Shares
which remain the subject of such Conversion Default multiplied by (iii) the
lower of twenty-four percent (24%) and the maximum rate permitted by applicable
law, where "N" equals the number of days elapsed between the original Delivery
Date for such Conversion Shares and the earlier to occur of (A) the date on
which all of the certificates representing such Conversion Shares are issued and
delivered to such Holder, (B) the date on which such Series C Preferred Shares
are redeemed pursuant to the terms hereof and (C) the date on which a Withdrawal
Notice (as defined below) is delivered to the Corporation. Amounts payable under
this subparagraph (f) shall be paid to the Holder in immediately available funds
on or before the fifth (5th) Business Day of the calendar month immediately
following the calendar month in which such amounts have accrued.
(ii) In the event that a Holder has not received certificates
representing the Conversion Shares by the tenth (10th) Business Day following a
Conversion Default, such Holder may, upon written notice (a "Withdrawal Notice")
delivered to the Corporation on such Business Day or on any Business Day
thereafter (unless, prior to the delivery of such notice, such Conversion Shares
are delivered to such Holder), withdraw its Conversion Notice with respect to
-8-
<PAGE> 9
such Conversion Shares and regain its rights as a Holder of the Series C
Preferred Shares that are the subject of such Conversion Default. In such event,
the Conversion Price that would otherwise be in effect when such Series C
Preferred Shares are thereafter converted in accordance with the terms hereof
shall be reduced by one percent (1%) for each day occurring during the period
immediately following such 10th Business Day until the day on which the such
Holder delivers a Withdrawal Notice to the Corporation; provided, however, that
the maximum percentage by which such Conversion Price may be reduced hereunder,
and under subparagraph 7(d)(iii) hereof, shall be fifty percent (50%). (For
example, if such Conversion Default were to continue for five days following
such 10th Business Day, such Conversion Price would be reduced by 5%; if for ten
days, by 10%; and for fifty days or more, 50%, so that the number of Conversion
Shares deliverable upon conversion of such Series C Preferred Shares would be
increased proportionately) Upon delivery by a Holder of a Withdrawal Notice,
such Holder shall retain all of such Holder's rights and remedies with respect
to the Corporation's failure to deliver such Conversion Shares (including
without limitation the right to receive the cash payments specified in
subparagraph 3(f)(i) above).
(iii) Nothing herein shall limit a Holder's right to pursue
actual damages for the Corporation's failure to issue and deliver Conversion
Shares on the applicable Delivery Date (including, without limitation, damages
relating to any purchase of shares of Common Stock by such Holder to make
delivery on a sale effected in anticipation of receiving Conversion Shares upon
Conversion, such damages to be in an amount equal to (A) the aggregate amount
paid by such Holder for the shares of Common Stock so purchased minus (B) the
aggregate amount of net proceeds, if any, received by such Holder from the sale
of the Conversion Shares issued by the Corporation pursuant to such Conversion),
and such Holder shall have the right to pursue all remedies available to it at
law or in equity (including, without limitation, a decree of specific
performance and/or injunctive relief).
(g) Conversion at Maturity. On the date which is five (5) years
following the Purchase Date (the "Maturity Date"), all Series C Preferred Shares
then outstanding shall be automatically converted into the number of shares of
Common Stock equal to the Stated Value of such shares divided by the Mandatory
Conversion Price (as defined below) (a "Mandatory Conversion"), provided,
however, that if either (x) the Common Stock is not designated for quotation on
the Nasdaq National Market or listed on the New York Stock Exchange or other
national securities exchange or (y) the Corporation delivers a written notice to
each Holder at least twenty-five (25) Business Days prior to the Maturity Date
stating that it intends to redeem the outstanding Series C Preferred Shares for
cash, the Corporation shall, within five (5) Business Days following the
Maturity Date, pay to each Holder, in immediately available funds, an amount
equal to the Stated Value for the Series C Preferred Shares then held by such
Holder. If a Mandatory Conversion occurs, the Corporation and each Holder shall
follow the procedures for Conversion set forth in this Section 3, with the
Maturity Date deemed to be the Conversion Date, except that the Holder shall not
be required to send a Conversion Notice as contemplated by paragraph 3(b). The
"Mandatory Conversion Price" shall be equal to the average Closing Sale Price of
the Common Stock for the twenty (20) Trading Days occurring immediately prior
to, but not including, the Maturity Date.
-9-
<PAGE> 10
4. CONVERSION LIMITATIONS.
In no event shall a Holder be permitted to convert any Series C
Preferred Shares in excess of the number of such shares, upon the Conversion of
which:
(a) the number of Conversion Shares to be issued pursuant to such
Conversion, when added to the number of shares of Common Stock issued pursuant
to all prior Conversions of Series C Preferred Shares, issuances of Dividend
Payment Shares and exercise of the Warrants would exceed 19.99% of the number of
outstanding shares of Common Stock on the Purchase Date (subject to equitable
adjustments from time to time for the events described in Section 5 below) (the
"Cap Amount"), except that such limitation shall not apply in the event that (i)
the Corporation obtains the approval of its shareholders as required by NASD
Rule 4460 (or any successor rule or regulation) for issuances of Common Stock in
excess of such amount or (ii) obtains a written opinion from outside counsel to
the Corporation that such approval is not required, which opinion shall be
reasonably satisfactory to the Holders of a majority of the Series C Preferred
Shares then outstanding. Until such approval or written opinion is obtained, no
purchaser of Series C Preferred Shares pursuant to the Securities Purchase
Agreement (each, a "Purchaser" and, collectively, the "Purchasers") shall be
issued, upon Conversion of the Series C Preferred Shares, Conversion Shares in
an amount greater than the product of (A) the Cap Amount times (B) a fraction,
the numerator of which is the number of Series C Preferred Shares issued to such
Purchaser pursuant to the Securities Purchase Agreement and the denominator of
which is the aggregate amount of all of the Series C Preferred Shares issued to
the Purchasers pursuant to the Securities Purchase Agreement (the "Allocation
Amount"). In the event that any Purchaser shall sell or otherwise transfer any
of such Purchaser's Series C Preferred Shares, the transferee shall be allocated
a pro rata portion of such Purchaser's Allocation Amount. In the event that any
Holder shall convert all of such Holder's Series C Preferred Shares into a
number of Conversion Shares which, in the aggregate, is less than such Holder's
Allocation Amount, then the difference between such Holder's Allocation Amount
and the number of Conversion Shares actually issued to such Holder shall be
allocated to the respective Allocation Amounts of the remaining Holders of
Series C Preferred Shares on a pro rata basis in proportion to the number of
Series C Preferred Shares then held by each such Holder;
(b) (x) the number of shares of Common Stock beneficially owned by such
Holder and its affiliates (other than shares of Common Stock issuable upon
conversion of such Series C Preferred Shares or which would otherwise be deemed
beneficially owned except for being subject to a limitation on conversion or
exercise analogous to the limitation contained in this subparagraph (b)) plus
(y) the number of shares of Common Stock issuable upon the Conversion of such
Series C Preferred Shares, would be equal to or exceed (z) 4.99% of the number
of shares of Common Stock then issued and outstanding. As used herein,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules thereunder. To the
extent that the limitation contained in this paragraph 4(b) applies, the
determination of whether Series C Preferred Shares are convertible (in relation
to other securities owned by a Holder) and of which Series C Preferred Shares
are convertible shall be in the sole discretion of such Holder, and the
submission of Series C Preferred Shares for Conversion shall be deemed to be
such Holder's determination of whether such Series C Preferred Shares are
-10-
<PAGE> 11
convertible (in relation to other securities owned by a Holder) and of which
Series C Preferred Shares are convertible, subject to such aggregate percentage
limitation, and the Corporation shall have no obligation whatsoever to verify or
confirm the accuracy of such determination. This paragraph may be amended (i) in
order to clarify an ambiguity or otherwise to give effect to such limitation, by
the Board of Directors of the Corporation and the Holders of two-thirds (2/3) of
the Series C Preferred Shares then outstanding and (ii) for any other reason,
with the further consent of the holders of a majority of the shares of Common
Stock then outstanding, to the extent permitted by applicable law and subject to
the rights and preferences of the Senior Securities. Nothing contained herein
shall be deemed to restrict the right of a Holder to convert such Series C
Preferred Shares at such time as such Conversion will not violate the provisions
of this subparagraph (b); and
(c) during the period beginning on the day which is three (3) months
following the Purchase Date and ending on the day which is nine months following
the Purchase Date (the "Additional Restriction Period"), such Holder would have
converted more than fifty percent (50%) of the Series C Preferred Shares
originally issued to such Holder (the "Additional Cap Amount") or, if such
Holder received the Series C Preferred Shares otherwise than through the
original issuance thereof, such Holder's pro rata portion of the original
Holder's Additional Cap Amount. Following the last day of the Additional
Restriction Period, such Holder shall be entitled to convert all of the Series C
Preferred Shares then held by such Holder (subject to the other limitations
contained in this Section 4).
The restrictions contained in (A) paragraph 4(c) shall not apply in the
event of an Optional Redemption or Mandatory Redemption (each as defined below)
and (B) paragraphs 4(b) or 4(c) shall not apply in the event of a Mandatory
Conversion.
5. ADJUSTMENTS TO CONVERSION PRICE.
(a) Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If, prior to the Conversion of all of the Series C Preferred
Shares, (A) the number of outstanding shares of Common Stock is increased by a
stock split, a stock dividend on the Common Stock, a reclassification of the
Common Stock, the distribution to holders of Common Stock of rights or warrants
entitling them to subscribe for or purchase Common Stock at less than the then
current market price thereof (based upon the subscription or exercise price of
such rights or warrants at the time of the issuance thereof) or other similar
event, the Fixed Conversion Price shall be proportionately reduced, or (B) the
number of outstanding shares of Common Stock is decreased by a reverse stock
split, combination or reclassification of shares or other similar event, the
Fixed Conversion Price shall be proportionately increased. In such event, the
Corporation shall notify the Transfer Agent of such change on or before the
effective date thereof. For purposes hereof, the market price per share of
Common Stock on any date shall be the average Closing Sale Price for the Common
Stock on the five (5) consecutive Trading Days occurring immediately prior to
but not including the earlier of such date and the Trading Day before the "ex"
date, if any, with respect to the issuance or distribution requiring such
computation. The term "'ex' date", when used with respect to any issuance or
distribution, means the first Trading Day on which the Common Stock
-11-
<PAGE> 12
trades regular way in the market from which such average Closing Sale Price is
then to be determined without the right to receive such issuance or
distribution.
(b) Adjustment to Conversion Price. If, prior to the Conversion of all
of the Series C Preferred Shares, the number of outstanding shares of Common
Stock is increased or decreased by a stock split, a stock dividend on the Common
Stock, combination, a reclassification of the Common Stock or other similar
event, and such event takes place during the reference period for determination
of the Conversion Price for any Conversion thereof, the Conversion Price shall
be calculated giving appropriate effect to the stock split, stock dividend,
combination, reclassification or other similar event for all Trading Days
immediately preceding the Conversion Date.
(c) Adjustment Due to Merger, Consolidation, Etc. If, prior to the
Conversion of all of the Series C Preferred Shares, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization or other
similar event, as a result of which shares of Common Stock shall be changed into
the same or a different number of shares of the same or another class or classes
of stock or securities of the Corporation or another entity or there is a sale
of all or substantially all the Corporation's assets or there is a Change of
Control Transaction (as defined below) with respect to which, in any such case,
a Holder does not exercise its right to a Mandatory Redemption (as defined
below) of the Series C Preferred Stock, then such Holder shall thereafter have
the right to receive upon Conversion of Series C Preferred Shares, upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon Conversion, such stock, securities and/or
other assets, if any, which such Holder would have been entitled to receive in
such transaction had such shares been converted immediately prior to such
transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of such Holder to the end that the
provisions hereof (including, without limitation, provisions for the adjustment
of the Conversion Price and of the number of shares issuable upon a Conversion)
shall thereafter be applicable as nearly as may be practicable in relation to
any securities thereafter deliverable upon the exercise hereof. The Corporation
shall not effect any transaction described in this subsection 5(c) unless (i) it
first gives to each Holder prior notice of such merger, consolidation, exchange
of shares, recapitalization, reorganization, redemption or other similar event,
and makes a public announcement of such event at the same time that it gives
such notice and (ii) the resulting successor or acquiring entity (if not the
Corporation) assumes by written instrument the obligations of the Corporation
hereunder, including the terms of this subsection 5(c).
(d) Distribution of Assets. If the Corporation shall declare or make
any distribution of cash, evidences of indebtedness or other securities or
assets (other than cash dividends or distributions payable out of earned surplus
or net profits for the current or the immediately preceding year), or any rights
to acquire any of the foregoing, to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise, including any
dividend or distribution in shares of capital stock of a subsidiary of the
Corporation (collectively, a "Distribution"), then, upon a Conversion by a
Holder occurring after the record date for determining shareholders entitled to
such Distribution, the Fixed Conversion Price for Series C Preferred Shares not
converted prior to the record date of a Distribution shall be reduced to a price
-12-
<PAGE> 13
determined by decreasing the Fixed Conversion Price in effect immediately prior
to the record date of the Distribution by an amount equal to the fair market
value of the assets so distributed with respect to each share of Common Stock,
as determined by mutual agreement of the Corporation and each Holder.
(e) Adjustment Due to Major Announcement. If the Corporation (i) makes
a public announcement that it intends to enter into a Change of Control
Transaction (as defined below) or (ii) any person, group or entity (including
the Corporation, but excluding a Holder or any affiliate of a Holder) publicly
announces a bona fide tender offer, exchange offer or other transaction to
purchase 50% or more of the Common Stock (such announcement being referred to
herein as a "Major Announcement" and the date on which a Major Announcement is
made, the "Announcement Date"), then, in the event that a Holder seeks to
convert Series C Preferred Shares on or following the Announcement Date, the
Conversion Price shall, effective upon the Announcement Date and continuing
through the earlier to occur of the consummation of the proposed transaction or
tender offer, exchange offer or other transaction and the Abandonment Date (as
defined below), be equal to the lower of (x) the average Closing Sale Price for
the Common Stock on the five Trading Days immediately preceding (but not
including) the Announcement Date and (y) the Conversion Price in effect on the
Conversion Date for such Series C Preferred Shares (regardless of whether the
Announcement Date occurs during the Fixed Conversion Price Period). "Abandonment
Date" means with respect to any proposed transaction or tender offer, exchange
offer or other transaction for which a public announcement as contemplated by
this Paragraph (e) has been made, the date upon which the Corporation (in the
case of clause (i) above) or the person, group or entity (in the case of clause
(ii) above) publicly announces the termination or abandonment of the proposed
transaction or tender offer, exchange offer or another transaction which caused
this Paragraph (e) to become operative. In the event of a Major Announcement,
the restrictions contained in paragraph 4(c) shall not apply during the period
from the Announcement Date until the Abandonment Date.
(f) No Fractional Shares. If any adjustment under this Section would
create a fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and the number
of shares of Common Stock issuable upon Conversion shall be the next higher
number of shares or, at the option of the Corporation, shall be paid in cash in
an amount calculated by multiplying the amount of the fractional share times the
Closing Sale Price used to calculate the Conversion Price for such Conversion.
6. OPTIONAL REDEMPTION.
(a) Optional Redemption by Corporation. In the event that at any time
after the day which is twelve (12) months following the Purchase Date, the
Closing Sale Price of the Common Stock exceeds 150% of the Fixed Conversion
Price for any ten (10) consecutive Trading Days (an "Optional Redemption
Period"), the Corporation shall have the right to redeem, to the extent
permitted by applicable law and subject to the rights and preferences of the
Senior Securities (an "Optional Redemption"), up to, with respect to each
Optional Redemption, twenty-five percent (25%) of the number of Series C
Preferred Shares originally purchased by a Holder on the Purchase Date (the
"Optional Redemption Amount") at the Optional Redemption Price (as defined
below).
-13-
<PAGE> 14
A Holder's Optional Redemption Amount shall be deemed to be reduced (but without
duplication) by the number of Series C Preferred Shares which the Holder has
converted or which have been redeemed prior to an Optional Redemption. In the
event that a Holder sells or otherwise transfers any of such Holder's Series C
Preferred Shares, the transferee shall be allocated a pro rata portion of such
Holder's Optional Redemption Amount. The Corporation may not effect an Optional
Redemption hereunder with respect to a Holder's Series C Preferred Shares unless
such Optional Redemption applies on a pro rata basis to the Series C Preferred
Shares held by each of the other Holders.
(b) Optional Redemption Notice; Conditions. In order to effect an
Optional Redemption, the Corporation must deliver a written notice to each
Holder no later than five (5) Business Days following the last day of an
Optional Redemption Period (an "Optional Redemption Notice"). An Optional
Redemption Notice shall specify the number of such Holder's Series C Preferred
Shares being redeemed, the date on which such redemption will be effected (an
"Optional Redemption Date"), whether the Optional Redemption Price (as defined
below) will be paid in cash or shares of Common Stock and, if paid in shares of
Common Stock, the calculation therefor. An Optional Redemption Date shall be no
less than twenty (20) Trading Days and no more than thirty (30) Trading Days
following the date on which the related Optional Redemption Notice is delivered
to all of the Holders. Notwithstanding the foregoing, the Corporation shall have
the right to effect an Optional Redemption (x) only once during any period of
ninety (90) consecutive days and (y) only if, at all times during the period
beginning on the first day of the Optional Redemption Period and ending on the
Optional Redemption Date (the "Determination Period"), each of the following
conditions (collectively, the "Optional Redemption Conditions") is satisfied:
(i) the Common Stock is designated for quotation on the Nasdaq
National Market or is listed on the New York Stock Exchange or other national
exchange;
(ii) the Registration Statement is effective and available
(other than for any five (5) days occurring during the Determination Period) for
the sale of no less than 125% of the aggregate of: (A) the number of Conversion
Shares into which all outstanding Series C Preferred Shares are then
convertible, (B) the number of Warrant Shares then issuable upon the exercise of
the Warrants in full and (C) the number of Conversion Shares and Warrant Shares,
respectively, that are then held by all of the Holders and with respect to which
a registration statement is required to be maintained under the terms of the
Registration Rights Agreement; and
(iii) the Corporation is not in breach of its obligation to
deliver Conversion Shares pursuant to the terms of paragraph 3(e) hereof.
Nothing contained herein shall be deemed to limit in any way a Holder's
right to convert Series C Preferred Shares at any time including during the
period between the date on which an Optional Redemption Notice is delivered to
such Holder and the related Optional Redemption Date. For purposes of
subparagraph (ii) above, the determination of the number of Conversion Shares or
Warrant Shares issuable at any time shall be made without regard to the
limitations set forth in Section 4 above or paragraph 4 of the Warrants.
-14-
<PAGE> 15
(c) Optional Redemption Price. The "Optional Redemption Price" price
for a Series C Preferred Share shall be payable, at the option of the
Corporation, in cash or shares of Common Stock, in an amount equal to 115% of
the Stated Value thereof if paid in cash or, if paid in shares of Common Stock,
the number of shares equal to 115% of such Stated Value divided by the Optional
Redemption Conversion Price. The "Optional Redemption Conversion Price" shall be
equal to the average Closing Sale Price for the Common Stock during the twenty
(20) Trading Days occurring immediately prior to, but not including, the related
Optional Redemption Date.
(d) Payment of Optional Redemption Price.
(i) Cash Payment. In the event that an Optional Redemption Notice
states that the Corporation will pay the Optional Redemption Price in cash, and
if all of the Optional Redemption Conditions are satisfied, such payment shall
be made to the Holders within five (5) Business Days following the Optional
Redemption Date. Upon the redemption of a Series C Preferred Share, and payment
of the Optional Redemption Price to the Holder thereof, such Holder will
promptly return such share to the Corporation for cancellation. If the
Corporation fails to pay the Optional Redemption Price to the Holder within five
(5) Business Days of the Optional Redemption Date, the Holder shall be entitled
to interest thereon at an annual rate equal to the Default Interest Rate from
and after the Optional Redemption Date until the Optional Redemption Price has
been paid in full.
(ii) Payment in Common Stock. In the event that an Optional
Redemption Notice states that the Corporation will pay the Optional Redemption
Price in shares of Common Stock (the "Optional Redemption Shares"), and assuming
the due satisfaction of all of the Optional Redemption Conditions, the
Corporation shall deliver to each Holder, on or before the third (3rd) Business
Day following the applicable Optional Redemption Date (the "Optional Redemption
Share Delivery Date"), the aggregate number of whole shares of Common Stock that
is determined in accordance with paragraph 6(c) above. The Corporation shall
effect delivery of Optional Redemption Shares to a Holder by, as long as (A)
purchases and sales of shares of Common Stock are eligible for settlement at DTC
and (B) such Holder or its nominee (as identified to the Corporation by such
Holder) maintains on the applicable Optional Redemption Share Delivery Date an
account at DTC for the receipt of securities, crediting the account of such
Holder or nominee at DTC with the number of Dividend Payment Shares required to
be delivered, no later than the close of business on such Optional Redemption
Share Delivery Date. In the event that either or both of the conditions
specified in clauses (A) and (B) above are not satisfied as of the applicable
Optional Redemption Share Delivery Date, the Corporation shall effect delivery
of Optional Redemption Shares by delivering to the Holder or its nominee
physical certificates representing such Dividend Payment Shares, no later than
the close of business on such Optional Redemption Share Delivery Date. No
fractional Optional Redemption Shares shall be issued; the Corporation shall, in
lieu thereof, either issue a number of Optional Redemption Shares which reflects
a rounding up to the next whole number of shares or pay such amount in cash. The
Optional Redemption Shares shall be fully paid and non-assessable, free and
clear of any liens, claims, preemptive rights or encumbrances imposed by or
through the Corporation. If the Corporation fails to issue and deliver the
appropriate number
-15-
<PAGE> 16
of Optional Redemption Shares to such Holder on or before the tenth (10th)
Business Day following the Optional Redemption Payment Share Delivery Date, the
Company shall, upon written notice by such Holder, immediately pay the Optional
Redemption Price in cash, together with Default Interest on such unpaid amount
calculated from the applicable Optional Redemption Date until the date on which
such amount is paid.
7. MANDATORY REDEMPTION.
(a) Mandatory Redemption. In the event that a Mandatory Redemption
Event (as defined below) occurs, each Holder shall have the right, to the extent
permitted by applicable law and subject to the rights and preferences of the
Senior Securities, to have all or any portion of the Series C Preferred Shares
held by such Holder redeemed by the Corporation (a "Mandatory Redemption") at
the Mandatory Redemption Price (as defined herein) in same day funds. In order
to exercise its right to effect a Mandatory Redemption, a Holder must deliver a
written notice (a "Mandatory Redemption Notice") to the Corporation no later
than 5 p.m., Arizona time, on the Business Day following the day on which
written notice is delivered by the Corporation to the Holder that such event is
no longer continuing; provided, however, that, in the case of subparagraph
(b)(vi) below, the following procedure shall be followed in lieu thereof: (a) no
sooner than fifteen (15) days nor later than ten (10) days prior to the
Company's good faith estimate of the consummation of a Change of Control
Transaction (as defined below), but not prior to the public announcement of such
Change of Control Transaction, the Company shall deliver a written notice (a
"Notice of Change of Control Transaction") to each Holder, and (b) within five
(5) days of delivery by the Company of a Notice of Change of Control
Transaction, each Holder who wishes to exercise its right to effect a Mandatory
Redemption hereunder shall deliver a Mandatory Redemption Notice to the
Corporation. The Mandatory Redemption Notice shall specify the effective date of
such Mandatory Redemption (the "Mandatory Redemption Date") and the number of
such shares to be redeemed. As used herein, a Mandatory Redemption Date and an
Optional Redemption Date are each sometimes referred to as a "Redemption Date".
(b) Mandatory Redemption Event. Each of the following events shall be
deemed a "Mandatory Redemption Event":
(i) the Corporation fails for any reason (including without
limitation as a result of not having a sufficient number of shares of Common
Stock authorized and reserved for issuance, but not including by reason of the
provisions of Section 4 hereof) to issue shares of Common Stock to a Holder and
deliver certificates representing such shares to such Holder as and when
required by the provisions hereof upon Conversion of any Series C Preferred
Shares, and such failure continues for ten (10) Business Days;
(ii) the Corporation's shareholders fail to approve the
proposal contemplated by Section 4.5 of the Securities Purchase Agreement at the
first meeting of the Corporation's shareholders held after the Purchase Date and
the Corporation fails, within twenty days following such meeting, to cause the
Common Stock to be listed or quoted on a recognized national securities
-16-
<PAGE> 17
exchange or quotation system which would not impose a limitation similar to that
described in paragraph 4(a) hereof;
(iii) the Corporation breaches, in a material respect, any
covenant or other material term or condition of the Securities Purchase
Agreement (other than a representation or warranty contained therein), the
Registration Rights Agreement or any other agreement, document, certificate or
other instrument delivered in connection with the transactions contemplated
thereby, and such breach continues for a period of thirty (30) days after
written notice thereof to the Corporation from a Holder;
(iv) the Registration Statement is not declared effective by
180 days following the Purchase Date or if the Registration Statement has been
declared effective by such date and, while the effectiveness of the Registration
Statement is required to be maintained pursuant to the terms of the Registration
Rights Agreement, the effectiveness of the Registration Statement lapses for any
reason (including without limitation, the issuance of a stop order) or is
unavailable to the Holder for the sale of Conversion Shares in accordance with
the terms of the Registration Rights Agreement, and such lapse or unavailability
continues for a period of five (5) Business Days, provided that the cause of
such lapse or unavailability is not due to factors solely within the control of
the Holder, and provided further that the Registration Statement shall not be
deemed to be unavailable to the Holder, for purposes of this subparagraph (iv)
only, during any period, not to exceed an aggregate of thirty (30) days for all
such periods, with respect to which the Board of Directors of the Corporation
determines in good faith (A) that an amendment or supplement to the Registration
Statement or prospectus contained therein is necessary in order to correct a
material misstatement made therein or to include information the absence of
which would render the Registration Statement or such prospectus materially
misleading and (B) that the disclosure of such information at such time would be
detrimental to the business or prospects of the Corporation;
(v) the Corporation undertakes any voluntary action to
terminate the quotation or listing of the Common Stock on the Nasdaq National
Market or on a national securities exchange, unless such action is taken in
connection with the continued quotation or listing of the Common Stock on
another recognized national securities exchange or quotation system; or
(vi) there occurs the sale, conveyance or disposition of all
or substantially all of the assets of the Corporation, the effectuation of a
transaction or series of related transactions, in which more than 50% of the
voting power of the Corporation is disposed of, or the consolidation, merger or
other business combination of the Corporation with or into any other entity,
immediately following which the prior shareholders of the Corporation fail to
own, directly or indirectly, at least fifty percent (50%) of the surviving
entity (a "Change of Control Transaction"); provided, however, that a tender
offer or any other transaction with respect to which the Corporation's Board of
Directors is unable to exercise discretion as to the effectuation thereof shall
not be deemed to be a Mandatory Redemption Event by operation of this
subparagraph (vi).
(c) Mandatory Redemption Price. The "Mandatory Redemption Price" shall
be equal to the Stated Value of the Series C Preferred Shares being redeemed
multiplied by one hundred and
-17-
<PAGE> 18
twenty percent (120%); provided, however, that the Mandatory Redemption Price
for a Mandatory Redemption which occurs pursuant to subparagraph 7(b)(ii) above
shall be equal to (i) the Stated Value of the Series C Preferred Shares being
redeemed plus (ii) an amount equal to such Stated Value times 1.125% for each
month which has elapsed between the Purchase Date and the Mandatory Redemption
Date.
(d) Payment of Mandatory Redemption Price.
(i) The Corporation shall pay the Mandatory Redemption Price
to the Holder exercising its right to redemption within five (5) Business Days
following the Mandatory Redemption Date. Upon the redemption of a Series C
Preferred Share, and payment of the Mandatory Redemption Price to the Holder
thereof, such Holder will promptly return such share to the Corporation for
cancellation.
(ii) If Corporation fails to pay the Mandatory Redemption
Price to the Holder within five (5) Business Days of the Mandatory Redemption
Date, the Holder shall be entitled to interest thereon, from and after the
Mandatory Redemption Date until the Mandatory Redemption Price has been paid in
full, at an annual rate equal to the Default Interest Rate.
(iii) If the Corporation fails to pay the Mandatory Redemption
Price within ten (10) Business Days of the Mandatory Redemption Date, then the
Holder shall have the right at any time, so long as the Corporation remains in
default, to require the Corporation, upon written notice, to immediately issue,
in lieu of the Mandatory Redemption Price, the number of shares of Common Stock
of the Corporation equal to the Mandatory Redemption Price divided by the
Conversion Price in effect on such Conversion Date as is specified by the Holder
in writing to the Corporation, such Conversion Price to be reduced by one
percent (1%) for each day beyond such 10th Business Day in which the failure to
pay the Mandatory Redemption Price continues; provided, however, that the
maximum percentage by which such Conversion Price may be reduced in the
aggregate hereunder, and under subparagraph 3(f)(ii) above, shall be fifty
percent (50%).
8. MISCELLANEOUS.
(a) Transfer of Series C Preferred Shares. A Holder may sell, transfer
or otherwise dispose of all or any portion of the Series C Preferred Shares to
any person or entity as long as such sale, transfer or disposition is the
subject of an effective registration statement under the Securities Act or is
exempt from registration thereunder and otherwise is made in accordance with the
terms of the Securities Purchase Agreement. From and after the date of such
sale, transfer or disposition, the transferee hereof shall be deemed to be a
Holder. Upon any such sale, transfer or disposition, the Corporation shall,
promptly following the return of the certificate or certificates representing
the Series C Preferred Shares that are the subject of such sale, transfer or
disposition, issue and deliver to such transferee a new certificate in the name
of such transferee.
(b) Notices. Except as otherwise provided herein, any notice, demand or
request required or permitted to be given pursuant to the terms hereof, the form
or delivery of which notice, demand or request is not otherwise specified
herein, shall be in writing and shall be deemed
-18-
<PAGE> 19
given (i) when delivered personally or by verifiable facsimile transmission
(with an original to follow) on or before 5:00 p.m., eastern time, on a Business
Day or, if such day is not a Business Day, on the next succeeding Business Day,
(ii) on the next Business Day after timely delivery to an overnight courier and
(iii) on the third Business Day after deposit in the U.S. mail (certified or
registered mail, return receipt requested, postage prepaid), addressed to the
parties as follows:
If to the Corporation:
WavePhore, Inc.
3311 N. 44th Street
Phoenix, Arizona 85018
Attn: David E. Deeds (with a copy to the General Counsel)
Fax: 602-952-5517
and if to any Holder, to such address for such Holder as shall be designated by
such Holder in writing to the Corporation.
(c) Lost or Stolen Certificate. Upon receipt by the Corporation of
evidence of the loss, theft, destruction or mutilation of a certificate
representing Series C Preferred Shares, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the
Corporation, and upon surrender and cancellation of such certificate if
mutilated, the Corporation shall execute and deliver to the Holder a new
certificate identical in all respects to the original certificate.
(d) No Voting Rights. Except as provided by Indiana Code Section
23-1-38-4 and paragraph 8(e) below, the Holders of the Series C Preferred Shares
shall have no voting rights with respect to the business, management or affairs
of the Corporation; provided that the Corporation shall provide each Holder with
prior notification of each meeting of shareholders (and copies of proxy
statements and other information sent to such shareholders).
(e) Protective Provisions.
So long as shares of Series C Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval of the Holders
of at least two-thirds (2/3) of the then outstanding shares of Series C
Preferred Stock:
(i) alter or change the rights, preferences or
privileges of the Series C Preferred Stock or any other capital stock of the
Corporation so as to affect adversely the Series C Preferred Stock;
(ii) create any new class or series of capital stock
having a preference over or ranking pari passu with the Series C Preferred Stock
as to redemption, the payment of dividends or distribution of assets upon a
Liquidation Event or any other liquidation, dissolution or winding up of the
Corporation;
-19-
<PAGE> 20
(iii) increase the authorized number of shares of
Series C Preferred Stock;
(iv) issue any shares of Series C Preferred Stock
other than pursuant to the Securities Purchase Agreement; or
(v) issue any additional shares of Senior Securities
or Pari Passu Securities.
In the event that Holders of at least two-thirds (2/3) of the
then outstanding shares of Series C Preferred Stock agree to allow the
Corporation to alter or change the rights, preferences or privileges of the
shares of Series C Preferred Stock, pursuant to the terms hereof, then the
Corporation will deliver notice of such approved change to the holders of the
Series C Preferred Stock that did not agree to such alteration or change (the
"Dissenting Holders") and the Dissenting Holders shall have the right for a
period of thirty (30) days following such delivery to convert their Series C
Preferred Shares pursuant to the terms hereof as they existed prior to such
alteration or change (without giving effect to the limitations contained in
paragraph 4(c) hereof), or to continue to hold such Series C Preferred Shares.
No such change shall be effective to the extent that, by its terms, it applies
to less than all of the Holders of Series C Preferred Shares then outstanding.
ARTICLE II
MANNER OF ADOPTION AND VOTE
Section 1. Action by Directors. The Board of Directors of the
Corporation, as of July 9, 1997, duly adopted resolutions approving the above
amendment.
Section 2. No Action by Shareholders. No shareholder action is required
for adoption of the above amendment pursuant to IND. CODE. Section 23-1-25-2.
Section 3. Compliance with Legal Requirements. The manner of adoption
of the above amendment and the vote by which it was adopted constitute full
legal compliance with the provisions of the Act, the Articles of Incorporation
and the By-Laws of the Corporation.
Section 4. Effective Date. The above amendment shall become effective
when filed with the Indiana Secretary of State.
I hereby verify, subject to penalties of perjury, that the facts
contained herein are true.
--------------------------------
Name:
Title:
-20-
<PAGE> 1
EXHIBIT 4.1
Exhibit A to Securities Purchase Agreement
THIS WARRANT AND THE SECURITIES RECEIVABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION
WITH SUCH OFFER, SALE OR DISPOSITION. THIS WARRANT IS ISSUED SUBJECT TO THE
PROVISIONS OF A SECURITIES PURCHASE AGREEMENT, DATED JULY 24, 1997, BY AND
BETWEEN WAVEPHORE, INC. (THE "COMPANY") AND THE PURCHASERS NAMED THEREIN, AND A
REGISTRATION RIGHTS AGREEMENT, DATED JULY 24, 1997, BY AND BETWEEN THE COMPANY
AND SUCH PURCHASERS.
Warrant to Purchase
___________Shares
WARRANT TO PURCHASE COMMON STOCK
OF
WAVEPHORE, INC.
THIS CERTIFIES that ______________ or any subsequent holder hereof (the
"Holder"), has the right to purchase from WAVEPHORE, INC., an Indiana
corporation (the "Company"), up to fully paid and nonassessable shares of the
Company's Common Stock (the "Common Stock"), subject to adjustment as provided
herein, at a price equal to the Exercise Price (as defined below), at any time
beginning on July 24, 1997 (the "Issue Date") and ending at 5:00 p.m., eastern
time, on July 23, 2000 (the "Expiration Date").
This Warrant is issued, and all rights hereunder shall be, subject to
all of the conditions, limitations and provisions set forth herein.
1. Exercise.
(a) Right to Exercise; Exercise Price. The Holder shall have the right
to exercise this Warrant at any time and from time to time up to and including
the Expiration Date as to all or any part of the shares of Common Stock covered
hereby (the "Warrant Shares"). The "Exercise Price" payable by the Holder in
connection with the exercise of this Warrant shall be equal to 115% of the
average of the Closing Sale Prices (as defined below) for the Common Stock on
the five (5) Trading Days (as defined below) occurring immediately prior to (but
not including) the Issue Date.
<PAGE> 2
"Trading Day" shall mean any day on which the Common Stock is traded for any
period on the Nasdaq National Market or on the principal securities exchange or
market on which the Common Stock is then traded. "Closing Sale Price" means,
with respect to a security, the closing sale price of such security on the
Nasdaq National Market or on the principal securities exchange or market where
such security is listed or traded as reported by Bloomberg Financial Markets or,
if Bloomberg Financial Markets is not then reporting closing sale prices of such
security, a comparable reporting service of national reputation selected by the
Company and reasonably acceptable to the Holders (collectively, "Bloomberg"), or
if the foregoing does not apply, the last reported sale price of such security
in the over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no sale price is reported for such
security by Bloomberg, the average of the sale prices of all market makers for
such security as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the Closing Sale Price cannot be calculated for such security on such
date on any of the foregoing bases, the Closing Sale Price of such security on
such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Holder (which may be the Holder or an
affiliate thereof) and reasonably acceptable to the Company, with the costs of
such appraisal to be borne by the Company.
(b) Exercise Notice. In order to exercise this Warrant, the Holder
shall send by facsimile transmission, at any time prior to 11:59 p.m., eastern
time, on the date on which the Holder wishes to effect such exercise (the
"Exercise Date"), to the Company and to its designated transfer agent for the
Common Stock (the "Transfer Agent") (i) a copy of the notice of exercise in the
form attached hereto as Exhibit A (the "Exercise Notice") stating the number of
Warrant Shares as to which such exercise applies and the calculation therefor
and (ii) a copy of this Warrant. The Holder shall promptly thereafter deliver to
the Transfer Agent the original Exercise Notice and the original Warrant and, to
the Company, the Exercise Price. Upon receipt of a facsimile of the Exercise
Notice, the Company shall send by facsimile to the Holder submitting such
Exercise Notice a confirmation of the receipt thereof ("a Confirmation Notice").
In the case of a dispute as to the calculation of the Exercise Price or the
number of Warrant Shares issuable hereunder, the Company shall promptly issue to
the Holder the number of Warrant Shares that are not disputed and shall submit
the disputed calculations to its independent accountants within three (3)
business days following the Exercise Date. The Company shall cause such
accountant to calculate the Exercise Price and/or the number of Warrant Shares
issuable hereunder and to notify the Company and the Holder of the results in
writing no later than three (3) business following the day on which it received
the disputed calculations. Such accountant's calculation shall be deemed
conclusive absent manifest error. The fees of any such accountant shall be borne
by the party whose calculations were most at variance with those of such
accountant.
(c) Cancellation of Warrant. This Warrant shall be canceled upon its
exercise and the Holder shall be entitled to receive, as soon as practicable
after the Exercise Date, a new Warrant or Warrants (containing terms identical
to this Warrant) representing any unexercised portion of this Warrant.
2. Delivery of Warrant Shares Upon Exercise. Upon receipt of an
Exercise Notice pursuant to paragraph 1 above, the Company shall, (A) in the
case of a Cashless Exercise (as
-2-
<PAGE> 3
defined below), no later than the close of business on the latest to occur of
(i) the third (3rd) business day following the Exercise Date set forth in such
Exercise Notice, (ii) the first business day following delivery of the original
Warrant to the Transfer Agent if such delivery is effected at or prior to 2:00
p.m., Arizona time, and (iii) the second Business Day following delivery of the
original Warrant if such delivery is effected after 2:00 p.m., Arizona time, and
(B) in the case of a Cash Exercise (as defined below) no later than the close of
business on the latest to occur of (i) the third (3rd) business day following
the Exercise Date set forth in such Exercise Notice and (ii) the first business
day following the day on which the Company shall have received payment of the
Exercise Price and delivery of the original Warrant if such payment and delivery
is effected at or prior to 2:00 p.m., Arizona time, and (iii) the second
Business Day following payment of the Exercise Price and delivery of the
original Warrant if such payment and delivery is effected after 2:00 p.m.,
Arizona time, (the "Delivery Date"), issue and deliver or caused to be delivered
to the Holder the number of Warrant Shares as shall be determined as provided
herein. The Company shall effect delivery of Warrant Shares by, as long as (A)
purchases and sales of shares of Common Stock are eligible for settlement at the
Depository Trust Company ("DTC")and (B) such Holder or its nominee (as
identified to the Company by such Holder) maintains on the applicable Delivery
Date an account at DTC for the receipt of securities, crediting the account of
such Holder or such nominee at DTC with the number of Warrant Shares required to
be delivered, no later than the close of business on the Delivery Date. In the
event that either or both of the conditions specified in clauses (A) or (B)
above are not satisfied as of the applicable Delivery Date, or if a Holder so
specifies in an Exercise Notice, the Company shall effect delivery of Warrant
Shares by delivering to the Holder or such nominee physical certificates
representing such Warrant Shares, no later than the close of business on such
Delivery Date.
3. Failure to Deliver Warrant Shares.
(a) Exercise Default. In the event that the Company fails for
any reason (other than by operation of paragraph 4 below) to deliver to a Holder
certificates representing the number of Warrant Shares specified in the
applicable Exercise Notice on or before the Delivery Date therefor (an "Exercise
Default"), such Holder shall notify the Company by facsimile of such Exercise
Default (a "Default Notice"). If, after the Holder has sent a Default Notice to
the Company, the Company has not delivered such certificates, and such failure
continues for three (3) business days following the Delivery Date, the Company
shall pay to such Holder payments ("Exercise Default Payments") in the amount of
(i) (N/365) times the number of Warrant Shares which are the subject of such
Exercise Default, multiplied by (ii) (x) the average Closing Sale Price for the
Warrant Shares on the five (5) Trading Days occurring immediately prior to (but
not including) the applicable Exercise Date minus (y) the aggregate Exercise
Price therefor multiplied by (iii) the lower of twenty-four percent (24%) and
the maximum rate permitted by applicable law, where "N" equals the number of
days elapsed between the original Delivery Date for such Warrant Shares and the
earlier to occur of (A) the date on which all of such Warrant Shares are issued
and delivered to such Holder and (B) the date on which a Withdrawal Notice (as
defined below) is delivered to the Company. Amounts payable under this
subparagraph 3(a) shall be paid to the Holder in immediately available funds on
or before the fifth (5th) business day of the calendar month immediately
following the calendar month in which such amount has accrued.
-3-
<PAGE> 4
(b) Buy-in. Nothing herein shall limit a Holder's right to
pursue actual damages for the Company's failure to issue and deliver Warrant
Shares in connection with an exercise on the applicable Delivery Date
(including, without limitation, damages relating to any purchase of shares of
Common Stock by such Holder to make delivery on a sale effected in anticipation
of receiving Warrant Shares upon exercise (a "buy-in"), such damages to be in an
amount equal to (A) the aggregate amount paid by such Holder for the shares of
Common Stock so purchased minus (B) the aggregate amount of net proceeds, if
any, received by such Holder from the sale of the Warrant Shares issued by the
Company pursuant to such exercise), and such Holder shall have the right to
pursue all remedies available to it at law or in equity (including, without
limitation, a decree of specific performance and/or injunctive relief).
(c) Reduction of Exercise Price. In the event that a Holder
has not received certificates representing the Warrant Shares by the tenth
(10th) business day following an Exercise Default, such Holder may, upon written
notice to the Company (a "Withdrawal Notice") delivered to the Company on such
business day or on any business day thereafter (unless, prior to the delivery of
such notice, such Warrant Shares are delivered to such Holder), withdraw its
Exercise Notice with respect to such Warrant Shares and regain on such business
day the rights of a Holder of this Warrant, or part thereof, with respect to the
Warrant Shares that are the subject of such Exercise Default. In such event, the
Exercise Price for such Warrant Shares shall be reduced by one percent (1%) for
each day occurring during the period immediately following such 10th Business
Day until the day on which the such Holder delivers a Withdrawal Notice to the
Company; provided, however, that the maximum percentage by which such Exercise
Price may be reduced shall be fifty percent (50%). (For example, if such
Exercise Default were to continue for five days following such 10th Business
Day, such Exercise Price would be reduced by 5%; if for ten days, by 10%; and
for fifty days or more, by 50%, so that the number of Warrant Shares deliverable
upon exercise of the Warrant would be increased proportionately) Upon delivery
by a Holder of a Withdrawal Notice, such Holder shall retain all of such
Holder's rights and remedies with respect to the Company's failure to deliver
such Warrant Shares (including without limitation the right to receive the cash
payments specified in subparagraph 3(a) above).
4. Exercise Limitations.
In no event shall a Holder be permitted to exercise this Warrant, or
part thereof, with respect to Warrant Shares in excess of the number of such
shares, upon the issuance of which, (x) the number of shares of Common Stock
beneficially owned by such Holder and its affiliates (other than shares of
Common Stock issuable upon exercise of the Warrant or which may be deemed
beneficially owned except for being subject to a limitation on conversion or
exercise analogous to the limitation contained in this Section 4) plus (y) the
number of shares of Common Stock issuable upon such exercise, would be equal to
or exceed (z) 4.99% of the number of shares of Common Stock then issued and
outstanding. As used herein, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules thereunder. To the extent that the limitation contained
in this paragraph 4 applies, the determination of whether and the extent to
which this Warrant is exercisable shall be in the sole discretion of the Holder,
and the submission of an Exercise Notice shall be deemed to be the Holder's
determination
-4-
<PAGE> 5
of whether and the extent to which this Warrant is exercisable, subject to such
aggregate percentage limitation, and the Company shall have no obligation
whatsoever to verify or confirm the accuracy of such determination. This
paragraph may be amended (i) in order to clarify an ambiguity or otherwise to
give effect to such limitation, by the Board of Directors of the Company and the
Holder of this Warrant and (ii) for any other reason, with the further consent
of the holders of a majority of the shares of Common Stock then outstanding.
Nothing contained herein shall be deemed to restrict the right of the Holder to
exercise this Warrant at such time as such exercise will not violate the
provisions of this paragraph 4.
5. Payment of the Exercise Price. The Holder may pay the Exercise Price
in cash or, in the event that a Registration Statement (as defined in the
Registration Rights Agreement) is not available for the resale of the Warrant
Shares on the Exercise Date, pursuant to a cashless exercise, as follows:
(a) Cash Exercise: by delivery of immediately available funds.
(b) Cashless Exercise: by surrender of 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 x (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 Exercise
Date.
B = the Exercise Price.
For purposes of Rule 144 under the Securities Act of 1933, as amended, 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.
6. Anti-Dilution Adjustments.
(a) Stock Split, Stock Dividend, Etc. If (A) the number of outstanding
shares of Common Stock is increased by a stock split, a stock dividend on the
Common Stock, a reclassification of the Common Stock, the distribution to
holders of Common Stock of rights or warrants entitling them to subscribe for or
purchase Common Stock at less than the then current market price thereof (based
upon the subscription or exercise price of such rights or warrants at the
-5-
<PAGE> 6
time of the issuance thereof) or other similar event, then upon the effective
date thereof, the number of shares of Common Stock which the Holder hereof shall
be entitled to purchase upon exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such event, and the
Exercise Price shall be proportionately reduced, or (B) the number of
outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares or other similar event, and the
Exercise Price shall be proportionately increased. In such event, the
Corporation shall notify the Transfer Agent of such change on or before the
effective date thereof. For purposes hereof, the market price per share of
Common Stock on any date shall be the average Closing Sale Price for the Common
Stock on the five (5) consecutive Trading Days occurring immediately prior to
but not including the earlier of such date and the Trading Day before the "ex"
date, if any, with respect to the issuance or distribution requiring such
computation. The term "'ex' date", when used with respect to any issuance or
distribution, means the first Trading Day on which the Common Stock trades
regular way in the market from which such average Closing Sale Price is then to
be determined without the right to receive such issuance or distribution.
(b) Distributions. If the Company shall declare or make any
distribution of cash, evidences of indebtedness or other securities or assets
(other than cash dividends or distributions payable out of earned surplus or net
profits for the current or the immediately preceding year), or any rights to
acquire any of the foregoing, to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise, including any
dividend or distribution in shares of capital stock of a subsidiary of the
Company (collectively, a "Distribution"), then, upon the exercise of this
Warrant by a Holder occurring after the record date for determining shareholders
entitled to such Distribution, the Exercise Price shall be reduced to a price
determined by decreasing the Exercise Price in effect immediately prior to the
record date of the Distribution by an amount equal to the fair market value of
the assets so distributed with respect to each share of Common Stock, as
determined by mutual agreement of the Company and the Holder.
(c) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization or other
similar event, as a result of which shares of Common Stock of the Company shall
be changed into the same or a different number of shares of the same or another
class or classes of stock or securities or other assets of the Company or
another entity or there is a sale of all or substantially all the Company's
assets (a "Corporate Change"), then this Warrant shall be exercisable into such
class and type of securities or other assets as the Holder would have received
had the Holder exercised this Warrant immediately prior to such Corporate
Change. The Company shall not effect any transaction described in this
subsection 6(d) unless (i) it first gives to the Holder prior notice of such
merger, consolidation, exchange of shares, recapitalization, reorganization,
redemption or other similar event, and makes a public announcement of such event
at the same time that it gives such notice and (ii) the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligations of the Company under this Warrant, including the terms of this
subsection 6(d).
(d) Exercise Price as Adjusted. As used in this Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in paragraph
1 of this Warrant, until the occurrence
-6-
<PAGE> 7
of an event stated in subsection (a), (b) or (c) of this paragraph 6, and
thereafter shall mean said price as adjusted from time to time in accordance
with the provisions of said subsection. No such adjustment under this paragraph
6 shall be made unless such adjustment would change the Exercise Price at the
time by $.01 or more; provided, however, that all adjustments not so made shall
be deferred and made when the aggregate thereof would change the Exercise Price
at the time by $.01 or more. No adjustment made pursuant to any provision of
this paragraph 6 shall have the effect of increasing the total consideration
payable upon exercise of this Warrant in respect of all the Common Stock as to
which this Warrant may be exercised.
(e) Adjustments: Additional Shares, Securities or Assets. In the event
that at any time, as a result of an adjustment made pursuant to this Section 6,
the Holder of this Warrant shall, upon exercise of this Warrant, become entitled
to receive shares and/or other securities or assets (other than Common Stock)
then, wherever appropriate, all references herein to shares of Common Stock
shall be deemed to refer to and include such shares and/or other securities or
assets; and thereafter the number of such shares and/or other securities or
assets shall be subject to adjustment from time to time in a manner and upon
terms as nearly equivalent as practicable to the provisions of this paragraph 6.
7. Fractional Interests.
No fractional shares or scrip representing fractional shares shall
be issuable upon the exercise of this Warrant, but on exercise of this Warrant,
the Holder hereof may purchase only a whole number of shares of Common Stock.
If, on exercise of this Warrant, the Holder hereof would be entitled to a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share shall be disregarded and the number of
shares of Common Stock issuable upon exercise shall be the next higher number of
shares.
8. Transfer of this Warrant. Subject to the provisions contained in the
Securities Purchase Agreement, the Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant, in whole or in part, as long as such sale or
other disposition is made pursuant to an effective registration statement or an
exemption to the registration requirements of the Securities Act of 1933, as
amended, and applicable state laws. Upon such transfer or other disposition, the
Holder shall deliver a written notice to Company, substantially in the form of
the Transfer Notice attached hereto as Exhibit B (the "Transfer Notice"),
indicating the person or persons to whom this Warrant shall be transferred and,
if less than all of this Warrant is transferred or this Warrant is transferred
in parts, the number of Warrant Shares to be covered by the part of this Warrant
to be transferred to each such person. Within five (5) business days of
receiving a Transfer Notice, the original of this Warrant and any applicable
transfer taxes, the Company shall deliver to each transferee designated by the
Holder a Warrant or Warrants of like tenor and terms for the appropriate number
of Warrant Shares.
-7-
<PAGE> 8
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any
person other than the Holder of this Warrant any legal or equitable right,
remedy or claim under this Warrant and this Warrant shall be for the sole and
exclusive benefit of the Holder of this Warrant.
10. Loss, theft, destruction or mutilation of Warrant.
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
11. Notice or Demands.
Except as otherwise provided herein, any notice, demand or request
required or permitted to be given pursuant to the terms of this Warrant shall be
in writing and shall be deemed given (i) when delivered personally or by
verifiable facsimile transmission (with an original to follow) on or before 5:00
p.m., eastern time, on a business day or, if such day is not a business day, on
the next succeeding business day, (ii) on the next business day after timely
delivery to an overnight courier and (iii) on the third business day after
deposit in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed as follows:
If to the Company:
WavePhore Inc.
3311 N. 44th Street
Phoenix, Arizona 85018
Attn: David E. Deeds (with a copy to the General Counsel)
Fax: 602-952-5517
and if to the Holder, to such address as shall be designated by the Holder in
writing to the Company.
12. Applicable Law.
This Warrant is issued under and shall for all purposes be governed
by and construed in accordance with the laws of the state of New York, without
giving effect to conflict of law provisions thereof.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
24th day of July, 1997.
WAVEPHORE, INC.
By:__________________________
Name:
Title:
-9-
<PAGE> 10
EXHIBIT A to WARRANT
EXERCISE NOTICE
The undersigned Holder hereby irrevocably exercises the right to
purchase of the shares of Common Stock ("Warrant Shares") of
WAVEPHORE, INC., an Indiana corporation (the "Company"), evidenced by the
attached Warrant (the "Warrant"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:
______ a Cash Exercise with respect to _________________ Warrant Shares;
and/or
______ a Cashless Exercise with respect to _________________ Warrant
Shares (to the extent permitted by the terms of the Warrant).
2. Payment of Exercise Price. In the event that the Holder has elected
a Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the Holder shall pay the sum of $________________ to the
Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the Holder
_____________ Warrant Shares in accordance with the terms of the Warrant.
Date: ______________________
_____________________________________
Name of Registered Holder
By: ________________________________
Name:
Title:
-10-
<PAGE> 11
EXHIBIT B to WARRANT
TRANSFER NOTICE
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby sells,
assigns and transfers unto the person or persons named below the right to
purchase shares of the Common Stock of WAVEPHORE, INC. evidenced
by the attached Warrant.
Date: ______________________
____________________________________
Name of Registered Holder
By: _______________________________
Name:
Title:
Transferee Name and Address:
___________________________________________
___________________________________________
___________________________________________
-11-
<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of July 24,
1997, by and among WavePhore, Inc., an Indiana corporation (the "Company"), and
each of the entities whose names appear on the signature pages hereof. Such
entities are each referred to herein as a "Purchaser" and, collectively, as the
"Purchasers".
The Company has agreed, on the terms and subject to the conditions set
forth in the Securities Purchase Agreement of even date herewith (the
"Securities Purchase Agreement"), to issue and sell to each Purchaser (i) shares
(the "Preferred Shares") of the Company's Series C Convertible Preferred Stock
(the "Preferred Stock") and (ii) a Warrant (each, a "Warrant" and, when taken
together with all of the warrants issued to the other Purchasers hereunder, the
"Warrants") entitling the holder thereof to purchase shares (the "Warrant
Shares") of Common Stock (as defined below). The Preferred Shares are
convertible into shares (the "Conversion Shares") of the Company's Common Stock
(the "Common Stock"), pursuant to the Company's Articles of Incorporation, as
amended as of the date hereof (the "Articles of Incorporation"). In order to
induce the Purchasers to enter into the Securities Purchase Agreement, the
Company has agreed to provide certain registration rights under the Securities
Act of 1933, as amended (the "Securities Act"), and under applicable state
securities laws. Capitalized terms used herein and not otherwise defined shall
have the respective meanings set forth in the Securities Purchase Agreement.
In consideration of each Purchaser entering into the Securities
Purchase Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings specified:
(a) "Closing" shall have the meaning specified in the
Securities Purchase Agreement;
(b) "Registration Deadline" means October 22, 1997;
(c) "Holder" means any person owning or having the right to
acquire, through conversion of Preferred Shares or exercise of
the Warrant, Registrable Securities, including initially each
Purchaser and thereafter any permitted assignee thereof;
(d) "Register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration
statement or statements in compliance with the Securities Act
and pursuant to Rule 415 under the Securities Act ("Rule 415")
or any successor rule providing for the offering of securities
on a continuous basis ("Registration Statement"), and the
declaration or ordering of effectiveness of the
<PAGE> 2
Registration Statement by the Securities and Exchange
Commission (the "Commission"); and
(e) "Registrable Securities" means the Conversion Shares and
the Warrant Shares, and any other shares of Common Stock
issuable pursuant to the terms of the Preferred Stock, whether
as a dividend, payment of a redemption price or otherwise, and
any shares of capital stock issued or issuable from time to
time (with any adjustments) in replacement of, in exchange for
or otherwise in respect of the Conversion Shares or the
Warrant Shares.
2. MANDATORY REGISTRATION.
(a) On or before August 23, 1997, the Company shall use all
commercial efforts to prepare and file a Registration Statement on Form S-3 (or,
if Form S-3 is not available, on such form of Registration Statement as is then
available to effect a registration of the Registrable Securities, subject to the
consent of each Purchaser, which consent will not be unreasonably withheld) as a
"shelf" registration statement under Rule 415 covering the resale of at least
175% of the number of shares of Registrable Securities then issuable on (i)
conversion of the Preferred Shares (assuming conversion at the Fixed Conversion
Price) and (ii) exercise in full of the Warrants. The Registration Statement
shall state, to the extent permitted by Rule 416 under the Securities Act, that
it also covers such indeterminate number of shares of Common Stock as may be
required to effect (i) conversion of the Preferred Shares to prevent dilution
resulting from stock splits, stock dividends or similar events, or by reason of
changes in the Conversion Price in accordance with the terms of the Articles of
Incorporation and (ii) exercise of the Warrants in full to prevent dilution
resulting from stock splits, stock dividends or similar events, or by reason of
changes in the Exercise Price (as defined in the Warrant) in accordance with the
terms of the Warrant.
(b) The Company shall use all commercial efforts to cause the
Registration Statement to become effective as soon as practicable following the
filing thereof, but in no event later than the Registration Deadline, and
maintain the effectiveness of the Registration Statement until the earlier to
occur of (i) the date on which all of the Registrable Securities have been sold
pursuant to the Registration Statement and (ii) the date on which all of the
remaining Registrable Securities (in the reasonable opinion of counsel to the
Purchaser) may be immediately sold to the public without registration and
without regard to the amount of Registrable Securities which may be sold by a
Holder thereof at a given time (the "Registration Period").
(c) If (A) the Registration Statement is not declared
effective by the Commission on or before the Registration Deadline, (B) after
the Registration Statement has been declared effective by the Commission, sales
of Registrable Securities cannot be made by a Holder under the Registration
Statement for any reason not within the exclusive control of such Holder (other
than such Registrable Securities as are then freely saleable pursuant to Rule
144(k) under the Securities Act), (C) the Common Stock is not included for
quotation on the Nasdaq National Market ("Nasdaq") or listed on the New York
Stock Exchange or other national securities exchange at any
-2-
<PAGE> 3
time after the Registration Deadline, the Company shall pay to such Holder an
amount equal to the lesser of (x) two percent (2%) per month and (y) the highest
rate permitted by applicable law, times the aggregate purchase price of the
Preferred Shares held by such Holder, accruing daily and compounded monthly,
from the Registration Deadline or, where the Registration Statement has become
effective, from the date on which the Registration Statement lapses or is
otherwise unavailable, until the date on which the Registration Statement is
declared effective or becomes available for sales of Registrable Securities, as
the case may be. For purposes hereof, the Registration Statement shall not be
deemed to be unavailable during any period, not to exceed an aggregate of thirty
(30) days for all such periods, with respect to which the Board of Directors of
the Corporation determines in good faith (A) that an amendment or supplement to
the Registration Statement or prospectus contained therein is necessary in order
to correct a material misstatement made therein or to include information the
absence of which would render the Registration Statement or such prospectus
materially misleading and (B) that the disclosure of such information at such
time would be detrimental to the business or prospects of the Company. The
amounts paid or payable by the Company hereunder shall be in addition to any
other remedies available to the Purchaser at law or in equity or pursuant to the
terms of any other Transaction Document. Payments of cash pursuant hereto shall
be made within five (5) days after the end of each period that gives rise to
such obligation, provided that, if any such period extends for more than thirty
(30) days, payments shall be made at the end of each thirty-day period.
3. PIGGYBACK REGISTRATION.
If at any time prior to the expiration of the Registration
Period, (i) the Company proposes to register shares of Common Stock under the
Securities Act in connection with the public offering of such shares for cash
(other than a registration relating solely to the sale of securities to
participants in a Company stock plan or employee stock award or a registration
on Form S-4 under the Securities Act or any successor or similar form
registering stock issuable upon a reclassification, a business combination
involving an exchange of securities or an exchange offer for securities of the
issuer or another entity) (a "Proposed Registration") and (ii) a registration
statement covering the sale of all of the Registrable Securities is not then
effective and available for sales thereof by the Holders, the Company shall, at
such time, promptly give each Holder written notice of such Proposed
Registration. Each Holder shall have thirty (30) days from its receipt of such
notice to deliver to the Company a written request specifying the amount of
Registrable Securities that such Holder intends to sell and such Holder's
intended method of distribution. Upon receipt of such request, the Company shall
use its best efforts to cause all Registrable Securities which the Company has
been requested to register to be registered under the Securities Act to the
extent necessary to permit their sale or other disposition in accordance with
the intended methods of distribution specified in the request of such Holder;
provided, however, that the Company shall have the right to postpone or withdraw
any registration effected pursuant to this Section 3 without obligation to the
Holder. If, in connection with any underwritten public offering for the account
of the Company, the managing underwriter(s) thereof shall impose a limitation on
the number of shares of Common Stock which may be included in the Registration
Statement because, in such underwriter(s)' judgment, marketing or other factors
dictate such limitation is necessary to facilitate public distributions, then
the Company shall be obligated to include in such Registration Statement
-3-
<PAGE> 4
only such limited portion of the Registrable Securities with respect to which
each Holder has requested inclusion hereunder as such underwriter(s) shall
permit. Any exclusion of Registrable Securities shall be made pro rata among the
Holders seeking to include Registrable Securities in the Registration Statement,
in proportion to the number of Registrable Securities sought to be included by
such Holders; provided, however, that the Company shall not exclude any
Registrable Securities unless the Company has first excluded all outstanding
securities, the holders of which are not entitled to inclusion of such
securities in such Registration Statement or are not entitled to pro rata
inclusion with the Registrable Securities; and provided, further, however, that,
after giving effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata with holders of other securities
having the right to include such securities in the Registration Statement.
4. OBLIGATIONS OF THE COMPANY.
In addition to performing its obligations hereunder, including pursuant
to paragraphs 2(a) and 2(b) above, the Company shall:
(a) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary to comply with the
provisions of the Securities Act or to maintain the effectiveness of the
Registration Statement during the Registration Period, or as may be reasonably
requested by a Holder in order to incorporate information concerning such Holder
or such Holder's intended method of distribution;
(b) in the event that the number of shares available under the
Registration Statement filed by the Company hereunder is insufficient during any
period of three consecutive trading days to cover 125% of the Registrable
Securities then issued or issuable, the Company shall promptly amend the
Registration Statement, or file a new Registration Statement, or both, so as to
cover 175% of such Registrable Securities, in any event as soon as practicable,
but not later than the tenth business day following the last day of such three
day period. Any Registration Statement filed pursuant to this Section 4 shall
state that, to the extent permitted by Rule 416 under the Securities Act, such
Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the Preferred
Shares or exercise of the Warrants in full. Unless and until such amendment or
new Registration Statement becomes effective, each Holder shall have the rights
described in Section 2(c) above;
(c) secure the designation and quotation of the Registrable
Securities on the Nasdaq National Market or the listing thereof on the New York
Stock Exchange or other national securities exchange;
(d) furnish to each Holder such number of copies of the
prospectus included in such Registration Statement, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as such Holder may reasonably request in order to facilitate the
disposition of such Holder's Registrable Securities;
-4-
<PAGE> 5
(e) use all commercially reasonable efforts to register or
qualify the Registrable Securities under the securities or "blue sky" laws of
such jurisdictions within the United States as shall be reasonably requested
from time to time by a Holder, and do any and all other acts or things which may
be necessary or advisable to enable such Holder to consummate the public sale or
other disposition of the Registrable Securities in such jurisdictions; provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdiction;
(f) in the event of an underwritten public offering of the
Registrable Securities, enter into and perform its obligations under an
underwriting agreement, in usual and customary form reasonably acceptable to the
Company, with the managing underwriter of such offering;
(g) notify each Holder immediately upon the occurrence of any
event as a result of which the prospectus included in such Registration
Statement, as then in effect, contains an untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, and as promptly as practicable, prepare, file and furnish to each
Holder a reasonable number of copies of a supplement or an amendment to such
prospectus as may be necessary so that such prospectus does not contain an
untrue statement of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
(h) use all commercially reasonable efforts to prevent the
issuance of any stop order or other order suspending the effectiveness of such
Registration Statement and, if such an order is issued, to obtain the withdrawal
thereof at the earliest possible time and to notify each Holder of the issuance
of such order and the resolution thereof;
(i) furnish to each Holder, on the date that such Registration
Statement becomes effective, (x) an opinion, dated such date, of outside counsel
representing the Company (and reasonably acceptable to such Holder) addressed to
such Holder, regarding the effectiveness of the Registration Statement and the
absence of any stop order, and (y) in the case of an underwriting, (A) an
opinion, dated such date, of such outside counsel, in form and substance as is
customarily given to underwriters in an underwritten public offering, and (B) a
letter, dated such date, from the Company's independent certified public
accountants, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to each Holder;
(j) provide each Holder and its representatives the
opportunity to conduct a reasonable inquiry of the Company's financial and other
records during normal business hours and make available its officers, directors
and employees for questions regarding information which such Holder may
reasonably request in order to fulfill any due diligence obligation on its part;
and
-5-
<PAGE> 6
(k) permit counsel for each Holder (at such Holder's expense)
to review such Registration Statement and all amendments and supplements thereto
a reasonable period of time prior to the filing thereof with the Commission.
5. OBLIGATIONS OF EACH HOLDER.
In connection with the registration of the Registrable Securities
pursuant to the Registration Statement, each Holder shall:
(a) furnish to the Company such information regarding itself
and the intended method of disposition of Registrable Securities as the Company
shall reasonably request in order to effect the registration thereof;
(b) upon receipt of any notice from the Company of the
happening of any event of the kind described in paragraph 4(h), immediately
discontinue disposition of Registrable Securities pursuant to the Registration
Statement until withdrawal of the stop order referred to in paragraph 4(h); and
(c) in the event of an underwritten offering of the
Registrable Securities, enter into a customary and reasonable underwriting
agreement and execute such other documents as the managing underwriter for such
offering may reasonably request.
6. INDEMNIFICATION.
In the event that any Registrable Securities are included in a
Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company shall
indemnify and hold harmless each Holder, the officers, directors, employees,
agents and representatives of such Holder, and each person, if any, who controls
such Holder within the meaning of the Securities Act or the Securities Exchange
Act of 1934, as amended (the "1934 Act"), against any losses, claims, damages,
liabilities or reasonable out-of-pocket expenses (whether joint or several)
(collectively, including legal or other expenses reasonably incurred in
connection with investigating or defending same, "Losses"), insofar as any such
Losses arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in such Registration Statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The Company will reimburse such Holder, and each such
officer, director, employee, agent, representative or controlling person for any
legal or other expenses as reasonably incurred by any such entity or person in
connection with investigating or defending any Loss; provided, however, that the
foregoing indemnity shall not apply to amounts paid in settlement of any Loss if
such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be obligated to
indemnify any person for any
-6-
<PAGE> 7
Loss to the extent that such Loss arises out of or is based upon and in
conformity with written information furnished by such person expressly for use
in such Registration Statement; and provided, further, that the Company shall
not be required to indemnify any person to the extent that any Loss results from
such person selling Registrable Securities (i) to a person to whom there was not
sent or given, at or prior to the written confirmation of the sale of such
shares, a copy of the prospectus, as most recently amended or supplemented, if
the Company has previously furnished or made available copies thereof or (ii)
during any period following written notice by the Company to such Holder of an
event described in Section 4(g) or 4(h).
(b) To the extent permitted by law, each Holder, acting
severally and not jointly, shall indemnify and hold harmless the Company, the
officers, directors, employees, agents and representatives of the Company, and
each person, if any, who controls the Company within the meaning of the
Securities Act or the 1934 Act, against any Losses to the extent (and only to
the extent) that any such Losses arise out of or are based upon and in
conformity with written information furnished by such Holder expressly for use
in such Registration Statement; and such Holder will reimburse any legal or
other expenses as reasonably incurred by the Company and any such officer,
director, employee, agent, representative, or controlling person, in connection
with investigating or defending any such Loss; provided, however, that the
foregoing indemnity shall not apply to amounts paid in settlement of any such
Loss if such settlement is effected without the consent of such Holder, which
consent shall not be unreasonably withheld; provided, that, in no event shall
any indemnity under this subsection 6(b) exceed the net purchase price of
securities sold by such Holder under the Registration Statement.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in and to assume the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the reasonably incurred fees and expenses of one such counsel to
be paid by the indemnifying party, if representation of such indemnified party
by the counsel retained by the indemnifying party would be inappropriate under
applicable standards of professional conduct due to actual or potential
conflicting interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, to the extent prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the indemnified party
under this Section 6 with respect to such action, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 6 or
with respect to any other action.
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 6 is unavailable or insufficient to hold harmless an
indemnified party for any reason, the Company and each Holder agree, severally
and not jointly, to contribute to the aggregate Losses to which the
-7-
<PAGE> 8
Company or such Holder may be subject in such proportion as is appropriate to
reflect the relative fault of the Company and such Holder in connection with the
statements or omissions which resulted in such Losses; provided, however, that
in no case shall such Holder be responsible for any amount in excess of the net
purchase price of securities sold by it under the Registration Statement.
Relative fault shall be determined by reference to whether any alleged untrue
statement or omission relates to information provided by the Company or by such
Holder. The Company and each Holder agree that it would not be just and
equitable if contribution were determined by pro rata allocation or any other
method of allocation which does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this paragraph (d), no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who is not guilty of such fraudulent misrepresentation. For purposes of this
Section 6, each person who controls a Holder within the meaning of either the
Securities Act or the Exchange Act and each officer, director, employee, agent
or representative of such Holder shall have the same rights to contribution as
such Holder, and each person who controls the Company within the meaning of
either the Securities Act or the Exchange Act and each officer, director,
employee, agent or representative of the Company shall have the same rights to
contribution as the Company, subject in each case to the applicable terms and
conditions of this paragraph (d).
(e) The obligations of the Company and each Holder under this
Section 6 shall survive the conversion or redemption, if any, of the Preferred
Shares, the exercise of the Warrant, the completion of any offering of
Registrable Securities pursuant to a Registration Statement under this
Agreement, or otherwise.
7. REPORTS.
With a view to making available to each Holder the benefits of
Rule 144 under the Securities Act ("Rule 144") and any other similar rule or
regulation of the Commission that may at any time permit such Holder to sell
securities of the Company to the public without registration, the Company agrees
to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
1934 Act; and
(c) furnish to such Holder, so long as such Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company, if true, that it has complied with the reporting requirements of Rule
144, the Securities Act and the 1934 Act, (ii) a copy of the most recent annual
or quarterly report of the Company and such other reports and documents so filed
by the Company, and (iii) such other information as may be reasonably requested
in availing such Holder of any rule or regulation of the Commission which
permits the selling of any such securities without registration.
-8-
<PAGE> 9
8. MISCELLANEOUS.
(a) Expenses of Registration. All expenses, other than
underwriting discounts and commissions and fees and expenses of counsel to each
Holder, incurred in connection with the registrations, filings or qualifications
described herein, including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees, the fees and disbursements of
counsel for the Company, and the fees and disbursements incurred in connection
with the opinion and letter described in paragraph 4(i) hereof, shall be borne
by the Company.
(b) Amendment; Waiver. Any provision of this Agreement may be
amended only pursuant to a written instrument executed by the Company and
Holders of two-thirds (2/3) of the outstanding Registrable Securities. Any
waiver of the provisions of this Agreement may be made only pursuant to a
written instrument executed by the party against whom enforcement is sought. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each Holder, each future Holder, and the Company.
(c) Notices. Any notice, demand or request required or
permitted to be given by any party to any other party pursuant to the terms of
this Agreement shall be in writing and shall be deemed given (i) when delivered
personally or by verifiable facsimile transmission (with an original to follow)
on or before 5:00 p.m., eastern time, on a business day or, if such day is not a
business day, on the next succeeding business day, (ii) on the next business day
after timely delivery to an overnight courier and (iii) on the third business
day after deposit in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed to the parties as follows:
If to the Company:
WavePhore Inc.
3311 N. 44th Street
Phoenix, Arizona 85018
Attn: David E. Deeds (with a copy to the General Counsel)
Fax: 602-952-5517
and if to any Holder, to such address as shall be designated by such Holder in
writing to the Company.
(d) Termination. This Agreement shall terminate on the earlier
to occur of (a) the end of the Registration Period and (b) the date on which all
of the Registrable Securities have been publicly distributed; but any such
termination shall be without prejudice to (i) the parties' rights and
obligations arising from breaches of this Agreement occurring prior to such
termination and (ii) the indemnification and contribution obligations under this
Agreement.
(e) Assignment. The rights of a Holder hereunder shall be
assigned automatically to any transferee of the Preferred Shares, the Warrant or
Registrable Securities from such Holder
-9-
<PAGE> 10
as long as: (i) the Company is, within a reasonable period of time following
such transfer, furnished with written notice of the name and address of such
transferee, (ii) the transferee agrees in writing with the Company to be bound
by all of the provisions hereof and (iii) such transfer is made in accordance
with the applicable requirements of the Securities Purchase Agreement or the
Warrant, as the case may be.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
the conflict of laws provisions thereof.
-10-
<PAGE> 11
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first-above written.
WAVEPHORE, INC.
By:
-------------------------------
Name: Glenn Williamson
Title: EVP + COO
PURCHASER NAME:
--------------------------
By:
----------------------------
Name:
Title:
-11-
<PAGE> 1
EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of July 24,
1997, by and among WavePhore, Inc., an Indiana corporation (the "Company"), and
each of the entities whose names appear on the signature pages hereof. Such
entities are each referred to herein as a "Purchaser" and, collectively, as the
"Purchasers".
The Company wishes to sell to each Purchaser, and each Purchaser wishes
to buy, on the terms and subject to the conditions set forth in this Agreement,
(i) the number of shares (the "Preferred Shares") of the Company's Series C
Convertible Preferred Stock (the "Preferred Stock") set forth next to such
Purchaser's name on the signature pages hereof and (ii) a Warrant in the form of
Exhibit A hereto (a "Warrant" and, when taken together with all of the warrants
issued to the other Purchasers hereunder, the "Warrants") entitling the holder
thereof to purchase the number of shares (the "Warrant Shares") of Common Stock
(as defined below) set forth next to such Purchaser's name on the signature
pages hereof. The Preferred Shares are convertible into shares (the "Conversion
Shares") of the Company's Common Stock (the "Common Stock") pursuant to the
terms of Articles of Amendment to the Company's Articles of Incorporation, the
form of which is attached hereto as Exhibit B (the "Articles of Amendment"). The
Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares,
together with the Dividend Payment Shares (as defined in the Articles of
Amendment) and any other shares of Common Stock issuable pursuant to the terms
of the Articles of Amendment (the "Issuable Securities"), are collectively
referred to herein as the "Securities".
The Company has agreed to effect the registration of the Conversion
Shares, the Warrant Shares and the Issuable Securities under the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to a Registration Rights
Agreement of even date herewith between the Company and the Purchasers (the
"Registration Rights Agreement"). The sale of the Preferred Shares and the
Warrants by the Company to the Purchasers will be effected in reliance upon the
exemption from securities registration afforded by the provisions of Regulation
D ("Regulation D"), as promulgated by the Securities and Exchange Commission
(the "Commission") under the Securities Act.
The Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
1.1 Agreement to Purchase and Sell. Upon the terms and subject to the
satisfaction of the conditions set forth herein, the Company agrees to sell at
the Closing (as defined below), and each Purchaser agrees to purchase, (i) the
number of Preferred Shares set forth below such Purchaser's name on the
signature pages hereof and (ii) a Warrant entitling the holder thereof to
purchase the number of Warrant Shares set forth below such Purchaser's name on
the signature pages hereof, at a purchase price for such Preferred Shares and
Warrant equal to one thousand dollars ($1,000) times the number of Preferred
Shares purchased by such Purchaser (the "Purchase
<PAGE> 2
Price"). It is anticipated that the aggregate purchase price to be paid by the
Purchasers for all of the Preferred Shares and Warrants issued pursuant to this
Agreement (the "Aggregate Purchase Price") will be twenty-four million dollars
($24,000,000).
1.2 Closing. Subject to the satisfaction of the conditions set forth
herein, the closing of the purchase and sale of the Preferred Shares and the
Warrants (the "Closing") will be deemed to occur when this Agreement and the
other Transaction Documents (as defined below) have been executed and delivered
by the Company and each Purchaser, and full payment of the Purchase Price has
been made by each Purchaser by wire transfer of immediately available funds to
an escrow account established for use in connection with the Closing against
delivery by the Company of duly executed certificates to each Purchaser
representing the Preferred Shares and the Warrant purchased by such Purchaser
hereunder. The date on which the Closing is deemed to occur is referred to
herein as the "Closing Date".
1.3 Certain Definitions. When used herein, (A) "business day" shall
mean any day on which the New York Stock Exchange and commercial banks in the
city of New York are open for business, (B) an "affiliate" of a party shall mean
any person or entity controlling, controlled by or under common control with
that party and (C) "control" shall mean, with respect to an entity, the ability
to direct the business, operations or management of such entity, whether through
an equity interest therein or otherwise.
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser, solely with respect to it, hereby makes the following
representations and warranties to the Company and agrees with the Company that,
as of the date of this Agreement and as of the Closing Date:
2.1 Authorization; Enforceability. Such Purchaser is duly and validly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization with full power and authority
to purchase the Preferred Shares and the Warrant and to execute and deliver this
Agreement. This Agreement constitutes such Purchaser's valid and legally binding
obligation, enforceable in accordance with its terms, except as such enforcement
may be limited by (i) applicable bankruptcy, insolvency, reorganization or other
laws of general application relating to or affecting the enforcement of
creditors' rights generally and (ii) general principles of equity.
2.2 Accredited Investor; Investment Intent. Such Purchaser is an
accredited investor as that term is defined in Rule 501 of Regulation D, and is
acquiring the Preferred Shares and the Warrant solely for its own account for
investment purposes as a principal and not with a present view to the public
resale or distribution of all or any part thereof, except pursuant to sales that
are exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act; provided, however that in making such
representation, such Purchaser does not agree to hold the Securities for any
minimum or specific term and reserves the right to sell, transfer or otherwise
dispose of the Securities at any time in accordance with the provisions of this
-2-
<PAGE> 3
Agreement and with Federal and state securities laws applicable to such sale,
transfer or disposition.
2.3 Information. The Company has provided such Purchaser with a
Confidential Private Placement Memorandum, dated July 18, 1997 (including the
Exhibits attached thereto, the "Memorandum"), containing information regarding
the business, operations and financial condition of the Company, and has granted
to such Purchaser the opportunity to ask questions of and receive answers from
representatives of the Company, its officers, directors, employees and agents
concerning the Company and materials relating to the terms and conditions of the
purchase and sale of the Preferred Shares and the Warrant hereunder. Neither
such information nor any other investigation conducted by such Purchaser or any
of its representatives shall modify, amend or otherwise affect such Purchaser's
right to rely on the Company's representations and warranties contained in this
Agreement.
2.4 Limitations on Disposition. Such Purchaser acknowledges that,
except as provided in the Registration Rights Agreement, the Securities have not
been and are not being registered under the Securities Act and may not be
transferred or resold without registration under the Securities Act or unless
pursuant to an exemption therefrom. Such Purchaser agrees not to sell, transfer
or otherwise dispose of the Securities unless and until:
(a) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or
(b) (i) such Purchaser shall have notified the Company in
advance of the proposed disposition, and (ii) if reasonably requested
by the Company, such Purchaser shall have furnished the Company with an
opinion of counsel (the cost of which shall be borne by such
Purchaser), reasonably satisfactory to the Company, that such
disposition will not require registration under the Securities Act. It
is agreed that no opinion of counsel will be required for the transfer
of the Securities to an affiliate of such Purchaser or with respect to
a sale thereof made pursuant to Rule 144 under the Securities Act
("Rule 144").
2.5 Legend. Such Purchaser understands that the certificates
representing the Securities may bear at issuance a restrictive legend in
substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), and may not be offered, sold, transferred,
pledged, hypothecated or otherwise disposed of unless a
registration statement under the Securities Act and applicable
state securities laws shall have become effective with regard
thereto, or an exemption from registration under the
Securities Act and applicable state securities laws is
available in connection with such offer, sale or disposition.
Such securities are issued subject to the provisions of (i)
the Articles of Incorporation of WavePhore, Inc. (the
"Company"), as amended, (ii) a Securities Purchase Agreement,
dated July 24 1997, by and between the Company and the
purchasers named therein, and (iii) a Registration
-3-
<PAGE> 4
Rights Agreement, dated July 24, 1997, by and between the
Company and such purchasers."
Notwithstanding the foregoing, it is agreed that, as long as
the resale of the Conversion Shares, the Warrant Shares or the Issuable
Securities, as the case may be, is registered pursuant to an effective
registration statement or such shares are eligible for resale under Rule 144(k),
(A) the Conversion Shares shall be issued upon a conversion of the Preferred
Shares pursuant to the terms of the Articles of Amendment, or in payment of a
dividend thereon, (B) the Warrant Shares shall be issued upon an exercise of the
Warrant pursuant to the terms thereof, and (C) the Issuable Securities shall be
issued in accordance with the terms of the Articles of Amendment, in each such
case without any legend or other restrictive language. The legend set forth
above shall be removed and the Company shall issue a new certificate without
such legend to the holder of any Security upon which it is stamped if (i) the
sale of such Security is registered under the Securities Act, (ii) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions (the cost of which
shall be borne by such holder) to the effect that such Security can be sold
publicly without registration under the Securities Act, (iii) such holder
provides the Company with reasonable assurances that such Security can be sold
pursuant to Rule 144 without any restriction as to the number of shares of or
represented by such Security that can then be immediately resold or (iv) such
Security has been sold pursuant to Rule 144.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby makes the following representations and warranties
to each Purchaser and agrees with such Purchaser that, as of the date of this
Agreement and as of the Closing Date:
3.1 Organization, Good Standing and Qualification. Each of the Company
and its subsidiaries is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization and has
all requisite corporate power and authority to carry on its business as now
conducted. Each of the Company and its subsidiaries is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a material adverse effect on the consolidated
business or financial condition of the Company and its subsidiaries taken as a
whole. The term "subsidiaries" shall mean entities in which the Company has an
equity interest of 50% or greater.
3.2 Authorization; Consents. The Company has the requisite corporate
power and authority to enter into and perform its obligations under (i) this
Agreement, (ii) the Registration Rights Agreement and (iii) all other
agreements, documents, certificates or other instruments delivered by the
Company at the Closing (the instruments described in (i), (ii) and (iii) being
collectively referred to herein as the "Transaction Documents"), to execute and
perform its obligations under the Articles of Amendment, to execute and perform
its obligations under the Warrant, to issue and sell the Preferred Shares and
the Warrants to such Purchaser in accordance with the terms hereof, to issue the
Conversion Shares upon conversion of the Preferred Shares in accordance with the
Articles of Amendment, to issue the Warrant Shares upon exercise of the
-4-
<PAGE> 5
Warrants and to issue the Issuable Securities in accordance with the Articles of
Amendment. All corporate action on the part of the Company by its officers,
directors and shareholders necessary for (A) the authorization, execution and
delivery of, and the performance by the Company of its obligations under, the
Transaction Documents, (B) the authorization, execution and filing of, and the
performance by the Company of its obligations under, the Articles of Amendment,
and (C) the authorization and execution, and the performance by the Company of
its obligations under, the Warrant have been taken, and no further consent or
authorization of the Company, its Board of Directors, its shareholders, any
governmental agency or organization, or any other person or entity is required
(other than any consent of such shareholders that may be required pursuant to
Rule 4460 promulgated by the National Association of Securities Dealers, Inc.
(the "NASD") and, with respect to the Registration Rights Agreement, applicable
securities authorities).
3.3 Enforcement. The Transaction Documents, the Articles of Amendment
and the Warrant constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except as such
enforcement may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
enforcement of creditors' rights generally and (ii) general principles of
equity.
3.4 Disclosure Documents; Material Agreements; Other Information. The
Company has filed with the Commission: (i) the Company's Annual Report on Form
10-K for the year ended December 31, 1996, (ii) a Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997, (iii) all Current Reports on Form 8-K
required to be filed with the Commission since December 31, 1996 and (iv) the
Company's definitive Proxy Statement for its 1997 Annual Meeting of Shareholders
(collectively with the Memorandum, the "Disclosure Documents"). The Company is
not aware of any event occurring on or prior to the Closing (other than the
transactions effected hereby) that would require the filing of, or with respect
to which the Company intends to file, a Form 8-K after the Closing, other than
to amend its Form 8-K, filed with the Commission on June 12, 1997, to include
certain historical and pro forma financial information relating to the
acquisition described therein (the "Paracel Online Acquisition"). Each
Disclosure Document, as of the date of the filing thereof with the Commission,
conformed in all material respects to the requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder and, as of the date of such filing, such Disclosure
Document did not contain an untrue statement of 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. Except as described on Schedule 3.4 hereto, all material agreements
required to be filed as exhibits to the Disclosure Documents have been filed as
required; neither the Company nor any of its subsidiaries is in breach of any
agreement where such breach is reasonably likely to have a material adverse
effect on the consolidated business or financial condition of the Company and
its subsidiaries taken as a whole. The information provided to such Purchaser as
described in paragraph 2.3 above does not contain an untrue statement of
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. The Memorandum does not contain any
material, non-public information. Except as set forth in the Disclosure
Documents or any schedule or exhibit attached hereto, the Company has no
liabilities, contingent or otherwise,
-5-
<PAGE> 6
other than liabilities incurred in the ordinary course of business which, under
generally accepted accounting principles, are not required to be reflected in
such financial statements and which, individually or in the aggregate, are not
material to the consolidated business or financial condition of the Company and
its subsidiaries taken as a whole. As of their respective dates, the financial
statements of the Company included in the Disclosure Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied at the times and during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may exclude footnotes or may be condensed or summary statements)
and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end adjustments).
3.5 Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Preferred Stock and the
Warrants) exercisable for, or convertible into or exchangeable for any shares of
Common Stock and the number of shares initially to be reserved for issuance upon
conversion of the Preferred Shares and exercise of the Warrants in full is set
forth on Schedule 3.5 hereto. All of such outstanding shares of capital stock
have been, or upon issuance will be, validly issued, fully paid and
non-assessable. No shares of the capital stock of the Company are subject to
preemptive rights or any other similar rights of the shareholders of the Company
or any liens or encumbrances created by or through the Company. Except as
disclosed on Schedule 3.5, or as contemplated herein, as of the date of this
Agreement and as of the Closing, there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries.
3.6 Valid Issuance.
3.6.1 The Preferred Shares are duly authorized and, when
issued, sold and delivered in accordance with the terms hereof, (i) will be duly
and validly issued, fully paid and nonassessable, free and clear of any taxes,
liens, claims, preemptive or similar rights or encumbrances imposed by or
through the Company, (ii) based in part upon the representations of such
Purchaser in this Agreement, will be issued, sold and delivered in compliance
with all applicable Federal and state securities laws and (iii) will be entitled
to all of the rights, preferences and privileges set forth in the Articles of
Amendment. The Conversion Shares are duly authorized and reserved for issuance
and, upon conversion of the Preferred Shares in accordance with the terms of the
Articles of Amendment, will be duly and validly issued, fully paid and
nonassessable,
-6-
<PAGE> 7
free and clear of any taxes, liens, claims, preemptive or similar rights or
encumbrances imposed by or through the Company. The Issuable Securities are duly
authorized and will be, upon the issuance thereof, duly and validly issued,
fully paid and nonassessable, free and clear of any taxes, liens, claims,
preemptive or similar rights or encumbrances imposed by or through the Company.
3.6.2 The Warrant is duly authorized and, when issued, sold
and delivered in accordance with the terms hereof, (i) will be duly and validly
issued, fully paid and nonassessable, free and clear of any taxes, liens,
claims, preemptive or similar rights or encumbrances imposed by or through the
Company, and (ii) based in part upon the representations of such Purchaser in
this Agreement, will be issued, sold and delivered in compliance with all
applicable Federal and state securities laws. The Warrant Shares are duly
authorized and reserved for issuance and, upon exercise of the Warrant in
accordance with the terms thereof, will be duly and validly issued, fully paid
and nonassessable, free and clear of any taxes, liens, claims, preemptive or
similar rights or encumbrances imposed by or through the Company.
3.7 No Conflict with Other Instruments. Neither the Company
nor any of its subsidiaries is in violation of any provisions of its Certificate
of Incorporation, Bylaws or any other governing document as amended and in
effect on and as of the date hereof or in default (and no event has occurred
which, with notice or lapse of time or both, would constitute a default) under
any provision of any instrument or contract to which it is a party or by which
it is bound, or of any provision of any Federal or state judgment, writ, decree,
order, statute, rule or governmental regulation applicable to the Company, which
would have a material adverse effect on the consolidated business or financial
condition of the Company and its subsidiaries taken as a whole. The (i)
execution, delivery and performance of this Agreement, the Warrant and the other
Transaction Documents, (ii) execution and filing of the Articles of Amendment,
and (iii) consummation of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Preferred Shares and the
issuance and reservation for issuance of the Conversion Shares) will not result
in any such violation or be in conflict with or constitute, with or without the
passage of time and giving of notice, either a default under any such provision,
instrument or contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company or of any of its
subsidiaries or, except as disclosed in the Memorandum, the triggering of any
anti-dilution rights on the part of holders of the Company's securities.
3.8 Financial Condition; Taxes; Litigation.
3.8.1 The Company's financial condition is, in all material
respects, as described in the Disclosure Documents, except for changes resulting
from the Paracel Online Acquisition or in the ordinary course of business and
normal year-end adjustments that are not, in the aggregate, materially adverse
to the consolidated business or financial condition of the Company and its
subsidiaries taken as a whole. Except as otherwise described in the Disclosure
Documents or the Memorandum, as of the date hereof and as of the Closing there
has been no material adverse change to the Company's business, operations,
properties, financial condition, prospects or results of operations since the
date of the Company's most recent audited financial statements contained in the
Disclosure Documents.
-7-
<PAGE> 8
3.8.2 The Company has filed all tax returns required to be
filed by it and paid all taxes which are due, except for taxes which it
reasonably disputes or which could not reasonably be expected to have a material
adverse effect on the consolidated business or financial condition of the
Company and its subsidiaries taken as a whole.
3.8.3 Except as set forth in Schedule 3.8.3, each of the
Company and its subsidiaries is not the subject of any pending or, to the
Company's knowledge, threatened investigation or administrative or legal
proceeding by the Internal Revenue Service, the taxing authorities of any state
or local jurisdiction, the Commission or any state securities commission or
other governmental entity which could reasonably be expected to have a material
adverse effect on the consolidated business or financial condition of the
Company and its subsidiaries taken as a whole.
3.8.4 Except as set forth in Schedule 3.8.4, there is no
material claim, litigation or administrative proceeding pending, or, to the
Company's knowledge, threatened, against the Company or any of its subsidiaries,
or against any officer, director or employee of the Company or any such
subsidiary in connection with such person's employment therewith. Neither the
Company nor any of its subsidiaries is a party to or subject to the provisions
of, any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality which could reasonably be expected to have a material
adverse effect on the consolidated business or financial condition of the
Company and its subsidiaries taken as a whole.
3.9 Reporting Company; Form S-3. The Company is subject to the
reporting requirements of the Exchange Act, has a class of securities registered
under Section 12 of the Exchange Act, and has filed all reports required
thereby. The Company is eligible to register for resale shares of its Common
Stock on a registration statement on Form S-3 under the Securities Act.
3.10 Acknowledgement of Dilution. The Company acknowledges that the
issuance of (i) the Conversion Shares upon conversion of the Preferred Shares in
accordance with the terms of the Articles of Amendment, (ii) the Warrant Shares
upon exercise of the Warrants, and (iii) the Issuable Securities in accordance
with the terms of the Articles of Amendment may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligation
(x) to issue Conversion Shares upon conversion of the Preferred Shares in
accordance with the terms of the Articles of Amendment, (y) to issue Warrant
Shares upon exercise of the Warrant and (z) to issue Issuable Securities in
accordance with the terms of the Articles of Amendment is unconditional and
absolute regardless of the effect of any such dilution.
3.11 Intellectual Property. The Company and its subsidiaries own,
possess or can acquire on reasonable terms adequate trademarks, trade names and
other rights to inventions, know-how, patents, copyrights, confidential
information and other intellectual property rights necessary to conduct the
business now operated by them, or presently employed by them, and have not
received any notice of infringement of or conflict with asserted rights of
others with respect to any such
-8-
<PAGE> 9
rights that, if determined adversely to the Company or any of its subsidiaries,
would individually or in the aggregate have a material adverse effect on the
consolidated business or financial condition of the Company and its subsidiaries
taken as a whole.
3.12 Registration Rights; Rights of Participation. Except as described
on Schedule 3.12 hereto, (A) the Company has not granted or agreed to grant to
any person or entity 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 and (B) no person or entity,
including, but not limited to, current or former shareholders of the Company,
underwriters, brokers, agents or other third parties, has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by this Agreement or any other
Transaction Document which has not been waived.
3.13 Trading on Nasdaq. The Common Stock is authorized for quotation on
the Nasdaq National Market, and trading in the Common Stock on Nasdaq has not
been suspended. The Company is not in violation of any designation criteria of
the Nasdaq National Market, except for any violation that may occur as a result
of the possible integration of shares of Common Stock that may be issued in
connection with the Paracel Online Acquisition, and does not reasonably
anticipate that the Common Stock will lose its designation as a National Market
Security.
3.14 Solicitation. Neither the Company nor any of its subsidiaries or
affiliates, nor any person acting on its or their behalf, (i) has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with the offer or sale of the Preferred Shares or
the Warrants or (ii) has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under any
circumstances that would require registration of the Preferred Shares or the
Warrants under the Securities Act.
3.15 Fees. The Company is not obligated to pay any compensation or
other fee, cost or related expenditure to any underwriter, broker, agent or
other representative in connection with the transactions contemplated hereby,
other than the fee owed by the Company to Southcoast Capital Corporation.
3.16 Foreign Corrupt Practices. To the knowledge of the Company,
neither the Company, nor any of its subsidiaries nor any director, officer,
agent, employee or other person acting on behalf of the Company or any
subsidiary, has (i) used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political activity,
(ii) made any direct or indirect unlawful payment to any foreign or domestic
government official or employee, (iii) violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
3.17 Other Issuances of Securities. The Company has not issued (and
will not issue) any shares of Common Stock or shares of any series of preferred
stock or other securities or instruments convertible into, exchangeable for or
otherwise entitling the holder thereof to acquire shares of
-9-
<PAGE> 10
Common Stock which would be subject to NASD Rule 4460 (or any successor rule)
and which would be integrated with the sale of the Preferred Shares to such
Purchaser, or the issuance of the Conversion Shares upon conversion thereof, for
purposes of determining whether shareholder approval is required under such
Rule, except for the possible integration of shares of Common Stock that may be
issued in connection with the Paracel Online Acquisition.
3.18 Environmental Matters. Except as set forth in the Disclosure
Documents or on Schedule 3.18 hereof:
3.18.1 During the period that the Company or any of its
subsidiaries has leased or owned its properties or owned or operated any
facilities, there have been no material disposals, releases or threatened
releases of Hazardous Materials (as defined below) on, from or under such
properties or facilities in violation of applicable law. The Company has no
knowledge of any material disposals, releases or threatened releases of
Hazardous Materials on, from or under any of such properties or facilities,
which may have occurred prior to the Company or any such subsidiary having taken
possession of any of such properties or facilities in violation of applicable
law. For purposes of this Agreement, the terms "disposal," "release" and
"threatened release" shall have the definitions assigned thereto by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Section 9601 et seq., as amended ("CERCLA"). For the purposes of this
Section "Hazardous Materials" shall mean any hazardous or toxic substance,
material or waste which is or becomes prior to the Closing regulated under, or
defined as a "hazardous substance," "pollutant," "contaminant," "toxic
chemical," "hazardous material," "toxic substance," or "hazardous chemical"
under (1) CERCLA; (2) the Emergency Planning and Community Right-to-Know Act, 42
U.S.C. Section 11001 et seq.; (3) the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq.; (4) the Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq.; (5) the Occupational Safety and Health Act of 1970, 29
U.S.C. Section 651 et seq.; (6) regulations promulgated under any of the above
statutes; or (7) any applicable state or local statute, ordinance, rule or
regulation that has a scope or purpose similar to those statutes identified
above.
3.18.2 The Company or any of its subsidiaries has not received
any notice of, nor, to the Company's knowledge, are any of the Company's or any
such subsidiary's properties or facilities in violation of any federal, state or
local law, ordinance, regulation or order relating to industrial hygiene or to
the environmental conditions on, under or about such ground water condition.
During the time that the Company or any of its subsidiaries has owned or leased
its properties and facilities, neither the Company or any such subsidiaries nor,
to the Company's knowledge, any third party, has used, generated, manufactured
or stored on, under or about such properties or facilities or transported to or
from such properties or facilities any Hazardous Materials in violation of
applicable law.
3.18.3 During the time that the Company or any of its
subsidiaries has owned or leased its properties and facilities, there has been
no litigation brought or, to the Company's knowledge, threatened against the
Company or any such subsidiary, or any settlement reached by the Company or any
such subsidiary with, any party or parties alleging the presence, disposal,
-10-
<PAGE> 11
release or threatened release of any Hazardous Materials on, from or under any
of such properties or facilities, in violation of applicable law.
3.18.4 During the period that the Company or any of its
subsidiaries has owned or leased its properties and facilities, no Hazardous
Materials have been transported from such properties or facilities to any site
or facility now listed or proposed for listing on the National Priorities List,
at 40 C.F.R. Part 300, or any list with a similar scope or purpose published by
any state authority.
3.19 Title. Except as set forth in Schedule 3.19, the Company and its
subsidiaries have good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned by them which is
material to the business of the Company and its subsidiaries, in each case free
and clear of all liens, encumbrances and defects, except for liens, claims or
encumbrances 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.
3.20 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, and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
4. COVENANTS OF THE COMPANY.
4.1 Corporate Existence. The Company shall, so long as any Purchaser or
any affiliate of such Purchaser beneficially owns any Securities (but in no
event longer than five (5) years from the Closing Date), maintain its corporate
existence in good standing and shall pay all taxes owed by it when due except
for taxes which the Company reasonably disputes or as to which the failure to
pay could not reasonably be expected to have a material adverse effect on the
consolidated business or financial condition of the Company.
4.2 Provision of Information. The Company shall provide each Purchaser
with copies of its annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and proxy statements and other materials sent to
shareholders, in each such case promptly after the filing thereof with the
Commission, until the conversion or redemption of all of the Preferred Shares
and exercise of all of the Warrants held by such Purchaser.
4.3 Form D; Blue-Sky Qualification. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Purchaser promptly after such filing. The Company shall, on
or before the Closing, take such action as is
-11-
<PAGE> 12
necessary to qualify the Preferred Shares and the Warrants for sale under
applicable state or "blue-sky" laws or obtain an exemption therefrom, and shall
provide evidence of any such action to each Purchaser at or prior to the
Closing.
4.4 Reporting Status. As long as any Purchaser or any affiliate of such
Purchaser beneficially owns any Securities and until the date on which any of
the foregoing may be sold to the public pursuant to Rule 144(k) (or any
successor rule or regulation), (i) the Company shall timely file with the
Commission all reports required to be so filed pursuant to the Exchange Act and
(ii) the Company shall not terminate its status as an issuer required by the
Exchange Act to file reports thereunder even if the Exchange Act or the rules or
regulations thereunder would permit such termination (other than a termination
resulting from the sale, conveyance or disposition of all or substantially all
of the assets of the Company, the effectuation of a transaction or series of
transactions, in which more than 50% of the voting power of the Company is
disposed of, or the consolidation, merger or other business combination of the
Company with or into any other entity, immediately following which the prior
shareholders of the Company fail to own, directly or indirectly, at least fifty
percent (50%) of the surviving entity). The Company agrees to file with the
Commission: (A) an amendment to its Form 8-K, which was filed with the
Commission on June 12, 1997 in connection with the Paracel Online Acquisition,
on or before the date required by the Exchange Act and (B) a Form 8-K describing
the terms of the transactions contemplated by this Agreement and the other
Transaction Documents, on or before the tenth (10th) day following the Closing
Date, in each case in the form required by the Exchange Act.
4.5 Shareholder Approval. The Company agrees to use all commercially
reasonable efforts to obtain, at the next annual or special meeting of its
shareholders which takes place subsequent to the Closing Date, or on such
earlier date as may be required by the NASD in order to maintain the Company's
designation as a Nasdaq National Market issuer, shareholder approval of the
transactions contemplated by this Agreement and the other Transaction Documents,
including without limitation the issuance and sale of the Preferred Shares and
the reservation for issuance and the issuance of the Conversion Shares upon
conversion of the Preferred Shares in accordance with the terms of the Articles
of Amendment. The Company further agrees that it will hold such annual meeting
of shareholders no later than June 30, 1998. If at any time prior to June 30,
1998, the number of shares of Common Stock issued upon conversion of the
Preferred Shares equals or exceeds 15% of the outstanding shares of Common Stock
on the Closing Date, the Company shall immediately notify the holders of
Preferred Shares of such occurrence and shall take action as promptly as
practicable thereafter (including, if necessary, seeking approval of its
shareholders to authorize the issuance of the full number of shares of Common
Stock which would be issuable upon the conversion of the Preferred Shares) to
eliminate any prohibitions under applicable law or the rules or regulations of
any stock exchange, interdealer quotation system (including, without limitation,
NASD Rule 4460(i)) or other self-regulatory organization with jurisdiction over
the Company or any of its securities or the Company's ability to issue shares of
Common Stock.
4.6 Reservation of Common Stock. The Company shall at all times have
authorized and reserved for issuance, free from any preemptive rights, solely
for the purpose of effecting conversions of the Preferred Shares hereunder and
the exercise of the Warrants, such number of
-12-
<PAGE> 13
its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all of the Preferred Shares and the exercise of the Warrants
in full (the "Reserved Amount"). As of the Closing Date, the Reserved Amount
shall be equal to no less than 175% of the number of shares of Common Stock
issuable upon conversion of all of the Preferred Shares to be issued at the
Closing and exercise of the Warrants in full. If at any time the Reserved Amount
is less than 125% of the number of shares of Common Stock issuable upon
conversion of all of the Preferred Shares then outstanding and exercise of the
Warrants in full, the Company shall take action as soon as practicable
thereafter (including seeking shareholder authorization for additional shares of
Common Stock) to increase the Reserved Amount to no less than 175% of the number
of shares of Common Stock into which such outstanding Preferred Shares are then
convertible and such Warrants are exercisable. The Company shall not reduce the
number of shares reserved for issuance hereunder without the written consent of
the holders of two-thirds of the Preferred Shares then outstanding.
4.7 Use of Proceeds. The Company shall use the proceeds from the sale
of the Preferred Shares and the Warrants as set forth in the Memorandum.
4.8 Quotation on Nasdaq. The Company shall (i) promptly following the
Closing, secure the designation and quotation of the Conversion Shares and the
Warrant Shares on the Nasdaq National Market, (ii) prior to the issuance
thereof, secure the designation and quotation of the Issuable Securities and
(iii) use its best efforts to maintain the designation and quotation, or
listing, of the Common Stock on the Nasdaq National Market or the New York Stock
Exchange or other national securities exchange.
4.9 Use of Purchaser Name. The Company shall not use, directly or
indirectly, any Purchaser's name in any advertisement, announcement, press
release or other similar communication unless it has received the prior written
consent of such Purchaser for the specific use contemplated or as otherwise
required by applicable law or regulation.
4.10 Right of First Offer. The Company agrees that it will not, during
the period beginning on the Closing Date and ending on the 365th day thereafter,
issue or agree to issue any equity securities of the Company (or securities
convertible into or exercisable or exchangeable, directly or indirectly, for
equity securities of the Company) in a non-public transaction unless it shall
have first delivered to each original Purchaser at least (5) business days prior
to the closing of such issuance written notice describing the proposed issuance,
including the terms and conditions thereof, and providing such Purchaser with an
option during the five (5) business day period following delivery of such notice
to purchase up to its proportionate share (based on the number of Preferred
Shares purchased by such Purchaser hereunder relative to the number of Preferred
Shares purchased by the other Purchasers hereunder) of the securities being
offered on the same terms as contemplated by such issuance (a "Right of First
Offer"). A Right of First Offer shall not apply to (i) any transaction involving
issuances of securities as consideration for a merger, consolidation,
acquisition or sale of assets, or in connection with any strategic partnership
or joint venture which is formed for a bona fide commercial purpose, (ii) the
issuance or exercise of options, warrants or other convertible securities to or
by employees, consultants or directors of the Company, or (iii) the exercise of
any outstanding warrants, options or convertible securities.
-13-
<PAGE> 14
4.11 Company's Instructions to Transfer Agent. On or prior to the
Closing, the Company shall execute and deliver irrevocable instructions to its
transfer agent (the "Transfer Agent") (i) to issue certificates representing
Conversion Shares upon conversion of the Preferred Shares in accordance with the
terms of the Articles of Amendment and receipt of a valid Conversion Notice (as
defined in the Articles of Amendment) from a Purchaser, in the amount specified
in such Conversion Notice in the name of such Purchaser or its nominee, (ii) to
issue certificates representing Warrant Shares upon exercise of the Warrant in
accordance with the its terms upon receipt of a valid Exercise Notice (as
defined in the Warrant) from a Purchaser, in the amount specified in such
Exercise Notice in the name of such Purchaser or its nominee, (iii) to issue
certificates representing the Issuable Securities upon the issuance thereof in
accordance with the Articles of Amendment and (iv) to deliver such certificates
to such Purchaser no later than the close of business on the later to occur of
(A) the third (3rd) business day following the related Conversion Date (as
defined in the Articles of Amendment) or the Exercise Date (as defined in the
Warrant), as the case may be, (B) the first business day following delivery of
the original certificates, duly endorsed, representing the Series C Preferred
Shares being converted or the Warrant being exercised, as the case may be, if
such delivery is effected at or prior to 2:00 p.m., Arizona time, and (C) the
second business day following delivery of such original certificates or Warrant
if such delivery is effected after 2:00 p.m., Arizona time. Delivery of
certificates representing Issuable Securities shall be made in the manner and at
the times specified in the Articles of Amendment. As long as purchases and sales
of shares of Common Stock are eligible for settlement at the Depository Trust
Company ("DTC"), the Company shall instruct the transfer agent that, in lieu of
delivering physical certificates to a Purchaser upon conversion of the Preferred
Shares, exercise of the Warrant, or issuance of the Issuable Securities, the
transfer agent may effect delivery of Conversion Shares or Warrant Shares, as
the case may be, by crediting the account of such Purchaser or its nominee at
DTC for the number of shares for which delivery is required hereunder within the
time frame specified above for delivery of certificates. The Company represents
to and agrees with each Purchaser that it will not give any instruction to the
Transfer Agent that will conflict with the foregoing instruction or otherwise
restrict such Purchaser's right to convert the Preferred Shares or exercise the
Warrant or to receive Conversion Shares or Issuable Securities in accordance
with the terms of the Articles of Amendment or to receive Warrant Shares in
accordance with the terms of the Warrant. In the event that the Company's
relationship with the Transfer Agent should be terminated for any reason, the
Transfer Agent shall continue acting as transfer agent pursuant to the terms
hereof until such time that a successor transfer agent is appointed by the
Company and agrees to be bound by the terms hereof.
4.12 Debt Covenant. The Company shall refrain, during the twelve month
period following the Closing Date, from incurring, assuming or guaranteeing any
indebtedness in excess of ten million dollars ($10,000,000), individually or in
the aggregate, without the prior written consent of the holders of two-thirds
(2/3) of the Preferred Shares then outstanding.
4.13 Environmental Covenant. In connection with any acquisition by the
Company or any of its subsidiaries of the assets or stock of any entity whereby
the Company or such subsidiary acquires an ownership interest in the properties
or facilities of such entity, the Company will, prior to the closing of any such
acquisition, perform such tests as are mandated by applicable law or
-14-
<PAGE> 15
necessary to determine whether, and hereby represents that, upon the
effectiveness of such acquisition, the Company or such subsidiary will be in
compliance with the representations made in subparagraphs 3.18.1 - 3.18.4 above.
4.14 Capital Raising Limitations. The Company will not, during the six
(6) month period following the effective date of the registration statement
required to be filed by the Company pursuant to the Registration Rights
Agreement, issue any (a) security which is convertible into, or exercisable or
exchangeable for, a variable number of shares of Common Stock which is based on
the market price of the Common Stock or (b) Common Stock (or any security
convertible into, or exercisable or exchangeable for, Common Stock) at an
effective price per share of Common Stock (after giving effect to the purchase
price paid for the security and, if applicable, the additional purchase price to
be paid upon the exercise, conversion or exchange of such security) which is
less than ninety percent (90%) of the closing price of the Common Stock on the
Trading Day immediately preceding the issuance of such Common Stock (the
limitations referred to in this sentence are collectively referred to as the
"Capital Raising Limitations"). The Capital Raising Limitations shall not apply
to any transaction involving issuances of securities as consideration in a
merger, consolidation, acquisition or sale of assets (in each case, the primary
purpose of which is not to raise equity capital) or pursuant to a strategic
partnership or joint venture which is formed for a bona fide commercial purpose,
or as consideration for the acquisition of a business, product or license by the
Company or in connection with the exercise of options by employees, directors or
consultants. The Capital Raising Limitations also shall not apply to (i) the
issuance of Common Stock in a transaction referred to in clause (b) above
pursuant to a public offering (other than an offering conducted pursuant to Rule
415 under the Securities Act), (ii) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof, or (iii) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option or restricted stock plan for the benefit of the Company's employees,
directors or consultants.
5. COVENANTS OF EACH PURCHASER. Each Purchaser hereby covenants and agrees with
the Company that:
5.1 Short Sales. Except as otherwise provided herein, such Purchaser
will not maintain at the time of Closing, nor will it create or maintain at any
time following the Closing until the earlier to occur of (a) the date which is
five (5) years from the Closing Date and (b) the first date on which such
Purchaser no longer owns any Securities, a "short position" in the Common Stock;
provided, however, that any Purchaser which, immediately prior to the Closing,
holds (A) shares of the Company's Series A or Series B Preferred Stock, (B)
warrants to purchase shares of the Common Stock or (C) Common Stock issued
pursuant to conversion of such Series A or Series B Preferred Stock or exercise
of such warrants (the "Existing Securities") may create or maintain a short
position in the Common Stock up to the number of shares of Common Stock
represented by such Purchaser's Existing Securities (assuming the full
conversion or exercise of any such Existing Securities that are convertible or
exercisable into Common Stock); provided further, that any such Purchaser will
not create any short position with respect to shares of Common Stock represented
by such Existing Securities on or after the date of this Agreement and prior to
the date that is 180
-15-
<PAGE> 16
days from the date of this Agreement unless such position is created at a price
for the Common Stock of at least $11.00 per share. For purposes hereof, a "short
position" shall be deemed to have been maintained or created by a Purchaser if
such Purchaser (i) enters into a "short sale" (as such term is defined in Rule
3b-3 under the Exchange Act), (ii) purchases a put option to sell shares of
Common Stock or (iii) enters into a derivative or other similar transaction
whereby the Purchaser will be compensated in the event of a decline in the price
of the Common Stock; provided, however, that such term shall not include any
short sales effected as a result of the Company's failure to deliver Conversion
Shares, Issuable Securities or Warrant Shares, as the case may be, in accordance
with the terms of the Articles of Amendment or Warrant, respectively.
5.2 Selling Restrictions. Such Purchaser will not sell more than the
Maximum Amount (as defined below) of Conversion Shares, Warrant Shares or
Issuable Securities on any business day occurring during the period beginning on
the Closing Date and ending on the earlier to occur of (a) the date which is
five (5) years from the Closing Date and (b) the first date on which such
Purchaser no longer owns any Securities. The "Maximum Amount" shall mean the
greater of (i) 30,000 shares, (ii) 15% of the average daily trading volume of
the Common Stock over the five (5) Trading Days immediately preceding (but not
including) such business day or (iii) 15% of the trading volume of the Common
Stock on such business day. For purposes hereof, "trading volume" shall include
all trades reported to the National Association of Securities Dealers, Inc. or
otherwise to a "consolidated system" as that term is defined in the Exchange Act
and "Trading Day" shall mean any day on which the Common Stock is traded for any
period on the Nasdaq National Market or on the principal securities exchange or
market on which the Common Stock is then traded. The (A) sale or exchange of
shares of Common Stock by a Purchaser to a person or entity which has commenced
a bona fide tender or exchange offer for the Common Stock, as long as such
person or entity is not affiliated with, or acting in concert with or at the
direction of, such Purchaser or (B) exchange of such shares in connection with a
merger or similar transaction, shall not be deemed to be a sale subject to the
restrictions contained in this paragraph 5.2 as long as such sale or exchange is
made pursuant to the terms of such tender offer, exchange offer, merger or
transaction.
5.3 Exceptions for Optional or Mandatory Redemption. In the event that,
pursuant to the terms of the Articles of Amendment, the Company has the right to
effect an Optional Redemption (as defined in the Articles of Amendment) of the
Preferred Shares, each Purchaser may create, solely during the period in which
the Company has such right, and thereafter may maintain a short position with
respect to, up to the number of shares of Common Stock that is issuable upon
conversion of the maximum number of Preferred Shares held by such Purchaser that
are potentially subject to such Optional Redemption, without regard to the
limitations described in paragraph 5.1; provided, however, that a Purchaser may
not create a short position hereunder to the extent that such short position,
when added to any short position that may then be maintained by such Purchaser
pursuant to this paragraph 5.3, exceeds such number of shares of Common Stock.
If the Company delivers an Optional Redemption Notice (as defined in the
Articles of Amendment) in accordance with the terms of the Articles of
Amendment, each Purchaser may sell up to the number of shares of Common Stock
that is issuable upon conversion of the number of Preferred Shares held by such
Purchaser and subject to such Optional Redemption Notice without regard to the
limitations described in paragraph 5.2 above. At any time that, (A) pursuant to
the terms of the Articles of
-16-
<PAGE> 17
Amendment, the Purchasers are entitled to exercise their right to effect a
Mandatory Redemption (as defined in the Articles of Amendment) or (B) the Common
Stock ceases to be quoted on the Nasdaq National Market and, immediately
thereafter, the Common Stock is not listed on either the New York Stock Exchange
or the American Stock Exchange, the restrictions contained in this Section 5
shall not apply to the shares of Common Stock issued or issuable with respect to
the Preferred Shares.
5.4 Purchaser Defined. For purposes of this Section 5, the term
"Purchaser" shall include any affiliate or any person acting at the direction of
or in concert with such Purchaser. Notwithstanding the foregoing, the
limitations described in this Section 5 shall not apply to sales made or short
positions maintained by a registered broker-dealer that is affiliated with a
Purchaser (or by an affiliate of such broker-dealer), which sales result from
(x) bona fide customer orders or (y) proprietary trading effected by trading
desk personnel of such broker-dealer (or such affiliate) who are not acting at
the direction of or in concert with such Purchaser.
6. CONDITIONS TO CLOSING.
6.1 Conditions to Purchaser's Obligations at Closing. Each Purchaser's
obligations at the Closing, including without limitation its obligation to
purchase the Preferred Shares and the Warrant, are conditioned upon the
fulfillment of each of the following events:
6.1.1 the representations and warranties of the Company set
forth in this Agreement shall be true and correct in
all material respects as of the Closing Date as if
made on such date;
6.1.2 the Company shall have complied with or performed all
of the agreements, obligations and conditions set
forth in this Agreement that are required to be
complied with or performed by the Company on or
before the Closing;
6.1.3 the other Purchasers shall have purchased at the
Closing the aggregate number of Preferred Shares and
Warrants such that, when added to the Preferred
Shares and Warrant to be purchased by such Purchaser
hereunder, the Aggregate Purchase Price therefor
shall be equal to at least nineteen million, two
hundred thousand dollars ($19,200,000); provided,
that, if a Purchaser fails to Purchase all or any
portion of the Preferred Shares and Warrant to be
purchased by it hereunder, the other Purchasers shall
have the option, but not the obligation, to purchase
such Preferred Shares and Warrant on a pro rata
basis;
6.1.4 the Company shall have delivered to such Purchaser a
certificate, signed by an officer of the Company,
certifying that the conditions specified in
paragraphs 6.1.1 and 6.1.2 above have been fulfilled
as of the Closing;
-17-
<PAGE> 18
6.1.5 the Company shall have filed the Articles of
Amendment with the Secretary of State of the State of
Indiana and shall have furnished such Purchaser with
a file-stamped copy thereof;
6.1.6 each of the executive officers of the Company who own
shares of Common Stock shall have executed and
delivered the letter agreement attached hereto as
Exhibit 6.1.6 regarding such person's agreement to
vote the shares of Common Stock held by such person
in favor of the approval of shareholders described in
subparagraph 4.5 above;
6.1.7 the Company shall have delivered to such Purchaser an
opinion of counsel for the Company, dated as of the
Closing Date, in form and substance reasonably
acceptable to the parties;
6.1.8 the Company shall have executed and delivered the
Registration Rights Agreement;
6.1.9 the Common Stock shall be designated for quotation
and actively traded on the Nasdaq National Market;
6.1.10 there shall have been no material adverse changes in
the Company's consolidated business or financial
condition since the date of the Company's most recent
audited financial statements contained in the
Disclosure Documents; and
6.1.11 the Company shall have authorized and reserved for
issuance 175% of the aggregate number of shares of
Common Stock issuable upon (i) conversion of all of
the Preferred Shares to be issued at the Closing and
(ii) exercise of the Warrants in full.
6.2 Conditions to Company's Obligations at Closing. The Company's
obligations at the Closing are conditioned upon the fulfillment of each of the
following events:
6.2.1 the representations and warranties of each Purchaser
shall be true and correct in all material respects as
of the Closing Date as if made on such date; and
6.2.2 each Purchaser shall have complied with or performed
all of the agreements, obligations and conditions set
forth in this Agreement that are required to be
complied with or performed by such Purchaser on or
before the Closing.
7. INDEMNIFICATION.
The Company agrees to indemnify and hold harmless each Purchaser and
its officers, directors, employees and agents, and each person who controls such
Purchaser within the meaning
-18-
<PAGE> 19
of the Securities Act or the Exchange Act (each, a "Purchaser Indemnified
Party") against any losses, claims, damages, liabilities or reasonable
out-of-pocket expenses (including the reasonable fees and disbursements of
counsel) as incurred, joint or several, to which it, they or any of them, may
become subject and not otherwise reimbursed, arising out of or in connection
with the breach by the Company of any of its representations, warranties or
covenants made herein.
Each Purchaser agrees, severally and not jointly, to indemnify and hold
harmless the Company and its officers, directors, employees and agents, and each
person who controls the Company within the meaning of the Securities Act or the
Exchange Act (each, a "Company Indemnified Party") (a Purchaser Indemnified
Party and a Company Indemnified Party are each hereinafter referred to as an
"Indemnified Party") against any losses, claims, damages, liabilities or
expenses (including the fees and disbursements of counsel) as incurred, joint or
several, to which it, they or any of them, may become subject and not otherwise
reimbursed, arising out of or in connection with the breach by such Purchaser of
any of its representations, warranties or covenants made herein.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action by a third party pursuant to which indemnification
may be sought hereunder, such Indemnified Party will, if a claim in respect
thereof is to be made against the other party (the "Indemnifying Party"),
deliver to the Indemnifying Party a written notice of the commencement thereof
and the Indemnifying Party shall have the right to participate in and to assume
the defense thereof with counsel reasonably selected by the Indemnifying Party,
provided, however, that an Indemnified Party shall have the right to retain its
own counsel, with the reasonably incurred fees and expenses of such counsel to
be paid by the Indemnifying Party, if representation of such Indemnified Party
by the counsel retained by the Indemnifying Party would be inappropriate due to
actual or potential conflicts of interest under applicable standards of
professional conduct between such Indemnified Party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the Indemnifying Party within a reasonable time of the commencement of
any such action will not relieve the Indemnifying Party of any of its
obligations hereunder with respect to such action except to the extent such
failure is prejudicial to the Indemnifying Party's ability to defend any such
action.
No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of pending or threatened action in
respect of which an Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on any claims that are the subject matter of such action. An
Indemnifying Party will not be liable for any settlement of any action or claim
effected without its written consent.
Nothing contained herein shall be deemed to entitle any party to
punitive damages.
-19-
<PAGE> 20
8. MISCELLANEOUS.
8.1 Survival; Severability. The representations, warranties,
covenants and indemnities made by the parties herein shall survive the Closing
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that in such case the parties shall negotiate
in good faith to replace such provision with a new provision which is not
illegal, unenforceable or void, as long as such new provision does not
materially change the economic benefits of this Agreement to the parties.
8.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. The Purchaser may assign its
rights hereunder, in connection with any private sale or transfer of the
Preferred Shares or the Warrant in accordance with the terms hereof, as long as,
as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Agreement, in which case the term "Purchaser" shall be deemed to refer to such
transferee as though such transferee were an original signatory hereto;
provided, however, that in no event shall a Purchaser have the right to assign
its rights under paragraph 4.10 hereof.
8.3 Independent Nature of Purchasers' Obligations and Rights.
The obligations of each Purchaser hereunder are several and not joint with the
obligations of the other Purchasers hereunder, and no 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 the 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
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 any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
8.4 No Reliance; Representations by Purchasers. Each party
acknowledges that (i) it has such knowledge in business and financial matters as
to be fully capable of evaluating this Agreement, the other Transaction
Documents and the transactions contemplated hereby and thereby, (ii) it is not
relying on any advice or representation of the other party in connection with
entering into this Agreement, the other Transaction Documents or such
transactions (other than the representations made in this Agreement or the other
Transaction Documents), (iii) it has not received from such party any assurance
or guarantee as to the merits (whether legal, regulatory, tax, financial or
otherwise) of entering into this Agreement or the other Transaction Documents or
-20-
<PAGE> 21
the performance of its obligations hereunder and thereunder, and (iv) it has
consulted with its own legal, regulatory, tax, business, investment, financial
and accounting advisors to the extent that it has deemed necessary, and has
entered into this Agreement and the other Transaction Documents based on its own
independent judgment and on the advice of its advisors as it has deemed
necessary, and not on any view (whether written or oral) expressed by such
party. Each Purchaser acknowledges that it can bear the economic risk of the
purchase of the Preferred Shares and related Warrant, including the total loss
of such Purchaser's investment. Each Purchaser represents and warrants that the
information provided to the Company by such Purchaser in a Confidential
Purchaser Questionnaire is accurate and complete as of the Closing Date.
8.5 Injunctive Relief. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to each Purchaser
and that the remedy or remedies at law for any such breach will be inadequate
and agrees, in the event of any such breach, in addition to all other available
remedies, to an injunction restraining any breach and requiring immediate and
specific performance of such obligations without the necessity of showing
economic loss.
8.6 Governing Law; Jurisdiction. This Agreement shall be
governed by and construed under the laws of the State of New York without regard
to the conflict of laws provisions thereof. Each party hereby irrevocably
submits to the non-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 brought in an inconvenient forum or that the venue of 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.
8.7 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
8.8 Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
8.9 Notices. Any notice, demand or request required or
permitted to be given by any party to any other party pursuant to the terms of
this Agreement shall be in writing and shall be deemed given (i) when delivered
personally or by verifiable facsimile transmission (with an original to follow)
on or before 5:00 p.m., eastern time, on a business day or, if such day is not a
business day, on the next succeeding business day, (ii) on the next business day
after timely
-21-
<PAGE> 22
delivery to an overnight courier and (iii) on the third business day after
deposit in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed to the parties as follows:
If to the Company:
WavePhore, Inc.
3311 N. 44th Street
Phoenix, Arizona 85018
Attn: David E. Deeds (with a copy to the General Counsel)
Fax: 602-952-5517
and if to any Purchaser, to such address for such Purchaser as shall appear on
the signature page hereof executed by such Purchaser, or as shall be designated
by such Purchaser in writing to the Company.
8.10 Expenses. Except as otherwise specified herein, the
Company and each Purchaser shall pay all costs and expenses that it incurs in
connection with the negotiation, execution, delivery and performance of this
Agreement; provided that the Company shall reimburse the Purchasers for their
reasonable out-of-pocket expenses, including legal expenses, not to exceed
fifty-five thousand dollars ($55,000), in the aggregate, at Closing.
8.11 Entire Agreement; Amendments. This Agreement and the
other Transaction Documents constitute the entire agreement between the parties
with regard to the subject matter hereof and thereof, superseding all prior
agreements or understandings, whether written or oral, between or among the
parties. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended except pursuant to a written instrument executed by
the Company and the holders of at least two-thirds (2/3) of the Preferred Shares
then outstanding, and no provision hereof may be waived other than by a written
instrument signed by the party against whom enforcement of any such waiver is
sought; provided, however, that no amendment or modification to paragraph 5.1 or
5.2 hereof may be made except pursuant to a written instrument executed by the
Company and each of the holders of Preferred Shares then outstanding. No such
amendment shall be effective to the extent that, by its terms, it applies to
less than all of the holders of Preferred Shares then outstanding.
-22-
<PAGE> 23
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first-above written.
WAVEPHORE, INC.
By:
__________________________
Name: Glenn Williamson
Title: EVP & COO
PURCHASER NAME: ______________________________
By: _________________________
Name:
Title:
ADDRESS:
_______________________________
_______________________________
Tel: ___________________________
Fax: ___________________________
Number of Shares of Series C Preferred Stock to be Purchased: _______________
Number of Shares of Common Stock to be
Represented by the Warrant to be Purchased: _______________
-23-
